Econlib

The Library

Other Sites

 Front Page arrow Titles (by Subject) arrow GALLATIN TO R. M. SHERMAN. - The Writings of Albert Gallatin, vol. 2

Return to Title Page for The Writings of Albert Gallatin, vol. 2

Search this Title:

Also in the Library:

Subject Area: Economics
Subject Area: Political Theory

GALLATIN TO R. M. SHERMAN. - Albert Gallatin, The Writings of Albert Gallatin, vol. 2 [1879]

Edition used:

The Writings of Albert Gallatin, ed. Henry Adams (Philadelphia: J.B. Lippincott, 1879). 3 vols.

Part of: The Writings of Albert Gallatin, 3 vols.

About Liberty Fund:

Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.


GALLATIN TO R. M. SHERMAN.

New York, November 17, 1831.

Dear Sir,—

I had the honor to receive your letter of 1st instant, asking my opinion respecting the plan referred to the comptroller of the State of Connecticut, by which it is intended that the banks should issue only stamped notes to an amount not greater than they shall have secured by a deposit of mortgages or public securities of certain descriptions.

This provision would clearly secure the community against any ultimate loss on bank-notes, provided proper care shall be taken that the land mortgaged is worth more than the amount of the mortgage, and provided also the public securities are valued sufficiently below the market price to cover any loss arising from the fluctuations in that price.

There is, however, a necessary consequence of that plan which deserves consideration. The aggregate of the notes issued by the several banks of Connecticut amounts to about two millions of dollars. If, in order to issue those two millions (or the amount, whatever this may be), the banks are obliged to vest an equal amount of their capital in mortgages or public stock, either an equal sum must be deducted from their ordinary loans, to the great inconvenience of the commercial and manufacturing interest, or they must increase the aggregate of their loans by an equal sum, which may be more in proportion to their capital than would consist with good management; or new banks or banking capital must be added to those now existing, to an amount sufficient to afford those new loans.

Supposing this arranged in a satisfactory manner, I do not think the contemplated provision sufficient alone to protect the public as it should be. When a corporation is created, even the stockholders are entitled to some regard, and a heavy loss, though falling exclusively on them, is still a public evil. The depositors, though less numerous than the holders of notes, are still creditors, and form always an important part of the community. Finally, the provision in question protects the holders of notes only against an ultimate loss, but neither them nor the public at large against a suspension of specie payments and the consequent temporary depreciation of the notes. Various remedies have been suggested, and several adopted by many of the States, to guard against those evils as far as practicable. I have alluded to those in my essay on currency, and will recapitulate those that appear to me most efficient.

1. Suspension and final forfeiture of the charter in the respective cases of a temporary suspension of specie payment and of real defalcation, in a manner similar to that provided by the revised statutes of this State.

2. Interest to be paid, at the rate of 12 per cent. a year, on any note, draft, or deposit not paid by the banks when demanded, as provided by the charter of the Bank of the United States.

3. Suppression of notes under five dollars, as provided by all the States south and west of New Jersey.

4. Substantial limitation of loans and notes; the first not to be at most more than double, the last not more than two-thirds of the capital. I would prefer a stricter limitation, 167 per 100, and one-half of the capital.

I will give you notice whenever the free-trade committee meets. The gentlemen who were to supply me with facts have as yet forwarded nothing.

I have the honor, &c.

GALLATIN TO R. Y. HAYNE, U. S. Sen.

New York, 7th February, 1832.

Sir,—

It is stated in one of this city’s papers that you observed in Senate that you differed in some respects from the views taken, in their memorial, by the committee of the free-trade convention; and specially with respect to goods now free of duty which the committee wished to be hereafter subject to duty.

If so understood by you or any other person, it must be owing to some awkward mode of expression in the memorial, as nothing could be farther from my wishes and opinion.

The memorial prays that the duties may be reduced on all articles not free of duty, so that the duty on any such article (not free of duty) may be uniform, &c., and that teas, coffee, wines, &c., may not be added to the present list of articles free of duty. Throughout the memorial an exception from the general principle of a uniform duty is made, admitted, or desired for raw materials.

It may be asked why the words “subject to duty” were not substituted, in defining the prayer of the memorialists, for these, “not free of duty,” which would have been clearer and in one respect more appropriate.

The reason is that, although I did not feel authorized to ask for an extension of the articles exempted from duty, I was desirous to leave this an open question, and meant the words “not free of duty” to embrace not only those now of that description, but such other raw materials as Congress might think proper to add to the list.

After all, the reporter may have made a mistake, and it may be your opinion that the duty should apply to the goods now exempted; in which case I have nothing to say. But if you had really misunderstood the meaning of the memorial, I will thank you to rectify the error and to state what the memorialists intended, as now explained to you. I pray you to excuse this application, but I wish at least not to be misunderstood.