The Atlantic Monthly, Volume 01, No. 04, February, 1858

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 civilization—the slave-trade, debauchery, pauperism—cause 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.

More recent revulsions are still more to the point. In 1825, in England, there were enormous speculations in joint-stock enterprises and foreign loans. Some five hundred and thirty-two new companies were formed, with a nominal capital of about $2,200,000,000, and Greek, Austrian, and South American loans were negotiated, to the extent of $275,000,000. Scarcely one of these companies or of these loans ever paid a dividend; and the consequence was a general destruction of credit and property, and a degree of distress which was compared to the terrible sufferings inflicted by the Mississippi and the South-Sea Bubbles. Yet there were no bank-notes in circulation in England under five pounds, or twenty-five dollars. Again, our readers may recall the monstrous overtrading in railroad shares in the years 1845-6. Projects involving the investment of £500,000,000 were set on foot in a very little while; the contagion of purchasing spread to all the provincial towns; the traditionally staid and sober Englishman got as mad as a March hare about them; Mr. Murdle reigned triumphant; and, in the end, the nation had to pay for its delirium with another season of panic, misery, and ruin. Yet during all this excitement there were not only no small notes in circulation, but, what is most remarkable, there was no unusual increase in the issues of the banks, of any kind.

Let us not hope too much, therefore, from the suppression of small notes, should that scheme be carried into effect; let us not delude ourselves with the expectation that it will prove a satisfactory remedy, in any sense, for the periodical disease of the currency; for its benefits, though probable, must be limited.5 It is a remedy which merely plays round the extremities of the disorder, without invading the seat of it at all.

We have endeavored, in the foregoing remarks, to point out (for our limits do not allow us to expound) two things: first, that in the universal modern use of credit as the medium of exchanges,—which credit refers to a standard in itself fluctuating,—there is a liability to certain critical derangements, when the machinery will be thrown out of gear, if we may so speak, or when credit will dissolve in a vain longing for cash; and, second, that in the paper-money substitutes which men have devised as a provision against the consequences of this liability, they have enormously aggravated, instead of counteracting or alleviating the danger. But if these views be correct, the questions to be determined by society are also two, namely: whether it be possible to get rid of these aggravations; and whether credit itself may not be so organized as to be self-sufficient and self-supporting, whatever the vagaries of the standard. The suppression of small notes might have a perceptible effect in lessening the aggravations of paper, but it would not touch the more fundamental point, as to a stable organization of credit. Yet it is in this direction, we are persuaded, that all reformatory efforts must turn. Credit is the new principle of trade,—the nexus of modern society; but it has scarcely yet been properly considered. While it has been shamefully exploited, as the French say, it has never been scientifically constituted.

Neither will it be, under the influence of the old methods,—not until legislators and politicians give over the business of tampering with the currency,—till they give over the vain hope of "hedging the cuckoo," to use Locke's figure,—and the principle of FREEDOM be allowed to adjust this, as it has already adjusted equally important matters. Let the governments adhere to their task of supplying a pure standard of the precious metals, and of exacting it in the discharge of what is due to them, if they please; but let them leave to the good sense, the sagacity, and the self-interest of Commerce, under the guardianship of just and equal laws, the task of using and regulating its own tokens of credit. Our past experiments in the way of providing an artificial currency are flagrant and undeniable failures; but as it is still possible to deduce from them, as we believe, ample proof of the principle, that the security, the economy, and the regularity of the circulation have improved just in the degree in which the entire money business has been opened to the healthful influences of unobstructed trade,—so we infer that a still larger liberty would insure a still more wholesome action of the system. The currency is rightly named the circulation, and, like the great movements of blood in the human body, depends upon a free inspiration of the air.

Under a larger freedom, we should expect Credit to be organized on a basis of MUTUAL RESPONSIBILITY AND GUARANTY, which would afford a stable and beautiful support to the great systolic and disastolic movements of trade; that it would reduce all paper emissions to their legitimate character as mere mercantile tokens, and liberate humanity from the fearful debaucheries of a factitious money; and that Commerce, which has been compelled hitherto to sit in the markets of the world, like a courtesan at the gaming-table, with hot eye and panting chest and painted cheeks, would be regenerated and improved, until it should become, what it was meant to be, a beneficent goddess, pouring out to all the nations from her horns of plenty the grateful harvests of the earth.