If the State Governments will have a paper currency, this is undoubtedly the safest mode in which they can put it forth. But a paper currency put forth by Government on any other principle, will always have the unfortunate effect of continually changing the measure of value by which contracts are to be adjusted. Different Governments adopt different rules of issue. The proportion of paper currency to material wealth is different in each. A man contracts, expecting to deliver by one standard, and owing to its change is forced to deliver by another. He receives, perhaps, in ounces, and is forced to return in pounds. This injurious change in the relations between debtor and creditor leads to disasters and sufferings so often witnessed that I need not depict them. Other Governments have means of palliating the evils of this sudden change in the measure of value, not within our reach. When a demand is made for a sudden adjustment in specie, of contracts formed under the expectation that they are to be redeemed in paper, these Governments can, and always do, interfere to prevent this change in the relations between debtor and creditor. They make the paper a legal tender between man and man. Indeed, the English Government seems to be well aware of the necessity of making paper currency a tender, after it is once issued; it sees so clearly that contracts will always be made under the expectation of redeeming them in this paper, and that it would be impossible to force their adjustment in specie, that it has made the paper of the Bank of England a legal tender by a standing law of the land. Here we can resort to no such expedient. Nothing but gold and silver can be made a legal tender; a point of difference which no American statesman should lose sight of. What folly is it, then, to introduce by legislation a standard of measure in the formation of contracts, which can always be altered by the creditor at his pleasure, in despite of our laws! How vast and complex is the fraud which we thus practise upon our citizens, when we indirectly force them to contract by one standard, whilst the constitution requires them to pay by another! If a law were passed requiring every man who had contracted to deliver a bushel of corn to deliver two, the injustice would not be greater, nor the mischief more, than our paper currency has often produced. So much, Mr. Chairman, for the operation of our banking system upon the currency; let us trace now its effects upon credit.

What is credit? and what is the real law which regulates its expansion and contraction? Credit, sir, is the contrivance by which we translate future resources to our present use and employment; or, in other words, it affords the means by which we obtain the present use of capital by a pledge of future resources-of resources which exist either in mind or matter-of resources to be found, sir, either in our skill and industry, or in capacities yet to be developed in our material possessions. The fabric of credit to endure, sir, must rest on the solid rock of responsibility, and not upon the fleeting sands of mere confidence: or, sir, if I may change the figure, credit is the venous system through which the stream of capital flows, to visit every part of the body politic with its life-dispensing power. Disturb for a moment the free and natural course of its circulation, and you derange every function of social life. Leave it to follow its natural courses, and it will quicken anew the spirit of enterprise, impart more vigor to the arm of industry, and dispense health and freshness to the frame and spirit which it supports and vivifies.

I have said, sir, that it was the pledge of future resources for the present use of existing capital. To make the operation beneficial, this pledge must be upon real resources; so that the borrower may not only return the principal and interest of the capital employed, but also retain a profit for himself. If his employment returns him an amount just equal to, or a less amount than, the principal and interest of this capital, there is a clear loss to society

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of his labor, at least, and perhaps of more. It is manifest, then, that this operation, if beneficial to society, must be founded upon real resources, and new capacities for producing wealth. There is a certain amount of capital in the world, to which Government cannot add by any of its regulations. This is all which can be distributed; and if the credit system exists in a sound condition, this capital will be distributed between the different parts of the world, and amongst different individuals in society, in the relative proportion of their comparative resources. That country which can give most for the use of capital will be first supplied, according to the laws of trade; and any community which, directly or indirectly, gets possession of more capital than its relative resources entitle it to enjoy, receives it upon the terms of paying for the use of more capital than it can advantageously employ. This, sir, could never be the case if Government were not to interfere; but, unhappily for mankind, it too often happens that a Government, under the vain hope of benefiting its people, pursues a system of measures which disturbs the natural level of capital. For an instance of this, I need only refer to the currency operation of our banking system. I have shown, sir, the operation of this system has a tendency to increase the currency of the country in which it exists, far beyond the basis of the metallic, which is the currency of the world. The nominal amount of money is increased, and its real value diminished. Suppose, for instance, that two dollars represent the same amount of the necessaries of lite which were formerly represented by one. The capital which is borrowed at this nominal rise in its money price, must be returned when the nomina! price falls, and the real value is raised. In other words, the community which borrowed in half dollars must return in dollars. The reason of this is obvious. The credit system of any country, when it is sound, rises or falls with its relative resources. the true and single law of its valuation. But Government interposes and alters the measure of value. It doubles, for instance, the proportion between the paper currency and the material wealth of the country, by forcing every addition made to credit, through the banks, to produce a like addition in currency. The country, then, which has fewest resources in comparison with others, may have the largest nominal credit system, on account of the inordinate expansion of the standard by which its value is measured.

This is

The credit system being thus expanded, let us look for a moment into the mode of redeeming the obligations thus incurred. This debt can only be di-charged by a system of exchange, under which one debt is made to offset another, so as to save the necessity for currency; or else by redeeming the obligations in money. So far as the exchanges adjust the balances due on a certain day throughout the country, the operation is beneficial; and the relations between debtor and creditor are not ruinously affected, notwithstanding the inflation of the currency. But in this diseased state of affairs, the operation of the conversion of that portion of the credit system which must be redeemed by money is terrible. The obligations were contracted upon the paper standard, but they must be redeemed in specie, if the creditor chooses to demand it, and this he will do, if the paper currency exceeds its just proportions, because then it will be to his interest to exact this mode of adjusting contracts. So far, then, Mr. Chairman, I have endeavored to prove to this committee that our banking system produces, first, an unjust distribution of capital between the different sections of the same country and the different classes of the same society; and, secondly, that the connexion which it instituted between currency and credit caused them both to expand and contract, according to laws different from those which nature had prescribed for their regulation. If I have been successful in my effort, I have shown that these effects must flow

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ness.

I know, sir, that some advantages have also resulted from their operation, but none, in my opinion, which compensate for these evils. The advantage of adjusting the balances due under the credit system, by exchange or offset, so as to avoid a direct result to currency, is immense; and it is true that a large capital is necessary for this busiIt is necessary, because the greater the variety of exchanges commanded by any one institution, the greater the facility for offsetting the one debt against another. The limit to this advantage is only to be found when the amount of capital employed in this way, by any one institution, is so great as to preclude competition. It was the opinion of Mr. Baring, however, one of the most intelligent of English merchants, when examined before a committee of the House of Commons on this subject, that the important business of exchange could be effected more readily through private dealers than by banking institutions; and there seem to exist strong reasons for his opinion. Be this as it may, however, and let us suppose, for argument's sake, that in a young country like ours we can only raise capital enough to deal in exchanges, domestic and foreign, by means of corporations, still I maintain, sir, that those corporations should be single in their end and aim. They should be confined to the business of dealing in exchanges, and all power of issue should be denied them. If the banking system of this country is ever reformed, the change must be conducted in that spirit of analysis which has effected most of the modern reforms in science. If currency be the object of the constitution, I have already intimated the model upon which I think it should be moulded. If the regulation of exchange and the diffusion of loanable capital be the object, the institution should be confined to this end alone. A currency bank should exist for currency alone, without the power to discount; and a bank of discount should be confined to that purpose without the power to issue. The true secret, I believe, sir, of regulating the machinery of corporations so that it shall work the precise end intended for it, and no other, is to create them with a single purpose, upon which they will then be sure to move. But, sir, unite in them incompatible functions, and you are apt to introduce a complexity into their operations, which will often produce results entirely unexpected at their creation, and contrary to the public good.

I believe, sir, that the history of our system of paper currency connected with credit, as we have instituted that connexion, would illustrate the truth of my views, if there were time to enter into this inquiry. I will not raise an issue of fact, however, when my purpose is satisfied by dealing with first principles. I will not enter into the history of that early struggle between the colonies of Massachusetts and Rhode Island, for the field of circulation which each was endeavoring exclusively to occupy with its paper issues; a contest which waxed so warm as to make a reference of their disputes to the Crown necessary for the preservation of peace. Neither will I occupy the committee with the history of that continental money, whose improvident issue was said by one who both felt and knew its consequences, to have caused more real suffering than all the complicated horrors of the war of the Revolution. Did time permit, I might well pause, for the purpose of tracing to the inevitable tendencies of our banking system, the wide-spread derangement of our currency and credit, from the suspension of specie payments during the war, until 1819, when the Bank of the United States itself was perhaps only saved from a like catastrophe by the suspension of a Treasury draft. Yes, sir, and for confirmation almost as strong as proof of holy writ itself, I might turn from that period to this. In a time of profound peace, when the mighty energies of the American

[OCT. 11, 1837.

people were tasking themselves to their utmost upon the finest theatre for exertion which any people ever enjoyed, we have seen their career suddenly stayed, and the arm of enterprise itself folded in the mournful contemplation of the ruins of the prostrate system of credit; a fabric which fell, sir, as I before observed, because it was founded, not on the solid rock of responsibility, but upon the fleeting | sands of a mere confidence-a false confidence-engendered, sir, by those very institutions which were relied upon as the pillars of the edifice.

And here, Mr. Chairman, let me not be misunderstood. I do not war upon existing institutions, but with the policy which gave them birth. I would be the last man in this community to encourage a violation of these vested rights. Neither do I blame individuals, sir, for entering into employments to which the policy of their State Government invited them. I have no desire either to return suddenly from one measure of value to another, so as to disturb the relations between debtor and creditor. I go for reform, sir, not for revolution. I wish to see a change of policy, it is true; I care not how gradual it be, so the prospect of reform be certain. As one of the means of effecting this gradual reform, I propose a divorce between this Government and all banks. I propose it, sir, as a measure required by public interest, and ultimately beneficial to the banks themselves. The deposites of public money, upon which these institutions trade, and the credit given to their paper by means of its receipt in public dues, only serves to stimulate an action already false in its nature, and tends but to hasten the round of expansion and contraction which they are ever performing. In that point of view the connexion is injurious alike to the Government, the people, and the banks. Upon every occasion in which this connexion has existed with the State banks, we have seen it result in a general explosion of the credit system. I bolieve no one doubts but that this connexion hastened the late catastrophe, which furnished the occasion for the late call of Congress. The receipt of bank paper in payment of public dues increases its credit, and extends its circulation. The amount of paper currency necessary for making all the payments required in collecting and disbursing the public revenue, is added to the natural circulation of the banks, and has no other basis than the confidence that it will be received in payment of Government dues. this revenue expands and contracts, so this portion of the currency increases or diminishes. Whilst the surplus revenue was collecting, this circulation increased upon that credit: it increased, too, from the use of the deposites upon which they traded; and when the surplus and annual revenues of the Government were being distributed, and diminished, a portion of this currency was drawn from the field of circulation; and, being no longer useful, its conversion was sought in specie. Here is the unhappy and fruitful cause of fluctuation in credit and currency, which must always exist under a connexion between Government and bank. There were doubtless other causes growing out of that connexion, which tended to hasten the suspension of specie payments. I throw them out of consideration, however, because they do not enter into the general question, and take only those consequences which necessarily flow from a connexion between bank and Government under any circumstances; and, having shown the injury which they work to the bank, I turn to their operations upon the fiscal concerns of the Government: when this violent rupture of the ties which bind them together takes place, the Government is forced either to take depreciated paper, or to demand specie. If they take the first alternative, they give a bounty to each State to depreciate its paper, to lower its taxes, and duties become no longer uniform. If they choose the latter alternative, they find that its operation is to raise the taxes upon the people precisely at the time when they are least able to encounter an

As

ganized as our American banks are, yield the facilities of credit too readily and amply to the demands of trade, without a power of discrimination between such as arise from the extension or accidental vigor of healthful commerce, and such as have their origin in a wild and gambling spirit of speculation.

Commerce requires credit. From the day that men passed in their dealings beyond the first simple stages of barter, credit, in some form, entered into the affairs of trade. Its agency soon came to be understood; and the winds are not more active in circulating the common air, than credit now is, all over the world, in circulating through every land the productions of every soil.

Trade and commerce, then, becoming drunk with prosperity, have drawn too lavishly upon the credit offered them through the banks; or, if you will have it otherwise expressed, the expansible character of bank credit has offered too great temptations to commercial enterprise, and we are now suffering under the consequences of overaction, as well on the part of those who used this credit as of those who gave it.

In this reasoning, I am borne out by the message of the President: he says that "our present condition is chiefly to be attributed to over-action in all the departments of business; an over-action deriving, perhaps, its first impulses from antecedent causes, but stimulated to its destructive consequences by excessive issues of bank paper, and by other facilities for the acquisition and enlargement of credit."

I have entered into the subject thus far, only that I may invite you to a more enlarged view of the difficulties to be met than are presented when our inquiry is confined simply to a consideration of the safest custody that we can provide for that portion of the people's money which is to pass into the public coffers.

My great objections to the measures proposed in this bill are, that they are not at all commensurate with the exigencies of the times; they do not meet the real difficulty. The bill simply ordains that the Government, after a limited time, will receive nothing but gold and silver in payment of public dues, and will intrust its keeping to its own officers alone. Now, if there were a creative power in our law; if, by this simple enactment, the bank paper could be driven out of circulation, back whence it came, and the precious metals substituted in sufficient quantities to meet the wants of society, as well as the demands of the revenue, the chief ground of my opposition would be at once removed. I can well see, from the experience we have had of the evil tendencies of the banks to excessive issues, (and such, at present, are my decided impressions,) that, whenever the currency is placed in a condition to bear the tribute, the true policy of Government may be found to be to exact its dues altogether in coin, and to withhold its revenue, while resting between its collection and its disbursement, from the use of banks, as a fund to increase their discounts. My reasons for this I will give hereafter, when treating of the proper positions which the Government may ultimately assume toward the State banks.

The bill is to operate upon the currency as it now is; for we have not only no guarantee that it will be found in an improved condition at the end of twelve months, (the limited time,) but it is susceptible almost of demonstration that one necessary consequence from the proposed law will be to continue the currency in its present debased condition. The precious metals, all will agree, are now banished from circulation. They are in the country, I grant you, and in sufficient quantities, perhaps, to answer their accustomed duty of circulating in those channels below the reach of bank paper; but they no longer pass from hand to hand as a medium of exchange. Their former exchangeable value has been converted, by the course of trade to which I have alluded, to a value exclusively marketable; VOL. XIV.-89

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and thus they have fallen back, and are entirely merged in the common and general mass of merchandise. Specie, whether in coin or in bullion, is now merchandise, and not money; and those who require it for any purpose must go into the market and buy it at market rates, as they would any kind of merchandise whatever. How long, then, is this state of things to continue? How long will this marketable value attach, which detains the coin from its most appropriate function as current money? And by what process can it be restored to circulation?

The answer to the two first inquiries is very simple. Specie will continue to be merchandise, so long as there exists any demand for it greater than that which would invite or retain it in circulation. It was driven out of circulation by the demand for exportation, after the business of the country had realized the fact that our exports were insufficient to pay for our imports. The balance must be met, and the precious metals were called out of circulation to answer this new demand. It is a necessary and fundamental law of currency, that where you have two media, of which either answers all the purposes of exchange, and one of them, besides those purposes, will answer another purpose as a subject of trade, the latter will fly at once to meet the new demand, and leave the duties of currency exclusively to its fellow.

ers.

So it was between the paper and the specie, when, by the exigencies of trade, the latter was suddenly called off to meet the new demand created by the necessity in commerce, of extinguishing the balances against our importThere is no mystery in all this. Imports are to be paid for from those two sources alone: by the produce and labor of the importing nation, or by gold and silver; and whenever the former is found inadequate, the precious metals must make up the deficiency.

Thus stood the country when the banks suspended the payment of specie. They had an agency, and a large agency, I grant you, in bringing that necessity about; pampering, as they did, the pride of commerce. They met all its demands, honored all its drafts, as well in the rage for importation, as in those extravagant speculations to which the apparent prosperity of the age gave birth. But the banks are not alone to blame in this. It is due to the occasion, and will aid us in searching out the true remedy against a recurrence, to admit, candidly and fairly, that the Government itself saw as little the mischiefs that would follow from the extension of their credit, as the banks did themselves. It is a part of the history of the times, and should be recorded on the same page, that when the deposites were given to the State banks, they were expressly instructed to make them the basis of new incentives to commercial enterprise.

I do not speak this at all, sir, in the spirit of rebuke; far, very far from it. I adduce it only to show that the Government itself, against whom, as some have said, the banks have committed the unpardonable sin, was itself actively instigating them to that very extension, now so zealously condemned. How far the banks might have gone in extending their discounts, upon the immense deposite thus cast upon them, without this authoritative hint none can easily tell. But it is fair and reasonable to infer, that this license in advance did not pass unimproved.

Having stated thus the actual condition of the currency, and briefly traced the causes which have led to it, let us inquire next what will be the probable operation of a law that takes no account of its enfeebled state, but peremptorily demands, after a given day, that the entire revenue, amounting to some twenty millions of dollars per annum, shall be paid up in gold and silver. One necessary consequence, in my apprehension, would be, effectually to place it out of the power of the banks to resume the payment of specie within any reasonable time. How can it be otherwise? They suspended payment,