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CAUSES OF FINANCIAL DISTRESS - 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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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.
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