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exportation, because our credits abroad will satisfy all demands against us.
But suppose the reverse of this to take place. Suppose our exports to fall in price below their ordinary rates, and our credit abroad greatly to decline. Then specie leaves the country, our banks are compelled to contract, and ruin overspreads the land.
Now, the two cases that are here supposed have actually occurred within a very short period. Between 1831 and 1836, the value of one article alone of export, that of cotton, increased from twenty-six million to sixty-eight million dollars, and was raised in price from nine and a half to sixteen cents a pound. In the same period, we ran in debt abroad to the amount of about two hundred millions, through the sale of State and other stocks. During all this time the banks were expanding, and the sum total of currency was more than doubled.
In 1837, our reverses began. Our credit abroad suddenly, declined, and the effects which followed must be too fresh in the minds of men to require to be here given in detail.
It is utterly impossible that a currency resting on such principles as these should have that stability of value which the money of every country ought to possess. The fault does not consist, as some imagine, in its being under the control of irresponsible corporations. Confine the power to issue it to responsible individuals, and effects will follow the same in kind if not in degree. The paper will fluctuate in quantity, and consequently in value, with every change in our foreign trade, and the state of our credit abroad.
What then, the reader may exclaim, would you have? Are you for an exclusive metallic currency? The word "currency," we reply, is rather equivocal. But we are for having THE MONEY of the country exclusively metallic, because there is nothing else in nature that can adequately perform the purposes of money, in its three functions of a standard and measure of value, a medial commodity, and a commodity of contract. As a mere circulating medium, we admit, paper is, in many cases, more convenient than gold and silver, nor have we any objection to paper representatives of gold and silver. Neither do we object to banks of deposit and transfer, such as the
Bank of Hamburgh, nor to clearing houses," such as that of London, where large amounts of obligations are adjusted by exchanging one security for another. Nor are we opposed to any other contrivance that commercial ingenuity can devise for economizing gold and silver, and facilitating transactions, provided only that thereby the mere promise be not substituted for the performance, the shadow for the substance.
In our next section, we shall endeavor to show how a commercial paper medium (not a paper money) may be formed every way adequate to the wants of the country.
8. Bankers ought for a sufficient premium to accept the bills drawn on them by their customers. This is the practice of the bankers of Lancashire, and until the establishment of a branch of the Bank of England in that county, such bills were in Manchester and Liverpool, and the country adjacent thereto, the chief medium in wholesale transactions. Not a few of them having but sixty days to run, would have on them by the time they arrived at maturity, the names of as many as one hundred and thirty endorsers, thus showing that they had effected, on an average, more than two commercial transfers on each business day. perfectly do these bills of exchange perform all the functions of a commercial medium, that the bankers of Lancashire have found it impossible to gain currency for their mere promissory notes, such as are in use in this country. One of the Joint Stock Associations lately made the attempt, but, after giving it a fair trial, abandoned it as unprofitable.
What advantages, it may be asked, have such bills over bank notes? We reply, the advantages are many.
First. Where they are in use, we see the beginning and the end of every credit transaction. A definite time is fixed for payment, and the promise is followed by either performance or protest. If six months bills are used, there is a winding up of credit transactions, at least twice in each year. If sixty days bills are used, there is such a settlement of accounts six times a year. Bank notes are, in the aggregate, never paid; and the bare attempt to enforce the payment of one half of them would, at almost any
time, break all the banks in the country.
Secondly. Every time a bill of exchange effects a new transfer, the security that it will ultimately be paid, is increased. It passes only by endorsement, and the last holder of the bill, if the maker does not duly honor it, has his remedy at law against each endorser in turn, if necessary. It is just that they who aid in circulating bills, should be treated, in a secondary sense, as issuers of the same. If any man should take a bill, the soundness of which he should afterwards have reason doubt, he might readily get rid of all responsibility relating to it, by endorsing it "without recourse." This would be a fair warning to him who next received the bill, and such a warning as those who make use of bills of exchange, are bound in honor and in honesty to give to one another.
Thirdly. By the use of such bills, the commercial paper medium of the country would adapt itself with unerring uniformity to the wants of trade. As trade increased, the commercial paper medium would increase, and as trade declined, it would decrease in amount. Fourthly. If such a medium could be brought into use, the bills would be made payable at those points which would best suit the convenience of buyers and sellers. Every town which is large enough to support a bank, is the centre of trade of a larger or smaller district. The bills requisite for the local trade of the district would be made payable at the town which would be the centre of its trade. But besides its merely local trade, each of the sub-commercial circles into which the country is divided, has more or less trade with the other circles. It has its places to which it exports and from which it imports, not in foreign lands, but within the bounds of our own country. At the larger towns at which they sold their surplus produce, would the inhabitants of the smaller commercial circles receive the proceeds thereof, and with these pay for their imports. All the bills growing out of the foreign trade of the country, whether of import or export, would naturally centre in the large sea-ports. The merchant of Tennessee, for example, on purchasing dry goods in New York, would give for them the acceptances of the bankers of this city, and
pay for them out of the proceeds of cotton shipped to New Orleans. This would be the course things would naturally take. The debtor sections of the country would remit to the creditor, just as the United States now remits to England. Our merchants, if they did but know it, might, out of their own business paper, make a far better commercial medium than that which the banks now furnish.
Fifthly. Through the use of such bills, the rate of mercantile interest would be lowered, because they would serve at one and the same time, the double purposes of a commercial medium and of an investment. The free use of such bills in England, is one reason why the rate of mercantile interest is lower in that country than it is in the United States.
Sixthly. Multitudes of accounts would be settled by the simple exchange of these bills for one another. In this way, the use of specie would be economized to an extent that would otherwise be impracticable.
Seventhly. Cases would occur, in which the drawer and all the endorsers of bills of exchange would fail. In some instances, this might be the fate of all the merchants engaged in a particular branch of foreign trade. But, then, the damage done would be confined to themselves and those immediately connected with them. It would not, as in the event of a breaking of the banks, or a suspension of specie payments by them, extend to the whole community. Whatever might happen, the standard of value, or that by which contracts between man and man are determined, would remain unaffected.
It is altogether an error to suppose, that commerce requires the use of paper money for its successful prosecution. Legitimate commerce, left to itself, creates its own medium. It requires not the aid therein of Govern ment, of corporations, or even of individual paper money manufacturers. It imports from abroad sufficient gold and silver, to satisfy all the engagements it makes to pay in gold and silver. It does not, indeed, always bind itself to give ready money, but when it buys on credit, it fixes on a definite time for payment, and the promise is invariably followed by either payment or protest. In no country has paper money been
introduced into use through the wants of Commerce. In all, it has had its origin in the necessities of Government. Commerce has various ways of economizing the use of the precious metals by means of bills of exchange, book entries, offices of deposite and transfer, clearing houses, &c., &c. But in no case does it make the empty promise stand in place of the performance. Such an expedient is merely the resort of insolvent governments, scheming individuals, and monopolizing corporations.
9. Banks ought to be subject to a bankrupt law, which, on their failure to comply with their engagements, should immediately transfer their effects to commissioners, or at least give the commissioners a veto power in the further proceeding of the bankers. Knowing their own business best, they might be permitted to manage it, under the superintendence of public officers, whose duty it should be to see that they did not manage it so as to do further injury to their creditors. We need not wait for Congress to pass such a bankrupt act. Each State has the power to adopt one which will be perfectly effective within its own limits.
We know that to very many, this view of banking as it ought to be, will not be acceptable. They are for patching up the old system. But it is all in vain. They never can make it innoxious to society. The present system is wrong in all its bearings. It has a principle of fraud for its foundation, and every species of knavery for its superstructure.
It is wrong in establishing that as money, which cannot adequately perform the most important functions of money. The notion that banks, so long as they pay specie, give us a mixed currency which is equal in amount to the gold and silver that would otherwise circulate, is all an illusion. Gold and silver, under our present system, are mere merchandise, or at best but a subsidiary currency. Our practical standard of value is bank paper. So long as the banks comply with their engagements, they keep two commodities, namely, gold and silver, at stationary prices, and prevent bills of exchange from rising beyond certain limits. But this does not pre
vent bank medium from fluctuating in such a way, as to prove ruinous to the whole community.
When the banks suspend specie payment, their notes are still our standard of value, and then they cause gold and silver to fluctuate more in paper money price, than any other commodities. And yet, it is a question with us, whether they do most harm when they pay specie or when they suspend. It is certain, that it is during the time they are 'paying specie that they lay the foundation of all the evils we suffer during a suspension.
Nor is it only in establishing a false money system, that our present mode of banking is radically erring. It is radically wrong also, inasmuch as it establishes a false credit system. It takes credit from the many to confer it on the few. It takes it from the honest and industrious, to confer it on spendthrifts and speculators.
It is vain to hope to correct the evils of such a system by legislative enactments. Very salutary provisions may be introduced into the laws, but they will most of them prove null in practice. The banks will obey them no further than suits their own interests. When a legislative body creates a system of moneyed corporations, it creates a power which is hereafter to govern itself, and the people also. In cases of emergency, extra sessions of the Legislature will be convened, for the express purpose of altering the laws for the benefit of the bankers.
It is in vain, Americans, for you to hope that your republican institutions will produce their proper effect while this system continues. Equal rights and equal responsibilities lie at the foundation of the principles of our Government. These are violated every day and every hour, through the operations of our banking institutions.
Nor have we an excuse for continuing the system on the score of convenience. Under a system of banking, in which the bankers should be responsible for their engagements in the whole extent of their private fortunes, and in which bills of exchange should be substituted for bank notes, we should enjoy all the real advantages of the present system, and be delivered from all its evils.
POEMS OF THE HEART.
As vapor risen from the sea
To thee, the Fountain of my song,
As many a forest flower by night,
Or as, upon the grassy blade,
The sun reveals the dew,
I owe and vow, thou worshipped maid,
When Winter treads his dreary round,
And snows lie deep upon the ground,
When winds in angry warfare meet,
Say, were it best, my constant friend,
And still through Winter's dreariest gloom,
A cheerful trust maintain,
That Heaven will smile, the woodlands bloom,