The Mystery of Banking

Central Banking in the United States I
199
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Annals of Congress
, 14 Cong., 1 sess., April 1, 1816, p. 267.
That the purpose of establishing the BUS was to support
rather than restrain the state banks in their inflationary course is
shown by the shameful deal that the BUS made with the state
banks as soon as it opened its doors in January 1817. While it was
enacting the BUS charter in April 1816, Congress passed a reso-
lution of Daniel Webster, at that time a Federalist champion of
hard money, requiring that after February 20, 1817, the U.S.
would accept in payments for taxes only specie, Treasury notes,
BUS notes, or state bank notes redeemable in specie on demand.
In short, no irredeemable state bank notes would be accepted
after that date. Instead of using this opportunity to compel the
banks to redeem, however, the BUS, meeting with representatives
from the leading urban banks outside Boston, agreed to issue $6
million worth of credit in New York, Philadelphia, Baltimore, and
Virginia before insisting on specie payments on debts due from
the state banks. In return for that massive inflation, the state
banks graciously consented to resume specie payments. More-
over, the BUS and the state banks agreed to mutually support each
other in any emergency, which, of course, meant in practice that
the far stronger BUS was committed to the propping up of the
weaker state banks. 
Several of the Congressional opponents delivered trenchant
critiques of the establishment of the BUS. Senator William H.
Wells, Federalist from Delaware, noted in some surprise that: 
This bill came out of the hands of the Administration osten-
sibly for the purpose of correcting the diseased state of our
paper currency, by restraining and curtailing the over issue
of banking paper; and yet it came prepared to inflict upon
us the same evil; being itself nothing more than simply a
paper-making machine. . . . The disease, it is said, under
which the people labor, is the banking fever of the States;
and this is to be cured by giving them the banking fever of
the United States.
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The Mystery of Banking
In the House of Representatives, Artemas Ward, Jr., Federal-
ist from Massachusetts, pointed out that the remedy for the evil
of inflated and depreciated paper was simple: “refusing to receive
the notes of those banks, which do not pay specie, in dues to the
Government.” This would naturally be done, Ward pointed out,
but for an alliance, which he considered “disgraceful to the coun-
try and unjust to individuals,” between the Secretary of the Trea-
sury and the banks, without which the evil never would have
existed. The leader in the battle against the Bank, Daniel Webster,
Federalist of New Hampshire, pointed out that “there was no
remedy for the state of depreciation of the paper currency, but the
resumption of specie payments,” which the government should
force the banks to undertake. 
But the most eloquent attack on the new BUS was that of the
fiery Old Republican from Virginia, John Randolph of Roanoke.
After pointing out that only specie can soundly function as
money, Randolph prophetically warned that a central bank 
would be an engine of irresistible power in the hands of any
administration; that it would be in politics and finance what
the celebrated proposition of Archimedes was in physics—a
place, the fulcrum from which, at the will of the Executive,
the whole nation could be huffed to destruction, or man-
aged in any way, at his will and discretion. 
The Bank, Randolph charged, would serve “as a crutch,” and,
as far as he understood it, it was a broken one: “it would tend,
instead of remedying the evil, to aggravate it.” 
“We do not move forthrightly against the insolvent banks,”
Randolph warned, because of fear and greed: 
Every man you meet in this House or out of it, with some
rare exceptions, which only served to prove the rule, was
either a stockholder, president, cashier, clerk or doorkeeper,
runner, engraver, paper-maker, or mechanic in some other
way to a bank . . . 
However great the evil of their conduct might be . . . who
was to bell the cat—who was to take the bull by the horns?
. . . There were very few, he said, who dared to speak truth
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