FINANCIAL AND MONETARY CRISIS: GENERAL SUSPENSION OF SPECIE
PAYMENTS BY THE BANKS.
The nascent administration of the new President was destined to
be saluted by a rude shock, and at the point most critical to
governments as well as to individuals--that of deranged finances and
broken-up treasury; and against the dangers of which I had in vain
endeavored to warn our friends. A general suspension of the banks,
a depreciated currency, and the insolvency of the federal treasury,
were at hand. Visible signs, and some confidential information,
portended to me this approaching calamity, and my speeches in the
Senate were burthened with its vaticination. Two parties, inimical
to the administration, were at work to accomplish it--politicians
and banks; and well able to succeed, because the government money
was in the hands of the banks, and the federal legislation in the
hands of the politicians; and both interested in the overthrow of
the party in power;--and the overthrow of the finances the obvious
means to the accomplishment of the object. The public moneys had
been withdrawn from the custody of the Bank of the United States:
the want of an independent, or national treasury, of necessity,
placed them in the custody of the local banks: and the specie order
of President Jackson having been rescinded by the Act of Congress,
the notes of all these banks, and of all others in the country,
amounting to nearly a thousand, became receivable in payment of
public dues. The deposit banks became filled up with the notes of
these multitudinous institutions, constituting that surplus, the
distribution of which had become an engrossing care with Congress,
and ended with effecting the object under the guise of a deposit
with the States. I recalled the recollection of the times of
1818-19, when the treasury reports of one year showed a superfluity
of revenue for which there was no want, and of the next a deficit
which required to be relieved by a loan; and argued that we must now
have the same result from the bloat in the paper system which we
then had. I demanded--
"Are we not at this moment, and from the same cause, realizing the
first part--the illusive and treacherous part--of this picture? and
must not the other, the sad and real sequel, speedily follow? The
day of revulsion must come, and its effects must be more or less
disastrous; but come it must. The present bloat in the paper system
cannot continue: violent contraction must follow enormous expansion:
a scene of distress and suffering must ensue--to come of itself out
of the present state of things, without being stimulated and helped
on by our unwise legislation."
Of the act which rescinded the specie order, and made the notes of
the local banks receivable in payment of all federal dues, I said:
"This bill is to be an era in our legislation and in our political
history. It is to be a point on which the view of the future age
is to be thrown back, and from which future consequences will be
traced. I separate myself from it: I wash my hands of it: I oppose
it. I am one of those who promised gold--not paper. I promised the
currency of the constitution, not the currency of corporations. I
did not join in putting down the Bank of the United States to put
up a wilderness of local banks. I did not join in putting down
the paper currency of a national bank, to put up a national paper
currency of a thousand local banks. I did not strike Cæsar to make
Antony master of Rome."
The condition of our deposit banks was desperate--wholly inadequate
to the slightest pressure on their vaults in the ordinary course
of business, much less that of meeting the daily government drafts
and the approaching deposit of near forty millions with the States.
The necessity of keeping one-third of specie on hand for its
immediate liabilities, was enforced from the example and rule of
the Bank of England, while many of our deposit banks could show but
the one-twentieth, the one-thirtieth, the one-fortieth, and even
the one-fiftieth of specie in hand for immediate liabilities in
circulation and deposits. The sworn evidence of a late Governor of
the Bank of England (Mr. Horsely Palmer), before a parliamentary
committee, was read, in which he testified that the average
proportion of coin and bullion which the bank deems it prudent to
keep on hand, was at the rate of the third of the total amount of
all her liabilities--including deposits as well as issues. And this
was the proportion which that bank deemed it prudent to keep--that
bank which was the largest in the world, situated in the moneyed
metropolis of Europe, with its list of debtors within the circuit
of London, supported by the richest merchants in the world, and
backed by the British government, which stood her security for
fourteen millions sterling, and ready with her supply of exchequer
bills (the interest to be raised to insure sales), at any moment
of emergency. Tested by the rule of the Bank of England, and our
deposit banks were in the jaws of destruction; and this so evident
to me, that I was amazed that others did not see it--those of our
friends who voted with the opponents of the administration in
rescinding the specie order, and in making the deposit with the
States. The latter had begun to take effect, at the rate of about
ten millions to the quarter, on the first day of January preceding
Mr. Van Buren's inauguration: a second ten millions were to be
called for on the first of April: and like sums on the first days
of the two remaining quarters. It was utterly impossible for the
banks to stand these drafts; and, having failed in all attempts to
wake up our friends, who were then in the majority, to a sense of
the danger which was impending, and to arrest their ruinous voting
with the opposition members (which most of them did), I determined
to address myself to the President elect, under the belief that,
although he would not be able to avert the blow, he might do much
to soften its force and avert its consequences, when it did come.
It was in the month of February, while Mr. Van Buren was still
President of the Senate, that I invited him into a committee room
for that purpose, and stated to him my opinion that we were on the
eve of an explosion of the paper system and of a general suspension
of the banks--intending to follow up that expression of opinion with
the exposition of my reasons for thinking so: but the interview
came to a sudden and unexpected termination. Hardly had I expressed
my belief of this impending catastrophe, than he spoke up, and
said, "Your friends think you a little exalted in the head on that
subject." I said no more. I was miffed. We left the room together,
talking on different matters, and I saying to myself, "_You will
soon feel the thunderbolt._" But I have since felt that I was
too hasty, and that I ought to have carried out my intention of
making a full exposition of the moneyed affairs of the country. His
habitual courtesy, from which the expression quoted was a most rare
departure, and his real regard for me, both personal and political
(for at that time he was pressing me to become a member of his
cabinet), would have insured me a full hearing, if I had shown a
disposition to go on; and his clear intellect would have seized and
appreciated the strong facts and just inferences which would have
been presented to him. But I stopped short, as if I had nothing
more to say, from that feeling of self-respect which silences a
man of some pride when he sees that what he says is not valued. I
have regretted my hastiness ever since. It was of the utmost moment
that the new President should have his eyes opened to the dangers
of the treasury, and my services on the Committee of Finance had
given me opportunities of knowledge which he did not possess.
Forewarned is forearmed; and never was there a case in which the
maxim more impressively applied. He could not have prevented the
suspension: the repeal of the specie circular and the deposit
with the States (both measures carried by the help of votes from
professing friends), had put that measure into the hands of those
who would be sure to use it: but he could have provided against it,
and prepared for it, and lessened the force of the blow when it did
come. He might have quickened the vigilance of the Secretary of
the Treasury--might have demanded additional securities from the
deposit banks--and might have drawn from them the moneys called
for by appropriation acts. There was a sum of about five millions
which might have been saved with a stroke of the pen, being the
aggregate of sums drawn from the treasury by the numerous disbursing
officers, and left in the banks in their own names for daily current
payments: an order to these officers would have saved these five
millions, and prevented the disgrace and damage of a stoppage in the
daily payments, and the spectacle of a government waking up in the
morning without a dollar to pay the day-laborer with, while placing
on its statute book a law for the distribution of forty millions of
surplus. Measures like these, and others which a prudent vigilance
would have suggested, might have enabled the government to continue
its payments without an extra session of Congress, and without the
mortification of capitulating to the broken banks, by accepting and
paying out their depreciated notes as the currency of the federal
treasury.