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Subject Area: Political Theory

GALLATIN TO LEONARD JARVIS. - 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.

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GALLATIN TO LEONARD JARVIS.

New York, October 22, 1832.

Sir,—

I received on Saturday your letter of the 15th instant, in which you inform me that I am reported to have said, 1st, that General Jackson’s opinion had been that the decision of the King of the Netherlands was not binding on the United States; 2dly, that he was willing to give up a part of the territory of Maine to secure re-election.

I never said any such thing: the first allegation is founded in error, and the other is altogether destitute of foundation.

1. In June, 1829, at the time of laying before the President the first statement respecting the North-Eastern boundary, which had been prepared by Mr. Preble and myself, I gave him verbally a brief history of the case, with which he was not then thoroughly acquainted; and in the course of the conversation he expressed a doubt of the propriety of having at all consented to submit the subject of difference to the arbitration of a foreign power. This was a question already decided, and quite distinct from that of abiding by the award after having assented to the arbitration.

It is my sincere conviction that the decision of the King of the Netherlands, being on the face of it inconsistent with the description of the boundary in the treaty of 1783, is not binding on the United States. This opinion I have freely expressed, but as my own, and not at all as being or ever having been that of the President. The fact on which it is founded is the award itself; and from the last day of December, 1829, when I left Washington,—that is to say, fifteen months before the decision of the King of the Netherlands was made and known,—I have not seen the President, nor, directly or indirectly, received from him any intimation on that or any other subject whatever. It is my earnest wish that the difficulties with which the case is now embarrassed may be surmounted; but I am altogether unacquainted with the course our government intends to pursue.

2. The supposition that I could have said that General Jackson was willing to give up a part of the territory of Maine to secure his election is a glaring absurdity; since it is manifest that such a course would injure it in Maine without promoting it in a single quarter of the Union. But the opinion thus ascribed to me is the very reverse of that which I entertain of the President. So far from being willing to sacrifice for that purpose the interest of the United States or of any State (a kind of negative praise to which almost every public man in America is equally entitled), it is a conspicuous trait of his character that at all times, on all occasions, and even on subjects of minor importance, General Jackson fearlessly avows and acts in conformity with his opinions, with a total disregard of the effect it may have on his popularity and re-election.

P.S.—I have only taken notice of the allegations specified in your letter. It may be proper to add that I wish that the President had found it consistent with his duty to reject the award without submitting it to the Senate; that I have regretted the steps taken by the Legislature of Maine in relation to an equivalent from the United States; and that I have not concealed those sentiments.

GALLATIN TO HORSLEY PALMER.

New York, May 1, 1833.

Dear Sir,—

I received about three months ago, without knowing to whom I was indebted for the favor, a copy of the “Evidence taken by the committee on the subject of the renewal of the charter of the Bank of England.” Your very acceptable letter of 12th December last reached me much later, the ship having been compelled to put back in distress in an Irish port, where she was detained several weeks. I return you my thanks for both. The first contains a body of invaluable information, and you need not have claimed indulgence for your evidence, which is not less luminous in the exposition of facts than correct in the principles it sustains. Your letter throws additional light on the subject, and the questions you propose embrace every essential branch of that complex inquiry. For that very reason I hesitated whether I should attempt to enter into the discussion or do anything more than to acknowledge the receipt of your favor. I feel some confidence in the soundness of my opinions on the subject of currency as applied to the United States; but I am not competent to judge for other countries. Some general principles must, if true, be indeed applicable everywhere, but they are few, and must, in most cases, be modified by the situation, and perhaps as much by the habits, of every country respectively.

Thus, for instance, we have, from the necessity of the case, uniformly departed from that which is in Europe considered as an essential banking principle. The increase of our population and the unparalleled spirit of enterprise of this nation have always been far in advance of the accumulation of capital. That of the banks has always been required for the immediate aid of commercial undertakings. That of the Bank of the United States, as well as that of the State banks, is, in addition to the issues and deposits, applied almost exclusively in discounting private bills and promissory notes. The portion vested permanently in public stocks and real estate is so inconsiderable that it need not be taken into consideration. I believe that at this moment those private discounts by incorporated banks amount to about 250 millions of dollars, of which less than one hundred rest on issues and deposits, or, in other words, on the principle of borrowing with one hand and lending with the other.

The residue is, in fact, the loan of the capital itself of the banks; and it could not be withdrawn from that employment without bringing universal ruin and arresting the progress of our commercial and manufacturing industry. That credit has in too many instances been far too much extended (particularly in the interior) is indubitable; but it is not less true that capital was drawn in that direction because it could not be employed as profitably in any other way; and that more is still wanted for the same purpose is proved by the fact that there is not enough to discount good short paper at 6 per cent.

Another important difference between the United States and Great Britain arises from the peculiar form of our government. Our paper system, and therefore our currency, is under the control of twenty-four different legislative bodies, which, although forbidden to issue paper money in the name and on the credit of the individual States, authorize its issue by the joint stock companies they incorporate, and even in some cases do it on their own credit through the medium of nominal banks, which are only subordinate offices of their treasury. But even when acting on sounder principles, it is impossible to expect, from so many independent legislatures, any uniformity, any system that will bring every description of paper currency under the same regulations and restrictions. The Bank of the United States must not be considered as affording a complete remedy, but as the best and most practicable which can be applied. Its object is not to substitute its paper for that of the several State banks, which cannot either legally or in fact be done to any considerable extent, but so to control by its operations those of the other institutions as to keep their issues within reasonable bounds, and thereby give solidity and an uniform value to the whole mass. In order to do this it is, of course, necessary that the issues of that bank should be extremely moderate and its treasure considerable. It had acted on that principle and had been irreproachable in that respect as late as November, 1830, when I wrote the essay on our currency which you have seen. The inconsiderate subsequent extension of their loans and issues, and consequent diminution of their treasure, has not escaped your observation; and their conduct in that circumstance has been attended with worse consequences to the bank than you could be aware of, by affording a strong argument against the renewal of the charter.

When, therefore, you ask whether I think a single bank of issue preferable, I must answer that it would be altogether impossible to resort to that plan here, and ask whether it is practicable with you. Will the country interest permit it? You were not even allowed to extend to Scotland the beneficial provision which suppressed small notes. Still, as the power does exist, as the authority of Parliament is paramount, there is, at least, no absolute impossibility to adopt the plan which your own experience must have taught you to be the best adapted to your circumstances. Sir H. Parnell’s opinions are entitled to the highest respect. No legislation is better than a bad, and, on most subjects connected with economy, than any legislation. Yet, with respect to currency, to the power of issuing that which is the standard of the value of every other commodity and regulates every contract, our experience in the United States is decisive against allowing the privilege to every one indiscriminately. Such were the evils of that system that, without concert, and almost simultaneously, every State in the Union passed restraining laws. I have not disguised how imperfect those are in many of the States; but still our present situation is better than when every one issued paper as he pleased.

Having promised so much, I will, though with unfeigned diffidence, give you my opinion on the several points alluded to in your letter.

Judging from analogy, I believe with you that joint stock companies, though affording generally more security to the holders of notes, will have a tendency to increase the amount of issues, to lessen that of specie or money assets in the interior, and be liable to greater fluctuations in the expansion and contraction of the currency and of the calls on London for specie than under the existing system.

Under any system of paper money, a single bank of issue, such as that of England was sixty years ago, such as that of France now, is to me the beau idéal. The evils that might arise from the monopoly must be prevented by adequate positive restrictions, by publicity, and the consequent effect of public opinion, and, above all, by the omission in the new charter of any provision binding government not to grant any other at any time or place and in any shape it may think proper; this check alone, with publicity and the evident interest of the bank, seems sufficient to prevent any gross abuse; and I believe the advantages of unity in the control of issues of paper to be incontestable. The mode you have lately adopted to supply country bankers with notes at a moderate rate of interest appears to me excellent. It would be impossible here to separate entirely a bank of issue from ordinary banking business, viz., discounting private paper and receiving private deposits. But if the Bank of England can do without either, it would be a great improvement, remove many well-founded objections, lessen the great power which must necessarily be given to the bank, and leave the banking business proper where it ought to be,—to the natural competition of private bankers.

It may, I think, be demonstrated by our experience, contrasted with that of the London bankers and of those of the Continent of Europe, that banking proper, detached from the power of issuing notes, may be and is conducted much better and more profitably by private individuals than by joint stock companies. If it becomes necessary to resort to these for the purpose of issuing a paper currency in the interior, it appears to me absolutely necessary to place them under certain restrictions, amongst which the principal (according to our experience, which on that point is more extensive than that of any other country) would seem to be the obligation of investing their capital, or a considerable part of it, in unalienable public securities; the limitation of their issues to one-half or two-thirds of their capital; that of their private loans or discounts to an amount not greater than that capital; the obligation to discharge on demand their issues and deposits (current accounts) in legal coin or notes of the Bank of England, under penalty of a higher rate of interest than that at which they are permitted to lend or discount, and of forfeiture of their charter, as well as of summary attachment of the whole of their property in such cases of presumed fraud or gross neglect as may be defined by law.

I do not think it necessary to dwell on such of your observations as refer to my opinions on certain points on which it is very possible that I was mistaken. In theory, the principle of a single metal for standard cannot be denied. I think it erroneous in practice, at least in the United States, but have nothing to add to the reasons I have adduced in support of my opinion. If only one metal is adopted, which should be preferred seems doubtful. At present, whenever the relative value of gold is greatly increased in the rest of Europe, the demand for it presses with great inconvenience on England. Silver being our standard, we are immediately affected by a contrary state of things and whenever there happens to be an extraordinary demand for that metal. Ricardo’s plan appears to be a proper remedy against an internal panic, but could not, I think, prevent the exportation of bullion, when the pressure arises from external causes, otherwise than by the fall of prices caused by the contraction of the currency.

My observations on the silver coinage of England applied to the system as established by law. This provided no remedy against a superabundant issue, and my objection would have proved well founded had not the bank spontaneously interfered, and, at its own risk and expense, redeemed the superfluous quantity. It will be altogether removed if government provides by law for that redemption whenever applied for by the holders.

I fear that I may not have fully apprehended your observations on the only pecuniary advantage derived from the substitution of paper for a metallic currency; at least I do not understand on what is founded the distinction you draw. It seems to me that, in every case, the annual gain is equal to the interest on the amount of paper substituted, and it is thus stated on pages 18 and 19 of my pamphlet; but this is a point susceptible of doubt, and I regret my inability to understand your objection. This probably arises from my not being sufficiently versed in the doctrine of high and low prices.

I pray you to excuse the erasures and inaccuracies of this letter, which has been too long delayed and which I have not time to correct.

I have the honor to be, with high consideration, dear sir, your very obedient and faithful servant.