To permit the longer continuance of this state of things in the face of the constitution, would have been inconsistent with the duty of congress. A remedy was necessary. Congress could no longer regulate the value of the currency, by declaring that current coin in silver and gold should be of a specified weight and purity. A paper was substituted in the place of a metallic currency, and it was essential to obtain a control over the local banks, and to bring their issues within proper limits. This might have been done by positive enactment, or by imposing a stamp duty on bank notes; but in the then existing state of the currency, it was deemed hazardous to resort to direct interference.
It was also proposed to remedy the evil, by investing the receiving officers of the revenue with the power of discriminating between the notes of the several banks. This addition to the power and influence of the revenue officers was wisely deemed inexpedient, as augmenting too directly the powers of the treasury department; and the short experiment which was made of this mode of controlling the local banks, resulted in bringing into the treasury more than a million of dollars, of what were denominated unavailable funds, consisting of the notes of broken banks.
The only mode remaining consisted in establishing a United States bank, with capital sufficient to control the local banks, which should, bydegrees, compel them to reduce their issues to an amount proportionate to their means, and thus bring the paper currency to the par of silver and gold. This mode was adopted, and the present United States bank was chartered in 1816, for twenty years, with a capital of thirty-five million dollars, to which the federal government subscribed one fifth.
The notes of this bank and its branches were made receivable for any debt due to the United States, and its capital and solidity soon gave a currency to its notes, to the exclusion of those local banks that did not redeem their paper in specie.
They were immediately compelled to reduce their issues with a view to the resumption of specie payments, and within three years after the opening of the United States bank, the currency of the union was reduced from one hundred and ten million dollars, to forty-five million dollars, and made equivalent to gold and silver. The local banks found the United States bank notes were preferred, and they were compelled to furnish as good a currency, in order to preserve those customers who were worth having. Since this restoration of the currency to a healthy state, it has been kept so, by the constant action of the national bank upon all local banks evincing a disposition to depart from the true rules of banking.
Occasional deviations have indeed taken place, as in Tennessee and Kentucky, where the legislatures undertook to create capital by pledging the public credit, and to force an unnatural quantity of bank notes into circulation. These attempts resulted, as was predicted, in the bankruptcy of the banks, and in the general distress of that part of the country. In Kentucky, indeed, the legislature sought to alleviate the distress flowing from this policy, by relief and tender laws. But this only aggravated the evil, and finally produced a contest between the friends of law and order, and the partizans of the ‘relief system,’ that, for violence and acrimony, has been seldom witnessed in the United States. The relief and tender laws were declared unconstitutional by the state court of appeal, and their advocates, having obtained possession of the legislature, abolished the court, and constituted a new court in its place. The old court, however, refused to yield, and being sustained by the sound part of society, finally prevailed in the contest; and after a conflict of six years, the legislative and executive departments were rescued from the hands of the relief party, and law and justice, which, for a short time, had been driven from the judgment-seat, resumed their sway over the state of Kentucky.
The history of the banking institutions of that state affords a striking illustration of the mischiefs resulting from any interference of a state government with the currency, and furnishes a complete demonstration of the wisdom of the federal constitution, in vesting the whole power over this subject in the general government. During the short period that elapsed between the first usurpation on the part of Kentucky upon this prerogative of congress, and the termination of the contest, the currency of the state was depreciated; private and public credit destroyed; a bankruptcy almost universal produced; the principles of sound morality and civil order disregarded; the most valuable institutions of the state temporarily overthrown; and the community brought to the brink of civil war and anarchy.
The right side having triumphed, means were taken to redeem this depreciated currency; and the notes of the United States bank furnishing acurrency that was universally preferred, the paper of the commonwealth bank was driven from circulation, and gradually redeemed and destroyed.
To prevent the recurrence of such a state of things in other states, is one of the objects of a national bank. In a country like this, the temptation to excessive issues of bank paper is too strong to be resisted by banking institutions in the new states, unless they are checked by a vigilant superintendence, beyond the effect of local influence. The United States, at the present moment, furnish a complete epitome of the progress of civilization in a wilderness, and until the whole continent shall be occupied, this republic will always possess within its limits all the varieties of human society, in its advancement from the savage to the civilized state. On the Atlantic coast are cities and states, which, in commerce, in capital, and in all the productions of wealth and skill, are not far, if at all, behind those of Europe. Advancing through New York and Pennsylvania, a traveller enters the new states beyond the Alleghanies, and although Cincinnati, Lexington, Louisville, and Nashville are inferior to but few cities on the sea-coast, still the population is not so dense, and the country shows fewer signs of cultivation. The roads become worse, the towns smaller, until in the far west he comes upon the log hut, the half-cleared field, and finally reaches the ultima Thule of civilization, in discovering the trapper’s tent not far distant from the Indian’s wigwam. The effect of this condition of society, upon the internal commerce of the country, is striking and characteristic. In settling in the interior, whether in one or more families, the whites take with them little more than their clothing, furniture, agricultural implements, and a small stock of domestic cattle.
In a few years, the fertility of the soil enables them to send surplus produce, in exchange for European or West India productions, to the stores of the country traders in some neighboring town, who, in their turn, transport it to the sea-coast, for home consumption or exportation. In this manner an active trade is maintained between the seaports and the interior, and as the new settlers stand in actual need of many foreign articles, which they require on credit, to be paid for from the next year’s crop, it follows, that the interior is invariably in debt to the merchants on the seaboard. These debts, however, they are enabled to discharge, through the great fertility of their soil, and the advance of their property in consequence of the improvement of the country; and contrary to an old maxim, they grow rich, although they continue in debt—that is, they are daily augmenting the value of their farms, and each year they are enabled to purchase some additional comfort or luxury, which they do not hesitate to buy on credit, because they are certain of being able to pay for it before the lapse of another year.