In 1826, Walter Scott undertook to write a series of letters under the pseudonym Malachi Malagrowther. The Malagrowther letters railed against England's levelling of banking regulations in Scotland to conform with reforms being enacted in England as fallout to the Panic of 1825/26. A draft of his first missive was submitted to James Ballantyne on February 19, 1826. The letter was dated February 21, 1826, being published on the 22nd in Ballantyne's "Edinburgh Weekly Journal". In this first letter, Malagrowther intimates that the Scottish banking system is fundamentally different from England's, that England's system promoted speculation in risky commodities to increase profits, and that the medicine required in England would be harmful to the sound Scotch system.
One of the main reforms proposed by England was to eliminate notes under L5. Scott describes a country (Scotland) that relies on acceptance of these very notes for its functioning. Scottish banks, argues Malagrowther, function since "...the notes, and especially the small notes, which they distribute, entirely supply the demand for a medium of currency; and that system has so completely expelled gold from the country of Scotland, that you never by chance espy a guinea there, unless in the purse of an accidental stranger, or in the coffers of these Banks themselves."
The strength of the Scottish banking system, Malagrowther indicates, rests on three main points. First: "In Scotland, almost all Banking Companies consist of a considerable number of persons, many of them men of landed property, whose landed estates, with the burdens legally affecting them, may be learned from the records...". In contrast: "In England...the number of the partners engaged in a banking concern cannot exceed five; and...yet no one can learn, without incalculable trouble, the real value of [the partners'] land..." Essentially, Scott is arguing that Scottish banks are better capitalized, as a rule.
Malagrowther's second argument is that "the circulation of the Scottish bank-notes is free and unlimited; an advantage arising from the superior degree of credit...", while "those of the English Banking Companies seldom extend beyond a very limited horizon...Even the most creditable provincial notes never approach London in a free tide...". Here Scott refers to trust in the system, which is stronger in Scotland due to it's verifiable source of wealth (landed estates).
Malagrowther's third argument hits at the heart of the cause of the Banking Panic, which impacted English banks, not Scottish. "...the profession of provincial Bankers in England is limited in its regular profits, and uncertain in its returns, to a degree unknown in Scotland; and is, therefore, more apt to be adopted in the south by men...who sink in mines or other hazardous speculations...". One might add CDO's, and other derivative instruments in today's environment.
To support Malagrowther's arguments against standardization of banking regulation, Scott draws several analogies, designed to highlight that what is good in one situation may not fit another. For example: "I will not insist farther on such topics, for I dare say, that these apparent enormities in principle are, in England, where they have operation, modified and corrected in practice by circumstances unknown to me; so that, in passing judgment on them, I may myself fall into the error I deprecate, of judging of foreign laws without being aware of all the premises. Neither do I mean that we should struggle with illiberality against any improvements which can be borrowed from English principle. I would only desire that such ameliorations were adopted, not merely because they are English, but because they are suited to be assimilated with the laws of Scotland, and lead, in short, to her evident utility [this phrasing derives from the Treaty of Union of 1707, which Malagrowhter references in the letter] , and this on the principle, that in transplanting a tree, little attention need be paid to the character of the climate and soil from which it is brought, although the greatest care must be taken that those of the situation to which it is transplanted are fitted to receive it. It would be no reason for planting mulberry-trees in Scotland, that they luxuriate in the south of England. There is sense in the old proverb, ``Ilk land has its ain lauch"."