floating lights for 1838 was 7660 dollars, and that the average expense of the American floating lights, which, in general, are larger than the British, is 2399 dollars only; and it is asserted in the reports, "that the American floating lights are better adapted for the purpose than the British, and that the lights are seen (whilst the Trinity Board state theirs to be seen about nine miles only) from ten to fifteen miles. A comparison of the drawings of both nations, which is in the light department office, will convince any person of the superior excellence of the American plan."

CHAPTER XXXIII.

CURRENCY AND BANKING INSTITUTIONS OF THE UNITED STATES OF AMERICA.

If the rise and fatal consequences of the Mississippi scheme in France, and of the South Sea delusion in England, afford lessons of instruction to men who would act wisely as individuals, or to those who may be connected with speculative projects, and especially to those who are intrusted with the administrative, or legislative, affairs of a nation, we may assuredly refer to the history of "Currency and Banking" in America, for facts which ought to teach wisdom by experience.

In reviewing the history of the Currency and Banks of the United States, we shall confine ourselves to facts, to the opinions of leading men in and out of Congress, and to statistical tables; and, we shall refrain from introducing any speculative theory for improving the American system, or rather systems, of currency and banking: leaving the history of facts, and of results, as materials for instruction.

As early in colonial history as 1690, a paper currency was circulated under the designation of bills of credit. For the redemption of these bills, the colonies which issued them pledged their property and revenues. This appeared sufficient, or, at least, plausible, security for maintaining the standard value for which those paper bills were first exchanged. They might well be designated the Paper Currency of Expediency. Their nativity occurred in the gravest, and, as was believed, the most religious of the colonies-Massachusetts. That colony was, at the same time, strange as it may appear, the most warlike.

A maritime expedition was sent, in 1690, from New England against Quebec, attended, comparatively to the resources of the colony, with enormous expense. This expedition was placed under the command of Sir Wm. Phipps, and consisted of thirty-four vessels, and about 7000 men. The armament reached Quebec in safety, and attempted to bombard that fortress. After two gallant actions ashore, the New England forces were compelled to abandon the impracticable enterprise, and sailed down the St. Lawrence. Eight of the principal ships, with all on board, perished in the Gulf. Montreal was at the same time, to have been

attacked by land; but this design was frustrated by the defection of the Iroquois nations.*

To discharge the liabilities to which the colonial administration was pledged, for paying the expense of this disastrous crusade-for it partook of the latter character-bills of credit were used by Massachusetts. The other colonies soon followed this very convenient example. Whenever an emergency arose, no expedient could have been more, readily, suitable to those who did not reflect on future exigencies.

The bills of credit, however, notwithstanding the colonial pledges, soon depreciated, and gave birth to that pernicious variety of currencies, that is to say, the differences between specie and paper values, which has not yet disappeared in America. At first they depreciated, so far only as to constitute a legalised tender for the payment of taxes and debts in New England, at the rates of six shillings paper for a Spanish silver dollar; in New York, at eight shillings; and in Pennsylvania, at seven shillings and sixpence for a silver dollar. But the depreciation did not halt at these rates, especially in New England and Carolina.

In 1745, another expedition of a semi-crusade character,t was fitted out in Massachusetts against Louisburg. It was successful in capturing that fortress; but the expense demanded a fresh issue of from 2,000,000l. to 3,000,0007. in bills of credit, which were declared lawful money, and Mr. Pitkin states the depreciation in 1748 as follows, viz.:-1007. sterling in specie, or a bill on London, was equivalent in value to lawful paper money of New England 11007., of New York 1907., of East Jersey 1907., of West Jersey 180l., of Pennsylvania 180/., of Maryland 2007., of Virginia 125., of North Carolina 1000l., of South Carolina 7000.1

Great Britain soon afterwards ceded Louisburg to France, greatly to the mortification, but certainly to the advantage, of Massachusetts: for the latter received from the British treasury about 183,000/., on account of the expenses of the Louisburg expedition; and with this sum compounded for the redemption of paper bills. The composition was under two shillings in the pound sterling : for fifty shillings in lawful paper money, one ounce of specie money was given.

The war of American independence, like all modern wars, rendered indispensable the borrowing of money, and the issuing of paper bills of credit. Bills of credit were issued by Congress in 1775 to the amount of 3,000,000 dollars large sums were added afterwards, and Mr. Pitkin observes,-" A depreciation in value was the natural consequence, although Congress made them a tender, in payment of all private debts, and declared a refusal to receive them to be an extinguishment of the debt itself. This depreciation began to be seriously felt,

* Macgregor's British America, vol. ii., p. 140. Second Edition.

+ See Ibid., vol. i., p. 434.

See also Hutchinson's History of Massachusetts Bay, vol. ii., page 436, et seq.

early in the year 1777; and increased with the increase of issues. In September 1779, these issues amounted to 160,000,000 dollars; when Congress declared, that, on no account, should they ever exceed 200,000,000 dollars: and bills to this amount were issued, before the close of that year; a sum too large to admit of a redemption at par, and in the course of the years 1780 and 1781, the bills entirely stopped circulation. Nor has any part of them ever been redeemed, except at one hundred for one, under the funding system, first established, by the present national government.

"Soon after the death of continental money, at the suggestion of Robert Morris, superintendent of finance, Congress established a national bank, by the name of, The President and Directors of the Bank of North America.' This institution went into successful operation in December, 1781, with a capital of only 400,000 dollars, and under the management of its projector and others associated with him, contributed, as far as its limited means would allow, to relieve the financial distress of the country at that period."

The Bank of North America was not a chartered bank. It was instituted under an ordinance, agreeably to the articles of confederation. Its capital was too limited; and, although managed with judicious wisdom and great ability, by Mr. Morris, it was unable to provide a circulating medium for the United Republic. The war, during its continuance, had annihilated a specie currency in America, by preventing the importation of money, which trade would have brought into the country, and by suppressing also the interchange of commodities, which would have produced much the same effects as the circulation of specie. Trade languished after the war ceased, as the products of labour, for a foreign market, and consequently commerce, are never suddenly brought into activity.

Several of the states resorted again to the colonial expedient of issuing bills of credit, and of framing tender laws. Under the latter, personal property was sometimes made a tender for the payment of individual debts: the value of the property being decided by appraisers.

On the adoption of the constitution of the United States, the issuing of bills of credit was abolished. Gold and silver were, alone, declared to be a legal tender, either for the payment of taxes, or of personal debts. This measure was prudent, but it was embarrassing, when it was ascertained, that for a circulating medium there existed in specie only the savings of thrifty and non-speculating individuals, who would not consider it wise, under a new state of circumstances, to risk the fruits of non-expensive habits, and of industry; and that no more than 2,000,000 dollars constituted the banking capital of the whole United Republic. This capital was invested in the bank of North America; the bank of New York, in the city of New York; and, the bank of Massachusetts, in the city of Boston. It became absolutely necessary to provide for the general emergency. Mr. Alexander Hamilton, a high authority, was secretary of the

treasury in 1790. He boldly recommended the establishment of a national bank, under charter, to be granted in accordance with an act to be passed by Congress for the purpose. Washington was president. Both Jefferson and Maddison were, on constitutional grounds, strongly opposed to the projected institution. The power of calling into action the necessary and proper means of regulating the currency, undoubtedly vested in Congress by the constitution, was argued by the supporters of the national banks, as including the constitutional right to pass the law. Jefferson, Maddison, and others, who opposed the measure, contended that the meaning was restricted to those means being absolutely necessary.

It was opposed chiefly, on the ground that the government was restricted to the exercise only of those powers literally specified in the constitution; that the power to incorporate a bank was not specified as one of them; and "that the power given to Congress to pass all laws necessary to execute the specified powers must be confined to all the necessary means to accomplish the ends incident to the nature of the specified powers. Upon the other side it was contended that incidental, as well as specified, powers belonged to the government; that where general objects were stated as within the province of the government, all the usual means necessary to accomplish those objects were incidental to them; and that a bank was a well-known, and usual, instrument for accomplishing the objects specified by the constitution." It was further maintained, that the power to incorporate banking institutions of any kind whatever was not among the enumerated powers, and that, "to go beyond the specified powers, prescribed by the constitution, was to take possession of a broad, undefined, and dangerous field of jurisdiction." The bank bill, however, was passed by the two houses of Congress, probably as much through the emergent necessity of regulating the currency, as from an absolute conviction of the constitutional right of Congress to pass a law for granting a charter of incorporation; but certainly not, until after its constitutional principle was argued with extraordinary ability in both houses. "It was also discussed on its constitutional grounds, with great and conflicting ability in the cabinet. The secretary of state and the attorney-general considered that Congress had transcended its powers; but a contrary opinion was maintained by the secretary of the treasury. After profound and able debates by his cabinet, the question was referred to President Washington, and he gave it as his deliberate conviction that the power was invested in the government by the constitution to incorporate a bank, and in conformity therewith the bank was established."*

It was not, however, until February, 1794 that the bank of the United States, in its corporate form, began its operations. The capital of the bank was above ten millions of dollars, of which eight millions were to be subscribed by indi

* Kent's Commentaries, vol. i., p. 251.

viduals, and two millions by the United States. Two millions of the amount subscribed by individuals were to be paid in specie, and six millions in six per cent stock of the United States. The charter of the bank was limited to the 4th of March, 1811: during which period no other national bank was to be established. This institution was certainly beneficial to the country, and profitable to its stock-holders; for it paid them an annual dividend of S per cent.

As the charter of the bank would expire in February, 1811, Mr. Gallatin, secretary of the treasury, on the 3rd day of March, 1809, reported in favour of a renewal of the charter.

The general condition of the bank was stated by Mr. Gallatin, in his report, as follows:

The secretary contended that this statement proved that, as a bank, its affairs "had been wisely and skilfully managed."

Mr. Gallatin proposed that, on the renewal of the charter, the capital should ultimately be increased to 30,000,000 dollars.

The report was laid before the senate, and Congress rose the same day. Various plans were brought forward the following year: one, which had few advocates, for establishing a national bank in the city of Washington. The charter of the bank of the United States was allowed to expire. Party feeling, it is alleged, as much as patriotism, prevented its renewal. Mr. Pitkin observes—

"The influence of state banks was also brought to bear on the great question then before Congress; and, when it is considered that the number of these banks had at that time increased to nearly ninety, located in most of the states, with a capital of more than forty millions, their influence could have had no inconsiderable weight. With this union of views and interest against the bank, it is not strange that the charter granting it should be suffered to expire."*

* Mr. Crawford, of the senate, as chairman of the committee on the bill, says, " The democratic presses in these great states (referring to the states opposed to the bank) have, for more than twelve months past, teemed with the most scurrilous abuse against every member of Congress, who has dared to utter a syllable, in favour of a renewal of the bank charter. The member who