SECTION I. SECTION I. 
The fundamental difficulty of this great question, now one ofthe most prominent in the United States, is indicated by the factthat, while the practice of banking is essential to amanufacturing and commercial nation, a perfect system of bankingremains to be discovered.
When it is remembered that the question of the Currency hasnever yet been practically mastered in the countries of the OldWorld; that in America it has fallen into the hands of a youngand inexperienced people; that it is implicated withconstitutional questions, and has to be reconciled withdemocratic principles, it will not be expected that a passingstranger will be able to present a very clear view of its presentaspect, or any decided opinion upon difficulties which perplexthe wisest heads in the country. The mere history of banking inthe United States would fill more than a volume: and thespeculations which arise out of it, a library.
It is well known that there was an early split into parties onthe subject of the constitutionality of a national bank.Washington requested the opinions of his cabinet upon it inwriting; and Hamilton gave his in favour of the constitutionalityof a national bank: Edmund Randolph and Jefferson against it. Thequestion has been stirred from time to time since; whileHamilton's opinions have been acted upon.
The ground of objection is a very strong one. It lies in theprovision that "all powers not delegated to the UnitedStates by the constitution, nor prohibited by it to the States,are reserved to the States or to the people." No power toestablish corporations is, in any case, delegated by theconstitution to the United States; nor does it appear to becountenanced by any fair construction of the permissions underwhich its transaction of the general business is carried on.
The answer to this is, that the supreme law of the country maygive a legal or artificial capacity, (distinct from the natural,)to one or more persons, in relation to the objects committed tothe management of the government: in other words, that thegovernment has sovereign power with regard to the objectsconfided to it; all the limitations of the constitution havingrelation to the number of those objects. This was Hamilton'sground; and this is, I believe, the ground which has been takensince by those who shared his opinions on the main question. Tome it appears as unsatisfactory as any other mode of begging thequestion. If the power of making corporations is to be assumed bythe general government, on the ground of its being implied, thewhole country might be covered with corporations, to which shouldbe entrusted the discharge of any function exercised bythe general government.
In countries differently governed from the United States, itappears as if it would be most reasonable either to have thecurrency made a national affair, transacted wholly by thegovernment, or determined principles, or to leave bankingentirely free. In neither case, probably, would the evils be sogreat as those which have happened under the mixture of the twosystems. But in the United States, the committing the managementof the currency to the general government is now wholly out ofthe question. Free banking will be the method, some time orother; but not yet. There is not yet knowledge enough; norfreedom enough of production aud commerce to render such a policysafe. Meantime, various doctrines are afloat. Some persons arefor no banking whatsoever: but mere money-lending by individuals.Some are for the abolition of paper-money, and the establishmentof one public bank of deposit and transfer in each State. Someare for private banking only, with or without paper money. Someare for State incorporations, with no central bank. Othersare for restoring the United States Bank.
No objections against banking and paper-money altogether willavail anything, while commerce is conducted on its presentprinciples. It answers no practical purpose to object to anyuseful thing on the ground of its abuse: and while the commerceof the United States is daily on the increase, and the only checkon its prosperity is the want of capital, there is no possibilityof a return to the use of private money-lending and rouleaus.
The use of small notes may well and easily be discontinued.The experiment has been tried with success in Virginia, Maryland,and Pennsylvania. Thc prohibition, might, perhaps, be carried ashigh as to notes of twenty dollars. There seems no adequatereason for the public being, further than this, deprived of theconvenience of a representative of cash; a convenience so greattbat there is much more probability that the ingenious Americanswill devise some method of practically insuring itsconvertibility, than that they will surrender its use. It hasoften occurred to me that out of the currency troubles of theUnited States, might arise such a discovery of the true principle(which yet lies hidden) of insuring the convertibility, or otherlimitation, of a paper currency, as may be a blessing to thewhole commercial world. This is an enterprise worthy of theiringenuity; and one which seems of probable achievement, when weremember how the American merchants are pressed for capital, andhow all-important to them is the soundness of their credit. Theprinciple lies somewhere, if it could but be found: and none aremore likely to discover it than they.
Private banking is, in the present state of affairs, necessaryand inevitable; so that there is little use in arguments for oragainst it. Capital is grievously wanted, in all the commercialcities. There must be some place of resort for small amounts, andfor foreign capital, whence money may issue to supply the need ofcommercial men. There must, in other words, be money stores; and,in the absence of others, private banks must serve the purpose.The amount of good or harm which, in the present state of things,they are able to do, depends mainly on the discretion orindiscretion of their customers; who, in common prudence, mustlook well whom they trust.
As for State incorporations, it cannot be said that they areabsolutely necessary; though the arguments in favour of theirexpediency are very strong. More and more money is perpetuallyrequired for the transaction of commercial business; and in adifferent ratio from that required by the affairs of farmers andplanters; since the latter receive their returns quickly; whilethe merchants of the sea-board have theirs delayed for longperiods, and consequently require a much larger amount ofcapital. These larger amounts must come mainly from abroad,whence money can be had at four and five per cent. interest;while at home, from six to twelve per cent. is paid, even whileforeign capital is flowing in. It is obvious that this foreigncapital will enter much more abundantly through the credit of aState bank than through private banks. Small amounts of capital,dispersed and comparatively unproductive, will also be morereadily brought together, to be applied where most needed, in aState bank, than among many small firms. The States of New Yorkand Pennsylvania have carried on their improvements, their canalsand rail-roads, as well as much of their commerce, by means offoreign capital; and the surpassing prosperity of those Statesmay be considered owing, in a great degree, to this practice. Theincorporation of a bank is not always to be considered in thelight of a monopoly; it may be the reverse. It may enable anumber of individuals, by no means the most wealthy in thecommunity, to compete, by an union of forces, with the mostwealthy. Corporations may be multiplies, as occasion arises, and,by competition, give the public the benefit of the greatestpossible amount of service done at the least cost.
Such are the leading arguments in favour of State Banks. Theobjections to them are in part applicable to faulty methods ofincorporation, and not to the principle itself. The specialexemption from liabilities to which individuals are subject; theimposing of such inhibitions elsewhere as render the affair amonopoly; the making responsibility a mere abstraction, aregreat, but perhaps avoidable evils. So are the methods by whichcharters have been obtained and renewed; the method of"log-rolling" bills through the legislature; and othersuch corruption.*
An objection less easily disposed of is, that by the creationof any great moneyed power, means are afforded of controlling thefortunes of individuals, and of influencing the press and thepolitical constituency. If these objections cannot be obviated,they are fatal to banking corporations. If, however, any meanscan be devised, either by causing a sufficient publicity ofproceedings, or by granting charters for a short term, renewableon strict conditions, or by any other plan for estahlishing atrue responsibility, of uniting the benefits of incorporatedbanks with republican principles, it seems as if it would be agreat benefit to all parties in the community.
The difference of opinion which has made the most noise in theworld, is about a National Bank.
It appears to have been contemplated, in the first instance,to place the currency of the United States under the control ofthe general government; according to the spirit of the provisionsof the constitution, that Congress should bave power "tocoin money, regulate the value thereof, and of foreigncoin:" but without affording to Congress any power tocontrol the fortunes of individuals, as may be done by certainbanking operations. The state of the colonial currency had beendeplorable.** The object now was to substitute a uniform andsubstantial currency, instead of the false representatives whichhad been in use: and to put it out of the power of the States toalter the terms of contracts by taking advantage of the faults ofthe currency. Nobody would take the continental bills; and goldand silver were deficient. A national bank was the resource; andthe old United States Bank was chartered in 1791; it beingascertained that its issues were based on real capital, and astrict watch being kept over its operations.
This bank was believed to be wanted for another purpose;--towatch over and control the State Banks. It was not the firstinstitution of the kind in the United States. The Bank of NorthAmerica had been chartered in 1781, under the authority of theContinental Congress: but by soon accepting a charter from theLegislature of Pennsylvania, it ceased to be a national, andafforded the precedent of a State Bank. New York andMassachusetts had soon State Banks also. They were prudentlyconducted; and their notes presently banished the coin. The powerof Congress over the currency was gone. All that could be donenow was for the National Bank to control the State Banks, andkeep their issues within bounds, as well as it could.
Occasional disorders happened from the misconduct of countrybanks, prior to 1811. The renewal of the charter of the UnitedStates Bank was then refused. The government was pressed by theevils of war; and the check of the superintendence of the Bankbeing withdrawn, the local banks, out of New England, came to theagreement, (too senseless to be ever repeated,) to suspend speciepayments. All issued what kind and quantity of paper pleasedthemselves, till above twice the amount of money needed wasabroad; and the notes were in some States five, in others ten, inothers twenty, below par. The New England people, meantime, usedconvertible paper only; and under the law which provides that allduties, imposts, and excises should be uniform throughout theStates, were thus compelled to pay one tenth more to the revenueofficers than the people of New York, who used the depreciatedcurrency: and one-fifth more than the Baltimore merchants.
This state of things could not last. A national bank was againestablished, in 1816, for the purpose of controlling the localbanks. Its charter was for twenty years, with a capital of35,000,000 dollars, to which the federal government subscribedone fifth. Its notes were made receivable for any debt due to theUnited States.
Its purpose was presently answered. The local banks had, inthree years, resumed cash payments. The management of the UnitedStates Bank, during the rest of its term, has been, upon thewhole, prudent and moderate. That a power has not beenabused is not, however, a reason for its continued exercise, ifit be really unconstitutional. President Jackson thinks, and themajority thinks with him, that it is contrary to the spirit ofthe constitution, (as it is certainly unauthorised by itsletter,) that any institution should have the power, uncheckedfor a long term of years, of affecting the affairs ofindividuals, from the further corners of Maine or Missouri, downto the shores of the Gulf of Mexico; of influencing elections; ofbiassing the press; and of acting strongly either with or againstthe administration. The majority considers, that if the UnitedStates Bank has great power for good, it has also great power forharm; and that the general government cannot be secure of workingnaturally in its limited functions, while this great powersubsists, to be either its enemy or its ally.
This seems to be proved by the charges brought against thelate Bank by President Jackson. Whether they are true or false,(and the gravest of them do not appear to have beensubstantiated,) they indicate that power is in the hands of acentral institution, which no federal establishment ought tohave, otherwise than by the express permission of theconstitution.
As for President Jackson's mode of proceeding against theBank,--it is an affair of merely temporary interest, unless heshould be found to have exceeded the authority conferred on himby his office. He does seem to have done so, in one particular,at least. His first declaration against the renewal of thecharter, was honest and manly. His re-election, after having madethis avowal, was a sufficient evidence of the desire of themajority to extinguish the Bank. It was, no doubt, in reliance onthe will of the majority, thus indicated, that the Presidentremoved the deposits in a peculiarly high-handed manner; and alsoexercised the veto, when the two Houses had passed a bill torenew the charter of the United States Bank.
With the last of these measures, no one has any right toquarrel. He exercised a constitutional power, according to hislong-declared convictions. His sudden removal of the deposits isnot to be so easily justified.
The President has the power of removing his Secretaries fromoffice, and of appointing others, whose appointment must besanctioned by the Senate. The Secretaries of State are enjoinedby law to execute such orders as shall be imposed on them by thePresident of the United States:--all the Secretaries but theSecretary of the Treasury. In his case, no such specification ismade; obviously because it would not be wise to put the wholepower of the Treasury into the hans of the President. PresidentJackson, however, contrived to obtain this power by using withadroitness his other power of removal from office. Mr. Duane wasappointed Secretary of the Treasury on the 29th of May, 1833; hispreclecessor having been offered a higher office. It is knownthat the predecessor had given his opinion in the cabinet againstremoving the Treasury deposits from the Bank; and that Mr. Duanewas an acknowledged enemy of the Bank. On the 3rd of June, thePresident opened to the new Secretary his scheme of removing thedeposits. Mr. Duane was opposed to the act, as being a violationof the government contract with the Bank. He refused to sign thenecessary order. While he was still in office, on the 20th ofSeptember, the intended removal of the deposits was announced inthe government newspaper. On th 23rd, Mr. Duane was dismissedfrom office; and Mr. Taney, who had previously promised to signthe order, was installed in the office. On the 26th, the officialorder for the removal of the deposits was given. No plea ofimpending danger to the national funds, if such could have beensubstantiated, could justify so high-handed a deed as this. Nosuch plea has been substantiated; and the act remains open tostrong censure.
Just before the expiration of its charter, the United StatesBank accepted a charter from the Legislature of Pennsylvania. Itremains to be seen what effects will arise from the operation ofthe most powerful State Bank which has yet existed.
The problem now is to keep a sound currency, in the absence ofan institution, believed to be unconstitutional, but hithertofound the only means of establishing order and safety in thismost important branch of economy. Here is a deficiency, whichcannot but be the cause of much evil and perplexity. It must besupplied, either by increased knowledge and improved philosophyand practice among the people, or by an amendment of theConstitution. Meanwhile, it is only time and energy lost toinsist upon the return to a mere metallic currency. Societycannot be set back to a condition which could dispense with sogreat an improvement as paper-money, with all its abuses,undoubtedly is.
The singular order which last year emanated from the Treasury,compelling the payments for the public lands to be made inspecie, will not have the effect of making the people in lovewith a metallic currency. If this measure is intended to be anobstacle to the purchase of large quantities of land, orvirtually to raise the price,--these are affairs with which theTreasury has nothing to do. If it is intended merely to compelcash payments, as far as the administration has power to do so,it seems a pity that those who undertake to meddle with thecurrency should not know better what they are about. The scarcityof money in the eastern States has been well nigh ruinous; whilelarge amounts of specie have been accumulated in the west, wherethey are not wanted.
The mischief thus caused has been much increased by theinjudicious method in which the deposits have been distributedamong the States, according to the Deposit Bill of the session of1836. The details of the extraordinary state of the money-marketin America, last year, are too well known on both sides of thewater, to need to be repeated here.
One principle stands out conspicuously from the history of thelast few years: that no President or Secretary should be allowedthe opportunity of "taking the responsibility" ofmeddling with the currency of the country: in other words, thetaxation should be reduced, as soon as in equity and convenienceit can be done, so as to bring down the revenue to a proportionwith the wants of the government. If the general government is tohave anything to do with the currency at all, it should be bysuch business being made a separate constitutional function. Tolet the Treasury overflow,-- and leave its overflowings to bemanaged at the discretion of one public servant, removable by oneother, is a policy as absurd as dangerous. The most obvioussecurity lies, not in multiplying checks upon the officers, butin reducing the overflowings of the Treasury to the smallestpossible amount. This is President Jackson's last recordedopinion on the subject. It appears worthy to be kept on record.
* "Log-rolling" means co-operation for a point whichmust be carried: on a new settlement in the wilds, by neighboursdevoting a day to fell, roll and build logs, to make a housebefore night: in a legisinture, by a coterie of members urging ona bill in which they are interested, and getting it passed indefiance of inquiry and delay.
** I have before me a colleotion of specimens of the colonial,and early west continental paper currency; such as brought ruinto all who trusted it. The colonial notes are such as any commonpriter might forge. For instance, here is one, on common paper,with a border of stars, and within it,
"Georgia, 1776.
"These are to certify, That the sum of SIXPENCE sterling, is due from this Province to the bearer hereof, the same being part of Twelve Thousand Five Hundred and Seventy-two Pounds Nineteen Shillings Sterling, voted by Provincial Congress, for taking up and sinking that Sum already issued.
6d."
Those of the early days of the war have on the back emblems, varying with the promissory amount, exhibiting bows, arrows, leaves of the oak, orange, &c,
It would be absurd to argue against all use of a paper currency from such specimens as these.
From Harriet Martineau, Society in America, VolumeII, Part II, Chapter IV, Section I - "The Currency."London: Saunders and Otley, 1837, pp. 273-288.
Forward to Society in America, Vol II,Part II, Chapter IV, Section II - "Revenue andExpenditure."
Back to Society in America, Volume II,Part II, Chapter IV, "Commerce."
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