As can be read on the Mises Institute website, William Leggett (April 30, 1801–May 29, 1839) was an American poet, fiction writer, and journalist. He was a laissez-faire populist Jacksonian Democrat. He also became an outspoken opponent of slavery; however, he argued that the Union was not worth preserving at the expense of liberty and justice. If maintaining the Union required continual concessions to slaveholding interests, Leggett contended that dissolution would be preferable.
While Leggett’s thoughts and writings are interesting on several levels, this article seeks to present and appreciate a sample—and it is only a sample—of his economic insights. Thankfully, his writings are preserved in A Collection of the Political Writings of William Leggett (2 vols.) and his more influential editorials have been collected as Democratick Editorials: Essays in Jacksonian Political Economy. Several of Leggett’s quotes are also presented in Tom Wood’s Mises lecture “Economic Cycles Before the Fed.”
Although not altogether “Austrian”—he did not, for example, formulate the Austrian theory of intertemporal discoordination, interest-rate manipulation, or malinvestment—Leggett nevertheless anticipated several insights associated with Austrian economics. He recognized that politically-induced credit expansion could distort economic activity and fuel speculative booms; that monetary inflation and depreciating paper currency could erode purchasing power, raise prices, and disproportionately burden the poor while benefiting politically-connected financial interests; that government privileges interfered with the market’s allocation of resources; and that an artificially-privileged banking and credit system could generate recurring financial crises. Most significantly for this article, Leggett also repeatedly championed what he called “The Separation of Bank and State.”
What is also noteworthy is that several of Leggett’s insights, presented below, preceded or coincided with the Panic of 1837, for which the Jacksonians are often unfairly blamed. Rather than attributing the crisis to the Jacksonians’ opposition to the Second Bank of the United States, Leggett identified a more fundamental problem: politically-induced credit expansion arising from the privileged relationship between government and the banking system. His writings thus provide a contemporary critique of the monetary interventionism and speculative excesses that contributed to the financial crisis.
Leggett on the Separation of Bank and State
To start, it is important to realize that Leggett had a very libertarian or classically liberal view of self-ownership, private property, free markets, and the role of government. He wrote, “Governments possess no delegated right to tamper with individual industry a single hair’s-breadth beyond what is essential to protect the rights of person and property.” This Jeffersonian-Jacksonian view of individual rights, liberty, and limited government is key in understanding his view of equality, political privilege, and the banking system. We can also note with appreciation that he mentions that government possesses no delegated right, which subtly emphasizes that no one can vest government with powers to violate the rights of others and echoes the Tenth Amendment.
Writing for The Plaindealer—a weekly New York journal that Leggett himself founded and edited, which ran from December 3, 1836, to September 30, 1837—makes a simple but profound insight regarding free markets, banking, and financial institutions (May 13, 1837):
The financial facilities which the community requires, in the prosecution of trade, are themselves a branch of trade, and perfectly within the influence of its natural [economic] laws. Let us then insist upon the divorcement of legislation from banking. Let us demand commercial freedom. Let us require that politicks shall confine itself to the affairs of government, and leave trade to manage its own concerns.
One of the key fallacies that leads to so many other economic errors and unintended consequences is that a certain aspect of the economy—money, banking, insurance, healthcare, food, etc.—is special or an exception to the regular rules of economics. Following this presupposition further, many leap to the unjustified conclusion that the answer must be state intervention, regulation, and political privilege within the area in question. Money and banking are not special, and treating them as such is not only wrongheaded but counterproductive.
In another article titled “Bank and State” (July 22, 1837), Leggett continues this theme and begins an article by quoting another newspaper. The quote from the Evening Post, plus Leggett’s own words, demonstrate how surprisingly popular this issue was:
The Evening Post a day or two since remarked that, “there never was a more popular catch word than THE SEPARATION OF BANK AND STATE. . .”. . . The separation of bank and state, and the emancipation of credit from legislative fetters are the two great objects for which the real democracy are contending. “DIVORCE OF BANK AND STATE,” and “FREEDOM TO TRADE,” are phrases which deserve conspicuous and continual insertion in every democratick newspaper. They should constitute our “watchword and reply” in the coming contest.
Not only was this issue popularly debated during this period, but this evidences how monetary policy was much more part of the American political discourse than it is today. Such popular political discussion was certainly much more prevalent prior to the Progressive Era. The Progressives largely sought to “take the politics out of government,” that is, to increasingly remove key elements of meaningful democratic control from the people to the permanent bureaucratic state under “experts.” A central bank was arguably the centerpiece of this program. It is no coincidence that, following the Progressive Era and creation of the Federal Reserve (1913)—while the voting franchise formally expanded—educated awareness of monetary policy has largely disappeared from American political discourse (except in terms of disagreement between various strategies all already precommitted to monetary policy).
This is not to suggest, on the other hand, that monetary policy ought to be democratically controlled, but rather that there should be no monetary policy. As Milton Friedman stated (quoted in Salerno), “If a domestic money consists of a commodity, [such as] a pure gold standard or cowrie bead standard, the principles of monetary policy are very simple. There aren’t any. The commodity money takes care of itself” (emphasis added). As Leggett put it above, simply disconnect the political relationship between banks and the state, and allow banks to operate, not in unbridled chaos and criminality, but on a free-market basis, upholding normal laws against theft and fraud and receiving no political privilege.
Leggett clarifies that all this is key to the meaning of Jacksonian “equal rights,” that is, the classical liberal principle of no government-created castes and equality before the law, not modern egalitarianism. (Keep in mind that Leggett was also staunchly against slavery, and that in a time when holding that position was significant). Neither banks, nor any other institutions, ought to be granted special legal privileges. Rather than a bastardization of “equality,” by which Jeffersonian-Jacksonian equality is transformed into egalitarianism by those who want to use and expand the power of the state to treat people unequally in order to achieve egalitarian “equality,” Leggett emphasized legitimate, classically-liberal equality and removal of crony privilege,
The principle of democracy, on the other hand, asks only for equal rights. It asks only that the government shall confine itself to the fewest possible objects compatible with publick order, leaving all other things to be regulated by unfettered enterprise and competition. It asks, in short, for free trade, and the divorce of bank and state.
He continues further,
In the complete separation of government from the bank and credit system consists the chief hope of renovating our prosperity, and restoring to the people those equal rights, which have so long been exposed to the grossest violations. Leave credit to its own laws. It is an affair between man and man, which does not need special government protection and regulation. Leave banking to be conducted on the same footing with any other private business, and leave the banker to be trusted or not, precisely as he shall have means to satisfy those who deal with him of his responsibility and integrity.
As Leggett expresses his views, his positions seem totally unobjectionable (at least to Austrians, but also he and others like him obviously appealed to many Americans). On August 5, 1837, Leggett offers a similar argument as above,
What alone is needed—what is demanded by both the letter and spirit of our institutions, and by the fundamental principle of liberty, is freedom of trade, and a complete separation of bank and state. We ask that the federal government should not connect itself with any banking association in any way or degree, and that the state governments should likewise wholly separate themselves, in every respect, from the banking and credit system. When this is once carried into full effect, and banking is left to be conducted on the same basis with other branches of private traffick, without either peculiar encouragement or peculiar hindrance from the laws, we shall rise to a higher degree of general prosperity than we yet have ever attained.
Interestingly, Leggett even offered to change his views if he was proven wrong, in fact, he promised to advocate the opposite position,
. . .if these things can be demonstrated [against Leggett], we say, then shall we at once and forever abandon the position we now maintain, and raise our voice, with those of the monopolists, in demanding from the federal government a national bank, and from the states a continuation and extension of their systems of exclusive chartered privileges. But till these points can be clearly proved, we shall continue to do battle on the side of freedom.
As mentioned, while the Jacksonians have been wrongly blamed for the Panic of 1837—it supposedly occurred because of the lack of a national bank—and many have characterized the Jacksonian position as simply ideological, it can be argued that Leggett and the Jacksonians were largely vindicated.
Patrick Newman has credited the Jacksonians, in part, for America’s Industrial Revolution. He argues that this was largely due to the Jacksonian dismantling of the American System which “resulted in a great burst in industrialization and living standards.” While this included a move toward free trade and restraining the spending and debts of the government, it also included, “The end of federal regulation of banks and a reduction in privileged state banking monopolies [which] encouraged greater competition and efficiency.” Imagine the potential results if a good deal of Americans started thinking like William Leggett and called for separation of bank and state.
