Front Page Titles (by Subject) LETTER IV.: DEMOCRACY—THE BANK. - Society, Manners and Politics in the United States
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LETTER IV.: DEMOCRACY—THE BANK. - Michel Chevalier, Society, Manners and Politics in the United States 
Society, Manners and Politics in the United States: Being a Series of Letters on North America, translated from the third Paris edition (Boston: Weeks, Jordan & Co., 1839).
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New York, January 11, 1834.
The financial crisis brought on by the quarrel between the President and the Bank, has not become more serious; there is a great scarcity of money, that is, a great diminution of credit, but the failures are not yet numerous or considerable. The last arrivals from Europe have brought us the news that several of the trades in Paris and at Lyons have refused to work. What is taking place here in regard to the Bank, is analogous to what is passing in France among the tailors, bakers, and carpenters, and what occurs daily in England among the manufacturing operatives. In Europe, and particularly in France, it is the rising of a democracy or rather a radicalism, which is yet in embryo, and which, if it please God, will never come to maturity. In America, it is the despotic humour of a full grown democracy, passing more and more into radicalism, the longer it rules without a rival and without a counterpoise.
It seems to me improbable that the journeymen carpenters, tailors, and bakers of Paris, should ever give the law to their masters. Among us, the middling class (bourgeoisie) is beginning to feel that it is its duty to improve the condition of the working class. It has the authority, but it is conscious that the people has the physical force. The people has counted its own ranks and those of the bourgeoisie, but it feels that it is not enough to have the number; it sees that it has nothing to expect from violence, and that it can back its friends only by improved habits of order and morality. On both sides their reciprocal rights are mutually acknowledged; each fears and respects the other. Here, on the contrary, it is perfectly natural that the democracy should rule the capitalists, merchants, and manufacturers; it possesses at once the physical force and the political power; the middling and upper classes inspire it neither with fear nor with respect. The equilibrium is gone; there is no guarantee against the popular caprice in the United States, but the good sense of the people; it must be allowed that this good sense is quite extraordinary, but it is not infallible. A popular despotism is as easily deluded by flatterers, as any other despotism.
The Bank of the United States is at this time experiencing the truth of this observation. I have already alluded to some of the crying abuses which have excited a violent hatred against the banks in general, although without the aid of the banks it would have been impossible for the United States to have increased in population, wealth, and territory as they have done. These abuses were and are the acts of the local banks, and not of the Mammoth Bank. On the contrary, the latter, by the control which it exercises over the local banks for its own security, checks and limits these abuses, if it does not completely prevent them. The legislatures of the different States have been repeatedly called to deliberate on the question of abolishing all banks and breaking up the banking system; but they have generally thought, and justly, that the remedy would be worse than the disease. They have attempted to cure the disorder by restrictive provisions in the charter of new banks. The State of of New York, in 1829, embraced the whole subject in the Safety-Fund Act, which established a mutual supervision of the banks over each other, under the direction of the Bank Commissioners, and creates at their common expense a safety fund, designed to indemnify the public in case of the failure of any one of the banks. But these measures of repression or prevention have generally proved inefficacious, either from a defect in the means of coercion possessed by the government, or from a reluctance to use the powers conferred by the laws.
In their report of the 31st of January, 1833, the New York Bank Commissioners urgently call the attention of the legislature to the serious dangers which may result from these institutions as they are now organized, particularly in the country, and to their excessive issues in proportion to the small quantity of specie in their vaults. With two millions in specie, the banks of the State had, at that time, a circulation of above twelve millions. But this report itself proves, that the commissioners did not dare to fulfil the duties imposed on them by the Safety-Fund act; they had the authority to shut up the offending banks. Their warnings have not prevented the legislature from chartering new banks by the dozen. This year it will have to act on 105 petitions for charters, that is, eighteen more than the actual number of banks in the State. To be sure in the present instance, the let alone principle will probably be violated, for the Governor’s Message of January 7, 1834, urges the two houses to arrest the flood. This Bank mania, as Jefferson called it, is created by the profits of banking, which is, and more especially was, before the institution of the Bank of the United States, the best kind of speculation, exactly in the ratio of the abuses attending it.*
In the local banks, especially in the country banks, the chief aim of the president and directors is, at all events, come what may, to make the semi-annual dividend as large as possible. By extending their operations excessively, they may, if they lose the public confidence, be driven to a failure; but in the United States the prospect of such a disaster is much less terrible to the greater number of merchants, and even to the smaller companies, than it is in Europe. (See Note 7 , at the end of the volume.) When a bank fails, there is, indeed, a great outcry, because the number of victims is large, and the loss extends to all classes; for most of the bills being of the denomination of five dollars and under, they are very generally distributed in the hands of the labourers, as well as of the wealthier classes. But just in proportion to the distribution of the loss over the greater number of persons, is the quickness with which the clamor ceases. The president, the cashier, the directors, and others principally interested, readily find means to recover from the blow, by obtaining credit elsewhere, and the whole affair is at an end.
The Bank of the United States, on the contrary, directed by men of large fortune and established reputation, connected in business with the principal houses in Europe, charged with a vast responsibility, subject to the supervision of the Federal government, which names five of the directors out of twentyfive, and officiously watched by an army of journalists, is interested and obliged to follow another course. Not that it has not committed some errors; but it paid dear for them, and has never repeated them. Neither are its rules and regulations perfect; the experience of twenty years will doubtless suggest some modifications. But even its adversaries admit that it has been admirably managed. They pretended, at first, that the public money was not safe in its vaults, but they are at present ashamed to insist upon this point, as the investigation made by the House of Representatives proved the absurdity of the charge. The accusations now brought against it are of a political character.
Politically considered, indeed, the existence of an institution so powerful as the Bank of the United States, may present some inconveniences. The fundamental maxim of the Federal and State constitutions is, that the supreme authority is null and void; there is no government here in the true sense of the word; that is, no directing power. Each one is his own master; it is self-government in all its purity. This anomalous and monstrous development of the individual principle is no evil here, it is even a great good at present; it is the present stage in the progress of the United States, because self-government is the only form of government to which the American character, as it is, can accommodate itself. If individuality had not free elbow-room here, this people would fall short of its destiny, which is to extend its conquests rapidly over an immense territory, for the good of the whole human race, to substitute, in the shortest time possible, civilization for the solitude of the primitive forests, over a surface ten times greater than all France, of as great average fertility as that country, and capable, therefore, of accommodating 350 millions of inhabitants.
From these considerations it is clear, that any power whatsoever, if possessed of great influence, and exercising it over a great space, would be inconsistent with the political system of the country; for this reason the Federal and State governments are in a permanent state of eclipse. And it is furthermore evident, that the Bank, which is met at every turn as an agent in all transactions, which governs credit, regulates the currency, animates or checks at will the activity of commerce by narrowing or widening the channels of circulation, the Bank, which by its numerous branches is, like the fabled polypus, everywhere present, the Bank with its funds, its centralisation, its trusty creatures, is certainly an anomaly, which may become big with danger. One might, from an abstract, theoretical point of view, imagine cases, in which this financial colossus, seated in the heart of a country absorbed in business, would press with a crushing weight on the liberties of the people. If it were possible that a new Monk should wish to restore the English rule, or that a new Bonaparte, the saviour of the republic in another Marengo, should attempt to make himself dictator, it would also be possible that a conspiracy between the Bank and this Monk, or this Napoleon, might overthrow the liberties of America. But such an event, possible to be sure in theory, (for in theory nothing is impossible,) is, at present, wholly impracticable in fact. Yet there are honest and enlightened men, on whom this theoretical danger makes more impression, than the necessity of a regulator amidst the chaos of 500 banks, or of an agent, which, by controlling the currency, should be in financial affairs, what the vast rivers of the country are in the system of internal communication. They fear more, for this land of industry, from the imperceptible tyranny of the Bank, than from a system in which there would be no check on the cupidity of the local banks, and in which they might renew, with their paper money, if not the assignats of France, or the Continental money of the Revolution, at least the commercial anarchy which followed the war of 1812.
Unluckily for the United States, it is not on this high ground of foresight, that President Jackson and his friends take their stand in their attack on the Bank. They do not say, that it is possible that it may some time, under a new state of things, become an instrument of oppression; they pretend that it is so already. According to them, it tends to nothing less than the subjugation of the country to its rule. In his last annual message, and in an official paper read to the cabinet on the 18th of September, 1833, the President accuses the Bank: 1. With having intrigued to bring up the question of the renewal of its charter in Congress during the session of 1831-32, in order to reduce him to the alternative of giving his sanction to the bill, or losing the votes of the friends of the Bank in the approaching election, if he refused it. He forgets that he had himself, in his message at the opening of that session, recommended to Congress to settle the business. 2. Of having meddled with politics in opposing his election in 1832, and of having, with this purpose, enlarged its loans and discounts twentyeight and a half millions. The Bank replies that the statement is incorrect; that its books show, that its available means having been augmented, between January and May, 1831, ten millions, and the requisitions of commerce having increased, it had judged it expedient to extend its credits seventeen and a half millions, so that the actual extension of its operations was only four and a half millions. 3. Of having attempted to corrupt the public press, either by printing a great number of pamphlets, or by gaining over the newspapers. The Bank answers to this charge, that it has a perfect right to defend itself by the press, against the continual attacks upon it to which the press gives currency, that it may certainly be allowed to reprint the speeches delivered in its favor in Congress, or essays in which questions of banking are luminously treated, such as that by the celebrated Mr Gallatm, who was twelve years Secretary of the Treasury, and afterward minister to France. As to the vague imputation of attempting to corrupt a press, which pours forth such a number of journals as the press of the United States, (see Note 8 , at the end of the volume,) it does not deserve a serious answer.
If a European government, from motives of this character, on facts thus destitute of proof, should attempt to destroy an institution essential to the prosperity of the country, the cry of despotism would be raised on all sides. If the state were itself interested in the institution to the amount of one fifth of its capital (7 millions of dollars), many persons would charge such an attempt not only with violence, but with folly. In the United States the numerical majority, which is the majority of electors, applauded General Jackson’s campaign against the Bank almost as enthusiastically as his campaign at New Orleans. The military success of General Jackson, his honesty, his iron firmness, have given him an astonishing popularity. The Bank, on the contrary, in spite of its daily services, (see Note 9 , at the end of the volume.) is unpopular; it is so on account of the popular hatred of the Banking System, on account of that jealousy, which, in a land of perfect equality and suspicious democracy, follows in the steps of wealth and pomp; it is so because its extensive privileges shock all republican feelings. In the United States, in spite of the general habits and laws of equality, there is a sort of aristocracy founded on knowledge or on commercial distinction. This aristocracy, somewhat prone to entertain a contempt for the vulgar multitude, causes a strong reaction against itself in the popular mind, and as it supports the Bank by its influence and its writings, this is enough, of itself, to set the pure democracy against the institution. Add to this, that the Bank, irritated by the hostile demonstrations of the administration, has sometimes answered it by angry acts of reprisal, not grave in themselves, but unfortunate in their consequences, and of which its adversaries have adroitly availed themselves to excite the popular passions. Although the Bank has the majority of the Senate in its favor, the chances are now against it. Unless the multitude, which now shouts Hurrah for Jackson! without reflection, shall be led, between this and March, 1836, when its charter expires, to reflect seriously on the matter, it will disappear, until a new experience shall again prove that it is impossible to get along without it.
Thus, at the very moment when the English Reform ministry is renewing the charter and confirming the privileges of the Bank of England, with the approbation of all Europe, here a compact mass, in which, indeed, the enlightened do not form the majority, but in which, notwithstanding, some are included, deals the death-blow to a similar institution, tried and proved by long services. Thus, while one of the greatest, perhaps, in an economical point of view, the very greatest of the benefits which France could receive, would be the establishment of a system of banks, connected with each other as the twenty branches of the Bank of the United States are with the mother bank, America is about to witness, if not the death, at least the suspension of an institution, that has been fruitful of so much good, without the slightest immediate loss of popularity by those who are doing the work of destruction. So goes the world in the United States. The history of this affair shows that the political springs are here wholly different from those that operate in Europe, and that nevertheless, intrigue and petty hate have free course here as well as elsewhere.
[* ] The dividends of the Bank of North America were, in 1792, 15 per cent., in 1793, 13 1-2, from 1794 to 1799 inclusive, 12 per cent., from 1804 to 1810, 9 per cent. Those of the old Bank of the United States varied from 7 5-8 to 10 per cent. Those of the Pennsylvania Bank, from 1792 to 1810, from 8 to 10. The Bank of the United States regularly divides 7 per cent. to the share-holders. In the city of New York the average dividends of the banks in 1832, was 6 14 per cent., of the country banks 9 per cent. It must not be forgotten that the legal rate of interest is higher in the United States than in Europe: it is 6 per cent. in Pennsylvania, 7 in New York, from 8 to 9 in the Southern States, and 10 in Louisiana. In the Western States there is no regulation of interest by law, but the ordinary rate is very high.
[Note 7—page 49.]Failures in the United States.
It would be excessively unjust to the Americans not to acknowledge that they are improving daily in respect to failures. In a new country it is natural that a failure should be little thought of, because every thing is necessarily an experiment, and all speculation is a game of hazard. The public is very indulgent on this point, because it considers a failure what it really is, nineteen times out of twenty, a misfortune and not a fraud. The bankrupt is looked upon as a wounded soldier, who is to be treated with sympathy, and not with contempt. Congress has the power of passing a bankrupt law, but it has not yet exercised this power, and the different States have made temporary provisions for the case, which treat the insolvent debtor with great indulgence, discharging him from any further obligation towards his creditors on his giving up all his property for their benefit. It is felt that too much severity in regard to failures would have the tendency to check the spirit of enterprise, which is the life of the country. None of those rigourous provisions which disgrace French legislation and endanger the interests of creditors, exist here; and if the lenity of the laws is sometimes abused, the inconvenience is much less than that caused by the harshness of ours.
In the large maritime towns, however, it is felt, that if bankruptcy is not a disgrace, it is at least a private and public calamity, which is to be averted by every exertion. The history of the great fire in New York in 1835 affords ample proof of this. The amount of the loss exceeded fifteen millions, and the insurance companies found themselves unable to meet their engagements. On the receipt of the news in Europe, there was not a merchant who did not tremble for his American debts; for in Europe, in general, and in France, in particular, such an event would have deprived the sufferers of all credit, of all means of repairing their losses. In France the singular custom prevails of offering you credit, if you do not need it; but if you stand in want of it, you will get none. In the United States, on the contrary, immediately after this disaster, the President of the United States Bank hastens to place two millions at the disposal of the New York merchants, and the banks in general give out that they shall discount the paper of the sufferers in preference.
Although the sphere of the public authorities in the United States is very narrow, the corporation of New York and the State government, rivalled each other in offers of assistance; the former offered an advance of six millions, not to individuals, as was done in France in 1830, but to the insurance companies, whose ruin would have led to a general bankruptcy; it thus strengthened the hands of commerce, by relieving its citadel. Even Congress, which is not allowed to take a step out of its little district, and is scarcely permitted to notice what is going on beyond the Capitol, was moved, and extended the term of payment of custom dues. The result of this admirable cooperation of individuals, companies, and public authorities was to prevent any considerable failures.
The Americans have a courage in presence of commercial disasters, like that of the soldier on the field of battle. In a critcal juncture, they face bankruptcy, as old grenadiers march upon a battery under a fire of grape-shot. If it is true that commerce is to supplant war in the future, it must be confessed that the Americans are more advanced on the march than we are; for they have applied all their energies and qualities to commerce, whilst we still devote ours to war. They have discovered a new sort of courage which produces and enriches; we shine only by that courage which perishes or destroys.
The merit of this new spirit does not belong exclusively to the Americans; they had the germ in their blood, and have received the gift from the mother country. At the period of the late calamity, the English were no more subject to a panic terrour than their New York descendants.—It is within my knowledge, that American merchants established in Paris and having houses in the United States, having applied to London bankers for a continuation of credit, were immediately assured, that not only the former amount of credit should be continued, but that they should be allowed an unlimited credit in order to enable them to repair their losses. Some French bankers, on the contrary, similarly situated, hastened to cut off the credit they had previously given.
In a country organized for commerce, and having the proper institutions of credit, the money and merchandise of the merchant, are not his only capital; the most valuable part of his capital consists of his experience, his correspondents and connexions, the weight of his name. This constitutes a moral capital, which conflagrations cannot destroy, nor accidents of any kind injure. In New York, by the aid of this moral capital, on which a high value is set in commercial countries, a merchant who has not property to the amount of more than 50,000 dollars, operates as if he had five or six times as much. In Paris, the same man, with the same fortune, would operate with only about twice as much. Thus the wealth of the United States increases in a much faster ratio than in France.
[Note 8—page 54.] The American newspapers are very numerous, but in consequence of their great number their circulation iscomparatively small. There are few daily papers, whose circulation exceeds 2,000, and not one, which exceeds 4,000; that of most of the newspapers is not more than 400 or 500. The American newspapers have little resemblance to the French and English. They are chiefly mere advertising sheets; they do not direct public opinion, they follow it. This local character does not allow of their having much influence out of their particular district. In New York, only the city newspapers are read; in New Orleans, those of New Orleans are the only ones generally seen; whilst in France those of Paris, and in England those of London are read every where. The Globe and the National Intelligencer of Washington are, however, pretty generally circulated. Newspapers in the United States are not powers, they are mere instruments of publicity within the reach of all. They are consulted for the news, nor for opinions. The profession of a writer does not stand so high in England as in France, and is less honourable in the United States, than in England. With the exception of a very few newspapers, at the head of which are the New York American edited by Charles King, and the Philadelphia National Gazette, edited by Robert Walsh, the American press occupies a low rank in the social scale.
Notwithstanding their large size, the American newspapers are low-priced; the cause is plain enough; the profits are derived chiefly from advertisements, and the expenses of editing are inconsiderable, as there is generally but one editor. There is no stamp duty; but the postage on them is higher than in France.* The circulation of some of the French newspapers exceeds 10,000; and some cheap publications have lately had a circulation of 90,000 or 100,000.
[* ] The postage of newspapers in France is two fifths of a cent within the department where it is published, and four fifths on any distance beyond it.
[Note 9—page 53.] In 1832, the transfer of funds between different points of the Union, or between the Union and foreign countries, effected by the Bank of the United States, amounted to 255 millions, of which 241,718,710 was for domestic, and 13,456,737 for foreign transactions. The Bank received only 217,249 dollars for commissions on this vast sum.