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1836: GALLATIN TO THOMAS L. THRUSTON. - 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 THOMAS L. THRUSTON.

New York, 14th May, 1836.

Dear Sir,—

Yours of 26th ult. has been received. I have no recollection of the transaction in reference to which Mr. Goddard petitions Congress. But the supposition that I ever was in favor of any trade carried on under the protection of an enemy’s license is altogether erroneous. Without pretending to judge for others, I always considered the practice as improper and contrary to the public interest. I never expressed any other opinion; and I may add that Mr. Madison, who had made the practice of England and France towards each other in that respect a subject of official and strong complaint, was extremely anxious that it should be discountenanced and suppressed by the United States. Whether it was illegal before the Act of Congress it is not for me to say. So far as relates to the Treasury, either the parties did not think it worth while to apply for a remission, or, if they applied, the application was unsuccessful.

The measure which, as tending to increase the revenue, I did favor was a modification of the Non-Intercourse Act, so far as to permit, under certain restrictions and exceptions, the importation of British goods, as appears by my answer to the Committee of Ways and Means, of 10th June, 1812, published at the time in the newspapers; and it may be that it was this which gave rise to the report of the opinion erroneously ascribed to me on the subject of licenses. That proposition was rejected by Congress, and no other Treasury circulars were issued but for the purpose of directing that the existing laws should be enforced.

GALLATIN TO DANIEL JACKSON.

New York, 23d August, 1836.

Dear Sir,—

You are aware that General Armstrong has asserted, in his notices of the last war, that the letters which conveyed with so much celerity the news of the declaration of war to the British posts in Canada were franked by me as Secretary of the Treasury. I have it in my power to prove by whom and how the information was conveyed, and that I was altogether ignorant of the transaction, and neither franked the letters nor had anything to do with it. But I do not wish, without an absolute necessity, to bring to public notice the name of the party concerned, and would much prefer simply to state what letters I wrote or transmitted which may have afforded a pretence for the rumors circulated by General Hull, to which General Jessup has given credit and the sanction of his name. I wrote none but public letters, and transmitted none but to collectors. But the late destruction by fire of the correspondence and other papers in the office of the Secretary of the Treasury prevents my obtaining authentic copies of my letters, which were all recorded; and I have not been able to ascertain whether Reuben Atwater, collector at Detroit at the time, is still alive, or what has become of his papers. It is for the purpose of obtaining information on that subject that I request your good offices during your journey to Detroit and Michilimackinac.

The only letters written or transmitted by me were two of the same tenor and date, addressed to the collectors of Detroit and Michilimackinac, and one from Mr. Astor to his agent at the last-mentioned place or at St. Joseph’s, transmitted to the collector of Detroit; and they all arose out of the following circumstances. Some years before the last war, Mr. Astor had communicated to our government the prospect he had to be able, and his intention, to purchase one-half of the interest of the Canadian Fur Company, which, under the treaty of 1794, had engrossed the trade by the way of Michilimackinac with our own Indians. This overture was received with great satisfaction by the Administration, from a hope that an American influence might thereby be gradually introduced amongst the Indians. I was directed to write an official letter to Mr. Astor approving his plan and giving assurances of the protection due to every citizen engaged in lawful and useful pursuits; and the President (Mr. Jefferson) wrote him a letter to the same effect. The purchase was accordingly effected by Mr. Astor.

Immediately before the declaration of war he represented to government that a quantity of merchandise, including arms and ammunition, intended for the Indian trade, and belonging to that concern of which he was half owner, was deposited at St. Joseph’s; that, both for his own interest and in order to prevent the goods from falling into the hands of Indians who might prove hostile, he was desirous to have the property conveyed into the United States, but that he was prevented from so doing by the non-intercourse law. The Executive could not annual the provisions of that law, and the power of the Secretary of the Treasury to remit forfeitures did not extend to a case where such forfeiture was voluntarily incurred. I was therefore directed merely to instruct the collectors on the Lakes to receive and keep in their custody such of the above-mentioned goods as might be thus brought in by Mr. Astor’s agents, and not to commence prosecutions till further orders; it being intended to submit the case, if it should occur, to the consideration of Congress. Letters to that effect were accordingly written to the collectors of Detroit and Michilimackinac, of which, for the reason above mentioned, I cannot give either the copy or the precise date.

Mr. Astor had much more important concerns (ships in the Canton trade, the establishment at the mouth of the Columbia River) than the goods at St. Joseph’s which might be materially affected by a war. Becoming more alarmed at the reports concerning the secret proceedings in Congress, he left New York for Washington, where he arrived, horseback, on Friday evening, the 19th of June, the day after war had been declared; event of which he was first informed the same day on the road between Baltimore and Washington. He left that place, on his return to New York, on the 22d or 23d of the same month; and on the day of his departure he left with me, requesting that it might be sent to Detroit and forwarded thence, an open letter directed to his agent at Michilimackinac or St. Joseph’s (I forget which), pressing him to bring the property into the United States, if it was still practicable. I think (though Mr. Astor does not recollect it) that it was accompanied by a letter of his to the collector of Detroit requesting him to forward that for the agent. I enclosed the letter under cover directed to the collector and sent it to the War Department, to be transmitted by an express of that Department, who was to depart on Wednesday, 24th of June, with despatches for General Hull.

As an express had been despatched to him on the 19th of June, I could be under no apprehension that any letter sent on the 24th would bring the first account of the declaration of war. In point of fact, the account reached Malden by the way of New York, Albany, and Queenstown, and was first known at Detroit by the capture of General Hull’s transport, and not by any communication from Washington. Finally, the letter thus transmitted by me did not reach its destination, and did not fall in the hands of the enemy, but in those of General Hull, in whose possession it was seen by General Findlay and others. Yet this must have been the only foundation on which he thought proper to circulate the report that the information of the declaration of war was transmitted to the enemy through my means and was the cause of the capture of his stores.

The war and subsequent capture of Michilimackinac and Detroit prevented, I presume, my letters being acknowledged or answered. No answer had reached the Treasury in May, 1813, when I left the United States for Europe. The report circulated by General Hull was mentioned to me in October or November, 1812, by General Findlay. I stated to him the facts as above mentioned in this letter; and, considering the report as a lame attempt on the part of the unfortunate general to throw on others the blame of one of his minor blunders, I paid no attention to it, and left him at full liberty to bring, on his pending trial, any evidence in his possession which might tend to exculpate him. I was credibly informed, after my first return from Europe (1815-1816), that the collector of Detroit (Atwater) had attempted to forward Mr. Astor’s letter, and despatched a boat to that effect for Michilimackinac on the 3d of July; that the person in charge of the boat, being informed on the way that the war was known at all the British posts, and afraid of being captured, returned to Detroit after a few days with the letter, and that it was on his return that General Hull took possession of the letter and kept it. But I have not the proof of this, the letter giving the account, and which was not directed to me, having been mislaid.

Having troubled you with this long statement in order that, being master of the subject, you may judge of the information generally which would be useful to me, I will now state the points to which I would more particularly call your attention, viz.:

1st. Copies, if attainable, of my two above-mentioned letters of same tenor and date (June, 1812) to the collectors of Detroit and Michilimackinac; and, if not to be had, any information that can be obtained respecting their tenor, their date, that of their being received, and their fate.

2dly. Copies, if any can be had, of any letter from me (if I wrote any) or from Mr. Astor to the collector of Detroit, dated 22d to 24th June, 1812, and accompanying Mr. Astor’s letter to his agent at Michilimackinac or Detroit; and, if no such copies can be had, any information respecting the time when such letter or letters was or were received, the disposition made of Mr. Astor’s letter, and its fate.

3dly. Whether Mr. Reuben Atwater is alive, and, if so, the place of his residence; if dead, when and where he died, and in whose possession his papers may have fallen.

4thly. Any other information which you may think useful to me respecting those points and the report circulated that the news of the declaration of war was made known to the enemy, directly or indirectly, through me.

The only persons I can think of who can give information are: 1. Mr. Reuben Atwater, former collector of Detroit, who resigned 1st January, 1816, Mr. Woodbridge, still alive, who succeeded him, and the present collector, whose name I do not know. I am not without hope that the official papers of Mr. Atwater were transmitted to his successors, and that, at all events, Mr. Woodbridge may have had knowledge of the facts.

2. At Michilimackinac, Mr. Abbot, who has been both collector of that port and Mr. Astor’s agent.

3. In Canada, if still living, L’Herbette, special clerk or agent of Mr. Astor at St. Joseph’s and Michilimackinac in 1812, and Toussaint Pothier, agent at St. Joseph’s in 1812, of the joint concern of Mr. Astor and the Montreal Company, and to whom was addressed the letter from New York which, in fact, gave the information there of the declaration of war. If that letter had my frank, it was forged, which I altogether disbelieve.

I have not time to transcribe this letter, and request you to preserve it. With best wishes for your safe journey, I remain, respectfully, dear sir, your obedient servant.

GALLATIN TO REV. FREDERICK BEASLEY.

New York, 3d September, 1836.

Dear Sir,—

I had the honor to receive your friendly letter of 18th ult. The attempt to establish five or six years ago a periodical literary review in this city failed, less on account of pecuniary difficulties, which might have been surmounted, than from the impossibility of uniting a sufficient number of able co-operators. I am now too old (in my seventy-sixth year) and too weak to take an active part in similar or analogous undertakings, and only a nominal member of the new association to which you allude.

It might probably cost me less labor to revise my essay on currency than to turn my attention to new subjects. But I could not give satisfactory answers to your queries without taking up the whole subject. I may say, generally, that the voluntary circulation of paper money, not made a legal tender, is a proof of its convenience and utility. This takes place in commercial transactions, when not forbidden by law, though not to the same extent nor in the precise shape it has now assumed, whenever confidence is placed in those by whom it is issued. Like every other extension of credit, the paper becomes dangerous when the issues become excessive or rest on an insecure basis; the consequences of which are depreciation or absolute bankruptcy. With respect to the repartition of the advantages derived from the substitution of paper for a metallic currency, between the banks or bankers who issue that paper and the community at large, the problem would be solved at once if government could be safely trusted in that respect, so as to become the sole issuer of paper money, as it is of the metallic currency.

As the case now is, the substitution, being in fact an addition to the active capital of the country, operates like every other such addition. Those on whose credit it is issued derive the ordinary profits on the capital; the community receives the ordinary advantages in the promotion of industry, improvements, &c., which are derived from any addition to the capital of a country. I cannot at this moment examine the question under all its bearings. I am myself an ultra-bullionist, and prefer security to rapid growth. I would wish, though the progress of the country should be slower, that the use of paper would be confined to transactions between dealers and dealers, and that it did not take the place of currency proper. But this does not accord with the extraordinary and irresistible energy of this nation. Nothing more is, I think, practicable than a proper regulation of the system, both as to the amount of issues and as to the persons or bodies by whom it shall be issued. On the first point I have nothing to add to the suggestions contained in my former essay, viz., a suppression of bank-notes of less denomination than at least ten dollars, and a restriction of the moneys loaned by a bank to, at most, twice the amount of its capital. I can now say, from actual experience, that this is amply sufficient, and will, after defraying expenses, taxes, and ordinary losses, allow of a dividend of 8 to 9 per cent. a year. The restriction will take away the temptation of excessive credits, and necessarily limit the issue of paper and increase the specie basis.

The other point, viz., by whom to be issued, presents greater difficulties. Banking, with the single exception of issuing paper currency, should be left as free as any other species of dealing; and I was also the first (in 1830) who attacked the Restraining Act of this State; but I cannot agree with those who think that the issuing of paper currency should also be left unrestrained and without regulations; I am confident that we would then be inundated with insecure paper. Yet it is not perceived on what ground a distinction can be justly made by granting charters to one set of men and refusing them to another. As those who have neither capital nor credit cannot become money-dealers, the question affects only those who have some share of either; and it seems to me that justice would be done to all if, on every application for a new charter, the Legislature directed the stock to be sold in small lots to the highest bidders at public auction.

Most of these suggestions are but crude, or, at least, not sufficiently explained. Yet I cannot end this letter without adding another, which is called for by the indiscriminate hue and cry raised, not against the abuses of our system, but against that system itself. One of the principal reasons why it has spread itself so widely, much, indeed, beyond what was necessary, throughout the United States, is its adaptation to our democratic institutions and habits. Abolish all charter banks, and let their room be occupied by private bankers, that will take place which exists in London, Paris, and from one end of Europe to the other; that species of business cannot be carried on without a large capital, and is everywhere engrossed by the wealthiest capitalists; in this city, instead of perhaps eight thousand stockholders who participate in it, it would be carried on by fifty or, at most, one hundred, already the richest individuals of our community.

I have the honor to be, very respectfully, sir, your most obedient servant.

GALLATIN TO LEONARD MAISON.1

New York, 20th December, 1836.

Sir,—

I had the honor to receive your letter of 10th September last respecting the Restraining Act of the State and the conditions on which it might be repealed. You allowed so much time for the answer that I postponed the consideration of the subject. Subsequently an indisposition, which confined me five weeks, put it out of my power to attend to it, and now I have neither the time nor the strength necessary for a thorough investigation. I pray you to excuse the delay; but the subject is familiar to me, and I feel some confidence in the correctness of the general principles on which are founded the views which I will submit to your consideration.

Permit me, in the first place, to refer to the opinion which I expressed six years ago, and before I was connected with any bank. In the “Considerations on the Currency and Banking System” of the United States, published 1st January, 1831, I said, “The prohibition by private persons, &c., to issue any species of paper that can be put in circulation as money is perfectly proper, and indeed necessary; but that of receiving deposits or discounting notes or bills must have had some special and temporary object in view, and does certainly require revision. Why individuals should not be permitted to deposit their money with whom they please is not understood. The advantages, if not the necessity, of this accommodation (discounting notes by private bankers) are such that it is understood that the law in question is in that respect daily disregarded. The prohibition has no other effect than that of enhancing the premium on the discount.” (Note C, page 95.)

The practical knowledge, since acquired by my connection with a bank, of the business of this city has strengthened the conviction that severe and efficient restrictions are necessary in order to prevent inordinate or insecure issues of paper currency; and that every other ordinary banking transaction should, like other species of trade or commerce, be permitted to every person or association of persons (other than bodies corporate), unrestrained by any provision other than the general laws of the country.

We have, from the general practice in the United States, contracted the habit of considering the issuing of a paper currency as an essential attribute of banking. The opinion is erroneous. Banks and bankers had been in existence long before any paper currency was issued by any private individuals or associations. Till very lately there were on the whole Continent of Europe but two or three incorporated banks which issued bank-notes. Then no private banker or association of persons (other than those few banks) had ever issued any species of paper currency. The right of issuing either a metallic or a paper currency has always been considered on the Continent of Europe as an attribute of sovereignty, and it has but very rarely been delegated even to corporate bodies. Even in the British dominions bank-notes have never been issued by the London bankers, neither by those thus technically called, nor by those houses of general business which carry on banking transactions on the largest scale. The business of exchange and banking has for centuries been carried on throughout the whole European Continent, and in the most important seat of commerce of Great Britain, by capitalists who issued no paper currency.

There will ever be, in every country which adopts or tolerates paper money, an intrinsic difficulty in determining by whom it should be issued and under what limitations and regulations. It is a subject for distinct consideration, and I will for the present confine myself to that to which alone you seem to have called my attention, viz., the repeal of those provisions of the Restraining Act which forbid individuals or associations to keep offices of discount and deposit.

The proper banking business consists not in making currency, but in dealing in existing currency and in credit, or, as both are generally expressed, bankers are money-dealers. They borrow and lend money, discount notes, buy and sell bills of exchange. They are, in all those respects, necessary intermediaries in every commercial country.

Their capital—that which they bring into action—and their credit have a tendency to reduce the rate of interest. They lessen the amount of currency wanted for commercial transactions by increasing the rapidity of its circulation by that concentration of payments and by those exchange operations which, both on the spot and between different places, substitute a transfer or exchange of debts and credits for actual payments and transportation of either specie or paper currency proper. Unlimited competition is as desirable and useful in that as in any other branch of commerce. No satisfactory reason has ever been assigned why dealing in money (setting aside the issuing of bank-notes) should be confined to certain chartered companies to the exclusion of every other person or persons. There is not, to my knowledge, any such legal prohibition either in any other of the United States or in any foreign country. The usury laws, the propriety of which is admitted to be doubtful, but which nevertheless prevail everywhere, apply to every money transaction, and not exclusively to bankers or money-dealers. This is not one of those insulated instances from which it may be unsafe to draw general inferences. Private banking has nowhere been prohibited but in New York, and the absence of such prohibition has nowhere been attended with any sensible inconvenience.

It seems, however, to be apprehended that an unlimited repeal even of that portion only of the Restraining Act which prohibits offices of deposit and discount may be attended with danger. It is suggested that depositors should be specially protected, and it is feared that powerful voluntary associations might obtain a dangerous control over the money market.

Whenever the power of issuing a paper currency is vested in a banking company, and restrictions are laid in order to guard against inordinate or insecure issues, it becomes necessary to take into consideration the amount of deposits as well as that of bank-notes. As the liability of the bank is the same with respect to both, the security of the holders of notes is as much affected by the magnitude of the debt due to depositors as by an excessive issue of paper money. But, if it is necessary to protect the country at large, the note-holders, and specially the more ignorant part of the community, against an excessive, depreciated, or unsafe currency proper, the same reason does not apply to depositors. Whether the deposits (so called) arise from an actual deposit of currency, from a transfer of credit, or from a discounted note or bill, the depositors, that is to say, those who keep an account with a bank, require no special provision in their favor. Their transactions in that respect are altogether voluntary; they almost universally belong to a class quite competent to judge where to place their confidence; the repeal of the law will increase the facility of making a proper selection. Enjoying the benefit of the general laws for the recovery of debts, those who may choose to deposit their money with private bankers, or with any association of persons whatever, require no greater protection in that respect than in reference to any other commercial transaction. The Legislature has probably done all that was proper and necessary on that subject, in providing, by the establishment of savings banks, a safe place of deposit, as it is supposed, for the earnings of the poorer classes.

Provisions, whether requiring the actual payment of a certain capital, limiting its amount, or regulating its application, never have and cannot, I think, be extended to individuals generally, or, if enacted, be properly enforced. Great capitalists will ever have an influence on the money market. No other remedy can be found than in the freest competition. But it may be required that the laws should not encourage any artificial dangerous concentration of capital in the same hands. A concentration of small capitals for the purpose of banking is useful, if not necessary, in a country where there is a great disproportion between the demand for capital and the supply. The capitalists were and still probably are too few in number in the United States not to render it desirable that associations should compete with them. I do not apprehend, if the restraining law should be repealed to the extent above stated, and no other alteration is made in the existing laws, that any voluntary association will be formed with such capital as would render it formidable or dangerous. It does not seem, however, that a limitation in that respect could be attended with any inconvenience. But, if necessary for that purpose, the same reason would operate with equal if not greater force against the creation of any chartered bank with a capital exceeding that generally allowed. An inference drawn from the late Bank of the United States would be irrelevant. If the present derangement and increased rate of premium in our domestic exchanges can in any degree be justly ascribed to the expiration of the charter of that institution, some other reason must be assigned besides its large capital, since this capital, under another sanction, remains unimpaired and actively employed.

It appears to me obvious that the prohibition ought to continue in force with respect to bodies corporate, such only excepted as are or may be expressly authorized by law. Incorporated associations are vested with certain special powers or privileges for certain special purposes, and should always be restricted in the exercise of those powers to the special purposes for which they were respectively granted. It would be preposterous to authorize, by a general law, insurance, railroad, and manufacturing companies, or municipal corporations, to become bankers or to transact any other business than that for which they were incorporated. Indeed, the only reason why they should be excepted in repealing the Restraining Act is because the prohibition is by that Act expressly extended to corporations,—a provision which was unnecessary if, as I think, they were by their charters confined to the business for which they were incorporated.

But some difficulties may arise in regard of voluntary associations other than bodies corporate. May they, for instance, be vested, as the new English joint stock banking companies, with the power of having a common seal, and of suing and being sued in their joint capacity and not as distinct individuals? Shall any special provision be made for the transfer of the shares into which the capital of such associations may be divided, and respecting the responsibility of the stockholders? Shall any alteration be made in the law of limited co-partnerships which may better adapt it to joint stock companies consisting of a great number of stockholders or partners?

To the first query I would not hesitate to answer in the negative. The essential and distinctive character of a corporation is that of being enabled to contract, to sue or be sued, and generally to do, in its corporate capacity and name, all other acts (for the purposes specified in the incorporating law) as natural persons may perform. All the other powers of a corporation are either necessarily derived from that primary character, or incidental and not essential. The right of perpetual succession, or of not being affected by the death of any of the members of the association during its existence, and that of expressing its will by a common seal, its by-laws, or in any other way provided for by the law, are inherent to and necessarily flow from the conversion of an association of persons into an artificial body acting as a natural person might do. The power of purchasing land, the exemption of personal responsibility, and other incidents are not essential characters of a corporation. They may be, and, by our own laws and those of other countries, have been, omitted or modified according to circumstances. The recent Act of Great Britain respecting banking joint stock companies is, as well as any Act of an analogous nature which might be passed by the State of New York, a general act of incorporation, which gives the essential character of a body corporate to every voluntary association formed for the purpose of carrying on banking business. The modifications and conditions annexed to such general act would not divert it from its primary and essential character. A general law of that nature, multiplying indefinitely bodies corporate in fact for the purpose of banking, appears to me in every respect liable to great abuses and highly dangerous. But it is not necessary to dwell on that topic, since such general law is forbidden by the constitution of the State. No law creating a moneyed corporation can be enacted without the assent of two-thirds of the members of both houses of the legislative body. This provision of the constitution has been uniformly construed to mean that a majority of two-thirds was necessary for the creation of each distinct moneyed corporation. It clearly follows that no general law, giving the essential character of a corporate body to every banking voluntary association or joint stock company that would avail itself of the provisions of that general law, can be passed consistent with the constitution.

I think, however, that all the questions, without exception, which may arise respecting any modification whatever in the existing laws of the land, connected with the subject under consideration, and beyond a simple repeal of the Restraining Act in the manner heretofore stated, may be satisfactorily solved by recurring to a general principle.

It is asked that the ordinary and proper banking business (setting aside for the present the question respecting the issuing of bank-notes) should be left as free and open to every person or association of persons as any other branch of commerce whatever, but not that it should be placed on a better or different footing. There is no reason why persons or associations of persons should not be permitted to apply their capital and credit as freely to the dealing in promissory notes and bills of exchange as to the purchase and sale of merchandise, of land, or of any commodity whatever. Nor is there any reason why any special provision should be made in favor of that particular branch. Let, therefore, every person or association of persons, disposed to carry on that business, be permitted to avail themselves without restriction of general laws of the land.

But if any modification of the existing laws (beyond the simple repeal above stated) is suggested, either for the purpose of facilitating banking or in order to guard against any danger apprehended from the repeal, let the propriety of such modification be tested by the general principle, and none be adopted in reference to banking which may not with propriety be applied and which shall not be at the same time extended to every other branch of commerce, and thus become part of the general law of the land.

Should my health and time permit, I will try in a subsequent letter to state the reasons which seem to me imperiously to forbid the repeal of the prohibition to issue bank-notes, and will also submit to you some modifications in the formation of banks and further restrictions on their operations, which appear to me necessary both in order to remove some of the well-founded objections against those institutions, and for the purpose of arresting the progress of excessive or unsafe issues of paper money. Be pleased to state whether any part of what I have written requires further explanation. You are at liberty to make any use you may think proper of this letter.

I have the honor, &c.

[1 ]State Senator, Albany.