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1838: GALLATIN TO WILLIS HALL. 1 - 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 WILLIS HALL.1

New York, February 20, 1838.

Sir,—

I had the honor to receive on Saturday last your letter of 14th instant, asking my opinion on the question “whether a law authorizing the banks to issue post-notes for a limited time would facilitate the resumption of specie payments?” As, from the time when I became connected with one of the banks of this city, the law forbidding the issue of such notes has always been in force, I have had no opportunity to become practically acquainted with the use or abuse of post-notes. On consulting some of the most intelligent and experienced officers of the banks, and who are also earnestly desirous that specie payments may be resumed and maintained, I found that their opinion coincided with the general view I had taken of the subject. We think that the repeal of the prohibitory law could not in any shape facilitate the resumption of specie payments, and that it would at this time be inexpedient.

Post-notes, in that respect similar to Treasury notes, are a promise to pay at a subsequent day. Their value depends, therefore, on the market price of the use of money, or the true rate of interest at which money may be borrowed. Fluctuating, therefore, in value according to the fluctuations of that price, they never can, from the moment we return to specie payments, be used as currency. The banks could not substitute them for their notes payable on demand. Nothing can then serve as currency but paper bona fide exchangeable on demand for gold or silver. If not used as a substitute for currency, the only way in which post-notes could be supposed to add to the resources of the bank would be as means of borrowing money. But there is no solid bank in good credit that could not borrow as well without as with them. It is not for the purpose of increasing the resources of the banks in order to facilitate the resumption that post-notes are desired and suggested. It is simply in order that the banks may be induced to increase their discounts by an exchange of those notes for the notes offered for discount. This would only increase the liabilities of the banks and render them less able to maintain specie payments. Without reference to specie payments, and apart of the present crisis, post-notes, as a negotiable paper, are often useful to the commercial community. Their legitimate use consists principally in facilitating the transmission of funds to other parts of the United States; and even in that respect bank-notes payable on demand, not to bearer, but to order, or drafts at sight accepted by the banks, would answer the same purpose. But, whatever advantages may be derived by merchants from post-notes fairly and soberly used for such purposes as those or other legitimate operations, we were all of opinion that to repeal at this moment an existing restrictive law, and to authorize the banks to issue a new species of paper payable at a future day, would have a pernicious effect on public opinion, impair the public confidence, on which we must principally rely, and be, therefore, for the present, altogether inexpedient.

The city banks appear now to expect and to be determined to resume specie payments on or before the 10th of May. They are strong, and are pursuing the measures necessary still more to strengthen themselves. If they do not formally declare a day, it is principally because it is thought that, by meeting the other banks in convention on the 11th of April, those of New York will have more weight in inducing those of the East, South, and North-West, which are believed to be well disposed, to resume simultaneously with themselves or at a very early day. The fall in the rate of foreign exchanges, the expected influx of specie, and the still stagnant state of business are highly in their favor. The only difficulty in the way is the apprehended continued determination of the banks of Philadelphia, principally of the United States Bank, to prolong the suspension. Even in that case I do not apprehend positive acts of hostility; but others do.

To guard against that danger I do not perceive that the State can assist the banks otherwise than by interposing its credit, by authorizing, if necessary, the loan to them of a certain amount of State stock. If, as I do believe and hope, the Legislature is determined not to extend the time for resuming, and will let the charters of the banks be forfeited, according to law, on the 10th of May, some evidence of that determination might be useful.

I will shortly send you a correct statement of the city banks, and ask your permission to add some observations on our banking system generally and the improvements of which it appears to me to be susceptible.

I have the honor to be, &c.

GALLATIN TO CHARLES BROWN.

New York, March 1, 1838.

Dear Sir,—

I felt much gratified by the evidence of kind recollection evinced by the resolution of the convention of Pennsylvania, of which you sent me a copy, and for which I perceive that I was principally indebted to you.

The convention of 1789 was the first public body to which I was elected, and I took but a subordinate share in its debates. It was one of the ablest bodies of which I was a member, or with which I was acquainted. Indeed, could I except two names,—Madison and Marshall,—I would say that it embraced as much talent and knowledge as any Congress from 1795 to 1812, beyond which my personal knowledge does not extend. But the distinguishing feature of the convention was that, owing perhaps to more favorable times, it was less affected by party feelings than any other public body that I have known. The points of difference were almost exclusively on general and abstract propositions; there was less prejudice and more sincerity in the discussions than usual; and, throughout, a desire to conciliate opposite opinions by mutual concessions. The consequence was that, though not formally submitted to the ratification of the people, no public act was ever more universally approved than the constitution of Pennsylvania at the time when it was promulgated.

Tested by experience, its defects must have been discovered. Changes have taken place, more perhaps in public opinion than in the state of the country, but not the less entitled to consideration and deference. It may be a matter of doubt whether more is not lost by any change in a constitution which works well and for which there is an habitual respect than is gained by presumed improvements not essentially necessary or imperiously called by the voice of the people. I am not acquainted with the alterations which have been adopted by the convention. I hope that they will prove acceptable, and pray that Pennsylvania may, under the new or modified constitution, continue to prosper, and to be, as heretofore, a model in many respects for other States and other nations. It is indeed a just subject of pride that whilst yet a colony Pennsylvania was the first country that gave the example of a legal and practical universal liberty of conscience; that as one of the United States she was the first to abolish slavery; the first, if I am not mistaken, in commencing internal improvements; the first to reform her penal code and to substitute that system since adopted by the other members of the Union, and which attracts the attention of the most civilized foreign nations.

GALLATIN TO WILLIS HALL.

New York, 3d March, 1838.

Sir,—

I have the honor to enclose, 1, a copy of the first report of the committee on “the resumption of specie payments” to the general meeting of the officers of the banks of this city, which was unanimously adopted by the meeting and ordered to be published; 2, a copy of the second report of the same committee, which, as it refers to the situation and obligations of some of the banks, and as it is accompanied by an estimate, which might give rise to cavil, the meeting thought best not to publish. It is sent for the information of the committee of the Assembly of which you are chairman. The estimate is as correct as can at this time be made. The resolution recommending each bank to have an amount of specie equal at least to 20 per cent. of its capital was adopted unanimously by the meeting. This and the 30 per cent. of the seven banks which obtained State stock will give us five millions in specie on the day when we resume.

Several of us consider the 10th of May as the day on which our charters will necessarily expire if we do not resume specie payments on or before that day (see Rev. Stat., vol. i. page 605, and vol. ii. page 378, edition of 1836); others believe that according to the 1st Sec. of the Act of 16th May, 1837, the charters will continue to that day. I incline to the first opinion; and as there may, at all events, be a doubt, we have thought it safer to announce the intention of resumption for the 10th.

It seems to me that, if post-notes should be authorized, it should not be on the condition that within — days the banks shall announce their determination to resume specie payments. It would look as if the permission to issue post-notes was necessary in order to induce or enable the banks to resume. It is also important for the city banks not to fix the day positively till after the meeting of the convention in April.

I have the honor to be, &c.

GALLATIN TO A. C. FLAGG, Comptroller, Albany.

Private.

New York, March 6, 1838.

Dear Sir,—

The Senate of Pennsylvania has negatived the resolution of the House of Representatives which directed the banks of that State to resume specie payments on the 16th of May next. The North-Western States have always made their resumption depend on that of Philadelphia and New York; the Eastern States may pursue the same course; Baltimore goes with Philadelphia; there is no dependence on Charleston and New Orleans; Alabama and Mississippi are against the resumption. The probability now is that we will be obliged to resume without Philadelphia and Baltimore, and perhaps alone. Shall we be able to maintain specie payments? A great and spontaneous influx of the precious metals can alone enable us to do it. Even then we will be compelled to be extremely cautious, and, whether by curtailments, by withdrawing our circulation, or by both means, there must necessarily be a great pressure on the commercial community of this city. Those difficulties we must meet; but can the Legislature assist us in any way with propriety? and should it not abstain from any measure that might impede our endeavors? 1. I object to post-notes or any similar measure which looks as an extension or partial suspension and is calculated to impair confidence; and I have not been able to discover any other mode of aiding the banks than the loan of a State stock. 2. I think that every new general plan having for object materially to change our present system is in every respect ill-timed and dangerous. I most earnestly entreat that the banks may be permitted to extricate themselves, and that the resumption should take place before any new project is entertained. Whatever and however pure may be the motives of the movers, I do confidently assert that all the plans of indefinite joint stock companies or corporations, suggested under the pretence of free banking, have originated, or will terminate, in rank speculations; and that viewed under the most favorable aspect, they will have an unavoidable tendency to increase in amount and deteriorate in quality our paper currency. At all events, no more improper time could be chosen for such total change of system than that of general excitement and during a temporary and unnatural state of things. All I ask is that the consideration of such [a] momentous subject be postponed till next winter.

There are some other partial measures to be avoided. Such is the attempt to revive the Dry Dock Bank, whose catastrophe connected with the frauds on the Mechanics’ Bank was the last drop in the bucket, and the most immediate cause of the general suspension. Let not, I beg, the city banks be encumbered with it at the time of resuming, and, if to be revived, let it wait also till next session.

It is generally believed that the attempt is now made under the auspices and for the use of the United States Bank.

We have done all we could to make all the city banks join in the measures necessary for a resumption. The Manhattan and the Union hold back. As they are both bound to the State by the stock contract, we look to you to make them perform the conditions and, like the others, agree to get and hold an amount of specie equal to 30 per cent. of their capital.

Very respectfully, yours, &c.

GALLATIN TO WM. L. MARCY, Governor of the State of New York.

New York, March 20, 1838.

Sir,—

The undersigned were appointed by the general meeting of the officers of the banks of the city of New York a committee on the subject of the resumption of specie payments. They have the honor to transmit to your Excellency copies of two reports made by them to the general meeting aforesaid, the first of which has been published, and the other, not intended for publication, refers to the measures deemed necessary on the part of the banks in order to resume with safety and with a prospect to maintain specie payments. To that report is annexed an estimate of the liabilities of the banks payable on demand, and of their cash resources as they are expected to stand in the beginning of the month of May.

From those data, and according to the belief of the undersigned, there would be no difficulty in resuming on or before the 10th of May, and in maintaining specie payments, at the same time continuing to give banking facilities to the community at least equal to the present amount of their loans and discounts, and freely though discreetly issuing their circulation, provided the resumption was general and simultaneous on the part of at least the other principal commercial cities.

It is well known that the principal difficulties to be apprehended arise from the protracted reluctance of the Philadelphia banks to fix an early day for resumption. The banks of this city sent lately delegates to Philadelphia to confer on that subject and ascertain the ultimate views of the institutions of that city; but they declined naming any day till the meeting of the general convention of banks, which takes place on the 11th of April. The Senate of Pennsylvania has subsequently negatived a resolution of the other legislative house intending to compel the banks of that State to resume specie payments on the 16th of May.

Whilst there does not as yet appear any disposition on the part of the Philadelphia or Baltimore banks to resume at the same time with or shortly after those of New York, the banks of the North-Western, Eastern, and Southern States, though generally disposed to resume, may object to doing it without the co-operation of Philadelphia and Baltimore; Charleston is uncertain; the South-Western States generally, Alabama and Mississippi decidedly opposed to an early resumption.

Should we be compelled to resume specie payments without the co-operation of the other principal commercial cities, it will place the city banks in a novel situation, calculated for that very reason to impair confidence, and in which, whether from natural causes or from design, they may, notwithstanding all the measures adopted to guard against that evil, be exposed to specie drafts from States in which banks may still refuse to pay their debts in specie.

The undersigned believe that, provided the city banks generally adopt in earnest and carry into effect the measures recommended in the second report herewith enclosed, they will be able to sustain themselves. But in case of specie demands in the manner above alluded to from quarters of the Union where specie payments shall not have been resumed, it may be justly apprehended that the city banks, after having paid, may not be able to reissue their circulation; in other words, that they may be under necessity of withdrawing their notes and reducing their discounts to a sum not much exceeding the amount of their capital and surplus. It is obvious that the contraction of their concerns within such narrow limits will greatly distress the community and paralyze the commercial affairs of this city. In short, the ability of the city banks to resume specie payments may, in case of want of co-operation on the part of the Philadelphia banks, be only a payment of former engagements, and not a resumption of banking business on its ordinary scale.

It is therefore much less with a view to the safety of the banks, than for the purpose of being enabled to continue to accommodate the commercial community and to prevent if practicable the great distress to which it may be exposed, that the undersigned think it their duty to make this communication to your Excellency, and to call your attention to the aid which under such circumstances it may be in the power of the State, and which the State may deem proper and necessary to give. The only mode which has suggested itself to their minds consists in the State interposing its credit by the issue of a stock to be loaned for the purpose aforesaid, under the direction of the governor, on such contingencies and upon such conditions as may be prescribed by the Legislature.

The undersigned believe that such stock may, by being sold or pledged, shield the banks against the apprehended foreign demand, and they place great reliance on the moral effect of the simple enactment of a law of the State authorizing that measure.

We have the honor, &c.

GALLATIN TO WM. L. MARCY.

New York, 27th March, 1838.

Dear Sir,—

Your letter of 25th instant was received yesterday. Whilst pursuing steadily and with singleness of purpose the great object of the resumption of specie payments, we felt sensibly the difficulties likely to arise from a want of co-operation on the part of the banks of Philadelphia and other places, and the injurious effects it might have on the business of this great city. We could see no other efficient remedy than the interposition of the credit of the State in the manner suggested in our letter to you. Such is at the same time the peculiar situation of the banks and the prejudices entertained against them, that we were apprehensive that a direct application from them for the purpose aforesaid would not only betray a sense of weakness unfavorable to the prospect of maintaining specie payments, but might be liable to misconstruction and engender opposition. Under that impression measures have been taken by some of that sounder portion of the commercial community which feels the necessity of an early resumption and will sustain it, to have a memorial signed by merchants, asking from the Legislature the aid of the State for the purposes and in the manner stated in our letter. We hope that that memorial will in a few days be carried to Albany by a committee of merchants.

It was certainly our intention in making our late communication to you not only to lay before you a correct statement of our situation, prospects, and apprehensions, but also that the knowledge of all the facts bearing on the question and of our own view of the subject might be used for the purpose of promoting the object if it met with your approbation. With respect to the manner of doing it we trusted entirely to your judgment and discretion. You will, however, perceive from what I have now stated that we think it best that the application for aid should not come from the banks. The publication of our letter at this moment might be considered as an application from them; but I think that its contents may be advantageously used and communicated to such persons and in such manner as in your opinion may best promote the measure proposed. In its progress it may indeed become proper and necessary that it should be known that the banks which anxiously desire a resumption of specie payments consider the aid and support of the State as eminently calculated to insure the success of the attempt.

I consider, indeed, the passage of a law to that effect before the 11th of April to be of first-rate importance. The determination of the State, such State as New York, not to permit a further protraction of the suspension, and to lend its powerful aid in sustaining a resumption of specie payments, cannot fail to have a most beneficial influence over our own commercial community as well as on the banks of other States. It is at this moment the last hope we have that those of Philadelphia may be induced to withdraw their opposition.

Permit me to add, that whatever may be the merit of the propositions in reference to banking and currency which have been agitated during the present session of the Legislature, they cannot have the slightest favorable effect on the resumption of specie payments, which in our present prostrated situation should seem to be the first and primary object of government.

I have the honor to be, with great respect, dear sir, your most obedient servant.

The second report may be freely communicated, but on the whole need not be published; the object in transmitting it was to show that we had taken every measure in our power to be prepared for the resumption.

GALLATIN TO WILLIS HALL.

New York, 28th March, 1838.

Sir,—

Your letter of 3d instant did not reach me till the 10th. I laid before the committee of the city banks on the “resumption of specie payments” that paragraph in which, alluding to the issue of a State stock for that purpose, you say that if legislative aid is required, let application be made, and that if it can be shown that a law authorizing that issue is necessary to sustain the banks in case they resume specie payments, you think that it will pass.

We are unanimously of opinion that a law to that effect would be of great importance; and no other action of the Legislature that can have a salutary influence on the resumption of specie payments has suggested itself to our minds.

The object of the several propositions in reference to banking and currency, which have been agitated during the present session, is obviously to increase banking facilities, and eventually, if at all efficient and practicable, to increase the issues of paper. Whatever the effect and merit of those plans may be, the result cannot be immediate, and they cannot in the slightest degree assist in resuming and maintaining specie payments. This, however, is the immediate object which presses upon us, and to which my attention and faculties are for the present exclusively devoted. It is the only one in reference to which you first addressed me.

I can assert with perfect confidence that, in the present state of foreign exchanges and under all existing circumstances, there would not be the least difficulty in resuming specie payments without any aid from the State, or action of any kind by the Legislature, if the banks of the other great commercial cities, and principally of Philadelphia, would agree to a simultaneous, or nearly simultaneous, resumption. Both Philadelphia and Baltimore persist, however, so far as we are informed, in their opposition; and this may have an unfavorable effect on the ultimate determination of the banks of the Eastern, Southern, and North-Western States, which appear disposed to resume along with us, but may object if Philadelphia does not unite.

The banks of this State will be placed in a novel situation when resuming without the co-operation of some of the most important other places. They will be subject to specie drafts from quarters where specie payments continue to be suspended. I believe that, with all the measures of precaution which have been recommended in our second report, the city banks will be able to sustain themselves. We have done all that was in our power. But, if pressed, they may be compelled to withdraw their circulation and to curtail their banking facilities to an extent extremely injurious to the commercial concerns of this great city. It is much less in reference to the safety of the banks than in order to guard against that evil that the aid and support of the State are required.

I believe that the issue of a State stock, such as suggested in your letter, and on such conditions and restrictions as the Legislature may prescribe, will in a great degree, by its immediate convertibility (if I may coin the word) into specie, protect the banks against the effect of annoying specie drafts from other States. I rely principally on the moral influence of the mere passage of such law by the State. Writing to you, I need not expatiate on that subject, and will only say that it is the only hope now left that the Philadelphia (and particularly the United States) banks may be induced to agree to an early resumption.

But however satisfied of the soundness of those views, and of the high importance that such law should pass before the 11th of April, when the general bank convention meets, yet such is the peculiar position of the banks, and the prejudices entertained against them, that a direct application from them would not only betray a sense of weakness injurious to the resumption, but might be misconstrued and produce opposition.

I understand, however, that some of our respectable merchants friendly to the resumption of specie payments, and sensible of the difficulties attending the subject, have taken it up, and that a memorial from them, applying for legislative aid in the manner contemplated in your letter, is now prepared, and will be shortly sent to Albany.

Yours, &c.

GALLATIN TO WILLIS HALL.

New York, April 3, 1838.

Sir,—

In my answer of 20th February to your letter of 14th of the same month on the subject of post-notes, I stated the objections to “a law authorizing the banks to issue such notes for a limited time for the purpose of facilitating the resumption of specie payments,” to which object your inquiry was exclusively directed. I am very far from ascribing much weight to my opinion on a subject on which, as I mentioned, I had no practical experience, and on a measure respecting the effect of which we rely only on conjectures. But several respectable and experienced merchants who are anxious for a resumption are so decidedly of opinion that it will be beneficial, that I would not wish to stand on that doubtful point in opposition to them.

There is, however, a view of the subject taken by some which I think to be entirely erroneous. Post-notes cannot and ought not to be used as currency. They cannot be used as such unless the banks agreed on were compelled to take them and pay them as such, which would be equally unjust and injurious. If any paper not exchangeable on demand for gold or silver is received and used as currency, it must necessarily take the place of and drive away the bank-notes payable on demand, and this would be but a pretended resumption of specie payment.

But banks which are weak, and there are some of that description in the city, may, by making some sacrifices, be enabled to borrow money on the credit of such notes, and thus to strengthen themselves and to stand the difficulties of the first months of the resumption. The principal and avowed object of the measure, however, is to enable the banks to extend their discounts and to lessen the pressure on the commercial community which may grow out of the pertinacity of the United States Bank in protracting the suspension. Here a difficulty presents itself. It cannot be expected that the banks would lend gratuitously their credit to merchants; that they should give their post-notes in exchange for discounted notes without some compensation; and yet, unless permitted by a special provision, I do not see how they could charge more than they received without being liable to the charge of usury. They may afford to borrow at five and lend at six per cent., but not both to borrow and to lend at six. And they cannot, without breaking the usury law, by one and the same operation borrow from the same person at five and lend him at six per cent.

If you can by any legislative provision avoid that difficulty, the power to issue post-notes, though still liable to be abused, may probably be usefully applied in the approaching crisis towards relieving our merchants. The amount, however, should be limited in proportion to the capital, and the denomination of the notes should under no consideration be under 100 dollars. I should prefer not under five hundred.

Amongst the difficulties under which we labor we must reckon the weakness of some banks, particularly the Mechanics’, which renders it doubtful whether they may resume with safety to themselves and without again endangering the other banks. You may recollect that the transactions of the Mechanics’ and of the Dry Dock Bank (though the other banks loaned 900,000 dollars to the Mechanics’ and assumed the payment of the notes of Dry Dock) were the immediate cause of the suspension of specie payments, the last drop which made the bucket overflow. I regret extremely on that account that an attempt should be made at this session to revive the Dry Dock. If ultimately sound and solvent, that institution, after the injury it did to the others, may certainly wait till the next session, and after we shall have passed through the ordeal of resumption.

The affair of the Phœnix Bank is another very unfortunate circumstance. Independent of its misdeeds, it is, apparently at least, one of the strongest and best prepared to resume. Without taking into consideration its stockholders, the locking up of its specie, the situation in which its creditors (depositors) will be placed, the derangement it will cause in the affairs of the other banks, are all, at this moment, new impediments thrown in our way. If it can be done, let the decision be left by quo warranto, or some other legal process, to the courts of justice. The power to repeal a charter at the will of the Legislature should be exercised with the greatest discretion. You may by legislative enactments divert capital from one employment to another, and substitute, to a certain extent, credit for capital, but you cannot create capital. If you want more capital, it must be invited from abroad; and you cannot expect that foreign capital will be invested in the stock of institutions that may be annihilated by the simple fiat of a popular assembly. I do not wish myself for the establishment of a large State bank at this moment, because I think that it would cut off any expectation of a national bank of the United States. But the State may ultimately be compelled in self-defence to resort to that measure, and you may rely that such an institution could not compete with the Pennsylvania United States Bank without recurring, as it has done, to foreign credit and foreign capital.

I have the honor to be, with great respect, sir, your obedient servant.

GALLATIN TO JONATHAN GOODHUE, Albany.

New York, April 5, 1838.

Dear Sir,—

You asked for some details respecting the issue of State stock, applied for the purpose of aiding the banks in maintaining specie payments. I had thought it sufficient to state the object and leave all details to the Legislature. The object is twofold: 1, to afford to the banks additional means of raising money at once by the sale or on the pledge of the stock; 2, to produce on other communities and other States a moral effect by inspiring the confidence which the support of the State will give. In reference to the last point it may be proper to make the amount larger than would be otherwise necessary or could be used. I think that it should not be less than five nor more than ten millions of dollars.

The operation will be onerous to the banks; they must, in order to realize, sell the stock cheap, and, if through the means of foreign exchange, draw on very unfavorable terms. There is no danger of any that is sound taking more than the amount absolutely necessary. The stock must, either by its rate of interest, or rather by the number of years for which it shall be made irredeemable, be made worth more than par, reserving to the State, if thought proper, the premium above par at which it may be sold. A five per cent. stock redeemable after 1860 will answer.

The convenience of the State must determine the time and mode of payment of the stock by the banks. If the State intends to issue stock for the purpose of raising funds for internal improvements, and that should be the stock sold to the banks, it must be paid for in instalments at the time and times when wanted for such improvements. In my opinion it would be more advantageous for the banks to pay for the stock within a short period, say in three or four annual instalments. But if the State issues the stock solely for the purpose of aiding the banks and without reference to an application hereafter of its proceeds to public objects, it may be expected that, however inconvenient to the banks, they must pay the interest for the whole period and reimburse the principal. In that case the State only interposes its credit; the premium, if any, must belong to the banks; and there would seem to be an impropriety in making the stock irredeemable for a longer time than the period of the existence of the bank, which should thus engage to reimburse the principal. The charter of the National Bank expires 31st December, 1856; those of the principal city banks, I believe, in 1852-1853.

If deemed necessary to specify the contingency on which the stock should be issued, I say, without hesitation, that it is wanted only in case the banks of Philadelphia, or, to speak with more precision, the United States Bank of Pennsylvania, should not resume simultaneously with or shortly after those of New York. The Legislature may, as it shall deem best, specify the contingency, or leave it discretionary with the officers charged with the execution of the law.

As to the execution of the law, the object for which the stock is permitted to be issued must of course be defined. It is intended to be sold on credit (as above stated) to the banks of the city of New York for the purpose of aiding them to maintain specie payments. All further details should, I think, be left to the discretion of the State officers. No other security can be expected than the sound situation and general character of the banks to which the stock may be sold; but it should not be thus sold to any that is not sound and of good standing. Hence the necessity of a discretion in the public officers.

The conditions also must in part depend on circumstances, and cannot be well defined beforehand. The essential condition will always be, in substance, that the stock shall be exclusively applied to the object for which it is sold to the banks. That generally will be the sale or pledge of it for specie; but there may be other modes equally efficient to apply it, and on the whole it will, I think, be best to leave the conditions to the Executive discretion. When speaking of the soundness of a bank, I must say that, though wounded, it may be perfectly sound so far as relates to its creditors. Thus, though the Mechanics’ Bank should lose two or three hundred thousand dollars of its capital, it would with the remaining seventeen or eighteen hundred thousand be as perfectly safe as if its capital had originally amounted to that sum. I mention this because I wish government to lend it three or four hundred thousand dollars, without which it may be difficult for it to resume specie payments with safety to the whole banking concern. If you should have an occasion, mention this to the Governor.

I wish also that the fatal effect of a repeal of the charter of the Phœnix Bank taking effect immediately, on its discounters and depositors, and on the general banking and commercial interest of the city, may be taken seriously into consideration.

What is meant by the report of the bank committee to the Senate to permit banks to receive deposits payable in current bills? This presupposes current bills not payable in specie, or, in other words, a protraction of the suspension of specie payments.

With great respect, &c.

GALLATIN TO WM. L. MARCY, Governor of the State of New York.

New York, 9th April, 1838.

Dear Sir,—

I hear with regret that the committee of merchants who had gone to Albany have returned without doing anything decisive, and without even addressing you a letter which might lay the foundation of a message to the Legislature if that message appeared to you proper. It is also reported that it is intended to postpone the subject till after the meeting of the bank convention; but for what reasons I do not understand. For that Philadelphia, and of course Baltimore and some other places, had determined not to resume, was known at Albany; and the want of co-operation on the part of Philadelphia alone would render the aid of the State necessary. On the other hand, the knowledge that the State of New York would support the banks in their earnest effort to resume specie payments cannot fail to have a powerful effect on the convention; it will encourage the timid and decide the wavering. I am so well satisfied of this, and, now when there is not time for a decisive action of the Legislature, that even your message would be sufficient to produce that effect, that if you think it necessary as a basis for recommending the measure to the Assembly, you may consider yourself at liberty to communicate the letter of the bank committee of seven to you. For the reasons stated in my letter of the 27th March, I would rather, if it can be avoided, that that of the committee should not be published; but, if necessary in support of your immediate message, I would waive the objections.

I have the honor to be, with great respect, dear sir, your most obedient servant.

GALLATIN TO SAMUEL B. RUGGLES.

New York, 9th April, 1838.

Dear Sir,—

I am told that it is intended at Albany to postpone the consideration of the application for aid by the State of a sale of stock on credit to enable the banks to sustain specie payments till after the meeting of the general bank convention, which meets on the 11th inst.

If the committee of which you are chairman, and to whom was referred the memorial of certain merchants on that subject, is against the application, I have nothing further to say.

But if it is intended to report in favor of the memorial, permit me to say that it is of great importance that the report should be made at once, so as to produce the desired effect on the convention. There will be found in that body many timid and undecided men. The knowledge that the great State of New York will sustain and aid the resumption cannot fail to have a powerful influence; and the report of the committee, since it is too late to expect a timely vote of the House, will alone be of great utility to promote our object.

Yours, &c.

GALLATIN TO B. C. HOWARD, M.C.

New York, 7th May, 1838.

Sir,—

I had the honor to receive your letter of 1st of this month.

The balances due on the 7th of April by the banks of Baltimore to those of this city amounted to less than 300,000 dollars, and the amount has since that time been rather lessened than increased.

Whatever the amount may be, I have no doubt that the banks here would agree to any reasonable postponement, provided those of Baltimore resume specie payments. No difficulty is, I think, to be apprehended from that cause.

Nothing would, in my opinion, more effectually remove objections, and promote an early and general resumption of specie payments, than an abandonment, for the present at least, of the sub-treasury plan and a repeal of the specie circular.

It seems to me that you may wait till a surplus revenue does exist before you make new provisions for its safe-keeping; and, as the question becomes important and difficult only in case of a large accumulated revenue, I agree entirely with the President in the opinion that the true remedy consists in reducing the revenue, as far as it may be estimated, to the amount of the current expenditures of the nation.

The specie circular is now a dead letter; but its effect, after the resumption, is a subject of actual apprehension to the Western banks which wish to resume; and it is used as a pretence for not resuming in other quarters. The claim on the part of the Executive to make a distinction as to the kind of currency in which different branches of the revenue shall be collected is really untenable; and a joint resolution, substantially such as that proposed by Mr. Clay, would at this moment be extremely desirable.

My great anxiety for an early and general resumption of specie payments, so essential to public and private credit and indeed to the character of the country, must be my apology for submitting those suggestions to your consideration.

I have the honor to be, &c.

[1 ]Chairman of the Committee on Banks, Albany.