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The Myriad Evils of Paper Money
5 December 2008
Recently I ran across this farewell address, given by Andrew Jackson on 4 March 1837, at the end of his second term as president of the United States. He devoted over one-third of it to describe and warn against the evils of paper money. His insights are eerily prophetic, and seem as if they come from today's headlines. Although it was written only about 50 years after the United States became an independent country, his views are very applicable to our current economic crisis. I want to share with you that part of the speech that deals with currency. Because they language is 170 years old, it can be a bit hard to understand; so I have rewritten it using more modern words and expressions. You can read the original by clicking here.
When taking a look back at the conflicts which have taken place between groups of Americans with different interests, and the policies that have been pursued by the government, there is nothing among these that has produced such deep-seated evil as the laws regarding the currency. The Constitution of the United States unquestionably intended that gold and silver would be the nation's currency. But the establishment by Congress of a National Bank, a similar legislation in the states, has driven silver and gold from circulation, and substituted a paper currency in its place.
It was not easy for men occupied with the ordinary business of life, who had not specifically given their attention to the subject, to foresee all of the consequences of a paper currency. Therefore we should not be surprised how easily the laws which put a paper currency into effect were passed. Honest and even intelligent men are sometimes led astray by the smooth-talking arguments of schemers. But experience has now demonstrated the troubles and dangers of a paper currency, and it rests with you to decide whether the proper remedy shall be applied.
Because paper currency has no value in and of itself, but rather is a system which is based upon public confidence, it is susceptible to large and sudden fluctuations, which results in a risky property market and unstable and uncertain wages for workers. The entities which create the paper money cannot be relied upon to keep the right amount of currency in circulation.
In times of prosperity, when confidence is high, they are tempted by the prospect of profit, or by the influence of those who hope to profit by it, to increase the amount of paper currency beyond the limits of common sense and the reasonable needs of business. When the amount of paper currency has been increased to such an level that eventually public confidence is shaken, then a reaction takes place, and the banking system immediately withdraws the credit they have extended, and the money supply is reduced. This produces an unexpected and destructive contraction of the money supply, which is felt by the whole of society. In this way the banks save themselves, and the harmful consequences of their folly or greed are suffered by everyone.
Nor does the evil stop here. These ebbs and flows in the currency, and these unwise extensions of credit, naturally create an atmosphere of speculation, which leads to harmful habits and moral decay in the general public.
We have already seen its effects in the wild spirit of speculation in the public lands as well as various kinds of stock which, within the last year or two, gripped such a large number of our citizens and threatened to spread throughout all parts of society and to distract them from the level-headed pursuit of honest work. It is not by encouraging this spirit that we shall best preserve public morals and promote the true interests of our country.
If we continue to use paper currency, it will promote this eager desire to amass wealth without labor. It will greatly increase the number of people dependent on bank loans and favors. The temptation to obtain money, no matter what the sacrifice, will become stronger and stronger, and inevitably lead to corruption, which will find its way into the public councils and soon destroy the purity of the government.
Some of the evils which result from this system of paper money bring great hardships to the sections of society least able to bear it. A portion of this currency frequently becomes depreciated or worthless, and all of it is easily counterfeited in such a manner as to require particular skill and much experience to distinguish the counterfeit from the genuine. These frauds are most generally carried out with the smaller bills, which are used in the daily transactions of ordinary business. The losses caused by them are usually borne by working-class people, whose circumstances do not allow them to guard themselves from these burdens, and whose daily wages are necessary for their livelihood.
It is the duty of every government to regulate its currency in order to protect this large working-class, as much as possible, from the consequences of other's greed and fraud. It is more especially the duty of the United States, since the government is clearly a government of the people, and since this large portion of our citizens are so proudly distinguished from the working-classes of all other nations by their independent spirit, their love of liberty, their intelligence, and their above-average moral character. Their hard work in peace is the source of our wealth and their bravery in war has covered us with glory. The government of the United States will be failing in its duties if it leaves them suffer for the dishonesty of others. Yet it is evident that their interests can not be adequately protected unless silver and gold are restored to circulation.
Just these few points I have covered concerning paper currency are sufficient to call for immediate reform; but there is another consideration which should still more strongly press it upon your attention.
Recent events have proved that the paper money system of this country may be used as an tool to undermine this country's free institutions. Those who desire to consolidate all power into the hands of the few, and to govern by corruption or force, are aware of its power and are prepared to use it. The banks now provide the only currency, and money is plenty or scarce according to the quantity of bank notes issued by them. When they have fairly similar capitalizations they are competitors in business, and no single bank can dominate all the rest. Although with the current system of paper currency these banks may, and do, cause harm to businesses, the money system, and the morality of society, yet, because of the large number of separate banks, each one in a different situation, they can not easily unite for the purposes of political influence. Whatever may be the schemes of some of them, their power to do harm is confined to a relatively small area and is felt only in their immediate neighborhoods.
But when the charter for the Bank of the United States was obtained from Congress it perfected the schemes of the paper system, and gave to its advocates the position they have struggled to obtain from the founding of this country up to the present hour. The immense capital and special privileges given to it has enabled it to exercise absolute, unlimited power over the other banks in every part of the country. From its superior strength the National Bank could seriously injure, if not destroy, the business of any of the other banks which might cross its purposes. The National Bank has openly claimed for itself the power of regulating the currency throughout the United States. In other words, it asserted (and it undoubtedly possessed) the power to make money plenty or scarce at its pleasure, at any time and in any section of the Union, by controlling the issues of other banks, and permitting an expansion of, or forcing a general contraction of, the money supply, according to its own will. The other banking institutions, sensing its strength, soon became its obedient instruments, ready at all times to execute its commands. Along with the banks, without much choice in the matter, went that large group of businessmen in our commercial cities who totally depend on bank loans to keep their businesses running, and who are therefore obliged, for their own safety, to curry the favor of the money-powers by serving them with great zeal and devotion!
The result of this unwise legislation, which established this great monopoly, was to concentrate the power of the entire monetary system of the Union, with its unlimited potential for corruption, under the direction and command of one acknowledged head. By organizing such power into a single institution, being able to do what it wants when it want throughout the United States, it can now use its entire and undivided strength to support or defeat any measure of the government. Into the hands of this formidable power, thus perfectly organized, was also placed unlimited control over the amount of circulating currency, giving it the power to regulate the value of property and wages in every state of the Union, and to bestow prosperity or bring ruin upon any city or section of the country as might best suit its own interest or policy.
We are not left to guess how the wealthy elite, thus organized and with such a weapon in its hands, would be likely to use it. The distress and alarm which swept through and shook the entire country when the Bank of the United States waged war upon the people in order to force them to submit to its demands cannot yet be forgotten. The ruthless and harsh attitude with which whole cities and communities were oppressed, individuals impoverished and ruined, and a scene of cheerful prosperity suddenly changed into one of gloom and dejection, should be permanently impressed on the memory of the people of the United States. If such was its power in a time of peace, what would it not have been in a season of war, with an enemy at our door? No nation but the freemen of the United States could have come out victorious from such a contest! Yet, if you had not conquered, the government would have passed from the hands of the many to the hands of the few, and this organized money-power, from its secret councils, would have dictated the choice of your highest officials and compelled you to make peace or war, as best suited their own wishes. The outward aspects of the government might for a time have remained, but its living spirit would have departed from it.
The distress and sufferings inflicted on the people by the bank are some of the fruits of that system of policy which is continually striving to enlarge the authority of the federal government beyond the limits fixed by the constitution. The powers granted by that document do not give Congress the right to establish such an institution as the Bank of the United States. The evil consequences which followed may warn us of the danger of departing from the plumb line of the constitution and of permitting temporary circumstances, or the hope of better promoting the public welfare, to influence in any degree our decisions in relation to the limit of authority of the federal government. Let us abide by the constitution as it is written, or amend it in the constitutionally prescribed manner if it is found to be defective.
The severe lessons of experience will, doubtless, be sufficient to prevent Congress from again authorizing such a monopoly, even if the constitution did not present an insurmountable objection to it. But you must remember, my fellow citizens, that eternal vigilance by the people is the price of liberty, and that you must pay the price if you wish to secure the blessing. It behooves you, therefore, to be watchful in your states as well as in the federal government. The power which the wealthy elite can exercise, when concentrated under a single head and with our present system of currency, was sufficiently demonstrated in the struggle made by the Bank of the United States. Defeated in the federal government, the same group of schemers and politicians will now turn to the states and try to create state banks along the lines of the now-terminated national bank. With fine-sounding but deceitful arguments they will draw attention to the supposed public advantages of such a bank. By also appealing to the pride and interests of the states, they will try to establish one state bank in each state, with overgrown capital and enough exclusive privileges to enable it to control the operations of the other banks in the state.
Such institutions will be pregnant with the same evils produced by the Bank of the United States, although their spheres of action would be more confined. Yet in the state in which it is chartered, the concentrated power of the state bank will be able to use its whole strength and act with undivided force to accomplish any object it may wish to attain. You have already had abundant evidence of its power to inflict injury upon the agricultural, mechanical, and laboring classes of society. Those people whose engagements in trade or speculation make them dependent on bank facilities, over them the dominion of the state bank monopoly will be absolute and their obedience unlimited. With such a bank and a paper currency the money-power would in a few years govern the state and control its laws. And if enough states can be persuaded to create such institutions, the time will soon come when the National Bank will again take the field against the federal government and succeed in resurrecting itself by another charter from Congress.
One of the serious evils of our present banking system is that it enables a small section of society, by its control over the currency, to harm the interests of all the others, and to wield more than its fair share of influence in political affairs. The everyday working people have little or no say in the direction of these wealthy and powerful banks. And from their lack of expertise they are incapable of standing firm together against the banks' schemes. Such concerted action may sometimes occur in a single city or in a small district by means of personal communications with each other, but they have no regular or active contact with like-minded people in distant places. Everyday people rarely attract the attention of the press, and they have very little influence over it. They have no crowd of followers who look to them for schemes to grow rich without working, and who are therefore always ready to do a favor in return.
Everyday working people all know that their success depends entirely upon their own hard work and living within their means, and that their hard work will not make them rich overnight. Most Americans fall into this category—men who love liberty and desire nothing but equal rights and fair laws. These everyday working people possess a large percentage of our national wealth, although it is distributed in modest amounts among the millions of citizens who possess it. But even with overwhelming numbers and wealth on their side, they are in constant danger of losing their influence in the government, and have a difficult time holding on to their rights against the unceasing daily efforts which try to erode their rights. The harm springs from the power which the wealthy elite obtain from a paper currency, which they are able to control, and from the banks with exclusive privileges, which they have succeeded in obtaining in the states, and which are used completely for their own benefit. Unless you become more watchful in your states and restrain this spirit of monopoly and thirst for exclusive privileges, you will in the end find that the most important powers of government have been given or traded away, and the control over your dearest interests has passed into the hands of these organizations.
The paper money system and its natural associations—monopoly and exclusive privileges—have already struck their roots too deep in the soil, and it will require all your efforts to restrain its further growth and to completely remove the evil. The men who profit by these abuses and desire to perpetuate them will continue to besiege the halls of legislation in the federal government as well as in the states, and will seek by every clever trick to mislead and deceive the public servants. It is to yourselves that you must look for safety and the means of guarding and perpetuating your free institutions. In your hands is rightfully placed the sovereignty of the country, and to you everyone placed in authority is ultimately responsible. It is always in your power to see that the wishes of the people are carried into faithful execution, and their will, when once made known, must sooner or later be obeyed. While the people remain, as I trust they ever will, uncorrupted and incorruptible, and continue watchful and jealous of their rights, the government is safe, and the cause of freedom will continue to triumph over all its enemies.
But it will require steady and never-tiring work on your part to rid yourselves of the injustice and evils of the paper system, and to restrain the spirit of monopoly and other abuses which have sprung up with it, and of which it is the main support. So many interests are united to resist all reform on this subject that you must not hope the conflict will be a short one, nor success easy. My humble efforts have not been spared during my administration to restore the constitutional currency of gold and silver, and something, I trust, has been done toward the accomplishment of this most desirable goal. But enough yet remains to require all your energy and perseverance. The power, however, is in your hands, and the remedy must and will be applied if you are determined to see it through.
In presenting to you, my fellow-citizens, these parting counsels, I have brought before you the major principles upon which I strived to administer the government in the high office with which you twice honored me. Knowing that the path of freedom is continually beset by enemies who often assume the disguise of friends, I have devoted the last hours of my public life to warn you of the dangers. The progress of the United States under our free and happy institutions has surpassed the most optimistic hopes of the founders of the Republic. Our growth has been rapid beyond all previous example in numbers, in wealth, in knowledge, and all the useful skills which contribute to the comforts and convenience of man. From the earliest ages of history to the present day there never have been thirteen million people associated in one political body who enjoyed so much freedom and happiness as the people of these United States. You have no longer any cause to fear danger from abroad; your strength and power are well known throughout the civilized world, as well as the nobility and courage of your sons.
It is from within, among yourselves—from greed, from corruption, from disappointed ambition and excessive thirst for power—that factions will be formed and liberty endangered. It is against such designs, whatever disguise the actors may assume, that you have especially to guard yourselves. You have the highest of human trusts committed to your care. Providence has showered on this favored land blessings without number, and has chosen you as the guardians of freedom, to preserve it for the benefit of the human race. May He who holds in His hands the destinies of nations make you worthy of the favors He has bestowed and enable you, with pure hearts and pure hands and sleepless vigilance, to guard and defend to the end of time the great charge He has committed to your keeping.
My own race is nearly run; advanced age and failing health warn me that before long I must pass beyond the reach of human events and cease to feel the ups and downs of human affairs. I thank God that my life has been spent in a land of liberty and that He has given me a heart to love my country with the affection of a son. And filled with gratitude for your constant and unwavering kindness, I bid you a last and affectionate farewell.
Well, there you have it: words written 170 years ago that seems amazingly prophetic for our current day. And the last three paragraphs of closing remind me of some things the apostle Paul wrote in the New Testament. Considering how strongly Jackson opposed paper currency, someone sure had a twisted, ironic sense of humor to put HIS portrait on one of the most widely circulated pieces of paper money in the country!
This article is 2nd a series of articles on this Web site related to American Politics and Culture which also includes (scroll to see the entire list):
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