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ART. V. The Currency, as affected by State Legislation and Local Usage.- The present Banking System destructive to Credit. - Paper Money more costly than Specie.- Palliatives for the existing Disorders. -Suffolk Bank System. Safety Fund System.New York General Banking Law. Suppression of small Notes. Remedy. Separation of Bank and State.-Conclusion, Failure of the United States Bank of Pennsylvania.

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In a former number, we offered some remarks upon the great question of the Currency, so far as it falls within the jurisdiction, and is affected by the action of the General Government. On that occasion we pointed out, in the first place, very briefly, the inconveniences of the existing system. The principal function of the currency, that is, of money, is to operate as a measure of value; and the great evil in the existing system is, that the value of our paper money is subject to constant fluctuations, which render it entirely unfit to perform this office of measuring the value of other articles. We next adverted successively to the plans for the management of the public revenue, proposed by Mr. Webster, Mr. Rives, Mr. Clay, and the President, considered chiefly in their operation on the currency. We expressed the opinion that the use of banks, whether state or national, as depositaries of the public funds, have an injurious effect, by stimulating still farther a system, which tends but too rapidly by its own nature to excess, that the General Government has no power under the constitution to regulate the issues of State banks, and that the measures proposed by the President of employing official treasurers to keep the public funds, and receiving in payment of dues to the Government only the legal currency of the country, would operate favorably upon the banks, by making it necessary for them to keep on hand a larger amount of specie than they have heretofore done. We remarked in conclu

sion, that we should consider in subsequent pages the same great subject of the currency, as affected by state legislation and local usage. In the present article, we propose to redeem this pledge, by stating the principal considerations that bear upon this branch of the inquiry, as distinctly as may be in our power, although of necessity with a brevity very ill suited to the overwhelming magnitude and importance of the matter in hand.

Of the two branches of the subject, the one which we now propose to examine is, we need hardly say, by far the more important. It was probably the original intention of the founders of the constitution, that the currency should be controlled directly and exclusively by the General Government. For this purpose the General Government was invested with the coining power, and the States were prohibited from exercising that power, or from issuing bills of credit. It was, doubtless, anticipated that these two prohibitions taken together would cover the whole ground, and prevent the States from creating either paper or metallic currency in any shape. It is much to be regretted that this judicious intention has not taken effect. Unfortunately, in this as in so many other cases, the cupidity of interested individuals, sustained by the astuteness and technical spirit of the courts of justice, has defeated the objects of the wisest and the clearest legislation. At the time when these provisions were adopted there were very few banks in the country, and their issues of notes were probably either entirely overlooked, or considered as too unimportant to require regulation. But the banks rapidly increased in number, and poured out floods of paper, which filled up all the channels of circulation; and being received as money, by a natural law of trade, banished the precious metals entirely from the country. By this change of circumstances, the intention of the constitution was defeated in two most important points. First, the control of the currency was taken from the General Government, to which it had

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been given by the constitution, and committed to the States, each acting for itself, independently of all the rest; and, secondly, a paper currency composed of the promissory notes of private banking corporations was substituted for the metallic money, which the constitution intended to make the only currency of the country.

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The fluctuation, the confusion, and the manifold inconveniences of all kinds, that must necessarily result from this disastrous change of circumstances, soon became apparent, and some attempts have, from time to time, been made to correct the evil through the ordinary operation of the courts of justice. There can hardly, in fact, be a doubt in the mind of any reasonable man, that bank notes are bills of credit within the meaning of the prohibitory clause of the constitution, and that the States have no right to issue indirectly through chartered corporations a paper currency, which they have confessedly no right to issue directly. The Executive and Judiciary departments of the General Government by a prompt exercise of their appropriate powers might, without difficulty, have suppressed this great mischief at its commenceBut the first two administrations of the Government were friendly to the paper money system, and the same feeling has generally prevailed even up to the present day in the Supreme Court. No attempt, we believe, has ever been made to bring the question of the constitutionality of the present banking system to a direct decision; but whenever it has incidentally come under the notice of the courts, they have given their sanction to the existing usage, and the general opinion now seems to be, that, however originally doubtful or even clearly objectionable, it is established by prescription too firmly to be arrested. Thus a germ of evil, which, at the outset, was probably overlooked from its insignificance, had no sooner begun to attract attention, than it was declared to be so firmly rooted in public opinion, that it would not admit the the application of the natural and appropriate

remedy. It is easy to discern, at both these periods, the operation of private interest, making use of plausible pretences to cover its own selfish objects; but we have not room here to enlarge on this point. Our present concern is with the economical, rather than the legal or political aspects of the subject.

In our former article we succinctly pointed out the evils of the existing system. Before proceeding to indicate the remedies, which depend upon State legislation and local usage, we will advert very briefly to the suggested advantages of a paper money currency, as the plan now in use in this country. It will appear, we think, that these supposed advantages are entirely imaginary, and that the system is, in fact, open to attack on what are commonly regarded as its strongest points.

The argument now most earnestly insisted on in support of the present banking system is its influence on credit. Its advocates commence by emphatic and exaggerated statements of the benefits resulting to individuals and nations from the greatest possible extension of credit; and assuming, in the next place, without proof, that the present banking system is the one most likely to effect this object; they pronounce it the credit system, and declare that any attempt to reform its abuses is neither more nor less than a war upon credit. This will be admitted, we suppose, to be a correct statement, in a few words, of the sum and substance of the speeches, pamphlets, and essays of the principal supporters of the system from Webster and Legare in Congress, down to the common every-day writers for the newspaper press. It is hardly necessary to say to those who have well considered the subject, that every step in this argument is full of sophistry, and founded in considerations not only erroneous, but directly the reverse of the truth.

It is not true, in the first place, that either individuals or nations are benefited by the greatest possible extension of credit. Credit may be pushed to an excess, which generates extravagance and wild.

speculation; results, that carry with them, as we know too well by experience in this country, a train of the most disastrous consequences. It is not true, as is often alleged in connexion with this argument, that the great prosperity of the United States has been owing to the application of the principle of credit. Labor is the only ultimate source of the wealth, and, we may add, the welfare of nations. Steady, resolute, persevering, indefatigable, self-denying labor, performed for the first time in the history of the world, for their own account by the whole population of a great country, has been the secret of our success. The foundations of our national prosperity were laid; the superstructure raised in all its principal parts, and the whole machinery of the system put into full operation, before the principle of credit, as now understood, was practically introduced among us; for this is only within the last thirty or forty years. The favorite topics of our fathers were not the advantages of getting credit, but of industry, economy, temperance, and freedom from debt. Poor Richard's almanac, their manual of practical conduct, and the work which is said to have formed our national character, is merely a sermon from this text. In fact, though credit, absolutely viewed, may be considered as a good thing; every transaction, that brings it into operation, involves another element of a directly opposite character. There are two parties to all such transactions, and if one of them gives credit, the other gets into debt. Now debt, absolutely viewed, is a bad thing, and it is only by comparing the results of the operation, as viewed under both these aspects, that we can decide whether it will prove beneficial or otherwise. Credit, therefore, is far from being an unmixed good. We may have too much of it; and the only way of assuring ourselves that we are within the proper limits, is to follow nature. Where a man feels sufficient confidence in the character and solvency of another, to entrust him with real capital, the transaction will probably prove beneficial to both par

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