At various times I’ve recommended the book The Rise and Fall of the American Whig Party: Jacksonian Politics and the Onset of the Civil War, by Michael F. Holt. If books could be referred to as “killer apps” this one would certainly be it in terms of depth concerning the early political evolution of the financial system in the United States. It appears to now be out of print which is a real shame because when paired with the two-volume set of The Writings of Abraham Lincoln from the Library of America, or at least just Volume 1 of that set, one isn’t left wanting with more questions than answers about the arrangement of the financial system at that time.

And about that Abraham Lincoln guy… The narrative heard by school children about the 16th president these days, that he was all about ending slavery, just simply doesn’t do history or his memory justice. He was well versed in history and economics for a guy who grew up in a log cabin out on the frontier, probably more versed in economics than some of the current members of the FOMC. And he certainly has his opinion about the sub-Treasury bill that was being debated early in his political career. He opposed the bill, believing that it would cause deflation by nearly halving the quantity of money in circulation. Here is an excerpt from the speech he gave on the matter:

FELLOW CITIZENS:— It is peculiarly embarrassing to me to attempt a continuance of the discussion, on this evenin1g, which has been conducted in this Hall on several preceding ones. It is so, because on each of those evenings, there was a much fuller attendance than now, without any reason for its being so, except the greater interest the community feel in the Speakers who addressed them then, than they do in him who is to do so now. I am, indeed, apprehensive, that the few who have attended, have done so, more to spare me of mortification, than in the hope of being interested in any thing I may be able to say. This circumstance casts a damp upon my spirits, which I am sure I shall be unable to overcome during the evening. But enough of preface.

The subject heretofore, and now to be discussed, is the Sub-Treasury scheme of the present Administration, as a means of collecting, safe-keeping, transferring and disbursing the revenues of the Nation, as contrasted with a National Bank for the same purposes. Mr. Douglass has said that we (the Whigs), have not dared to meet them (the Locos), in argument on this question. I protest against this assertion. I assert that we have again and again, during this discussion, urged facts and arguments against the Sub-Treasury, which they have neither dared to deny nor attempted to answer. But lest some may be led to believe that we really wish to avoid the question, I now propose, in my humble way, to urge those arguments again; at the same time, begging the audience to mark well the positions I shall take, and the proof I shall offer to sustain them, and that they will not again permit Mr. Douglass or his friends, to escape the force of them, by a round and groundless assertion, that we “dare not meet them in argument.”

Of the Sub-Treasury then, as contrasted with a National Bank, for the before enumerated purposes, I lay down the following propositions, to wit:

1st. It will injuriously affect the community by its operation on the circulating medium.

2d. It will be a more expensive fiscal agent.

3d. It will be a less secure depository of the public money.

To show the truth of the first proposition, let us take a short review of our condition under the operation of a National Bank. It was the depository of the public revenues. Between the collection of those revenues and the disbursements of them by the government, the Bank was permitted to, and did actually loan them out to individuals, and hence the large amount of money annually collected for revenue purposes, which by any other plan would have been idle a great portion of time, was kept almost constantly in circulation. Any person who will reflect, that money is only valuable while in circulation, will readily perceive, that any device which will keep the government revenues, in constant circulation, instead of being locked up in idleness, is no inconsiderable advantage.

By the Sub-Treasury, the revenue is to be collected, and kept in iron boxes until the government wants it for disbursement; thus robbing the people of the use of it, while the government does not itself need it, and while the money is performing no nobler office than that of rusting in iron boxes. The natural effect of this change of policy, every one will see, is to reduce the quantity of money in circulation.

But again, by the Sub-Treasury scheme the revenue is to be collected in specie. I anticipate that this will be disputed. I expect to hear it said, that it is not the policy of the Administration to collect the revenue in specie. If it shall, I reply, that Mr. Van Buren, in his message recommending the Sub-Treasury, expended nearly a column of that document in an attempt to persuade Congress to provide for the collection of the revenue in specie exclusively; and he concludes with these words. “It may be safely assumed, that no motive of convenience to the citizen, requires the reception of Bank paper.” In addition to this, Mr. Silas Wright, Senator from New York, and the political, personal and confidential friend of Mr. Van Buren, drafted and introduced into the Senate the first Sub-Treasury Bill, and that bill provided for ultimately collecting the revenue in specie.

It is true, I know, that that clause was stricken from the bill, but it was done by the votes of the Whigs, aided by a portion only of the Van Buren Senators. No Sub-Treasury bill has yet become a law, though two or three have been considered by Congress, some with and some without the specie clause; so that I admit there is room for quibbling upon the question of whether the administration favor the exclusive specie doctrine or not; but I take it, that the fact that the President at first urged the specie doctrine, and that under his recommendation the first bill introduced embraced it, warrants us in charging it as the policy of the party, until their head as publicly recants it, as he at first espoused it—I repeat then, that by the Sub-Treasury, the revenue is to be collected in specie. Now mark what the effect of this must be.

By all estimates ever made, there are but between 60 and 80 millions of specie in the United States. The expenditures of the Government for the year 1838, the last for which we have had the report, were 40 millions. Thus it is seen, that if the whole revenue be collected in specie, it will take more than half of all the specie in the nation to do it. By this means more than half of all the specie belonging to the fifteen million of souls, who compose the whole population of the country, is thrown into the hands of the public office-holders, and other public creditors, composing in number, perhaps not more than one-quarter of a million; leaving the other fourteen millions and three-quarters to get along as they best can, with less than one-half of the specie of the country, and whatever rags and shin-plasters they may be able to put, and keep, in circulation.

By this means, every office-holder, and other public creditor, may, and most likely will, set up shaver; and a most glorious harvest will the specie men have of it; each specie man, upon a fair division, having to his share, the fleecing of about 59 rag men. In all candor, let me ask, was such a system for benefiting the few at the expense of the many, ever before devised? And was the sacred name of Democracy, ever before made to endorse such an enormity against the rights of the people?

I have already said that the Sub-Treasury will reduce the quantity of money in circulation. This position is strengthened by the recollection, that the revenue is to be collected in specie, so that the mere amount of revenue is not all that is withdrawn, but the amount of paper circulation that the 40 millions would serve as a basis to, is withdrawn; which would be in a sound state at least 100 millions. When 100 millions, or more, of the circulation we now have, shall be withdrawn, who can contemplate, without terror, the distress, ruin, bankruptcy and beggary, that must follow.

The man who has purchased any article, say a horse, on credit, at 100 dollars, when there are 200 millions circulating in the country, if the quantity be reduced to 100 millions by the arrival of pay-day, will find the horse but sufficient to pay half the debt; and the other half must either be paid out of his other means, and thereby become a clear loss to him; or go unpaid, and thereby become a clear loss to his creditor. What I have here said of a single case of the purchase of a horse, will hold good in every case of a debt existing at the time a reduction in the quantity of money occurs, by whomsoever, and for whatsoever it may have been contracted. It may be said, that what the debtor loses, the creditor gains by this operation; but on examination this will be found true only to a very limited extent. It is more generally true that all lose by it. The creditor, by losing more of his debts, than he gains by the increased value of those he collects; the debtor by either parting with more of his property to pay his debts, than he received in contracting them; or, by entirely breaking up in his business, and thereby being thrown upon the world in idleness.

The general distress thus created, will, to be sure, be temporary, because whatever change may occur in the quantity of money in any community, time will adjust the derangement produced; but while that adjustment is progressing, all suffer more or less, and very many lose every thing that renders life desirable. Why, then, shall we suffer a severe difficulty, even though it be but temporary, unless we receive some equivalent for it?

What I have been saying as to the effect produced by a reduction of the quantity of money, relates to the whole country. I now propose to show that it would produce a peculiar and permanent hardship upon the citizens of those States and Territories in which the public lands lie. The Land Offices in those States and Territories, as all know, form the great gulf by which all, or nearly all, the money in them, is swallowed up. When the quantity of money shall be reduced, and consequently every thing under individual control brought down in proportion, the price of those lands, being fixed by law, will remain as now.

Of necessity, it will follow that the produce or labor that now raises money sufficient to purchase 80 acres, will then raise but sufficient to purchase 40, or perhaps not that much. And this difficulty and hardship will last as long, in some degree, as any portion of these lands shall remain undisposed of. Knowing, as I well do, the difficulty that poor people now encounter in procuring homes, I hesitate not to say, that when the price of the public lands shall be doubled or trebled; or, which is the same thing, produce and labor cut down to one-half or one-third of their present prices, it will be little less than impossible for them to procure those homes at all.

In answer to what I have said as to the effect the Sub-Treasury would have upon the currency, it is often urged that the money collected for revenue purposes will not lie idle in the vaults of the Treasury; and, farther, that a National Bank produces greater derangement in the currency, by a system of contractions and expansions, than the Sub-Treasury would produce in any way. In reply, I need only show, that experience proves the contrary of both these propositions. It is an undisputed fact, that the late Bank of the United States, paid the Government $75,000 annually, for the privilege of using the public money between the times of its collection and disbursement. Can any man suppose, that the Bank would have paid this sum, annually for twenty years, and then offered to renew its obligations to do so, if in reality there was no time intervening between the collection and disbursement of the revenue, and consequently no privilege of using the money extended to it?

Again, as to the contractions and expansions of a National Bank, I need only point to the period intervening between the time that the late Bank got into successful operation and that at which the Government commenced war upon it, to show that during that period, no such contractions or expansions took place. If before, or after that period, derangement occurred in the currency, it proves nothing. The Bank could not be expected to regulate the currency, either before it got into successful operation, or after it was crippled and thrown into death convulsions, by the removal of the deposits from it, and other hostile measures of the Government against it.

We do not pretend, that a National Bank can establish and maintain a sound and uniform state of currency in the country, in spite of the National Government; but we do say, that it has established and maintained such a currency, and can do so again, by the aid of that Government; and we further say, that no duty is more imperative on that Government, than the duty it owes the people, of furnishing them a sound and uniform currency.

The above excerpt was provided by the Collected Works of Abraham Lincoln

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