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Subject Area: Economics
Subject Area: Political Theory

GALLATIN TO REV. FREDERICK BEASLEY. - 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 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.