SPEECH

On his Amendment to the Bill authorizing the Issue of Treasury Notes, delivered in the Senate, October 3d, 1837.

[AMENDMENT offered by Mr. Calhoun-" Be it further enacted, That from and after the first day of January, 1838, three-fourths of the amount due to the Government, for duties, taxes, sales of public lands, or other debts, may be paid in the notes of specie-paying banks; and that from and after the first day of January, 1839, one-half may be so paid; and from and after the first day of January, 1840, one-fourth may be so paid; and from and after the first day of January, 1841, all sums due for duties, sales of public lands, or other debts to the Government, shall be paid only in the legal currency of the United States, or in such notes, bills, or paper, issued under the authority of the same, as may be directed to be received by law."]

MR. PRESIDENT: In reviewing this discussion, I have been struck with the fact, that the argument on the opposite side has been limited, almost exclusively, to the questions of relief and the currency. These are, undoubtedly, important questions, and well deserving the deliberate consideration of the Senate; but there are other questions involved in this issue of a far more elevated character, and which more imperiously demand our attention. The banks have ceased to be mere moneyed incorporations. They have become great political institutions, with vast influence over the welfare of the community; so much so, that a highly distinguished Senator (Mr. Clay) has declared, in his place, that the question of the disunion of the Government and the banks involved in its consequences the disunion of the States themselves. With this declaration sounding in our ears, it is time to look into the origin of a system which has already

acquired such mighty influence; to inquire into the causes which have produced it, and whether they are still on the increase; in what they will terminate, if left to themselves; and, finally, whether the system is favorable to the permanency of our free institutions; to the industry and business of the country; and, above all, to the moral and intellectual development of the community. I feel the vast importance and magnitude of these topics, as well as their great delicacy. I shall touch them with extreme reluctance, and only because I believe them to belong to the occasion, and that it would be a dereliction of public duty to withhold any opinion, which I have deliberately formed, on the subject under discussion.

The rise and progress of the banking system is one of the most remarkable and curious of the phenomena of modern times. Its origin is modern and humble, and gave no indication of the extraordinary growth and influence which it was destined to attain. It dates back to 1609, the year that the Bank of Amsterdam was established. Other banking institutions preceded it; but they were insulated, and not immediately connected with the systems which have since sprung up, and which may be distinctly traced to that bank, which was a bank of deposit-a mere storehouse-established under the authority of that great commercial metropolis, for the purpose of safe-keeping the precious metals, and facilitating the vast system of exchanges which then centred there. The whole system was the most simple and beautiful that can be imagined. The depositor, on delivering his bullion or coin in store, received a credit, estimated at the standard value on the books of the bank, and a certificate of deposit for the amount, which was transferable from hand to hand, and entitled the holder to withdraw the deposit on payment of a moderate fee for the expense and hazard of safe-keeping. These certificates became, in fact, the circulating medium of the community-performing, as it were, the hazard and

drudgery; while the precious metals, which they, in truth, represented, guilder for guilder, lay quietly in store, without being exposed to the wear and tear, or losses incidental to actual use. It was thus a paper currency was created, having all the solidity, safety and uniformity of a metallic, with the facility belonging to that of paper. The whole arrangement was admirable, and worthy of the strong sense and downright honesty of the people with whom it originated.

Out of this, which may be called the first era of the system, grew the bank of deposit, discount, and circulation— a great and mighty change, destined to effect a revolution in the condition of modern society. It is not difficult to explain how the one system should spring from the other, notwithstanding the striking dissimilarity in features and character between the offspring and the parent. A vast sum, not less than three millions sterling, accumulated and remained habitually in deposit in the Bank of Amsterdam-the place of the returned certificates being constantly supplied by new depositors. With so vast a standing deposit, it required but little reflection to perceive, that a very large portion of it might be withdrawn, and that a sufficient amount would be still left to meet the returning certificates; or, what would be the same in effect, that an equal amount of fictitious certificates might be issued beyond the sum actually deposited. Either process, if interest be charged on the deposits withdrawn, or the fictitious certificates issued, would be a near approach to a bank of discount. This once seen, it required but little reflection to perceive that the same process would be equally applicable to a capital placed in bank as stock; and from that, the transition was easy to issuing bank-notes payable on demand, or bills of exchange, or promissory notes, having but a short time to run. These, combined, constitute the elements of a bank of discount, deposit, and circulation.

Modern ingenuity and dishonesty, would not have been

long in perceiving, and turning such advantages to account; but the faculties of the plain Belgian were either too blunt to perceive, or his honesty too stern to avail himself of them. To his honor, there is reason to believe, notwithstanding the temptation, the deposits were sacredly kept-and that, for every certificate in circulation, there was a corresponding amount in bullion or coin in store. It was reserved for another people, either more ingenious or less scrupulous, to make the change.

The Bank of England was incorporated in 1694, eightyfive years after that of Amsterdam, and was the first bank of deposit, discount, and circulation. Its capital was £1,200,000, consisting wholly of government stock, bearing an interest of eight per cent. per annum. Its notes were received in the dues of the Government, and the public revenue was deposited in the bank. It was authorized to circulate exchequer bills, and make loans to Government. Let us pause for a moment, and contemplate this complex and potent machine, under its various characters and functions.

As a bank of deposit, it was authorized to receive deposits, not simply for safe-keeping, to be returned when demanded by the depositor, but to be used and loaned out for the benefit of the institution, care being taken always to be provided with the means of returning an equal amount, when demanded. As a bank of discount and circulation, it issued its notes on the faith of its capital stock and deposits, or discounted bills of exchange, and promissory notes, backed by responsible indorsers, charging an interest something greater than was authorized by law to be charged on loans; and thus allowing it, for the use of its credit, a higher rate of compensation than individuals were authorized to receive for the use and hazard of money or capital loaned out. It will, perhaps, place this point in a clear light, if we should consider the transaction in its true character, not as a loan, but as a mere exchange of credit. In discounting, the

bank takes, in the shape of a promissory note, the credit of an individual so good that another, equally responsible, indorses his note for nothing, and gives out its credit in the form of a bank-note. The transaction is obviously a mere exchange of credit. If the drawer and indorser break, the loss is the bank's; but if the bank breaks, the loss falls on the community; and yet this transaction, so dissimilar, is confounded with a loan, and the bank permitted to charge, on a mere exchange of credit, in which the hazard of the breaking of the drawer and indorser is incurred by the bank, and that of the bank by the community, a higher sum than the legal rate of interest on a loan; in which, besides the use of his capital, the hazard is all on the side of the lender.

Turning from these to the advantages which it derived from its connection with the Government, we shall find them not less striking. Among the first of these in importance, is the reception of its notes in the dues of the Government, by which the credit of the Government was added to that of the bank, which so greatly increased its circulation. These, again, when collected by the Government, were placed in deposit in the bank; thus giving to it, not only the profit resulting from their abstraction from circulation, from the time of collection till disbursement, but also that from the use of the public deposits in the interval. To complete the picture, the bank, in its capacity of lender to the Government, in fact paid its own notes, which rested on the faith of the Government stock, on which it was drawing eight per cent.; so that, in truth, it but loaned to the Government its own credit.

Such were the extraordinary advantages conferred on this institution, and of which it had an exclusive monopoly; and these are the causes which gave such an extraordinary impulse to its growth and influence, that it increased in a little more than a hundred years-from 1694, when the second era of the system commenced with the establishment of the