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PART TWO: Separation of Bank and State - William Leggett, Democratick Editorials: Essays in Jacksonian Political Economy 
Democratic Editorials: Essays in Jacksonian Political Economy, Foreword by Lawrence H. White (Indianapolis: Liberty Fund, 1984).
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Separation of Bank and State
BANK OF UNITED STATES
Sedgwick gives simply “March, 1834.” Attempts to locate the original have been unsuccessful.
In answer to the many objections which are urged with great force of argument against the United States Bank, and against any great national institution of a similar character, there is little put forth in its defence, beyond mere naked allegation. One of the assertions, however, which seems to be most relied upon by the advocates of the Bank, is that it has exercised a most beneficial power in regulating the currency of the country. Indeed, the power which it was supposed it would possess to regulate the currency, furnished one of the chief grounds of the support yielded to the original proposition to establish a United States Bank, and the same topic has occupied a prominent place in every subsequent discussion of the Bank question in Congress. It is maintained, in favour of the present institution, that it not merely possesses that power, but that it has exerted it in the most prudent and salutary manner. This is made the theme of many high-wrought panegyrics. It is triumphantly put forth by the journals in the interest of the Bank; it drops from the lips of every Bank declaimer at political meetings, and is asserted and re-asserted by all the orators and editors of the Bank party, with a confidence which should belong only to truth. Many persons, indeed, who are strongly opposed to the United States Bank on moral grounds; who view with dismay its prodigious means of corruption; and shudder with abhorrence at the free and audacious use it has made of those means; yet accede to it the praise of having at least answered one great purpose of its creation—namely, the regulation of the currency of the United States.
It is to be feared that men in general have not very precise notions of what constitutes a regulation of the currency. If the meaning of this phrase is to be limited to the mere sustaining of the credit of the Bank at such a point, that its notes shall always stand at the par value of silver, then indeed must it be admitted that the United States Bank has, for the greater part of the time performed its functions in that respect. Yet no praise is to be acceded to it on that score; since such an effect must naturally and almost inevitably flow from the self-imposed obligation on the government to receive its notes at their nominal amount, at all places, in payment of debts due to the United States. There is not a bank in the country, accredited and endorsed by the Government to an equal extent, that would not as certainly maintain its paper on a par with the precious metals. Indeed, most of the well-conducted institutions in the Atlantic cities, without the advantage of such countenance from the Government, have preserved their paper in equal credit; or, in other words, have been equally successful in regulating the currency, so far as the term implies the affording of a convertible paper substitute for money, which shall pass from hand to hand as the full equivalent of silver coin. The doing of this certainly constitutes an important branch of the regulation of the currency; but there is another and more important branch, and in this the United States Bank has totally and most signally failed.
What is regulating the currency? It is the furnishing of a medium of circulation, either metalic or convertible at par, equal in amount to the real business of the country, as measured by the amount of its exports and the amount of actual capital employed in commercial business. It is the furnishing of that amount of circulation, which is actually absorbed by the commercial transactions of the country—by those transactions which rest on the basis of the exchange continually going on of the commodities of one country for those of another. When bank issues are limited within this circle, the notes of the bank in circulation are founded on the security of the notes of merchants in possession of the bank, and the notes of the merchants rest on the basis of goods actually purchased, which are finally to be paid for with the products of the soil or other articles of export. The maintaining of the circulation at this point would, in the strict and proper sense of the word, be regulating the currency. It would be supplying the channels of business to the degree requisite to facilitate the operations of commerce, without causing those operations to be unduly extended at one time, and unduly contracted at another. It would be causing the stream of credit to glide in an equal and uniform current, never stagnating, and never overflowing its boundaries.
When bank circulation exceeds this measure, an inevitable derangement of the currency takes place. The par of value between the paper representatives of money and money itself may still be maintained; but prices are raised, and raised unequally, and the dollar no longer accurately performs its office as a measure of value. The effects of the expansion of the currency are first seen in the rise of the prices of foreign fabrics. This leads to excessive importation on the part of the competitors anxious to avail themselves of the advance. Goods are purchased from abroad to a much larger amount than the exports of the country will liquidate, and a balance of debt is thus created. The payment of this balance drains the country of specie. The bank, finding its paper return upon it in demand for coin, is obliged suddenly, in self-defence, to curtail its issues. The consequence of this curtailment is a fall of prices. Those who had ordered goods in expectation of deriving the advantage of the high prices, are obliged to sell at a sacrifice, and are fortunate if they can dispose of their commodities at all. Those who had been deluded, by the fatal facility of getting bank favours, into extending themselves beyond the limits of that fair and prudent credit to which their actual capital entitled them, must necessarily be unable to meet the shock of a sudden withdrawal of the quicksand basis on which their business rested, and are thus compelled to become bankrupts. A state of general calamity succeeds—most severe in the commercial cities, and measured in all places by a rule of inverse ratio to the excess of the preceding apparent prosperity. These sudden expansions and contractions of the currency have happened too frequently in this country, and have been followed by effects of too disastrous a nature, for any reader to be ignorant of them.
Has the United States Bank never caused distress of this kind? Has it never caused the amount of circulating medium to fluctuate? Has it never stimulated business into unhealthy activity at one time, and withheld its proper aliment at another? Has it never poured out a sudden flood of paper money, causing the wheels of commerce to revolve with harmful rapidity, and then as suddenly withdrawn the supply, till the channels were empty, and every branch of business languished throughout the land? There are few of our readers who cannot, of their own knowledge, answer these questions in the affirmative.
For the two or three years preceding the extensive and heavy calamities of 1819, the United States Bank, instead of regulating the currency, poured out its issues at such a lavish rate that trade and speculation were excited in a preternatural manner. But the inevitable consequences of over issues did not fail to happen in that case. A large balance of debt was created in Europe, and to pay that debt our metalic medium was sent away from the country. The land was soon nearly exhausted of specie, and still the debt remained unliquidated. The bank, in order to bring business to an equipoise again, exchanged a part of its funded debt for specie in Europe, and purchased a large amount of coin in the West Indies and other places. But it still continued to make loans to a larger degree than the actual business of the country, as measured by the amount of its exports, required, and its purchase was therefore a most ineffectual and childish scheme. It was but dragging a supply of water with much toil and expense, from the lake of the valley to the summit of an eminence, in the vain hope that, discharged there, it would continue on the height and not rush down the declivity, to mix again with the waters of the lake. The specie, purchased at high rates in foreign countries, was no sooner brought to our own, and lodged in the vaults of the bank, than it was immediately drawn thence again, by the necessity of redeeming the notes which poured in upon it in a constant stream in demand for silver. In one year, 1818, upwards of fifteen millions of dollars were exported from the country, and still the debts incurred by the mad spirit of overtrading were not liquidated. The bank itself was now on the very verge of bankruptcy. At the close of its business on the 12th of April, 1819, the whole amount of money in its vaults was only 71,522 dollars, and it at the same time owed to the city banks a clear balance of 196,418 dollars, or an excess over its means of payment of nearly 125,000 dollars. A depreciation of its credit was one of the consequences which had flowed from this state of things, and the notes of the United States Bank—the boasted institution which claims to have regulated the currency of this country—fell ten per cent. below the par value of silver.
But the greatest evil was yet behind. The Bank was at length compelled, by the situation in which the rashness of its managers had involved it, to commence a rapid curtailment of discounts. An immediate reduction took place of two millions in Philadelphia, two millions in Baltimore, nearly a million in Richmond, and half a million in Norfolk. This sudden withdrawal of the means of business was, of itself, a heavy calamity to those cities; but the system of curtailment was persevered in, until the foundation of a great part of the commercial transactions of the United States, and of the speculations in land, in internal improvement, and other adventures, which the facility of getting money had induced men to hazard, was withdrawn, and the whole fabric fell to the ground, burying beneath vast numbers of unfortunate persons, and scattering ruin and dismay throughout the Union.
The same scenes, only to a greater extent, and with more deplorable circumstances, were acted over in 1825. There are few inhabitants of this city who can have forgotten the extensive failures, both of individuals and corporate institutions, which marked that period. There are many yet pining in comfortless poverty whose distress was brought upon them by the revulsions of that disastrous year—many who were suddenly cast down from affluence to want—many who saw their all slip from their grasp and melt away, who had thought that they held it by securities as firm as the eternal hills.
But not to dwell upon events the recollection of which time may have begun to efface from many minds, let us but cast a glance at the manner in which the United States Bank regulated the currency in 1830, when, in the short period of a twelve-month it extended its accommodations from forty to seventy millions of dollars. This enormous expansion, entirely uncalled for by any peculiar circumstance in the business condition of the country, was followed by the invariable consequences of an inflation of the currency. Goods and stocks rose, speculation was excited, a great number of extensive enterprises were undertaken, canals were laid out, rail-roads projected, and the whole business of the country was stimulated into unnatural and unsalutary activity. The necessary result of the spirit of speculation thus awakened was the purchase of more goods abroad than the commodities of the country would pay for. Hence vast sums of specie soon began to leave the United States; scarcely a packet ship sailed from our wharves that did not carry out to England and France a large sum of money in gold and silver; and it is estimated that in 1831–32 the specie drawn from the country did not fall short of twenty millions of dollars. The Bank of the United States, failing to accomplish the bad design for which it had thus flooded the country with its paper, now began to try the effects of a contrary system, and resorted to coercion. A reduction of its issues must inevitably have taken place in the nature of things, nor could all the means and all the credit of the Bank have removed the evil day to a very distant period. But it had it completely within its power to effect its curtailment by easy degrees, and to bring back business into its proper channels by operations that would have been attended with little general distress. But this was no part of its plan. Its object was to wring from the sufferings of the people their assent to the perpetuation of its existence. Its curtailments were therefore rapid and sudden, and so managed as to throw the greater part of the burden on those commercial places where there was the greatest need of lenity and forbearance. The distress and dismay thus occasioned, were aggravated by the rumours and inventions of hired presses, instructed to increase the panic by all the means in their power. Of the deplorable effects produced by this course, the traces are yet too recent to require that we should enter into any particulars.
The Bank has not yet exhausted its full power of mischief. Since its creation to the present hour, instead of regulating the currency, it has caused a continual fluctuation; but it is capable of doing greater injury than it has yet effected. It is perfectly within its power to cause a variation of prices to the extent of twenty-five per cent. every ninety days, by alternate expansions and contractions of its issues. It is in its power, in the short period that is yet to elapse before its charter expires, so to embarrass the currency, so to limit the amount of circulating medium, so to impair commercial confidence, and shake the entire basis of mercantile credit, as to produce throughout the whole land a scene of the most poignant pecuniary distress—a scene compared with which the dark days of 1819 and 1825, and those through which we have just passed, shall seem bright and prosperous. And there are indications that the Bank will do this. There are signs and portents in the heavens which tell of a coming tempest. There are omens which foreshow that this mighty and wicked corporation means to use to the uttermost its whole machinery of coercion, to wring from the groaning land a hard contest to the renewal of its existence. We trust the People will bear stiffly up under the infliction. We trust they will breast the storm with determined spirits. We trust they will endure the torture, without yielding to a measure which would destroy the best interests of their country, and make them and their children slaves forever.
Regulation of the currency! What a claim to set up for the United States Bank! It has done the very reverse: it has destroyed the equal flow and steady worth of the currency: it has broken up the measure of value: it has kept the circulating medium in a state of continual fluctuation, making the dollar to-day worth a dollar and a half, and to-morrow not worth a half a dollar. Besides the three great periods of sudden excess and rapid curtailment, its whole career has been one series of experiments, more or less general, of inflation and exhaustion of the currency. And this is the institution, which now comes forward, and claims to be re-chartered, on the ground of having well performed the great offices for which it was created. It has failed in all its great ends. In its chief purpose, as a fiscal agent and assistant of the Government, one on which it might at all times securely rely, it has wholly failed. We have seen it interfering in the national politics, and endeavouring to rule the suffrages of the people, first by bribery and afterwards by compulsion. We have seen it place itself in open defiance to the Executive, and rank him in its official papers, with counterfeiters and robbers. We have seen it endeavouring to thwart the measures of his administration; collude with foreign creditors of the Government to defeat the avowed objects of the Treasury; refuse to give up the national funds at the commands of the competent authority; and finally turn a committee of congress with contumely from its doors, in violation of its charter, and in violation of every obligation of morality and every principle of public decency. This is the institution which now comes forward for a re-charter. If the people grant it they will deserve to wear its chains!
SMALL NOTE CIRCULATION
August 6, 1834.
Title added by Sedgwick.
Now that real money has come into circulation—now that the country is plentifully supplied with gold and silver—we trust the friends of a sound currency will take pains, and adopt all proper measures, to banish small notes from use. We call upon every man who professes to be animated with the principles of the democracy, to assist in accomplishing the great work of redeeming this country from the curse of our bad bank system. We never shall be a truly free and happy people while subject, as we now are, to Bank domination. No system could possibly be devised more certainly fatal to the great principle on which our government rests—the glorious principle of equal rights—than the Banking system, as it exists in this country. It is hostile to every received axiom of political economy, it is hostile to morals, and hostile to freedom. Its direct and inevitable tendency is to create artificial inequalities and distinctions in society; to increase the wealth of the rich, and render more abject and oppressive the poverty of the poor. It fosters a spirit of speculation, destructive of love of country—a spirit which substitutes an idol of gold for that better object which patriotism worships—a spirit which paralyzes all the ardent and generous impulses of our nature, and creates, instead, a sordid and rapacious desire of gain, to minister to the insatiable cravings of which becomes the sole aim of existence.
We do not expect and do not desire to overthrow our pernicious Banking system suddenly. We would not, if we could, do aught to infringe the chartered privileges of Banks already existing. Were they ten times worse in their effects than they are, we would not justify a breach of the public faith to get rid of the evil. But we desire most ardently that it may not be permitted to spread more widely. The legislatures may at least say, “Thus far shalt thou go and no further; here shall thy proud waves be stayed.” They may refuse to grant any more charters of incorporation, and may take effectual measures to prohibit the small note issues. These measures constitute the proper first step in the great reformation for which we contend, and these measures the democracy of the country—if we do not strangely misinterpret their sentiments—will demand.
But in the meanwhile, the means are within the reach of the people themselves to do much—very much—towards the accomplishment of the desired object. Let employers provide themselves with gold to pay their hands; and let the hands of those employers who continue in the practice, which has been too extensive, of procuring uncurrent money to pay them, take such measures to remedy the evil as are within their reach, and not inconsistent with prudence. The practice is wholly unjustifiable, and stands, in a moral point of view, on a footing not very different from that of clipping coins. The law, however, which we all know is not always framed in the most perfect accordance with the principles of ethics, makes this important difference, that while to the one species of dishonesty it extends full protection, the other it visits with the most ignominious punishment. But though protected by the law, workmen may do much to rid themselves of the evils of this practise, and at the same time forward the great object of democracy—ultimate emancipation from the shackles of a detestable Bank tyranny. Let them remember, when paid in small uncurrent notes, that the longer they retain possession of those notes the greater is the profit of the Bank that issued them, and therefore let them take the best means within their reach of causing them to be returned to the Bank. Every dollar-note in circulation has displaced an equal amount of gold and silver, and, on the other hand, every dollar of gold and silver you keep in circulation, will displace twice or three times its amount in paper money.
Paper money is fingered by a great many hands, as may be easily perceived from the soiled and worn appearance of many of the bills. A cheap, and, to a certain extent, most effectual method of disseminating the principles of those opposed to incorporated rag-money manufactories, would be for them to write upon the back of every bank-note which should come into their possession, some short sentence expressive of their sentiments. For example—“No Monopolies!” “No Union of Banks and State!” “Jackson and Hard Money!” “Gold before Rags!” and the like. When it should become their duty to endorse a bill issued by a Bank, the charter of which was obtained by bribery and collusion, (as many such there be) it would be well to inscribe upon it in a clear and distinct hand, “Wages of Iniquity!”
What we have here recommended may seem to be but child’s play; but we are satisfied that if the workingmen, upon whom the worst trash of Bank rags are palmed off, would only adopt such a practice, and persist in it for a short time, they would see the good result. The worst class of uncurrent notes would soon be plentifully endorsed, for it is the worst description of money which is generally bought to pay away to mechanics, in order that their employers may avoid paying them as large a proportion as possible of their just wages. Let them consider the hints thrown out in this article, and they can hardly fail, we think, to perceive, that if generally acted upon, they would have an important effect in assisting the introduction of gold as a currency, in the place of the small note circulation of which there is so much reason to complain.
THE MONOPOLY BANKING SYSTEM
Sedgwick gives simply “December, 1834.” Attempts to locate the original have been unsuccessful.
It is a source of sincere pleasure to us to perceive that the attention of the people is seriously awakened to the subject of the Bank system, as it exists in this country. It seems to us quite evident that the sentiment is daily gaining ground that the whole system is erroneous—wrong in principle and productive of incalculable evils in its practical operation. Those who have been readers of the Evening Post, for the last six or eight months, have had this subject fully and freely discussed, not only in articles from our own pen, but in numerous excellent communications from able correspondents, and, more especially, in the clear, comprehensive, and unanswerable essays of Mr. Gouge, which, with the author’s permission, we copied from his admirable work on American Banking.1 Those who perused these various productions, with the attention which the important and interesting nature of the subject required, have possessed themselves of sufficient materials for the formation of a correct opinion; and we have the satisfaction of knowing that very many of our readers concur fully with us in the sentiments we entertain with regard to our banking system.
We look upon that system as wrong in two of its leading principles: first, we object to it as founded on a species of monopoly; and secondly, as supplying a circulating medium which rests on a basis liable to all the fluctuations and contingencies of commerce and trade—a basis which may at any time be swept away by a thousand casualties of business, and leave not a wreck behind. There are many other objections incident to these, some of which present themselves in forms which demand the most serious consideration.
Our primary ground of opposition to banks as they at present exist is that they are a species of monopoly. All corporations are liable to the objection that whatever powers or privileges are given to them, are so much taken from the government of the people. Though a state legislature may possess a constitutional right to create bank incorporations, yet it seems very clear to our apprehension that the doing so is an invasion of the grand republican principle of Equal Rights—a principle which lies at the bottom of our constitution, and which, in truth, is the corner-stone both of our national government, and that of each particular state.
Every charter of incorporation, we have said, is, to some extent, either in fact or in practical operation, a monopoly; for these charters invariably invest those upon whom they are bestowed with powers and privileges which are not enjoyed by the great body of the people. This may be done by merely combining larger amounts of capital than unincorporated individuals can bring into competition with the chartered institution; but the end is more frequently effected by the more palpably unjust process of exonerating the chartered few from liabilities to which the rest of the community are subject, or by prohibiting the unprivileged individual from entering into competition with the favoured creature of the law.
When a legislative body restrains the people collectively from exercising their natural right of pursuing a certain branch of business, and gives to particular individuals exclusive permission to carry on that business, they assuredly are guilty of a violation of the republican maxim of Equal Rights, which nothing but the plainest paramount necessity can at all excuse. This violation is the more palpable, when immunities are granted to the few, which would not have been enjoyed by the people, had their natural rights never been restricted by law. In the case of Bank incorporations such is clearly true; since those who are thus privileged are protected by their charters both from the competition of individuals, and from loss to any greater extent than the amount of capital they may risk in the enterprise—a protection which would have been enjoyed by no member of the community, had the law left banking on the same footing with other mercantile pursuits. As a monopoly, then—as a system which grants exclusive privileges—which is at variance with the great fundamental doctrine of democracy—we must oppose Bank incorporations, unless it can be shown that they are productive of good which greatly counterbalances the evil.
A second objection to our banking system is that it is founded on a wrong basis—a basis that does not afford adequate security to the community; since it not only does not protect them from loss by ignorant or fraudulent management, but not even from those constantly recurring commercial revulsions, which, indeed, are one of the evil fruits of this very system. The basis of our banking business is specie capital; yet every body knows that the first thing a bank does, on going into operation, (if we suppose the whole capital to have been honestly paid in, which is very far from being always the case) is to lend out its capital; and the profits of the institution do not commence until, having loaned all its capital, it begins to loan its credit as money. No set of men would desire a bank charter merely to authorize them to lend their money capital at the common rate of interest; for they would have no difficulty in doing that, without a charter, and without incurring the heavy expense incident to banking business. The object of a bank charter is to enable those holding it to lend their credit at interest, and to lend their credit too, to twice, and sometimes three times, the amount of their actual capital. In return, then, for its capital, and for the large amount of promissory obligations issued on the credit of that capital, the Bank holds nothing but the liabilities of individual merchants and other dealers. It must be evident then that its capital is liable to all the fluctuations and accidents to which commercial business is exposed. Its integrity depends upon the ability of its dealers punctually to discharge their obligations. Should a series of commercial disasters overwhelm those dealers, the capital of the Bank is lost, and the bill holder, instead of money, finds himself possessed of a mere worthless and broken promise to pay.
Let us trace the progress of a new banking institution. Let us imagine a knot of speculators to have possessed themselves, by certain acts of collusion, bribery, and political management, of a bank charter; and let us suppose them commencing operations under their corporate privileges. They begin by lending their capital. After that, if commercial business is active, and the demand for money urgent, they take care to put as many of their notes in circulation as possible. For awhile this does very well, and the Bank realizes large profits. Every thing seems to flourish; merchants extend their operations; they hire capacious stores, import largely from abroad, sell to country dealers on liberal terms, get the notes of those dealers discounted, and extend themselves still further. Others, in the meanwhile, stimulated by this same appearance of commercial prosperity, borrow money (that is notes) from the Bank, and embark in enterprises of a different nature. They purchase lots, build houses, set railway and canal projects on foot, and every thing goes on swimmingly. The demand for labour is abundant, property of all kinds rises in price, and speculators meet each other in the streets, and exult in their anticipated fortunes.
But by and by things take a different turn. The exports of the country (which furnish the true measure of business) are found to fall greatly short of the amount due abroad for foreign fabrics, and a large balance remains unpaid. The first intimation of this is the rapid advance in the price of foreign exchange. The bank now perceives that it has extended itself too far. Its notes, which, until now, circulated currently enough, begin to return in upon it in demand for specie; while, at the same time, the merchants, whom it has been all along eager to serve, now call for increased accommodations. But the Bank cannot accommodate them any longer. Instead of increasing its loans, it is obliged to require payment of those which it had previously made; for its own notes are flowing in a continual stream to its counter, and real money is demanded instead. But real money it has none, as that was all lent out when it first went into operation. Here then a sudden check is given to the seeming prosperity. The merchants, unable to get the amount of accommodation necessary to sustain their operations, are forced to suspend payment. A rumour of the amount lost by the Bank in consequence of these failures, causes confidence in its solvency to be impaired, and being threatened with a run, it resorts to a still more rapid curtailment. Then follows wider derangement. One commercial house after another becomes bankrupt, and finally the Bank itself, by these repeated losses forced to discontinue its business, closes its doors, and hands over its affairs for the benefit of its creditors, Who are its creditors? Those who hold its money, that is, its “promises to pay.” On investigation it is discovered, most likely, that the whole capital of the institution has been absorbed by its losses. The enormous profits which it made during the first part of its career, had been regularly withdrawn by the stockholders, and the deluded creditor has nothing but a worthless bit of engraved paper to show for the valuable consideration which he parted with for what he foolishly imagined money.
What we have here stated can hardly be called a supposititious case—it is a true history, and there are events within the memory of almost every reader of which it is a narrative almost literally correct.
The basis of our banking system, then, if liable to be thus easily dissipated, is certainly wrong. Banks should be established on a foundation which neither panic nor mismanagement, neither ignorance nor fraud, could destroy. The billholder should always be secure, whatever might become of the stock-holder. That which is received as money, and which is designed to pass from hand to hand as such, should not liable to change into worthless paper in the transition.
A very important objection incident to the banking system of this country is the demoralizing effect which it exercises on society. It is a matter of the utmost notoriety that bank charters are in frequent instances obtained by practices of the most outrageous corruption. They are conceived in a wild spirit of speculation; they are brought into existence through the instrumentality of bribery and intrigue; and they exercise over the community the most unsalutary influence, encouraging men of business to transcend the proper limits of credit, and fostering a general and feverish thirst for wealth, prompting the mind to seek it by other than the legitimate means of honest, patient industry, and prudent enterprise. Let any man who has had an opportunity of observing the effect of introducing a banking institution, into a quiet country town, on the moral character of the inhabitants, answer for himself if this is not true. Let any man, whose knowledge enables him to contrast a portion of our country where banks are few, with another where they are numerous, answer if it is not true. Let any man whose memory extends so far back that he can compare the present state of society with what it was in the time of our fathers, answer if it is not true. The time was when fraud in business was as rare—we were about to say—as honesty is now. The time was when a failure was a strange and unfrequent occurrence; when a bankrupt excited the sympathy of the whole community for his misfortunes, or their censure for his rashness, or their scorn for his dishonesty. The banking system has made insolvency a matter of daily occurrence. It has changed the meaning of words, it has altered the sense of things, it has revolutionized our ethical notions. Formerly, if a man ventured far beyond his depth in business—if he borrowed vast sums of money to hazard them in doubtful enterprises—if he deluded the world by a system of false shows and pretences, and extended his credit by every art and device—formerly such a man was called rash and dishonest, but we now speak of him as enterprising and ingenious. The man whose ill-planned speculations miscarry—whose airy castle of credit is suddenly overturned, burying hundreds of industrious mechanics and labourers under its ruins—such a man would once have been execrated; he is now pitied; while our censure and contempt is transferred to those who are the victims of his fraudful schemes.
For its political effect, not less than moral, our bank system deserves to be opposed. It is essentially an aristocratic institution. It bands the wealthy together, holds out to them a common motive, animates them with a common sentiment, and inflates their vanity with notions of superior power and greatness. The bank system is maintained out of the hard earnings of the poor; and its operation is to degrade them in their political rights, as much as they are degraded in a pecuniary respect, by the accident of fortune. Its tendency is to give exclusive political, as well as exclusive money privileges to the rich. It is in direct opposition to the spirit of our constitution and the genius of the people. It is silently, but rapidly, undermining our institutions; it falsifies our grand boast of political equality; it is building up a privileged order, who, at no distant day, unless the whole system be changed, will rise in triumph on the ruins of democracy.
Even now, how completely we are monopoly-governed! how completely we are hemmed in on every side, how we are cabined, cribb’d, confined, by exclusive privileges! Not a road can be opened, not a bridge can be built, not a canal can be dug, but a charter of exclusive privileges must be granted for the purpose. The sum and substance of our whole legislation is the granting of monopolies. The bargaining and trucking away chartered privileges is the whole business of our law makers. The people of this great state fondly imagine that they govern themselves; but they do not! They are led about by the unseen but strong bands of chartered companies. They are fastened down by the minute but effectual fetters of banking institutions. They are governed by bank directors, bank stockholders, and bank minions. They are under the influence of a power whose name is Legion—they are under the influence of bank monopolies, with a host of associate and subordinate agents, the other incorporated companies, depending on bank assistance for their means of operation. These evil influences are scattered throughout our community, in every quarter of the state. They give the tone to our meetings; they name our candidates for the legislature; they secure their election; they control them when elected.
What then is the remedy for the evil? Do away with our bad bank system; repeal our unjust, unsalutary, undemocratic restraining law; and establish, in its stead, some law, the sole object of which shall be to provide the community with security against fraud. We hope, indeed, to see the day when banking, like any other mercantile business will be left to regulate itself; when the principles of free trade will be perceived to have as much relation to currency as to commerce; when the maxim of Let us alone will be acknowledged to be better, infinitely better, than all this political quackery of ignorant legislators, instigated by the grasping, monopolizing spirit of rapacious capitalists. This country, we hope, we trust, is destined to prove to mankind the truth of the saying, that the world is governed too much, and to prove it by her own successful experiment in throwing off the clogs and fetters with which craft and cunning have ever contrived to bind the mass of men.
But to suit the present temper of the times, it would be easy to substitute a scheme of banking which should have all the advantages of the present one, and none of its defects. Let the restraining law be repealed; let a law be substituted, requiring simply that any person entering into banking business shall be required to lodge with some officer designated in the law, real estate, or other approved security, to the full amount of the notes which he might desire to issue; and to secure, that this amount should never be exceeded, it might be provided that each particular note should be authenticated by the signature of the comptroller, or other officer entrusted with the business. Another clause might state suitable provisions for having the securities re-appraised, from time to time, so that bill holders might be sure that sufficient unalienable property was always pledged for the redemption of the paper currency founded upon that basis. Banking, established on this foundation, would be liable to none of the evils arising from panic; for each holder of a note would, in point of fact, hold a title-deed of property to the full value of its amount. It would not be liable to the revulsions which follow overtrading, and which every now and then spread such dismay and ruin through commercial communities; for when bankers are left to manage their own business, each for himself, they would watch the course of trade, and limit their discounts accordingly; because if they extended them beyond the measure of the legitimate business of the country, they would be sure that their notes would return upon them in demand for the precious metals, thus forcing them to part with their profits, in order to purchase silver and gold to answer such demand.
But much as we desire to see the wretched, insecure, and, in a political view, dangerous banking system superceded by the more honest and equal plan we have suggested, we would by no means be considered as the advocates of sudden or capricious change. All reformations of the currency—all legislation, the tendency of which is to disturb the relations of value, should be slow, well considered and gradual. In this hasty and unpremeditated article, we have glanced at the system which we desire may ere long take the place of the present one, and have rapidly adverted to some of the reasons which render the change desirable. But as a first step towards the consummation, we should wish the legislature to do nothing more at present than restrain the issue of notes under five dollars, and refuse to charter any more banks. The people demand it, and we do not think that the public sentiment is in favour of any further immediate reformation. As to the prospective legislation which is proposed by some, we think it anti-republican and unwise. We would not take advantage of any present movement of the public mind to fasten a law upon the state, which public sentiment may not afterwards sustain. The same influence of public opinion which, is now about to lead to the long-desired first step in Bank reform, will be potent in carrying on the reformation to the desired conclusion. A good maxim, and one which it will be well to be governed by in this matter, is festina lente.2
UNCURRENT BANK NOTES
March 10, 1835.
Title added by Sedgwick.
We wish some public spirited man who has access to data that would afford a reasonable basis for a conjectural calculation, would furnish us with an estimate of the immense amount of money which is annually lost in this city, by the labouring classes, in the discount upon uncurrent bank notes in circulation. Do the mechanics and the labourers know, that every dollar which is paid in the discounting of uncurrent notes in Wall-street, is filched out of their pockets? That such is the fact is susceptible of the clearest demonstration.
In the first place, the circulation of uncurrent bank notes is chiefly kept up by a direct and infamous fraud upon the working classes. It is a common practise with employers when they pay off their hands on Saturday, to go into Wall-street and purchase of some broker for the purpose, a lot of notes of depreciated value, varying from half to one and a half per cent. below par. These notes they palm off upon their workmen as money. If a master mechanic has a thousand dollars a week to pay to his hands, it is clear that he pockets every week by this operation some ten or fifteen dollars; and it can be shown with equal clearness that those in his employment are defrauded out of this sum. If a man hesitates to take this depreciated paper, he is told that it passes as currently as silver in payment of any thing he may wish to purchase; and so, in truth, it does. Yet he could not exchange it for silver, without paying the broker a discount, and let him not imagine, though he may seem to pass it away to his grocer or his baker at par, that he does not lose this discount all the same. Nay, the mechanic and labouring man whose employers are conscientious enough to pay them their wages in real money, bear their full proportion of the loss on the uncurrent notes in circulation, equally with those to whom the depreciated paper is paid. The entire sum paid for the discount of depreciated bank paper falls on the mechanics and labourers, and is wrung out of their sweat and toil. Nay more: they not only lose the amount which is actually paid for discount to the money changers, but they also pay a per centage on that amount equal to the average rate of profit which merchants charge on their goods. We can make this plain to the dullest apprehension.
The labouring man, when he returns home of a Saturday evening, with his week’s wages in his pocket, in this depreciated paper, stops at his grocer’s, and pays him the amount of his weekly bill. The grocer in the course of a few days pays this money away into the hands of the wholesale merchant from whom he purchases his commodities. The merchant, when a certain amount of this kind of paper has accumulated on his hands, sends it into Wall-street, and sells it to the brokers, and when his clerk returns, an entry is made in his books of the amount paid for discount. The sum total paid in the course of a year for the discount of depreciated paper forms an item of expense which is calculated as one of the elements in the cost of his goods. To pay for his goods he is obliged to buy bills of exchange, or in other words, to remit specie to Europe. Whatever this specie costs him, his goods cost him; and he therefore looks upon the amount he had to pay to turn the uncurrent paper received from his customers into specie as a constituent part of the first cost of his merchandize. Upon the whole sum of the cost, thus ascertained, he puts a certain per centage profit, and fixes his prices accordingly. The retail trader then buying a lot of goods of him, pays him not only a proportional part of the discount which the wholesale merchant actually paid on his uncurrent paper, but a profit thereon. This, however, makes no difference to him, for he has only to put his own profit on above all, and let the loss fall on the labourer, when he comes for his tea and sugar and other little necessaries and comforts for his family. That this is a true, though homely exposition of the case, any body must see who will only give himself the trouble to think about it.
The whole amount of uncurrent notes which pass through the broker’s hands annually may be stated at a given sum, and the discount thereupon amounts, on an average to a given per-centage. This sum, whatever it is, (and it must be immense) is a tax on the business of the community, which each individual shuffles off his own shoulders on those of the persons next beneath him, and so it descends by gradation till it reaches the broad backs and hard hands of the mechanics and labourers, who produce all the wealth and bear all the burdens of society.
But the mechanics and labourers have it in their power to rid themselves of this imposition. The task is very easy: it is only to learn the efficacy of the word COMBINATION. There is a magic in that word, when rightly understood and employed, which will force the scrip nobility to do them justice, and yield them, without drawback and without cheatery, the full fruits of their toil. Let them inquire by what means it is that this immense amount of depreciated paper is kept in circulation. They will find it is chiefly through the instrumentality of master-workmen and others having mechanics and labourers in their employment. They will find that this wretched substitute for money is bought, for the express purpose of palming it off upon them as real value, while their task-masters and the brokers share the spoils between them. A mechanic dare not refuse to take the wretched trash; because, if he does, he will be turned away to starve. But what a single mechanic may not be able to compass alone, could be easily effected by combination. Will the mechanics and labourers wait for eighteen months, in the hope that the juggling law now before the legislature will by that time go into operation, and rid them of the paper money curse? Let them not rest in any such belief. Let them know their own strength and resolve to be imposed on no longer. Why are the producers of all the wealth of society the poorest, most despised and most down-trodden class of men? Because they submit to be the dupes of the scrip nobility—because they are ignorant of their own strength. Let them combine together to demand whatever the plain principles of justice warrant, and we shall see what power there is which can deny them.
September 14, 1836.
Title added by Sedgwick. Text abridged.
The vast and sudden increase which the paper money circulation of this country has undergone within the last eighteen months is the cause of the feverish thirst of riches which the community now exhibits; and whatever shall check that circulation, and turn it back upon the banks, will arrest the disease, but arrest it with a violence that to many will prove fatal, and give a fearful shock to all. Paper money is, to the people of this country, the insane root that takes the reason prisoner; and they can be restored to sanity only by withholding such stimulating and dangerous aliment. As it now is, their appetite grows by what it feeds on. The demand for money increases with each succeeding day; and every new loan of bank credit but gives rise to new projects of speculation, each wilder and more chimerical than the last.
The effect of this pervading spirit of speculation (or spirit of gambling, as it might with more propriety be called, for it is gambling, and gambling of the most desperate kind) on the morals of the community is dreadful. Its direct and manifest tendency is to blunt men’s moral perceptions, and accustom them by degrees to arts and devices of traffic which an honest, unsophisticated mind would shrink from with horror as frauds of the most flagitious dye. It creates a distaste for the ordinary pursuits of industry; it disinclines the mind from gradual accumulation in some regular vocation, and kindles an intense desire, like that expressed in the prayer of Ortogal of Basra, “Let me grow suddenly rich!” To this gambling spirit of the age we may directly trace the most of those prodigious frauds the discovery of which has recently startled the public mind. “Startled the public mind,” did we say? The phrase is wrong. The public were not startled. They heard the stories with the most stoical indifference; and if any exclamations were uttered, they conveyed rather a sentiment of commiseration for the criminals, than one of detestation for their stupendous crimes.
But the day of the madness of speculation is drawing to a close. The time must come, nor can it be remote, when some financial or commercial revulsion will throw back the stream of paper circulation to its source, and many a goodly vessel, which had ventured too boldly on the current, will be left by the reflux stranded on its shores. Circumstances may yet defer the evil day for awhile, but it cannot be far off. A failure of the cotton crop, a slight reduction of prices in Europe, or any one of the thousand contingencies to which trade is perpetually liable, will give a shock to the widely expanded currency of the country, which will be felt with ruinous force through every vein and artery of business. Wo unto them in that day who do not now take timely caution. Their cities and towns and villages, which they are now so fertile in planning, as if they thought men might be multiplied as rapidly as paper money, will remain untenanted and desolate memorials of their madness, and the voice of sorrow and mourning, instead of the din of present unreal prosperity, will be heard through the land.
CAUSES OF FINANCIAL DISTRESS
October 24, 1836.
Title added by Sedgwick. Text abridged.
The financial storm long since predicted by this journal has at last commenced in good earnest, and begins now to be severely felt. For a considerable time past a pressure for money has been experienced in this metropolis, and within a few days it has increased to a degree which has made it the subject of general conversation and complaint. Men now perceive that their projects, sustained on the airy basis of too widely extended credit, are in danger of sudden ruin. A sense of general insecurity is awakened, and alarm and consternation are taking the place of that fool-hardy spirit of speculation, which, but a little while ago, kept hurrying on from one mad scheme to another, as if it possessed the fabled art of turning all it touched into gold. A commercial revulsion has commenced, and we fear will not terminate, till it has swept like a tornado over the land, and marked its progress by the wrecks scattered in its path.
It is always to be expected in this country, when any thing occurs to create extensive dissatisfaction, that newspaper writers, on one side or the other, will strive to turn it to the uses of party; and we accordingly find, in the present instance, that the opposition journals seize the subject of the financial difficulties as a theme for declamation against the government, and ascribe all our pecuniary embarrassments to the mal-administration of public affairs. Some, with singular contempt for the understanding of their readers, deal in mere generalities, and, in all the worn out common places of the political slang vocabulary, denounce the administration as composed of a set of ignorant “tinkers of the currency,” or fraudulent speculators, who interfere with the financial arrangements of the country, for the purposes of private gain, perfectly regardless of the wide-spread ruin they may occasion. In the same spirit they call upon the merchants to close their stores and counting-rooms, and go out into the streets as political missionaries, devoting themselves exclusively, for the next twenty days, to the business of electioneering, with a view of putting down a corrupt administration, which is forever trying high-handed experiments with the currency, and obstructing the sources of commercial prosperity. The day has been when the mercantile men of this community suffered themselves to be inflamed by such appeals, and acted in pursuance of such advice. But we trust that day is past, never to return.
Another portion of the opposition papers, with more respect for the intelligence of their readers, endeavour to fortify their charges against the administration by explaining the mode in which they conceive it to be the author of the present difficulties. By some of these, all the embarrassments of the money market are traced to the order of the Treasury Department, requiring payment for public lands to be made in specie. This may do very well as a reason to be urged by those wise journalists who are ever ready to shape their political economy to the exigencies of party; but will hardly satisfy readers of so much intelligence as to demand that the cause shall be adequate to the effect. Any one who will give the slightest attention to the statistics of the land sales, and who will reflect what a vast amount of purchase an inconsiderable sum in specie will pay, in its necessarily constant and rapid circulation from the land office to the neighbouring bank, and from the bank back to the land office, must be perfectly satisfied that the regulation in question cannot have had any perceptible effect in producing the general financial pressure now experienced.
There is a third class of opposition writers who, like the others, imputing all the difficulties to the administration, yet find out an entirely different and much more adequate cause. These impute it entirely to the Treasury orders, issued to various banks in different parts of the Union against the public funds collected on deposite in the banks of this city. By the natural course of trade, New-York is the great money market and storehouse of bullion for the entire confederacy. At this port, four-fifths of the whole revenue of the country are collected, and would here accumulate, affording a substantial basis of credit and reciprocal accommodation to those who pay it, were it not for that “tinkering with the currency” which subverts the natural order of things. To this extent we sincerely go with those who are declaiming against the government. We agree with them that the condition of affairs, as established by the laws of trade, is deranged by government interference, and that the treasury orders, which have the effect to cause a sudden dispersion of the public funds accumulated in this city, and to drain the specie from the vaults of our banks, sending it hither and thither, and for a time, entirely destroying its use, as a foundation of commercial credit, are the immediate cause of the prevailing distress. . . .
. . .
But the first, great, and all important cause of the pecuniary distress lies much deeper than any which the opposition papers assign. It is neither the Treasury order in relation to the public lands, nor the Treasury orders on deposite banks. These last have, at the very worst, but precipitated an evil, which, had no such orders been issued, or no transfers in any way made, could by no possibility have been long averted. It would have come next winter, and with a pressure greatly augmented by the delay. It would have fallen, like an avalanche, at the very season when revulsion is more fatal, because then the largest amounts of payments are to be made. The distribution law takes effect in January, and had not the necessity of complying with the conditions of the supplementary bill given the present harsh, but salutary check to speculation, the amount of credit, now so prodigiously inflated, would have been still further extended, and the shock of a sudden explosion would have been far more fearful and disastrous.
Without the distribution bill, even, a dreadful commercial revulsion could not long have been avoided. We were rushing on madly at a rate which could not long be continued. The first obstacle must have thrown us from our course, and dashed us to pieces. Look at the present state of the country. When did it ever before present such a spectacle of prodigiously distended credit? When did such a fever of speculation madden the brains of whole communities? When did all sorts of commodities bear such enormous prices? And when, at the same time, was there ever such vast consumption—such prodigality, wastefulness, and unthinking profusion? Is the treasury order the cause of this? Alas, it is one of its remote consequences. What filled your treasury to such overflowing, that some cunning politician was prompted by a consideration of the exuberance to devise the scheme of distribution? Speculation. What excited that spirit of speculation? The sudden and enormous increase of bank capital, and the corresponding inflation of bank currency. In the last eighteen months alone nearly one hundred millions of bank capital have been added to the previous amount. Examine the following bank statistics, derived from sources believed to be accurate, and see how prodigiously and rapidly our system of bank credit has been swollen:
Who can look at this statement, and not feel convinced that the cause of the present financial distress lies deeper than treasury orders, whether in relation to public lands or public deposites? This enormous increase of bank capital in the last six years has been accompanied by a corresponding expansion of bank issues, and by a commensurate extension of private credits. The business of the country has been stimulated into most unwholesome and fatal activity. Circumstances, unlooked for, have occurred to aggravate the epidemic frenzy. The government has obtained the payment of long delayed indemnities from foreign powers; and new formed corporations have contracted large loans abroad. These sums, added to the product of our staples, have been exhausted by the excessive importations. Domestic speculation—speculation in the products of home consumption, in land, in town lots, in houses, in stock enterprises, in every thing, has kept pace, step for step, with the inordinate increase of foreign trade. What is to pay all this vast accumulation of debt? It must come at last out of labour. It must come from the products of industry. We have been borrowing largely of the future, and have at last arrived at the point where we must pause, and wait for the farmer, the mechanic, and patient hewer of wood and drawer of water to relieve us from our difficulties.
Reader, take home to your bosom this truth, and ponder well upon it, it is the bank system of this country, our wretched, unequal, undemocratic system of special privileges, which occasions the difficulty we now begin to feel. It is not pretended that under the free trade system of credit, or under any system, commercial revulsions would not sometimes, and to some extent, take place. They are incident to the nature of man. Prosperity begets confidence; confidence leads to rashness; the example of one is imitated by another; and the delusion spreads until it is suddenly dissipated by some of those rude collisions, which are the unavoidable penalties of a violation of the laws of trade. But such fearful and fatal revulsions as mark the eras of the commercial history of this country, would not, could not, take place under a free trade system of banking.
It is when ignorant legislators pretend to define by law the limits of credit and shaking at one time with unnecessary trepidation refuse to enlarge them to the wants of trade, while at another they extend them far beyond all reasonable scope—it is when such “tamperers with the currency” attempt to control what is in its nature uncontrollable, and should be free as air, that revulsion, panic, and commercial prostration necessarily ensue. While we have restraining laws and specially chartered banks, we shall have periodical distress in the money market, more or less severe, as the period has been hastened or delayed by accidental causes. Party writers may at one time lay every disorder to the removal of the deposites, and at another to a treasury order; but whatever orders the Treasury may issue, the alternate inflations and contractions of the paper currency incident to such a pernicious system as ours will continue to produce their inevitable consequence, unwholesome activity of business, followed by prostration, sudden and disastrous.
. . .
WHY IS FLOUR SO DEAR?
December 3, 1836.
This question is in every body’s mouth, and the following paragraph hints the answer which the writer seems to think will explain the difficulty:
. . . Is it a scarcity of the article of flour in the market, which raises the price to ten dollars per barrel, at a moment when money is worth two per cent a month? Or have those who had the control of money facilities combined to buy up all the wheat at moderate prices, with the design of speculating by a monopoly of one of the necessaries of life? Mechanicks and others have been indicted for combining to raise the price of labour; and it might be well to inquire whether combinations to raise the price of wood, pork, flour, and other necessaries of life, beyond a fair profit, are not equally offences against society.
The foregoing is from the Albany Argus. The information it conveys in relation to the amount of the wheat crops is valuable. But the measure which it suggests for the purpose of reducing the price of flour is at utter variance with the principles of free trade, and with the natural rights of citizens. If mechanicks combine to raise the price of wages, they but hold forth an invitation to competition from beyond the sphere of combinations, and competition will soon arrange prices according to a just scale of equivalents. If merchants combine to raise the price of flour by purchasing all in the market, they but provoke competitors in foreign ports, whose rivalry will soon set matters right. The laissez nous faire maxim applies here as forcibly as in any other concern of trade. The true way is to leave trade to its own laws, as we leave water to the laws of nature; and both will be equally certain to find their proper level.
We already find that, incited by the high prices of bread stuffs here, foreign competitors are sending supplies across the ocean, and underselling our agriculturists at their own doors. Part of the cargo of the Bristol, which was wrecked at Rockaway a fortnight ago, was English wheat; and we notice in the accounts of importations in the newspapers that frequent mention is made of large quantities of foreign grain. Why is this? Why are prices so high in this country that the wheat growers of Europe can incur all the expenses of transportation, freight, insurance, commissions, and storage, and still undersell us in our own markets? Does the Argus really suppose that this result is brought about by a combination among the dealers in flour, “with the design of speculating by a monopoly of one of the necessaries of life?” The cause, let it rest assured, lies deeper than this. The monopoly is one of a worse character, of greater power, of more ruinous operation. Short crops may do something; combination may do something; but the high prices are mainly the result of the monopoly of banking. They are the natural and inevitable consequence of the wretched system which places the currency of the country completely under the control of a comparatively few specially privileged chartermongers, who avail themselves of the speculative disposition of the people to flood the country with a paper circulation, till the influx produces its natural effect of causing a vast depreciation of money, or appreciation of money prices, which is the same thing, and attracts competitors from all parts of the world to our market. These competitors do not take in payment, and carry away with them, the spurious currency which the monopoly banks have issued, but demand specie; and then comes the necessity of sudden retrenchment, followed by wide spread commercial distress. Prices then begin to fall; and at this point we are now arrived. Flour must soon go down, despite of all combinations, fancied or real; produce of all kinds must go down; rents must go down, and labour must go down; and all things must gradually adjust themselves to the retrenched state of the currency. When this period of depression is past, and the crops of the next year have paid up the deficit occasioned by overtrading during the present, the banks will begin to be liberal again, (munificent institutions!) and, urged on and stimulated by them, the people will act over again the same scenes of mad speculation, till the drama again concludes with a catastrophe of disastrous revulsion.
We should be glad if the Argus would turn its attention to the monopoly which is the true source of our high prices and all our financial difficulties. It will find that our exclusive bank system is the cause of the evil, and the repeal of the restraining law the only effectual remedy.
THOUGHTS ON THE CAUSES OF THE PRESENT DISCONTENTS
December 10, 1837.
The title of this article is borrowed from Burke; and would that we could borrow, also, the power of cogent reasoning and affluence of eloquent expression which distinguished the writings of that strong and original thinker, for the theme we have to treat of is worthy of such qualities. That theme is the present financial difficulties, which press with intolerable weight upon the community, and force a murmur even from the sturdiest of those who have stood unmoved amidst all former revulsions. The pressure now, unlike that of 1834, is not purposely caused by the strategy of a gigantick monied institution, warring with the government of the country, and attempting to set itself up as a second estate, greater than the people. It is not caused by a withdrawal of mutual confidence between man and man, during the temporary influence of a panick, created and fomented by the demagogues of a desperate party, for a political end. It is not caused by any failure in the sources of real national wealth; by a sudden falling off in the great staple commodities of the land; nor by any extraordinary or unlooked for vicissitudes in the affairs of the countries with which we carry on reciprocal commerce. What then is the cause of the suffering so keenly felt, and so loudly complained of at the present time? To this we answer, throwing all minor and inadequate circumstances out of view, that the pernicious bank system of our country is the cause! That is the fountain from which the stream of mischief issues, swelled, it is true, by unimportant tributaries, but there taking its rise, and thence deriving the chief volume of its waters. That is the source of the modern Phlegethon, whose burning tide sets those who drink it mad, and wastes the land through which it flows, making it a second Tartarus.
Any person who has soberly observed the course of events for the last three years, must have foreseen the very state of things which now exists. Any person who, from the present unhealthy and dangerous elevation to which the business affairs of the community have been pushed, will turn back his eyes in calm retrospection, must perceive that we impute the evil to its true origin. He will see that the banks, ever since the temporary revulsion of 1834, have been striving, with all their might, each emulating the other, to force their issues into circulation, and flood the land with their wretched substitute for money. He will see that they have used every art of cajolery and allurement to entice men to accept their proffered aid; that, in this way, they gradually excited a thirst for speculation, which they sedulously stimulated, until it increased to a delirious fever, and men, in the epidemick frenzy of the hour, wildly rushed upon all sorts of desperate adventures. They dug canals, where no commerce asked for the means of transportation; they opened roads, where no travelers desired to penetrate; and they built cities where there were none to inhabit, which now stand in their newness, like Palmyra in its ruins, untenanted and solitary, amidst a surrounding desert.
. . .
What has been, what ever must be, the consequence of such a sudden and prodigious inflation of the currency? Business stimulated to the most unhealthy activity; a vast amount of over production in the mechanick arts; a vast amount of speculation in property of every kind and name, at fictitious values; and finally, a vast and terrifick crash, when the treacherous and unsubstantial basis crumbles beneath the stupendous fabrick of credit, and the structure falls to the ground, burying in its ruins thousands who exulted in the fancied security of their elevation. Men, now-a-days, go to bed deeming themselves rich, and wake in the morning to find themselves stripped of even the little they really had. They count, deluded creatures! on the continued liberality of the banks, whose persuasive entreaties seduced them into the slippery paths of speculation. But they have now to learn that the banks cannot help them if they would, and would not if they could. They were free enough to lend their aid when assistance was not needed; but now, when it is indispensable to carry out the projects which would not have been undertaken but for the temptations they held forth, no further resources can be supplied. The banks must take care of themselves. “Charity begins at home.” The course of trade is turning against the country. We have purchased more commodities abroad than our products will pay for, and the balance will soon be called for in specie. The banks, which lately vied with one another in effusing their notes, are now as eager competitors in withdrawing them from circulation, and preparing for the anticipated shock. They have no time to listen to the prayers of the deluded men whom their deceitful lures seduced so far upon the treacherous sea of credit. They cast them adrift without remorse and leave them to encounter, unaided and unprepared, the fury of the gathering tempest. Or should, perchance, some tender hearted moneychanger relent, and consent to tow a few victims into harbour, is it unreasonable that he should charge wrecker’s fees for the service—half the cargo and twenty per cent commissions on the remainder? The cashiers of some of our banks can tell you that these are but the usual rates.
It suited the purposes of party, a short time since, to lay all the difficulties of the money market to the account of certain orders of the Treasury Department, removing a portion of the government funds from one place of deposit to another. And it equally answered the purpose of another class of politicians to ascribe the evils to the necessary operation of the distribution law. But the election is now past, unduly to influence the result of which both these theories were maintained, and, by common consent, it is now tacitly admitted that neither fully accounts for the effect. Beyond all question, both had some share, and particularly the latter, in swelling the amount of embarrassment; but the great, abiding, all-sufficient causes lay deeper than these: the madness of speculation was the immediate one, the inflation of the currency the remote. A pernicious bank system had stimulated the nation into the wildest overtrading, and we now experience the necessary consequences of reaction. The vehement complaints against the banks, because they do not afford relief, which daily fill the columns of certain newspapers, are utterly absurd. The banks cannot help the community; they have enough to do to take care of themselves. They are fearfully potent in producing the mischief, but utterly impotent to remove it. They have a power of evil, but not of good. They administer the bane, but have no antidote. The same causes which occasion pecuniary distress among the merchants, equally affect the money changers, and in the same way. The banks are overtraders as well as the others, and both have to learn that there is but one relief for an overtrading nation, and it must wait for that to be applied by the slow hand of time. They who borrow from the future, and squander in extravagance what is thus acquired, must drudge slowly on in poverty until they acquit themselves of the debt. It is with a people, as with an individual: when the income of a year is lavished in a month, the costly robes and sumptuous table must be succeeded by such food and apparel as served the prodigal son in his reverse of fortune. An invariable law of mechanicks establishes that what is gained in speed is lost in power; and this is not less true in political economy. We have prematurely exhausted our vigour in too rapid a race, and must now pause to recruit our wasted strength.
It is curious, as well as melancholy, to look round, and note the evidences which everywhere meet the eye of that fever of speculation which, for two years past, has been the moral epidemick of the land. The fields, in many places, lie untilled, because the agricultural population has been drawn off to construct railroads and canals, or lay out sites for cities, and prepare the ground for superb edifices capable of accommodating millions yet unborn! Hence we find there are short crops of the main staples of home consumption. Hence we see flour at fifteen dollars a barrel, and hay at forty dollars a ton; and hence foreign agriculturists, the wheat growers of England, and of the very northernmost parts of Europe, are sending their grain to this country—the cultivators on the stormy coast of the Black Sea and the icy shores of the Dnieper send hither their produce, and undersell our farmers on the pleasant banks of the Hudson and the Potomack, at their very doors. During the long wars of Napoleon in Europe, we exported our breadstuffs, and supplied the opposing armies with food. Now we have a standing army at home to support, not of soldiers, but of canal diggers, city builders, and stock gamblers; while the plough stands idle in the unturned furrow, and crows fatten undisturbed in the deserted cornfields. The speculator flaunts by in his carriage, and casts a scrutinizing eye over the neglected farm, not to ascertain the capacities of its soil, but its eligibility as the site for some new scheme of a city, and the probable price it would yield, not by the acre, but by the foot. The children at the wayside scarcely look up at the shining equipage as it dashes along, for shining equipages have become too common to attract the attention even of rusticks. A coach with footboard and hammercloth is no longer a novelty, when half a nation turn builders of carriages for the other half to ride in. But there is an old saying which foretells the destiny of a beggar on horseback, and we fear that there are many in this community now on the eve of experiencing its truth.
STRICTURES ON THE LATE MESSAGE
January 14, 1837.
Text abridged and extract deleted.
The limits into which we were crowded last week by the length of Governour Marcy’s message, allowed us to speak of that document only in a brief paragraph, and in the most general terms. But as we felt called upon to speak of it with censure, it is proper that the grounds of our unfavourable opinion should be candidly stated to our readers.
The fault that we find with the message is that it is a timid, indecisive, commonplace document, following, in a cautious and craven spirit, in the path of publick opinion, and afraid to recommend strenuously even those measures which the publick voice has clearly and energetically demanded. The only exception to this remark is the passage concerning the usury laws, which we fancy must have been written while the author’s mind was still glowing with indignation from the perusal of some able essay on the subject—Jeremy Bentham’s Defence of Usury, perhaps—and sent to the legislature before he had time to revise his opinion according to the suggestions of all those busy fears and scruples which commonly seem to exercise the authority of prime ministers in Governour Marcy’s cabinet councils.
. . .
The analogy which the message attempts to trace, between the power claimed and exercised by the General Government of coining money, and the power which it is asserted belongs to the state governments of interdicting the community (all but a favoured few) from issuing their own notes, has no existence, except in the brain of Governour Marcy.
. . .
The restriction imposed by our federal government on the power of coining money, is much less extensive than is generally supposed; but to whatever extent it exists, it is no infringement of the principle of the equal rights of the citizen, if it is an infringement of the principles of free trade. In the most important view which can be taken of the subject, that of its political character and effect, it is entirely free from the fatal objection which lies against the power claimed for the state governments by Governour Marcy. The provisions of the federal constitution on the subject of coining, and the laws in accordance with them, were instituted for the common protection and convenience of the whole people equally, and give no peculiar facilities and advantages to a few at the expense of the many. In this vital respect the difference is fatal to Governour Marcy’s supposed analogy.
But the power claimed by the General Government “to coin money, and regulate the value thereof,” does not interdict the citizen from coining money also, but only the state governments. Any person may stamp pieces of metal with their name, weight, and quality, and pass them for what they are worth. Any person may make medals, of any form or device he pleases, and sell them, or barter them away, to the best advantage he can; and this is coining money.1 He has no power of declaring that pieces of metal bearing a certain stamp shall be received as of a certain value; because this is an attribute of sovereignty which belongs to communities only in their political organization, and can only be exercised by the duly constituted political authorities. It cannot even be exercised by them, however careful in their adjustment of the size and quality of the coins to the general rate of metallick value, without continual arbitrariness and injustice; since silver and gold, to say nothing of copper, are commodities of continually fluctuating values, as much so in fact, though not in degree, as cotton or flour. The discovery of a new mine, or the invention of a labour saving machine, by suddenly increasing the quantity, diminishes the value; precisely in the same way that a favourable season operates on the wheat or cotton crop. A war in South America, or an epidemick disease or insurrection among the slaves employed in mining, by suddenly diminishing the quantity, increases the value; in the same way that a drought, or an exceedingly rainy season, influences the prices of cotton and grain. A government, therefore, which undertakes to say that a given number of grains of pure gold or silver shall always be received at a given value, is necessarily guilty of an arbitrary exercise of power; and we have our doubts, notwithstanding Governour Marcy affirms that this “has never been considered an invasion of a common right,” whether it is not so in fact, and whether it would not be better to leave actual money, as well its paper representative, to leave coining, as well as banking, entirely to the laws of trade. But to consider this subject now would take us too far from our present object.
The reader will see, from what we have already said, that there is not the slightest validity in the pretended analogy which Governour Marcy has brought forward, and that, as he rests the whole weight of his reasons for the restrictions he recommends on that analogy, they must necessarily fall to the ground. Any individual has a right to stamp his name, and his image too, if he pleases, on a piece of silver or gold, and exchange it for what it is intrinsically worth. In the same way we contend that he has a natural right to give his promise to pay a certain sum on a piece of paper, and, subscribing it with his name, to pass it for what those with whom he deals may be willing to receive it. If he stamps a figure on a piece of gold or silver counterfeiting that made use of on coins authorized or recognized by the government, he is guilty of forgery; and so he would be if he should write a promissory note, and sign it with the name of another person.
But if Governour Marcy’s analogy is good for any thing, it is good in a much larger application than he intended. If the issuing of paper promises is, in fact, issuing a substitute for a metallick currency, and therefore forbidden by the restrictions of the Constitution of the United States against coining, the state governments, in authorizing the chartered banks to do this, violate the conditions of the federal compact, and our whole paper currency is destitute of the warrant of constitutional law.
The passage in Governour Marcy’s message on the subject of banks betrays a degree of feebleness and indecision for which, we confess, after the almost unanimous expression of publick opinion, through the press and through the resolutions of popular assemblies, we were utterly unprepared. We did think that, thus backed and prompted, even Governour Marcy would have spoken out boldly. Yet all he has ventured to say is to refer the legislature to his equivocal and two-sided remarks in a former message, and to express a hope that they will charter no more banks this session. “If you should do so, however, gentlemen, perhaps it would be well to modify and improve the mode of distributing the stock.” How ineffably contemptible! We trust in heaven, if the legislature should pass any more bank charters, that the cupidity and rapaciousness which alone will lead to such legislation may prevent them from making any change in the manner of apportioning stock. A few more such scenes of eager scrambling for the “spoils,” and of venality and corruption in distributing them, as was represented when the stock of the State Bank was divided, will do more to promote true principles of legislation, than a thousand such Bob Acre[s]2 messages as that on which it has been our unpleasant duty to comment. We intended to touch some other points, but we sicken of the subject.
THE VALUE OF MONEY
January 21, 1837.
One of the powers bestowed on the federal government by the Constitution is that of regulating the value of money. “Congress shall have power to coin money, regulate the value thereof, and of foreign coin,” &c. Has any reader a clear conception of the meaning of this phrase? The meaning commonly attached to the word value, both by lexicographers and political economists, as well as by men generally, without reference to dictionaries or books of political economy, is the relation which one thing bears to another, as an exchangeable commodity. This is the so commonly received opinion, that it has been reduced to the form of one of those familiar rhymes, into which a large portion of the popular wisdom is condensed.
The worth or value of a dollar, according to this definition, is fixed by the amount of exchangeable commodities which may be procured for it. Thus, if you can buy of a man a day’s labour for a dollar, a day’s labour is one measure of its value. If you can buy with it eight loaves of bread, those eight loaves of bread are another measure of its value. When the Constitution therefore declares that Congress shall have power to regulate the value of money, is it to be understood that it has the power to say how much labour, or how much bread, shall be given for a coin of silver or gold bearing a certain stamp? We cannot believe that it ever entered into the minds of the people of the United States, or of the framers of the Constitution, to bestow on government such an enormous and terrible power, which could not possibly be exercised, in any case, or to any degree, without the most inconceivable arbitrariness and injustice. Our Restraining Law, and the project of that more infamous law introduced into the Senate of this state by Mr. Maison, were both written with a pencil of light, compared with that clause in the Constitution, if it confers any such absolute and despotick power on Congress. The common sense of every reader will at once reject the idea, as too monstrously at variance with the natural and unalienable rights of man to be entertained for a moment.
What then does the expression, regulate the value of money, mean? If we draw our conclusion from what Congress has done on the subject of money, we shall suppose it means the power of regulating the relative exchangeable values of different coins, one with another; a gold coin, bearing a certain stamp, and containing a certain number of grains of pure gold, shall always be deemed to be worth, as a tender in payment of debts, as much as a certain number of silver coins, bearing a given stamp, and containing a given number of grains of pure silver. In other words, ten silver dollars shall at all times be equivalent to one gold eagle, and one gold eagle to ten silver dollars.
But even in this limited sense of the phrase “regulating the value of money,” Congress cannot possibly exercise the power without being guilty of injustice, for gold and silver do not, in fact, bear any certain and unchangeable relative value. A grain of gold, considered merely as a merchantable commodity, will at one time purchase a greater quantity of silver than at another. Silver is sometimes relatively dearer than gold, and sometimes relatively cheaper; and Congress, therefore, when it gives to the debtor his option as to which he will make payment in, by any invariable standard of relative value, gives him the power of defrauding his creditor. The errour is the same in principle, though not as extensively injurious to the community as if they should exercise, in its fullest latitude, the power conferred by the terms of the Constitution, and declare how much of every mentionable commodity should be exchangeable for a given number of coined grains of silver or gold. Congress, it seems to us, would best discharge its power “to coin money and fix the value thereof,” by simply establishing, for the convenience of traffick, and the deciding of disputes, a unit of value; in other words, by simply declaring that a certain number of grains of pure silver should constitute the dollar; and leave all other divisions and ramifications of currency to adjust themselves by that standard. We threw out a brief hint on this subject in our last number; and have been induced to make these further observations by having our attention drawn to it by a correspondent, whose note we here subjoin:
MR. PLAINDEALER: I have been an attentive reader of your paper since it first had existence, and I freely confess that I have been much edified in the perusal of your articles on free trade, as applicable to banking, &c. But in your last number, the views you express on coining, strike me as being decidedly bad. What benefit could possibly accrue to the community, were every man to manufacture his own money, after his own capricious ideas? Without some standard to regulate the matter, we would have a currency composed of gold, silver, brass, lead, iron, and, in fact, of every thing under heaven, of the value of which no two people could be found to agree, and which would give rise to interminable disputes. As well might you recommend that instead of adhering to plain English, in their converse with each other, men should use unintelligible sounds to express their meaning; and certainly to me the one plan appears as feasible as the other.
But, sir, I remain open to conviction, and if you think this worth replying to, I should be pleased to hear your views at length on the subject.
Our correspondent shall hear our views at length on the subject; but not now. Our columns are preoccupied, and besides, this is a topick which does not require instant pressing. It is enough for present purposes to suggest it as theme for reflection; and we shall be mistaken if the result of meditation be not to convince many an intelligent mind that the free trade principle is susceptible of a far more extended application than they had perhaps dreamed before.
The analogous case which our correspondent has furnished us is very appropriate, but he must excuse us if we choose to consider it an analogism sustaining our views rather than his own. The laws of language are not established by Congress or any other body of delegated powers. Words, it is true, are sometimes coined by Congress, but they do not pass very current, and are generally soon rejected by common consent. What is it then sustains the language in its purity, fixes the meaning of words, and enables us to give to expression a precise and unchangeable import? Every man is at full liberty to be as unintelligible as he pleases. He may reject alike the authority of Johnson and Webster, and fabricate a new language for himself. What restrains him from doing so? The necessities of social intercourse: the mutual advantage which all men find in promoting the general convenience. The necessities of commercial intercourse, and the mutual advantage which all men would find in promoting the general convenience in matters of traffick, would lead, we think, to as certain and desirable results in regard to money, as in regard to language.
If the laws of trade are adequate to the perfect regulation of the matter, no one, we think, certainly no one animated by the genuine principles of democracy, will hesitate to acknowledge that it were better to deny the right of regulating it to the government. Whatever unnecessarily strengthens government, weakens the people; and whatever tends to narrow the powers of government to the execution of the fewest and simplest functions, increases, in the same degree, the strength and dignity of the people.
THE WAY TO CHEAPEN FLOUR
February 18, 1837.
Our paper contains, under the appropriate head, an account of the daring and causeless outrage which disgraced our city last Monday evening. There never was a riot, in any place, on any previous occasion, for which there existed less pretence. There is no circumstance to extenuate it, in any of the aspects in which it can be viewed. The only alleged excuse is the high price of flour, and a suspicion which it seems was entertained, that the price was in part occasioned by a combination among the dealers. But this suspicion has not only no foundation in fact, but if it were well founded, if it were an established truth too notorious for contradiction, it would afford no sort of justification or shadow of excuse to any portion of the community to commit acts of violence, and much less to that portion which was chiefly concerned in this disgraceful tumult.
The chief actors in the riot of Monday evening were, beyond question, members of some of the numerous associations of artisans and labourers affiliated under the general name of the Trades Union. What, let us ask, is the very first and cardinal object of the Trades Union? To enable labour, by the means of combination, and of extensive mutual countenance and co-operation, to command its own price. And is not labour as much a necessary of life as flour? Is it not, in fact, more indispensable? Is it not the chief, the prime, the very first necessary of man, in his social organization? What would this city do for a week, nay, for a single day, if labour, in all its varieties of form and application, should wholly and obstinately refuse to perform its offices? It does not require any great fertility of imagination to picture the social anarchy, the chaotic confusion, into which the whole frame of things would be thrown. Yet it is to enable it, on occasion, to do this, or, as the only alternative, to compel capital to pay whatever price it chooses to exact, that the combination of different mechanic and operative crafts and callings has been formed. And these very people, thus combining to create, in effect, a monopoly of the chief necessary of life, are so enraged by the mere suspicion that the dealers in flour—a commodity for which there are many substitutes, and not indispensable if there were none—have followed their example that they assault the doors and windows of their storehouses with stones, crowbars, and levers, break down all barriers, scatter their property to the winds, and even tear, into irrevocable fragments, their most valuable books and accounts!
. . .
With regard to the question of combination we wish to be distinctly understood. If the dealers of flour had combined to monopolize the article, and to fix a high price upon it, we would hold them answerable for their conduct neither to the civil law nor to mob law, but to the inevitable penalties of a violation of the laws of trade. In the same way, when labourers combine to fix the price of labour, we would hold them responsible only to those natural and immutable principles of trade which will infallibly teach them their error, if they do not graduate the price according to the relations of demand and supply. We are for leaving trade free; and the right to combine is an indispensable attribute of its freedom.
That the price of flour is not the result of combination, but of causes which lie much deeper, we fully believe. One of those causes is a deficient crop; but the chief cause of the enhancement in price, not of that article alone, but of every variety of commodity, is the vast inflation which the paper currency has undergone in the last two years. It is not that exchangeable commodities have risen in value, but money, or that substitute for money which the specially privileged banks issue, has depreciated. The fluctuations in the currency must necessarily occasion equal fluctuations in money prices; and these fluctuations must necessarily be exceedingly oppressive to many, since all commodities do not instantly rise and fall in exact relative proportion, but require, some a longer, and some a shorter time, to be adjusted to new standards. The clergyman and the accountant on stated salaries, the tradesman who sells his articles according to a price fixed by ancient custom, and very many others, cannot immediately increase their demands as the price of other things increase; and such are affected most injuriously by the continual augmentation of paper money, resulting from the incorporation, every year, of whole herds of specially privileged bankers.
The true way to make flour cheap, and beef cheap, and all the necessaries of life cheap, is, not to attack the dealers in those articles, and strew their commodities in the streets, but to exercise, through the ballot boxes, the legitimate influence which every citizen possesses to put an end, at once and forever, to a system of moneyed monopolies, which impoverish the poor to enrich the rich; which, building up a class of lordly aristocrats on the one hand, and degrading the mass into wretched serfs on the other; and which has already exercised a vast and most pernicious influence in demoralizing both the educated and the ignorant classes of society—both those who fatten on the spoils of the paper-predatory system, and those from whose very blood the spoils are wrung.
THE MONEY MARKET AND NICHOLAS BIDDLE
April 1, 1837.
Title added. Text abridged and extract deleted.
The money-market has been in a violent ferment during the past week. Meetings of the merchants, “protracted meetings,” and frequent informal conferences have been held. The result of the whole matter has been an application to the Philadelphia Money Autocrat, Nicholas Biddle,1 for his gracious and merciful interposition. “Drowning men catch at straws,” and a mere man of straw has the bank potentate proved himself to be on this occasion. His worshippers, however, reverence him as possessing the attributes of potentiality, and their homage is as fervent as that of a race of croakers of old to King Log. . . .2
. . .
Either Nicholas Biddle has the prodigious money power which the merchants ascribe to him, or he has not. If he has in truth the power of relieving the financial distresses of the times, then the ground of the last administration for opposing the renewal of the charter of such a potential institution, which holds the destinies of the Confederacy in the hollow of its hand, and which can create plenty or scarcity, prosperity or ruin, at the volition of a single mind, is shown to have been correct. If he has not this power, what a wretched farce is now played off before the community. But the merchants obviously believe in his potentiality, and thus, so far as they are concerned, acknowledge the validity of General Jackson’s original and chief position. Yet they opposed him for assuming it. This, then, shows that their temporary pecuniary interest outweighs with them the eternal political interests of their country. What a commentary on the patriotism of the desk and the ledger!
But are the proposed measures3 truly measures of relief, or are they only calculated to arrest, for a brief space, the descending blow, to fall at last with accelerated force and augmented weight, not on the heads now justly exposed to the shock, but on the heads of those who, not having been participants in the enormities of mad speculation, have not merited its terrible consequences? The latter clause of this alternative question, it seems to us, must be answered in the affirmative.
What has produced the evil state of things under which the community now groans? A too wide extension of credit, far surpassing the demands of healthy and legitimate business, and diffusing itself to all sorts of chimerical enterprizes. The legitimate business of a country is measured by the amount of its exportation and the domestick consumption of its own products. When it exceeds this limit it becomes unhealthy speculation, certain to terminate, sooner or later, in revulsion and ruin; as the machine, driven beyond the rate of speed fixed by the laws of its mechanism, is sure to be thrown out of repair, if not broken all to pieces. That this is the case with our community is a position too self-evident to require argument. The plan of relief, as it is called, which is now proposed, is a mere plan to put off the day of payment of the immensely over-inflated amount of debt. But the means of procras[tina]tion are of the most expensive kind. Those who are to receive the benefit of the extension of credit, will be obliged, in the nature of things, to pay prodigious rates of interest for the present funds they realize, and the day of ultimate payment will find them less able to meet their obligations than they are now. Those whose imaginary wealth consists in houses and lands held at a nominal value far exceeding their intrinsick worth, will not suffer the bubble which they have so long fancied actual substance, to burst into empty air, as long as they can keep up the sparkling nothing by forced loans, procured at any rate of extortion. Neither will they retrench their luxurious style of expenditure, assumed in the confidence of sudden wealth. The shock which is thus deferred will thus fall at last with accumulated force. But in the meanwhile one set of creditors will be substituted for another. The banks, which, if the crisis were now to take place, would sustain their share, or a share, of the loss, will, in the interval of prolonged credit, take good care to entrench themselves behind triple securities. The foreign creditors, in extending indulgence, will be equally on the alert to secure ultimate payment; and the blow will finally fall on the mechanick and labourer, on thousands of general creditors, who, if men were now suffered to experience the natural consequences of their rashness and folly of speculation, would come in for an equal portion of indemnity.
It is our s[i]ncere conviction that the proposed measure of procrastination, and any measure of procrastination, can be followed only by an increase of ultimate evil. That evil may be spread over a wider surface, but it will not be diminished in amount. The old saying, that the hair of the dog is a cure for his bite, will be found as false in its present, as in its more usual application. It is seldom the same thing possesses utterly opposite qualities. There is a new theory in medicine which administers as a remedy that which caused the disease. The merchants and Mr. Biddle are now for applying this theory to business. An excessive inflation of bank credit caused the evil; and they now propose a still further inflation as the cure. The traveller who warmed his frozen hands with his breath in the cave of the Satyr, and afterwards blew in his porridge for an opposite purpose, excited the admiration of his host. We shall not less admire the miraculous qualities of Nicholas Biddle if the breath of his nostrils can produce such contrary results. The frog, in the fable, when he was blown up to unnatural dimensions, finding himself in pain, asked to be still further distended; but he was destroyed, not relieved, by the experiment. When the rain for forty days and forty nights covered the earth with a deluge, it was not a continuation of the storm that caused the waters to subside. We doubt if the community can be rescued from the dreadful consequences of a deluge of bank credit, by a further effusion from the fountain of evil.
THE PRESSURE—THE CAUSE OF IT—AND THE REMEDY
April 29, 1837.
Text abridged and extracts deleted.
These three phrases embrace the only topick which now has interest for the publick mind. Amidst the desolation of the financial tempest raging on every side, men regard nothing but the ruin it is spreading through the land, and think of nothing but staying its progress, or escaping from its wrath. Consternation is painted on every face, and anxiety throbs in every heart. “What shall we do to be saved?” is the question that falters on myriads of lips; while the incoherent and contradictory statements of those who attempt to reply show how feeble are the struggles of reason in minds paralyzed with fear.
It is one of the inevitable consequences of popular institutions, that no subject of general interest can arise, which publick writers will not endeavour to turn to the uses of party. It would be strange, indeed, if wide spread pecuniary embarrassment should constitute an exception to the remark; since, while it obviously furnishes a prolifick theme of criminatory declamation, but few persons, are sufficiently acquainted with the principles of commerce to detect the real cause of derangement, and ascertain what secret spring has interrupted the revolutions of the stupendous machine, and thrown its vast complication of wheels and levers into disorder. While trade is in prosperous operation, it seems governed by laws as fixed and harmonious and to most minds as inscrutable, as those of the universe. Each link in the mighty chain, each part of the prodigious whole, performs its allotted office, and contributes to the grand result—the improvement of the physical and intellectual condition of mankind. But when derangement takes place, when any thing occurs to interrupt the harmonious movement, such are the mutual relation and dependence of the various parts, that the inquirer is bewildered in his attempts to investigate the cause of the confusion, and is ready to listen to any explanation that fixes the blame of the disaster on those whom he had previously regarded with dislike.
That party writers should take advantage of the present commercial embarrassments to impute censure to those of opposite politicks is therefore not surprising; nor need we be surprised that the wildest of their theories are listened to with credulity by some. Those who impute all the disorders of the community to the operation of that order of the General Government which requires that gold and silver only shall be received in payment for publick lands, find themselves followed notwithstanding the monstrous absurdity of their creed, by a numerous class of disciples; while they, on the other hand, who charge the calamity solely to the distribution of the federal revenue, have also their followers who give full faith to the explanation. Our own opinion has been so frequently expressed, both in this journal and elsewhere, and not only since the embarrassments commenced, but long before the activity of commerce received its first check, that it would be idle to repeat it now. Overtrading has been the cause; and the multiplication of specially chartered banks, with the prodigious amount of paper currency issued by them, has been the main cause of the extravagant spirit of traffick and speculation which the whole people have displayed. One branch of this extensive credit business, carried on entirely through the assistance of the false capital of these paper money institutions, is ably exposed in the annexed article from the Journal of Commerce of Wednesday morning.1
. . .
There is another branch of enormous overtrading, the data in relation to which are precise and certain. We allude to the speculations in the publick lands—lands yet lying in a state of nature, over many of which the foot of the white man has hardly ever trod, and which, in the ordinary course of events will remain untrodden for years. The speculators have far outrun the tardy operations of nature. If men had the fecundity of fishes, it would yet take a long time for population to increase sufficiently to realize their projects. Their cities, towns, villages and watering places, are yet in the same condition with the cotton on which the New Orleans bank and cotton monopolists have advanced their two hundred millions of paper credit. The seed of the cotton is not yet planted, and the very building materials of those cities and towns are yet to be sought in the quarry, the clay-pit and the forest. But in the meanwhile all engaged in these speculations—in this enormous overtrading—have been living as if their wildest plans had been realized. Bank credit has supplied them with the means of present luxury, and they have not scrupled to use it at the most lavish rate. Much of the real profits of the country have gone to the vintners and lace workers of France. People have worn out in costly clothes, and drank up in costly wines, the products of labour.
But we are tired of contemplating this side of the picture. Let us turn to consider in what manner the evil can be remedied. There are those who eagerly avail themselves of the present condition of affairs to demand the reinstitution of a federal bank. But, to say nothing of constitutional objections, and nothing of the political evils to be apprehended from such an institution, has a federal bank ever prevented commercial revulsion? Let the history of 1819, 1825 and 1834 answer the question. As for remedy, there is but one—a steady exercise of industry and frugality. The remedy for a whole community in bankrupt circumstances, is preciseIy the same as for a single individual. When a man contracts debts to a larger sum than the amount of his earnings, he can pay the balance against him only by increased industry and economy. But the means of avoiding a recurrence of the evils now experienced is as important a subject of consideration, as the means of remedying them. In our judgement, they are exceedingly simple. Perfect freedom of trade presents an effectual safeguard against commercial revulsion, and all the thousand horrours which speculation, stimulated to madness by the intoxicating cup of bank credit, inflicts upon the community. Do you want a banking institution to regulate the currency and exchanges? Freedom of trade will supply you with one. It will supply you with all the facilities of trade which a federal bank could supply, and will be free from all the political objections which rest against such an institution. If the restraints on trade in money and credit which exist in this state alone, were repealed to-day, a voluntary banking association would be formed to-morrow, with an aggregation of capital sufficient for all the mercantile purposes of the community. The liability to boundless competition would lead it to place the most unquestionable security for its issues before the publick. The natural rivalry of trade would cause it to return the notes of other institutions for specie, whenever they accumulated beyond a certain point, and this would prevent overissues. We should have a vast banking institution, in effect monopolizing, to a great extent, the financial business of the country, but without anything odious or oppressive in the character of the monopoly, since it would be hedged round by no special enactments, would be open to universal competition, and would depend for its success, and the continuation of its advantages, on the correctness with which it conducted its affairs. It would partake of the character of a monopoly, simply because of the extent of its real capital; and only in the same way that large capitalists, in all branches of business, monopolize, in proportion to the amount of their means, and the intelligence and activity with which they are employed, the peculiar traffick in which they are engaged. Such an institution, subject to the rivalry of jealous, vigilant, and active competitors, would be the immediate offspring of free trade. We see that all attempts to regulate credit and currency by political intermeddling, both in this country and in Europe, have signally failed. We see that in Scotland, where the business of banking is left as free from legislative interference as the business of boot-making, no revulsions, no panicks, no general bankruptcies, have ever taken place. What obliquity of vision is it then that hinders us from perceiving, that the course which wisdom points out for us is to emancipate commerce and finance from legislative thraldom, and leave them to manage their own affairs, subject only to their own irrevocable and immutable laws?
CONNEXION OF STATE WITH BANKING
May 6, 1837.
Text and extract abridged.
A paragraph from a recent number of this paper, under the head of Political Meddling with Finance, is copied by the Richmond Whig, and commented upon as a concession that the “experiment” of the last administration, with regard to the currency, has failed. That journal holds the following language:
“The following article from the Plaindealer, the ablest and most honest Van Buren paper with which we are acquainted, makes the important concession that the great ‘Experiment’ of the hero has failed. . . .”
. . .
. . . This is not a Van Buren paper. The great purpose of our journal is to advance the cause of political truth. We do not adopt, as our maxim, the stale and deceptive cant of principia non homines, which is usually the motto of those whose purposes are utterly selfish and base. We contend for men, as well as principles; but for the former as the means, and the latter as the object. For this reason, we are friendly to Mr. Van Buren, considering him as the instrument chosen by the democracy of the country to carry into effect democratic principles in the administration of the federal government. So far as he is true to that great trust, he shall assuredly have our zealous support; but we shall support him in no deviation, however slight, from the straight and obvious path of democratic duty, and should he, in any instance, stray widely from it, he will assuredly encounter our decided opposition. Of this we have already given an earnest, in our condemnation of the strange and startling avowal with which he commenced his executive career—his precedaneous exercise of the veto power.1 It is an unwarrantable use of political metonymy, then, to call the Plaindealer a Van Buren journal. It is a democratic journal, and is ambitious of no higher name.
With regard to the imputed concession made by this paper, we only ask that our language should not be strained to larger uses than its obvious purport justifies. We do not consider that the “experiment” has failed, if by that party catchword is meant the measures of the last administration in regard to the United States Bank. We approved then, and approve now, the veto of the bill to recharter that institution. We approved then, and approve now, the removal of the federal revenues from its custody. And we should consider the reinstitution of a bank, in the popular sense of that word, by the federal authority, as one of the very worst evils which could befall our country. What we disapprove now, and what we have always disapproved, is that the government should connect itself, in any way, or to any extent, with the business of banking. When it removed its money from the federal bank, it should not have deposited it with the banks which exist under state authority. It should have stood wholly aloof from such institutions. The only legitimate use which it has for its funds is, in our view, to pay its necessary expenses; and the only legitimate keeper of them in the meanwhile is itself. The treasures of the United States are raised by taxation, in specified modes, for the purpose of paying the debts and providing for the common defence and general welfare of the country. The Constitution recognizes nothing as money but gold and silver coin; and the government should therefore receive its revenues in nothing else. It recognizes, in strictness, nothing as an object to which those revenues are to be applied but the necessary expenses incurred in conducting the general political affairs of the Confederacy. The safe keeping of the money, then, is the only object to be effected, between the collection and the disbursement of it. For this purpose the government is itself fully competent. It has but to establish a place of deposit, under proper guardians, in the commercial focus of the country, and pay the various branches of public service with checks or drafts on that depositary. It has, properly, nothing to do with the exchanges of the country. They are an affair of trade, which should be left to the laws of trade. It has, properly, nothing to do with the currency, which is also an affair of trade, and perfectly within the competency of its own natural laws to govern. Let the government confine itself to its plain and obvious political duties. Let it have nothing to do with a “credit system.” Let it connect itself neither with corporations nor individuals. Let it keep its own money, taking care that it is money, and not promises; and let it leave it to unfettered sagacity and enterprise to devise and carry into effect whatever system of exchange and credit may be found most advantageous to the commercial interests of society.
The first objection which will probably suggest itself to these views is, that they contemplate the keeping of a vast fund of the precious metals hoarded up from use, which might be profitably employed as the basis of commercial credit. But it is not necessary that the fund should be vast, and, on the contrary, it is admitted by politicians both of the democratic and aristocratic sects, the former on general political principle, and the latter from aversion to the dominant party, or distrust of its integrity, that the revenue should be adjusted to the scale of expenditure. The keeping of the surplus safely locked up in the shape of money, would afford an additional motive to both parties to increase their efforts to reduce the revenue to the minimum amount. Again, as to this money being susceptible of being usefully employed as a basis of credit. Credit to whom? The government does not need it; for it has no business to transact on credit. The people collectively do not need it; for it is as much a part of the substantial wealth of the country under the lock and key of the federal treasury, as it would be under that of any bank or individual. And no bank or individual needs it; for the credit of every bank and of every person is sufficiently extended when it covers the basis of their own real wealth. If extended beyond this, on the basis of a loan or deposit from the government, it is obvious such bank or individual would be deriving an advantage by jeoparding the money of the government; that is, of the people; that is, the rights of the many would be endangered for the benefit of the few.
Another objection to our theory may be urged, that if the government gathered its revenue for safe keeping at any one point, its checks on that fund, in some quarters where payments would be necessary would be below par, and the receiver of them would thus be defrauded of a portion of his dues. This would not be so, in fact, in any part of our country, if the commercial focus of the Confederacy were selected as the place for the federal depositary. Should it happen, however, in relation to any branch of the public service, say, for example, some military outpost, the government would but be under the necessity of transporting the requisite amount of funds to such outposts; and the cost of doing so would be as much the legitimate expense to be defrayed out of the general fund, as any other expense incurred in the conducting of our political affairs. The same remark will hold good of the cost of conveying the revenues from the various points where collected, to the place of general deposit.
These are, in brief, our views as to the duty of the federal government, in regard to the collection and disbursement of its revenues. The great object which we desire to see accomplished, and to the accomplishment of which, we think, the course of things is obviously tending, is the utter and complete divorcement of politics from the business of banking. We desire to see banking divorced not only from federal legislation, but from state legislation. Nothing but evil, either in this country or others, has arisen from their union. The regulation of the currency, and the regulation of credit, are both affairs of trade. Men want no laws on the subject, except for the punishment of frauds. They want no laws except such as are necessary for the protection of their equal rights. If the government deposites its money with a corporation, a voluntary association, or an individual, it does so either on the condition of some return being rendered, or none. If none, an advantage, which is the property of the whole people, is given to one or a few, in manifest violation of the people’s equal rights. If it receives a return, that return is either an equivalent or not. But no corporation, association, or individual would render an exact equivalent, since only the profit of the trust would present a motive for assuming it. If the return is not an equivalent, it is still manifest that one or a few are benefited at the expense of the many.
We are no enemy to banking. It is a highly useful branch of trade. It is capable of accomplishing many important results, the advantages of which, without legislative control or impediment, would naturally diffuse themselves over the whole surface of society. Banking is an important wheel in the great machine of commerce; and commerce, not confining the word to merchants, who are mere intermediaries and factors, but using it to express the stupendous aggregate of that vast reciprocal intercourse which embraces alike the products of agriculture and art, science and literature—commerce is the efficient instrument of civilization and promoter of all that improves and elevates mankind. We cannot therefore be an enemy of any essential part in so beneficent a whole. Our hostility is not directed against banking, but against that legislative intermeddling, by which it is withdrawn from the harmonious operation of its own laws, and subjected to laws imposed by ignorance, selfishness, ambition and rapacity.
The “experiment” of the last administration, so far as it was an experiment intended to separate the government from connexion with banks, and to bring about the repudiation of every thing but real money in its dealings with the citizens, has our warmest approbation. The specie circular, for the same reason, is an “experiment” which we wholly approved, and Mr. Van Buren has strengthened our good opinion of him by his firmness in adhering to that measure, against the clamour of which it has been made a prolific theme. Glad should we be, if a law, of a tenor corresponding with that order, were enacted in relation to the payments at the customs. We should be rejoiced if the federal government should set so noble an example to the monopoly-loving legislatures of the states, and teach them that the money of the Constitution is the only money which should be known to the laws. They who ascribe the present embarrassments of trade to the “experiments” of Andrew Jackson are not wholly in the wrong. Much of the present evil, we do not question, might have been avoided, had the United States Bank been quietly re-chartered, without opposition, and without curtailment of its powers. It would then have had no motive for its alternate contractions and expansions, beyond the mere desire of pecuniary gain, unless, indeed, it had chosen to play the part of “king-maker,” and dictate to the people whom they should elect to fill their chief political trusts. But not being quietly re-chartered, it undertook to coerce the administration to do what it was not disposed to do of its own free will, and hence was tried, in the first place, the efficacy of a sudden pressure, and afterwards of a sudden expansion. It was this course which gave the original impulse to the spirit of wild speculation, and led to the creation of such a large number of banking institutions by the several states. The result, probably, was not wholly unforeseen by the late President, when he refused his signature to the act renewing the charter of the United States Bank. The path of duty, however, lay plain before him; and to turn aside from it would have been as inexcusable, as would be the conduct of that judge who should pardon an atrocious criminal from the fear that, if executed, his confederates might embrace the occasion to excite a tumult, and throw the community into temporary disorder. The course of justice ought not to be stayed by such a consideration in the one case more than in the other.
If the community desire a banking institution, capable of regulating the currency and the exchanges, and possessed of all the power for good which distinguished the United States Bank, without that enormous power of evil by which it was more distinguished, let them, through the ballot-boxes, insist on the abolition of all restraints on the freedom of trade. Enterprise and competition, if they were free to act, would soon build up a better bank than it is in the power of Congress to create, putting out of sight the constitutional objection; and they would regulate its issues, ensure its solvency, and confine it within the proper field of bank operations, far more effectually than could the most cunningly devised checks and conditions which legislative wisdom ever framed. This is the great “experiment” which has yet to be tried; and it requires no spirit of prophecy to foresee that one of the great dividing questions of politics for some years to come will resolve itself into a demand, on the one hand, for a federal bank, and, on the other, for the total separation of bank and state. We have provided with great care against the union of politics and religion; but in our judgment a hierarchical mixture in our government is not more to be deprecated than an alliance between legislation and banking. Church and State, has an evil sound; but Bank and State grates more harshly on our ears.
“Laissez nous faire.”
May 13, 1837.
The community is now experiencing a beautiful illustration of the excellence of the monopoly system. All the banks in this city suspended payment on Wednesday last, and it is to be presumed the example will be followed far and wide. Here, then, is an end of the safety fund bubble, the best system of banks and currency ever devised by human ingenuity, if we may believe the Albany Argus, and its followers of the monopoly school, and one of the worst that ever fraud imposed upon credulity, if we will but examine it by the lights of wisdom and experience.
We say here is an end of the safety fund bubble; but this position is conditional on the people’s asserting their equal rights, and demanding the absolute divorcement of legislation from the business of banking, and from all supervisory connection with trade and credit, further than the mere enforcement of the obligations of contracts, and the punishment of frauds. If the present condition of things does not impel them to do this, they are sunk in a depth of fatuity beyond all hope of redemption. It is as palpable to the mind, as the universal light of day to the senses, that the present anarchical and chaotic condition of financial affairs is the result, the direct and inevitable result, of the unholy alliance between politics and banking. The union of bank and state in this country is crushing the people under the weight of a despotism as grievous as was ever imposed upon mankind by the union of church and state. Better, far better, to be under the dominion of a hierarchy, than under the galling and ignoble rule of legislation money-changers.
What a world of wisdom there is in the brief phrase we have placed as a motto to this article! Society, recovering from the delirium excited by the stimulus of special legislation, begins to see that true wisdom consists, not in regulating trade by a system of artificial checks and balances, perpetually liable to be thrown into disorder, which the very complication of the contrivance then renders almost irremediable, but simply in letting trade alone. There are abundant indications around us that we shall not long stand unaided in the views we have frequently expressed of the utter folly and inevitable evil of all legislative intermeddling with the natural laws of trade. Banking is a good thing enough in its intrinsic nature; but government should have no connection with it, and should recognize nothing as money but silver and gold.
We are not an enemy to a paper representative of money, any more than we are to confidence between man and man in any other shape it may naturally assume, for mutual convenience, in the transaction of necessary dealings. We are not an enemy to banking, any more than we are to any other branch of traffic instrumental in carrying on the great commercial intercourse of society. We are an enemy only to a mixture of politics with banking; to the vain attempts to regulate the channels in which trade shall run; to that legislative intermeddling which withdraws credit from the harmonious operation of its own laws, disturbs its equal flow, and leaves the community to be at one time deluged with a cataclysm of paper money, and at another exposed to all the horrors of financial drought.
It would be a happy thing for this country, if the doubtful power under which banks are created had been positively withheld. It would be a happy thing if all right of interference with trade, either by immunities or prohibitions, by restraining laws or special charters, had been solemnly interdicted. More misery, more immorality, more degradation of the many for the undue elevation of the few, than can even be conjectured, have resulted from the vain attempts to regulate the currency. Let commerce, and let the currency, which is but an appendage and accident of commerce, regulate themselves; and let the government confine its attention strictly to the purposes which constitute the sole legitimate ends of political organization, the mere protection of person and property. We should then soon present to the world the spectacle of a people more free, more equally prosperous, and more happy, than has ever yet furnished a subject to the historian. The history of the past is but a Newgate Calender1 on an extensive scale; the history of the future would be a work of a sublimer-character.
In the midst of the financial desolation which has been brought upon us by the inevitable operation of monopoly legislation—by the wretched charlatanry which seeks to prop up an artificial system of credit with special statutes, and hedge it round with penalties and prohibitions—the community has an ample opportunity to contemplate the consequences of that folly which would substitute the laws of man for those of nature, and wholly change the irreversible order of causes and effects. Can any man who has eyes to see, or ears to hear, or understanding to conceive, survey the deplorable wrecks of commerce and credit strewn on every side, the broken columns and arches of the great fabric of trade, or listen to the groans of an agonized community lying prostrate beneath the ruins, without the conviction rushing into his mind, that the melancholy result must be ascribed to those, who, clothed in brief legislative authority, interpose their fantastic expedients in place of that natural system which constitutes the eternal fitness of things. Each fragment of our shattered commerce bears, stamped in characters which he who runs may read, the forceful inscription—“This is the fruit of monopoly legislation.”
We were forewarned, timely forewarned, and by one whose counsel we had reason to respect, of the embarrassments in which special legislation would involve us. The messages of Andrew Jackson are replete with lessons of admonitory wisdom. But the passion of avarice had seized upon our hearts, and the desire of sudden riches outweighed the suggestions of reason. We behold now the consequences of our infatuation. We are now admonished by that sternest of teachers, experience. But the lesson, though rude, will lead only to good, if we have the sense to pause, and read it aright.
The banks are broken, and, without legislative intervention, will soon forfeit their charters. We have been sorrowfully taught the miserable impotence of legislation; it is the fountain from which the waters of bitterness have flowed; let us not then again unseal it, that it may effuse another desolating flood. What can legislation do? Insult the community, by confirming the special privileges of money changers, after their own acts have declared their utter worthlessness? Enable a band of paper-money depredators to prey more voraciously than before on the vitals of the people? Authorize them to pour out a fresh torrent of their promises, now really of no more value than the paper on which they are writ? Will the community tolerate such an enormous fraud?
Let the Banks perish! Let the monopolists be swept from the board! Let the whole brood of privileged money-changers give place to the hardy offsprings of commercial freedom, who ask for no protection but equal laws, and no exemption from the shocks of boundless competition. We commisserate the innocent who suffer by the downfall of the banks; but we cannot consent that a mitigation of their troubles shall be purchased by the perpetuation of a system fraught with so much evil to the entire community. Now is the time for the complete emancipation of trade from legislative thraldom. If this propitious moment is suffered to pass by unimproved, the fetter, now riven almost asunder, will be rivetted anew, and hold us in slavery forever. The choice is presented to us of freedom or perpetual bondage. Let us demand, then, as with one voice, the reintegration of our natural rights; let us protest against the renovation of that cumbrous fabric of legislative fraud and folly, which has fallen of its own weight, and, if raised again, will again topple before the first commercial revulsion, to bury other myriads in its ruins.
If we knew any form of speech which would arrest the attention of our reader, or any mode of argument which would satisfy his reason, that we have not again and again used, we would employ it now, with all the earnestness of a sincere conviction of the importance of the subject, to persuade him that the only true ground of hope for the enduring prosperity of our commerce, in all its vast and complicated relations, consists in giving freedom to trade. Free banking is the system pursued in Scotland, and that country escapes revulsions, while England and America are exposed to continual paroxysms and collapsions, to expansions that unsettle all the foundations of property, and contractions that reduce whole communities to wretchedness and want. England, with all the monarchical and aristocratic potentiality of its government, has never yet been able to regulate the currency, with its stupendous machinery of finance. But Scotland, without any separate government, and without any legislative machinery of finance, has enjoyed a sta[b]le and uniform currency, because it has wisely been left to the natural laws of trade.
If the wants of the community require a great banking institution, capable of regulating the currency and exchanges, set trade free, and it will supply such an institution of its own accord. We need not go as humble petitioners either to our state or federal government, and beseech it to bestow special privileges on a few, that they may regulate the affairs of the many: we have only to adopt the franker and manlier course of demanding back those natural rights, of which we have been defrauded by dishonest and ignorant legislators. We need seek no immunity, but only claim our own. We need ask for the imposition of no new statute on the overburthened people, but only for the abrogation of laws which now weigh them to the earth. We desire nothing but the common privilege of pursuing our own business, in our own way, without a legislative taskmaster to say how much we shall do, what equivalent we shall have for our toil.
The same enterprise which freights the ocean with our products, which breaks our rivers into a thousand eddies with the revolving wheels of steamboats, which permeates the land with canals, and binds state to state in the iron embrace of railroads, would be abundantly able to perform the humble functions of banker, without the aid of legislative favour, or protection. Enterprise would build up, and competition would regulate, a better system of banks than legislation ever can devise. We have tried, to our cost, the competency of the latter, and we are now tasting the bitter consequences of our credulity.
Let us now test the experiment of freedom. It cannot place us in a worse condition than that to which we have been hurled by the terrible avulsion of the monopoly system.
THE BANKRUPT BANKS
May 13, 1837.
The newspapers, with scarcely an exception, eulogize the banks for suspending payment, and now that they have thus declared themselves bankrupt by their own unanimous act, pronounce them as good and solvent as before, and call upon them to extend their loans. Loans of what? Irredeemable promises! On what possible pretence of justice or common sense, can the banks continue their ordinary business of discount, and charge a difference of six and seven per cent between their dishonoured paper, and the valuable paper of those merchants and traders who have withstood the shock of commercial revulsion, and met all their engagements punctually and to the letter? Will any one be so preposterous as to say that the promises of the banks, which are a lie on their face, are as good as the promises of such individuals? But the banks, it is contended, are perfectly solvent, and have assets sufficient to meet all their engagements. This may be so, or it may not; but, for our own part, we have no confidence in these soulless corporations, managed in secret by a mysterious junto, and shrouded altogether from the wholesome scrutiny of the publick eye. What proof have we that the banks are solvent? Is the testimony of the bank commissioners appealed to? How many days, we would then ask, was it, before the Mechanicks Bank declared itself bankrupt, that the community were solemnly assured by a bank commissioner that that institution had abundance of specie to redeem all its obligations to its bill holders and depositors? We know little of the secrets of the prison house; but we know enough to excite deep distrust of this ready exclamation of a venal press that the banks are all perfectly solvent. We know that at least two of the broken institutions have been lending large sums of money without the knowledge of the directors, and one without the knowledge of either president or directors. How many more are in the same category? And to what extent have these unauthorized loans been made? And what is the degree of solvency of those to whom the “accommodations” were extended? Who can answer these questions?
Again, if possibly they are solvent, which is much to be doubted, are they more so, we would ask, than those individuals who are the owners of known and substantial property, and who have not yet suspended payment, but whose promises are scrupulously fulfilled? Who believes that the notes of any of the broken banks are as good as the notes of Mr. Astor? Who would not take, if it were not for the mere facility of passing again, the promise of Mr. Astor, or Mr. Lenox, or Mr. Bronson—nay, who would not take the promise of the humblest mechanick to the extent of his visible means, in preference to the invalidated and faithless promises of those great exclusively privileged bankrupt institutions in Wall street, which now stand as memorials of the egregious folly and dishonesty of special legislation?
Turn a deaf ear then, reader, we entreat you, to all these fraudulent attempts to cajole you into the belief that the banks, though broken, are as good as ever. They may be as good as ever, but they never were good. They were conceived in corruption. They were the spurious offspring of fraud and folly, and their whole career has been illustrative of their parentage. Attempt not, then, to heal the wound inflicted upon their credit by their own suicidal act. Set your face firmly against any legislative resuscitation of the exanimate brood of exclusively privileged money-changers. Now is the accepted time to overthrow forever the ignoble order of rag barons. Now is the auspicious moment when, by an energetick exercise of the popular strength, we may sunder forever the fetters of the paper money feudal system. The utter fatuity of legislative guardianship of the currency is signally illustrated by the present disruption of the links of the most strongly concatenated chain ever fastened by arbitrary power on the limbs of trade; and it is the part of wisdom to see that the broken fragments are not rivetted anew.
Let the banks rise from their ruins, if they can, by the recuperative force of what little vitality is left in them. We would neither render them assistance, nor oppose the slightest hindrance. But let us, in the meanwhile, embrace the lesson taught by their prostration, to insist that our legislative servants should immediately emancipate trade from arbitrary restrictions. If men of capital were at liberty to act, a system of free banking would arise on the ruins of monopoly which would dispense all the good that has ever been performed by the privileged institutions, and would be liable to none of their manifold abuses. The financial facilities which the community requires, in the prosecution of trade, are themselves a branch of trade, and perfectly within the influence of its natural laws. Let us then insist upon the divorcement of legislation from banking. Let us demand commercial freedom. Let us require that politicks shall confine itself to the affairs of government, and leave trade to manage its own concerns.
On the very day when the banks of this city and Brooklyn declared themselves bankrupt, stocks rose in price some fifteen or twenty per cent. This was in the confidence of a new inflation of paper money trash. But will the community consent to this? Will they tamely be imposed upon by a spurious, irresponsible, unredeemable paper currency, not worth so much as the ink wasted in recording the lying promises on its face? Will they witness a fresh series of fluctuating prices; new enterprises of mad speculation; and the prostrate fabrick of monopoly credit, now confessedly without a basis, again reared up to the clouds, to fall again, sooner or later, with more disastrous ruin?
The state of things which now exists we long since foretold; and it does not require a prophetick vision to see that worse difficulties are in reserve, unless we give freedom to trade, separating it from all the corrupt and disordering influences of legislation, and subjecting it to the salutary operation of boundless competition. Leave enterprise and rivalry alone; and the one will build up, and the other regulate, a better system of currency and exchange, than we can ever hope from the wisest legislation, to say nothing of such tampering Solons as govern our political affairs.
WHAT WE MUST DO, AND WHAT WE MUST NOT
May 13, 1837.
There are from three to four millions of dollars in specie in circulation in this city at the present moment. That it does not circulate very freely is probable enough; for people may very naturally be supposed not particularly anxious to exchange real value for broken promises. It is nevertheless in circulation, and would circulate actively, if confidence were restored, forming an ample understratum of currency, without the help of small notes. The great object then is to restore confidence, and the question arises, How is this to be done?
The Journal of Commerce cannot suppose that legislative authority to bankrupt institutions to continue their business, after they have declared themselves destitute of the means of business, to continue to issue their promises, after they acknowledge they have no means of redeeming them, will restore confidence to the community. Bank notes may, it is true, and perhaps must, be taken as the medium of barter, from those who have no actual money; but it is as certain as any result which depends on figures, that prices will be appreciated, and will be constantly fluctuating, while the community has to depend on such a medium, and that there will be a wide difference between the price for money, and the price for the spurious and dishonoured representative of money.
We agree with the Journal of Commerce that we require legislative action; but with a difference as to the kind of action we should ask for. That paper would have the legislature tinker and patch up the leaky and battered system of banking; while we would have it remove those impediments which hinder enterprise from supplying the place of the old system, demonstrated to be so utterly inefficient, with a bran[d] new one. Remove all legal restraints from capital, and how long does the Journal of Commerce suppose it would be before we should have a voluntary banking association in this city, with fifty millions of actual capital, certified and secured in such a manner as would command the publick confidence, and going into harmonious operation with such celerity as to restore, almost as by magick, financial order out of chaos?
If this is so—and our convictions have not been lightly adopted—it is manifestly the duty of the press to exercise its influence to bring about such a state of things. Let the broken banks take care of their own affairs as well as they can under the conditions of their charters. We are sorry for the losses in which they involve thousands who had no share in their misdoings; but we can see no good reason why these exclusively privileged insolvents should receive aid from the legislature, more than the unprivileged insolvents who have been breaking for months past. The best thing to do, in our judgment, and that which would have the speediest, as well as the most certain efficacy, is to emancipate the trade in money wholly from legal restraint. We have tried the forcing and monopoly system; let us now try the voluntary and free trade system.
“THE FORESIGHT OF INDIVIDUAL ENTERPRISE”
May 13, 1837.
Why not leave banking, then, to “the wholesome caution and sagacious foresight which regulate individual enterprise?” Can any one give an intelligible answer why? We have asked this question often, but never met with a response that addressed itself to the judgment of men.
The Board of Trade, of this city, has embraced the occasion of the present crisis in the monetary affairs of the country, to renew its recommendation of the scheme of a federal bank.
. . .
A National Bank never yet, in this or any other country, afforded an effectual preventive or remedy for revulsion. Unlimited and unrestricted competition would build up the best system. It would give you a bank possessed of all the financial powers which a federal bank could be clothed with, and without the political powers, which, aside from the constitutional difficulty, compose the main ground of objection to such an institution. Let us have no overshadowing monopoly, but as gigantick an institution as you please, so long as its growth is only nourished by the demands of commerce, under the wholesome checks which competition supplies.
We have tried various other experiments; but that last, and best, and most certain experiment, remains yet to be tried. It is an experiment in perfect accordance with the principles of freedom, both political and economical. It violates no man’s equal rights. It shuts no man out from the field of enterprise he may deem himself best qualified to cultivate. The time has arrived when a really energetick demand for the emancipation of the credit system from the fetters of political control would be listened to. Let us not spend our strength, then, in clamouring for a federal bank, which the democracy of the country will never grant. Let us join in the cry for free banking. It cannot at all events, make our condition worse than it has been rendered by the odious system of concatenated state monopolies.
THE SAFETY FUND BUBBLE
—Help me, Cassius, or I sink!
May 20, 1837.
The prayer of the insolvent Banks has been granted by our monopoly legislature, and they are permitted, in the teeth of their own confession of inability to perform their contracts, to continue to issue their worthless and lying promises, which the community are virtually obliged to receive as real money. Was there ever a piece of grosser legislative fraud than this? Here have been merchants failing by scores for months past. Many of them show, to the entire satisfaction of their creditors, that their property far overbalances their debts. The difficulty of obtaining ready money has obliged them to suspend their payments; but it is rendered manifest, by a full exposition of their affairs, that not a dollar will ultimately be lost by those having claims upon them. The immediate cause which compelled these persons to suspend their business was the impossibility of obtaining money on any kind of securities. But that impossibility was itself the effect of another cause: and if we trace the connexion of cause and effect to the beginning, we shall find that the whole evil grew out of the monstrous expansion of bank credit, which provoked a most inordinate thirst of speculation, and stimulated men to undertake the wildest enterprises. These enterprises were of a nature to require a continually increasing expansion of bank credit. But there was a limit which the banks did not dare to overpass. When that limit was reached, the demand for money to sustain the mad projects which had been undertaken led to the freely giving of the most exorbitant rates of interest to private money dealers. These rates of interest soon consumed the actual means of speculators, and they were forced to sacrifice their property to meet the further demands upon them. Capitalists, seeing that the financial revulsion had commenced, withdrew from the field in alarm. The banks, fearful of a demand for specie, began to retrench as rapidly as they had expanded; and the merchant, in the meanwhile, who had pursued the even tenor of his way, neither enlarging nor diminishing his business, but keeping within those bounds which all former experience told him were compatible with safety, now began to experience the bitter consequences of folly in which he had had no share. In vain he offered triple and quadruple securities for the sums necessary for the transaction of his business. The extravagance and rapacity of the banks had produced, as their natural fruit, a general prostration of commercial confidence. Individuals were afraid to lend; for in the midst of the fictitious values which speculation had given to every thing, they could not decide whether the proffered security was real or illusory, whether substantial or a mere phantom of property, which would melt to nothing in their grasp. The banks could not lend, for they were involved in the meshes of their own wide-spread net; and to extricate themselves, as the result has shown, was a task beyond their strength. They had been potent instruments in producing the general derangement, but were utterly powerless to remedy it. The consequence was, that many a sound and solvent merchant was arrested by inevitable necessity, in the midst of a prosperous career, and obliged to trust his affairs entirely to the mercy of his creditors, and to the sport of accident.
While these deplorable bankruptcies were taking place, we heard of no proposition of relief from our legislature; but the instant that the banks, those prolific fountains from which the streams of mischief flowed, became insolvent, all other business of the state was laid aside, and the sole question deemed worthy of consideration was what means should be devised for propping up the worthless monopoly institutions. As the result of legislative wisdom, employed on this commendable object, we have the following law.
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To discuss the particular provisions of the law which we have submitted to our readers would be a waste of their time and our own. It is enough that it is the law. The measure, which the exigency of the times could not but suggest to every mind at all imbued with the true principles of economic freedom, has not been accomplished; but in its stead, a measure has been adopted, by an overwhelming majority, to continue the privileges of an affiliated league of monopolies, after the condition on which those privileges were originally granted has been violated, and the object they were designed to effect has utterly failed. The chartered banks should have been left to their fate. If they are solvent, no loss could occur to any connected with them, nearly or remotely, by such a course; and if they are insolvent, on what principle of justice are they permitted to continue their depredations on the community? The repeal of all the restraints on the trade in money would open the field of banking to universal enterprise and competition; and enterprise and competition, in that branch of business, as in every other, would lead to the happiest results.
It was once feared that religion could not flourish, if separated from the supervision of government; but the success of the voluntary principle in this country has refuted the theories of hierarchists. The success of the voluntary principle in banking would be not less exemplary. The day is coming, we are convinced, when men will universally deprecate all connexion between Bank and State, with as much abhorrent earnestness as they now deprecate a connexion between Church and State. We have no established religion; why need we have an established bank? One of two things is absolutely certain: either we must utterly dissolve the affairs of politics from those of trade; or we must go back to the system of federal supervision. We must either have no chartered bank, or we must have a national bank. We must either leave trade wholly free, or place it under effectual control. Bad as is the scheme of a federal bank, worse evils are to be dreaded from the fraud and folly of state monopolies. The only true system—the system which has been proved to be good in every thing to which its principles have been applied—the system in entire accordance with the fundamental maxims of liberty—is to confine politics to the affairs of government, and leave trade to its own laws. When our federal Government and our State governments separate themselves entirely from banking and credit, recognizing nothing as money but money, keeping their own revenues in their own custody, and leaving men to form their own system of currency and credit, without intervention, further than to enforce the obligation of contracts, or exact the penalty of violating them—then, and not till then, shall we be a happy and a prosperous people.
SEPARATION OF BANK AND STATE
May 27, 1837.
When a hurricane passes over the land, spreading its surface with wrecks, they who survive its fury, though for a while stupified with terrour, soon recover their faculties, and set about to free the soil of the shivered fragments, and reconstruct their edifices in a mode better able to sustain the violence of future tempests. We are now in this condition. A hurricane has passed over our land, and the traces of its wrath are scattered around us. We have spent a sufficient time in the inactivity of dismay, and it is now proper to bestir ourselves, and make preparations for the future. It is particularly incumbent on those who are imbued with economick principles, and animated by a sincere desire to promote the lasting good of their country, to exert themselves in forming a correct publick opinion as to the course to be pursued. We lay claim to the latter of these qualifications, and obey its promptings to urge upon our readers that plan which we think alone has the recommendation of perfect accordance with the principles of democracy, and which alone promises, as its result, “the greatest good of the greatest number.”
Our plan may be stated in a phrase of the utmost brevity; for it consists merely in the absolute separation of government from the banking and credit system. Bank and state have been hitherto joined in an unholy union, and we see the fruits of the connexion. Let us now try if we cannot divorce the ill assorted pair, and by so doing promote the prosperity of both, and of all dependant upon them.
It is to be expected that many projects, differing in their nature, motives, and objects, will be urged upon the people. Every scheme of reformation will find earnest, because interested, advocates, and most of them will probably be presented with all the advantages of eloquent exposition and plausible argument. The country constitutes the tribunal which must at last decide the question; and relying, with unbounded confidence, on the foundation which supports the democratick creed, the intelligence and integrity of the great body of the people, we await the final decision with deep interest, but without apprehension.
Among the schemes which will probably be urged, the proposition to reestablish a national bank presents itself most conspicuously. This will assume various modifications. Some will demand the reintegration, in its federal powers, of that gigantick institution which the late administration overthrew, and which now, as a state corporation, lies in wait for a favourable opportunity again to fasten itself upon the American people. Others, rejecting a scheme of resuscitating a bank so justly odious to the great body of the people, will vary their demand, and ask for a federal bank, composed of other corporators, and clothed with more limited powers. A third party, equally anxious for a vast federal engine of finance, will cloak their object under the thin disguise of “a loan office;” while others, having in view the same end essentially, will use a yet more modest appellation, and merely urge the propriety of establishing “a fiscal agent of the government.” These propositions will all naturally spring from the professed aristocracy; while another class of schemes will probably be put forward under the name of the democracy. The aim of these will be, either to raise and reconstruct the prostrated system of state banks as depositaries for the federal revenue, or to build up some new monetary agencies under state control.
Against all these plans alike we avow uncompromising hostility. They all rest on principles violative of the equal rights of man. They are all fraught with danger to popular freedom. They are all essentially the same in their intrinsick characters, differing, indeed, in modes and degrees, but all adverse to that great principle of democratick freedom, on which rest the best hopes of political philanthropy for the complete emancipation and happiness of mankind. They alike ask for exclusive privileges to a few, which are to be withheld from the many. They alike ask for powers dangerous in their very nature; powers to regulate the currency and exchanges; powers, in other words, to control every man’s business, fix the value of property at their arbitrary will, and take from labour the bread it has earned.
We have twice tried the scheme of a federal bank, and twice found that its fruits are bitter. We have seen it fail in the objects for which it was created; and we have seen it nearly succeed in other objects, fatal to the supremacy of the popular will. As a financial agent, we have proved it impotent for the prevention of fluctuations and revulsions; as a political engine, we have proved it dreadfully potent, and by the use of the most detestable means. We have tried the scheme of state banks, also, and the result which we now behold, and which is but the repetition of former similar results, unanswerably proves its deplorable inefficiency.
This is a plain statement of incontrovertible facts. Shall we, then, have recourse anew to the same system which has so utterly failed us before; or shall we not pause to inquire if there is not another system, more in accordance with natural justice, more effectual for the specifick objects proposed, and more free, besides, from objections which, if incidental and collateral, are yet of the most serious moment? We are no enemy to banking. We are no enemy to credit, in any form it may naturally assume between man and man. We confine our enmity solely to political interference with a subject which belongs to trade, and should be left to be governed by the same principles which harmoniously regulate all the affairs to which they are applied. If competition and enterprise were left in an unbounded field, they could not run to wilder excess, than that which we deplore as the consequence of the monopoly system. If free banking should prove as bad, it could not prove worse than the scheme of exclusively privileged banks, and we should at least escape all the degrading effects of bribery, corruption, and the thousand legislative evils, which are the obvious and inevitable consequences of the present system.
But when we speak of free banking, we deal in general terms, and the reader may desire that our views should be stated somewhat more explicitly. We would have banking, then, placed on the same basis as any other business, and neither protected nor restricted by laws, any more than the commonest traffick in which man engages. This depends upon the action of the states, and the sole legislative measure necessary to accomplish it, is to repeal entirely the act known as the restraining law.1 We would have the federal government also separate itself wholly from all connexion with banking, recognizing nothing as money but silver and gold, and entrusting its funds to no private individual or association, voluntary or corporate, for safe keeping. The money of the government should be deposited, either in a single depositary at the commercial focus of the country, or at the principal points where collected, and officers appointed charged with the especial duty of guarding it. The various branches of the publick service should be paid with checks or drafts on these depositaries. Banking would thus be reduced to its proper field of action, as a mere auxiliary of commerce. It would not extend itself to a prodigious size, on the borrowed resources of the people, and finally bursting from its own distension, leave the government bankrupt and spread ruin and dismay through all classes of the community.
But under such a system would banks, adequate to the demands of commerce, spring into existence? With the same certainty that the demand brings supply in every other affair of trade. The demands of commerce require an immense number of ships to interchange our commodities with those of every quarter of the globe; but we need no law to say that this man shall be a shipwright and that a joiner, one a rigger and another a caulker. The supply accommodates itself to the demand under the harmonious operation of the laws of trade. It requires enormous capital to carry on certain branches of commerce, the India trade, for example. But no exclusive legislative privileges are necessary. The mere stimulus of profit, the mere fact of demand, immediately sets capital flowing in that channel.
The same universal principle would supply us with banks adequate to all the legitimate demands of commerce. Competition would regulate them more effectually than law. It would lead to their giving the greatest amount of security, and to their paying the highest rate of interest on deposites, and charging the lowest rate of discount on their loans, compatible with a reasonable profit on the investment of capital.
But would you inundate the country with an irresponsible paper currency? We have already guarded against such a result, by requiring that the government, in all its various branches of receipt and expenditure, should know nothing as money but silver and gold. This would, of necessity, always keep a sufficient amount in circulation for all the purposes of ordinary currency. If the bankers exceeded their proper limits, their notes would immediately depreciate, and thus oblige them to retrench. But in the common affairs of life, in the everyday dealings of men, a paper representative of money would be unknown. Your duties to the Custom House, your purchase of publick lands, your fees in the courts of law, and all payments to the officers and functionaries of the government, of every branch and degree, being absolutely required in actual money, the notes of bankers would be restricted to commercial operations, gold and silver would become the common medium of ordinary traffick, and the people would at last realize the prodigious benefits of a Constitutional Currency.
THE REMEDY FOR BROKEN BANKS
June 3, 1837.
Governour Marcy is at present in this city. We understand that more projects for tinkering the currency are on foot. It is said that Governour Marcy has signified his willingness to convene the legislature, if petitioned to do so, for the purpose of recommending it to pass an act authorizing the exclusively privileged broken monopoly banks to issue a spurious small note currency. We should not be at all surprized at such a proceeding from Governour Marcy. We used to look on that man as feeble minded, but honest. Our opinion of him in the former respect has undergone no change, except the change from impression to conviction; but in the latter respect we confess we begin to think we were in errour. There are some points in his conduct which certainly cannot easily be reconciled with the idea of perfect political integrity.
The authorizing of the broken banks to issue a small note currency at this time, we should consider one of the most unwarrantable and knavish exercises of legislative power that ever a free people submitted to. There is, beyond all question, a great want of a circulating medium which would enable persons to make change. But it is equally beyond question that there is an abundance of silver and gold coin in the country to supply this want. There never was, indeed, at any former period of our history, so much specie in the country. The only reason why it does not circulate freely, is because the paper currency is spurious and dishonoured, the banks having refused to redeem it, and the legislature having justified them in that refusal. What then is the proper object of remedial measures? Surely not to increase the amount of spurious paper, by authorizing the banks to issue a new class of unredeemable notes, which would only put further off the day of ultimate resumption of specie payments; but to give freedom to that spirit of enterprise which even now, in the chaotick state of things to which exclusively privileged bank monopolies have reduced us, stands ready, if only allowed free scope, to rescue the community from the terrible confusion of general bankruptcy. If Governour Marcy wishes to convene the legislature, let it be for the purpose of repealing all the restraints on the trade in credit and money, and not for imposing new burdens on the defrauded people, for the benefit of a few privileged charter mongers.
If an association of individuals, having fifty millions of dollars worth of real property, at a moderate appraisement, should undertake banking business, in the first place, by some publick act, making that property answerable, beyond all peradventure, for the notes they might issue, who can deny that such an institution would command publick confidence? Who can suppose that their notes would not be readily received as equivalent to silver and gold? Such an association would immediately spring into existence if all restraints on banking were removed, and, as a necessary consequence, the money which is now hoarded would again flow in the accustomed channels of circulation. We should thus have an abundance of actual money for the purposes of change, through the assistance of freedom; not a wretched substitute for money obtained by making a further sacrifice of our rights to the insatiate spirit of monopoly.
“BLEST PAPER CREDIT”
June 10, 1837.
The history of paper money is a history of revulsions; of alternate prosperity beyond the natural bounds of health, and adversity as far beyond the ordinary limits of commercial distress. The scenes we are passing through now are but the repetition of scenes that have often been enacted before; and if the ruin occasioned by the present disruption of the paper system is more sweeping and intense than the ruin produced by the same causes on previous occasions, it is only because the business of the country is now conducted on a more extended scale. In 1816 we had but two hundred banks, whereas now we have seven hundred and upwards.
The causes of the terrible revulsion from the effects of which the country is now suffering are the same that produced a similar result in 1816. They may be accurately explained by quoting the very language made use of on that occasion by those who traced the mischief to its proper source. “The evil of the times,” said Mr. Randolph,1 in a memorable speech in Congress, when the proposition for establishing a national bank as a remedy for the financial distress then experienced was before that body, “The evil of the times was a spirit engendered in this republick, fatal to republican principles, fatal to republican virtue; a spirit to live by any means but those of honest industry; a spirit of profusion; in other words, the spirit of Cataline himself, alieni avidus, sui profusus;2 a spirit of expediency, not only in publick, but in private life; the system of Diddler in the farce3 —living any way and well, wearing an expensive coat, and drinking the finest wines, at any body’s expense.”
Who can deny that it is to this same immoral thirst of sudden affluence, and prodigality of ostentatious luxury, to this alieni avidus, sui profusus, to this insane desire of acquisition and display, the present distress is to be ascribed? And who can deny that the bad desire has been provoked now, as it was then, by the effusion of a too copious flood of paper credit, which has borne men far away from a safe footing, and left them at the sport of the most treacherous sea that ever mocked the struggles of drowning wretches in their death-agony?
Our only remedy for the present evils, and our only true means of avoiding a recurrence of them, is to give freedom to trade—to do away with banking as a matter of legislative control, to take from paper the currency which it has received by being recognized as money by the Government, and leave it to find its own level as the mere evidence of private debt. The exclusively privileged paper money system of this country is the greatest curse which we endure. It is a curse in all its relations and influences, political, financial, and moral. It endangers liberty; it destroys the equilibrium of trade; it induces a gambling spirit, in the place of the better spirit of honest industry, and unsettles all the established ethicks of property.
Mr. Randolph, in the same speech from which we have already quoted, well termed the banking system of this country a monstrous alliance between bank and state. “We are tied hand and foot,” said he, “and bound to conciliate this great mammoth, which is set up to worship in this christian land. Whilst our Government denounces a hierarchy; whilst it will permit no privileged order for conducting the service of the only true God; whilst it denounces a nobility, it has a privileged order of new men, the pressure of whose feet is upon our necks.”
Now is the most favourable opportunity we can ever hope to have for crushing this terrible evil. There is no intermediate ground of safety. We must either crush it, or it will crush us. We must either abolish exclusive privileges, or exclusive privileges will abolish freedom. Let us not be misunderstood, nor misrepresented, as we often are. We neither express nor entertain any desire to abolish banking. We desire merely to separate it from legislation, and to abolish the restraints which shut it up from the salutary influence of enterprise and competition. We desire to take from it every thing of a political character, and restore it to its proper field as a branch of private traffick. When this is done, when banking is left to the laws of trade, and the Government ceases to know anything as money but the money of the Constitution, we shall be a happy and a prosperous people, and not till then.
QUESTIONS AND ANSWERS
June 17, 1837.
A correspondent puts the following questions to us, in relation to the free-trade system of banking:
1. What guarantee can be given to the hard workingman, in need of money, that he will not be obliged to pay private bankers exorbitant rates of interest?
2. Is there bullion enough at command wherewith to supply a constitutional currency?
To the first question we answer, competition between money lenders; to the operation of the same principle which regulates the profits of all other branches of business. The banks, under a free-trade system, would be governed by the same motives, and subject to the same influences, which impel and guide men in other classes of occupation. There is just as much need for legislative regulation to restrain the dealers in other kinds of commodities from demanding enormous profits, as there is for restraining the dealers in money or credit. The relations of demand and supply fix the rates of profit in all callings, left free from the impositions of arbitrary enactments.
To the second question we answer yes. There is an ample amount of bullion for all the purposes of a currency. But freedom of trade does not imply the abolition of paper credit. It merely contemplates the separation of government from the credit system, whether in the way of restraint, regulation, or encouragement. There is an ample quantity of bullion in the world for an exclusive metallick currency, but prices would, of course, have to undergo a vast reduction, to adjust them to a hard money scale. But an exclusive metallick currency could only be instituted and maintained by the force of arbitrary government edicts, totally contrary to the first principles of natural justice. Bank-notes, in their intrinsick nature, are nothing more than the promisory notes of one individual to another, they are merely one of the forms which confidence between man and man assumes. So long as the laws do not interfere, and give an adventitious character to these notes, there is no reason, in natural justice or social expediency, why they should be interdicted. If left to themselves, they will not extend beyond the limits of a secure foundation, nor the demands of general convenience.
THE TRUE AND NATURAL SYSTEM
July 8, 1837.
The theory of banking which we are desirous of embracing all opportunities of pressing on the attention of the community, consists simply in giving freedom to that branch of trade, and separating government from all sort of connexion with it. This theory we have maintained for years, and the events of each year have added force to our conviction of its perfect practicability, of the harmony with which it would work, and the diffused prosperity it would occasion. The events of the present year, we think, will do more than a thousand treatises to forward the desired reformation.
In the first place, the utter separation of the federal government from banking would have the inevitable effect of giving the country a hard money currency, as its circulating medium in all the minor and every day dealings of the people. By utter separation of the government from banking, we mean, that it should not only not create any bank by law, whether composed of private corporators, or founded on its own funds or credit, and managed by officers of its own appointment, but also, that it should not recognize the existence of any such institution, whether authorized by state legislation, or founded on the voluntary principle, and should know nothing, as money, in its receipts and expenditures, but the money of the Constitution, namely, gold and silver coin. This absolute disconnexion from banking, includes, as one of its essential features, the duty of keeping the federal revenues, between the time of collection and disbursement, deposited, under its own sole custody, in some place or places of safety, where they could not be used or jeoparded, in any way or degree, as a basis of credit.
The sole objection to this feature of the plan, is the loss of the profit which might accrue to the government from interest on its funds, if loaned to private associations or individuals, or to bodies politick. But this disadvantage is more than compensated by the single fact of absolute security. If lent out to any class of borrowers, the funds of the government would necessarily be exposed, more or less, to the hazards of trade, and might be totally swept off by an extensive commercial revulsion, the consequence of an extravagant spirit of speculation, fomented, in part, by the very facilities which the loan of the publick treasures afforded. If not so swept off, they would be liable, at any moment, to be withdrawn from use, by sudden political exigences; and this withdrawal would necessarily occasion embarrassments, more or less extensive, according to the amount of the funds, and the nature of the employment of them for which there had arisen unexpected occasion. These embarrassments would naturally cause much clamour against the government and much disaffection, however just its grounds of action, and might thus expose it to serious perplexities in a course of measures absolutely required by the permanent interests of the country, and a comprehensive regard for the publick good.
Another class of evils which would almost inevitably grow out of the lending of the publick money, consists in the facilities thus afforded to those in power to make a corrupt and subsidizing use of it, for the promotion of personal ambition, the enforcing of unwise measures, or maintaining the ascendancy of party principles, not in accordance with the unbiased sense of the community. Whether such a use of the publick funds were or were not made in fact, as only a small portion of the applicants for the loan could be successful, those who were disappointed would naturally impute folly and corruption to the government, and thus tend to aggravate factious opposition, unsettle the publick mind, and expose the country to the evils of a fluctuating policy in the management of its political affairs.
It will be perceived that the objections we have here merely hinted at in general terms, might easily be extended into much more particular exposition, and illustrated with references to facts furnished by the present condition and past history of the country. But it is our purpose to be as brief as possible, and we must trust to the intelligence of the reader to carry out the argument to the degree of fulness necessary for a perfect application of it to the objections which may be offered.
For the reasons we have stated, and others that will suggest themselves, we would have the government utterly separate itself from the banking and credit system, collecting its revenues only in gold and silver coin, keeping them, until disbursement, in its own places of secure deposite, and then paying them out to its creditors in the various branches of the publick service. The payments would naturally be made by the officers of the Treasury in drafts on the depositaries. These drafts, on account of their convenience for remittance from place to place, might not be presented for payment immediately upon being issued, but this would in nowise alter the nature of the transaction.
We have said that this plan would inevitably be followed by a hard money currency, abundantly adequate for all the ordinary purposes of a circulating medium. This truth is so obvious that it scarcely requires illustration. The annual expenditures of the federal government are from thirty to forty millions of dollars. The receipts, under any scale of revenue, and any mode of taxation, must, of course, be as much. These revenues are collected chiefly in the principal seaports and at the principal land-offices, but in some measure in every township in the Confederacy. Wherever there is a post-office, there a portion of the federal revenue is collected. The judiciary, the army and navy, those engaged in the dockyards, on fortifications, and lighthouses, in constructing publick roads, in carrying the mails, and in numerous other branches of publick service, are the recipients of the money so collected. These persons are scattered over the entire surface of the country. The silver and gold they would receive in payment from the government, would necessarily flow in a circuitous channel before it emptied itself again into the Treasury in the shape of customs, postages, and the purchase money of publick lands. The action of the federal government alone would thus keep a sum at least equal to thirty or forty millions of dollars in continual circulation—a sum adequate to all the ordinary purposes of currency.
What we have here stated, comprises what we deem to be the duty of the federal government, in reference to the question of banking and credit. The next branch of the subject is the duty of the states. This consists, simply in giving freedom to trade, and leaving men to pursue the business of banking, or any branch of traffick in money and credit, without more restraint upon them, than there is in reference to the commonest vocation of life. The state governments, as well as that of the United States, should also recognize nothing as money but money, and the evidences of publick debt. But this is not absolutely essential to the success of our theory.
This plan, it will be perceived, contemplates no aggression upon existing institutions, no interference with “vested rights,” no violent change of established systems. The federal government is now confessedly bankrupt, by reason of the universal disruption of the chartered banks, to the keeping of which its funds were entrusted. All we ask from it is, that for the future it shall collect its revenues only in money, and keep them itself in convenient depositaries situated at the chief commercial points, paying them out again to the different branches of the publick service by drafts on that deposite. All that we ask from the state governments is, that they should repeal those enactments which forbid the free use of capital and credit. Let existing banks be subject to unrestricted competition, and then the banking associations, whether corporate or voluntary, that give the publick the largest securities, and conduct their affairs with the wisest economy, will meet with the greatest success. In the meanwhile the people will have a hard money currency for all the minor purposes of traffick, and banking will naturally confine itself to those operations which constitute its only legitimate field—the mere exchange of bank credit for mercantile credit, to the extent of actual commercial transactions. Bank notes would be used in large commercial dealings, but would not go into the channels of ordinary circulation and become a part of the general currency of the country.
The system which we propose is either a good one or it is not. If not, the particulars wherein it is defective may easily be pointed out. Mere general condemnation of it, as impracticable and visionary, will not satisfy intelligent minds. Yet no stronger objections have ever been urged. It is indeed sometimes asserted that the plan requires the cooperation of twenty-six separate sovereignties, having, in some respects, different interests, and governed by opposite views of economick expediency. But the position is not true. The success of the plan does not depend on the concurrence of so many parties. If the state of New York alone would emancipate the trade in money and credit from legislative control, the result would at once be accomplished. This city is the great commercial mart and the great bullion depot of the entire Confederacy. The rays of trade diverge from this point to all parts of the country. The streams of business all tend to this centre. If the state of New York would dissolve all political connexion with banking, and leave it, as an affair of trade, to manage its own concerns, with no limit or check, other than penalties for frauds, a system of banking would at once arise, at the bidding of associated enterprise, which would answer all the good purposes that banks ever accomplished, with a smaller alloy of evil than banks ever before contained.
There are but two conditions necessary to perfect success—absolute disconnexion of bank and state, and absolute freedom of trade.
THE BUGBEAR OF THE BANK DEMOCRATS
July 22, 1837.
The man in the fable who fought his own shadow got nothing but bruised knuckles as a reward for his valour. It will be well if the monopoly democrats, who are fighting the shadow of an exclusive metallick currency, should come off with as little injury. They lay their blows about them lustily, but the impassive nature of their enemy mocks their sturdiest efforts.
as seek to put down the democracy by attacking the bugbear of an exclusive metallick currency. “There is no such thing.” It is an empty phantom conjured up by themselves. The monopoly democrats are the only persons who ever said a word about such a currency. But some of the arguments they use against it are as absurd, as the assertion is false that any party in this country is in favour of an exclusive compulsory circulation of gold and silver money.
In expatiating on the manifold evils of gold and silver, they are fond of drawing highly coloured pictures of the “prodigious ruin and combustion” which a sudden annihilation of the paper credit system would occasion. A farmer or mechanick, they say, has purchased a farm or a workshop under the present system for a given sum of money, half of which perhaps, the earnings of many years of industry and frugality, he has paid, and given a mortgage for the other half. While things are in this posture, they go on to state, you introduce your agrarian notions into legislation, annihilate paper credit, require that gold and silver shall alone circulate as money, and in consequence reduce the prices of all things at least fifty per cent; so that the poor farmer or mechanick has to yield up his farm or shop to satisfy the mortgage upon it, and will be lucky indeed if he be not brought into debt for a large remainder.
Statements of this sort, in which “poor farmers” and “poor mechanicks” are made to figure very conspicuously, are every day put forth by the advocates of the bank monopoly. The champions of exclusive privileges display a wonderful degree of sympathy and commisseration for the labouring poor, whenever the principles of the paper money fraud are attacked. The “publick good” is always put prominently forward as the chief, if not the sole motive of the bank philanthropists, in their applications for charters; and no sentiment but solicitude for the “publick good,” and more particularly for the good of the agricultural and mechanick classes, animates them in the vehement opposition with which they always resist assaults upon the paper system.
There can be no sort of doubt that a sudden fall of prices, however occasioned, is productive of vast injury to multitudes of men. All fluctuations in the currency, sudden or gradual, are productive of extensive and serious evils, moral and political, as well as financial. Nay, all changes of state policy, of every kind and name, no matter how obviously demanded by the principles of publick justice or expediency, are necessarily injurious, to some extent, greater or less, according to the circumstances. A nation cannot enter into war, however strong the provocation, or however important the interests to be defended, without occasioning vast loss and suffering to a portion of its citizens, whose prosperity depended on the preservation of peace. It cannot make peace, after having entered into war, without causing, by that change of policy, however beneficent in its general and aggregate result, great evils to another portion of inhabitants. It cannot vary its mode of taxation, lay a new impost on commerce, or remove an old one, without disadvantageously affecting the interests of some of those whose equal rights it is bound to respect. Nay, further than this, an improved process in art or agriculture is never discovered, nor a labour-saving machine invented, no matter how much the good of the majority may be promoted by it, that it does not occasion more or less evil and hardship to a portion of society. This is the inevitable consequence of all changes which vary the relations of men.
If we spoke the words which we now address to our readers, they would fall upon the ears of but a few hearers, and would be forgotten almost as soon as uttered. But we address them to thousands of attentive minds, through the aid of that potent and beneficent instrument, the press. There is no one of those thousands who does not entertain a deep conviction of the vast benefits which have resulted to mankind from the assistance of that wonder-working engine. By it, all the accumulated truths of science and art, the lore of sages, the discoveries of genius, the precepts of philosophy, the sallies of wit, and the harmonious numbers of poetry, are diffused over the whole earth, and placed within the reach of the humble, as well as the affluent and lordly. Yet the introduction of the press was a grievous evil to a large class of persons; to the cloistered monks and scholars, who devoted their lives to the painful task of transcription, and some of whose illuminated missals yet remain to attest the wonderful patience and skill they exercised in their art. The invention of the German mechanick deprived this large number of sequestered labourers of their accustomed means of obtaining bread, and many of them, doubtless, underwent severe privations, before they learned to apply themselves with success to other modes of occupation. But survey the vast aggregate of benefits to mankind, and see how gloriously a few cases, comparatively, of individual suffering was atoned for by the inestimable augmentation of general good.
But the reader will perceive that the common argument against an exclusive metallick currency, the evils which must arise from a change of systems, would have applied as strongly against the art of printing. The fact that a sudden change from paper credit to an exclusive metallick currency would occasion great hardship in many particular instances, is not a valid argument against the reformation, if even such a scope were contemplated as is alleged. It ought to be shown that the change is not justified by sound principles of publick economy, and would be productive of a preponderance of evil. Any exposition which falls short of this is wholly destitute of weight to turn the scale in favour of the credit system.
And if a change from high prices to low is an evil to those who have money to pay, is not a change from low prices to high equally an evil to those who have money to receive? Yet this change the advocates of the paper money fraud defend. The introduction of paper originally occasioned a rapid inflation of price, and caused many a poor man who had contracted for wages according to the metallick standard, to be paid in a medium which would not procure him half the same quantity of the necessaries of life. This change has been perpetually progressive, ever since the paper money system was invented. Prices have been forever on the advance, except in as far as counteracted by labour-saving machinery and improved methods of agriculture and the arts; and the continual inflation of the currency has occasioned a continual injustice to one party in all money contracts. The exhaustion of this paper currency, and the return to silver and gold, would but have a retributive effect; yet now, for the first time, the injustice of any fluctuation that changes the relations of value is discovered and made the subject of much intemperate declamation.
It would be well, if those who are so eloquent in illustrating by parables and supposititious instances, the evil effects of a sudden fall of prices, would sometimes turn their attention to the effects which flow from the opposite cause. It must be evident that fluctuations are not more injurious from a decline, than from an appreciation, in the nominal values of things. The farmer, who has to pay for his farm at a time when agricultural products will bring but half as much as when he purchased it, suffers from depreciation. But he who has to receive payment at a time when money will purchase but half the commodities it would have purchased when the debt was contracted is equally injured by the general appreciation. If you look into the particular cases to which this latter statement of the proposition will apply, you will find many of extreme hardship and cruelty. The poor mechanick who, relying on the stability of the currency, contracted to perform a piece of work when materials were low, is involved in irremediable embarrassments by that unexpected rise which the managers of the exclusively privileged monopoly paper money system have it always in their power to occasion by a sudden effusion of their notes—by an exercise of what is commonly considered “bank liberality.”
But the defenders of the paper currency have planted their battery on a bed of sand. Their arguments are as destitute of foundation as the system they support, and they are wasting their ammunition in attacking an imaginary foe. No party, no faction, and not a single individual of note, has ever urged nor advised the adoption of an exclusive metallick currency. They war, not against credit, but only against the credit system. They war, not against a paper currency, but only against paper authorized by law, and stamped with an illusory character as money by special and unequal legislation. They war, not against banking, but only against exclusively privileged banks. They ask for no measure by which a sudden change would be made in the relations of value; but a measure which would prevent such sudden and ruinous changes as have marked our history and demoralized our people. They ask, in short, only for freedom; for the complete divorcement of politicks from banking; for the separation of bank and state.
The first inquiry which all intelligent minds should make in regard to the great subject of publick discussion is, what scheme is recommended by abstract truth and justice; for whatever is just and true in theory is not less so in practice. Their next inquiry should be as to the best means of reducing it to practical utility. A large portion of the community have come to the conclusion that the true scheme of government, in the respect in question, is to have no connexion with banking and commercial credit, and to impose no restraints on trade. They have come to the conclusion that the principles of economick and democratick freedom, in regard to currency as in regard to every subject to which they have been applied, will be found to exercise the most beneficent influence, and most effectually promote the general prosperity of mankind. This scheme does not contemplate an exclusive metallick currency. It does not contemplate any measure which need alarm any man not governed by the debasing and aristocratick desire to render the many tributary to the few.
BANK AND STATE
July 22, 1837.
Text abridged and extract deleted.
The Evening Post a day or two since remarked that, “there never was a more popular catch word than the separation of bank and state. It is a phrase full of democratick meaning; it is musick to the ears of the people. It is a phrase which will never be laid aside till all that it imports is fully realized. On this feeling in the people the administration may confidently rely, sure that if they trust to it they will be triumphantly sustained.” Whatever merit there may be in having originated this phrase, we believe may be justly claimed by this journal. And not the phrase only, but the important measure which it implies, has been urged on the attention of our readers with a frequency which we might fear would weary them, were it not for the vast importance of the subject. The separation of bank and state, and the emancipation of credit from legislative fetters are the two great objects for which the real democracy are contending. “Divorce of bank and state,” and “freedom to trade,” are phrases which deserve conspicuous and continual insertion in every democratick newspaper. They should constitute our “watchword and reply” in the coming contest.
In the complete separation of government from the bank and credit system consists the chief hope of renovating our prosperity, and restoring to the people those equal rights, which have so long been exposed to the grossest violations. Leave credit to its own laws. It is an affair between man and man, which does not need special government protection and regulation. Leave banking to be conducted on the same footing with any other private business, and leave the banker to be trusted or not, precisely as he shall have means to satisfy those who deal with him of his responsibility and integrity. All this is a matter for men to manage with each other in the transaction of private affairs. But the part which the government shall act in regard to banking and credit is a political matter, to be decided by the voice of communities through the constituted channels of suffrage. There are two principles at war on the subject. One of these is the principle of aristocracy, the other the principle of democracy. The first boasts of the vast benefits of a regulated paper currency, and asks the federal government to institute a national bank “to regulate the currency and exchanges,” or, in other words, to regulate the price of the labourer’s toil, and enable the rich to grow richer by impoverishing the poor. The principle of democracy, on the other hand, asks only for equal rights. It asks only that the government shall confine itself to the fewest possible objects compatible with publick order, leaving all other things to be regulated by unfettered enterprise and competition. It asks, in short, for free trade, and the divorce of bank and state.
THEORY AND PRACTICE
July 29, 1837.
It is a very common thing for the antagonists of the political doctrines maintained by this journal to admit that they are true in theory, but they assert they cannot be reduced to practice. Nothing can be falser than this position. There is no such thing, in morals or politicks (and politicks are, indeed, but a branch of morals) as impracticable truths. Whatever is true in theory it is our duty to reduce to practice; for the great end of human effort is the accomplishment of truth. Whatever is our duty is within the compass of our ability; for it is a condition of our nature that we are endowed with powers for the performance of all the moral obligations under which we are placed. To argue otherwise is to impeach the justice and beneficence, and to deny the order and harmony, displayed throughout the whole system of the universe.
“Nothing,” says Say, in his admirable work on Economy,1 “Nothing can be more idle than the opposition of theory to practice. What is theory, if it be not a knowledge of the laws which connect effects with their causes, or facts with facts? And who can be better acquainted with facts, than the theorist who surveys them under all their aspects, and comprehends their relation to each other? And what is practice without theory, but the employment of means without knowing how or why they act?” The people of this country have been employing means, in regard to banking, without understanding the theory; without viewing the whole chain of causes and effects, which, in its entire concatenation, constitutes the science of banking. Those who understood the theory, long since foretold the ruin that would result from the rash and ignorant employment of those means. They explained the principles in accordance with which alone the business of banking can be conducted so as to produce prosperous and equable results. We are told that this is true in the abstract, but utterly impracticable. It is clearly demonstrated, on the other hand, that the system which has been pursued was true neither in theory nor practice. It was founded on false principles. It had its origin in a gross violation of the great maxim of liberty, the equality of man’s rights. This is admitted by its champions; but they excuse the deep original sin on account of the good fruit which they alleged would be the consequence of the violation. That fruit is now pressed to our lips, and do we not find that it is bitter?
The exclusively privileged system of banking, then, is proved to be sound neither in the abstract nor concrete, neither in theory nor practice, neither in the inception nor execution. Would it not be the part of wisdom, in this emergency, to make trial of a system which is admitted, on all hands, to have the recommendation of theoretick truth? But we are met on the threshold with an assertion that this system “has been, from time immemorial, demonstrated to be utterly impracticable and visionary for the common affairs of life.” Alas! then, for the woful condition of humanity, which is thus forced to reject what it acknowledges to be true, and embrace what it knows to be false, and the progeny of which is ruin.
But when, where, and how, has experience demonstrated our theory to be impracticable? Our theory is, that men have equal rights; that government, which is the guardian of their equal rights, should confine itself within the narrowest circle of necessary duties, the mere protection of that equality, by preventing the encroachment of one man upon the rights of another; and that all beyond this should be left to the influence of publick opinion, and those natural principles of commercial intercourse which are called the laws of trade. This is our theory. This is the theory of a popular government. This is the theory of democracy. We ask again, when, where, and how, has it been demonstrated to be impracticable?
If we look back to ancient times, we shall find that those countries which made the nearest approaches to popular government exhibited a spectacle of the most diffused happiness and prosperity, and that the happiest and most prosperous portion of their history embraced that period when their approach to the popular principle was nearest. We say the period of the greatest happiness and prosperity, not of the greatest splendour. The distinction is a broad one. Autocracies, monarchies, aristocracies, and hierarchies, present spectacles of splendour; democracies the less dazzling, but more pleasing ones of equal and diffused happiness. The contemplation of despotick and kingly governments, from the distant points of historick observation, is like the contemplation of embattled and turreted cities from afar off. Their towers and domes, their palaces and spires, attract the eye, and impress the mind with a sense of grandeur; and it is not led to think of the squat dwellings of wretchedness and toil, and the gloomy dungeons of captivity, which are girt round by the lordly abodes of affluence and power. We survey a democratick government, from a point of distance, as we look on a fertile champaigne country, and find little to attract our attention, which soon tires of the dull uniformity. But on a nearer approach we find, if monotonous, it is at least the monotony of happiness, and that if nothing attracts the eye by the commanding stateliness of its height, nothing repels it by the abject lowness of its degradation. The fancy may be dissatisfied, but the heart acknowledges that the condition of democratick equality is best, since it accomplishes the chief desideratum of philosophy, “the greatest good of the greatest number.”
But it is not by a reference to ancient governments alone that we shall discover proofs of the correctness of the theory which shows the superiority of the popular principle of government. Look abroad through Europe at the present day, and tell us what is the result of your observations. Do you not find that each country has increased in general prosperity in the precise ratio that it has made advances towards the democratic principle? Do you not find that the most wretched country is that where the government is most absolute; and the most happy where it is most liberal? What else is it that constitutes the difference between a serf of Russia and a citizen of England? By the plain principles of inductive reasoning, then, as well as abstract and a priori speculation, we are led to the conclusion that democracy, in its widest signification, is the most felicitous condition of mankind. America is the happiest country in the world, because it is the most democratick. To be happier, it only needs that the principles of democracy should be more inviolably observed. Every trespass upon the equal rights of men, by conferring exclusively on a few the privileges which belong by nature to all in common, is a breach of those principles. Every breach of principle is sure to be followed by punishment; and under this head we must place the distress we experience from the disruption of our chartered banking system. It will be well if we are effectually admonished by the lesson of experience.
Our theory of banking consists simply in the position, that it is an affair of trade, which ought to be left wholly to the laws of trade. How can it be said that experience has demonstrated this theory to be impracticable, when all experience proves the very opposite to be true? Do not enterprise and competition, in every pursuit in which they are left untrammelled by the laws, produce the most admirable results? The keels of our swift-cleaving vessels seam the ocean with their sparkling wakes; the mighty forest of the west bows and retires before the sturdy salutation of the woodman’s axe; and all the vast aggregate of human industry presents a spectacle of order and prosperity, without the intervention of law to regulate its details, designate its field of action, or stimulate or check its operations. Is there anything in the nature of banking which makes it an exception to the universal rule, that enterprise and competition are the best regulators of trade? What is this latent quality, this secret, this mystery, which makes banking so different from every other business, rendering it necessary to have rules of its own, and privileges and immunities; and requiring it to be tenderly cloaked up from the least breath of competition, and screened so that the winds of heaven shall not visit it too rudely? Banking is neither more nor less than an exchange of notes between one individual or association, having such known means as give the publick confidence in the ability to meet their obligations, and another individual, whose means are of a less publick or satisfactory kind, the one paying the other an equivalent for the advantage of the exchange. There is nothing mysterious in this; nothing that withdraws it from the ordinary sphere of trade, or requires special laws and exclusive privileges.
But we are happily not reduced to the necessity of arguing this matter by induction from the nature of banking, and the effect of freedom on other branches of traffick. The success of the principle of unrestrained competition is not a matter of inference only, but of fact. Of all the paper money countries of the world, Scotland is the only one where the banks rest on the basis of individual enterprise, unchartered, unprivileged, and exempt from no penalties or impediments to which other pursuits are subject. Yet Scotland is the only paper money country which escapes commercial revulsion. Bankruptcy has swept through England on more than one memorable occasion, with the desolating fury of a tornado, prostrating the loftiest fabricks, and shattering the firmest institutions. But the storm hurtled over Scotland without injury, for she was ensconced behind the impregnable barriers of free trade. The foresight of individual enterprise had descried, in good season, the gathering of the tempest, and was prepared for its rudest assault.
Let us see what countries will best bide the peltings of the pitiless financial storm which is now raging throughout the commercial world. Our life upon it—the holy cause of free trade and equal rights, dearer to us than life, upon it—that the free banking system of Scotland will stand erect and unshaken amidst the tempest, which will beat all other paper money systems to the earth! Is this demonstrating the impracticability of our theory?
SEPARATION OF BANK AND STATE
August 5, 1837.
Text abridged and extract deleted.
We have heretofore more than once invited the attention of our readers to the remarkable sentiment of General Jackson, expressed in the document giving his reasons for the removal of the publick deposites from the Bank of the United States, that it was his desire “that the control of the banks and the currency should, as far as possible, be entirely separated from the political power of the country,” and that “the action of the federal government on the subject, ought not to extend beyond the grant in the Constitution which only authorizes Congress to coin money and regulate the value thereof. All else,” said General Jackson “belongs to the states and to the people, and should be regulated by publick opinion and the interests of trade.”
Here, in the compass of a few words, is given the outline of the only true system for this country to pursue in regard to banking. What alone is needed—what is demanded by both the letter and spirit of our institutions, and by the fundamental principle of liberty, is freedom of trade, and a complete separation of bank and state. We ask that the federal government should not connect itself with any banking association in any way or degree, and that the state governments should likewise wholly separate themselves, in every respect, from the banking and credit system. When this is once carried into full effect, and banking is left to be conducted on the same basis with other branches of private traffick, without either peculiar encouragement or peculiar hindrance from the laws, we shall rise to a higher degree of general prosperity than we yet have ever attained.
Under such a free and equitable system, it is true, certain classes of the community, who contribute nothing to the national wealth, the mere buyers and sellers, the mere commercial go-betweens, the mere factors of the farmers, mechanicks, and labourers, (for the merchants are no more) may not be afforded the means of outstripping all others in the fruits of affluence, and enabled to riot in every sort of luxury and extravagance, by incurring enormous debts through the instrumentality of bank-credit, which the hard-working men and women of the country have at last to pay with the earnings of incessant toil. This consequence may not and would not result from a free trade system. And if it can be shown that this consequence is more to be desired than diffused happiness and prosperity; if it can be shown that the encouragement of a mad spirit of commercial enterprize, totally regardless of the good old distinction between mine and thine, is better than steady industry and gradual accumulation, obtained without violating the principles of morals; if it can be shown, to the conviction of sober reason, that a magnificent city is better than a fruitful and well cultivated country, and a luxurious mercantile class better than a thriving population engaged in all the various branches of productive industry and useful occupation: if these things can be demonstrated, we say, then shall we at once and forever abandon the position we now maintain, and raise our voice, with those of the monopolists, in demanding from the federal government a national bank, and from the states a continuation and extension of their systems of exclusive chartered privileges. But till these points can be clearly proved, we shall continue to do battle on the side of freedom.
It is a very common thing to point to the rapid growth of our commercial marts, our vast enterprises of internal improvement, our canals, railroads, steamboats, spacious hotels, new cities springing up in the midst of deserted cornfields, and untenanted towns all over the country, as evidences of the wonderful effects of the monopoly bank credit system. We admit these are, in a great measure, the effect of that system. But we are of those who consider them, in the quaint phraseology of old Polonius, “effects defective.”
If the great end of the government is to promote the especial good of mercantile speculators, land speculators, and stock speculators, then indeed we shall receive these things as cogent proofs of the excellence of the monopoly bank credit system. But we are of that agrarian school of politicks which teaches that the sole duty of government is to extend equal protection to all classes of people, to secure them from mutual aggression, and beyond this to leave them to the influence of their natural desires and affections, to those influences of enterprise and competition which are called the laws of trade. The monopoly bank paper system does a great deal, it is true, for the speculative trader on anticipated means. It enables him to build a princely mansion, fill it with costly furniture, stock his cellar with the choicest wines, and load his board with the most luxurious viands. It enables him, without a dollar of actual property, earned by useful toil, to ride in a splendid equipage, repose on a couch of down, and realize all the advantages of prodigious wealth. But what does it do for the farmer who laboriously cultivates his few acres, and obtains, in return for continual toil, but enough to sustain him in the execution of his task? What does it do for the poor mechanick, whose lap-stone or anvil rings all day long with the click of his incessant hammer? What does it do for the poor labourer, who rises with the sun, and sweats, like a beast of burden, in its burning glare, till evening comes to dismiss him to a few hours of heavy slumber on his straw-filled pallet? Let us hear what praises there are to be bestowed on the monopoly bank credit system as it affects the condition of these people who, if government has privileges to give, are entitled, not less than the mere buyer and seller of silks and laces, or the blowers of stock bubbles, to an equal share.
We are no enemy to credit, as we have said a thousand times. We are no enemy to a free and natural system of credit between man and man, the result of mutual confidence, the exercise of one of the kindliest attributes of our nature, without which the frame of society would fall into dividual fragments, and be utterly destroyed. But we are an enemy to a monopoly credit system, which bestows all its advantages on a few, at the expense of the many; which raises to undue importance the undignified vocations of traffick, and depresses to unnatural lowness, as if they were intrinsically mean, the pursuits of agriculture and the mechanick arts. Your monopoly credit system fosters the city, but it ruins the country; it builds up lordly mansions for the keen-eyed sons of trade, but it leaves to irremediable dilapidation the cabins of the farmer and mechanick; it encourages luxury and profusion among the few, and spreads penury and vice among the many. It is a demoralizing system. It makes the acquisition of sudden wealth the prime object of general effort, and blunts the publick moral sense as to the means of gain. It deranges the whole economy of life, unsettles the natural balance of industry, and leads, with inevitable certainty, at periodical intervals, to such explosions as that which has now scattered ruin over our land.
Give us freedom, and leave credit to adjust itself to the wants of society, without political stimulus or restraint. Give us freedom, that the madness of speculation may not involve the government in all the fluctuations of trade. Give us freedom, that, while we boast of our equal rights, we may not in truth be subjected to a worse tyranny than was ever imposed on man by the feudal oligarchists of the middle ages. We have separated Church from State. It yet remains for us to separate Bank from State, and teach the world, by a new and sublime illustration, the invariable efficacy of the voluntary principle.
August 12, 1837.
We hear much of the specie “basis” of our paper circulation. The way to ensure an adequate basis to banking institutions, is to give perfect freedom to the trade in money and credit, and leave competition and enterprise to act and react without legislative stimulus or restraint. The inevitable result of wholly emancipating credit from monopoly legislation, from that arbitrary system which affects “to preserve and regulate, but not destroy,” would be to build up voluntary associations of great capital, that would immediately enter into banking business, under circumstances that would command the utmost publick confidence. When we say a great capital, we do not mean silver and gold exclusively but a capital of real, substantial, imperishable property, such as lots, farms, houses, ships, and the like. There never was a grosser piece of deception than has been practised upon the world by the financial cant about a specie basis of banking. No bank of discount and circulation ever had a specie basis. The Bank of Amsterdam has a specie basis, or rather a basis of specie, jewels, plate, and other articles of great and unvarying intrinsick value; but this is a mere bank of deposit, deriving its profit from the charge it makes for the safe keeping of the treasures entrusted to it, and liable for the redemption of no paper money but the checks drawn against those treasures. But to talk of a specie basis to any of our note issuing banks is preposterous. The basis of a thing is the foundation it rests upon. The foundation of our bank is credit, not money. Few of them have, in the best of times, enough specie in their vaults to redeem a tithe part of their obligations. To speak of that specie, then, as the basis of those institutions, is about as correct as it would be, were a pyramid inverted, to call its cope-stone a basis. If the laws of gravitation were not suspended for its accommodation, the pyramid, tumbling into fragments, would show that its basis was but a poor basis indeed; as our prostrate and shattered banks now show how poor and inadequate was the specie basis on which they pretended to stand.
The true foundation for a bank is actual property to an amount sufficient, under any contingency of trade, for the redemption of its notes. This would be a basis of some solidity, and such a basis competition would lead men to furnish, if our legislative master would throw open this business to the wholesome influences of freedom. The notes of private banking associations would, of course, be redeemable in specie, but this is a very different thing from having, or pretending to have, a specie basis.They would be redeemed in silver and gold, and silver and gold may always be procured for that purpose by those who have property. Silver and gold, like iron and lead, are merchandize, and can always be bought for a fair equivalent. A free trade bank, founded on the secure basis of real property, would never had occasion of more silver and gold than could be readily obtained, at a very small sacrifice, from the dealers in those commodities. The greatest drains of specie to which banks are subject, are occasioned by panick—by fear of their insolvency; but a free trade bank, founded on known security of adequate property, would never be liable to the suspicions and apprehensions which the least untoward circumstances in financial affairs are sure to arouse against institutions pretending to rest on a metallick basis, that every man, woman and child in the community know it is not sufficient to redeem a tenth part of their debts.1
THE NATURAL SYSTEM
August 19, 1837.
The opposition party and the monopoly democrats are alike the friends of an exclusive banking system, but differ widely, as to the authority on which such a system should rest. The one side advocates the monarchical principle of a great central bank established by federal authority, and the other is equally strenuous in favour of the aristocratic principle of state institutions. They both agree in the most extravagant eulogiums of “the credit system,” and consider it the source of all the blessings and advantages which we enjoy. They alike disclaim, with seeming enthusiasm, on the resources of wealth which our country contains, on the activity of its industry, the boldness of its enterprise, and the fertility of its invention, ever on the stretch for new and speedier modes of gain; and they alike demand, with an air of triumph, what has caused these resources of wealth to be explored, what has given energy to industry, confidence, and enterprise, and quickness to the inventive facilities of our countrymen, but the happy influence of “the credit system?” It is this, they tell us which had dug our canals, constructed our railroads, filled the forest, and caused the wilderness to smile with waving harvests. Every good which has happened to our country they ascribe to the credit system, and every evil which now afflicts it they allege may be effectually remedied by its aid. But they differ widely as to the mode of remedy; a cordon of state monopolies being the object aimed at on the one side, and a great central money power the darling project of the other.
For our own part, we are free to acknowledge that if we were confined to a choice of these evils we should not hesitate to decide in favour of the central bank. We are not alone in this sentiment. There are myriads and tens of myriads of truehearted democrats in the land who, if the unhappy alternative were alone presented to them of a federal bank or a perpetuation of the system of exclusively privileged state monopolies, would decide promptly and earnestly in favour of the former. Better a single despot, however galling his rule, than more galling tyranny of a contemptible oligarchy. While a federal bank is not more dangerous to the principles of political liberty, its influence would be less extensively pernicious to public morals. They who live in the purlieus of a monarch’s court may draw out but a sickly existence; but the moral health of a whole country suffers, when it is under the domination of a league of petty tyrants who fix their residences in every town, and taint the universal atmosphere with the contagion of luxurious example. Bad as is the monarchical principle of a federal bank, the aristocratic principle, which would distribute the same tremendous power among a thousand institutions scattered throughout the confederacy, is worse. Mankind suffered heavier oppression under the rule of the feudal barons, than they had ever before suffered when the political power was centered in the throne. But they arrived not at the rich blessings of freedom, until monarchical and feudal tyranny were both overthrown, and the doctrine of divine right and exclusive privilege gave way before that of universaI equality.
He who compares the financial history of Europe with its political, will be surprised to find how perfect is the analogy between them. Her ingenious and philosophical mind would be well employed in running the parallel. It would be found that political revulsions, as well as commercial, are the inevitable result, sooner or later, of conferring exclusively on the few privileges that belong, by nature, in common to all; and that all violations of the holy principle of equal rights, while in politics, they produce tumults, insurrections, and civil war, in economy, exercise a corresponding influence, and are followed by panic, revulsion, and a complete overthrow of all the established commercial relations of society.
The fundamental maxim of democracy and of political economy is the same. They both acknowledge the equal rights of all mankind, and they both contemplate the institution of “a wise and frugal government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labour the bread it has earned.” The preservation of man’s equal rights is the be-all and the end-all of the natural system of government. The great maxim which acknowledges human equality is, in the political world, what gravitation is in the physical—a regulating principle, which, left to itself, harmoniously arranges the various parts of the stupendous whole, equalizes their movements, and reduces all things to the most perfect organization. Monarchy, aristocracy, and all other forms of government, are founded on principles which deny the equal rights of mankind, and they all attempt to substitute an artificial system for that of nature. The effect is sometimes to produce a seeming increase of prosperity for a time; but nature avenges her violated laws sooner or later, and overthrows the unsubstantial fabric of presumption and pride.
The great end which is alone worthy of the efforts of the champions of democratic and economic truth, is to institute the natural system in all matters both of politics and political economy. Let them aim to simplify government, and confine it to the fewest purposes compatible with social order, the mere protection of men from mutual aggression. We need but few laws to accomplish this object. We need particularly few in regard to trade. What is the whole essence and mystery of trade, but an exchange of equivalents to promote the convenience of the parties to the barter? Leave the terms, then, to be settled by men’s own notions of mutual convenience and advantage. There is no need of political interference.
Extreme simplicity is usually considered as the condition of barbarism, before man has raised himself by science and art from the degradation of mere animal nature. But the saying that extremes meet is as true in politics as in any of its applications. Simplicity may be the goal, as well as the starting-point, of social effort. Is it not a fact verified by the observation of every man of cultivated mind, that in religion, in literature, in art, and in the conventional manners of a community, simplicity and refinement go hand in hand? As society advances it throws off its cumbrous forms and ceremonies; it follows more and more the simple order of nature, which does nothing in vain, but carries on its stupendous operations by the directest processes, linking cause and effect, without superfluous complication, and adapting its means with the utmost exactness to the end. Compare the nations of the earth, and see if simplicity and refinement are not always found together, in whatever respect the comparison is instituted. In architecture, why are the gorgeous edifices of Constantinople, glittering with “barbaric pomp and gold,” deemed inferior to the plainer structures of the cities in western Europe? In literature, why are poems crowded with oriental splendour of imagery, and heaped with elaborate ornaments of diction, thrown aside by the reader of taste for those which breathe the unstudied sweetness of nature? In manners, why do those seem the most refined which seem most truly to flow from the promptings of native amenity and elegance of soul? It is because that is most excellent which comes nearest to the simplicity of nature. Nature does nothing in vain.
Simplicity in government is not less a proper object of those who wish to raise and refine the political condition of mankind. Look at those governments which are the most complex, and you will find that they who live under them are the most wretched. As governments approach simplicity, the people rise in dignity and happiness; and all experience as well as all sound reasoning on the certain data of induction, bears us out in the conclusion, that when they conform most nearly to the simplicity of nature, then will mankind have reached the utmost bound of political prosperity. Then will the cumbrous artificial and arbitrary contrivance of “the credit system,” be abandoned, for the harmonious and beneficial operation of natural, spontaneous credit, the free exercise of confidence between man and man.
THE CREDIT SYSTEM AND THE ARISTOCRACY
August 26, 1837.
It is curious to observe what studied and elaborate panegyricks are bestowed by the aristocratick press generally on what they term “the credit system.” They seem to be fully impressed with the truth of the sentiment, “interdum fucata falsitas, in multis est probabilior, sape rationibus vincit nudam veritatem.”1 It is for this reason they invent sounding names, and use such a profusion of false colours, to deck out a system, which, if called by its proper appellation, and shown in its true, undisguised features, would repel every body by its ugliness. What is their credit system but a system which bestows exclusive privileges on the scheming few, at the expense of the industrious and hard handed many? Credit, we admit, in the broadest terms, is a useful and beneficial agent in carrying on the great and various intercourse of society. We avow ourselves the friend of credit—so much its friend, that we are unwilling to see it cramped by arbitrary restrictions. We would have it left to the unbounded freedom of nature. We would have it, like the sunshine and dew of heaven, to dispense its blessings equally upon all. We would have it, like a bounding river, to flow wither it listeth in its natural channels, not dammed up between artificial barriers, and forced to run only in particular directions, fertilizing the lands of a favoured few, and leaving the rest to be parched with drought, or lie in sterile loneliness. We are the friend of credit, for the same reason that we are the friend of any other generous impulse or affection of the human heart, and we would no more regulate its action by law, than we would that of hope, benevolence, friendship or love. If by “the credit system,” free spontaneous, natural credit is meant, then we are the friend of the credit system; but if, on the other hand, a system of legislation is meant, by which exclusive privileges of exercising credit, are conferred on a set of men and prohibited to the rest of the community, then are we its determined and unappeasable foe. We are for leaving capital free, and credit free. We are, in all things, for trusting to the glorious principle of freedom—that principle which recognizes the equality of the rights of all mankind, and considers government as having no legitimate functions beyond the mere preservation of those rights. “There is no more reason,” says Raymond in his Political Economy,2 “why a man, or body of men, should be permitted to demand of the publick interest for their reputation of being rich, than there would be in permitting a man to demand interest for the reputation of being wise, learned, or brave. If a man is actually rich, it is enough for him to receive interest for his money, and rent for his land, without receiving interest for his credit also.” We oppose this sentiment not less strenuously than we oppose the opposite system which would annex peculiar privileges to “the reputation of being rich.” We would neither confer upon men by law nor deny to them the right of receiving interest on their credit. We see no reason why a man or body of men should not be permitted to demand interest for their credit, as well as for their actual means, provided the rest of men are left equally free to give or refuse that interest as they please. If you go to a wealthy person, and ask him to lend you his promissory note for a given sum, telling him that, by reason of his known wealth, his note will answer all the purposes of money to you, he has a perfect natural right, and we can perceive no good argument in favour of that right being interdicted, to charge you a price for the accommodation he affords by the loan of his credit.—The true credit system is the free trade system. Leave credit free, and the relations of demand and supply will “regulate and preserve,” far better than all the quackery and tyranny of special legislation.
But when we pass beyond the ground of mere permission to charge an interest on credit, and come to that of express and exclusive legislative authority to do so, the question assumes a very different shape. With this limitation we wholly agree with the writer. What reason is there, which has not its foundation in palpable injustice, why any particular set of men should be specially privileged by law to issue their promises to pay, their mere acknowledgements of indebtedness, and force the community to pay an interest of seven per cent, not on the money they have, but on that which they have not, on their mere credit? It may be said they do not force the community to do so. They virtually force the community to do so, however, by reason of the false character which their exclusive privileges give to the notes they issue. The law considers those notes as money; the government receives them as such, and becomes, in some measure answerable for their punctual payment on demand; and thus they are necessarily received into general circulation as money. This is a gross and crying injustice.
If the money business of the community were left to take its natural course, does the reader suppose that the principal financial stations would be filled, as many of them now are, by men, not of wealth, not of financial talent nor experience, but mere party electioneerers, mere brawlers at pot houses and ward meetings? Does he suppose, under a system of free trade, that mere fidelity to “party usages,” the mere fact of a certain equivocal sort of political influence, the mere having some dozens or some hundreds of voters at one’s heels, would constitute such ability to transact banking business, as would be certain to give those possessing such qualifications the confidence of the community? What made Cornelius W. Lawrence, and Gideon Lee, and George D. Strong, and Walter Bowne, presidents of banks? Were they appointed solely in reference to their ability in financial transactions, or was the office given to them as a reward for party services and sacrifices? These are plain questions, but they relate to proceedings of the utmost notoriety, and on such a subject it is needless to mince matters. The time has arrived for plain questions, and plain answers too, and the argumentum ad hominem is sometimes a very useful division of logick. We have too long submitted to a system of banking founded on political capital, instead of money capital, and hedged around with exclusive privileges, instead of being left open to the wholesome influence of the freest competition. If we do not wish to be slaves forever, we must no longer deceive ourselves and others by honeying affairs over with sweet words. “Let the candied tongue lick absurd pomp;” but the honest tongue should speak out boldly, and call things by their right names.
If the political services of Mr. Lawrence, or Mr. Lee, or Mr. Strong, or Mr. Bowne, were of that magnitude and general importance as to entitle them to publick rewards, let them be rewarded openly and liberally, and we shall never utter a word in censure of the act. We give, from the coffers of the federal government, a beggarly annual stipend to the remaining soldiers of the revolution. The only complaint we have ever heard on this account is that the country is so parsimonious in its gratitude. The great body of the people would be willing that a much larger sum should be given to the remnant of the revolutionary veterans, in token of the sense entertained by the country of their heroick services and sacrifices. A similar sentiment would govern them no doubt in relation to Messrs. Lawrence, Lee, Strong and Walter Bowne, if it were distinctly pointed out in what way the signal patriotism of those worthies has been displayed. But they would still ask, and with good reason, that the reward, or token of gratitude, or whatever it might be called, should be bestowed openly and without disguise or indirection. Such a course is due alike to the character of the state, and to that of the patriots for whom the publick purse is opened. The reward, and the illustrious services for which it was rendered, should be inscribed in enduring letters on the muniments of our state, so that all future times might profit by the example of patriotism exhibited by Messrs. Lawrence, Lee, Strong, and Walter Bowne, and by the example of gratitude exhibited by their countrymen. But we protest against the creation of exclusive privileges for the purpose of paying these men for their political services. We protest, in the name of freedom, against such a violation of its fundamental principle. We protest, in the name of the worthies themselves, against fobbing them off with so poor and equivocal an acknowledgement of their claims on legislative munificence.
But gesting apart—for it is a subject which hardly admits of gest—we desire once more to raise our voice against monopoly legislation on the subject of banking. Our state banking system is an odious system of exclusive privileges, dangerous, in their very nature, to the principles of political, as well as gross violations of the plainest fundamental maxims of economick freedom. It is a system of exclusive privileges built up for the especial reward of party services. It is instituted to provide sinecures for a band of gentlemen pensioners. It was conceived in the stews of legislative prostitution, born in corruption, and smells to heaven with the rank odour of hereditary rottenness. How long will freemen—or men claiming to be free—consent to have this bastard offspring of fraud and folly for their master? How long will they consent to be the cringing vassals of a feudal system instituted for the support of such a contemptible baronage as our paper-money lords?
THE DIVORCE OF POLITICKS AND BANKING
September 2, 1837.
Our next number will contain the Message of the President to Congress. We have reason to feel very confident in the expectation that this document will strenuously recommend the complete separation of the federal government from the bank and credit system. This great scheme, we observe, is assailed, in advance, with a good deal of violence by the opposition newspapers; but in their “plentiful lack” of arguments, they for the most part vent their spite only in epithets. Acting upon the sentiment that there is much in a name, they call this proposed separation of bank and state a plan to institute a Treasury Bank; and they discourse with a good deal of well affected apprehension of the evils which must flow from placing the sword and purse in the same hands. This cant about the sword and the purse is the merest declamation that ever demagogue employed to gull the minds of a credulous auditory, and never was appellation more misapplied than that of Treasury Bank to the scheme which aims to separate the government from all the injustice, favouritism, casualties and fluctuations of the banking system. The effects of the policy would, in all respects, be the very reverse of those which are brought about by our wretched and tyrannous paper money system.
If the government of the United States should absolutely disconnect itself, in every way, from the banking and credit system, receiving and disbursing as money, nothing but the money of the Constitution, one of the necessary consequences would be the continual circulation of an under currency of silver and gold sufficient for all the most ordinary purposes of a circulating medium. Should the principal commercial and agricultural states, then, or even this great state alone, (which is the natural centre of the commercial and monetary concerns of the country) entirely repeal all restraints in the trade in money and credit, banking business, as a natural and inevitable consequence, would immediately be undertaken by private enterprise, and this enterprise would be subject to the regulation of unbounded competition. That competitor, whether an individual or association, who should satisfy the publick of the possession of the largest amount of actual property answerable for his obligations, would naturally enjoy the greatest confidence. It would be the interest, therefore, of all entering into banking business, to give publick evidence of their possessing ample property, liable, in the event of any miscarriage, for the redemption of their issues. Those who did not give such evidence would not enjoy publick confidence. Their notes would not be received by other bankers, nor by individuals generally, except at a discount; for every trader and mechanick would have it perfectly at his option to take nothing but silver and gold, since, by reason of the government recognizing nothing else as money, silver and gold would always freely circulate.
One check on over issues would consist, partly, in the prudence and foresight of those bankers who, having a large aggregation of actual capital, would desire to conduct their business on safe banking principles with the sole purpose of realizing a moderate and steady profit on investment. Whenever other bankers, of a more speculative turn, should show a disposition to extend themselves too far, the prudent ones, both for their own safety, and from the natural rivalry of trade, would be led to discredit the notes of the former, which, in consequence of this repudiation, would immediately fall below par, and thus force those issuing them to retrench.
Another check would be found in the fact, that real money and paper money cannot circulate together. One invariably and inevitably drives the other away. But as there is an absolute necessity, in the state of things supposed, for the circulation of silver and gold to an amount necessary for all the ordinary purposes of daily traffick; so consequently it would be paper that would be expelled. The government would keep an amount, equal to its annual expenditures, say some thirty or forty millions of dollars, in continual and active circulation. It would receive nothing else for lands, customs, postages, or taxes in any shape, and would pay nothing else to the judiciary, the army and navy, publick contractors, workers on the publick roads, fortifications, lighthouses, and, in short, to those engaged in every branch of publick service. These sums would necessarily perform a circuitous circulation between the time of disbursement and of repayment into the publick treasury; and here would be a hard money currency, which, to its extent, would banish paper. This would constitute another check on over issues.
Banking business, under such a free trade system, would naturally confine itself to commercial operations. The sagacity and prudence of individual enterprise, when its own actual means are jeoparded by extravagance, would lead to that result. The notes of bankers would, as a general rule, represent only actual mercantile transactions. They would not be loaned to speculators, as now, to enable them to purchase lands in the moon, or under water “deeper than did ever plummet sound.” If they loaned their notes to speculators it would be on real security, and speculation can never produce great publick evil, as long as it does not extend beyond that basis.
That there would be over issues to some extent, and occasional revulsions, under a system of perfect freedom of trade, and perfect disconnexion of bank and state, is highly probable. There are revulsions in nature, and we cannot expect that there should be none in trade. The political circumstances of nations, the instability of seasons, war, pestilence, and famine, are all causes which may jar the great machine of commerce, and throw some of its parts into extreme disorder. But these revulsions would be lighter and less frequent than those which happen under the bad system of exclusively privileged banking, which is wholly artificial, and at utter variance with the natural mechanism of trade. The revulsions of a free trade system would not be political revulsions, they would not provoke to such mad exasperation the bad passions of men, and set a whole people in the deplorable attitude of two opposing parties, surveying each other with the scowl of mutual hatred, instead of the glances of fraternal kindness.
[1 ]A reference to William M. Gouge, AShort History of Paper Money and Banking in the United States (Philadelphia: T. W. Ustick, 1833).—Ed.
[2 ]“Hurry slowly.”—Ed.
[1 ]Leggett may have been aware of the private Bechtler mint in North Carolina, which coined several million dollars worth of Southern Appalachian gold between 1831 and 1850. Congress did not outlaw private coinage until 1864.—Ed.
[2 ]Bob Acres is a shallow-headed comic character in Richard Sheridan’s play The Rivals (1775).—Ed.
[1 ]President of the Second Bank of the United States, at the date of this editorial operating under a charter from the state of Pennsylvania.—Ed.
[2 ]An allusion to the fable of the frogs desiring a king, to whom Jupiter sent down a log of wood.—Ed.
[3 ]A reference to Biddle’s offer to rediscount bills held by the New York banks.—Ed.
[1 ]This extract, and another following it, described speculations in cotton financed by bank credits.—Ed.
[1 ]See “Commencement of the Administration of Martin Van Buren” below, p. 221.—Ed.
[1 ]A four-volume biographical record of the more notorious criminals confined at London’s Newgate Prison, published 1824–28.—Ed.
[1 ]This law prohibited the entry of any bank not expressly chartered by the state legislature.—Ed.
[1 ]John Randolph of Roanoke, Representative of Virginia, 1800–1824.—Ed.
[2 ]“Greedy toward others, extravagant toward himself.”—Ed.
[3 ]The character Jeremy Diddler, in James Kenney’s farce Raising the Wind (1803), continually contrives to borrow money.—Ed.
[1 ]Jean Baptiste Say, French classical economist, was author of A Treatise on Political Economy, the fifth American edition of which was published in 1832, from which this quote is likely taken.—Ed.
[1 ]In the free banking system of Scotland, which Leggett praises elsewhere, almost all banks operated with unlimited shareholder liability for bank obligations. They experienced no runs for specie, though their specie reserves were a small percentage of their note and deposit liabilities.—Ed.
[1 ]Roughly, “it stands to reason that painted falsehood, in much it is more likely, occasionally conquers the naked truth.’’—Ed.