University of Virginia Library

686. BANKS, Capital and.—

At the time
we were funding our national debt, we heard
much about “a public debt being a public
blessing”; that the stock representing it was
a creation of active capital for the aliment of
commerce, manufactures and agriculture.
This paradox was well adapted to the minds of
believers in dreams, and the gulls of that size
entered bonâ fide into it. But the art and mystery
of banks is a wonderful improvement on
that. It is established on the principle that
“private debts are a public blessing.” That
the evidences of those private debts, called
bank notes, become active capital, and aliment
the whole commerce, manufactures, and agriculture
of the United States. Here are a set
of people, for instance, who have bestowed on
us the great blessing of running in our debt
about two hundred millions of dollars, without
our knowing who they are, where they
are, or what property they have to pay this
debt when called on; nay, who have made us
so sensible of the blessings of letting them
run in our debt, that we have exempted them
by law from the repayment of these debts beyond
a given proportion (generally estimated
at one-third). And to fill up the measure of
blessing, instead of paying, they receive an
interest on what they owe from those to
whom they owe; for all the notes, or evidences
of what they owe, which we see in
circulation, have been lent to somebody on
an interest which is levied again on us
through the medium of commerce. And they
are so ready still to deal out their liberalities
to us, that they are now willing to let themselves
run in our debt ninety millions more,
on our paying them the same premium of six
or eight per cent. interest, and on the same
legal exemption from the repayment of more
than thirty millions of the debt, when it shall
be called for. But let us look at this principle
in its original form, and its copy will then be
equally understood. “A public debt is a public
blessing.” That our debt was juggled
from forty-three up to eighty millions, and
funded at that amount, according to this opinion
was a great public blessing, because the
evidences of it could be vested in commerce,
and thus converted into active capital, and
then the more the debt was made to be, the
more active capital was created. That is to
say, the creditors could now employ in commerce
the money due them from the public,
and make from it an annual profit of five per
cent., or four millions of dollars. But observe,
that the public were at the same time
paying on it an interest of exactly the same

amount of four millions of dollars. Where,
then, is the gain to either party, which makes
it a public blessing? There is no change in
the state of things, but of persons only. A
has a debt due to him from the public, of
which he holds their certificate as evidence,
and on which he is receiving an annual interest.
He wishes, however, to have the money
itself, and to go into business with it. B has
an equal sum of money in business, but wishes
now to retire, and live on the interest. He
therefore gives it to A in exchange for A's
certificates of public stock. Now, then, A has
the money to employ in business, which B so
employed before. B has the money on interest
to live on, which A lived on Before; and
the public pays the interest to B which they
paid to A before. Here is no new creation of
capital, no additional money employed, nor
even a change in the employment of a single
dollar. The only change is of place between
A and B in which we discover no creation of
capital, nor public blessing. Suppose, again,
the public to owe nothing. Then A not having
lent his money to the public, would be in
possession of it himself, and would go into
business without the previous operation of
selling stock. Here again, the same quantity
of capital is employed as in the former case,
though no public debt exists. In neither case
is there any creation of active capital, nor
other difference than that there is a public
debt in the first case, and none in the last;
and we safely ask which of the two situations
is most truly a public blessing? If,
then, a public debt be no public blessing, we
may pronounce, à fortiori, that a private one
cannot be so. If the debt which the banking
companies owe be a blessing to anybody,
it is to themselves alone, who are realizing a
solid interest of eight or ten per cent. on it.
As to the public, these companies have banished
all our gold and silver medium, which,
before their institution, we had without interest,
which never could have perished in
our hands, and would have been our salvation
now in the hour of war; instead of which
they have given us two hundred millions of
froth and bubble, on which we are to pay
them heavy interest, until it shall vanish into
air, as Morris's notes did. We are warranted,
then, in affirming that this parody on the principle
of “a public debt being a public blessing,
” and its mutation into the blessing of
private instead of public debts, is as ridiculous
as the original principle itself.—
To J. W. Eppes. Washington ed. vi, 239. Ford ed., ix, 411.
(M. Nov. 1813)