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The Specie Standard and Central Banking in the United States Before 1860*

Published online by Cambridge University Press:  03 February 2011

Richard H. Timberlake Jr.
Richard H. Timberlake Jr.
Affiliation:
Florida State University
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Extract

Central banking institutions during the past quarter-century have been almost free of the constraints that inhibited their actions during the nineteenth century. The special conditions under which earlier central banking institutions were formed and operated frequently have been lost to view; and while contemporary observers have come to regard the first two Banks of the United States sympathetically, the functional evolution of these institutions within the framework of specie standards has been largely neglected. The period between the end of the Second Bank and the organization of the Federal Reserve System is subsequently treated as the Dark Ages of monetary policy, better forgotten than deplored.

Type
Articles
Information
The Journal of Economic History , Volume 21 , Issue 3 , September 1961 , pp. 318 - 341
Copyright
Copyright © The Economic History Association 1961

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References

1 Niles Register of Debates in Congress (Washington: Gales and Seaton) (22nd Congress, 1st Session), “Report by the Committee of Ways and Means to the House of Representatives on Renewal of the Charter,” Appendix, p. 144Google Scholar.

2 Hammond, Bray, Banks and Politics in America (Princeton: Princeton University Press, 1957)Google Scholar.

3 Hammond, Banks and Politics; Smith, W. B., Economic Aspects of the Second Bank, of the United States (Cambridge: Harvard University Press, 1953), p. 263Google Scholar. Hammond and Smith undoubtedly have more sophistication with respect to nineteenth-century developments of monetary policy than some other contemporaries. E. A. Goldenweiser, for example, in his American Monetary Policy, stated in the preface: “Monetary policy as here conceived did not develop in the United States prior to that time [1913].” Goldenweiser, E. A., American Monetary Policy (New York: McGraw-Hill Book Company, Inc., 1951), p. xiGoogle Scholar.

4 That the dichotomy between a metallic standard and a central bank still poses dilemmas in today's world is evidenced by a central bank reaction to the recent gold flow from the United States. Chairman Martin of the Federal Reserve Board was recently reported faced with the “hard choice” of easing monetary pressure and letting gold go, or of keeping the pressure on and risking a severe depression. Martin chose the former alternative “as the least of several evils.” (New York. Times, November 20, 1960, Section E, p. 11 [my italics].) If a choice must still be made ad hoc, and if it is “evil” in a world where a metallic standard is hardly more than a facade, monetary policy machinery is no less dualistic than it was 140 years ago and is faced with die same conflict.

5 See Viner, J., Studies in the Theory of International Trade (New York: Harper and Brothers, 1937), pp. 148-49, 222–24Google Scholar, and Mints, L. W., History of Banking Theory (Chicago: University of Chicago Press, 1945)Google Scholar, for history and analysis of these theories.

6 See Annals of Congress (Washington: Gales and Seaton, 1834) (1st Congress, 2nd Session), Appendix, pp. 2375–81Google ScholarPubMed, for the act incorporating the First Bank. William Giles of Virginia, an opponent of the First Bank, observed: “The chief stimulus which I can discover to the existence of this measure is to give artificial impulse to the value of stock [i.e., outstanding government debt].” Annals of Congress (1st Congress, 3rd Session), p. 1997. See also , Hammond, Banks and Politics, pp. 115–18Google Scholar. Even at this early state, the concept of “pegging” was not entirely alien.

7 Annals of Congress (1st Congress, 2nd Session), pp. 2082-m.

8 Ibid., p. 2101. Besides Hamilton's statements, see the speeches in support of the Bank by Theodore Sedgwich and Fisher Ames, both of Massachusetts. Annals of Congress (1st Congress, 3rd Session), pp. 1956-60. Ames said that the Bank's power to regulate inland bills of exchange and bank paper as instruments of trade would produce injury and wrong. He thus would not “pause to examine” such a possibility.

9 Annals of Congress (ist Congress, 3rd Session), p. 1948.

10 Ibid., Appendix, p. 2095.

11 , Hammond, Banks and Politics, pp. 115-16, 198–200Google Scholar.

12 Ibid., (italics mine). I would like to point out here that while I marvel at Hammond's work and am awed by the immensity of his contribution, I nevertheless disagree fundamentally with the value explicitly put forth by the italicized clause. I think monetary policy should be handled by the Treasury Department acting as a central monetary-fiscal authority. I have yet to see an argument that is convincing on the “necessity of central banking.” To summarize in the form of a familiar quotation: central banking is too important a function to be left in the hands of central bankers.

13 U. S. Census Bureau, Historical Statistics of the United States, 1789-1945 (Washington: Government Printing Office, 1949), p. 306Google Scholar. The debt fluctuated between $75 million and $86 million until 1804, after which it was reduced steadily until 1812.

14 Annals of Congress (10th Congress, 2nd Session), “Report to the Senate from the Secretary of the Treasury on the Bank of the United States,” p. 456.

15 Ibid., p. 458 (italics mine). Gallatin claimed that the biggest objection to the Bank was that many stockholders were foreigners, and that the high rate of profits paid by the Bank therefore meant an export of such income from America. The last sentence quoted, although entirely elliptical, surely implied Gallatin's realization that considerations of debt flotation had argued for national banks in the past.

16 Annals of Congress (11th Congress, 3rd Session), p. 122.

17 Ibid., p. 143.

18 Ibid., p. 394.

19 Ibid., p. 142.

20 Ibid., p. 22. Signed, “David Lenox, President.”

21 Ibid., p. 32. This memorial was signed, “Condy Raguet and one hundred others.”

22 Ibid., pp. 212-13.

23 I shall use the term “Democrat” to define the party of Jefferson, Madison, et al., even though they called themselves “Republicans.” “Republicans” I shall use to designate the eventual descendant of the Whig-Federalist group.

24 See speeches of , Clay and Giles, William B. of Virginia, Annals of Congress (11th Congress, 3rd Session), pp. 175-207 and 215–18Google Scholar.

25 Annals of Congress (13th Congress, 3rd Session), pp. 622-30 and 1261.

26 Ibid., pp. 192-95. Of course, only the first $5 million would be in specie. $11 million of the debt of March 14, 1812 was in existence and $19 million of Treasury notes of June 30, 1812. Thus this act would have absorbed most of the war-induced debt. According to Section 4 of the bill, the Bank's holdings of Treasury notes would have been funded into 6 per cent bonds as they matured.

27 Ibid., p. 189.

28 Annals of Congress (14th Congress, 1st Session), “Annual Report of the Secretary of the Treasury,” Appendix, pp. 1630-45, and “Report to House of Representatives on a National Bank,” Ibid., pp. 505-11.

29 Ibid., p. 505, Appendix, p. 1644 (italics mine).

30 Hammond, , Banks and Politics, p. 249.Google Scholar

31 Annals of Congress (17th Congress, 2nd Session), “Annual Report of the Secretary,” p. 301. Crawford reported that banks in the District of Columbia had also been helped by the Treasury.

32 Annals of Congress (16th Congress, 2nd Session), “Annual Report of the Secretary,” p. 499. Previously Crawford had suggested issues of Treasury notes when fiscal expediency was called for.

33 , Hammond, Banks and Politics, pp. 257-58, 285Google Scholar.

34 Annals of Congress (18th Congress, 1st Session), “Annual Report of the Secretary of the Treasury,” p. 926 and pp. 125, 1065. At Crawford's suggestion, also, the Commissioners of the Sinking Fund acted as the “open market committee,” but repurchased at values specified in the act authorizing the policy.

35 U. S. Census Bureau, Historical Statistics, Series N7-N9-N10, p. 261Google Scholar.

36 American State Papers, Finance (Washington: Gales and Seaton, 1834), III, 60–64. 116. (Hereafter referred to as ASPF.) The House Committee of Ways and Means was of a like opinionGoogle Scholar.

37 Ibid., “Report of the Secretary” (December 20, 1816), p. 141.

38 Ibid., Letter from Crawford to Jones (November 29, 1816), pp. 316-17.

39 Historical Statistics, p. 261. In 1830 the McDuffie Report stated that the “circulating medium” [notes and deposits?] of banks declined from $110 million to $45 million between 1815 and 1819. (Register of Debates, 22nd Congress, 1st Session, Appendix, p. 133.)

40 ASPF, “Report of the Secretary” (11 24, 1818), p. 275Google Scholar.

41 Ibid., Letter to House of Representatives (February 20, 1820), p. 508.

42 , Hammond, Banks and Politics, pp. 301, 323Google Scholar. Hammond's quote of Biddle's sentiments (in 1819) expressed only the opinion that the government should not trust its funds in the hands of the state banks. It implied no ideas of control over the banks or the money supply.

43 Register of Debates (20th Congress, 2nd Session), Appendix, p. 21 (italics mine).

44 See , Hammond, Banks and Politics, pp. 300–25Google Scholar. Other work on Nicholas Biddle as a central banker is also in progress by Jacob Meerman at the University of Chicago.

45 Register of Debates (22nd Congress, 1st Session), “Report by Committee of Ways and Means to House of Representatives on Renewal of the Charter” (majority and minority views), Appendix, p. 132.

46 Ibid., pp. 140-41.

47 Ibid., pp. 127, 137.

48 Ibid., p. 144. That is, the specie standard.

49 Ibid., p. 145.

50 Ibid., “Report of the Committee to Investigate Bank of the United States” (majority and minority views), Appendix, pp. 35, 40-42. The implication that the currency was not “sound” at this time was a red herring.

61 For an account of this process, see the article by Macesich, George, The Journal of Economic History (09 1960)Google Scholar, “Sources of Monetary Disturbances in the United States, 1834-1845,” pp. 407-34. Statements by Calhoun, Woodbury and others were explicit on this point, circa 1834-38. See, for example, Register of Debates (23rd Congress, 1st Session), p. 1064.

62 Ibid., p. 46. See also Smith, W. B., Economic Aspects of the Second Bank, p. 254Google Scholar.

63 Ibid., p. 52.

54 Register of Debates (23rd Congress,: st Session), pp, 78, 81, 758. See speeches by Clay and Webster.

55 Ibid., pp. 115, 1092-93.

56 Ibid., Appendix, pp. 60, 74, 160.

57 See my “Independent Treasury and Monetary Policy Before the Civil War,” Southern Economic Journal, XXVII, No. 2 (10 1960), 92–103Google Scholar, for an evaluation of Treasury policies in this period.

68 See Macesich, “Sources of Monetary Disturbances.”

59 Congressional Globe (Washington: Blair and Rives, 1841)Google Scholar, “Report of the Secretary of the Treasury to the Special Session” (June 2, 1841), Appendix, p. 6.

60 Benton, Thomas Hart, Thirty Years' View (New York: Appleton, 1854-1856), II, 343–62Google Scholar. Tyler's behavior seemed to be largely a function of his political ambitions. He was involved in a third party scheme made up largely of recalcitrant Virginians, but the movement died aborning after the bank bill vetoes. It seriously injured the political capital of the regular Whig party as well, so they lost heavily in the elections of 1842 and 1844.

61 Congressional Globe (27th Congress, 1st Session), p. 1. As might be fitting to the author of the American System, Clay continued with the nationalistic assertion that the country required “an American Bank, the creature of our will, subject to American authority, and animated by American interests, feelings and sympathies.” (Ibid.)

62 Ibid., p. 169.

63 Ibid., p. 169. See also speeches by William Allen and Levi Woodbury, pp. 167-77.

64 Ibid., (his italics), p. 170.

65 Ibid., (his italics), pp. 415-16.

66 Upon receipt of the veto of the Fiscal Corporation bill, Tyler's Whig cabinet resigned en masse. For the next three years Executive-Congressional liaison was practically nonexistent.

67 “Report to Congress on a Board of Exchequer” (27th Congress, 2nd Session), Senate Document No. 18, p. 8Google Scholar.

58 lbid., p. 10.

69 Ibid., p. 13.

70 Congressional Globe (35th Congress, 1st Session), p. 69.

71 Ibid., p. 533.