CHAPTER III.

ON THE RECENT MONETARY HISTORY OF AMERICA.

THE monetary systems of England and the United States, equally with the habits of enterprize and commercial pursuits of their inhabitants present the closest analogy; whilst, from circumstances peculiar to America, all the phenomena of our monetary history are exhibited there in a greatly exaggerated form. The events of American monetary and commercial history are the events of English history seen through a magnifying lens. The law in America respecting Paper Money is similar in its main element, viz. convertibility into cash at the will of the holder, to that of England, it is even more stringent. By a fundamental Article of the Constitution, no State "can emit bills of credit, or make anything but gold and silver coin a tender in payment of debt."

An attempt was made some years since in Kentucky to evade this provision. An Act was passed by the Legislature of that State, declaring bank notes a legal tender-but the courts of law, when the matter was brought under their notice, pronounced the Act invalid, as being opposed to a fundamental provision of the Constitution of the

United States, and it was rescinded. The holder of a bank note can, therefore, in any of the States enforce by law payment in specie from the issuer. The mode of suing would, as in this country, be by an action on the instrument, and on judgment being obtained, execution would issue against the goods and land of the issuing bank. But, by the charter of, I believe, every bank in the United States, interest at the rate of 24 per cent. per annum is to be paid by a bank neglecting or refusing to cash its notes on demand, and this interest would, on judgment being obtained, be added to the amount of the notes, which were the subject of the action. The character of the Banks of America, speaking of them generally, for of course there will be exceptions, is of the highest kind. There are no private banks; all are associations; and, from one important element common to them all, viz. limited liability of the shareholders, they attract a very large portion of the wealth, intelligence, and respectability of the Union.

Yet this banking system, so excellent in many respects, based on such great wealth, and so well supported by the most influential classes of the society in which it has taken root, has experienced convulsions far greater than our own; and although existing only on the express condition of maintaining the convertibility of its issues, has twice failed, within a comparatively short period, in averting

from that country the heavy calamity of a suspension of cash payments.

In the United States the convertibility of notes is guarded, as we have seen, by legal provisions more stringent than our own. In addition, the charters of the American banks always contain restrictions on the amount both of their issues and liabilities. Why have these precautions proved of no avail? What are the circumstances which have led to the suspending of cash payments in America, while they have been maintained in England? I believe them to be, first, that the competing banks of issue in America have been subjected to no controlling power, while in this country the various issuing bodies have never been free from the restraining influence of the Bank of England, which, although not always adequate to its object, nor at all times guided by a perfectly sound discretion, has yet exercised a great and salutary restraint on the circulation; and, secondly, that the issue in the United States of notes of much lower denomination is permitted than in England.

The charter of the United States Bank expired, and its connexion with the central Government ceased, in 1836, and to this cessation of its functions as a national bank the subsequent monetary disturbances of America are, by one class of reasoners in that country, almost wholly attributed. Those parties are, no doubt, biassed in opinion by political feeling, but they are not without plausible argu

ments, or a strong prima facie case in support of their assertion. The convulsions of the money

market in America followed with suspicious closeness on the abrogation of the charter of the United States' Bank, and the distribution among what were called the President's pet banks, of the Government balance, and the Government business theretofore confided to the management of the Bank of the United States. It must also be admitted, that the period of the monetary history of the United States, during which its system of currency experienced the least disturbance, and exhibited the greatest appearance of soundness, was coeval with the existence of the National Bank. The Bank of the United States was chartered in 1816; on the first January 1820, the number of banks in the Union was 308-their capital 137,000,000 dollars -their circulation 45,000,000 dollars; in 1830 the banks were still no more than 329-capital 145,000,000 dollars-circulation 61,000,000 dollars. Between 1830 and 1834 came the quarrel between the United States' Bank and the Executive, and the taking from it the Government business and in the latter year the banks had increased to 515, with 200,000,000 dollars capital, and 95,000,000 dollar notes. In 1836 the charter of the United States' Bank expired. On the 1st January 1837, there were 677 banks, with a capital of 378,000,000 dollars, and a circulation of 186,000,000 dollars; and in May of that year cash

payments were suspended throughout every state in the Union.

The circumstances above stated afford certainly no inconsiderable ground for believing that the monetary crisis in the United States was accelerated and aggravated by the strong measures taken against the United States Bank; but great doubts may be entertained whether the whole of the evils that occurred can be fairly laid to their charge, or whether the bank, supposing it to have continued to exist with privileges unimpaired, possessed sufficient power effectually to control the dangerous tendencies inherent in the monetary system of the country. At no time did its power, relatively to the whole banking interest of the United States, at all equal that of the Bank of England, as compared with the other banking establishments of this country, and latterly did not approach to it. Its capital was 35,000,000 dollars in 1820, its circulation did not exceed 5,000,000 dollars, while, at that time, the remaining banking capital was 102,000,000 dollars, and the circulation 40,000,000 dollars; the circulation of the United States' Bank rose gradually to 8,200,000 dollars, but, at the expiration of the charter, the other banks had a capital of 340,000,000 dollars, and a circulation of 160,000,000 dollars. The capital and rest of the Bank of England, on the other hand, was, in 1830, 17,000,0001. probably equal (for we have no exact data whereon to calculate) to one-third of the whole banking capital of the United Kingdom, while the issues, in