The American Quarterly Review, No. 17, March 1831

by Various

It must be recollected, too, that the Bank of the United States is a buyer as well as a seller of bills of exchange, to the great advantage of the commercial community. Its purchases, during the same year, 1829, amounted to upwards of twenty-nine millions of dollars; and that in this business, the treasury bank, according to the president's programme, could not engage.

But besides the want of the accommodation now afforded by the purchase or sale of inland bills to all parts of the Union, there is a large further arrear of utility which the treasury bank would owe to the public. In what way would it make amends for the immense amount of currency withdrawn from circulation? The notes of the United States Bank in actual circulation, commonly amount to fourteen or fifteen millions, exclusive of its drafts, which, to a certain extent, perform the office of currency. As the new bank is to issue no paper, the chasm must be filled, either with the paper of the state banks, or not filled at all. If with the former, whence are they to derive their increased means of circulation, seeing that nearly all of them have carried their issues to the extreme verge of safety, and some of them, perhaps, beyond it? It will, however, be said, that there will be new banks established—the capital that is vested in the Bank of the United States will not be annihilated by the termination of that establishment, but will seek employment in new banks. Let it be so. In that case what becomes of the increased profits of which many of the state banks have been dreaming, and the hope of obtaining which has been so artfully appealed to?

But an addition to the state banks would fall far short of filling the void. Much of the capital of the present bank was obtained from Europe. We are told in the report of the committee, that foreigners own stock to the amount of seven millions. Is it probable that these capitalists will be as ready to venture their money in the state banks, as in one chartered by the general government? Would they even venture it again in a national bank, after we had shown so vacillating a policy? We establish a bank of that description in 1791—we put it down in 1811, as unconstitutional—we charter another, five years afterwards, 1816, and discontinue that in 1836. Assuredly, after this experience, they would prefer a somewhat smaller interest nearer home, rather than risk their money in a country exhibiting so little stability, and where what had been long determined to be legal by the highest authorities of the country, is liable to be revoked on the first revolution of parties.

There are persons who will consider the withdrawal of seven millions from our circulation, as no source of regret; and who think the money paid for the use of foreign capital, is so much lost to the country; for the truths of political economy are not obvious to all. But no one who is acquainted with the elements of that science, will doubt, that a nation, not having as much capital as it can advantageously employ, may be improved and enriched by foreign capital as well as its own; and the benefit of these seven millions in stimulating the productive industry of the country—in building ships, and wharves, and mills, and manufactories, and steam-boats, is precisely the same as if they were domestic capital, with the single difference of the interest. Ask the owner of a thriving manufactory of woollens in Cincinnati, or of iron in Pittsburg, if he had been assisted in his enterprise by a loan of 10,000, or 20,000 dollars from the Bank of the United States—and he might answer, that, by the use of the money, in a few years, he had, besides paying the interest, realized the sum borrowed. Ask him further whether he would gain more by keeping the money longer, or returning it to the European stockholder, and he would laugh at you, thinking your question conveyed its own answer, as he had not chosen to return the money.

The president's project then of a treasury bank, seems to be liable to all the objections he makes to the present Bank of the United States, in a tenfold degree, as to influence, by adding so enormously to the executive patronage. It offers a far inferior substitute for the safety, and the easy transmission of the revenue; and no substitute at all for much of the accommodation now afforded to commerce, and the large amount of active capital it would throw out of circulation.

In making this comparison, we have had no reference to the former services of the Bank of the United States in restoring the currency of the country to a sound state, or to its power of so preserving it, if the country should be again involved in war. We have contented ourselves with refuting the objections which have been brought forward against that institution, under the sanction of the chief magistrate of the country, and with pointing out to the unprejudiced mind the inconveniences and serious mischiefs attendant on the scheme which has been proposed in its stead. In our last number, we asserted that the resumption of specie payments by the state banks, in 1817, was to be probably attributed to the establishment of the Bank of the United States, and we stated the facts upon which that opinion was founded. It was, then, with some surprise, that we saw the position roundly denied in a quarter (the North American Review) where we have been accustomed to look for just views on all commercial affairs; and the resumption of cash payments imputed to the resolution of congress, forbidding the officers of the government from receiving the notes of any banks which were not redeemable in specie. The question is not one of primary importance, yet as it may affect our future policy, and concerns our present justice, we will add a few remarks on the subject. When we see that the measure of the government alluded to was not immediately followed by the desired effect, but that as soon as the Bank of the United States was about to go into operation, an arrangement was voluntarily entered into with it by the banks of New-York, Philadelphia, Baltimore, and Virginia, by which they all agreed to resume cash payments at the same time, it seems to afford prima facie evidence, that it is to the Bank of the United States, and not to the legislature, that the resumption is directly attributable. Whether the state banks might not, at some subsequent time, have paid specie, and at what time, must now remain a matter of conjecture; but we think it quite as likely, that the banks, making extraordinary profits as they were, so long as they were not compelled to redeem their notes in specie, would have procured a repeal of the resolution of congress, as that that measure would have operated coercively on them. In some of the states, the resumption of specie payments was discountenanced by the state legislatures; and in Virginia, if we mistake not, after the measure had been enjoined on the banks by the legislature, it afterwards retraced its steps, on the ground, that if they ventured to pay specie, the Bank of the United States, then about to go into operation, would immediately draw every dollar from their vaults. The banks of that state thus had the express sanction of its legislature for continuing the suspension; nor was it until after the meeting of the convention, mentioned in our last number, that they paid specie.

But in what way, it may be asked, could the Bank of the United States have compelled the state banks to resume specie payments, if they had not been so disposed? We answer, by giving the public the option of a better currency than theirs, and presenting an easy and ready standard in every part of the Union, by which the depreciation of their notes would have been manifest. As soon as the paper of the national bank had been put into circulation, it would command, by its convertibility into specie, a preference in the market over the paper of the state banks, and the difference would have been shown by the reduced rate at which the latter would have passed. The public then having such a standard of comparison, could no longer be deceived, and every one would have seen the depreciation, and known the extent of it. What would have been the natural consequence? The paper of the state banks, thus depreciated in the market, would have been bought up by their more prudent and substantial borrowers, and returned to them in discharge of their debts; and thus they would have had no notes in circulation except what was represented by the paper of their most straitened and doubtful customers, nor would any others have continued to borrow of them. Thus, with a business decreased in amount and impaired in character, they would have found it impossible to make a profit equal to defraying their expenses and yielding a dividend to the stockholders.

All this the state banks distinctly foresaw, and not wishing to be compelled to resume specie payments, by which their profits would be diminished, they generally opposed the establishment of a national bank. But when they found that all opposition had been ineffectual, and that the bank was about to go into operation, and to pay specie, they immediately saw that they must follow the example, or that their gains were at an end—that the public, which took their paper, during the war and immediately after the peace, when there was no other currency, would not continue to take it, when they had the choice of a better—and thus the compact which has been mentioned was formed.

It is said, however, that the depreciated paper of the Baltimore banks would have circulated so long as the government received it at the custom-house, and that it was only after the government decided to receive it no longer, that those banks found themselves compelled to pay specie. But would this measure have been effectual without a national bank? We have already intimated that we thought not. It would have been vehemently attacked in congress and out, and all the states, except perhaps Massachusetts, might have instructed their representatives that the measure was premature, oppressive, and detrimental to the public interests. But after the Bank of the United States went into operation, the question was at an end. The government, whether the resolution of congress had been passed or not, could not with decency have taken, or been asked to take, any more than an individual, depreciated paper for its dues, when there was good paper and specie in circulation; and the Baltimore banks, as well as all others, must have followed suit, or given up the game.

For these reasons we must continue to think, that the claim urged by the friends of the Bank of the United States, that it operated, by its example, a salutary coercion on the state banks in their return to specie payments, is as well established as a question of its character can be, and that the same means by which it proved that remedy for the mischiefs of an unsound currency—its solid capital—unquestionable credit—and practical skill in business—would operate, on future occasions, as a preventive of similar mischiefs.