It is with feelings of unmingled satisfaction that we present to the public in a cheap form, the following graphic treatise on a subject of vital interest to the great mass of the people, and a subject now engrossing the attention of many of the ablest minds in the nation. No subject has furnished more food for speculation than Finance — and no speculations have been more wild. Matters controlling the happiness and prosperity of nations have been the subjects of schemes and fancies of the wildest and most irrational character. Within a few years, however, able and industrious minds have been engaged in making practical application of the sound maxims of Political Economy to the general machinery of Finance. In this country, such a result can only be produced by the labor of such dispassionate men, as, standing aloof from the turmoil of partisan politics possess an intimate knowledge of Political Science, and are willing to devote their tune to the service of their country by exhibiting to the great mass of the people, in an intelligible form, the reasoning, and the result of the reasoning which leads to truth.
Professor Turner, has well deserved a prominent place among the few who are thus honorably distinguished. Attached to no party — adhering to no one in particular of our political creeds — he has devoted a liberal and intelligent mind to the comprehension of the great truths of Political Science, and particularly regarding the present pecuniary distress under which we now labor, and the many pecuniary reverses under which we have already suffered, as a subject of absorbing interest, he sometime since prepared the following pages for a periodical in Washington, in which city they were first published, the original editor remarking that "the essay, to say the least of it, was a very powerful one and must produce its effect." The author was also informed that the essay was read by the President and his friends, and acknowledged by them to be a discussion of great interest and ability. At the request of many of his friends he has committed it to us for re-publication. We ask for it an attentive perusal. It contains truths of vital importance to the moral as well as political interests of our country, and, if we do not err greatly, these truths will soon be recognized as such throughout the commercial world.
Philosophy of Money and Banks.
To the Hon. John Tyler, President of the United States.
SIR: A recurrence to fundamental principles can never be deemed amiss; and, amid the agitations and perplexities of the present moment, it may be gratifying if not useful to the people of these United States, to know the philosophical views of a, class of men totally disconnected, both in interest and feeling, with any existing political party as such. But the writer is aware that these views, though they have met with the decided approbation of many philosophical and thinking men in all parties, must stand connected with a name far more illustrious than his own, in order to gain even a perusal, much more a candid consideration. This is his only apology for addressing an article, designed for the press and the people, to the Chief Magistrate of the Nation. I trust solely to the dignity and elevation of his character to appreciate my motives and pardon my presumption.
In order to set the philosophy of Banks in as clear a light as possible, I shall consider, first the nature and functions of money; second, The nature and philosophy of Banks.
I. Nature and functions of money. Money is the instrument of exchange. Its sole office as money is to transfer goods from man to man, from the producer toward the consumer, just as a steamboat transfers them from place to place, ever toward the ultimate consumer. Like any other instrument or vehicle, it is worth, at all times, just its market price, and no more. It finds its level in the world on the same principle with all other vehicles and commodities, viz: by going from where it is less wanted to where it is more wanted. It is not denied, however, that money is more useful to society than most other vehicles or commodities; for, without a circulating medium of some sort, not only exchange, but division of labor must, in a great measure, cease, and society relapse into barbarism. The material of which money is made, may become the property of the individual; but the peculiar form which gives it currency in society, as money, is the exclusive property of society with which no individual has a right to interfere.
4Money is in fact, therefore, a patent machine for effecting exchanges — and Government, or general society, rightly and necessarily reserve the patent right, or the right to the peculiar form in their own hands.
In another important respect, money is unlike all other instruments, and most other values. In all cases which can possibly occur in civilized society, its efficiency in mere exchange depends not at all on its quantity but solely on its quality. If all other prices and credits were once perfectly adjusted to the existing amount of money on the globe, five dollars would transfer a horse from man to man, as well as five thousand. In this respect, it is a sort of vehicle which can transport from man to man, any load of value, however great or small, with equal ease. In one respect a low rate of exchange throughout the world, is better than a high one, or universal high prices; for the money is more easily kept, counted, and transported. In one other respect only would it be worse, viz; Gold and silver, and all articles manufactured from them would be dear. That is, it would take a larger quantity of all other products to purchase a small quantity of these precious metals.
But if the precious metals could be used for no other purpose than as money, to increase their present quantity could add nothing either to the wealth of the world or the convenience of exchange. Should an individual in that case, find a mountain of gold, it would indeed enrich himself, but the world would really be injured by it, for existing prices and credits would be disturbed, while exchange would not, in the end, be in the least facilitated. It would in one respect be like finding a million of steamboats which commerce did not need. No more goods would be transported than before, but each boat would either carry a less load than before, or some of them must be idle and useless. So if a mountain of gold should be found, ultimately, no more goods would pass from man to man, or from the producer to the consumer, than before; but each dollar, if it run with the same velocity, would transfer a less load, or amount of value, at each trip; if it run with less velocity, it would be to the same extent idle and useless. In other words, prices in all things would rise, or which is the same thing the relative price of money would fall; and if it could
5be used only for exchanges or currency, it could do no good (but much evil) except, to the original finder.
It is also admitted that the mines are furnishing gold and silver faster than they are exhausted by mere exchange, insomuch that at the present time it is judged that nearly two-thirds of the precious metals are used for other purposes, of luxury, convenience, or ornament, and only about one-third for circulation.
These considerations are sufficient to show, first, that the danger that the precious metals should ever become too scarce for the needful purposes of exchange, is too remote to deserve any serious consideration in the present age of the world; and second, that the prime excellency of money as such consists solely in its quality, and not at all in its quantity, aside from its effect on existing credit.
But the quality of money, in which alone this excellence consists, lies mainly in three points:
1. Its power of commanding at the pleasure of the holder all other objects of worldly desire, or all other market values in all places.
2. In the permanence and stability of its own market value from time to time.
3. lts facility of exchange, or convenience of transportation from man to man and from place to place.
In the two first items of excellence, gold and silver hold the pre-eminence over all other known substances, while in convenience of transportation and exchange, paper is preferable to all else, even to gold itself. The best possible currency, therefore, would be produced by such a union of gold and silver as should secure the power and stability of gold united with the superior exchangeable facility of paper.
Is such a union possible? and how can it be secured?
In answering these questions; we need contemplate but two different systems of banking. First, a system of banks of deposit and exchange, analagous to all the early banks of Venice, Genoa, Hamburg, Amsterdam, Nuremburgh, &c; and second, what are usually called banks of circulation and issue. The essential difference between the two systems lies here; banks of exchange which we contemplate may emit either bills of credit, exchange or circulation up to the actual amount of specie or current
6circulation deposited by the drawer in their vaults, and no more. They can never, therefore, swell the existing amount of the circulating medium, and thus disturb the basis of all credits. They leave the currency really on a stable metallic basis where they found it. They indeed give out bills of either exchange or circulation to those who prefer them, but they always take in just as much currency as they let out.
Ordinary Banks of circulation, on the contrary, emit more currency than they receive, and thus can either expand or contract the currency or basis of credit at pleasure. They operate therefore most clearly against one of the prime qualities of money, viz: stability of value in the market. The first system may be termed, for convenience Banks of exchange. The last, Banks of expansion. The early banks, which are so much lauded for their stability and utility, through centuries of trial, were, in principle, all banks of exchange. This is often forgotten by those who laud the banks of our days. They are totally unlike. Our banks are banks of expansion. Banks of mere exchange and circulation need no capital for necessary fixtures. Banks of expansion must have a basis to expand upon in the outset. We will now examine the comparative merits of the two systems.
1. Suppose the world under one universal empire, and that such a system of banks of exchange had been established in correspondence, at convenient distances throughout the globe, and that any individual, who had any form of current money, could deposite it, and receive by paying a reasonable exchange per cent., an equal amount of the current bills of the banks, in whatever form he pleases, either in circulating bills, or notes of interest, or bills of remote exchange. If he wanted to loan his money he could take notes on interest. If he wanted to pay a remote debt he could take a bill of exchange or draft; but in every case the principle should be rigorously observed that the banks should emit no more currency of any sort than they actually received, and charge a per centage for their support. Thus all remote exchanges would be readily effected, at reasonable rates, while the basis of credits and prices would still be a hard money basis.
Such a banking system, in the case supposed, would
7combine all the advantages of the stability and power of gold and silver, without the needless inconvenience, hazard, wear and tear, or loss of coin in transportation and exchange, or the peril of temporary fluctuations and expansions, to inflate price, disturb credit, or accommodate visionary speculators, to the advantage of none, but to the eminent hazzard and demoralization of all. The only question of the superiority of such a system would arise from its supposed comparative expensiveness, and the only remedy proposed for this expensiveness is to allow the banks to emit more paper than the currency they take in, and thus accomplish two objects at once — first, make money more abundant; second, make their own profits with less charge, to the borrower and purchaser of exchange.
But grant that, in the condition of the world supposed, these banks of exchange could continue to release half the currency, thus lying seemingly idle in their vaults, by becoming banks of expansion, with perfect safety to their credit and paper. What advantage could in that case result to the world? We answer, none. The best that could possibly be hoped for would be that the released coin would operate upon the world like the finding of the mountain of gold.
1. The specie thus released from the vaults of the banks would go at once into general circulation, where its only possible effect, in the long run, would be to inflate price, or the nominal value of all articles, without, in the least, increasing their real value. So far as the effect on the currency is concerned, it would be just like employing 150 wagons to transport the same quantity of goods which 100 wagons carried with equal ease before. It now takes 150 dollars to buy (that is to transport from man to man) what 100 transported just as well before.
Only two possible causes could prevent this result. First the general circulation might become less active, and of course to the same extent idle and useless. Second, the release of the precious metals from the currency would, of course, cheapen their relative value, which might probably cause a part of it to be melted down into plate or other articles of mere unproductive consumption. But, this would not increase the productive wealth of the globe; for, it might as well, and in many respects better, lie in the
8vaults of the banks than dangle from the ears and noses, or sparkle on the sideboards of the rich. It is true, also, that some few articles of productive utility, of which gold and silver form a part of the value, such as peculiar utensils, gilding, plating, &c., would be cheapened by the process, possibly from one to twenty per cent., according to the proportion of metal employed. And this is the only possible gain to the wealth of the world in the case supposed. It should be estimated at whatever it is really worth. I agree with Adam Smith in thinking that, comparatively, it is really worth nothing; or, at least, so little compared with other great interests, that it is not worth estimating.
2. It is also true that, by the release of their coin the banks themselves would be enabled to make their own profits at a less nominal charge to the borrower or purchaser of exchange. But it would be mere nominal and not real. It will be found on examination, like all other artificial systems, counteracting great fundamental laws, fair and specious perhaps without, but rotten and treacherous within.
For, by the necessary expansion of currency and inflation of price, each borrower will be compelled to borrow a proportionate increase of money to effect the same exchanges. For example suppose before the release of the coin and expansion of currency and price, 100 millions of dollars were used to effect the exchanges of the world; after its release 150 millions would be used to perform the same work, price must then rise in the ratio of 10 to 15, and a man must now borrow 1,500 dollars to effect the same exchanges which he before effected with but 1000 dollars; and that too whether he borrows of the banks or of any body else. And even if he owns the capital himself, he looses on interest the same as if he borrowed it. If it be said that the inflated currency would not be as active as before, then it is so far forth idle and useless.
If it be said that though the sum borrowed to effect the same exchanges would, indeed, be greater, in the ratio, say of 10 to 15, still the rate of interest would be proportionably less. I think Adam Smith, though a warm friend to banks of expansion, has clearly shown this to be a mistake. For, interest or the price of money in the market ran never fall, when all other articles are rising in price, or if so, it is
9surely absurd to suppose that the rise of every thing else in price, should, of itself, cause a fail of money in price. The fact always has been, and always must be, that a rise of prices soon swallows up all surplus currency, and thus holds interest, as well as all other values, at increased, rather than diminished rates of price. In the moment of transition, it may, indeed, be otherwise, but it cannot remain otherwise.
Hence, before the supposed release of the coin from the banks, the would might, indeed, be compelled to pay a greater per cent. on their romote exchanges; but after it release, they must have more money to effect the same exchanges, and of course pay or lose more interest in order to effect their exchanges, both at home and abroad, in bank and out. They might therefore better have paid a reasonable price on remote exchanges than to pay a greater amount in the form of annual interest on expanded loans.
This view of the case accords with the great general law of political economy, or rather of Divine Providence. That the wealth of the globe can be increased by no device, or artifice, or stratagem, individual or legislative, except by the application of either more labor or a better quality of labor to existing materials, possessing in themselves intrinsic value.
How the release of the coin in the case supposed would tend to secure this result it would indeed be difficult to show, though many arguments more or less plausible or absurd, have been directed to this point. It is one of those starlight regions through which a certain class of political owls delight to roam. We leave them to their wanderings. The only possible beneficial effect which ran be clearly seen to result from such a release of coin, would be the mere cheapening of the precious metals, or lowering their relative value.
We have supposed that this specie could be released with perfectly safety. It is obvious, however, that this, in fact, could not be done, but that the world, in that case, must encounter two peculiar and perilous hazards.
1. The hazard of too great issues and consequent failures of local banks, with other attendant local panics and disaster.
2. The hazard of an unnatural or at least an unequal
10expansion of the currency of the globe in times of great prosperity, or of eager speculation; and a consequent contraction and depression in times of adversity and panic, That is, in practice, by its effect on price; such a system in itself tends to induce all to contract debts when prices are high and money plenty, and compels them to pay them when prices are low and money scarce. In answer to this, it is sometimes said that if the people were disposed to extend their credits they could do it without banks as well as with.
This is really too silly to deserve any reply. It is like maintaining that men will buy as many goods when the market is remote, goods scarce, and the supply limited, as when the market is near, goods plenty, and the supply unlimited.
Again: it is said that it is desirable to extend and encourage the facilities of credit, because credit is the life of competition and commerce; and hence that a currency which admits of temporary expansions is advantageous to commercial enterprise.
In answer to this, it should be remembered that there are two kinds of commercial enterprise in the world.
1. The first arises from a constant and natural necessity of pushing all products along in the market from the original producer toward the ultimate consumer. This is a regular and healthful commerce, profitable to all and injurious to none.
2. The second kind of commercial enterprise arises from perverting this healthful and needful department of industry, through the lust of sudden wealth, into a species of mercantile gambling. It seeks its end either by running great and unreasonable hazards in ordinary trade, or by some visionary speculation, or by creating artificial rises and falls of prices in the market, either by means of monopolizing certain products, or by an unnatural expansion and contraction of the circulating medium. In all these games the skillful and fortunate moneyed gambler grows rich. Thousands try it and fail. But, whether they fail or not, the world only loses by the operation; because in its own nature, it is useful only to the individual schemer, and injurious to all others in the same proportion.
Now expansions of the currency do indeed accommodate
11and stimulate this class of adventurers. But they can benefit neither healthful commerce nor society at large. For the annual rate, both of production and of consequent healthful exchange, is so nearly the same from year to year that no further expansion of the currency need be sought, than what may safely be expected from the mines, unless it is indeed sought on purpose to gratify visionary speculators and mercantile gamblers.
These considerations I think sufficient, to show, that the world in the case supposed, could gain no material advantage from the release of any part of their coin from their banks, however great or small; but would, on the contrary, incur most imminent and signal hazards to all the interests both of industry and morality.
II. But the control of the currency is not and cannot be in the power of one nation. What then would be the effect if one nation, say these United States should, in the case supposed, retain their specie in the banks while, all other nations should release one half of theirs? Should we, in that extreme case suffer harm? I answer. No. We should gain in the end, and only gain. For in that case, the expansion of currency and price abroad would at once make commodities of all sorts relatively cheaper here than abroad. Of course, if commerce was free, our cheaper commodities would be sought by all, and the released specie of other countries would flow into ours for the purchase of our cheaper products, until, by the influx of gold and the efflux of our cheaper products, prices would again become equalized between our markets and those abroad. That is, our prices and currency on a solid and natural basis, would soon equal theirs on a doubtful or expanded basis.
True, they would be able to export gold and silver to us; but we should export to them precisely the same value in whatever we could best spare. It would be easy to show that the whole process would tend more, to stimulate industry and increase wealth in our case than in theirs, and that we should actually gain more, in every stage of the operation without any of the hazard, than they would with all the hazard of an expanded currency, aside from its effect on credit. The fact that any one or more of the nations of the earth should thus release their coin and expand their currency, would ultimately have the effect only to make
12gold and silver cheaper, that is prices higher, the world over. If there is any advantage in this other nations share it, in proportion to the extent and freedom of their commerce, as well as the nations which incur the hazard. Hence we see that there can be no disadvantage in one single nation's adhering to banks of exchange on a solid basis, even if all others should abandon them for banks of expansion, but on the contrary, real gain, both to commerce and to industry, aside from the greater safety and stability of their currency.
III. Nor, on the other hand, could any single, nation gain, by expanding their currency, should all others continne to use the metallic basis.
Many political economists seem to imagine that if any county could contrive by expansion, to effect then exchanges with one half the amount of coin, this released coin would, of course, be exported, and exchanged for other products; and thus the national capital would be productively increased by the precise amount of coin thus liberated and exported. This might possibly be at least partly true, if the released coin did not of necessity go into the market, and expand the currency and inflate prices at home, before it moves abroad. The inevitable process, however, is this: The surplus currency thus created, first stimulates adventure, and goes out into the market, and raises prices at home. This checks both the export and production of many home products, by making their nominal inflated prices so high that they will not bear exportation to countries where prices have not thus been inflated. Of course it soon found advantageous to retain other surplus products at home, and send specie abroad. But this can be no gain, for the people would have exported other surplus products of their industry to the same account, or at least to meet the full supply of their real wants, if they had not found it cheaper to send goId. This is in truth a real disadvantage. For this procuring gold, not from the mines, nor by any other mode of regular industry, but by legislative legerdemain to send abroad for foreign products does not and cannot stimulate industry at home, to the same extent that producing the same amount of other natural products could have done. Aside from its influence on speculation, an inevitable rise of prices at
13home first checks both the exportation and production of other products.
Such are inevitably the natural tendencies of banks of expansion. The results may be either obscured on accelerated or impeded by concurrent causes; but they can never be either annihilated or essentially varied in themselves.
There is one essential difference between the issues of banks of expansion and all other forms of credit. The excess of their issues tends directly and necessarily to augment acknowledged legal currency, to expel specie, disturb credits, and augment price; and to do all this too, oftentimes of necessity at the very time when the public good requires that they should not be done. True, in a natural system of commerce, the good of the individual or corporation is necessarily the good of the whole; but in an artificial system, originating either in speculation or fraud, or legislation, it is far otherwise, or at least it may be. In that case, the fraud, or the artifice, severs the identity of the public and individual gain. Under such a system, the actual amount of currency does and must fluctuate more than it can be made to, by any process of circulating mere individual or corporate responsibilities, not thus recognized as currency and sanctioned by legislation. On this treacherous and unstable sea, both credit and price fluctuate together; for an immoveable currency is the only basis of any form of safe credit. On a moveable basis, a promise to pay so many dollars a few months hence, is analagous to a promise to pay so many bushels of wheat some years hence. We may pay some three or four times more than we receive in real value that is, though we pay the same number of dollars, yet if, by contraction of the currency, it takes four times as much property to command that number of dollars, we in fact pay four fold. It is not contended that any system can wholly avoid these evils in traffic, but it is certain that banks of expansion immensely enhance their frightful results both in the commercial and moral world.
The difference then between a BANK OF DEPOSITE and EXCHANGE, without power of expansion in the currency, and a BANK OF EXPANSION, is in principle this. Such a bank of exchange is as truly a labor saving machine
14as a cotton gin, or a steam engine. It attempts to increase capital and stimulate labor by the natural process of saving labor in exchange, together with the loss, expense, wear and tear of coin in transportation. In one aspect, it saves and economises material and risk; in another, it is simply applying the steam power energy of division of labor to the great business of exchange.
A bank of expansion, on the other hand, is in its most essential features, a mere legislative stratagem for increasing the capital of a country by merely swelling its currency and increasing its facilities for unnatural credit. The former system is indispensable to natural and healthful commerce. The latter is but too well adapted to incite and accommodate needless and ruinous speculations. It is hard to see how the world could ever lose by the one or gain by the other.
All history, as well as all sound logic, bears out these inductions. Banks of deposite and exchange have been used by the most commercial States of Europe ever since the twelfth century, to the advantage of all, and with evil to none. The history of banks of expansion has been a history replete with frauds and failures — of alternate speculations and bankruptcies in society at large; in short, a history of necessary hazard at all times, and of most eminent disaster and peril at others. Mr. Webster, in his speech in the Senate in May, 1832, has given a description of their tendency and danger equally just, both to eloquence and truth. Whether the world will ever learn to manage them better than heretofore, remains to be seen. Before I can believe that they can ever be used with even tolerable success, I must first believe that stability of value in the currency, and stability of price in the market, are not prime and indispensable requisites to all safe credit, and all successful industry in the increase of wealth.
I think it has been shown that neither the world, nor any single nation, could possibly hope to gain anything, if free to choose, by starting on a new career of commerce with banks of expansion. Unfortunately the world is not free to choose. Banks of expansion already exist, and cannot be annihilated. The currency of the globe, the prices of the globe, and the credits of the globe, have all been based and expanded upon them; they cannot at once
15be contracted, without both fraud and ruin. I sincerely lament and deplore the hour when the commerce of the world was first launched upon this treacherous and unstable sea. How can we again, gain the port, and bind fast to anchors of gold? That is the question. It is a question of policy, not of philosophy. It needs the best heads and the best hearts of the nation. If such a union of coin with paper, through banks of exchange as we have been contemplating, is the best and only safe currency for a commercial people, we, and the world, must sometime come to this system. If banks of expansion do, in fact, operate as is supposed, we, and the world, must sometime abandon them. And though we may not he able at present to choose our course anew, we can at least shape it toward a right result, both in public opinion and in legislative action.
By the pernicious intervention of this officious and rotten system of banking, Congress has already lost all practical power over the currency of the country. Their reserved right to coin money, has about as much effect on exchange in practice, as my right to run spoons has. Can they possibly regain even a tolerable share of control over the circulating medium of the country, without either an amendment to the Constitution, or the incorporation of a fiscal agent of exchange of some sort, which should practically hold banks of expansion in check? If the above principles are correct, (and I think it will be difficult to show that they are not) it would seem that the least that any party of reasonable men could desire, in the present condition of the country, would be a fiscal agent of the Government of some sort, which should affect remote exchanges, and furnish the people with a sound currency on a par value, metallic basis, without the power of expanding the existing currency in the least; while, on the other hand, it would seem that the most that the greatest friends of banks ought to desire, is such an institution, with the additional power of a limited expansion to avert the too great violence of a sudden shock upon existing credits, which power would itself he gradually contracted from year to year, until it should soon assume again the natural par value basis, without any future power of expansion But to attempt to do without a bank or a general fiscal agent of some sort, is in fact to leave the entire exchange
16and currency of the country to the mercy of the existing banks of expansion, with their interested and rival corporations. It is, in fact, having and procuring no currency at all. It is a mere barter in stamp paper. On the other hand, to create another bank, with powers of expansion, unlimited in time, is but to add another evil of the same kind, and of still greater power, to existing evils already grown intolerable to all safe credit — all true philosophy, and all sound morality.
Should your patriotic firmness contribute to the establishment and triumph of these great principles, amid the clamors of warring factions, whatever may be your present fate, posterity, sir, will duly appreciate your administration your memory, and your name. Truth, in the long run, is more mighty than intrigue or party. Could I, even with my feeble voice, speak to the millions of this mighty nation, whose moral and intellectual, as well as pecuniary, social and political interests are all involved in the final issue of this pending question, I would surely bid them one and all to turn at once from all parties, from useless vituperation and slander from vain and noisy declamation, to thought to candor — to reason, and to truth. My voice is too feeble; the uproar is too loud; I cannot be heard; still I do not despair, and shall not despair of the Republic, so long as I see even a part of those, entrusted with its keeping, faithful to their charge.
I am, sir, with respect, your humble servant,
J. B. TURNER,
Professor, Illinois College.