Monday, June 11, 2012

LQD: Daniel Raymond on Corporations and Banks, 1820

Daniel Raymond (1786–1849) was the first person to publish a systematic text on economics in the United States, Thoughts on Political Economy—much of it a critique and refutation of Adam Smith. Raymond argued that the economy of Great Britain was fundamentally crippled by the nation’s organization as an oligarchy, with only the higher-ranking members of that society fully participating in the national economy, while the majority of subjects were forced into brutal, impoverished subsistence work. This difference between an oligarchy and a republic underpinned Raymond’s rejection of Smith’s theory that a nation’s wealth is an aggregation of exchange values brought together by the invisible hand of “the market.” Clearly echoing Alexander Hamilton’s conception of the need to increase labor power through the promotion of manufactures, Raymond argued that wealth is properly understood as the capacity to acquire the necessaries and conveniences of life by the application of labor-and that labor can be made more productive by the application of technology through the development of machinery.

It may be difficult to sort out all the economic arguments, but in the end, the importance of Raymond’s argument to the crises we face today is made clear in one concise statement:  national wealth can only be augmented by industry NOT by parsimony. This, of course, is a direct refutation of the current prescription of austerity and budget balance mania.

Especially notable is Raymond's treatment of the rich, which should be taken as solid historical evidence that the wrong-wing is dead wrong about class warfare—it is very American. It is not well known today that along with a standing military, the Founders recognized the rich as a grave threat to the republic. Madison's Federalist Paper Number 10 on political factions notes that economic interestsi.e., the richare the most usual cause of factions. Raymond confronts this issue head on. 

In his important book, Lincoln and the Economics of the American Dream, Gabor Borritt points to the influence Raymond had on the American System economists, such as Henry Carey, who were favored by Lincoln.

In the excerpt below, Raymond identifies two types of corporations: political, and money. By money corporation, Raymond means all business corporations, but he has some particularly strong words for banks in particular, which may confuse some people who think “money corporation” means only banks, when it does not.


The second class of corporations may be denominated money corporations , and their influence on national wealth, is more direct and immediate than the first class.

This class embraces banking companies, insurance companies, road companies, trading companies, and every description of associations incorporated for the purpose of promoting the fortunes of the members of the corporation. The act of incorporation is for the purpose of giving the members an artificial power, which they would not possess in their individual capacities….

The very object of a money corporation is to give to the members an artificial power, which they would not otherwise possess, or to exempt them from some liability, to which they would be subject, but for the act of incorporation.

The very object then of the act of incorporation is to produce inequality, either in rights, or in the division of property. Prima facie, therefore all money corporations are detrimental to national wealth. They are always created for the benefit of the rich and never for the poor. The poor have no money to vest in them and can therefore derive no advantage from such corporations. The rich have money, and not being satisfied with the power which money itself gives them, in their private individual capacities they seek for an artificial combination, or amalgamation of their power that its force may be augmented.

An incorporated banking company has a great advantage over individuals in loaning money. By combining the fortunes of a great many individuals, they not only operate with greater effect and with less danger from competition, but their private property is also, ordinarily, exempted by the charter from all liability for the debts of the bank. Here then are a parcel of rich men, cloathed with the privilege of having their property, beyond a certain extent, exempt from liability for their debts, a privilege which no private citizen enjoys….

Why do a parcel of rich men wish to combine their capital and form a bank, or an insurance company? For no other purpose but to augment the artificial power, already too great, which money gives them in accumulating more. Can the poor derive any direct advantage from such an institution? Can they hope to own any part of its stock? Can those who have no money hope to enter into competition with those who have in buying the stock? Such a hope must be remote indeed….

Every money corporation, therefore, is prima facie injurious to national wealth, and ought to be looked upon by those who have no money, with jealousy and suspicion. They are, and ought to be considered, as artificial engines of power, contrived by the rich, for the purpose of increasing their already too great ascendency, and calculated to destroy that natural equality among men which God has ordained, and which no government has a right to lend its power in destroying. The tendency of such institutions is to cause a more unequal division of property, and a greater inequality among men than would otherwise take plac,e which necessarily bring in their train as has already been shown poverty, pauperism, and misery on the rest of the community. The influence of such institutions on national prosperity is precisely the same in proportion to their amount of stock as that of a national debt.

I do not say that corporations of this description ought never to be created, but only that they should be created with caution. It must be recollected that too great an equality in the division of property is as prejudicial to national industry and wealth, as too unequal a division There must be some high prizes in the lottery in order to encourage people to venture their fortunes in them. There must be rewards for industry, enterprise, and talents in order to stimulate their exertion.

A money corporation should be cloathed with as few exclusive privileges as possible. It should be encumbered with as many restrictions, as shall be necessary to keep the stock always as low as par. Whenever it rises above par, it is a sure sign that the company has gained an advantage of the public equal to the excess above the par value. The private property of the stockholders should never be exempted from the payment of the debts of the bank.

Under such restrictions as shall keep the stock down to its par value a bank may be useful at all times. It does not then, tend to the unequal and unnatural division of property.

Corporations also for the purpose of building roads, canals, and making other permanent improvements may be very beneficial to a country. But in incorporating all such companies, it should be a universal principle, never to incorporate them for the purpose of giving the individuals an artificial power to increase their own fortunes. Wealth of itself gives the possessor, artificial, and unnatural power enough when exerted singly and individually, and quite too much when combined and cloathed with artificial advantage.

People are not usually aware, of the immense advantage a company of monied men acquire in consequence of an act of incorporation It gives them a much greater influence and power, than the same amount of property would do, divided among the individual members of the corporation. It enables them to control in a great degree the operations and industry of a whole community….

By possessing such an immense engine of power, a bank can often so far control the operations of private individuals in every branch of business, as to be able to put almost any man down, who shall attempt to do business without their agency, or who refuses to submit to their domination. The young, the ardent, and enterprising are encouraged to engage in business, by the facility of obtaining the means through the agency of banks. They have, perhaps, a few thousand dollars of their own and some friend is persuaded to become their endorser at bank, for the purpose of getting more and after a few years of laborious industry, they find that all their own money and the proceeds of their labour have been swallowed up by the banks, and they may think themselves well off, if a part of their friend's property has not gone the same way.

It is no doubt a melancholy fact, that more than all the profits of all the industry of Baltimore, in the last five years, have found their way into the vaults of the Baltimore banks. The people, it is true, have lived in the meantime, but the people of Baltimore exclusive of the bank stockholders, are no doubt at this day possessed of less property, than they were five years ago. The banks have become possessed of a great portion of the real property in the city, while the industrious labouring class of the community, have been continually growing poor….

It is a prevailing vice in all governments, of extending their patronage and protection to the rich and powerful, to the almost total neglect of the poor and weak. Laws are made for the purpose of enabling the rich to augment their fortunes with greater facility, and which do, in reality, operate as exclusive privileges. Institutions are established for the purpose of accumulating the revenues of the rich and adding them to their stock of wealth. Governments seem never to have reflected, that in proportion as one man or one class of men grow rich, others must grow poor—they seem to have forgotten that the whole is equal to all its parts, and that an unequal division of property necessarily causes an unequal division of the annual product of labour.

All these fatal errors in legislation, (except those wilful ones produced by the selfishness of men,) proceed from confounding national with individual wealth, and from that disastrous doctrine of accumulation—from that doctrine which makes national wealth to consist of the surplus of produce above consumption, and which teaches that national wealth can only be augmented by parsimony, and not by industry, which makes avarice the fundamental principle of national wealth; the necessary consequence of which is poverty and pauperism to the labouring classes of the community.

When consumption equals production, the labouring classes will enjoy the greatest abundance. The rich will, under all circumstances, have the ability to procure the necessaries and comforts of life in sufficient abundance Governments, therefore, have no occasion to trouble themselves on their account, or adopt measures to augment their revenues The maxim of governments should be “the rich are able to provide for themselves, the poor need the protection and patronage of government;” instead of which, they act upon the principle that the poor are able to provide for themselves—the rich need the protection and patronage of government In European governments, where the titled and privileged few constitute the nation, it is natural to expect that the fundamental principles of the governments, and of their systems of political economy will have relation only to those privileged great and rich ones; but in a republican government, the nation should be considered as composed of all the people belonging to it, and no measures ought to be adopted, which have a direct or remote tendency to give one class exclusive privileges or undue advantages over the rest of the community

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