The American Quarterly Review, No. 17, March 1831

by Various

"It is due to the persons, who for the last ten years, have been concerned in the administration of the bank, to state, that they have performed the delicate and difficult trust committed to them, in such a manner as, at the same time, to accomplish the great national ends for which it was established, and promote the permanent interest of the stockholders, with the least practicable pressure upon the local banks. As far as the committee are enabled to form an opinion, from careful inquiry, the bank has been liberal and indulgent in its dealings with these institutions, and, with scarcely an exception, now stands in the most amicable relation to them. Some of those institutions have borne the most disinterested and unequivocal testimony in favour of the bank.

"It is but strict justice also to remark, that the direction of the mother bank appears to have abstained, with scrupulous care, from bringing the power and influence of the bank to bear upon political questions, and to have selected, for the direction of the various branches, business men in no way connected with party politics. The Committee advert to this part of the conduct of the directors, not only with a view to its commendation, but for the purpose of expressing their strong and decided conviction that the usefulness and stability of such an institution will materially depend upon a steady and undeviating adherence to the policy of excluding party politics and political partisans from all participation in its management. It is gratifying to conclude this branch of the subject by stating, that the affairs of the present bank, under the able, efficient, and faithful guidance of its two last presidents and their associates, have been brought from a state of great embarrassment into a condition of the highest prosperity. Having succeeded in restoring the paper of the local banks to a sound state, its resources are now such as to justify the directors in extending the issue and circulation of this paper so as to satisfy the wants of the community, both as it regards bank accommodations and a circulating medium."

The committee, coming immediately from the people, are somewhat more likely to have accurate information on this subject than the president. We have heard of no recent collisions between any state and the bank; and those which formerly took place with the states of Ohio and Maryland, respectively, have been long since settled in the Supreme Court. The people of Tennessee, too, once objected, through their representatives, to the location of a branch bank in that state; but a subsequent legislature, believing that they better understood the interests or wishes of their constituents, withdrew their opposition, and the branch bank which was therefore established, is now in successful operation. The legislature of Mississippi, in like manner, has, within a few months, repealed a hostile act passed two years ago, and invited the establishment of a branch. The executive council of Florida, has recently requested a branch, and we understand that there are numerous applications for branches from all parts of the Western and Southern states. Surely the people of these and the neighbouring states cannot seriously object, that a portion of the moneyed capital which has been accumulated in the Atlantic states should be brought among them, to encourage their industry and facilitate their trade—to enable their own merchants to give them ready money, and a somewhat higher price for their cotton—to furnish one man with the means of building a mill—another a manufactory—and a third a steam-boat. We cannot believe that they are such novices in political economy. If their citizens do not want the money, they need not borrow it; and if they do, it is better to find it at home, than to be dependant on New-York, Philadelphia, or Boston, for it. In the state of Alabama, if we are to believe the public prints, the United States Bank there has afforded great and most seasonable aid to the state bank. Nor do we know of a single state, in which there are any manifestations of popular discontent with the bank, notwithstanding the pains taken by some of the friends of the president to excite them.

Perhaps the apprehensions mentioned in the message may refer to the state banks rather than the people; and the president has presumed, that, as some of the states are interested in the stock of these institutions, and as their interests may conflict with those of the Bank of the United States, the people would be likely to side with their own institutions. The presumption is far from being unfounded. The sympathies of the people will always be with the states, rather than the general government, when the two are in conflict—a fact of which politicians are sufficiently apt to avail themselves. Thus, when the present Bank of the United States first went into operation, fears were entertained by the state banks and their friends, that the United States Bank and its branches would prove troublesome and dangerous neighbours. Their strength to oppress, and even crush, a rival, was supposed to be in proportion to their capital; and, comparing them with things with which they had no sort of analogy, it was argued, that a state bank, in the neighbourhood of a branch of the national bank, would be not more likely to thrive, than a delicate shrub under the shade of a spreading oak, or to find safety, than a light armed brig under the battery of a seventy-four. These arguments prevailed for a season in some of the states; but at length the experiment was made, in spite of these gloomy predictions, and it was found, as well it might be, that a small capital, if prudently managed, is as independent of the attacks of a rival, in banking, as in any other business. And why should there be a difference? A tailor or shoemaker who employs but two or three journeymen, may do as safe, though not so profitable a business, as he who employs twenty or thirty—in the same way as a small vessel may navigate the ocean as safely as a large one, and may be even less likely to overset in a storm, if it carry less sail in proportion to its ballast.

We do not mean to deny, that a bank with a superior capital, if it were disposed to injure a rival at all hazards, might prove an inconvenient neighbour, and greatly curtail its business. If it were to put itself to the trouble of procuring the paper of the other, as soon as it was issued, and convert it immediately into specie, the loans of that other might be restricted to the amount of its specie capital. But this could not be effected without a degree of trouble and expense which would make it impracticable. What means does such a bank possess of drawing in the paper of the other bank, except so far as the debtors of the one institution chance to be the debtors of the other, or it choose to give a premium for the notes of its rival? It is not likely, that the same individuals would be the debtors to both banks, to a great extent; and as to a premium, such sacrifices seldom take place in individual competition, much less in that of banks. Besides, as soon as the bank which was thus assailed found that a premium was given for its paper, it would issue notes for the purpose of obtaining it, and the faster its notes were bought up and returned for specie, the more would be found in the market—a new swarm being attracted by the premium as soon as the first disappeared—until in a few months its hostile rival would share the fate of those who attempt to break another sort of banks—its own coffers would be exhausted.

The means then which a bank possesses of narrowing the sphere of circulation of a rival's paper, are much more limited than is commonly imagined; and such as they are, it will be cautious of exerting, lest the same game should be played on itself. A combination of the state banks, or even a single one of respectable capital, may practise the same means of annoyance against a Bank of the United States, as that could put in operation against them. But if both parties were wise, or rather not utterly foolish, they would each pursue their own business; and one not otherwise interfere with the other, than by occasionally exchanging notes, and receiving the difference in specie. This course might indeed prove a check to extravagant issues by either, but it is precisely that check which the public is interested in maintaining.

There is a further security against the wanton and bootless mischief which fear or design has imputed to the Bank of the United States. Public opinion would cry out against its illiberal course, and would fully avenge the wrong. Some of their best customers would desert them. They would lose most of their deposits. Their notes would be industriously collected and prematurely returned to them, and they would thus not only lessen their present profits, but furnish their enemies with arguments against the renewal of their charter. The supposition of such a course presumes the bank to be utterly regardless of their own interests, as well as of all sense of fairness and liberality—considerations which still have some weight with some men—and it is at variance with all that we have ever heard of the officers of that institution. As a proof that no fears or jealousies against the Bank of the United States are entertained by safe and substantial banks, we may remind our readers, that Mr. Girard, the greatest banker we have, was one of the most efficient supporters of the present national bank. No other individual in the United States would be so much affected as he, if its competition and neighbourhood were pernicious, and yet no one subscribed so largely to its stock, and no one, we have reason to believe, deplores more strongly the confusion in the moneyed concerns of the country, which he thinks would be inevitable on the destruction of the bank.

It is probable enough, that although these alleged causes of jealousy and alarm are known to be groundless by the state banks, the proposition against re-chartering the bank addresses itself to those institutions in another way. They have been led to believe that the benefits of the business now done by the bank, and of the government deposits, would be apportioned among them. But let them not flatter themselves with profiting by a division of this spoil. That great void in the circulation which the withdrawal of the capital of the bank would occasion, would immediately and imperatively call for new banks, which the states would be sure to establish; and when once they began to meet the demand, it would not be strange if the supply sometimes exceeded it, according to the common occurrence of a scarcity being followed by a glut. In that event, the present state banks might find too late that they had exchanged one old and liberal rival for two or more new ones, of a different character, who would be their competitors not only for the profits of banking, but also for the favour or forbearance of the state politicians. What the community at large is likely to regret or to wish after the change, it is not difficult to conjecture.

One of the complaints against the Bank of the United States has been, that the notes issued by any one of its offices were not payable at every other indiscriminately; and to this the president must have referred, when, in his first message, he said that the bank "had failed in the great end of establishing a uniform and sound currency." As the same objection is not repeated in the last message, we are left at a loss to decide whether he has been convinced, by the very lucid and satisfactory views of Mr. Lowndes and Mr. M'Duffie, that the complaint was unfounded, or whether he means to comprehend this among the causes of discontent on the part of the states and the people.

As this subject has received so thorough an investigation in the report of the committee, and in our last number, it cannot be necessary to say more on it. It is there shown, as we think conclusively, that the Bank of the United States has done in this matter all that a bank can do—more, indeed, than could have been reasonably expected of it—towards furnishing the community with a sound and uniform currency: that its notes, at the places where they are issued, are, for all purposes, worth as much as gold and silver, and for distant payments something more: that if its notes are sometimes worth, in one place, a trifle less than specie, it is because they have been worth, at another place, more than specie, since no one would transfer them to a great distance from the place of emission, unless he found them more convenient than specie: that as every bank has a direct interest in giving its notes as great a credit and as wide a circulation as it can, this institution will, for its own sake, redeem its notes at par, wherever issued, when it can safely do so; and that in most cases, it has actually done this; but that to make this obligatory would not only be unjust to the bank, but would be highly impolitic, by counteracting the natural and most efficient corrective of the over issues of banks, and the overtrading of individuals; and would be moreover impracticable.