It was known in 1833 that corporations threatened the welfare of the nation.
William M. Gouge: A Short History of Paper Money and Banking in the United States (Philadelphia, 1833) Pp. 41-44, 84-90, 123-140
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Against Corporations of every kind, the objection may be brought that whatever power is given to them is so much taken from either the government or the people. As the object of charters is to give to members of companies powers which they would not possess in their individual capacity, the very existence of monied corporations is incompatible with equality of rights.
Corporations are unfavorable to the progress of national wealth. As the Argus eyes of private interest do not watch over their concerns, their affairs are much more carelessly and much more expensively conducted than those of individuals. What would be the condition of the merchant who should trust everything to his clerks, or of the farmer who should trust everything to his laborers? Corporations are obliged to trust everything to stipendiaries, who are oftentimes less trustworthy than the clerks of the merchant or the laborers of the farmer.
Such are the inherent defects of corporations that they never can succeed, except when the laws or circumstances give them a monopoly or advantages partaking of the nature of a monopoly. Sometimes they are protected by direct inhibitions to individuals to engage in the same business. Sometimes they are protected by an exemption from liabilities to which individuals are subjected. Sometimes the extent of their capital or of their credit gives them a control of the market. They cannot, even then, work as cheap as the individual trader, but they can afford to throw away enough money in the contest to ruin the individual trader, and then they have the market to themselves.
If a poor man suffers aggression from a rich man, the disproportion of power is such that it may be difficult for him to obtain redress; but if a man is aggrieved by a corporation, he may have all its stockholders, all its clerks, and all its protégés for parties against him. Corporations are so powerful as frequently to bid defiance to government.
If a man is unjust or an extortioner, society is, sooner or later, relieved from the burden by his death. But corporations never die. What is worst of all (if worse than what has already been stated be possible) is that want of moral feeling and responsibility which characterizes corporations. A celebrated English writer expressed the truth, with some roughness, but with great force, when he declared that "corporations have neither bodies to be kicked , nor souls to be damned."
All these objections apply to our American banks. They are protected, in most of the states, by directed inhibitions on individuals engaging in the same business. They are exempted from liabilities to which individuals are subjected. If a poor man cannot pay his debts, his bed is, in some of the states, taken from under him. If that will not satisfy his creditors, his body is imprisoned. The shareholders in a bank are entitled to all the gain they can make by banking operations; but if the undertaking chances to be unsuccessful, the loss falls on those who have trusted them. They are responsible only for the amount of stock they may have subscribed.
For the old standard of value, they substitute the new standard of bank credit. Would government be willing to trust to corporations the fixing of our standards and measures of length, weight, and capacity? Or are our standards and measures of value of less importance than our standards and measures of other things?
They coin money out of paper. What has always been considered one of the most important prerogatives of government has been surrendered to the banks.
In addition to their own funds, they have the whole of the spare cash of the community to work upon. The credit of every businessman depends on their not. They have it in their power to ruin any merchant to whom they may become inimical.
We have laws against usury; but if it was the intention of the legislature to encourage usurious dealings, what more efficient means could be devised than that of establishing incorporated paper money banks? Government extends the credit of these institutions by receiving their paper as an equivalent of specie, and exerts its whole power to protect and cherish them. Whoever infringes any of the chartered privileges of the banks is visited with the severest penalties.
Supposing banking to be a thing good in itself, why should bankers be exempted from liabilities to which farmers, manufacturers, and merchants are subjected? It will not surely be contended that banking is more conducive than agriculture, manufactures, and commerce to the progress of national wealth.
Supposing the subscribers to banks be substantial capitalists, why should artificial power be conferred on them by granting them a charter? Does not wealth of itself confer sufficient advantages on the rich man? Why should the competition among capitalists be diminished by forming them into companies and uniting their wealth in one mass?
Supposing the subscribers to banks to be speculators without capital, what is there so praiseworthy in their design of growing rich without labor that government should exert all its powers to favor the undertaking?
Why should corporations have greater privileges than simple copartnerships? On what principle is it that , in a professedly republican government, immunities are conferred on individuals in a collective capacity that are refused to individuals in their separate capacity> . . .
If two individuals should trade with one another, on the same principle that the banks trade with the community, it would soon be seen on which side the advantage lay. If A should pay interest on all the notes he gave and finally pay the notes himself with his own wealth, and if B should receive interest on all the notes he issued and finally pay the notes themselves with A’s wealth, A’s loss and B’s gain would be in proportion to the amount of transactions between them.
This is the exact principle of American banking operations; but, owing to the multitude of persons concerned, the nature of the transaction is not discovered by the public. Regard the whole banking interest as one body corporate and the whole of the rest of the community as one body politic, and it will be seen that the body politic, pays interest to the body corporate for the whole amount of notes received, while the body corporate finally satisfied the demands of the body politic by transferring the body politic’s own property to its credit.
In private credit, there is a reciprocity of burdens and of benefits. Substantial wealth is given when goods are sold, and substantial wealth is received when payment is made, and an equivalent is allowed for the time during which payment is deferred. If A took a note from B, endorsed by the richest man in the country, he would require interest for the time for which payment was postponed. But the banking system reverses this natural order. The interest which is due to the productive classes that receive the bank notes is paid to the banks that issue them.
If the superior credit the banks enjoy grew out of the natural order of things, it would not be a subject of complaint. But the banks owe their credit to their charters – to special acts of legislation in their favor, and to their notes being made receivable in payment of dues to government. The kind of credit which is created for them by law, being equalpollent with cash in the market, enables them to transfer an equal amount of substantial wealth from the productive classes to themselves, giving the productive classes only representatives of credit or evidences of debt in return for the substantial wealth which they part with. . .
To infer that because a system produces great evil it must soon give way would be to argue in opposition to all experience. If mere suffering could produce reformation, there would be little misery in the world. Too many individuals have an interest in incorporated paper money banks to suffer the truth in relation to such institutions to have free progress. Too many prejudices remain in the minds of a multitude who have no such interests to permit the truth to have its proper effect.
It is, therefore, rational to conclude that the present system may, at least with modifications, continue to be the system of the country – not forever, as some seem to think, but for a period which cannot be definitely calculated. It is also rational to conclude that the effect it will have on society in time to come will be similar to the effect it has had in the past. We have, then, in the present state of the country, the means of judging of its future condition.
No system of policy that can be devised can prevent the United States from advancing in wealth and population. Our national prosperity has its seat in natural causes which cannot be effectually counteracted by any human measures, excepting such as would convert our government into a despotism like that of Turkey, or reduce the nation to a state of anarchy resembling that of some countries of South America.
Our wealth and population will increase till they become equal for each square mile to the wealth and population of the continent of Europe. We are now very far from this limit. Under a good system, we cannot reach it in less than 100 or 200 years. Under a bad system, in not less, perhaps, than 300 or 400. . .
The progress of opulence in the United States in the next forty years will probably be very great. Many of the natural sources of wealth are as yet unappropriated. In no part of the country has their productiveness been fully developed. The people have now sufficient capital to turn their land and labor to more profit than was possible in any previous period of our country’s history.
The daily improvements in productive machinery, and especially in the application of steam power, the discoveries of science, the introduction of new composts and new courses of crops in agriculture, the extension of roads and canals have all a tendency to increase the wealth of the country till the aggregate shall be enormous.
But this increase of wealth will be principally for the benefit of those to whom an increase of riches will bring no increase of happiness, for they have already wealth enough or more than enough. Their originally small capitals have, in the course of a few years, been doubled, trebled, and, in some instances, quadrupled. They have now large capitals, which will go on increasing in nearly the same ratio.
As no kind of property is prevented from being the prize of speculation by laws of entail, it is not easy to set bounds to the riches which some of our citizens may acquire. Their incomes may be equal to those of the most wealthy of the European nobility. Think, for a moment, of the immense accession of wealth certain families in the neighborhood of large cities and other improving towns must receive from the conversion of tracts of many acres into building lots. For grounds which cost them but $100 an acre, they may get !0,000, $20,000, or $25,000. This will be without any labor or expenditure of capital on their part. The land will be increased in value by the improvements made around it at the expense of other men. . . .
To place the subject firmly before the reader, we shall bring together the principal propositions that have been supported in this essay, and leave the decision to his candid judgment.
We have maintained:
1. That real money is that valuable by reverence to which the value of other articles is estimated, and by the instrumentality of which they are circulated. It is a commodity, done up in a particular form to serve a particular use, and does not differ essentially from the other items of wealth.
2. That silver, owing to its different physical properties, the universal and incessant demand for it, and the small proportion the annual supply bears to the stock on hand, is as good in practical standard of value as can reasonably be desired. It has no variations except such as necessarily arise from the nature of value.
3. That real money diffuses itself through different countries and through different parts of a country in proportion to the demands of commerce. No prohibitions can prevent its departing from countries where wealth and trade are declining; and no obstacle, except spurious money, can prevent its flowing into countries where wealth and trade are increasing.
4. That money is the tool of all trades, and is, as such, one of the most useful of all productive instruments, and one of the most valuable of laborsaving machines.
5. That bills of exchange and promissory notes are a mere commercial medium, and are, as auxiliaries of gold, silver, and silver money, very useful; but they differ from metallic money in having no inherent value and in being evidences of debt. The expressions of value in bills of exchange and promissory notes are according to the article which law or custom has made the standard; and the failure to pay bills of exchange and promissory notes does not affect the value of the currency or the standard by which all contracts are regulated.
6. That bank notes are mere evidences of debt due by the banks; and in this respect differ not from the promissory notes of the merchants; but, being received in full of all demands, they become to all intents and purposes the money of the country.
7. That banks owe their credit to their charters; for, if these were taken away, not even their own stockholders would trust them.
8. That the circulating quality of the bank notes is in part owing to their being receivable in payment of dues to government; in part to the interest which the debtors to banks and bank stockholders have in keeping them in circulation; and in part to the difficulty, when the system is firmly established, of obtaining metallic money.
9. That so long as specie payments are maintained, there is a limit on bank issues; but this is not sufficient to prevent successive "expansions" and "contraction," which produce ruinous fluctuations of prices; while the means by which bank medium is kept "convertible" inflict great evils on the community.
10. That no restrictions which can be imposed on banks, and no discretion on the part of the directors, can prevent these fluctuations; for bank credit, as a branch of commercial credit, is affected by all the causes, natural and political, that affect trade or that affect the confidence man has in man.
11. That the "flexibility" or "elasticity" of bank medium is not an excellence but a defect, and that "expansions" and "contractions" are not made to suit the wants of the community, but from a simple regard to the profits and safety of the banks.
12. That the uncertainty of trade produced by these successive "expansions" and "contractions" is but one of the evils of the present system. That the banks cause credit dealings to be carried to an extent that is highly pernicious – that they cause credit to be given to men who are not entitled to it and deprive others of credit to whom it would be useful.
13. That the granting of exclusive privileges to companies, or the exempting of companies from liabilities to which individuals are subject, is repugnant to the fundamental principles of American government; and that the banks, inasmuch as they have exclusive privileges and exemptions, and have the entire control of credit and currency, are the most pernicious of money corporations.
14. That a nominal responsibility may be imposed on such corporations, but that it is impossible to impose on them an effective responsibility. They respect the laws and public opinion so far only as is necessary to promote their own interest.
15. That on the supposition most favorable to the friends of the banking system, the whole amount gained by the substitution of bank medium for gold and silver coin is equal only to about 40 cents per annum for each individual in the country; but that it will be found that nothing is in reality gained by the nation if due allowance be made for the expense of supporting 300 or 400 banks, and for the fact that bank medium is a machine which performs its work badly.
16. That some hundreds of thousands of dollars are annually extracted from the people of Pennsylvania, and some millions from the people of the United States, for the support of banks, insomuch as through banking the natural order of things is reversed, and interest paid to the banks on evidences of debt due by them, instead of interest being paid to those who part with commodities in exchange for bank notes.
That into the formation of the bank capital of the country very little substantial wealth has ever entered, that capital having been formed principally out of the promissory notes of the original subscribers, or by other means which the operation of the banks themselves have facilitated. They who have bought the script of the banks at second hand may have honestly paid cent per cent for it; but what they have paid has gone to those from whom they bought the script and does not form any part of the capital of the banks.
18. That if it was the wish of the legislature to promote usurious dealings, it could not well devise more efficient means than incorporating paper money banks. That these banks, moreover, give rise to many kinds of stockjobbing, by which the simple-minded are injured and the crafty benefited.
19. That many legislators have, in voting for banks, supposed that they were promoting the welfare of their constituents; but the prevalence of false views in legislative bodies in respect to money corporations and paper money is to be attributed chiefly to the desire certain members have to make money for themselves, or to afford their political partisans and personal friends opportunities for speculation.
20. That the banking interest has a pernicious influence on the periodical press, on public elections, and the general course of legislation. This interest is so powerful that the establishment of a system of sound currency and sound credit is impracticable, except one or other of the political parties into which the nation is divided makes such an object its primary principle of action.
21. That through the various advantages which the system of incorporated paper money banking has given to some men over others, the foundation has been laid of an artificial inequality of wealth, which kind of inequality is, when once laid, increased by all the subsequent operations of society.
22. That this artificial inequality of wealth adds nothing to the substantial happiness of the rich, and detracts much from the happiness of the rest of the community; that its tendency is to corrupt one portion of society and debase another.
23. That the sudden dissolution of the banking system, without suitable preparation, would put an end to the collection of debts, destroying private credit, break up many productive establishments, throw most of the property of the industrious into the hands of speculators, and deprive laboring people of employment.
24. That the system can be got rid of without difficulty by prohibiting, after a certain day, the issue of small notes and proceeding gradually to those of the highest denomination.
25. That the feasibility of getting rid of the system is further proved by the fact that the whole amount of bank notes and bank credits, is, according to Mr. Gallatin’s calculation, only about $109 million. By paying $10 or $11 million a year, the whole can be liquidated in the term of ten years. If, however, twenty or thirty years should be required for the operation, the longest of these is but a short period in the lifetime of a nation.
26. That it has not been through the undervaluation of gold at the Mint, that eagles and half-eagles have disappeared, but from the free use of bank notes. Nevertheless, a new coinage of pieces containing $4 and $8, or $5 and $10, worth of gold is desirable to save the trouble of calculating fractions. The dollar being the money of contract and account, no possible confusion or injustice cqn be produced by an adjustment of the gold coinage to the silver standard.
27. That incorporating a paper money bank is not the "necessary and proper" or "natural and appropriate" way of managing the fiscal concerns of the Union; but that the "necessary and proper" or "natural and appropriate" way of correcting the evils occasioned by the state banks, inasmuch as a national bank, resting on the same principles as the state banks, must produce similar evils.
29. That "convertible" paper prevents the accumulation of such a stock of the precious metals as will enable the country to bear transitions from peace to war and insure the punctual payment of war taxes; and that the "necessary and proper" or "natural and appropriate" was of providing for all public exigencies is by making the government a solid-money government, as was intended by the framers of the Constitution.
30. That if Congress should, from excessive caution or some less commendable motive, decline passing the acts necessary to insure the gradual withdrawal of bank notes, they may greatly diminish the evils of the system by declaring that nothing but gold and silver shall be received in payment of duties, and by making the operations of the government entirely distinct from those of the banks.
31. That, on the abolition of incorporated paper money banks, private bankers will rise up, who will receive money on deposit and allow interest on the same, discount promissory notes, and buy and sell bills of exchange. Operating on sufficient funds and being responsible for their engagements in the whole amount of their estates, these private bankers will not by sudden and great "expansions" and "curtailments" derange the whole train of mercantile operations. In each large city, an office of deposit and transfer . . . will be established, and we shall thus secure all the good of the present banking system and avoid all its evils.
32. That, if the present system of banking and paper money shall continue, the wealth and population of the country will increase from natural causes, till they shall be equal for each square mile to the wealth and population of Europe. But, with every year, the state of society in the United States will more nearly approximate to the state of society in Great Britain. Crime and pauperism will increase. A few men will be inordinately rich, some comfortable, and a multitude in poverty. This condition of things will naturally lead to the adoption of that policy which proceeds on the principle that a legal remedy is to be found for each social evil, and nothing left for the operations of nature. This kind of legislation will increase the evils it is intended to cure.
33. That there is reason to hope that, on the downfall of monied corporations and the substitution of gold and silver for bank medium, sound credit will take the place of unsound, and legitimate enterprise the place of wild speculation. That the moral and intellectual character of the people will be sensibly though gradually raised, and the causes laid open of a variety of evils under which society is now suffering. That the sources of legislation will, to a certain extent, be purified by taking from members of legislative bodies inducements to pass laws for the special benefit of themselves, their personal friends, and political partisans. That the operation of the natural and just causes of wealth and poverty will no longer be inverted, but that each cause will operate in its natural and just order, and produce its natural and just effect – wealth becoming the reward of industry, frugality, skill, prudence, and enterprise, and poverty the punishment of few, except the indolent and prodigal.
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GOUGE, WILLIAM M. (1796-1863). William M. Gouge, economist and author, was born in Philadelphia, Pennsylvania, on November 10, 1796. He was associate editor of the Philadelphia Gazette from 1823 to 1829 and reporter of the debates of the Delaware Convention of 1831. He wrote several books on banking, including A Short History of Money and Banking in the United States (1833), History of the American Banking System (1835), and Expediency of Dispensing with Bank Paper (1837). He also edited several journals, including the Journal of Banking (Philadelphia, 1841). In his early years Gouge was a staunch opponent of paper money, banks, and corporations; he believed that irresponsible corporations held control of bank depositors' money. His attitude mellowed in later years, though he did warn of the dangers of issuing notes in excess of actual funds. In 1852 he visited Austin, Texas, and wrote The Fiscal History of Texas. He became a special agent of the United States Treasury Department in 1854, was accountant for the State Bank of Arkansas, 1857-58, and wrote Report of the Accountants of the State Bank of Arkansas (1858). He died in Trenton, New Jersey, on July 14, 1863.
BIBLIOGRAPHY: Appleton's Cyclopaedia of American Biography, Vol. 2. Dictionary of American Biography (New York: Scribner, 1928-81). National Cyclopaedia of American Biography, Vol. 24. Texas State Gazette, April 17, 1852. [