Free Banking. credit of a class of other individuals, who in turn obtained their credit from some other and still more distant individuals, whose own wealth, in fine, was but a mere credit itself. 29 now found themselves in the vortex of an excitement well nigh as maddening. We need not detail the result of that excitement. The recoil is yet fresh in our minds. He who was the millionaire and capitalist of the spring-tide had hardly wherewith to get a breakfast in the succeeding winter, even though his pockets were crammed with thousands lionaire alone or mostly who suffered by that panic. The laborer was the man upon whom that blighting bank revulsion fell most terribly. Well might it be said of all such paper manias, "that they are the most effectual of all the inventions to fertilize the rich man's field with the sweat of the poor man's brow. Ordinary tyranny, oppression and taxation-these bear lightly on the happiness of the community, compared with fraudulent currencies and the robberies committed by depreciated paper." To say nothing of the frailty of such a foundation for a currency, what must be the effect of the scheme on the whole system of values? Is it not plain that such a multiplication and overriding of in bank paper. But it was not the mileredit on credit gives the whole paper money system an accelerated and accumulated energy, which grows with its every impulse. It is the elastic ball, whose velocity increases with every rebound, until the rapidity of its speed baffles the skill of those who set it in motion. Once started, the expansive system can never stop, but must go on increasing in power. Bear with us a moment, while we recall a few incidents in the history of our currency. During our Revolutionary struggle the Continental Congress issued about three hun- And now, if our state government do dred millions of paper money, in the not adopt prompt measures to arrest the shape of bills of credit, and such was the further increase of our paper currency, untoward result of that action, that in the scenes of 1837 will again be repeated. 1787 every precaution was taken to Then the currency rose to the enormous guard against the occurrence of such amount of one hundred and forty-nine evils. Now," ," said Oliver Ellsworth, millions. From this excessive expansion "is the favorable moment to shut and it sank in 1843 to fifty-eight millions, and bar the door against paper money." The in 1847 rose to one hundred and five milstates were positively prohibited by the constitution from making anything but gold and silver a legal tender, and the federal government was denied the power of emitting bills of credit or establishing a national bank. To make their opinions still more explicit, the hard money men of 1789, in the very first revenue act of Congress, prohibited the payment of revenue dues and duties with anything but gold and silver. It was not long, however, before the ingenuity of interest overleaped all such restrictions. The convulsions of 1819, 1825 and 1837, each and singular, attest the rapid growth of our banking system. The most memorable of those revulsions was that of 1837. During the three preceding years our banking capital had increased ninety-one millions, and our banking circulation fifty-four millions. The loans rose from three hundred and twenty-five to five hundred and twenty-five millions, being an average annual expansion of about fifty millions of dollars. The effect of this inflation of credit was instantaneous and tremendous. Men who had laughed at the insane bubbles of the Mississippi and South Sea speculations, lions, and now, in 1852, it has attained the height of one hundred and sixty millions. And this, too, at a time when a tide of gold is setting in from every shore, and when the receipts of coin from California have in the aggregate reached two hundred millions. What stability can there be in the value of property or contracts? What steady employment can labor expect, when the artificial standard by which property contracts and labor are measured, is thus constantly and violently fluctuating? In other words, when your currency is periodically depreciated by an over-issue of paper. We deride and contemn the mean artifice of those monarchs who debased their coin and unsettled the standard of value in use among their own people. And yet this very thing we contemnthis monstrous power to violate all contracts and prostrate labor, has been bestowed by the legislatures of republican government on moneyed corporations. Government dare not debase its coin, but banks are invested with the sovereign power to depreciate the currency at will. And as if to encourage them to perpetu ate the abuse, they are permitted to levy a tax, in the shape of discounts and interests, on this enormous and expanded circulation of $160,000,000. Now, while banks have this power, without limitation, the requiring of security for the circulation, to protect the billholder, is a mere mockery; for we may anticipate a succession of expansions and contractions of the currency, overthrowing all credit, and prostrating every branch of industry. Free banking is one thing-free trade in the manufacture of paper-money is a very different affair. Free trade in the issue of paper-money has never succeeded any where. The more free the manufacture of paper-money, the more it is enlarged, and as the amount increases, the danger of revulsions becomes more imminent. It is true there cannot be an indefinite expansion of a currency which is convertible into coin. The liability of the paper to be returned home for coin tends, we know, to keep it at the same average. Nevertheless, the vibrations of an elastic currency are sometimes considerable before the check of the law of supply and demand can operate. Other causes may tend to sustain exchange, and thus to maintain an inflated paper issue. In 1837 we saw those causes at work, and the expansion reached an increase of nearly fifty per cent. on the whole amount of the currency, which was followed by contractions to less than the former circulation. Whilst we are busy in providing, lest a man should lose a one-dollar note, we have made no provision against a fluctuation which changes the value of his property one-half, reduces a claim he may have to receive one-half, or doubles the debt he may have to pay. The remedy of this evil has received too little attention from our modern legislators; and yet, it is of the first importance in a sound banking system, and should at once control our legislation. No banking statutes should be sanctioned which do not limit, by some fixed and proper standard, the extent of our paper circulation. This is the grievous evil, to the removal of which Ricardo addressed his clear and able intellect, and which finally resulted in the famous Bullion Act of Sir Robert Peel. It is therefore plain, that stocks in themselves are no proper securities against an inflated currency. The practical operation of the system Pru is obvious. First come the issues of state stocks, created by the contraction of debts exceeding the revenue. Upon these are built the banks; the credit of the state being converted into a sort of reservoir, from which the faint and exhausted credit of individuals is refreshed and renewed. Speculation, which the previous want of capital so strongly prohibited, now springs up with an unnatural and redoubled power. The credit extended by the bank to its friends spreads through every ramification of commerce, enhancing nominal values, and giving large profits to the bold and daring adventurer. dent men are at length caught in the tide, and larger obligations and greater debts are contracted. Finally, however, payday will come round, as come it must. The note-payers find their means locked up in their speculations. Their profits are still too small to realize, and new loans must be contracted. The banks soon find themselves immeasurably expanded. Money becomes a little scarce, and there is a cry for more banks and more paper money. To establish new banks, new public debts and new stocks must be created. The old stocks have been absorbed, and the demand for them has carried their value to an inflated and fictitious height. The idea of large premiums on six per cent. loans soon fascinates the legislature, and new improvements are devised, and new debts contracted. Extravagant schemes are projected, and great systems of railways and canals are set on foot. Thus it is that a huge debt is created, an expanded currency created, and heavy taxation originated, which must ultimately result in pecuniary disaster of the severest character. Let us look at New-York and see if we have not here sketched the outline of her recent banking career. In the convention of 1846, her finances were the subject of grave and anxious debate. In the records of that convention, the reports and speeches of Hoffman, Cambreleng, Chatfield and others, all bear on two great subjects-the public debt and the currency. They were, in fact, the great objects which the convention had assembled to arrange. After a most searching discussion, the able views of Mr. Hoffman were adopted. He contended that the state debt should be paid at the earliest moment, and with the least possible charge of interest. "If we want," said he, "a great charnel-house of pauperism, go on with these debts and taxation. Go on and borrow money to squander it all inflated currency and an endless public over the state again in internal improve- debt. And will the pay-day never come ments. * * *It was the accursed round? Are these "Dædalian wings" power of taxation which made pauper- of paper money always to bear us aloft? ism, produced crime, misery and distress in all countries, and he looked to his children as a parent, when he said that he desired not to see their limbs fettered, or their bodies withered, by any accursed debtor system, by whomsoever begun." In accordance with such ideas, the VIIth article of the New-York Constitution was adopted by a large vote. That article contemplated the entire payment of the state debt by the year 1862, and positively prohibited the Legislature from contracting any debt, except in the extraordinary events of war, invasion, &c., unless the law authorizing such debt at the same moment provided for its liquidation, in 18 years, by direct annual taxation. And, as if to guard still further against abuse, all such laws were required to receive the sanction of a direct vote of the people. With these restraints and checks, it was hoped that that great state would avoid all the calamities of an enormous public debt. But alas! the same convention which adopted these restraints, also adopted the free banking clause, making the stocks of the state the basis and security of the currency. The same instrument which prohibited the creation of a new debt, made it the interest of the all potent moneyed power to have an unending and illimitable state debt. These stocks must one day be paid or renewed. Interest on interest will accumulate. In seventeen years the debt will be doubled. Taxation must grow oppressive, and the wages of labor, the rewards of agriculture, and the returns of commerce will dwindle and droop. Speculation will cease and "hard times" will become household words. Once stricken with panic the whole fabric of credit will totter, and the flimsy free banks, whose foundations are paper, will fall around us "Thick as autumnal leaves that strew the banks In Valombrosa." There is really no limit to the system, but its own destruction. Its great curse is its constant tendency to excess. What then is worse adapted to the peculiar exigencies of Louisiana than such a plan? It has no merit for our state, whose greatest aim should be to set her currency and credit on the soundest basis, so that foreign capital will be invited to us, and thus the limited means, now possessed, be left free to the pursuit of more active enterprise and commerce. And here we will say-because it is true for us, as it is true for all-that no scheme of finance-no new plan of getting rich fast-no quick road to prosperity, will avail us aught. There is one way and only one, and that is stern and rigid economy-economy personal, municipal and state. These royal roads to wealth will always lead to the slough of despond. Let us get up from our apathy-call not Only six years after the adjournment on Hercules-but help ourselves, in the of the convention a large majority of the only way, by which true men ever help legislature passed the Canal Enlarge- themselves-economy, perseverance and ment Bill-an act which, violating the industry. These are better than all the spirit and letter of the VIIth article of captivating schemes of finance. Withthe Constitution, creates a new debt of out them neither banks nor credits can $7,000,000, and authorizes banking on de- help us. posit of the scrip or certificates of the debt. It is true that an enlightened judiciary decided the bill unconstitutional, but the machinery of party has been brought to bear on the subject, and the VIIth article has been evaded, and the bill will now succeed, and the labors of the convention to free the state from "the accursed debtor system," be utterly and forever lost. What was the consequence? Why, state stocks soon got scarce and high. New banks were wanted, and bankers began to seek new sources of security. The history of free banking in NewYork demonstrates not merely that a public debt is necessary to the existence of the institution, but also and principally demonstrates that free banking generates a tendency to create debt and to indulge in unwise and extravagant improvements. Where it exists, all conservative and restraining tendencies (which are feeble enough at best) are taken from Now, what is true of New-York will the legislature, and a proclivity is enbe ten-fold more true of Louisiana. If gendered to borrow money and saddle we have free banking, we will have an posterity with a load of debt, from which а they may never recover. For free bank- and development of republican principles. ing is but a temporary policy, unless the Bad enough is it when a perpetual debt state is always in debt. It has its ex- is entailed on a people by an extravagant istence only as long as the debt shall and dissolute ancestry; but grievous and last, and however remote may be the accursed is such a debt when it chains day of our deliverance from such a bur- the people down to bad laws and bad den, we certainly ought not to build our government, which they dare not disturb monetary system on a basis so temporary lest they be impoverished in the agitation that in a few years more we may be they create. Long distant be the day called on to remodel it entirely, because when our government is upheld by such there are no longer public debts or stocks considerations. Its true foundation is in to build it on. Either the one or the the affections of the people, not in their other alternative will occur-that the use fear. A national debt is a national evilof stocks for banking will breed a system sometimes necessary, but always to be of extravagance, which will plunge us into avoided if possible. It were better, often, the most desperate calamity, or that if nay, most of the time, that the government our legislature wisely resist all the influ- should raise the required funds within ences of a potent moneyed power and con- the year and by the cheapest system of stantly curtail the debt and pay off the taxes. The man of commerce may freinterest and principal, that then, sooner quently do well to borrow money at or later, free banks must themselves interest. His occupation and his profits stop; and thus the country be thrown back to the starting point and be forced to adopt some new system, which will establish the currency and secure the public. permit it; but a nation, except in case of war, &c., had far better raise her revenue by taxes than loans. When a government commences to borrow she is first to pay her brokers and agents, and then So that, take it at best, free banking year after year an accumulation of is but a scheme for to-day, and can interest.* That interest is an annual never be looked to as a final settlement of all the questions" pertaining to the currency. How much better then would it be to start some other plan which could stand every change, and not depend on the ever-shifting and changeful policy that may prevail in our state. But perhaps some will contend that no conceivable period can occur when the state or federal government will be out of debt, and that it is not moreover desirable to hasten such an event. tax on labor, which makes the bread of the poor man bitter with the ill-paid sweat of his brow. Let us beware, then, how we build up a currency on so dangerous a basis-dangerous, not because it is insecure, but doubly, trebly dangerous, because of its tempting premiums, which gild the bitter pill of debt, and make us put off the day of redemption to "a more convenient season." And do the people know the cost of a public debt? If not, let them hear the words of wisdom: "Taxes upon every article that enters into the mouth, or covers the back, or is placed under the foot; taxes upon everything which it is pleasant to see, hear, feel, smell or taste; taxes upon warmth, light and locomotion; taxes on everything on earth and the waters under the earth; taxes on the sauce which pampers man's appetite and the drug which restores him to health; taxes on the ermine which decorates the judge and the rope which hangs the criminal; on the poor man's salt and the rich man's spice; on the brass nails of the coffin and the ribbons of the bride; at bed or board, couchant or levant, we must pay."† The peculiar condition of Great Britain has of late years drawn great attention to the general subject of a public debt. It is now urged that a national debt is an essential element in modern civilized states, affording convenient investments for the widow, orphan and learned professions, and furthermore, securing by the tie of interest, direct and personal, the devotion of the citizen to good order and strong government. How far this may be true of Great Britain it is not necessary to discuss. Two things are clear: first, that the stocks of judiciously managed railways and canals afford quite as good a security for investments as many of our state stocks; and secondly, that a government which has to preserve itself from rebellion and riot by the timidity and caution of its citizen by the city of New-Orleans, cost her, for negotiating creditors, is not fit for the dissemination *We learn that the late loan of $2,000,000, effected it, the round sum of $20,000. † Sidney Smith to Brother Jonathan. Debt, filth and sin have been termed feverish and unnatural tract of excitethe great enemies of man; and well ment." It was just such prosperity as does debt deserve its bad pre-eminence, this which waited on England during all when even to England, whose life seems well nigh immortal, and whose resources have been as exhaustless and whose vigor as fresh as if she were gifted with perennial and unfailing youth-when even she, with all her untold energy and noble people, has sunk under its withering and prostrating power. Unless suggested by necessity and controlled by prudence; unless administered with economy and followed by frugality, borrowing is to nations as well as to individuals the high road to ruin. It is the ease of borrowing, compared with the difficulty of paying; the natural disposition to get a present command of money, and leave the task of paying it off to posterity, which is the temptation that so often proves irresistible. There is, moreover, this extraordinary and peculiar danger in the lavish contraction of debt by a government, that by the present great expenditure with which it is attended, a very great impulse is communicated at the time to every branch of industry, and thus immediate prosperity is generated out of the source of ultimate ruin. But if this feverish and inflated prosperity is created by the mere contraction and spending of loans, what must be its still greater increase, when those loans are made the basis of our currency, and when every dollar of loan sets into circulation another dollar of paper, which in its turn sets in motion the whole expanding and extending machinery of banking credits! Under the combined influence of a vast contraction and disbursement of loans and an extensive paper circulation, the resources of the nation will seem to be increased in a rapid and unparalleled progression. Prices will advance, profits will grow higher, and all who make trade their pursuit will find themselves in a state of amazing prosperity. But is this prosperity real? Do they not know that "these floods of wealth are obtained by exhausting the reservoirs of future affluence, and that a long period of depression and languor must follow this her contests with Napoleon. During the whirl and excitement of that war, her commerce was flourishing, her finances well ordered, and her manufactories reaping a golden harvest. But when the war and its excitements were over, and the interest on the debt grew onerous, how deplorable was her condition? Her commerce was paralyzed, her manufactories were closed, and posterity was bequeathed an heir-loom of debt, which now crushes the hopes of her most ardent sons. And yet this mountain of debt reared its head less than two centuries ago. Like the small vapor of the fairy tale, it has gradually swelled forth and up into its present huge and giant-like proportions, standing ready to crush all beneath and around it. Let us take heed, then, how we, even indirectly, encourage a public debt. In itself a curse, it will be doubly so, if we make it the basis of our currency. No trivial objection to free banking, is the intimate connection it begets between the government and the banks. All the evils of a United States Bank, with few of its benefits, are attendant on the system. The action of a government must be strongly affected by her system of finances. Whatever class of her people holds her debt, will exercise an overwhelming influence in shaping her policy. Talk as we may, if banks become the creditors of government, either the one or the other will rule. Wherever such a relation has existed, corruption has been rife, and in the end both the people and the bank have been injured. Ten years ago "Divorce of Bank and State" was the catch-word of party. However it may be forgotten, the reasons for such a divorce are as potent now as ever. In our next we will adduce some facts which are developed by the practical working of free banking, and which lead us to still further condemn the system. *Alison's Europe. |