William Leggett, Free Banking, and Egalitarianism

   

Let me begin with a personal reminiscence. Many decades ago I had to write a term paper for a college course in U.S. intellectual history. I had met the very widely read Walter Grinder, and he recommended that I look into William Leggett, the most radically laissez-faire thinker of the Jacksonian era.[22] Leggett's name was not on the assignment's list of pre approved subjects, but the professor readily agreed that he was suitable. Leggett's writings turned out to be heady material. Although I had access to the collection edited by Theodore Sedgwick, Jr., I spent hours seeking further material in the newspaper annex of the New York Public Library, where I enthusiastically read and photocopied the musty newsprint of Leggett's original publications, The New York Evening Post and The Plaindealer.

In graduate school I took the opportunity to exploit a surprising bit of information I had gotten from Leggett: Scotland had a free- banking system , one that he thought successful and a model for the United States to emulate. Could Scottish free banking really have been as good as he thought? Economists I asked had no idea. It was a forgotten episode. I wrote a graduate- course term paper, then expanded it into a dissertation, Free Banking in Britain, basically to find out whether the remarkable claims Leggett made were true. I found that they almost entirely were true. A few years later, while a post doctoral fellow at New York University, I proposed to Liberty Fund to put together and edit a collection of Leggett's best writings, which was published in 1984 and which Phil Magness in his lead essay has kindly cited.[23]

Leggett was a key intellectual mover behind the so-called "Free Banking" laws adopted in various states during the 1830s and subsequent decades. "So-called" because they did not institute anything close to laissez faire in banking, although they did open up and regularize the process of incorporating banks.  For Leggett the injustice of restricting entry into the banknote-issuing business followed from the principle that any individual "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 if for what those with whom he deals may be willing to receive it."

Leggett's ideal, to which Phil's lead essay alludes, was the complete separation of government from money and banking. He opposed both government sponsorship of banks and, unlike some hard-money Jacksonians, any legislative ban on privately issued banknotes in favor of coin only because "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."

Competition among banks would ensure that the public received whatever security against fraud it demanded: "Let existing banks be subject to unrestricted competitionrepeal those enactments which forbid the free use of capital and credit, and then the banking associations, whether corporate or voluntary, that give the public the largest securities, and conduct their affairs with the wisest economy, will meet with the greatest success." All that governments needed to do was to "." In his endorsement of full laissez faire in the provision of bank money, Leggett went beyond Adam Smith, who had endorsed a ban on small notes and a ban on contractual clauses that gave banks the option to delay redemption on banknotes (in which case commensurate interest would be paid).

When restriction of the right of note issue was defended by analogy to the federal government's constitutional power of coinage, Leggett was led by the logic of free trade to stand the argument on its head: "we have our doubts . . . whether it would not be better to leave coinage as well as banking, entirely to the laws of trade."

The lead essay uses the term "egalitarianism" to describe part of Leggett's philosophy. We have to be careful with terminology here. Leggett insisted on an equality of rights and legal status, not a leveling of income or wealth. Although, as Richard Hofstadter[24] noted, Leggett was "often accused of agrarianism—that standard nineteenth-century epithet for one who believed in a redistribution of property" by status-quo-defending critics, the charge was completely false. Leggett declared that for the workingmen whose cause he championed, "their only safeguard against oppression is a system of legislation which leaves to all the free exercise of their talents and industry, within the limits of the GENERAL LAW, and which, on no pretence [sic] of public good, bestows on any particular class of industry, or any particular body of men, rights or privileges not equally enjoyed by the great aggregate of the body politic." The law should never assume the power of redistributing incomes from one subset of the population to another, lest politics become a game of spoils-taking, and elections become "deadly contests of the whole mass of the people whose pecuniary affairs are implicated in the event."

Leggett regarded any policy that took from one class to give to another as a violation of the nondiscrimination principle of justice. He grounded the nondiscrimination principle on the social contract : we would never knowingly delegate the power to discriminate to a government formed by an original constitutional agreement because doing so would place us at its mercy. The power to discriminate was not among what Leggett called, in one of his earliest statements of political philosophy, the "True Functions of Government". This statement of his liberal contractarian perspective bears quoting at some length:

Consistent with Leggett's outlook, the political faction that followed him, popularly known as the Locofocos, called themselves the Equal Rights Party. From equal rights derived the case for a general incorporation statute to replace special one-case a cts of incorporation from the state legislature. General incorporation acts spread through the country beginning in 1836, while New York s tate pioneered application of the idea to the banking industry in the form of an 1838 "free banking" statute, which allowed, though not laissez faire, entry into banking to all comers who met the minimum- capital and other requirements.

For Leggett banking reform was a question of equal rights and open competition on a level playing field, not of access to cheap credit. Thus Hofstadter[26] was confused when he lamented that "[o] ne may search in vain for some principle of consistency in the argument of a man who held that the banking system was already extended well beyond the business needs of the nation but who also urged that opening the banking business to all and sundry would be a prime remedy for economic ills." Open entry would bring greater competitive discipline to banking in America, as it did in Scotland, curbing both over extension on the one hand and monopolistic pricing on the other.

[22.] Richard Hofstadter, "William Leggett, Spokesman of Jacksonian Democracy," Political Science Quarterly 58 (December 1943 ): 581-94, observed (p. 582): "At a time when Jacksonian Democracy was sundered into radical and conservative factions, he was one of the most prominent and forceful spokesmen of the radical wing."

[23.] William Leggett, Democratick Editorials: Essays in Jacksonian Political Economy, ed. Lawrence H. White (Indianapolis, IN: Liberty Fund, 1984). Online:  <https://oll.libertyfund.org/titles/682>.

[24.] Hofstadter, p. 584.

[25.] I have quoted this passage elsewhere as a critique of Rawls's and other claims that deliberators in an original position would want to empower government to redistribute wealth or income: Lawrence H. White, "What Economics Can and Cannot Say about Egalitarian Redistribution," Social Philosophy and Policy 34 (Summer 2017): 56-78. These claims are false, Leggett was saying, if the deliberators take public- choice logic on board (assuming human rather than angelic government) when they deliberate about the powers to bestow on government.

[26.] Hofstadter, p. 592.