The American Quarterly Review, No. 17, March 1831

by Various

We know that it is an important function of every government to regulate its money, weights, and measures, not from any mystical notions of sovereignty, but because uniformity in these several standards is of the greatest utility in saving time and trouble, and in preventing frauds and disputes, and there is no effectual way of attaining uniformity except by the legislative power. It is, therefore, that these subjects were placed under the control of the general government, by the constitution, and it is in the exercise of the powers thus granted that it coins money of gold and silver, and determines their relative value.

But as among the inventions of commerce, it is found that such metallic money can be, to a considerable extent, substituted by paper, and thus a measure of value which costs nothing, can be made and is made to answer the same, and even a better purpose, than that which would cost a great deal, the same reasons which made the regulation of the coin by the government, necessary and proper, apply to the regulation of its substitute. The government thus having control over the subject, is furnished with the ready means of making a great profit by the substitution; and this it may do in two ways. It may either become a banker itself, and issue notes of circulation, having currency as money, in return for the notes of individuals bearing interest, or it may transfer the right of doing this to such a set of men as it deems worthy of the trust, and make them pay a fair price for the valuable privilege thus conferred.

Of these two modes of profiting by the substitution of paper for specie, the last is by far the best, for the same reason that it is best for the government to sell its public lands, rather than to cultivate them. It is incapable of commanding agents who will practise the same economy, industry, and skill, in the management of the public concerns, as their own. It must always pay higher than individuals for the same work, and the various peculations to which it is exposed, besides the costly apparatus of superintendents, would make banking, carried on by itself, a bad measure of economy, to say nothing of the objections arising from its disturbing the distribution of political power, by affording the means of influence, patronage, and corruption.

But the scheme which the president has been persuaded to recommend, proposes, that the government should give up the advantages of both plans: that it should forego both the profit of issuing paper itself, and that of disposing of it to a corporate body, in which the community had entire confidence, and which has proved, by its previous unexampled success, its fitness for the duty—and in lieu of these plans, to let the valuable privilege evaporate into a sort of electioneering material, for whomsoever may hold the office of president, or may rule his cabinet. And what is it which the people of the United States are thus asked to surrender? Let us estimate it.

According to the bank charter, the government takes stock to the amount of seven millions of dollars, on which it pays to the bank an interest of 5 per cent., and it now receives on this stock an interest of 7 per cent, making a clear profit of 140,000 dollars a year, equal to a gross capital of 2,800,000 dollars, all of which must be lost on the proposed plan. But this is not all. The bank keeps the money of the government—keeps its accounts—keeps its officers out of temptation—and transfers the money from one part of the Union to another with promptitude and certainty, without the loss of a single dollar. We have seen that for some of these operations the treasury bank would be obliged to pay.

We do not mean to say that these various services of the bank are gratuitous. On the contrary, it is fairly remunerated for them by the privileges it enjoys, and by the public deposits; but still they are valuable services, and in this way the government obtains a fair equivalent for what it surrenders. Nor let it be supposed that as good a bargain could be made with the state banks. The general government could not be interested in their stock, nor could they afford to give as much for the privileges, because they would be more local. Being connected only by voluntary compacts, they could not do the business of the government to the same advantage as a single corporation. They could not circulate as much paper with the same safety, nor could they sell or buy bills at as small a profit. The superior advantages which the Bank of the United States enjoys in capital, in banking skill, and in the greater credit and wider circulation of its notes, enables it to give a liberal price for its charter, and the government would be false to the people to surrender this benefit.

But it would not become the government to attempt to extort, or to be illiberal, but to act on the principle of justice to the public and the bank. The legislature should not furnish the bank with either the temptation or excuse of an Irish middle man, who grinds his sub-tenants in proportion as his landlord has pressed him. Upon these principles, we think the government should, by way of bonus, charge the bank a moderate interest on its deposits, and pay a small commission for the services of the bank. An adjustment of these several claims, by some general estimate, might leave to the nation the clear annual gain of perhaps 200,000 dollars, or a gross capital of four millions, instead of giving it away for the improvement of the machinery of our political wire-workers.

There is yet another mode by which the government might derive a profit from the bank, and which has this further recommendation, that it would not be at the expense of the stockholders, and it would be a value saved to the nation that would be otherwise lost. It is now a favourite object both with the people and the government to pay off the national debt; and from the novelty of the phenomenon it will give great eclat to the administration in which it takes place. It is known that upwards of thirteen millions of this debt bears an interest of but 3 per cent. This part of the public funds is held chiefly in Europe by large capitalists, it being preferred by them, because it could not be redeemed but at par, unless with the consent of the holders, and it was hardly expected that the government would choose to redeem it at par rather than pay so low an interest on it. They thus thought that the owners of the stock had the means of postponing its redemption in their own hands. For these reasons this stock has always been something higher in the market than any other, and it now sells at 93 dollars a share of 100 dollars, which is about 3-1/4 per cent. At the price at which the commissioners of the sinking fund are limited, they cannot buy this stock; but when all the rest of the debt is paid, this must come next, and as soon as the government offers to purchase, it will rise still higher, perhaps to par. In that event, the government will have to pay upwards of thirteen millions of dollars, drawn from the pockets of the poor as well as the rich, which they might keep for ever, by paying an annual interest of 3 per cent, or 390,000 dollars.

Now the use of this money, has been of immense advantage to this country, and may continue to be so, considering how inadequately many parts of it are supplied with real capital. It will build ships—erect mills and manufactories—salt works and iron works—and help to make rail roads and canals, by which our free and industrious population will be able to improve the condition of the country in bettering their own. This money, too, does not consist of paper which we can create at will, but of gold and silver, or their equivalents, which we must send out of the country. Had it not better remain here? Every good economist will say yes. It will be not difficult, we should presume, for the government to make an arrangement with the bank to pay this 390,000 dollars, and release us from our obligations, and to receive a less sum than the thirteen millions. Their capital may be enlarged, and the rapid growth of our country will soon require its enlargement. The holders of this stock will indeed have a right to look to the United States for their money, but that would make only a nominal difference, and they might be offered stock of the bank in exchange on advantageous terms. Thus the money which would be appropriated to the payment of this debt, might be kept in the country and be vested in banking capital, by which it would give vigour to commerce, manufactures, and navigation, and, through them, render benefit to the whole nation.