David R. Henderson  

Abraham Lincoln on the Theory of Public Choice

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We then, do not say, nor need we say, to maintain our proposition, that Bank officers are more honest than Government officers, selected by the same rule. What we do say is that the interest of the Sub-Treasurer is against his duty--while the interest of the Bank is on the side of its duty. Take instances--a Sub-Treasurer has in his hands one hundred thousand dollars of public money; his duty says--"You ought to pay this money over"--but his interest says, "You ought to run away with this sum, and be a nabob the balance of your life." And who that knows anything of human nature, doubts that, in many instances, interest will prevail over duty, and that the Sub-Treasurers will prefer opulent knavery in a foreign land, to honest poverty at home? But how different it is with a Bank. . . . Its interest therefore is on the side of its duty--is to be faithful to the Government, and consequently, even the dishonest amongst its managers, have no temptation to be faithless to it.
This is from a speech given by Abraham Lincoln on December 26, 1839 in Springfield, IL.

I highlight it because it's on the back cover of the June 1993 issue of the Journal of Political Economy. From sometime in the 1970s to sometime in the 1990s, the JPE had a quote on the back cover of virtually every issue. I once suggested one that got used. This one was suggested by Milton Friedman.

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CATEGORIES: Public Choice Theory

COMMENTS (7 to date)
Jerry Brown writes:

I usually don't want to disagree with Abraham Lincoln so I will admit that in 1839 it may well have been the case that the interests of bank officers (executives I assume) correlated more strongly with the interests of bank shareholders than today.

Or is the eventual President-to-be saying that the bankers will be more faithful to the government than government employees will be? I just don't understand this quote and, to the extent I manage to interpret it and apply it to today, I disagree.

Why do you think this was a memorable quote? Or maybe rather- why did Milton Friedman and the editors of the JPE think that?

BC writes:

Jerry Brown: "Or is the eventual President-to-be saying that the bankers will be more faithful to the government than government employees will be?"

Yes, I think that is what Lincoln is saying. As far as I can tell, the context has something to do with trusting "Sub-Treasurers" with public funds vs. depositing them in a "National Bank". The Sub-Treasurers are expected to safeguard the money out of duty. The Bankers safeguard the money because they run a profitable business in which they earn returns from their deposits. Hence, the Bankers are more reliable because, if they stole from the Government, they would risk losing their entire banking business, which is more valuable than what they could steal from the Government.

I'm not sure what a "Sub-Treasurer" is, but if you Google search some of the phrases in the quote, you can find a link to the passage in "The Language of Liberty: The Political Speeches and Writings of Abraham Lincoln", p. 44.

BC writes:

By the way, it's helpful to read the part of Lincoln's quote that is ellipsissed out: "But how different is it with a Bank. Besides the Government money deposited with it, it is doing business upon a large capital of its own. If it proves faithful to the Government, it continues its business, if unfaithful it forfeits its charter, breaks up its business, and thereby loses more than all it can make by seizing upon the Government funds in its possession. Its interest, therefore..."

Jerry Brown writes:

Thank you BC.

David R Henderson writes:

Yes, thanks, BC.

Andrew_FL writes:

Isn't Lincoln arguing for a Central Bank, here?

Jeffrey Rogers Hummel writes:

The quotation comes from a very long speech in which Lincoln was attacking the Independent Treasury, being pushed at the time by the administration of President Martin Van Buren as a substitute for a national bank. A response to the Panic of 1837, the Independent Treasury was the capstone of the Jacksonian program to bring about a “divorce of bank and state,” explicitly invoking Jefferson’s separation of church and state. Lincoln, in contrast, preferred to reinstate a nationally chartered, monopoly central bank, such as the Second Bank of the United States, which had lost its national charter in 1836.

Overall I find this Lincoln speech probably his most pathetically weak and ill-argued work outside of his more famous defense of protectionism in his “Fragments on the Tariff” (1846-1847). The Independent Treasury was finally enacted in 1840, repealed a year later when the Whigs captured the presidency, and re-enacted under President James Knox Polk in 1846. It then remained fully operative until the outbreak of the Civil War and represents that only time in U.S. history that the financial system has been completely and fully deregulated at the national level (although, alas, not at the state level). I have argued in several places that it represented the best monetary regime the U.S. has ever had. Those interested might check out my article on Van Buren in the Independent Review.

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