Paper money has been issued, for the most part, on the one or the other of two conditions, namely: as irredeemable, when it has been made to rest on the vague obligation of some government to pay it some time or other in property; or as convertible into gold and silver on demand. But under both conditions it seems to have been impossible to preserve it from excess and consequent depreciation. Nothing would appear to be safer and sounder, on the face of it, than a money-obligation backed by all the responsibility and property of a government; and yet we do not recall a single instance in which an irredeemable government-money has been issued, where it did not sooner or later swamp the government beyond all hope of its redemption. No virtue of statesmanship is proof against the temptation of creating money at will. Even where there has been a nominal convertibility on demand of the bills of government banks, they have worked badly in practice. In 1637, for instance, the monarch of Sweden established the Bank of Stockholm; yet in a little while its issues amounted to forty-eight millions of roubles, and their depreciation to ninety-six per cent. In 1736, Denmark created the Bank of Copenhagen; but within nine years from its foundation it suspended redemptions altogether, and its notes were depreciated forty-six per cent. We need not refer to the extraordinary issues of French assignats, or of American continental money,nor to the deluges of paper which have fallen upon Russia and Austria. During all these experiments, the sufferings of the people, according to the different historians, were absolutely appalling. One of these experiments of paper money, however, begun under the most promising auspices, and on a professed basis of convertibility, was yet so stupendous and awful in its effects, that it has taken its place as a Pharos in History, and is never to be forgotten. We refer, of course, to the banking prodigalities of the Regency of France, undertaken in connection with the scheme known as Law's Mississippi Bubble,although the Bank and the Bubble were not essentially connected. We presume that our readers are acquainted with the incidents, because all the modern historians have described them, and because the more philosophical impute to them an active agency in the origination of that moral corruption and lack of political principle which hastened the advent of the great Revolution. Louis XIV. having left behind him, as the price of his glory, a debt of about a thousand millions of dollars, the French ministry, with a view to reduce it, ordered a re-coinage of the louis-d'or. An edict was promulgated, calling in the coin at sixteen livres, to be issued again at twenty; but Law, an acute and enterprising Scotchman, suggested that the end might be more happily accomplished by a project for a bank, which he carried in his pocket. He proposed to buy up the old coin at a higher rate than the mint allowed, and to pay for it in bank-notes. This project was so successful that the Regent took it into his own hands, and then began an issue of bills which literally intoxicated the whole of France. No scenes of stock-jobbing, of gambling, of frenzied speculation, of reckless excitement and licentiousness ever surpassed the scenes daily enacted in the Rue Quincampoix; and when the bubble burst, the distress was universal, heartrending, and frightful. With millions in their pockets, says a contemporary memoir, many did not know where to get a dinner; complaints and imprecations resounded on every side; some, utterly ruined, killed themselves in despair; and mysterious rumors of popular risings spread throughout Paris the terror of another expected St. Bartholomew.
In this case the phenomena were the more striking because they were gathered within a short compass of time, and took place among a people proverbial for the versatility and extravagance of their impressions. The French are an excitable race, who carry whatever they do or suffer to the last extreme of theatrical effect; and for that reason it might be supposed that the tremendous revulsions we have alluded to were owing in part to national temperament. But similar effects have been wrought, by similar causes, among the slower and cooler English, with whom commercial disturbances have been as numerous and as disastrous as among the French, only that they have been distributed over wider spaces of time, and controlled by the more sluggish and conservative habits of the nation. Some twenty years before Law made his approaches to the French Regent, another Scotchman, William Patterson, had got the ear of Macaulay's hero, William, and of his ministers, and laid the foundations of the great Bank of England. It was chartered in 1694, on advances made to the government; and gradually, under its auspices, the vast system of English banking, which gives tone to that of the world, grew up. Let us see with what results; they may be expressed in a few words: every ten or fifteen years, a terrific commercial overturn, with intermediate epochs of speculation, panic, and bankruptcy.
We cannot here go into a history of this bank, nor of the various causes of its reverses; but we select from a brief chronological table, in its own words, some of the principal events, which are also the events of British trade and finance.
1694. The Bank went into operation.
1696. Bank suspended specie payments. Panic and failures.
1707. Threatened invasion of the Pretender. Run upon the Bank,panic. Government helped it through, by guarantying its bills at six per cent.
1714. The Pretender proclaimed in Scotland. Run upon the Bank,panic.
1718-20. Time of the South-Sea Bubble. Reaction,demand for money,Bank of England nearly swept away,trade suspended,nation involved in suffering.
1744. Charles Edward sails for Scotland, and marches upon Derby. Panic. Run upon the Bank,is obliged to pay in sixpences, and to block its doors, in order to gain time.
1772. Extensive failures and a monetary panic. The Bank maintains the convertibility of its notes for several years, at an annual expense of £850,000.
1793. War with France,drain of gold,Bank contracts,panic,failures throughout the country,universal hoarding,one hundred country banks stop,notes as low as five pounds first issued,general fall of prices.
1796. An Order in Council suspends specie payment by the Bank.
1799. Numerous failures,chiefly on the Continent. The pressure in England relieved by an issue of Exchequer bills.
1807-9. Great speculations in flax, hemp, silk, wool, etc.
1810. Recoil of speculation,extensive failures, and great demand for money.
1811. Parliament adopts a resolution declaring a one-pound note and a shilling legal tender for a guinea.
1814-16. Heavy losses and bankruptcies,failure of two hundred and forty country banks,the distress and suffering of the people compared to that in France after the bursting of the Mississippi Scheme.
1819. Law passed for the resumption of specie payments in 1823,after a suspension of twenty-seven years.
1822. Great commercial depression throughout Europe,agricultural distress,famine in Ireland.
1824. Speculations in scrips and shares of foreign loans and new companies, to a fabulous amount.
1825. Recoil of the speculations,run upon the banks,seventy banks stop,a drain of gold exhausts the bullion of the Bank.
1826. Depression of trade,government advances Exchequer bills to the Bank.
1832. A run for gold,bullion in the Bank again alarmingly reduced.
1834-7. Jackson vs. Biddle in America produces considerable derangements in England,drain of gold,great alternate contractions and expansions,severe mercantile distress.
1844. Renewal of the Bank Charter, limiting its issues,great speculations in railroad shares, to the amount of £500,000,000.
1807-9. Great speculations in flax, hemp, silk, wool, etc.
1810. Recoil of speculation,extensive failures, and great demand for money.
1811. Parliament adopts a resolution declaring a one-pound note and a shilling legal tender for a guinea.
1814-16. Heavy losses and bankruptcies,failure of two hundred and forty country banks,the distress and suffering of the people compared to that in France after the bursting of the Mississippi Scheme.
1819. Law passed for the resumption of specie payments in 1823,after a suspension of twenty-seven years.
1822. Great commercial depression throughout Europe,agricultural distress,famine in Ireland.
1824. Speculations in scrips and shares of foreign loans and new companies, to a fabulous amount.
1825. Recoil of the speculations,run upon the banks,seventy banks stop,a drain of gold exhausts the bullion of the Bank.
1826. Depression of trade,government advances Exchequer bills to the Bank.
1832. A run for gold,bullion in the Bank again alarmingly reduced.
1834-7. Jackson vs. Biddle in America produces considerable derangements in England,drain of gold,great alternate contractions and expansions,severe mercantile distress.
1844. Renewal of the Bank Charter, limiting its issues,great speculations in railroad shares, to the amount of £500,000,000.
1845. Recoil of the speculations,immense sacrifice of property.
1846. Drain of gold,large importations of corn,alarm.
1847. Drain of gold continues,panic and universal mercantile depression,Bank refuses discounts,forced sales of all kinds of property,the Bank Charter suspended.
1857. The experiences of 1847 repeated on a more injurious scale, with another suspension of the Bank Charter Act.
Now this record does not show a brilliant success in banking; it does not encourage the hopes of those who place great hopes in a national institution; for the Bank of England is the highest result of the financial sagacity and political wisdom of the first commercial nation of the globe. A recognized ally of the government,at the very centre of the world's trade,enjoying a large freedom of movement within its sphere,conducted by the most eminent merchants of the metropolis, assisted by the advice of the most accomplished political economists,sanctioned and amended, from time to time, by the greatest ministers, from Walpole to Peel,it has had, from its position, its power, and the talent at its command, every opportunity for doing the best things that a bank could do; and yet behold this record of periodical impotence! Its periodical mischiefs we leave out of the account.
In the United States, we have suffered from similarly recurring attacks of financial epilepsy; we have tried every expedient, and we have failed in each one; we have had three national banks; we have had thousands of chartered banks, under an infinity of regulations and restrictions against excesses and frauds; and we have had, as the appropriate commentary, three tremendous cataclysms, in which the whole continent was submerged in commercial ruin, besides a dozen lesser epochs of trying vicissitude. The history of our trade has been that of an incessant round of inflations and collapses; and the amount of rascality and fraud perpetrated in connection with the banks, in order to defeat the restrictions upon them, has no parallel but in the sponging-houses. A Belgian philosopher, from the study of statistics, has deduced a certain order in disorder,or a law of periodicity in the recurrence of murders, suicides, crimes, and illegitimate births; and it appears that a similar regularity of irregularity might be easily detected in our cyclic bank explosions.
With the sad experiences of other nations before us,with the rocks of danger standing high out of the water, and covered all over with the fragments of former wrecks, we have yet persisted in following the old wretched way. What a humiliating confession! what a comment on the alleged practical discernment of this practical people! what a text for radicals, socialists, and all sorts of Utopian dreamers! If the mischiefs of these monetary aberrations were confined to a mere loss of wealth,2 which is proverbial for its winged uncertainty, we might regard them as a seeming admonition of Providence against putting too much trust in riches; but they are to be considered as something infinitely worse than mere reverses of fortune: the disorders they generate shake the very foundations of morals; and while shattering the industry, they undermine the economy and frugality and rend the integrity of mankind. We doubt whether any of the great forms of evil incident to our imperfect civilizationthe slave-trade, debauchery, pauperismcause more individual anguish or more public detriment than these incessant revolutions in the value and tenure of property. Those afflict limited classes alone, but these every class; they relax and pervert the whole moral regimen of society; and if, as it is sometimes alleged, the present age is more profoundly steeped in materialism than any before,if its enterprise is not simply more bold, but more reckless and prodigal,if the monitions of conscience have lost their force in practical affairs, and the dictates of religion and honor alike their sanctity, it is because of the uncertain principle, the gambling spirit, the feverish eagerness, and the insane extravagance, which beset the ways of traffic. Living in a world in which days of golden and delusive dreams are rapidly succeeded by nights of monstrous nightmares and miseries, society loses its grasp upon the realities of life, and goes staggering blindly on towards a fatal degeneracy and dissolution.
The question, then, is, whether this melancholy march of things should be allowed to proceed, or whether we should strive to do better. Our good sense, our moral sense, our progressive instincts, conspire with our interests in proclaiming that we ought to do better; but how shall we do better? "Why," reply the great Democratic doctors,Mr. Buchanan, the President, and Mr. Benton, the Nestor of the people,"suppress the issue of small bank-notes!" Well, that nostrum is not to be despised; there would be some advantages in such a measure; it would, to a certain extent, operate as a check upon the issues of the banks; it would enlarge the specie basis, by confining the note circulation to the larger dealers, and so exempt the poorer and laboring classes from the chances of bank failures and suspensions. But if these gentlemen suppose that the extrusion of small notes would be in any degree a remedy for overtrading, or moderate in any degree the disastrous fluctuations of which everybody complains, they have read the history of commerce only in the most superficial manner. Speculations, overtrading, panics, money convulsions, occur in countries where small notes are not tolerated, just as they do in countries where they are; and they occur in both without our being able to trace them always to the state of the currency. The truth is, indeed, that nearly all the great catastrophes of trade have occurred in times and places when and where there were no small notes. Every one has heard of the tulip-mania of Holland,when the Dutchmen, nobles, farmers, mechanics, sailors, maid-servants, and even chimney-sweeps and old-clothes-women, dabbled in bulbs,when immense fortunes were staked upon the growth of a root, and the whole nation went mad about it, although there was never a bank nor a paper florin yet in existence.3 Every one has heard of the great South-Sea Bubble in England, in 1719, when the stock of a company chartered simply to trade in the South Seas rose in the course of a few weeks to the extraordinary height of eight hundred and ninety per cent., and filled all England with an epidemic frenzy of gambling, so that the recoil ruined thousands upon thousands of persons, who dragged down with them vast companies and institutions.4 Yet there was not a banknote in England, at that time, for less than twenty pounds, or nearly a hundred dollars.