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THE TRUE AND NATURAL SYSTEM - 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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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.