The use of small notes may well and easily be discontinued. The experiment has been tried with success in Virginia, Maryland, and Pennsylvania. The prohibition might, perhaps, be carried as high as to notes of twenty dollars. There seems no adequate reason for the public being, further than this, deprived of the convenience of a representative of cash; a convenience so great that there is much more probability that the ingenious Americans will devise some method of practically insuring its convertibility, than that they will surrender its use. It has often occurred to me that out of the currency troubles of the United States, might arise such a discovery of the true principle (which yet lies hidden) of insuring the convertibility, or other limitation, of a paper currency, as may be a blessing to the whole commercial world. This is an enterprise worthy of their ingenuity; and one which seems of probable achievement, when we remember how the American merchants are pressed for capital, and how all-important to them is the soundness of their credit. The principle lies somewhere, if it could but be found: and none are more likely to discover it than they.
Private banking is, in the present state of affairs, necessary and inevitable; so that there is little use in arguments for or against it. Capital is grievously wanted, in all the commercial cities. There must be some place of resort for small amounts, and for foreign capital, whence money may issue to supply the need of commercial men. There must, in other words, be money stores; and, in the absence of others, private banks must serve the purpose. The amount of good or harm which, in the present state of things, they are able to do, depends mainly on the discretion or indiscretion of their customers; who, in common prudence, must look well whom they trust.
As for State incorporations, it cannot be said that they are absolutely necessary; though the arguments in favour of their expediency are very strong. More and more money is perpetually required for the transaction of commercial business; and in a different ratio from that required by the affairs of farmers and planters; since the latter receive their returns quickly; while the merchants of the sea-board have theirs delayed for long periods, and consequently require a much larger amount of capital. These larger amounts must come mainly from abroad, whence money can be had at four and five per cent. interest; while at home, from six to twelve per cent. is paid, even while foreign capital is flowing in. It is obvious that this foreign capital will enter much more abundantly through the credit of a State bank than through private banks. Small amounts of capital, dispersed and comparatively unproductive, will also be more readily brought together, to be applied where most needed, in a State bank, than among many small firms. The States of New York and Pennsylvania have carried on their improvements, their canals and rail-roads, as well as much of their commerce, by means of foreign capital; and the surpassing prosperity of those States may be considered owing, in a great degree, to this practice. The incorporation of a bank is not always to be considered in the light of a monopoly; it may be the reverse. It may enable a number of individuals, by no means the most wealthy in the community, to compete, by an union of forces, with the most wealthy. Corporations may be multiplied, as occasion arises, and, by competition, give the public the benefit of the greatest possible amount of service done at the least cost.
Such are the leading arguments in favour of State Banks. The objections to them are in part applicable to faulty methods of incorporation, and not to the principle itself. The special exemption from liabilities to which individuals are subject; the imposing of such inhibitions elsewhere as render the affair a monopoly; the making responsibility a mere abstraction, are great, but perhaps avoidable evils. So are the methods by which charters have been obtained and renewed; the method of "log-rolling" bills through the legislature; and other such corruption.[9]
An objection less easily disposed of is, that by the creation of any great moneyed power, means are afforded of controlling the fortunes of individuals, and of influencing the press and the political constituency. If these objections cannot be obviated, they are fatal to banking corporations. If, however, any means can be devised, either by causing a sufficient publicity of proceedings, or by granting charters for a short term, renewable on strict conditions, or by any other plan for establishing a true responsibility, of uniting the benefits of incorporated banks with republican principles, it seems as if it would be a great benefit to all parties in the community.
The difference of opinion which has made the most noise in the world, is about a National Bank.
It appears to have been contemplated, in the first instance, to place the currency of the United States under the control of the general government; according to the spirit of the provisions of the constitution, that Congress should have power "to coin money, regulate the value thereof, and of foreign coin:" but without affording to Congress any power to control the fortunes of individuals, as may be done by certain banking operations. The state of the colonial currency had been deplorable.[10] The object now was to substitute a uniform and substantial currency, instead of the false representatives which had been in use: and to put it out of the power of the States to alter the terms of contracts by taking advantage of the faults of the currency. Nobody would take the continental bills; and gold and silver were deficient. A national bank was the resource; and the old United States Bank was chartered in 1791; it being ascertained that its issues were based on real capital, and a strict watch being kept over its operations.
This bank was believed to be wanted for another purpose;—to watch over and control the State Banks. It was not the first institution of the kind in the United States. The Bank of North America had been chartered in 1781, under the authority of the Continental Congress: but by soon accepting a charter from the Legislature of Pennsylvania, it ceased to be a national, and afforded the precedent of a State Bank. New York and Massachusetts had soon State Banks also. They were prudently conducted; and their notes presently banished the coin. The power of Congress over the currency was gone. All that could be done now was for the National Bank to control the State Banks, and keep their issues within bounds, as well as it could.
Occasional disorders happened from the misconduct of country banks, prior to 1811. The renewal of the charter of the United States Bank was then refused. The government was pressed by the evils of war; and the check of the superintendence of the Bank being withdrawn, the local banks, out of New England, came to the agreement, (too senseless to be ever repeated,) to suspend specie payments. All issued what kind and quantity of paper pleased themselves, till above twice the amount of money needed was abroad; and the notes were in some States five, in others ten, in others twenty, below par. The New England people, meantime, used convertible paper only; and under the law which provides that all duties, imposts, and excises should be uniform throughout the States, were thus compelled to pay one tenth more to the revenue officers than the people of New York, who used the depreciated currency: and one-fifth more than the Baltimore merchants.
This state of things could not last. A national bank was again established, in 1816, for the purpose of controlling the local banks. Its charter was for twenty years, with a capital of 35,000,000 dollars, to which the federal government subscribed one fifth. Its notes were made receivable for any debt due to the United States.