A Short History of Paper Money and Banking
Chapter XXIV. Of the Evils that would be Produced by a Sudden Dissolution of the System
If every Bank note in the country were consumed by fire to-morrow, the wealth of the nation would be diminished just as much as it would be by the destruction of so much waste paper.
So, if all the title-deeds of estates were destroyed, the loss of positive wealth would be equivalent to the loss of so many skins of parchment. But very great injustice would be done to individuals by the destruction of these skins of parchment; and not less, probably, by the sudden destruction of Bank notes.
It is an easy thing to establish a Banking system: but it is not very easy to get rid of it after it has been some years in operation. The sudden abolition of it, would produce an entire destruction of private credit, a universal pressure for the payment of debts, and a general disability to comply with engagements. Business of nearly every kind would be suspended, and the laboring part of the community would be deprived of employment.
If all the Bank notes in the country should be destroyed to-morrow, the twenty-two millions of specie which are said to be in the vaults of the Banks, would be put in circulation, which, added to the ten millions of specie supposed to be at present in circulation, would make a total of thirty-two millions. Supposing Bank credits to be destroyed at the same moment, the circulating medium would suddenly be reduced from one hundred and nineteen millions (which is, according to Mr. Gallatin, the present aggregate of specie, notes, and Bank credits) to thirty-two millions. If an end were not put to all transactions except by means of barter, the fall of prices would be at least seventy-five per cent.
If but half of the Bank notes and Bank credits should be suddenly abolished, the fall of prices would be in greater proportion than the reduction of medium, from the immense quantities of land and of merchandise which would be thrown into the market.
If the Bank medium should be suddenly reduced only one-fourth, the fall of prices would be at least twenty-five per cent., and universal embarrassment would be the consequence.
Many of those who have acquired capital by the different operations of Banking, would not, perhaps, desire any thing better than the sudden destruction of the system. Most estates which are now mortgaged for only one-third or fourth of their worth, at the present rate of valuation, would fall into the hands of speculators. The condition of the whole country would be like that of Kentucky when she adopted her “relief laws.” The people would clamor for the issue of paper money by the State Governments, and a worse system than the present might be adopted, if a worse be possible.
Public opinion in the United States, when it once takes root, runs so rapidly to maturity, that this caution is not unnecessary. Some who are now living may see the time when the popular feeling against the Banking system will be stronger than the feeling ever was in its favor.
