“There were a great many petty banks, Richard, and, of course, plenty of bad paper. I believe you are right. The causes of things were not studied in those days as they are now.”
“All that we know now, sir, is to be found in books written long before 1793.”
“Books! books!”
“Yes, sir; a book is not dead paper except to sleepy minds. A book is a man giving you his best thoughts in his very best words. It is only the shallow reader that can't learn life from genuine books. I'll back him who studies them against the man who skims his fellow-creatures, and vice versa. A single page of Adam Smith, studied, understood, and acted on by the statesmen of your day, would have averted the panic of 1793. I have the paragraph in my note-book. He was a great man, sir; oblige me, Mr. Skinner.”
“Certainly, sir, certainly. 'Should the circulation of paper exceed the value of the gold and silver of which it supplies the place, many people would immediately perceive they had more of this paper than was necessary for transacting their business at home; and, as they could not send it abroad, bank paper only passing current where it is issued, there would be a run upon the banks to the extent of this superfluous paper.'”
Richard Hardie resumed. “We were never so overrun with rotten banks as now. Shoemakers, cheesemongers, grocers, write up 'Bank' over one of their windows, and deal their rotten paper by the foolscap ream. The issue of their larger notes is colossal, and renders a panic inevitable soon or late; but, to make it doubly sure, they have been allowed to utter 1 pound and 2 pound notes. They have done it, and on a frightful scale. Then, to make it trebly sure, the just balance between paper and specie is disturbed in the other scale as well as by foreign loans to be paid in gold. In 1793 the candle was left unsnufled, but we have lighted it at both ends and put it down to roast. Before the year ends, every sovereign in the banks of this country may be called on to cash 30 pounds of paper—bank-paper, share-paper, foolscap-paper, waste-paper. In 1793, a small excess of paper over specie had the power to cause a panic and break some ninety banks; but our excess of paper is far larger, and with that fatal error we have combined foreign loans and three hundred bubble companies. Here, then, meet three bubbles, each of which, unaided, secures a panic. Events revolve, gentlemen, and reappear at intervals. The great French bubble of 1719 is here to-day with the addition of two English tom-fooleries, foreign loans and 1 pound notes. Mr. Law was a great financier. Mr. Law was the first banker and the greatest. All mortal bankers are his pupils, though they don't know it. Mr. Law was not a fool; his critics are. Mr. Law did not commit one error out of six that are attributed to him by those who judge him without reading, far less studying, his written works. He was too sound and sober a banker to admit small notes. They were excluded from his system. He found France on the eve of bankruptcy; in fact, the state had committed acts of virtual bankruptcy. He saved her with his bank.
“Then came his two errors, one remedial, the other fatal. No. 1, he created a paper company and blew it up to a bubble. When the shares had reached the skies, they began to come down, like stones, by an inevitable law. No. 2, to save them from their coming fate, he propped them with his bank. Overrating the power of governments, and underrating Nature's, he married the Mississippi shares (at forty times their value) to his banknotes by edict. What was the consequence? The bank paper, sound in itself, became rotten by marriage. Nothing could save the share-paper. The bank paper, making common cause with it, shared its fate. Had John Law let his two tubs each stand on its own bottom, the shares would have gone back to what they came from—nothing; the bank, based as it was on specie, backed stoutly by the government, and respected by the people for great national services, would have weathered the storm and lasted to this day. But he tied his rickety child to his healthy child, and flung them into a stormy sea, and told them to swim together: they sank together. Now observe, sir, the fatal error that ruined the great financier in 1720 is this day proposed to us. We are to connect our bank with bubble companies by the double tie of loans and liability. John Law was sore tempted. The Mississippi Company was his own child as well as the bank. Love of that popularity he had drunk so deeply, egotism, and parental partiality, combined to obscure that great man's judgment. But, with us, folly stands naked on one side, bubbles in hand—common sense and printed experience on the other. These six specimen bubbles here are not our children. Let me see whose they are, aliases excepted.”
“Very good, young gentleman, very good. Now it is my turn. I have got a word or two to say on the other side. The journals, which are so seldom agreed, are all of one mind about these glorious times. Account for that!”
“How can you know their minds, sir?”
“By their leading columns.”