Chapter XIII: Bankrupt Act Against Banks

This was the stringent measure recommended by the President to cure the evil of bank suspensions. Scattered through all the States of the Union, and only existing as local institutions, the federal government could exercise no direct power over them; and the impossibility of bringing the State legislatures to act in concert, left the institutions to do as they pleased; or rather, left even the insolvent ones to do as they pleased; for these, dominating over the others, and governed by their own necessities, or designs, compelled the solvent banks, through panic or self-defence, to follow their example. Three of these general suspensions had occurred in the last twenty years. The notes of these banks constituting the mass of the circulating medium, put the actual currency into the hands of these institutions; leaving the community helpless; for it was not in the power of individuals to contend with associated corporations. It was a reproach to the federal government to be unable to correct this state of things--to see the currency of the constitution driven out of circulation, and out of the country; and substituted by depreciated paper; and the very evil produced which it was a main object of the constitution to prevent. The framers of that instrument were hard-money men. They had seen the evils of paper money, and intended to guard their posterity against what they themselves had suffered. They had done so, as they believed, in the prohibition upon the States to issue bills of credit; and in the prohibition upon the States to make any thing but gold and silver a tender in discharge of debts. The invention of banks, and their power over the community, had nullified this just and wise intention of the constitution; and certainly it would be a reproach to that instrument if it was incapable of protecting itself against such enemies, at such an important point. Thus far it had been found so incapable; but it was a question whether the fault was in the instrument, or in its administrators. There were many who believed it entirely to be the fault of the latter--who believed that the constitution had ample means of protection, within itself, against insolvent, or delinquent banks--and that, all that was wanted was a will in the federal legislature to apply the remedy which the evil required. This remedy was the process of bankruptcy, under which a delinquent bank might be instantly stopped in its operations--its circulation called in and paid off, as far as its assets would go--itself closed up, and all power of further mischief immediately terminated. This remedy it was now proposed to apply. President Van Buren recommended it: he was the first President who had had the merit of doing so; and all that was now wanted was a Congress to back him: and that was a great want! one hard to supply. A powerful array, strongly combined, was on the other side, both moneyed and political. All the local banks were against it; and they counted a thousand--their stockholders myriads;--and many of their owners and debtors were in Congress: the (still so-called) Bank of the United States was against it: and its power and influence were still great: the whole political party opposed to the administration were against it, as well because opposition is always a necessity of the party out of power, as a means of getting in, as because in the actual circumstances of the present state of things opposition was essential to the success of the outside party. Mr. Webster was the first to oppose the measure, and did so, seeming to question the right of Congress to apply the remedy rather than to question the expediency of it. He said:

"We have seen the declaration of the President, in which he
says that he refrains from suggesting any specific plan for the
regulation of the exchanges of the country, and for relieving
mercantile embarrassments, or for interfering with the ordinary
operation of foreign or domestic commerce; and that he does
this from a conviction that such measures are not within the
constitutional province of the general government; and yet he
has made a recommendation to Congress which appears to me to
be very remarkable, and it is of a measure which he thinks may
prove a salutary remedy against a depreciated paper currency.
This measure is neither more nor less than a bankrupt law
against corporations and other bankers.

"Now, Mr. President, it is certainly true that the constitution
authorizes Congress to establish uniform rules on the subject of
bankruptcies; but it is equally true, and abundantly manifest
that this power was not granted with any reference to currency
questions. It is a general power--a power to make uniform
rules on the subject. How is it possible that such a power can
be fairly exercised by seizing on corporations and bankers,
but excluding all the other usual subjects of bankrupt laws!
Besides, do such laws ordinarily extend to corporations at
all? But suppose they might be so extended, by a bankrupt law
enacted for the usual purposes contemplated by such laws; how
can a law be defended, which embraces them and bankers alone? I
should like to hear what the learned gentleman at the head of
the Judiciary Committee, to whom the subject is referred, has
to say upon it. How does the President's suggestion conform to
his notions of the constitution? The object of bankrupt laws,
sir, has no relation to currency. It is simply to distribute the
effects of insolvent debtors among their creditors; and I must
say, it strikes me that it would be a great perversion of the
power conferred on Congress to exercise it upon corporations
and bankers, with the leading and primary object of remedying a
depreciated paper currency.

"And this appears the more extraordinary, inasmuch as the
President is of opinion that the general subject of the currency
is not within our province. Bankruptcy, in its common and just
meaning, is within our province. Currency, says the message, is
not. But we have a bankruptcy power in the constitution, and
we will use this power, not for bankruptcy, indeed, but for
currency. This, I confess, sir, appears to me to be the short
statement of the matter. I would not do the message, or its
author, any intentional injustice, nor create any apparent,
where there was not a real inconsistency; but I declare, in
all sincerity, that I cannot reconcile the proposed use of the
bankrupt power with those opinions of the message which respect
the authority of Congress over the currency of the country."

The right to use this remedy against bankrupt corporations was of course well considered by the President before he recommended it and also by the Secretary of the Treasury (Mr. Woodbury), bred to the bar, and since a justice of the Supreme Court of the United States, by whom it had been several times recommended. Doubtless the remedy was sanctioned by the whole cabinet before it became a subject of executive recommendation. But the objections of Mr. Webster, though rather suggested than urged, and confined to the _right_ without impeaching the _expediency_ of the remedy, led to a full examination into the nature and objects of the laws of bankruptcy, in which the right to use them as proposed seemed to be fully vindicated. But the measure was not then pressed to a vote; and the occasion for the remedy having soon passed away, and not recurring since, the question has not been revived. But the importance of the remedy, and the possibility that it may be wanted at some future time, and the high purpose of showing that the constitution is not impotent at a point so vital, renders it proper to present, in this View of the working of the government, the line of argument which was then satisfactory to its advocates: and this is done in the ensuing chapter.