This country is now in the crisis of a high industrial fever, which
has assumed a political character, and is of a very serious nature;
for the industrial interest, in this country, is the most important.
Last year, when the dispute between the Northern and Southern States,
relative to the tariff was settled, (see Note 5, at the end of the
volume,) the wise and prudent thanked God, that the danger, which
had threatened their country, had been averted; there seemed to them
nothing further to obstruct its triumphant career of conquests over
nature, with an ever accelerated rapidity and increased success. A
series of causes, to appearance of slight moment, has changed these
hopes into fears. Some trifling circumstances revived the old quarrel
between the democratic party, to which the President belongs, and the
Bank of the United States, and both sides grew warm. (See Note 6, at
the end of the volume.) President Jackson, a man of good intentions
and ardent patriotism, but too hasty towards those who venture to
contradict him, declared a deadly war against the Bank, and pushed it
with all the energy and fury, in the same cut-and-thrust style, that
he had the war against the Indians and English twenty years before.
He set his veto to the bill that had passed both houses of Congress,
renewing the Bank charter, which was about to expire in three years.
Not satisfied with this blow, he withdrew from the hands of the Bank
the public money, which, by the provisions of its charter, had been
deposited in them, and which gave it the means of very materially
extending its operations; for the excess of the deposits over the
exigencies of the government amount to not less than ten millions. The
Bank, which had paid to the government a bonus of 1,500,000 dollars
for the privilege of being the depository of the public funds, cried
out loudly against this measure, and with good reason, for no one
denies, that no institution in the union is better able to meet all
its liabilities. It has reduced its discounts, first, because the
removal of the public deposits has diminished the amount of specie in
its vaults, and also, as it declares, whether right or wrong, because
its very existence being threatened by the President's veto, it is
prudent to restrain the sphere of its operations, and to prepare in
time for the final settlement of its concerns. As this institution
takes the lead in the financial world, the other banks, even those to
which the public deposits have been transferred, have been obliged, in
their turn, to restrict their operations. Not only are they afraid to
extend their discounts in proportion to the amount of these deposits,
but they are obliged to contract them, because they find themselves,
as objects of the favour of government in this respect, in a state of
hostility with the Bank of the United States, and it is necessary to be
on their guard in the presence of so formidable an adversary. Thus are
the sources of credit suddenly dried up. Now credit is the life-blood
of the prosperity of the United States; without credit, the populous
towns which are springing up on all sides, as if by magic, the opulent
States, which, far away from the Atlantic and beyond the Alleghanies,
stretch along the Ohio and the Mississippi, would become a solitary
wilderness, savage forests or pathless swamps. The city of New York
alone has twenty banks, the annual average discounts of which, during
the last eight years, have amounted to one hundred millions. At Paris,
where the transactions are certainly more extensive than in New York,
the discounts of the Bank of France, in 1831, amounted to 223 million
francs, and in 1832 to 151 millions.[G] The amount of the discounts
of the Philadelphia banks, in 1831, was 150 millions. A general shock
to credit, however transient, is here more terrible than the most
frightful earthquake.
If I did not fear to lengthen out this letter beyond measure, I would
give some details concerning the struggle between the two parties,
concerning their tactics and their measures in Congress and out of it,
concerning Mr Clay's speeches and General Jackson's home thrusts. But I
think it more important at present, to call your attention to the part
which the Bank of the United States has played since its establishment,
and to the causes which stirred up against it that mass of hatred
and distrust, from which General Jackson derives confidence in his
measures. For it is not merely his own dislike that he gratifies;
from the last elections, which in almost all the States are based on
universal suffrage, it is plain that the numerical majority of the
population is, at this moment, opposed to the Bank.
The Americans had already used and abused systems of credit while under
the English rule. As soon as they had achieved their independence,
they became bolder in their enterprises, more sanguine, or, if you
please, more rash in their speculations. They stood in great need of
credit; the number of banks was multiplied, and many abuses crept in.
The State legislatures made no difficulty in granting bank-charters
to whoever asked for them, and in this respect they have not changed
their practice. If they imposed some restraints, they had no means of
ascertaining or securing their strict observance. The banks, therefore,
often issued an amount of bills wholly disproportionate to their
real capital, not merely twice or thrice, but ten times the value
of their specie and other means. The originators of the bank often
chose themselves directors, and discounted no paper but their own, or
rather they lent to themselves the whole circulation of the bank, on
the bare deposit of the bank shares. This was an ingenious process to
enable whoever pleased to coin current money, without ingots of gold
or silver. The mismanagement of these banking companies has sometimes
been such, that instances have occurred where the officers of the
bank have, on their own authority, opened a credit for themselves,
and generally admitted their friends to share in the privilege. Thus
it was discovered, that the cashier of the City Bank in Baltimore had
lent himself 166,548 dollars, and had made loans to one of his friends
to the amount of 185,382 dollars; all the other officers had taken the
same liberty, with the exception of one clerk and the porter.
The banks abusing the privilege of issuing bills, that is to say of
making loans, individuals abused the privilege of borrowing; hence
mad speculations, and consequently losses by the lender and borrower.
The banks cloaked theirs by new issues of paper, individuals theirs
by new loans; but there were many failures of speculators, and some
of banks. The latter excited the public indignation without reforming
any one. The honest and moderate working classes, the farmers[H]
and mechanics, who found that in the end they were the dupes of the
speculators, since by the depreciation of the paper money, which they
had taken as so much specie, they came in for a share of the loss,
but had no part in the gain, that is, in the dividends, conceived a
violent hatred against the banking system. To this particular cause
of dislike, was added that aversion which may be found in Europe and
everywhere else, felt by persons of methodical habits, gaining little
by hard labour, but gaining regularly, against those who are impatient
to make their fortune, and to make it at all events, and who waste
what they make in the most unbounded luxury and by the most foolish
enterprises, in less time than they have been in acquiring it. Then
there was the natural jealousy of simplicity against cunning, of slow
and heavy minds against the shrewd penetration of others. There was
also that suspicious distrust of all new influences, and all power that
aims to strike its roots deep, a distrust, which is essential to the
American, and which is the source, explanation, and safeguard of his
republican institutions. In short, in 1811, when the old Bank of the
United States, which was on a much smaller scale than the present Bank,
petitioned Congress for a renewal of its charter, an appeal was made to
the farmers and mechanics, and, as at the present day, the hobgoblin of
_a new aristocracy, and the worst of all, an aristocracy of money_, was
summoned up; the petition was not granted.
Soon after, in 1812, war broke out between England and the United
States. The natural effect of war is to diminish confidence, to
make the merchants timid, speculators cautious. Most of the banks,
having been managed with little prudence in better times, were soon
unable to meet the call for specie by the public; they solicited and
obtained from their respective legislatures leave to suspend specie
payments. Their bills had a forced circulation. At the peace of 1815
the banks were not able to resume specie payments, and the system of
inconvertible paper money was persevered in. Imagine then two hundred
and forty-six classes of paper money,[I] circulating side by side,
having all degrees of value, according to the good or bad credit of the
bank which issued them, at 20 per cent., 30 per cent., or 50 per cent.
discount. Gold and silver had entirely disappeared; there was no longer
any standard of price and value; the amount of bills in circulation
had become prodigious.[J] To the bills of the banks was added a great
amount of individual obligations of still less value, issued by private
persons as suited their wants, and which circulated more or less freely
in the neighbourhood. It was a frightful scene of confusion, a Babel,
where all business became impracticable from the utter impossibility of
the parties understanding each other.
It was now felt that, to restore order in the bosom of this chaos,
there was needed a regulating power, capable of commanding confidence,
with ample funds to enable it to pay out specie freely, and whose
presence and, in case of necessity, whose authority, should serve to
recall the local banks to their duty. In 1816, the present Bank of the
United States was, therefore, chartered by Congress for a term of 20
years, with a capital of 35 millions, and it went into operation on the
1st of January, 1817. The seat of the mother-bank is Philadelphia, and
it has 25 branches scattered over the Union. By its interference and
assistance specie payments were resumed by the New York, Philadelphia,
Baltimore, Richmond, Norfolk Banks on the 20th February, 1817, and
in course of time all the other Banks followed the example. This
resumption of specie payments was, first for the banks and then for
individuals, the signal, the occasion, the rule of a general settling
up of old accounts. As there had been much prodigality, unsuccessful
speculations, and dead loss, accumulated through a period of 20 years,
there was now a complete breaking up; many banks failed or suspended
their operations, and from 1811 to 1830, 165 banks were reduced to one
or the other of these alternatives. This state of things lasted three
years; they were three years of crisis, three years of suffering for
industry, that is, for the people of the United States; for this people
is identified with its commerce. The trials of this period have left a
deep and lasting impression. Hatred of speculators and of the Banking
system has taken root in the hearts of the mass of the people, and now
springs up in hostility to the Bank of the United States, which, in the
eyes of the multitude, is the representative of the system, although
it is itself innocent of the mischief, and can alone prevent its
recurrence.
The antipathy of the greatest number against the banks has then a
reasonable cause, but it is not, therefore, any the less blind and
unjust. They see nothing but abuses, and shut their eyes against the
advantages. The great extension of credit, which resulted from the
great number of banks, and from the absence of all restraint on their
proceedings, has been beneficial to all classes, to the farmers and
mechanics not less than to the merchants. The banks have served the
Americans as a lever to transfer to their soil, to the general profit,
the agriculture and manufactures of Europe, and to cover their country
with roads, canals, factories, schools, churches, and, in a word, with
every thing that goes to make up civilization. Without the banks, the
cultivator could not have had the first advances, nor the implements
necessary for the cultivation of his farm, and if the credit system has
given facilities for stock-jobbing to speculators, it has also enabled
him, although indirectly, to buy at the rate of one, two, or three
dollars an acre, and to cultivate lands, which are now, in his hands,
worth tenfold or a hundred fold their first cost. The mechanics who
attack the banking system, forget that they owe to it that growth of
manufacturing industry, which has raised their wages from one dollar
to two dollars a day. They forget that it furnishes the means by which
many of their number raise themselves to competence or wealth; for in
this country every enterprising man, of a respectable character, is
sure of obtaining credit, and thenceforth his fortune depends upon his
own exertions.[K]
At the end of 1819, commerce revived, the financial system of the
United States seemed settled on a sure basis. Since that time, some
shocks have been felt, as in 1822, and in 1825, the latter the reaction
of the great English crisis, but in both cases the storm soon passed
away. The root of the evil was struck on the day that the Bank of the
United States went into operation. This great establishment, which
committed some errors at first and paid the penalty, has for a long
time been conducted with the most consummate prudence. Most of the
leading commercial men, that is to say, most of the talents, of the
country are attached to it as directors, and its foreign correspondents
or associates are the houses whose credit is most firmly established,
such as the Barings of London, and the Hottinguers of Paris. It
exercises the necessary control over all the local banks, obliges them
to restrain their emissions by calling upon them for specie, or by
refusing to receive their bills when the issues are excessive. It was
by its agency that the currency of the United States was established
on so large a basis, that, in 1831, the banks were able, without any
effort, to discount the amount of 800,000,000 dollars, in the principal
cities of the Union, or 1,100,000,000 for the whole country.
Now, this state of prosperity seems to be coming to an end. Here, in
New York, the banks have ceased to discount, and on good paper, for two
or three months, 15, 18, and 24 per cent. per annum have been paid, the
usual rate of the Bank of the United States, and of most of the local
banks, being 6 per cent. At Philadelphia, 18 per cent. per annum has
been given on excellent paper at short dates. At Baltimore, merchants
of great wealth have been obliged to stop payment. Nobody buys;
nobody can sell. Orders for foreign goods are held back; and as every
body here is engaged in business, this state of things threatens all
interests, is the subject of all conversations, of all writing, and of
all thoughts. God grant that the sight of the impending danger may calm
the passions, and that the good sense of the community may banish empty
prejudices and false fears! God grant that both parties may forget
their mutual animosities in their anxiety for the common welfare! This
should be our prayer, not only for the sake of the destinies of this
great nation, but also because our silk manufacturers and the owners of
our vineyards, will pay a part of the expenses of the campaign against
the banks in general, which the radical party is about to open, by a
mortal contest, with the Bank of the United States.