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what are to be the consequences of our continuing in the wrong. We believe that some injustice has been done by public opinion, and some needless alarm felt by those most directly interested, either through ignorance of the facts, or because they have been considered only in a hurried and imperfect manner. We have no doubt, also, that evil principles have been disseminated, and false ideas of duty and policy presented to the people, in connexion with this interesting subject, and that these can be effectually exposed only by discussion. We propose, therefore, to state the facts, as we suppose they really exist, and to examine some of the principles connected with the subject.
At the beginning of the year 1830, the States of this Union were in debt only for about $ 13,000,000. During the next seven years, the greater part of the present debt was contracted ; and the State governments laid the foundation for the residue, by authorizing loans, and commencing public works upon which the money was to be expended.
These seven years formed one of the most extraordinary financial periods — perhaps the most extraordinary one the world has ever seen, and nowhere were its character and effects so fully exhibited as in this country. It may not, therefore, prove uninteresting to trace rapidly the causes which led to this remarkable state of things in the United States. Great injustice has been done to the American people by leaving out of view the general state of financial affairs at the time when their debts were contracted, and when some of the States failed to pay the interest which was due.
The peace of 1815 found Europe, and, to some extent, this country also, exhausted by the wars which were then terminated. Great public debts had been created; population had been kept down by the drain upon it for the armies ; production was diminished, and commerce had but a feeble life. The habits and pursuits of the people had so long been formed to a state of war, that time was requisite to allow the general peace of the world to produce its effects. This change, however, soon began to be accomplished, and the world was not slow in obtaining the benefit of the new condition of things. Reverses more or less severe occasionally came, especially that most serious one in England, in 1825 and 1826, which was felt in this country also. But, on the whole,
the affairs of all commercial and manufacturing countries were in a hopeful state. Wealth was increasing ; population was greatly multiplied ; production was enlarged still faster than population ; and the general condition of man in most civilized countries was constantly improving. We felt some checks during the period between 1815 and 1829, but they were beneficial rather than injurious, for they tended to keep the country in a sober and calm state, and to make men industrious and economical, without seriously impairing their resources. When General Jackson became President, in 1829, there was a general and well grounded belief, that the financial affairs of the country were prosperous, and that we were in a condition to go forward with accelerated speed.
In 1834, the last instalment of our public debt was paid. No more money went out of the country through this channel. This was an event of great importance to the country, and certainly its importance was not inadequately estimated either at home or abroad. Here, the party newspapers made the most of it with the people, in order to obtain credit for the preceding administrations which had planned it, and for the existing administration by which it had been accomplished. Abroad, it was considered very striking from its novelty ; for we were the first, and are still the only, nation in modern times, which has ever wholly freed itself from debt. This fact tended to raise the spirits of the country, to give the people great confidence in their resources, and to incite them to large undertakings.
During this period, our manufactures increased much ; and a beneficial change was taking place in an important branch of commerce. Instead of sending little or nothing but specie beyond the Cape of Good Hope, wherewith to purchase agricultural and manufactured products, our own manufactures began not only to supply our own wants to a great extent, but to be carried elsewhere. A new course of trade was thus opened, a good market being provided for the products of our own labor, and the money was kept at home which was formerly sent abroad to buy those of other nations.
At the same time, another important change was taking place in trade. Under the old system, large amounts of specie were carried to China, to the East Indies, and to
South America, for the purchase of cargoes. Much of this same specie, sooner or later, found its way to London, or to places where it was under the immediate control of the merchants and bankers of that city. It thus performed long and hazardous voyages, at great expense, and wholly without necessity. The transportation of money in this form, to some extent, is necessary. The laws of trade require it to be carried from one country to another to settle balances of account; and it must go from a place where it is less, to one where it is more valuable. But to carry it to the East Indies, and pay it to a merchant there who the next week sends it to London, creates an expense of freight, interest, and insurance, without necessity. This is so plain in principle, as to have given rise, long ago, to the practice and laws of bills of exchange ; but it was reserved for the period of which we are now speaking to give the fullest effect to this practice in this country, by establishing, in our principal commercial cities, agents of merchants and bankers resident in London, with authority to grant letters of credit to a merchant about to send abroad for a cargo. By virtue of such a letter, the master, or supercargo, or some merchant at the port of destination, is authorized to draw bills of exchange on the merchant or banker in London for a specified amount, and with these bills, or their proceeds, when sold in the market of the place, the cargo is purchased. The borrowing merchant, on his part, agrees to place funds in London wherewith to meet the bills at maturity. It is obvious, that this arrangement, besides saving large risks and expenses, must set free a great amount of capital. If employed only in safe and legitimate transactions, it would release for a considerable period all the capital necessary for them. But its effects did not stop here. At a period when confidence was rising and profits seemed certain, this new arrangement began to be resorted to as a new mode of obtaining means with which to trade; while, at the same time, the general confidence and the apparent prosperity made it very easy to obtain bills. Credit to an immense amount was thus created, and our whole commerce felt the stimulating effects of this new cause.
While this change was taking effect, the war between the government of the United States and the Bank of the United States was carried on ; the public deposits were removed from that bank to State banks ; and in anticipation of the time when the charter of that institution would expire, local banks were chartered all over the country. In seven years, from 1830 to 1837, the nominal capital of these banks was increased from one hundred and ten millions of dollars to two hundred and twenty-five millions. Paper money multiplied still faster. This increase had a necessary effect on prices. The ease with which money was obtained, and the apparent profit from its use, led to the multiplication of engagements of all kinds and to every form of speculation, to an amount, which, if it could be correctly ascertained, would, even now, fill us with astonishment.
If we add, that, while these causes were in full operation, and were gradually working together to produce their natural effects, some of the States began to receive and expend the great sums of money they had obtained upon loan, and that our own country, in its agriculture and other important resources, had been making a real and great progress, while other countries, and especially England, were in a similar state of excitement, and were constantly reacting on us, — if we add all these circumstances together, we shall have little cause to wonder, that the American people were brought into that most extraordinary condition in which their public debts were contracted. Former times may have exhibited as great madness, but it reached fewer persons. At no other period did the wild spirit of adventure become epidemic over so many countries, till it seemed to affect the whole world. At this time, commerce and manufactures had largely increased. Wealth had been both accumulated and diffused to an extent before unknown. Wonderful improvements in the means of communication, across wide seas and through great continents, had brought all civilized, and especially all commercial, men within one common atmosphere of sentiment and opinion. A long and unbroken peace, in whose sunshine population had increased, and production been stimulated, and private enterprise suffered to act freely, incited men to large undertakings. Some, who in former times would have found occupation, suited to their daring tempers, in the field, embarked their recklessness in commerce; others, whose rashness, under ordinary circumstances, would have been soon checked by disaster, or prevented from showing itself by want of means, found that their energy and love of VOL. LVIII. No. 122.
adventure had made them leaders ; and others still, whose fears would have been roused by danger, lost all hesitation in the general confidence. Men acted as if a short and secure road to wealth had been discovered, on which all might travel, and he who went the fastest would be the first to reach the desired end. The result was such a morbid tendency to excess in all financial affairs, as had never before been witnessed. In those countries where the currency was bank paper, the quantity of money in circulation was enormously increased. Partly in consequence of this increase, and partly on account of the sanguine hopes of men, prices continued to rise. All uses of capital seemed to be followed by certain and large returns, and men were therefore eager to borrow. All pursuits appeared to be safe and prosperous, and therefore those who had money were desirous to lend it. So much security was felt, that little security was asked ; and to obtain money, nothing more was necessary than to show the lender, that it was to be employed in some magnificent scheme, which stood well with the large expectations of the time, and was in season with the glorious summer of men's hopes.
At this same period, and partly in consequence of this extraordinary state of things, there arose in this country a vehement desire to construct great public works, chiefly such as facilitate and promote internal communication.* We do not mean to say, that the desire was then new. The people of this country are far too sagacious, not to have discovered, before that time, the great value of such works, and the extraordinary natural opportunities for them presented by this continent. They have not much taste for cathedrals and palaces, but “the useful magnificence of roads and bridges” excites their admiration. They knew well enough, that a canal or a railroad, piercing a great tract of country, was of immense importance to them. They quite comprehended its objects, and did not underestimate
* It would seem, that contracting public debts for such objects was a new thing, for M. Say lays it down, as one of his principles, that, “ There is this grand distinction between an individual borrower and a borrowing government, that, in general, the former borrows capital for the purpose of its beneficial employment, the latter for the purpose of barren consumption and expenditure. Nations never borrow but with a view to consume outright."