INTRODUCTION TO PAPER MONEY & BANKING

Spread the love

Few areas in American history have undergone such intensive study in recent years as the Jacksonian era. A major subject of controversy in that period is monetary and banking policy. It began with President Jackson’s successful veto of the bill for rechartering the embryonic central bank, the Second Bank of the United States, in 1832. The subsequent struggle on both the federal and state levels rocked the nation intermittently for a decade. The ablest writer on the orthodox Jackson hard money side was William M. Gouge (1796-1863), the bible of the movement was his A Short History of Paper Money and Banking in the United States, … to which is Prefixed an Inquiry into the Principles of the System (1833). It seems to have been the first American economics treatise to win an international reputation.

An abridged version was published in the influential Brussels journal, La Rewrite Universelle; in England, the second part, the history part, was brought out by the leading political journalist, the radical William Cobbett. The foremost populariser of the dominant British classical school, J. R. McCullough, commended the treatise for its detailed history of American banking. The praise which it received at home as well as abroad was in good part due to Gouge’s careful research. For this, he spent over two years at the library of the American Philosophical Society, Philadelphia, a rough counterpart of the famed British Museum. Gouge supplemented this by correspondence with knowledgeable persons in various states. Such was the level of the work that it is still a primary source for information on the history and organization of American banking, especially for the first third of the nineteenth century, a period when the veil of secrecy surrounding banking was even tighter than in other fields.

Gouge was an agile writer, shy in personal contact and adverse to speech-making, but possessed of a persuasive pen, steeped at times in wit and satire. He “was one of the most thorough students of our early banking [including the security and money markets] and also one of its keenest and most influential critics. To furnish perspective on his monetary and banking views, it seems desirable to provide a short biographical sketch and a statement of his general economic philosophy.

The son of an apothecary, he was born and raised in Philadelphia. Though he was to spend most of his mature life in Washington, he always preferred large cities, especially New York. His career consisted largely of his activities as a financial journalist and as an employee of the -United States Treasury, he pursued these occupations simultaneously for a good part of his life. He began as a journalist and first achieved prominence in Philadelphia while serving as co-publisher and editor (with Stephenson Smith) of the Philadelphia Gazette and City Advertiser from 1823 to 1831. He devoted the newspaper chiefly to monetary and banking reforms, advocating primarily what became a part of the Jacksonian creed, the prohibition of small banknotes, as a first step in the elimination of all banknotes.

At the same time, he helped prepare a so-called “workingmen’s” memorial to the Pennsylvania legislature which sought to prohibit the chartering or rechartering of banks with the corporate power of limited liability. But this was one of those periods when there was relatively little public interest in currency and banking questions.

Gouge’s newspaper constantly lost subscribers and he was forced to give up what” had promised to be one of the most lucrative newspaper establishments in the country. editor and publisher; he started the bi-weekly The Journal of Banking, but the result was the same. After a year he was forced by the loss of subscriptions to suspend publication, complaining of the public’s antipathy to economic abstractions, especially “the science of currency.” He pointed to the fate of The Journal of Banking as further evidence that” no journal of political economy or statistics, in either Europe or America . . . has ever repaid expenses. ‘ Gouge’s journalist activities were not limited to his own ventures; from the 1830 ‘s down to the Civil War he was a valued contributor to an adviser of such influential financial and economic journals as Hunt’s Merchants’ Magazine and The Bankers’ Magazine and Statistical Register, and such leading Democratic party organs as the Washington Globe and The United States Magazine and Democratic Review. From about 1834 to March 1862, Gouge was with the Department of the Treasury except for relatively short periods when the Democrats did not occupy the presidency. Even when the Whigs and their successors were in power, he managed to retain his post for a part of the time. He began, as he put it, as a “mere accountant and copyist, ” but was soon charged with the duties of what may be called “the statistical and politico-economical clerk” of the bureau that served as the immediate staff of the Secretary of the Treasury. In this capacity, he should be credited with services of value not only to the government but also to the growth of economic science and especially monetary and banking policy.

 As he described it, his was the task of collecting and arranging the materials that went into the detailed statement of the condition of the banks throughout the Union which the Secretary of the Treasury laid before Congress each year.

He used his skills as an accountant and statistician to improve the collection and systematization of monetary and banking data that the Treasury, Congress, and the business world used in making decisions. Perhaps more important for our purposes was his involvement in policymaking. He served as an economic adviser to secretaries of the treasury in Democratic administrations and such outstanding Jacksonian leaders in the monetary controversies as Senator Thomas IIart Benton of Missouri and Benjamin F.

Butler, Attorney General in Jackson’s second administration. Occasionally Gouge worked directly with President Martin Van Buren. His general economic philosophy was in the  Jefferson-Jackson laissez-faire tradition. This view he showed more formally in his adherence to Adam Smith and “the axioms of political economy” of the British classical school typified by David Ricardo and its continental counterpart led by Jean-Baptiste Say.ll Gouge, like the classical economists, held that the theory of value was basic in any economic discussion. The laws of supply and demand were all-powerful in the determination of value. For natural value, the cost of production was the determining condition of supply, and back of demand was the adaptation of the goods to the wants and desires of the people. “The market value . . . is in the compound ratio of their utility and of their scarcity.