A Short History of Paper Money and Banking

CHAPTER XIX. Of the Ways and Means by which Bank Charters are obtained and renewed.

When a bill was under consideration in the year 1828, to renew the charter of the New York State Bank, General Root, then speaker of the Senate of that Commonwealth, made a speech, from which the following is an extract:

“This Bank was chartered in 1803. Who were the original applicants, and what were the representations made to the country members, it is not necessary to state: at all events, it was to be a State Bank, and a democratic one. I was urged to be a subscriber to the Bank; it was said the shares were to be scattered over the State, and the members of the Legislature were to have shares. It was one of the most open, palpable, barefaced acts of bribery that can be imagined. I was induced to subscribe; but I lost all the shares but a few: they said they had lost the subscription paper, or some such thing. So I told them I would not take any. Afterwards a gentleman who came from Albany to Delaware (i. e. Delaware county, N. Y.) brought me a script for eight shares. I told them I would not have any; so they kept them to themselves, I suppose.”

In the year 1816, Mr. Hopkinson, of Philadelphia, had the boldness to declare in Congress, that “he considered the litter of Banks !ately created in Pennsylvania, as the offspring of private legislation and legislative fraud.”

A few years since, a senator from Philadelphia County, was heard to lament that a number of shares had been reserved for him in a certain Corporation, the bill for establishing which, he had assisted in passing through the Legislature. The speculation turning out unfortunate, he had lost, instead of gaining, by his services as a stock-jobbing lawgiver.

There was great struggling for the script of the Spring Garden Bank. But we know a member of the Legislature who merely intimated his wish to have a certain number of shares in that Institution, and his wish was gratified.

A distinguished statesman has lately intimated “that there is no law against the Banks subsidizing the public press.” With equal truth, it may be said, that there is no law to prevent members of the Legislature from partaking of the advantages of the Corporations they themselves establish. Still it is proper that such facts should be known.

Another great inducement with members of the Legislature to vote for new Banks, is that they may have the means of rewarding the township and ward politicians, the “delegates” and “conferees,” to whom they are indebted for their nominations. In selecting “Commissioners,” they have the means of paying a debt of gratitude to some men, and of laying others under personal obligations which they hope will not be forgotten.

To get a majority to vote for a new Bank, is, in some instances, no difficult undertaking. In Pennsylvania, there is a mode of running bills through both houses, known technically as “log-rolling.” The figure of speech is borrowed from the practice of the original settlers, who, after cutting down the trees on their tracts of land, used to assemble together to roll the logs into heaps. What could not be done by one man, the united strength of many made easy. In like manner, the members of the Legislature who are interested in local, personal, or corporation bills, unite their strength, and roll them all through both houses. In this way, it may chance that fifty or a hundred bills are passed in the course of a session, each of which, if suffered to rest on its own merit, would have been rejected.

Many members of the Legislature are averse to this practice; but some of them are reluctantly brought into it, by the refusal of the “log-rolling” members to vote for good public bills, unless their own private bills are passed at the same time.

The same system is known in the other States, by other names; and it will readily be believed, that where it prevails, special privileges will be conferred on companies under any and every pretext. Such is the effect it has on American Legislation, that a stranger, on inspecting the list of acts annually passed, might suppose our State Governments had been established for the special benefit of stock-jobbers and speculators. In 1826, the Governor of Massachusetts declared that, within the preceding five years, charters had been granted to corporations within that Commonwealth, with authority to hold thirty millions of property. This was exclusive of charters to Banking, Insurance, Canal and Rail Road Companies. The Governor of Delaware stated, in his official message in 1825, that there were then eighty corporations in that small State.

No doubt many legislators think that, in voting for new Banks, they are promoting the welfare of their constituents. But the prevalence of false views of the money corporation system, in legislative bodies, is to be attributed mainly to the exertions of those members who have a personal or political interest in establishing and supporting such institutions.

If a Bank only preserves a tolerable credit, the renewal of its charter follows as a matter of course. At least, we have met with no instance on record, of refusal to renew the charter of a State Bank which had not committed some open act of bankruptcy. How far a Bank may be entitled to the credit it enjoys, is seldom inquired into. Too many interests are then concerned. Those who have bought stock at second hand, know not, if the Bank were compelled to wind up, if its assets would cover its debts. Some of the borrowers from the Bank feel alarmed, for, if called on to pay what they owe, their insolvency may be made apparent, and the means of living in splendor be taken away from them. A clerkship of 600 dollars per annum, makes a man a firm friend of the Banking system: and he who has had an accommodation note discounted, of the amount of only 500 dollars, feels unpleasant if you hint at the possibility of a charter’s not being renewed. Such is the weakness of human nature, that if a man owns only a hundred dollars’ worth of stock, it makes him less an enemy to money corporations than he otherwise might be.

Whenever the Legislature creates a Bank, it, at the same time, creates an interest sufficient to sustain that Bank, under all circumstances but those of open bankruptcy. And, as if to give these various interests as much power as possible, it has been contrived in Pennsylvania, that the charters of nearly all the Banks shall expire at the same time.

The extent of Bank influence is not easily appreciated. It is seldom we see a “Bank ticket,” or a “money corporation ticket,” on the election ground: but when questions are agitated which affect this interest, the Banks have agents at work, whose operations are the more effective because they are unseen. The result usually is, placing the names of friends of paper money on all the tickets.

Over the periodical press, the Banks have great power. Few journalists can venture to expose the money corporation system, in such plain terms as every body would understand, without risking the means of support for themselves and families. Newspaper editors have as much independence of principle as other men; but they are far from being independent in circumstances. The neglect of subscribers to pay up arrears, has brought many of them in debt to the Banks. Others who are not in debt, are supported principally by the patronage of the Banking interest.1

In England it is possible to assail both the ecclesiastical and the hereditary aristocracy, through the medium of the periodical press. Under all the evils the people of that country suffer, they have the consolation of enjoying freedom of discussion: but, notwithstanding our boasted liberty in the United States, free and full expositions of the principal cause of our social evils would not be tolerated.2

In some respects, the Banks have more power than the Government itself They hold the purse-strings of the nation. They can buy off enemies, and they have the means, in various ways, of rewarding friends. Their fund for the circulation of pamphlets is not easily exhausted. They require no formal treaties to induce them to act in concert. They are ready organized for all occasions. The direct power their charters give them, and the additional power they acquire by their diversified operations, make them all but resistless.

In the United States, there always have been, and there are now, a great number of men opposed to the money corporation and paper money system; but their opposition has produced little effect. In the Bank controversy, there is, on the one side, the strong feeling of private interest supported by party discipline; and, on the other side, the comparatively weak feeling of patriotism, without any aid from party organization. The friends of the Banking system act in concert; its opponents act singly, if they act at all. Against any kind of action, there are various discouragements. If a proposition is made to establish a new Bank, it seems hardly worth while to oppose it, for one Bank more or less can have no great effect. The question immediately occurs on such occasions, why should not these men, as well as others, be permitted to share the profits of Banking? Every new Bank does, indeed, increase the difficulty of reform; but the prospect of reform seems so remote as to be with many thought hardly worthy of attention.

Other difficulties arise from the system’s having received the sanction of the Federal Government, as well as that of the State Governments. If any one of the States was disposed to establish a system of sound currency and sound credit, it would find the work impracticable so long as a paper money Bank incorporated by the United States Government continues in existence. If a proposition is made to suffer the charter of the United States Bank to expire, we are startled with the horrors of a multitude of State Banks, issuing paper without limits, and failing to redeem their notes with specie.

It ought to excite no surprise that, under such circumstances, the paper money system has, notwithstanding the great evils it has produced, been prolonged to the present time, and that it is daily strengthening and extending itself. To get rid of it suddenly is impossible. To remove it would require a regular plan of operations, the carrying of which into effect would employ a series of years. Such a plan of operations could be carried into effect by a party which would be willing to sacrifice all merely personal predilections and antipathies for the grand object of breaking down the money corporation and paper money system, and restoring to the great body of the American people their natural right of acquiring property by industry and economy.

 

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3 In a speech in Congress in 1816, Mr. Calhoun, referring to the state of the currency, said, “the evil he desired to remedy, was a deep one; almost incurable; because connected with public opinion, over which Banks have a great control: They have, in a great measure, a control over the press ; for the proof of which he referred to the fact, that the present wretched state of the circulating medium, had scarcely been denounced by a single paper in the United States.”

4 “Previous to commencing this pamphlet,” says Mr. Carey, in a publication made in 1816, “and during its progress in my hands, prudence and discretion have been constantly exerting themselves to repress my zeal, and to deter me from the undertaking. They have incessantly spread before my eyes the risk of offending those powerful bodies, the Directors of the Banks, who have so many opportunities of making their indignation be felt, and some of whom may not be above the mean and malignant desire of availing themselves of those opportunities.

“To the soundness of these suggestions, I must freely assent. It is plain and practicable. And were I to consult my own personal advantage or comfort, I should bow down in humble submission to their authority. I am well aware of the risk I run. I know if there be at any of the Boards any portion of.malice or resentment, (and were there ever twelve men assembled togther without a portion of malice and resentmen?) it will be roused into action to persecute the man who has dared to arraign their institutions at the bar of the public, and to accuse them of gross errors, which have produced a fertile crop of misfortunes and distress to our citizens.

“Another consequence equally clear, is present to my view. One Bank Director, actuated by malice and resentment, would do me more injury in a day, than one hundred of those whose cause I undertake to defend, would do me good in seven years. The malice of the one would be strong, lasting, insatiable, and as vigilant as Argus, with his hundred eyes, to gratify his spleen. The friendship, or the gratitude, of the others would be cold, torpid and lifeless.”

Mr. Carey then was, and perhaps still is, a supporter of the Banking system. The object of his letters was simply to investigate the policy of a curtailment of accommodations made by the Banks.

• 1* Letter to Mr. Gallatin, by Publicola, New York, 1815.
• 2* See Say, Book, Chap. xxi, Section 2.
• 3“In most disquisitions upon the noxious tendency of Banks,” says another writer* “much stress has been laid upon the injuries they have a power to inflict, by excessive loans and consequent bankruptcy, and by creating and circulating a permanent excess of currency. Could these two evils be avoided, many believe that Banks would be innoxious. I regret to differ. I am not of those who imagine that Banks incorporated with a liberal capital, will ever endanger their solvency by extending their loans; nor of those who believe that Banks controlled by specie payment, can circulate a permanent excess of paper. And yet, I think I can perceive a portentous power that they exercise over commercial enterprize. I am of opinion that they can circulate a temporary excess of paper, which, from time to time, finds a corrective, in a run upon the Banks for specie; that this temporary excess is succeeded by a temporary deficiency, one extreme invariably tending to another; that the consequences of this alternate excess and deficiency are, in the former case to impart an undue excitement, and in the latter an undue depression to commercial enterprize; that the effect of the former is to create an unnatural facility in procuring money, and to enhance unnaturally the price of commodities; while that of the latter is to produce an artificial scarcity, and to cheapen prices artificially; that the victims of these vibrations are the great body of merchants, whose capital and average deposits cannot always command discounts; that the gainers are a few intelligent and shrewd capitalists, the magnitude of whose deposits commands enormous discounts at all times, and who, being behind the curtain, know when to buy and when to sell. I am of opinion that these vibrations inflict evils which close not with mercantile speculation; that they tend to unhinge and disorder the regular routine of commerce, and introduce at one moment a spirit of wild and daring speculation, and at another, a prostration of confidence, and stagnation of business: that these feelings are transferred from the counting-house to the fire-side; that the visionary profits of one day stimulate extravagance, and the positive losses of another engender spleen, irritation, restlessness, a spirit of gambling and domestic inquietude.
• 4Because they are divisible into extremely minute portions, and capable of re-union without any sensible loss of weight or value; so that the quantity may be easily apportioned to the value of the articles of purchase.*