Anne Mayhew asked why I thought the Philadelphian in the 
quote about Ricardo was wrong. 
     I guess I have to amend that statement. 
     First, it depends on WHEN the statement may have been made. 
     The nature of banks, and bank notes, changed substantially 
in the period between the mid-1780s, when the first Philadelphia 
banks were in full operation, and Ricardo's death in 1823.  The 
late 18th century banks functioned mainly as financial intermediaries 
between fairly wealthy individuals and merchants in need of 
short loans.  The 3-month or 6-month note was common in the 
Philadelphia merchant community by the mid-1700s; the primary 
function of the Bank of North America and the Bank of Pennsylvania 
appeared to have been to institutionalize and broaden (and hence 
lower costs of risk) this process.   
     It is something I am aware of because I was VERY disappointed 
to discover that bank notes played zippo role in Pennsylvania 
as a circulating currency that could replace the issues from the 
state-run "land bank", which was called "Pennsylvania currency" and 
circulated widely in the mid-Atlantic and backcountry from the 
1720s through the 1790s.  I had rather hoped to find that one 
replaced the other, and the complete absence of bank notes in the 
account books of Philadelphians torpedoed what I had thought might 
be a promising explanation for the relative ease with which the 
money clause in the Constitution was accepted.  (I'm still trying to 
figure it out, BTW; my best guess right now is that the proponents 
of state paper currency, a VERY hot political issue at the time, 
must not have fully understood what that clause meant, but since 
it is a SEPARATE hypothesis of mine that they generally DID know 
what these things meant, I am experiencing some cognitive dissonance. 
Phooey.) 
 
     So -- Had the statement been made between 1785 and perhaps 
1815, I would believe it was not an apocryphal tale.  I have seen 
similar statements by PA federalist politicians.  But keep in mind 
that public statements to that effect would be met with counter- 
statements from the political and ideological opposition.   
     However, it might have been accurate to explain that the 
early "banks" were not full-throttle -- we all know now that the 
1st (and 2nd) Bank of the United States was unable to function 
as a true central bank; as more research is done on this period, I 
think it will also become pretty clear that the early state banks 
did not fully function as did those of the Jacksonian Period. 
     And that was one of the main criticiques of the banks.  The 
commonwealth-run (I say commonwealth to bridge the activities of 
the colonial legislature with that of the state legislature) 
"land bank" had a far wider direct impact in the state than these 
private merchant banks (for want of a better term).  Anyone with 
a valid deed showing sufficient land to use as collateral could 
borrow a small sum from the "land bank" at a low interest rate. 
It had been wildly popular in SE Pennsylvania during the colonial 
period, and by the end of the 1700s the farmers of central and 
western Pennsylvania wanted access to the same developmental 
subsidy.   
     If the author used this out of context -- that is, while it is 
possible that it really was a valid quote, and it is possible that 
such really was the case, but the statement had to be representative 
of a very small segment of the population -- I would find that very 
frustrating.                  
 
     Now -- AFTER about 1815 or so, there was a tremendous expansion 
in the number of private banks throughout the nation.  These banks 
began to issue bank notes for deposits (as described by Temin), and 
it is in THIS period that bank notes truly become an important           
component of the American money supply. 
     I think.  <g> 
     I am operating once again on evidence from account books.  I 
do not think we are anywhere NEAR getting a good handle on the 
size of the money stock in this period, or the relative size of its 
components.  So I find it more helpful to look at the transactions 
as measured by day books.  Everyone from merchants to shopkeepers to 
farmers kept day books, and was familiar with, and used to, dealing 
with a number of currencies.  There's usually one listed as the unit 
of account -- state currencies until just after 1800, then dollars -- 
and anything else is noted.  Bank notes were sufficiently unusual in 
many places that they got a separate listing.                     
     The issue of redeeming bank notes for specie takes on a separate 
meaning once banks began issuing notes for deposits in sufficient 
amounts that they circulated as currency.  The 30- to 60-day  
commercial paper circulated only within a narrow circle of merchants, 
and were always tied to the specific borrower with specific 
endorsements and transfers.  When we think of bank notes as currency, 
however -- the type of currency that transformed the American 
economy in the antebellum period -- we really mean notes ON THE 
BANK ITSELF.   
     The proliferation of banks in urban areas meant that urban 
residents had lots of circulating bank notes on institutions in 
suffiicently close proximity they could judge the stability with 
reasonable success.  As all students of this period have noted,  
however, uncertainty as to the ultimate value of a particular bank 
note increased with distance.  How could someone in Philadelphia 
accurately judge the quality of a bank note issued on a bank in 
Charleston?  Well, if you were a merchant, chances are you not 
only had business contacts there, but you were also likely to have 
relatives.   
     I apologize for covering ground that some already know -- it 
appears that the history of banking in the U.S. is not nearly as 
well-known as I would have thought; my students keep coming in from 
their Money and Banking classes spouting Bray Hammond, a path- 
breaker but today EXTREMELY outdated.  
 
     As one might surmise, there was a Gresham's Law of bank 
notes in the hinterland and as payment for services by the 
relatively powerless.  I don't know when they first appeared, but 
by the 1830s newsletters were easily available (at a price) that 
kept running tabs on the appropriate discount for specific banks' 
notes.  A shopkeeper, merchant, anyone who did a lot of trading, 
would probably be subscribed to one of these -- not to mention that 
the more bank notes you used, the lower the consequences if you got 
stuck with a bad one.  Not surprisingly, bank notes made wage 
laborers REAL nervous.  And many farmers wanted nothing to do with 
them, either.  However (perhaps ironically), the spread of banks, 
the proliferation within urban areas and over large geographical 
areas, actually made it easier for the average joe to deal with bank 
notes.  The distant farmer could be willing to take bank notes from 
the nearby bank he trusted, and the bank would be better qualified 
to judge the riskiness of out-of-town bank notes than the farmer would. 
In town, the proliferation of banks and bank notes made it much more 
likely that a wage-earner would be paid in local notes that would 
not then be discounted by a shopkeeper or landlord.  So standing 
the old wildcatting story on its head (well, it's already been 
pretty well stood there!), in this case MORE meant stability. 
 
     You cannot understand the problem of bank runs and panics 
outside of this historical context.  It makes quite a difference 
which decade you are talking about, because in one of the earlier 
decades a panic was mostly a crisis for merchants, who were used 
to a certain amount of flexibility in payment and were more likely 
to be able to absorb the costs of uncertainty.  Discounting would 
not be that big a problem for them; it happened everywhere in their 
sector of the economy. 
     But when bank notes became a (if not THE) common currency in 
the nation, then uncertainty was spread to those less able to 
absorb the costs, or wait for the market to straighten itself out. 
And if a bank went belly-up, the small depositor, the small holder 
of bank notes, were at the bottom of the list to be compensated. 
A long delay in straightening out assets and debits would be much 
more costly for the low to middle-income householder.  (True also 
in 1929-1932, despite the scoffing of some academics.) 
 
     And that is why I said the Philadelphian was wrong.   
I would assume that he would have been referring to the Panic 
of 1814, or the crisis of 1819.  By this point the banks were not 
the insular institutions they had been two decades earlier.  Those 
with the wherewithall to arbitrage the discounting, or with enough 
to be able to sit things out, were hardly damaged and tended to 
view things as similar to lost shipments -- this stuff happens. 
The vast majority of Americans (still on farms) had little to do with 
banks, or bank money, in the first place, so it was nothing except 
entertainment value, to tsk tsk about those city folk.  But the 
middling and low-income urban residents who got caught holding 
paper curency that was rapidly diminishing in value were (quite 
understandably) angry.   
     So -- he may have been speaking for his buddies.  He may have 
been spouting off wishful thinking.  He may have been echoing what 
USED to be the case.  Or "he" may never have existed at all. 
     Be that as it may, the majority of Philadelphians (and 
New YOrkers, and Bostonians, and Baltimorons (heh heh heh)) 
were not at all sanguine about specie suspensions.  And let's have 
a little sophistication here in explaining WHY they might be just 
a little bit upset -- the exchange of currency for good and 
services represents a bargain fulfilled.  If the value of the 
currency shifts wildly between the time the bargain is arranged 
and fulfilled, then to insist on NOMINAL rather than REAL  
payment is to some extent reniging on the bargain.  
 
     So -- took a long while getting there, but here is the 
final point.  Few appreciate the magnitude of the transition in 
public perception that occurred between the 1750s and the 
1820s with regard to the purpose and usefulness of paper 
currencies of ANY type, and the sudden (and it was sudden) 
appearance of intense popular hostility to the function of 
banking in a society. 
     In Pennsylvania, at least, a political faction linked to 
the FEderalist Party (eventually) tried to kill off the PA 
land bank through the 1780s -- and finally succeeded by slipping 
the money clause into the Constitution.  The institutions that 
replaced the Land Bank were intended for the merchant community's 
needs, period.  In many ways, these institutions were simply 
replacing the private lending practices in the port cities with 
financial intermediaries that could function far more efficiently. 
They really were very different from the banks of the 1830s. 
     As for the majority of the population out there living on 
farms (90% in the census of 1790), the land banks may have been 
replaced by the private land companies and the public Land Office 
of the federal government as a means of acquiring farming capital. 
But I honestly have no idea what they were using for currency. 
I had to laugh at Chris Clarke's stunning finding that farmers 
would not take "cash" in New England in the first two decades of 
the 1800s -- and he was working with WESTERN Massachussets -- n 
no kidding -- I wouldn't have taken it either!  You have to wait 
for the addition of more local banks and in New England, the 
formation of the Suffolk System, to find bank notes circulating 
practically in the economy. 
 
Why would the common folk HATE banks, then? 
 
1.  Practical experience with the costs of uncertainty when 
dealing with bank notes. 
 
2.  Practical experience with being out-maneuvered by an 
obvious faction of PA politics that really consisted of merchants 
and lawyers in Philadelphia, some of whom openly despised the 
bankcountry farmers. 
 
3.  AND, as we move into the second, third, fourth decades of the 
1800s, the only theory available with which to explain (1) and 
(2) did not leave much room for the positive benefits of financial 
intermediation.  The focus of theory in the 1700s was on money and 
trade and mercantile activities; by the early 1800s it had shifted 
to factories and products, to THINGS.  Theory backed off of 
flows and into set pieces.   
     Where does financial intermediation fit in the labor theory 
of value?   
 
Which brings us back to the history of economic thought!  Wasn't 
this a fun journey?  It's something I would like to see more of -- 
the interconnectedness between experience, institutions, and 
theory -- then theory, expectations, behaviors, and policies. 
 
Apologies for the length.  If I could have made it shorter, I would 
have.   
     -- Mary Schweitzer