Democratick Editorials: Essays in Jacksonian Political Economy

By William Leggett

Ten years after Thomas Jefferson’s death in 1826, an outspoken young editor in New York City was reformulating and extending the Jeffersonian philosophy of equal rights. William Leggett, articulating his views in the columns of the New York
Evening Post,Examiner, and
Plaindealer, gained widespread recognition as the intellectual leader of the
laissez-faire wing of Jacksonian democracy…. [From the Foreword by Lawrence H. White.]

Book Cover

Translator/Editor

Lawrence H. White, ed.

First Pub. Date

1834

Publisher

Indianapolis: Liberty Fund, Inc. Liberty Press

Pub. Date

1984

Comments

Essays first published 1834-1837.

Copyright

Portions of this edited edition are under copyright. Picture of William Leggett courtesy of United States Library of Congress. Original contains the inscription: "Engraved by Sealey, from a Painting by T. S. Cummings, N A." and includes Leggett's signature below.

BANK OF UNITED STATES

Separation of Bank and State

Part II

Evening Post, date uncertain. Sedgwick gives simply “March, 1834.” Attempts to locate the original have been unsuccessful.

In answer to the many objections which are urged with great force of argument against the United States Bank, and against any great national institution of a similar character, there is little put forth in its defence, beyond mere naked allegation. One of the assertions, however, which seems to be most relied upon by the advocates of the Bank, is that it has exercised a most beneficial power in
regulating the currency of the country. Indeed, the power which it was supposed it would possess to regulate the currency, furnished one of the chief grounds of the support yielded to the original proposition to establish a United States Bank, and the same topic has occupied a prominent place in every subsequent discussion of the Bank question in Congress. It is maintained, in favour of the present institution, that it not merely possesses that power, but that it has exerted it in the most prudent and salutary manner. This is made the theme of many high-wrought panegyrics. It is triumphantly put forth by the journals in the interest of the Bank; it drops from the lips of every Bank declaimer at political meetings, and is asserted and re-asserted by all the orators and editors of the Bank party, with a confidence which should belong only to truth. Many persons, indeed, who are strongly opposed to the United States Bank on moral grounds; who view with dismay its prodigious means of corruption; and shudder with abhorrence at the free and audacious use it has made of those means; yet accede to it the praise of having at least answered one great purpose of its creation—namely, the regulation of the currency of the United States.

It is to be feared that men in general have not very precise notions of what constitutes a regulation of the currency. If the meaning of this phrase is to be limited to the mere sustaining of the credit of the Bank at such a point, that its notes shall always stand at the par value of silver, then indeed must it be admitted that the United States Bank has, for the greater part of the time performed its functions in that respect. Yet no praise is to be acceded to it on that score; since such an effect must naturally and almost inevitably flow from the self-imposed obligation on the government to receive its notes at their nominal amount, at all places, in payment of debts due to the United States. There is not a bank in the country, accredited and endorsed by the Government to an equal extent, that would not as certainly maintain its paper on a par with the precious metals. Indeed, most of the well-conducted institutions in the Atlantic cities, without the advantage of such countenance from the Government, have preserved their paper in equal credit; or, in other words, have been equally successful in
regulating the currency, so far as the term implies the affording of a convertible paper substitute for money, which shall pass from hand to hand as the full equivalent of silver coin. The doing of this certainly constitutes an important branch of the regulation of the currency; but there is another and more important branch, and in this the United States Bank has totally and most signally failed.

What is regulating the currency? It is the furnishing of a medium of circulation, either metalic or convertible at par, equal in amount to the real business of the country, as measured by the amount of its exports and the amount of actual capital employed in commercial business. It is the furnishing of that amount of circulation, which is actually absorbed by the commercial transactions of the country—by those transactions which rest on the basis of the exchange continually going on of the commodities of one country for those of another. When bank issues are limited within this circle, the notes of the bank in circulation are founded on the security of the notes of merchants in possession of the bank, and the notes of the merchants rest on the basis of goods actually purchased, which are finally to be paid for with the products of the soil or other articles of export. The maintaining of the circulation at this point would, in the strict and proper sense of the word, be regulating the currency. It would be supplying the channels of business to the degree requisite to facilitate the operations of commerce, without causing those operations to be unduly extended at one time, and unduly contracted at another. It would be causing the stream of credit to glide in an equal and uniform current, never stagnating, and never overflowing its boundaries.

When bank circulation exceeds this measure, an inevitable derangement of the currency takes place. The par of value between the paper representatives of money and money itself may still be maintained; but prices are raised, and raised unequally, and the dollar no longer accurately performs its office as a measure of value. The effects of the expansion of the currency are first seen in the rise of the prices of foreign fabrics. This leads to excessive importation on the part of the competitors anxious to avail themselves of the advance. Goods are purchased from abroad to a much larger amount than the exports of the country will liquidate, and a balance of debt is thus created. The payment of this balance drains the country of specie. The bank, finding its paper return upon it in demand for coin, is obliged suddenly, in self-defence, to curtail its issues. The consequence of this curtailment is a fall of prices. Those who had ordered goods in expectation of deriving the advantage of the high prices, are obliged to sell at a sacrifice, and are fortunate if they can dispose of their commodities at all. Those who had been deluded, by the fatal facility of getting bank favours, into extending themselves beyond the limits of that fair and prudent credit to which their actual capital entitled them, must necessarily be unable to meet the shock of a sudden withdrawal of the quicksand basis on which their business rested, and are thus compelled to become bankrupts. A state of general calamity succeeds—most severe in the commercial cities, and measured in all places by a rule of inverse ratio to the excess of the preceding apparent prosperity. These sudden expansions and contractions of the currency have happened too frequently in this country, and have been followed by effects of too disastrous a nature, for any reader to be ignorant of them.

Has the United States Bank never caused distress of this kind? Has it never caused the amount of circulating medium to fluctuate? Has it never stimulated business into unhealthy activity at one time, and withheld its proper aliment at another? Has it never poured out a sudden flood of paper money, causing the wheels of commerce to revolve with harmful rapidity, and then as suddenly withdrawn the supply, till the channels were empty, and every branch of business languished throughout the land? There are few of our readers who cannot, of their own knowledge, answer these questions in the affirmative.

For the two or three years preceding the extensive and heavy calamities of 1819, the United States Bank, instead of regulating the currency, poured out its issues at such a lavish rate that trade and speculation were excited in a preternatural manner. But the inevitable consequences of over issues did not fail to happen in that case. A large balance of debt was created in Europe, and to pay that debt our metalic medium was sent away from the country. The land was soon nearly exhausted of specie, and still the debt remained unliquidated. The bank, in order to bring business to an equipoise again, exchanged a part of its funded debt for specie in Europe, and purchased a large amount of coin in the West Indies and other places. But it still continued to make loans to a larger degree than the actual business of the country, as measured by the amount of its exports, required, and its purchase was therefore a most ineffectual and childish scheme. It was but dragging a supply of water with much toil and expense, from the lake of the valley to the summit of an eminence, in the vain hope that, discharged there, it would continue on the height and not rush down the declivity, to mix again with the waters of the lake. The specie, purchased at high rates in foreign countries, was no sooner brought to our own, and lodged in the vaults of the bank, than it was immediately drawn thence again, by the necessity of redeeming the notes which poured in upon it in a constant stream in demand for silver. In one year, 1818, upwards of fifteen millions of dollars were exported from the country, and still the debts incurred by the mad spirit of overtrading were not liquidated. The bank itself was now on the very verge of bankruptcy. At the close of its business on the 12th of April, 1819, the whole amount of money in its vaults was only 71,522 dollars, and it at the same time owed to the city banks a clear balance of 196,418 dollars, or an excess over its means of payment of nearly 125,000 dollars. A depreciation of its credit was one of the consequences which had flowed from this state of things, and the notes of the United States Bank—the boasted institution which claims to have regulated the currency of this country—
fell ten per cent. below the par value of silver.

But the greatest evil was yet behind. The Bank was at length compelled, by the situation in which the rashness of its managers had involved it, to commence a rapid curtailment of discounts. An immediate reduction took place of two millions in Philadelphia, two millions in Baltimore, nearly a million in Richmond, and half a million in Norfolk. This sudden withdrawal of the means of business was, of itself, a heavy calamity to those cities; but the system of curtailment was persevered in, until the foundation of a great part of the commercial transactions of the United States, and of the speculations in land, in internal improvement, and other adventures, which the facility of getting money had induced men to hazard, was withdrawn, and the whole fabric fell to the ground, burying beneath vast numbers of unfortunate persons, and scattering ruin and dismay throughout the Union.

The same scenes, only to a greater extent, and with more deplorable circumstances, were acted over in 1825. There are few inhabitants of this city who can have forgotten the extensive failures, both of individuals and corporate institutions, which marked that period. There are many yet pining in comfortless poverty whose distress was brought upon them by the revulsions of that disastrous year—many who were suddenly cast down from affluence to want—many who saw their all slip from their grasp and melt away, who had thought that they held it by securities as firm as the eternal hills.

But not to dwell upon events the recollection of which time may have begun to efface from many minds, let us but cast a glance at the manner in which the United States Bank
regulated the currency in 1830, when, in the short period of a twelve-month it extended its
accommodations from forty to seventy millions of dollars. This enormous expansion, entirely uncalled for by any peculiar circumstance in the business condition of the country, was followed by the invariable consequences of an inflation of the currency. Goods and stocks rose, speculation was excited, a great number of extensive enterprises were undertaken, canals were laid out, rail-roads projected, and the whole business of the country was stimulated into unnatural and unsalutary activity. The necessary result of the spirit of speculation thus awakened was the purchase of more goods abroad than the commodities of the country would pay for. Hence vast sums of specie soon began to leave the United States; scarcely a packet ship sailed from our wharves that did not carry out to England and France a large sum of money in gold and silver; and it is estimated that in 1831-32 the specie drawn from the country did not fall short of twenty millions of dollars. The Bank of the United States, failing to accomplish the bad design for which it had thus flooded the country with its paper, now began to try the effects of a contrary system, and resorted to coercion. A reduction of its issues must inevitably have taken place in the nature of things, nor could all the means and all the credit of the Bank have removed the evil day to a very distant period. But it had it completely within its power to effect its curtailment by easy degrees, and to bring back business into its proper channels by operations that would have been attended with little general distress. But this was no part of its plan. Its object was to wring from the sufferings of the people their assent to the perpetuation of its existence. Its curtailments were therefore rapid and sudden, and so managed as to throw the greater part of the burden on those commercial places where there was the greatest need of lenity and forbearance. The distress and dismay thus occasioned, were aggravated by the rumours and inventions of hired presses, instructed to increase the panic by all the means in their power. Of the deplorable effects produced by this course, the traces are yet too recent to require that we should enter into any particulars.

The Bank has not yet exhausted its full power of mischief. Since its creation to the present hour, instead of regulating the currency, it has caused a continual fluctuation; but it is capable of doing greater injury than it has yet effected. It is perfectly within its power to cause a variation of prices to the extent of twenty-five per cent. every ninety days, by alternate expansions and contractions of its issues. It is in its power, in the short period that is yet to elapse before its charter expires, so to embarrass the currency, so to limit the amount of circulating medium, so to impair commercial confidence, and shake the entire basis of mercantile credit, as to produce throughout the whole land a scene of the most poignant pecuniary distress—a scene compared with which the dark days of 1819 and 1825, and those through which we have just passed, shall seem bright and prosperous. And there are indications that the Bank will do this. There are signs and portents in the heavens which tell of a coming tempest. There are omens which foreshow that this mighty and wicked corporation means to use to the uttermost its whole machinery of coercion, to wring from the groaning land a hard contest to the renewal of its existence. We trust the People will bear stiffly up under the infliction. We trust they will breast the storm with determined spirits. We trust they will endure the torture, without yielding to a measure which would destroy the best interests of their country, and make them and their children slaves forever.

Regulation of the currency! What a claim to set up for the United States Bank! It has done the very reverse: it has destroyed the equal flow and steady worth of the currency: it has broken up the measure of value: it has kept the circulating medium in a state of continual fluctuation, making the dollar to-day worth a dollar and a half, and to-morrow not worth a half a dollar. Besides the three great periods of sudden excess and rapid curtailment, its whole career has been one series of experiments, more or less general, of inflation and exhaustion of the currency. And this is the institution, which now comes forward, and claims to be re-chartered, on the ground of having well performed the great offices for which it was created. It has failed in
all its great ends. In its chief purpose, as a fiscal agent and assistant of the Government, one on which it might at all times securely rely, it has wholly failed. We have seen it interfering in the national politics, and endeavouring to rule the suffrages of the people, first by bribery and afterwards by compulsion. We have seen it place itself in open defiance to the Executive, and rank him in its official papers, with counterfeiters and robbers. We have seen it endeavouring to thwart the measures of his administration; collude with foreign creditors of the Government to defeat the avowed objects of the Treasury; refuse to give up the national funds at the commands of the competent authority; and finally turn a committee of congress with contumely from its doors, in violation of its charter, and in violation of every obligation of morality and every principle of public decency. This is the institution which now comes forward for a re-charter. If the people grant it they will deserve to wear its chains!

23.

A reference to William M. Gouge,
AShort History of Paper Money and Banking in the United States (Philadelphia: T. W. Ustick, 1833).—Ed.

24.

“Hurry slowly.”—Ed.

STRICTURES ON THE LATE MESSAGE

Categories: William Leggett