William Gouge,
A Short History

General Reflections.

Our American Bankers have found that for which the ancient alchymists sought in vain; they have found that which turns every thing into gold – in their own pockets; and it is difficult to persuade them that a system which is so very beneficial to themselves, can be very injurious to the rest of the community.  They exclaim, as perhaps some of the rest of us would exclaim, if we were in their situation, "every thing goes on very well:" thus verifying the remark of Say, that "some persons who, under a vicious order of things, have obtained a competent share of social enjoyments, are never in want of arguments to justify to the eye of reason such a state of society.  If the same individuals were to-morrow required to cast anew the lots assigning them a place in society, they would find many things to object to."

Not a few who have no interest in Banks, are equally devoted to their support.  They appear to think that if Bank notes were withdrawn, there would be no money in the country – no credit – no trade.  They have a vague notion that the wealth of the country is chiefly, if not entirely, owing to the Banks.

This is not surprising.  The institutions to which men have long been accustomed, they believe to be necessary to social order.  Church establishments were once regarded in this light, and hereditary nobility also.  The distinguished writer whom we have just quoted, says, "Certain individuals who have never caught a glimpse of a more improved state of society, boldly affirm that it cannot exist: they acquiesce in established evils, and console themselves for their existence by remarking that they could not possibly be otherwise – in this respect reminding us of the Emperor of Japan, who thought he should have been suffocated with laughter on hearing that the Dutch had no king.  The Iroquois were at a loss to conceive how wars could be carried on with success, if prisoners were not to be burnt."

Some of our countrymen who are aware of the evils of the Banking system, seem to think all discussion of it superfluous, apparently regarding it as a system so deeply rooted that it must exist in perpetuity.  What always has been, always will be: but we know of no reason why Banking should be exempt from the vicissitudes which usually attend human institutions.  Banking with convertible paper has been known in England for about one hundred and forty years, and in the United States for about fifty.  England, in prohibiting the issue of all notes of a less denomination than twenty-four dollars, has begun to retrace her steps.  In the United States we are far behind England in this respect, yet Bank notes may, fifty years hence, be found only in the cabinets of the curious.  The penny notes which were issued by the Bank of North America about the year 1790, are already regarded as rarities by the virtuosi.

Banking, it must be admitted, is deeply interwoven with all the business, the interests, operations, and even the rights of society, public and private.  But so was the feudal system, which had an effect, in the middle ages, similar to that which the paper system has in modern times.  Like the feudal system, the paper system divides the community into distinct classes, and impresses its stamp on morals and manners.  In the progress of society it may be as necessary to pass through the one as it was to pass through the other; but the feudal system is giving way in Europe to enlightened reason, and it may, at least, be hoped, that the paper system will not last forever in America.

The comparison some writers are fond of making between paper Banking and steam power, is – only a comparison.  It is not an argument, and it is not, in all respects, just even as a simile.  Steam power is essentially good.  Paper money Banking is essentially bad.  Against accidents in the use of steam, effectual guards may be provided.  No checks which can be devised can make paper credit Banks innoxious.

We may amuse ourselves by contriving new modes of paper Banking.  We may suppose that a kind of money which has been tried, in various forms, in China, Persia, Hindoostan, Tartary, Japan, Russia, Sweden, Denmark, Austria, France, Portugal, England, Scotland, Ireland, Canada, the United States, Brazil, and Buenos Ayres, and which has every where produced mischief, would, if we had the control of it, be productive of great good.  We may say, it is true that paper money has always produced evil, but it is because it has not been properly managed.  But, if there is not something essentially bad in factitious money, there seems to be something in human nature which prevents its being properly managed.  No new experiments are wanted to convince mankind of this truth.

Any new paper money that we may devise must be issued either by individuals, by corporations, or by the Government.  If it should be issued by individuals, it would not be a new experiment, for that has been tried in Scotland.  Of the result, an eye witness shall speak for us.  Mr. McCulloh, in his Historical Sketch of the Bank of England, recently published, says, "the example of the Scotch Banks may here be referred to.  They are most liberal of their advances so long as they conceive they run no risk in making them;  but the moment alarm and discredit begin to make their appearance, they demand payment of every advance that is not made on the very best security;  they cease, in a great measure, to discount; and provide for their own safety by ruining thousands of their customers."

Such must ever be the effect of "convertible" paper.  Commercial credit is an excellent thing, but it requires metallic money as an accompaniment, to prevent its being carried to excess.

If we give to corporations the power to issue paper money, we produce other evils.  The very act of establishing a money corporation destroys the natural equilibrium of society.  As is remarked by Raymond, "sound policy requires that the natural equality of men should be preserved as far as practicable: and it is the duty of Government to preserve this natural equality, so far as equal laws and equal rights and privileges will preserve it;  to keep all the members of the community as distinct and independent as possible;  to preserve the individuality of the citizens, and to discourage, as far as practicable, all associations for the purpose of giving to those combined an artificial power."

On the subject of paper issues by Government, the warning voice of Alexander Hamilton may be heard.  His words are– "The emitting of paper money is wisely prohibited to the State Governments, and the spirit of the prohibition ought not to be disregarded by the United States' Government.  Though paper emissions under a general authority, might have some advantages not applicable, and be free from some disadvantages which are applicable, to the like emissions by the States, separately, yet they are of a nature so liable to abuse – and it may even be affirmed, so certain of being abused – that the wisdom of Government will be shown in never trusting itself with the use of so seducing and dangerous an expedient.  In times of tranquillity it might have no ill-consequence; it might even perhaps be arranged in a way to be productive of good: but in great and trying emergencies, there is almost a moral certainty of its being mischievous."*

* Note:–  but, to a private bank's emitting paper money Mr. Hamilton had no objection what so ever; in fact, he was instrumental in organizing one;  he was also very much in favour of a permanent national debt.  The people behind Hamilton went to work, as soon as the ink was dry on the peace agreement, to take into their hands the furnishing of the nation's circulating medium and to make the United States their vassal state.  It is wishful fantasy to think that somehow, some day, we will elect a government that will do the right thing, will enact the right legislation, and rid the people from this menace.  People – like Hamilton and Biddle, who came up with the idea of organizing a Bank, when there was no Bank – will not sit idly by, whilst you legislate banking out of existence.  Nicholas Biddle didn't just watch while President Jackson refused to renew his bank's charter;  he spent as much money as willing representatives would take, to ensure the renewal in Congress;  and after the veto he spent, again, to facilitate the transmigration of his bank to Pennsylvania.

Government issues of paper would be incentives to extravagance in public expenditures in even the best of times; would prevent the placing of the fiscal concerns of the country on a proper basis, and would cause various evils.  Nor is a system of Banking in which the Government should deal in exchanges, after the manner of the present Bank of the United States, at all desirable.  It would be as reasonable in a man to wish his flour transferred from Pittsburg to Charleston by the public officers, as to wish his money transferred through such a medium from St. Louis to Philadelphia.  To manage its own fiscal concerns, and manage them well, is as much as is in the power of any Government.  The financial operations of the United States' Government should be strictly limited to the collecting, safe-keeping, and disbursing of the public moneys, and the transferring of them from the places where they are collected to the places where they are disbursed.  Further than this, Government should have no more concern with Banking and brokerage than it has with baking and tailoring.

Why should ingenuity exert itself in devising new modifications of paper Banking ?  The economy which prefers fictitious money to real, is, at best, like that which prefers a leaky ship to a sound one.  With private bankers trading on metallic money, and with public offices of transfer and deposit, we can secure all the good of the present system, and get rid of all the evils.

A reform will not, however, be accomplished, as some suppose it may, by granting charters to all who apply for them.  It would be as rational to attempt to abolish a political aristocracy by multiplying the number of nobles.  The one experiment has been tried in Germany;  the other, in Rhode Island.

Competition in that which is essentially good – in farming, in manufactures, and in regular commerce, is productive of benefit: but competition in that which is essentially evil, may not be desirable.  No one has yet proposed to put an end to gambling by giving to every man the privilege to open a gaming house.

"It has often been said" remarks the author of A Peep into the Banks, "that the evils of Banking will work their own cure: and this doctrine has been advanced years ago.  The evils have continued, and even increased, without the cure so long promised being produced.  But even admitting the cure to the extent to which it is maintained, is it wise to create a disease, because a cure will be effected ?  Is not prevention better than cure ?  Is it desirable that confidence should be placed in the responsibility of persons and companies, and to suffer loss in order to shake the confidence of the community respecting all securities.  The doctrine is so absurd, that it might be doubted whether it ever had any real advocates.  The idea has been advocated upon the presumption, that whenever incorporated companies could not make interest for their capitals, no more would be applied for.  This, however, is not the fact, inasmuch as the generality of applications have not been with a view of investing, but on the contrary, of creating capital.  It is, therefore, futile to calculate upon a cure being effected by the small dividends such companies may make, as that is not the object of pursuit.  So long, therefore, as there are any persons wanting capital, we may expect there will not be wanting applicants for the power to create capital.  The evil will be cured by itself, as a natural disease is ended by terminating in death.  When a total annihilation of all credit takes place, and public confidence is destroyed, then the evil will terminate by self-destruction."

A bad system cannot be abolished, and a good one established in its place, without exertion: but the necessary labor will not, perhaps, be as great as many imagine.  The common-sense notions of money, have never yet been obliterated from the minds of the great body of the people.  The sophistry of the Bank men silences but does not satisfy them.  They may feel themselves unable to reply to the ingenious arguments of the advocates of paper medium, but they think within themselves, with an honest old German farmer of Pennsylvania, "You may say what you will, but paper is paper, and money is money."  Thousands of them know the evils of Banking by personal experience.  Thousands of others have seen the effects of the system displayed in the ruin of their neighbors.

The power is at present in the hands of the Bank interest, but by exertion the seat of power may be changed.  If our leading politicians should be as zealous on this question, as they have been either for or against the tariff, that want of inclination which is the only real obstacle to the establishment of a sound system of credit and currency, will be overcome.  Great difficulties may be encountered at the outset, but they will yield to zeal and perseverance.  Nine Americans in ten, if not ninety-nine in a hundred, have an interest in the downfall of the paper money and money corporation system, and it is impossible for them not to see, sooner or later, where their true interest lies.

For the salvation of the country, we must look to the farmers and mechanics.  The mercantile classes are so entangled in the meshes of the Banks that they cannot yield much assistance.  For similar reasons, little must be expected from public journals in the towns where Banks are in operation.  If the editors are not in debt to these institutions, they are dependent, in a great degree, on the patronage of the Bank interest for support: and it would be unreasonable to wish them to sacrifice the means of subsistence of themselves and families to promote a public object, while the great body of the public is disposed to make no sacrifice at all.

The good work should be begun in the country, where there is the strongest motive to begin it;  for, the present Banking system enriches the towns at the expense of the country, and the large towns at the expense of the small ones.  In some counties, there are, as yet, no Banks.  There the public papers may discuss the question freely.  In due time, the conductors of some city journals may find it possible to speak on the subject without reserve, and perhaps find their interest thereby promoted.

If inducements are wanted for exertion, they are afforded in the history of the country, from the time of the introduction of paper money into Massachusetts, up to the present day.  Let any man think on the wrongs that were inflicted by the instrumentality of provincial paper money – of the many thousand families who were ruined by continental money, and who lie in ruins to this day – and of the multitudes who have been reduced to poverty by various Banking processes.  Let him then trace the system in its remote consequences – in its effects on morals – on manners – on education – on happiness.  Let him consider that the same causes being now in operation must produce the same effects, and he will, if he has one spark of real patriotism in his breast, be willing to make any exertion which will not interfere with his duty to himself and to his family.

If the work were once fairly begun, assistance might, perhaps, be obtained from some quarters, from which, on a first view, the most violent opposition might be feared.  There are strong indications of dissatisfaction in the official reports of some of the Banks.  From the language they use in private conversation, no men appear to have clearer views of the evils the public suffer, than some of the officers of these institutions.  They have comformed to a system which they found established in the country, but if a sincere desire should be evinced by the people to introduce a better system, not a few Presidents, Cashiers and Directors may be found willing to yield all the aid that lies in their power.

There are reasons, besides those which spring from patriotic motives, which should make men of property very desirous to see the foundation laid of a system of sound credit and sound currency.  They now hold their wealth by a very uncertain tenure.  It may pass from them as rapidly as it came to them.  In one respect the comparison of paper Banking with steam power is an apt one.  The danger of an explosion is very great, and the effects of an explosion would be tremendous.

The attempts at corrective legislation which the sufferings occasioned by paper Banking are sure to induce, offer other motives for reflection to men of property.  The "relief system" of the West, and the "tariff system" of the East, are but specimens of what is to be expected.  As it has become a kind of principle that when the evils produced by paper money rise to a certain height, they are to be cured by more paper money, we may see a return of the times spoken of by Dr. Witherspoon, "when creditors were seen running away from their debtors, and debtors pursuing them in triumph, and paying them without mercy."

If the virtue and intelligence of the nation should direct the movements of Government during the ten or twenty years which might elapse in the gradual withdrawal of Bank notes and Bank credits, the people would suffer less from the application of the remedy, than they must otherwise suffer from the operation of the disease.  Clamors might, indeed, be excited; for some of the community are always mistaking want of money's worth for want of money – want of things to be circulated for want of circulating medium.  But such clamors ought to be disregarded.  The work of reform once begun, should be steadily persevered in.  If a State Government, after having prohibited the issue of notes of a less denomination than five dollars, should afterwards be prevailed on by a complaint of "want of money" to repeal the law, it would act with the same wisdom as a surgeon, who, being engaged in the amputation of a diseased limb, should be frightened by the cries of the patient, and withdraw his knife after having cut through the first artery.

If we should go to work too hastily – if Congress should, for example, exerting its constitutional power over the currency, pass an act prohibiting on short notice, the issue of Bank notes of any and every denomination, its conduct would be like that of a surgeon who should endeavor by one random slash of his knife to remove a diseased member.  This is an evil, however, of which no fears need be entertained.  All that it will be necessary for Congress to do, will, probably, be to declare that, after a certain day, nothing but gold and silver shall be received in payment of dues to Government, and that no corporation shall be an agent in the management of its fiscal concerns.  The people will then begin to distinguish between cash and credit: and public opinion will operate with so much force on the State Governments, that they will, one by one, take the necessary measures for supplanting paper money by metallic.

Proceeding gradually in winding up the affairs of the Banks, the stockholders will get the real worth of their stock, whatever that may be, and more than this they are not entitled to.  Many of the officers of Banks will be subjected to little inconvenience, as it is to presumed that, under a better system, their talents and industry will in sure them as ample a reward as they receive at present.

When the work is done, the condition of the country will be very different from what it would have been, if paper money and money corporations had never been known.  A system which has been in operation in different forms, for more than one hundred and forty years, must, by this time, have affected the very structure of society, and, in a greater or less degree, the character of every member of the community.  It may require one hundred and forty years more, fully to wear out its effects on manners and morals.

In getting rid of paper money and money corporations, we shall not get rid of that principle of evil, in which they have their origin: but we shall get rid of very efficient instruments of evil.  Our political institutions will then have their proper influence.  Conjoining equality of commercial privileges with equality of political rights, we shall no longer startle those philosophers of Europe who land on our shores, by exhibiting to them a state of society so different from that which their views of republicanism had led them to hope for.  We have heretofore been too disregardful of the fact, that social order is quite as dependent on the laws which regulate the distribution of wealth, as on political organization.  Let us remove these excrescences by which our excellent form of Government is prevented from answering its intended end, and our country will become, "the praise of all the earth."