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GALLATIN TO B. C. HOWARD, M.C. - 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 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.GALLATIN TO BATES COOKE, Comptroller.New York, March 2, 1839. Sir,—Your letter of 25th ult. did not reach me till yesterday. I was under the impression that the general banking law of the State, by declaring that the stocks pledged for the redemption of circulating notes should consist of such public debts created by the United States, or by this State, or such other of the United States as should be approved by the comptroller, had left it discretionary with that officer to reject those stocks the value of which he had not the means to ascertain. The intrinsic value of a stock depends on the wealth and resources of the State which issues it compared with its expenditures and debt, and on the opinion entertained of its fidelity in fulfilling its engagements and of the stability of its government. The market price may be considered as the expression of the general opinion in those respects, and is the criterion to which we generally resort in all stock transactions. But in the case under consideration there are other circumstances which require attention. 1. The ordinary rate of interest in the United States is so much greater than that in England and that on our State stocks, that the market price of these depends entirely on that which they command in the London market. It is therefore regulated, not by our brokers and money-dealers, who would be the most competent judges, but by men abroad, whose knowledge of all that may affect the intrinsic value of the American stocks is necessarily imperfect. 2. That foreign market is always governed in a great degree by the comparative value of the European, and principally of the English, stocks. It is not because our stocks are thought safer, but on account of the higher rate of interest they yield, that they command the present prices. The French 5 per cent., notwithstanding the constant apprehension of a reduction in the rate of interest, sell 5 to 10 per cent. higher than ours. Thus the market value of American stocks is affected not only by changes in our situation (war, excess of debt issues, &c.), but by those in Europe; and the fluctuations arising from that source are enormous, depending principally on war and peace and on the greater or shorter duration of peace. The price of the English 3 per cent. was, in 1781, 55 per cent.; in 1790, 81; in 1795, 64 to 70; in 1813, 56; in 1819, 80; in 1838, —. You will at once perceive that a war between England and any other nation would cause a fall both in their and in our own stocks, and that the best of these would afford a less valuable and much less available pledge for the circulating notes than the commercial paper on which alone rests the safety of the paper issued by the old banks. 3. That the market value of a new stock is not settled until it has fallen into the hands of those who intend to make a permanent investment. For that distribution a certain length of time is necessary; when it has once taken place, the price, so long as no great political crisis intervenes, is subject to no sudden fluctuations, as there is never but a small quantity offered for sale, unless, indeed, new and continuous issues of the same stock are made; but, till thus distributed and whilst held by the original contractors or purchasers of the new stock, it has no fixed value. The four species of stock to which you allude—Maine, Michigan, Illinois, and Arkansas—are precisely of that description; there is as yet a competition between the holders and those who are in the habit of making investments in American stocks, and no actual sales had, I believe, been made in England of any of those four stocks to very late dates. With respect to other stocks, I enclose one of the late circulars of Baring Brothers & Co., showing the nominal price at which the stocks are held, though of late, owing principally to the great quantity of various kinds which has been remitted, the actual sales are but few. But you must observe that when quoted sterling the bonds or stocks are expressed in pounds sterling, and the quotation is the true price per cent. for which the stock sells; whilst when quoted simply and without the addition of sterling the stocks are expressed in dollars, and on account of the false valuation put on the dollar (St. 4 shillings 6 pence) about 9½ per cent. is to be added to the quotation in order to have the true par value: thus, if a stock is quoted St. 95, it means that the stock sells at 95 per cent.; but if quoted without the word St. 95, it means that the stock sells at 104 per cent. Thus far the calculation is plain; but the same kind of stock is generally more valuable when irredeemable for a longer term of years; and how to estimate this when the short stock is below par is, if at all practicable, very difficult. I had, at the end of the year 1838, prepared a comparative table of the market value of our stocks, founded on these various principles, which, though but an approximation, is as correct as I could make it. But the inferior species are now about 1 per cent. lower than at that time. The estimate is for a stock having about eighteen to twenty years to run, or payable 1859-1861. I have added, from information collected here, the present prices of the stocks not quoted in the London quotation.
In bringing, in column A, the value of 6 per cent. stocks to 5 per cent., I have added to a 5 per cent. considered at par the value of the annuity of the one additional dollar (interest) for the number of years it has to run. Thus, as an annuity of one dollar for eighteen years is (at 6 per cent.) worth $10.80, if a 6 per cent. stock having eighteen years to run sells for 111 dollars, we may presume that if at 5 it would bring a fraction more than par. As to my own opinion, I have no confidence in the South-Western stocks, and would not invest in their 6 per cent. for my family at 80 per cent. The Louisiana, however, is much safer than the three other (Alabama, Mississippi, Arkansas). Michigan is new, and has as yet no fixed character, and Illinois runs so extravagantly in debt that I am afraid of it. The nullifying propensities of South Carolina and Georgia are dangerous. I place great confidence in New York, Massachusetts, Pennsylvania, Ohio, Maryland, and Virginia, and have good opinion of Indiana and Kentucky stocks. The other I would reject altogether; and permit me to add that, under the existing law, it is natural that the worst and most unsalable stocks should be offered to be pledged; that, considering the instability of stocks, it is very desirable that none but the safest should be accepted; and that, particularly if the State intends to issue more stocks for internal improvements or other objects, it is obviously her interest that no other should be received but those of the State. This city stock might indeed be added, though at a less rate, as, though very safe, it is less salable, and therefore less available in case of need for the purpose intended by the banking law. I have the honor to be, respectfully, sir, your obedient servant. |
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