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1839: GALLATIN TO BATES COOKE, Comptroller. - 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 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.

A.
* There are Alabama bonds issued by the State Bank (which is the State), indefinitely guaranteed by the State, which have been returned from England as unsalable; which I mention to put you on your guard.
† I think this stock very unsalable. I understand that the interest is not regularly paid.
New York State 5 per cent., 1860,104.
Pennsylvania 5,103½(1865 at 104).
Massachusetts 5,102½(1868 at 103).
Ohio, if 5 should sell101(1856), its 6 per cent. sells 111.
City of New York 5 per cent.,99(1860).
Maryland, if 5 would sell96(1870), its 6 per cent. sells 109½.
Kentucky, if 5 would sell95,its 6 per cent. sells 108½.
Tennessee, if 5 would sell95,its 6 per cent. sells 108½.
South Carolina 5,95.
Louisiana 5,95.
Indiana 5,93(1864).
Virginia, if 5 would sell93(1857), its 6 per cent. sells 104.
Illinois, if 5 would sell90(1860), its 6 per cent. sells 100; if 1870, 103.
Maine 5,90(1850), usual.
*Alabama 5,92(1863).
Michigan, if 5 would sell90(1862), its 6 per cent. sells 98½.
Mississippi, if 5 would sell87½(1871), its 6 per cent. sells 98½.
†Arkansas, if 5 would sell88,its 6 per cent. sells 98½.

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.

GALLATIN TO CHARLES S. DAVIES.

New York, 14th June, 1839.

Dear Sir,—

Your letter of the 7th reached me the 12th, and that of the 10th this day; too late of course for any answer being received in time for your purpose. This is not to be regretted. The question seems to be one of expediency, and which belongs exclusively to the State of Maine. I doubt whether I could suggest anything new even if I was acquainted with the new proposals; and, ignorant as I am either of those, or of the views in general of the British and American governments, I can only allude to some of your suggestions.

Your reference to the former convention of Mr. King, and to that proposed by Messrs. Monroe and King [Pinkney?], has alarmed me. You might as well throw dice for the territory as to leave the decision to a third commissioner. If British, he will infallibly decide in favor of the British claim. Objectionable as it may be in many respects, another reference to a foreign sovereign would be preferable.

With respect to the convention which I negotiated at London, although it has not been executed, nothing should be done that would admit that its provisions are abrogated. The acknowledgment of the map A as binding the two parties is advantageous; but that of Mitchell’s map is far more important and decisive as to the intentions of the parties to the treaty of 1783. The defects of that convention are, 1st, that the words of the Treaty of Ghent, “in conformity with the treaty of 1783,” though implied, were not actually inserted in defining the subjects referred to the arbitrator; 2dly, that the respective claims of the two parties were not explicitly expressed in the body of the convention; 3dly, that the arbitrator was not expressly authorized to call on the parties for the instructions given to (and the correspondence between each government respectively and) the negotiators of the treaty of 1783.

For the first omission I may perhaps be blamed. The two other propositions were rejected by the British negotiators. This is mentioned in order to call your attention to the subject if a new reference should be proposed. The last point is the most important, and might be brought to bear in the course of any negotiation. We have published everything, and the British have used against us not only our instructions and correspondence, but even the previous deliberations of Congress. If that government means to prove that it did not intend to yield what we claim under the treaty, why decline to communicate the evidence which will show what that intention was? and if they will decline a formal application to that effect, it will strengthen our case in public opinion even in England.

As to the second point, it was not more outrageous than an egregious act of folly on the part of Great Britain to claim the pretended north-west angle of Nova Scotia and the boundary-line which was first suggested by the perverted mind of Chipman. As the matter stood in 1827 I wanted to tie them to it, which I did by the reference to their line as traced in the map A; but I tried unsuccessfully to make them express it in writing, which would have made the absurdity of the claim still more glaring. I do not precisely understand your allusion to that point, but agree with you in the conclusion that the British government will probably hereafter only contend that our line is not consistent with the treaty of 1783.

It may be that the object of both governments is to procrastinate; and if that is necessary in order to preserve peace (a question on which, for want of sufficient data, I cannot even form an opinion), I certainly wish that Maine may find it practicable to acquiesce without impairing her just claim. Permit me, in reference to that point, to observe that new surveys can be of no use but to gain time; that it is highly important not to depart from the principle; that the words “high lands” are purely relative; that the distinctive character of the boundary is its dividing the waters; and that the absolute elevation, the continuity, the depressions, and the character of the ground over which that dividing line passes cannot affect the question. Governor Sullivan’s blunder in that respect was the source whence arose our difficulties, and which led our government to declare, in fact, that in its opinion there were, in the topography of the country, obstacles to the execution of the treaty. And even apart of Mr. Livingston’s incomprehensible proposal, it seems to me, from the general course of negotiations since the award or mystification of the King of the Netherlands, that our government at Washington has not taken the pains to imbue itself thoroughly with the merits of the case and the points on which the question in reality turned. I think, therefore, that if, for the sake of procrastination, new surveys are resorted to, great care should be taken, in giving the assent, to guard against any inference unfavorable to the rights of Maine which might be drawn from that acquiescence.

I believe at the same time that the corner of territory watered by the Restigouche might be yielded without its being a disgraceful concession. The letter of the treaty is in our favor; but resorting to the intentions of the parties, I am inclined to think that, if the negotiators had known the fact, they would have defined the north-west angle as being at the intersection of the north line with the highlands which divided the rivers emptying into the Atlantic from those falling into the Gulf or river St. Lawrence.

Unfortunately, this concession would not give to Great Britain what she wants, and I do not perceive, unless she should be induced to yield altogether, how the dispute can be ultimately arranged peaceably otherwise than by an amicable exchange of territory. Yet, for myself, I would prefer another attempt (properly defined and guarded) to refer the subject to a foreign independent sovereign, to war.

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