An address to the Columbian institute, on a moneyed system

Front matter

AN ADDRESS

TO THE

COIUMSIAN INSTITUTE,

Preface

To the President and Directors of the Columbian Institute .

Gentlemen : Having considered that my address to you, in 1826, though flattered hy your order for publication, could have but a very limited circulation, and having subsequently witnessed circumstances in corroboration of my arguments in favor of a National Currency, I have for some time meditated a re-publication of that address with additional facts ; but having experienced so much sickness during last Autumn and Winter that my nervous system was oppressed by the heats of Summer, I resolved to visit the Virginia Springs, with the hopes of acquiring sufficient health to resume the important subject.

Though only partially recovered, I take up the pen, lest I should leave undone what humanity and duty urge me to perfrom.

On my arrival at Charlottesville, near Monticello, and the University established by Mr. Jefferson, I found an assemblage of the most enlightened, patriotic, renowned statesmen, viz: Mr. Madison, Mr. Monroe, Judge Marshall, and Judge Brook, who had been summoned from every section by the voice of their State, to consider about the most feasible mode to make improvements in the Ancient Dominion : After a luminous statement of its geographical advantages, and of its several rivers which might be rendered useful, alas! the termination was most distressing, by an acknowledgment of a deplorable want of ways and means, and of the necessity to borrow from abroad.

A desire to relieve their pecuniary embarrassment was an additional stimulus to exertion, and I could not refrain when I considered that my reasoning was not ohly applicable to every State in the Union, but to every Nation.

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An able author has judiciously observed, that every political edifice, however brilliant and vast, must necessarily be frail, tottering, and temporary, unless rising from the solid basis of a good financial system, without which nothing nationally great or good can either be attempted or achieved.

After expatiating upon the advantages of ample resources, for civil and military establishments, the same author says : “ It is not enough that Government bestows on the people negative blessings ; that it be valuable principally by reason of the evils from which it exempts them, one of its chief duties is to create and keep alive a national spirit, a duty of magnitude, and the more important, as local interests have so strong a tendency to overbear those of the Union. A People is a mere herd of men, a sorry aggregate of individuals, unless animated, by a common soul, unless cemented together and dignified by national feeling — but to the very existence of these national objects are requisite. Those who collect materials for the annals of the country should always have to record a succession of noble achievements, either of peace or war. The individual self love should never want an opportunity of identifying itself with national honor.”

Mr. Burke uses the following emphatic language, in speaking of finance:

“ The revenue of the State is the State ; in effect, all depends upon it, whether for support or for reformation ; as all great qualities of the mind which operate in public and are not merely suffering and passive, require force for their display, I had almost said for their unequivocal existence. The revenue, which is the spring of all, becomes, in its administration, the sphere of every active virtue: public virtue being of a nature magnificent and splendid, instituted for great things, and conversant about great concerns, requires abundant scope and room, and cannot spread and grow under confinement, and in circumstances narrow and sordid. Through the revenue alone, the body politic can act in its true genius and character ; and therefore it will display just as much of its collective virtue as it is possessed of a just revenue.”

PREFACE.

T

It has been justly said, that enthusiasm is necessary in a character to make it useful ; I will not, therefore, apologize for adding a few more arguments in favor of a national currency. It is a general complaint, by workmen in America, that they cannot get paid; and that they are often obliged to accept drafts on stores, or to receive things in barter, by which they are losers.

Litigation is occasioned by scarcity of money. All foreigners express surprise at the number of law suits in the United States. If money could be obtained at five per cent, very few would incur the trouble and expense of legal proceedings, and pay legal interest of 6 per cent, merely for delay.

Were the loss of useful labor estimated, by plaintiffs, defendants, and witnesses attending courts in the United States, it would amount to millions. It is painful to think how distress makes many persons legally dishonest. Even overt acts of robbery are increasing. Poverty, but not the will, occasions crime. Any one who should examine the court dockets would be shocked at the number of suits.

The state of the national finances is rarely considered in Congress. Constitutional questions only arouse the orator, such as war, or the treaty-making power, or State rights, and similar topics, which afford opportunities for eloquence. The gorgeous decorations of the Capitol, and the extravagance of the Government, are also themes for declamation ; but financial subjects are unheeded. Even the present misery, so general, is disregarded. When a man speaks of millions which might have been saved, and of calamities which might have been averted, his discourse offends ; and when he unfolds accumulating distresses, he is termed a chimerist or a croaker.

After a journey of 200 miles, on my way to Louisburgh, I saw a woollen carding machine, being the first on my long journey. In the mountains, there is an abundance of sheep, and waterfalls for mills, to turn machinery, and also plenty of wood for steam engines; but money is wanting to build factories, and to set up machinery, and to pay hands. The people make coarse homespun, but still those who are able to purchase foreign cloth prefer it, as it is neater to the view, and

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distinguishes the gentleman from the laborer. Suppose a manufacturing company were formed, and they were to apply to Congress for a loan of national currency, at 3 per cent, interest, the men and women now employed in making homespun might almost all be spared for agriculture and other occupations, and the consumption of foreign cloth would be saved. The domestic cloth would also be much cheaper, because the expenses of a voyage from Europe, and the duties, and the cost of land carriage of above 200 miles, would be saved, and the interest and profit which must be paid to the merchant on the sums he advances for freight, insurance duties, and charges of merchandise. Wherever I travel, I find the want of money the great obstacle to the setting up of manufactures, and to all kinds of improvements. Under the colonial system, formerly, agriculture and commerce were only adverted to, but, since our independence, machinery has become of importance next to agriculture, and takes the precedence of commerce. Napoleon, by giving 300 monasteries to manufacturers, has caused more prosperity to France than all his armies and navies could effect. They silently undermine foreign manufactures ; and we now perceive Manchester complaining of being undersold. When I read in Las Casas’ Memoirs from St. Helena, ©f this expanded policy of Napoleon, I considered the probable consequence of it. I traced the cotton from America to Liverpool and thence, to Manchester, from whence it returns, in a manufactured state, to Liverpool, where the goods must be shipped, and pay duties before they can be admitted into the continent. I then traced cotton from America to Havre de Grace, and thence, up the Seine, to Rouen, &c. where factories are now establishing. And I could not refuse the painful conclusion, that the expenses on the former route are much heavier than on the latter. The following lines will illustrate my reasoning.

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VII

America* Liverpool. Manchester.

A B

A.

X

The other line is b. Havre.

C. Seine -X

Interior.

Thus Great Britain has twice as many shiftings of a cargo as France.

Labor is cheaper in France, but Great Britain has an advantage in the greatness of capitals, so that the cotton received in a factory goes out wove, stamped, and finished; whereas, in foreign factories, dying, &c. are separate businesses, and great expenses and losses are incurred in removals. The interest of money, also, is lower in Great Britain. Thus, as Baron Storch observes, a manufacturer who borrows at 4 per cent, can afford to employ a third more capital than he who borrows at 6 per cent.

The roads through the passes of the Virginia mountains are very good, and the bridges also ; they were made by the State, but do not pay much more than the annual repairs. Were manufactories established, towns would spring up at proper distances, and the tolls of the roads and bridges would increase.

We read of 10,000 and 20,000 houses built in one year in London. The canal now making, and which will join th Washington canal, which runs through the City, ought to make houses spring up rapidly ; but judge by the reports of the Banks in the District, of the capability of individuals to build. Were money not so scarce, 100 houses would be erected, where now we see only ten.

If the Congress were to lend 1,000,000 of dollars annually to

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manufacturers, the nation would have that increase of capital productively employed in making cotton and woollen goods, and the Treasury would receive, on a million, 30,000 dollars interest on the loan annually, and laborers at home would he paid, instead of operatives abroad, and the manufacturers would gain a great profit, and all these numerous articles would increase the wealth of the nation ; for every individual’s gain composes the general wealth. Great Britain, after paying the price of the raw material, has an annual profit of g 150,000,000 on cotton alone. The machinery of Great Britain is estimated to be equal to an hundred million of hands. Mr. Stewart, in his speech, states the woollen goods imported here to amount to g 8,000,000, the raw material only costing one-half. Appropriations by a Government, to promote canals, roads, railways, and machinery, ought to be put under the head of disbursements , to distinguish them from expenditures on armies, &c. The former produce profits as seed sown produces crops ; but the latter yield no return.

The following are a few of the axioms which I wish to substantiate :

A paper currency, issued by a Government in full credit is preferable to specie —

1st. Because the former can be regulated so as always to bear a proper proportion to the industry and property of a nation, whereas the latter, being an article of commerce, fluctuates in quantity.

2d. Because the precious metals disappear, being hoarded or exported in times of difficulty, when most required, whereas the paper money always remains.

3d. Because, as the value of fixed capitals and the interest of money depends upon the quantity of money, it is requisite to have a sufficient quantity without excess.

4th. Excess of paper money may be prevented by caution in the issues, and by a deposite of 4 per cent, stock, into which any individual holding notes may convert them. In this case the stock operates as a safety valve, by withdrawing any superfluity.

5th. Because paper money is more cheaply and rapidly transmitted from one quarter of the country to another than specie.

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6th. Because, by this facility of remittance, it lowers the rate of internal exchange.

7th. Because paper money permits the exportation of bullion and specie for advantageous mercantile transactions, without any derangement of home trade, and interchange of labor for money.

8th. Paper money increases manufactures and improvements, and exports bring back specie. The rapid advancement of nations in modern times is much more owing to paper money than commercial or fiscal regulations. In vain have Governments prohibited the exportation of specie or the importation of foreign goods; the cunning of man will, in a great measure, defeat the measures of Government by smuggling.

Until long-rooted prejudices were surmounted, nations labored under great inconveniences for want of money, armies mutinied, profitable plans were suspended, ruinous fluctuations in values occurred, and the industrious productive middle class was prevented from augmenting.

Modern writers on political economy all recommend a paper money issued by the Government, and disapprove of exclusive reliance on private banks issuing promissory notes, redeemable with specie : for, as the banks issue three, four, or five pound notes for one pound in specie in their vaults, when the banks experience a drain of specie, they call in their notes in the proportions abovementioned, and render bankrupt many who fail in their engagements by a proceeding which their own prudence could not anticipate.

In recommending a National Currency:

I have preferred illustrating my positions by questions and answers, as the former were put to me in the course of conversations, and were replied to orally and in writing. I rely now upon the embarrassments every where experienced, to obtain attention at this crisis ; and am prompted to repeat my arguments by the old Roman axiom —

By repetition, truth, at length, we own,

As drops of water penetrate the stone.

PREFACE.

I have, indeed, been encouraged to persevere by persons who have found my former positions verified by events, and who, having surmounted prejudices, are ready to receive any suggestions.

Could I once have the subject brought before Congress, I am confident that the present jargon about a specie basis would be banished by ridicule. It is called a circulating medium, and is represented as fluctuating, being an epithet taken from water, which certainly is not a basis.

I will conclude this with the termination of one of my former essays, now perhaps forgotten:

“ Beware, ye legislators, how you create a moneyed aristocracy, as dangerous to Government as Praetorian bands in Rome, or Janissaries in Turkey. Let me repeat, that I behold this country as the asylum of the afflicted, the sanctuary of the oppressed, on which the eyes of philanthropists are every where fixed with affection and anxiety. Moral feelings, common interests, and general principles, unite as a band of brothers. ■Whatever appertains to the general welfare, should emanate from the General Government. 'I bis is the spirit of our Constitution ; this is the central axis upon which the Union must revolve, and any important deviation must make all return to chaos. If I am assailed for this interference, I shall reply* < Homo sum et nihil humani a me alienum pnto*9 99

DIALOGUE, $jc.

Question . What produced the Banking System in the United States ?

Answer. The want of money which was soon experienced by the North American Colonies. Franklin, in his sagacious and useful writings, gives an account of the paper money first issued, which he observed to be productive of beneficial consequences, by stimulating industry, or, to speak more properly, by enabling the enterprising, stimulated by self-interest, to employ workmen, and to set up tanneries and handicrafts of various kinds. This deep researching patriot wrote in favor of State currency, and was rewarded by his State. His work was entitled, “ On the Nature and Necessity of a Paper Currency After our Revolution, the States experienced a want of money, but found themselves prohibited from the issue of paper money by the Constitution, which, in the 10th section of the first article, says, «No State shall coin money, emit bills of credit, “ or make any thing but gold and silver coin a tender in pay- “ ment of debts.’* Being thus embarrassed, they chartered banks, whereby they not only increased money by bank notes, but received bonuses, to prevent the necessity of taxation. Thus they effected through banks, what they could not do of themselves. There is an old law axiom, “Qui facitper alium , facit per se” — What a man does through another, he himself does. Whether this ingenious expedient is legal or not, I will not pretend to determine. Many State Governments even set up State Banks, the history of which would be very interesting. At the commencement, while banks were lending money, and issuing their notes, they were very popular; but the evils of depreciation, when notes are carried from the State, were soon complained of, and soon also the fluctuations in the value of property by curtailments, were experienced as a great calamity. The history of these would be also very interesting.

Question . You have stated from Franklin the advantages of paper money, but were not inconveniences experienced by the colonies, as each one issued a paper currency to supply the drain of specie ?

Answer. Certainly there were, as we experienced the same by the paper mints in several States which did not go upon any regular system. In an able work, entitled “ An Account of the European Settlements in America these inconveniences are alluded to ; and the author, supposed to be Mr. Burke, after saying that laws themselves are hardly more the cement of societies than money, and societies flourish or decay according to the condition of these, adds, “I should imagine that one current coin for the whole Continent might be struck here or there, with such an alloy, which might at once leave it of some real value, and yet so debased as to prevent its currency elsewhere, and so to keep it within themselves. This expedient has been practised, and with success, in several parts of Europe, but particularly in Holland, a country which undoubtedly is perfectly acquainted with its commercial interest. 99 This experiment was successfully made by the Bank of England, after the suspension of specie payments. When it was ascertained that not only its gold but silver coin was exported, the hank stamped the Spanish dollars, and issued them first at 5s. sterling, and then at 5s. 6d., and gave them currency by offering to receive them at the same rate. The value of the dollar as a bullion article, is from 4s. 2d. to 4s. 3d. Thus a value was given to them of more than 20 per cent, merely by the Bank receiving them at that rate. It was not, therefore, their quantity of silver that made them current, but the credit given by the Bank’s promise to receive them.

Question. You have convinced me that the quantity of currency in a nation has a great effect on the industry of a nation, and the value of its property — how comes it that so small a sum in currency can carry on the receipts and payments of so many millions of people, with produce and property amounting to so many hundred times the amount ?

Answer. Consider that money is transferred from A to B? and from B to C, &c., by checks ; so that the sum may occasion three hundred payments in a year. Mr. Thornton says that the transactions of the Bank of England amount to four million pounds sterling per diem, or above five hundred million dollars per annum. Were the currency of Great Britain reduced as low as ours, general distress would immediately ensue. I have shown that it is the great duty of a Government to have a sufficiency of currency to preserve its credit. And how easy it is to regulate the quantity : when it is scarce, interest is high ; when it is abundant, interest is low. It is stated that the deposites of moneyed men in the Bank of England amount to £ 8,000,000 stg. ; of course, when any property yielding income is to be sold, or any property likely to rise in value, a seller can always find a purchaser, as there are so many competitors wanting to lay out their money. In this country there are many sellers and few buyers ; consequently the price of land and of labor has fallen, and we daily behold sacrifices and distresses at which humanity weeps.

Question. Does not a sufficiency of money enable parents to send their children to school ? and is not education essential to preserve republican institutions ?

Answer. Most certainly. A Roman sage has said, “emollit mores nec sinit esse feros it softens manners and prevents ferocity, and enables man to love truth and hate falsehood, by judging for himself, instead of being the dupe of demagogues. The following is too gratifying a statement to be omitted. The Baron Ferussac thus addresses a Parisian audience : “ I present to your notice a map of the kingdom, which represents by shades , more or less deep, the degrees of ignorance or information that prevail. Those departments whose primary schools contain a tenth of the whole population, are colered with the deep tint of No. 10. Those departments whose schools contain only the twentieth part of the whole population, are colored No. 20. Those whose schools contain only the two hundred and twenty-ninth part of the population, I have colored black , No. 229. What, then, you will say, does France contain departments where there is but one child at school in a population of 229 inhabitants ? Yes, gentlemen, such a state of things does exist; and even still worse. But, it will be observed, this must be undoubtedly in some corner of Lower Britany. No, gentlemen. Lower Britany is rather better. It has schools which contain the two hundred and twenty- second part of its population. It must be then on the summit of the Alps or the Pyrenees, where the poor inhabitant has to struggle against a rugged climate, in cultivating a contracted territory. No, gentlemen, among the population of those districts, popular instruction is the most diffused , because nothing gives so much moral energy to a people as to have to struggle against natural obstacles.

That obscure place, where only the two hundred and twenty- ninth part of the human species frequent the schools, is in the middle of the kingdom, in a wide valley — under a mild and serene sky — in the region of the vine, the mulberry , and the maize — on the borders of a superb river ; it is called the garden of France : it is Torraine ! Look, on the contrary, at the foot of the Pyrenees, the country of Henry the Great — Bearn ; it contains in its schools, the fifteenth of its population. In drawing the narrow dark line, which you observe, from Geneva to St. Malo, we separate the North from the South of France. On the North are thirty-two Departments, and thirteen millions of inhabitants ; on the South, fifty-four departments, and eighteen millions of inhabitants. The thirteen millions of the North send to school 740,846 young people ; the eighteen millions of the South send to school but 375, 931 pupils. Let us now observe some of the remarkable consequences resulting from this disproportion. In the North of France, notwithstanding the rigor of the climate, the intelligent industry of the people enables them to obtain from the soil a sufficient revenue, and 127, 634, 765 francs of the national impost for a surface of 18,692,191 hectares ; while the fifty-four departments of the South, for a surface of 34,- 841,235 hectares, pay only 125,412,969 francs of the national impost. Thus, for a million of hectares, the public treasury receives from the enlightened portion of France, 6,820,000 francs ; and from the dark portion , only 3,599,700 francs. The superiority of the public revenue, furnished by the enlightened portion of the kingdom, is also particularly obvious in the patent tax, which is levied at an equal rate throughout the kingdom. The thirty-two departments of the North close a patent account with the public treasury of 15,274,456 francs, and the fifty-four Southern departments only 9,62 3,733. Hence, favored by superior information and industry, a million of Frenchmen on the North side of the line pay for the patents of their arts 1,174,958 francs, and a million on the South only 534,662 francs. I have examined the list of patents from the 1st of July, 1791, to the first of July, 1825, and the following are the results : for the thirty-two Northern departments, 1689 patents ; for the fifty-four Southern departments, 413 patents/* &c. &c.

The Baron proceeds in his lecture with similar details as to the higher branches of science in all the universities, colleges, academies, and polytechnic schools, which present similar results. In fine, he and Baron Dupin establish, in a manner satisfactory and conclusive, the vast importance of diffusing the rays of knowledge into every corner of a country, however widely extended.

question . You disapprove of the Banks of State Governments : Do you approve of the United States* Bank ? and do you think it a legal establishment ?

Answer . I cannot presume to form an opinion, as the Supreme Court has given a decision. It always appeared to me that Congress legally could establish Bankers ; but that they had no constitutional right to compel States to receive Banks, which issue notes. “ Delegatus non potest delegare," is an old law axiom. The General Government has only the power to issue paper money ; at any rate, if a State be adverse to the Bank, on account of probable political or moneyed consequence,

I know not any article in the Constitution which gives authority to the General Government. Bankers, or officers to collect and pay the revenue of Government, are requisite appendages to the Treasury ; the place where these bankers receive and pay, is called a Bank ; but could the framers of the Constitution have intended that money makers should be given to a chartered company, and that the Government should be a large partner of 7 shares in 35, and receive a bonus besides ? If the State of Maryland had acknowledged the right of the Geeral Government to esntablish an Office of Deposite and Discount, and confined its refusal to admit Bank notes, which might prove injurious to the State, perhaps they would have acted legally. I must wait for the Judges’ opinion to sanction the right in Congress to authorize a delegate to coin money, which is a power exclusively vested in the General Government.

Question . What think you of the following letter from Mr. Cobbet to Mr. Dallas, dated

“ London, Jan . 13, 18 J 6.

“ Sir : I have read with great care and uncommon interest, your proposition to Congress, under date of 6th December, 1815, for the establishment of a National Bank; and, as a part of the reasons which you urge in support of that proposition appear to be founded on the experience of a similar institution in England, I cannot refrain from endeavoring to show you what some of those effects really have been, and what is at present the situation of this country, owing, in a great measure, to the existence of a great banking establishment closely connected with the Government.

“ It is the evil of a National Bank, as experienced by us, to which I particularly wish to draw your attention. You profess, and I dare say very sincerely, so to frame this establishment in America, that it shall be independent of the Government. It is next to impossible, indeed, that you, or any of the persons in whose hands the Government is, should have a desire to make a Bank what our Bank has long been; but while there is a possibility of its becoming, in any hands, or at any time, any thing resembling this Bank, it must be a matter of serious dread to every friend of America, that such an establishment is likely to take place. Sir, it is as a Bank of Discount that this establishment exercises the most pernicious influence. The Directors, who are a chosen divan, regulate these discounts, and in so doing, decide, in some sort, upon the rise or fall, the making or the ruin, of all men in trade, and, indeed, of most olher men, except such as have no capital at all. The amount of these discounts, at any given time, is supposed to be about six millions of pounds. As they are never for more than two months, here is a sum of thirty-six millions lent every year to individuals.

“ The bills for discounts are sent in: the Directors consent or not, without any reason assigned. Now, sir, consider the magnitude of the sum discounted. It is a little short of half a million of dollars a day, Sundays excepted. It is perfectly well known to you, that, in such a state of things, almost every man in trade is under the necessity of having a regular supply from discounting. If he be excluded from his fair share here, he cannot trade with the same advantage as other men trade. If he be in the practice of discounting, and if his discounts be cut off, he cannot go on, he stops payment, and is frequently ruined forever, even while he possesses property, which, with the fair chances of time, would not only enable him to pay his debts, but to proceed in prosperity. I beseech you then, sir, to look seriously at the extent of the dangerous power of these Directors. You must $ee that they hold in their hand the pecuniary fate of a very large part of the community, and that they have it in their power, every day of their lives, to destroy the credit of many men, and to plunge their families into shame and misery. If I am asked for their motives to acts like these, to pursue such partiality, to make themselves the instruments in committing such detestable injustice and cruelty, need I point out to you that they have been, and must be, constantly actuated by the strongest political prejudices? The fact is, however, that the Bank of Kngland, by means of its power of granting or withholding discounts, has been, and is, one of the most potent instruments of political corruption on the one hand, and of political vengeance on the other.