Front Page Titles (by Subject) 1841: GALLATIN TO PETER J. NEVINS, &c. - The Writings of Albert Gallatin, vol. 2
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1841: GALLATIN TO PETER J. NEVINS, &c. - Albert Gallatin, The Writings of Albert Gallatin, vol. 2 
The Writings of Albert Gallatin, ed. Henry Adams (Philadelphia: J.B. Lippincott, 1879). 3 vols.
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GALLATIN TO PETER J. NEVINS, &c.
New York, 9th February, 1841.
I had the honor to receive your letter dated yesterday. I believe that Mr. John L. Lawrence is in every respect qualified for the office of collector of this port. I know him to be a man of strict integrity and one of our most honorable and respectable fellow-citizens; and there is no one, within the limited circle of my personal acquaintance in this city, whose appointment would be more gratifying to me.
At the same time I beg leave to observe that, from the time I ceased to be employed in the public service, I determined, for obvious reasons, not to intrude my unasked advice on the Administration; above all, never to apply for removal or recommend for office. To that resolution I have scrupulously adhered; and I may add that I have no claim on the next Administration, and do not entertain the belief that my opinion can add any weight to a recommendation so respectable as your own.
I have the honor, &c.
N.B.—Mentioned verbally to Mr. Lawrence that the gentlemen might make any use they pleased of my letter, but must not ask my permission or any explanation.
GALLATIN TO JOHN M. BOTTS, M.C.
New York, 14th June, 1841.
I had duly received the letter you addressed to me last winter, and had hoped that my declining to answer it would satisfy you that I had an insurmountable objection to any use whatever being made of any conversation that may have taken place between Mr. Jefferson and myself on the subject of the Bank of the United States. I will only say that the report which reached you was imperfect and incorrect, and that he lived and died a decided enemy to our banking system generally, and specially to a bank of the United States.
My last essay, the receipt of which you do me the honor to acknowledge, was written without reference not only to parties, but even to any general political views, other than the restoration and maintenance of a sound currency. Except in its character of fiscal agent of the general government, I attach much less importance to a national bank than several of those who are in favor of it; and perhaps on that account it is a matter of regret to me that it should continue to be, as it has been since General Jackson’s accession to the Presidency, and not before, a subject of warm contention and the pivot on which the politics of the country are to turn. I am quite sure that if this takes place, and the issue before the people be bank or no bank, those who shall have succeeded in establishing that institution will be crushed. I do not doubt your sincerity and bravery; but the cause is really not worth dying for. Did I believe that a bank of the United States would effectually secure us a sound currency, I would think it a duty, at all hazards, to promote the object. As the question now stands, I would at least wait till the wishes of the people were better ascertained. So far as I know, the opponents are most active, virulent, and extremely desirous that the great contest should turn on that point; the friends, speculators and bankrupts excepted, are disinterested and not over-zealous.
I have the honor to be, respectfully, sir, your obedient servant.
GALLATIN TO R. M. T. HUNTER, M.C.
New York, 12th July, 1841.
I was so prostrated by the heat that I could not attend to the plan for collecting and disbursing the public revenue, transmitted along with your letter of 27th June. Nor have I, even now, sufficiently investigated it to form a decisive opinion of its utility or practicability. Old men are not the most proper judges of new projects, as they are naturally afraid of innovations. My principal objection to the plan is that it is an experiment.
Taxes are less oppressive in proportion as they are less felt. It is an objection to direct taxes that they must be paid at once for the whole year. In France, where they are heavy, the inconvenience was such that they have been made payable in twelve monthly instalments. There is at least that advantage in indirect taxation, that the consumer who ultimately pays the tax does it imperceptibly, and at the same time when he pays for the article consumed, which is generally the most convenient for him to pay. The question in relation to the collection of duties by government is, what is the most convenient time and mode of payment by the merchants on whom it falls in the first instance?
Your plan and report show that you are fully aware of the fact that by far the greater part of all large payments, whether public or private, are effected by the transfer of respective debits and credits; for which purpose you wish to place in immediate contact the debtors and creditors of government. But those creditors have debts to pay or expenses to defray; and those debtors or merchants rely almost exclusively for the payment of the duties on the simultaneous collection of the debts due to them. It seems to me that there would be a great inconvenience in being compelled to concentrate in a single day all their payments for one quarter, unless the same usage could be made to prevail with respect to the debts due to them. I should also think that, although the nominal payments by the Treasury proper might be made to conform with the plan, it would be extremely inconvenient for the parties concerned that all the actual payments by the War and Navy Departments should be made on the same day once only every three months. You will be pleased to consider those desultory observations as merely suggesting some of the difficulties which might occur in carrying the plan into effect.
I presume that your object was to offer a substitute for the sub-treasury. The fact is that there has been no difficulty in the collection or safe-keeping of the public moneys so long as we had a national bank, or, in its absence, so long as the State banks sustained specie payments. With all its defects and dangers, Congress cannot prevent a bank currency from being that of the people at large. The suspension of specie payments is the great and natural disease of the system. Whenever it takes place, the general currency ceases to be uniform, that is to say, to be everywhere equivalent to gold and silver. Amongst other and greater evils, it cannot be used, in conformity with the Constitution, for the collection of the revenue and for the public expenditures. Hence my anxiety that a remedy may be found for that evil. In the mean while, a modification of the sub-treasury, that will permit the use of specie-paying banks as depositories and of their notes as a public currency, united with the continuation of the issues of Treasury notes for the same purpose (viz., for the payment of duties, &c.), appears to me to be in every respect the most eligible mode. It should be adopted for the present, even if a national bank was established, until that institution was organized and had substituted its own notes.
You may have constitutional objections to such banks which I do not entertain. Viewed only as a question of expediency and in reference to the general government, I have no doubt of its great convenience and utility for all the purposes above stated, provided that it is laid under proper restrictions and affords a guarantee against its own suspension. For which purposes I deem it indispensable, 1st, that the restrictions should be enforced, not by occasional, but by actual, complete, and at least semiannual inspections, carried on by officers appointed for that special purpose; 2d, that in case any of its branches did suspend its specie payments, the bank should cease to issue any of its notes whatever until those payments were resumed; and that if the suspension continued beyond the definite time determined by the act of incorporation, the bank should be ipso facto dissolved and its charter forfeited.
For the soundness of my opinion on the last point, I rely much less on any general abstract argument than on the lessons of experience. The banks of New York would have forfeited their charters on the 10th of May, 1838, if they had not resumed specie payments on that very day; having taken an active part in that event, I may say that it is doubtful whether it would have taken place had they not been thus compelled to resume. The want of a similar provision enabled the United States Bank of Pennsylvania to prolong and renew the suspension; and the preponderating, in this instance most baneful, influence which its overwhelming capital gave it over the other moneyed institutions of three-fourths of the country, has been and continues to be seen and felt, in the present state of the currency, in such manner as seems to require no comment. It may be said that continued unfavorable foreign exchanges, accompanied by other untoward circumstances, might force even a great and well-administered bank into a temporary suspension; and on that account it is that I ask for a forfeiture of its charter only in case the suspension should be prolonged beyond a certain time (say not less than six nor more than twelve months). I have doubts respecting several other points, but none on this; and, however friendly to a bank of the United States, I would without hesitation vote against the incorporation of any which did not embrace that provision, and protect the country against the recurrence of such scenes as we have seen, and of such state of things as a great, concentrated moneyed power may again produce, if not efficiently coerced to perform its duty.
My hopes of the action of the national in regulating the currency of the State banks are less sanguine than they were formerly; and I believe the application of a bankrupt law to those institutions to be by far a more efficacious remedy. But, provided we are guarded against its abuse, the power of the Bank of the United States over the general currency, be it greater or less, will be beneficial.
I ought perhaps to apologize for having gone beyond the object of your inquiry, but the subjects are intimately connected, and I was naturally drawn into that one which is in every respect most familiar to me.
GALLATIN TO MICHEL CHEVALIER.
New York, le 14 septembre, 1841.
J’ai été tellement affaissé par les infirmités de mon âge et les chaleurs de notre été, que depuis le mois de juin jusques à présent je me suis trouvé incapable de m’occuper d’aucun objet sérieux. L’automne m’est plus favorable, et j’ai pu lire et apprécier votre bel ouvrage sur les communications intérieures des États-Unis. Il est réellement surprenant que ce soit à vous, dont le séjour ici a été si court, que nous soyons redevables du tableau le plus graphique et le plus vrai de notre état social, et de la seule description exacte et complète de nos travaux intérieurs. Je suis très-reconnaissant de la manière bienveillante dont vous avez parlé de moi, et je suis flatté de voir mon nom, pour ainsi dire, associé au vôtre.
Nous nous trouvons dans ce moment arrêtés dans notre marche, mais ce n’est qu’un retard. Personne n’a mieux vu que vous qu’il y a plus d’énergie et d’ardeur que de prudence dans les États-Unis. On s’est trop hâté; et au lieu d’accélérer, on a par là retardé Pheure du succès. Quelques états avec une population croissant rapidement mais encore insuffisante, et n’ayant pas encore eu le temps d’accumuler des capitaux, ont commencé, sans autre ressource que le crédit, des ouvrages que sept à huit ans plus tard on aurait pu exécuter sans difficulté. Plusieurs se sont obstinés à emprunter chaque année et la somme nécessaire pour les travaux de l’année et celle dont, ne voulant imposer aucune taxe, on avait besoin pour payer les intérêts toujours croissants de la dette. Puis voyant que le crédit baissait, on a cru pouvoir y remédier en établissant des banques hors de toute proportion avec les besoins légitimes du pays; et c’est précisément ce qui a achevé de le détruire. Vous pouvez néanmoins être assuré que, quoique sous l’influence de toutes ces causes nous ayons essuyé une chute, nous nous reléverons naturellement et nécessairement, que ceci n’est qu’une suspension momentanée, et qu’à l’avenir nos progrès, probablement un peu plus lents, n’en seront que plus solides. Je puis même dire qu’en Pennsylvanie, par exemple, quoique les dépenses annuelles d’entretien et de surintendance ajoutées aux intérêts de la dette contractée pour la construction des canaux et des chemins de fer excèdent considérablement le montant des péages perçus par l’état, l’augmentation dans la valeur locale des produits de l’agriculture et des mines due à ces nouvelles communications s’élève dès à présent à une somme très-supérieure à celle des taxes qu’on doit imposer pour faire face au déficit.
Je ne puis pas vous donner l’équivalent de votre beau présent, mais je vous prie d’accepter comme souvenir et comme marque de ma reconnaissance cinq écrits composés depuis ma retraite des affaires publiques. Les trois derniers ont été publiés depuis que vous nous avez quittés. Le plus volumineux, celui qui traite de l’ethnographie des nations aborigènes de la partie de l’Amérique au Nord des colonies espagnoles, est le fruit de mes loisirs et n’a aucun rapport avec la politique. Je désire, si je le puis, y ajouter un supplément, déjà commencé, qui contiendrait quelques considérations qui se rattachent aux principes de la première civilisation et à l’histoire de l’homme.
Veuillez, monsieur, agréer l’assurance de ma considération distinguée, &c.
GALLATIN TO J. ABBOT, Jr.
New York, October 14, 1841.
I had the honor to receive your letter asking my opinion on the propriety and effects of a resumption of specie payments by the banks of West New Jersey.
Banks have been permitted to issue paper money on the express condition that they should sustain its value at par with specie. Whenever the condition ceases to be performed, the privilege should likewise cease to exist. If that natural principle was rigidly adhered to, if the banks were expressly forbidden to issue the notes of any suspended bank (including, of course, their own notes when they had themselves suspended specie payments), this alone would in most cases prevent a suspension; and when it did not, the provision must necessarily enable the suspended bank or banks, if solvent, to resume specie payments within a very short time. A much greater indulgence has been granted to banks—much greater, certainly, in this instance—than was necessary. But it is not the less an obvious moral and legal duty on their part, in the case of a general suspension, to resume as soon as possible. On that subject, as well as on the intolerable evils and immoral tendency of a depreciated currency, I have nothing to add to what I have already published on several occasions before, during, and since the suspension in this city, and I beg leave to refer you to my last Essay and Appendix (particularly, Essay, pages 20-24 and 59-62; Appendix, pages 101-114).
If a sense of justice be not a sufficient motive, it seems to me that their interest should induce the banks to perform their duty. The patience of the people is nearly exhausted. They have waited from time to time, always expecting the promised restoration of a sound currency. They now see that nothing has been done in that respect by the change of Administration, that nothing can be expected from it. The opposition to banks, strengthened by the catastrophe of the United States Bank, and by numerous other failures and defalcations, is daily gaining ground, and its effect on the banking system generally and indiscriminately cannot be otherwise averted than by a speedy restoration of the currency. I would indeed myself prefer a total exclusion of paper money to a continuance of that system as now organized and administered west and south of New York.
In order to be able to resume specie payments, the banks which have suspended must have made the necessary preparations. It is not a matter of opinion, but a mathematical truth, that this can be effected in no other manner than by a diminution of the liabilities of the banks and a corresponding curtailing of its own loans and discounts. This last measure is always inconvenient to the borrowers, who call it an injury to the community. The continued suspension of specie payments and circulation of a depreciated currency are the general evil and the true injury to the community at large. The reduction in the amount of discounts is a partial evil which falls precisely on those who ought to bear it, since it was the excess of the loans which was the cause of the suspension. Two years have elapsed since this took place for the second time. If any of the suspended banks have not, during a period so amply sufficient for the purpose, gradually lessened their discounts and their liabilities, so as to be prepared for an immediate resumption, it is their own fault; and it is far better that some of them should, if necessary, wind up their business rather than that those which are sound and prepared should continue to suspend their payments, and that the whole community should still be afflicted with a spurious currency, and that the general interest should still be sacrificed for the benefit of the few. The interest of those borrowers who oppose a resumption may be combined with that of some of the banks, either on account of their own embarrassment, as was the case with the United States Bank of Pennsylvania, or because they make larger profits so long as they are not compelled to curtail their discounts. In either case, plausible pretences for further delay are never wanted; and of this we had sufficient evidence prior to the resumption of specie payments by the banks of this city.
It is notorious, 1st, that they did resume, not only without waiting for the co-operation of the other banks, but notwithstanding the various reasons or pretences alleged in opposition to that measure, all which were founded on its presumed impracticability, or on the pretended general distress which it would cause; 2dly, that the resumption was effected with great ease, and without being attended with any of the fatal consequences which had been predicted; 3dly, that within less than three months the example was generally followed by all the banks of the United States; 4thly, that the subsequent suspensions were caused, exclusively in all but some of the South-Western States, by the inconceivable and unparalleled mismanagement of the United States Bank of Pennsylvania.
As far as I am able to judge, the reasons now alleged for a continued suspension, which are drawn from the supposed inconveniences of a partial resumption, are as unfounded as those which were adduced for this same purpose in 1838. I cannot, for instance, perceive how the fact that the produce of West New Jersey is mostly sold in Philadelphia and paid for in Philadelphia currency can, if your banks should resume before Philadelphia, prove more injurious to the producer and to the country than it now is. The price obtained for the produce, that given for the goods purchased in return, or the amount of debt payable in Philadelphia extinguished with the proceeds, will remain precisely the same.
But the plea of expediency, whether well founded or frivolous, is utterly inadmissible when the question is one, not of profit and loss, but of justice. I cannot see any substantial difference between an attempt to prove that the deteriorated specie currency issued by a coiner is a public benefit and the assertion that the suppression of a depreciated paper currency is a public injury. Repudiating, therefore, every objection to a resumption founded on presumed convenience or expediency, the fact remains to be ascertained, whether the sound banks of West New Jersey have generally made such preparations as will enable them at this time to resume and to maintain specie payments. Of this you are the only competent judges. With their actual situation I am unacquainted, and can at most only point out in a general way the obstacles which, if they have not been foreseen, might defeat the attempt.
There are always, in resuming specie payments after a protracted suspension, difficulties to be encountered, which vary in different places and at different times. In the intercourse between two countries, or two districts of the same country, that which is possessed of the greatest circulating capital will generally be creditor of the other. The city of New York, partly on that account, and also from its having become the principal centre of the commerce and money transactions of the United States, is generally creditor in reference to all the other sections of the country; but, for the same reasons, the United States are generally indebted to Europe, and New York is the place where that debt is concentrated and must be provided for. On that account it would have been very difficult for the banks of New York to resume so long as the foreign exchanges were unfavorable, and they must always be prepared for such a contingency. At this moment there is a continued exportation of specie from this port to Europe amounting to 4 or 500,000 dollars a week, and which, in the opinion of men of business, may continue six weeks longer. As yet it has not affected our banks, the specie wanted having been supplied by an influx from various parts of the country. It must be admitted that this drain, whilst it continues, renders the general resumption somewhat more difficult; but the portion which you might be called on to supply would be so small that, so far as you are concerned, it can hardly be considered as an impediment.
West New Jersey is, however, in the natural course of trade, generally indebted to Philadelphia; and if, as a necessary preliminary to a resumption, the portion of that debt which is payable, not in Philadelphia, but in New Jersey, has not been considerably diminished, money-dealers may, if you resume before Philadelphia, compel your merchants to pay that portion in specie. This might render it necessary for your banks to be better provided than would otherwise be requisite; and it seems to me that this is the only special difficulty growing out of your commercial connection with Philadelphia which you have to encounter.
I take it for granted that your banks have preserved the public confidence at home, and will be supported by the community so far as to be in no danger of a sudden run whenever you resume. It was the total loss of public confidence by the United States Bank of Pennsylvania which caused the failure of the attempt to resume in January last. There would have been no difficulty had the other banks of Philadelphia resumed alone, without making the vain attempt to sustain that bankrupt institution.
I hesitated whether I would answer your letter, partly because I had not the information necessary to form a correct opinion of the immediate practicability, which, in my view of the subject, is the only question open to discussion, partly because neither this city nor perhaps the country at large can be materially affected by the course you may pursue, and I had no wish or business to meddle with the local concerns of another State. Yet, though the evils of a protracted suspension on your part may fall almost exclusively upon yourselves, I am fully sensible of the moral effect which your resuming, without waiting for the action of the adjacent State, may have on public opinion there and in other quarters.
There appears to be increasing disposition in Philadelphia and New Orleans towards an early resumption, and I cherish the hope that it will be found practicable in both places. That event would in its consequences be decisive and restore the currency almost universally.
My last essay, published in June, consists principally of an inquiry into the means by which a recurrence of the evil may be prevented. I have requested the publishers to send you six copies, to be distributed as you may think proper, and I will thank you to let me know whether you have received them.
I have, &c.
GALLATIN TO A. C. FLAGG.
New York, 24th December, 1841.
I have directed Messrs. Wiley & Putnam, booksellers, to forward to you twenty copies of my last essay on banks and currency; and I pray you to accept one for yourself, and to have the goodness to distribute the others amongst such persons (legislators, editors, &c.) as, in your opinion, are disposed to investigate the subject. I am sensible of the intrinsic difficulties of the subject; that a paper currency, by whomsoever and however issued, will ever be a dangerous instrument; and that business cannot be carried on as advantageously for the parties concerned, or with equal safety to the public, by joint stock companies as when managed by the parties themselves. But efficient and perfect remedies for those evils, if there be any such, cannot be applied at this time, nor at any time, otherwise than gradually. My object has been only to suggest such provisions as, in the mean while, may be applicable to the present state of things, supersede the necessity of special laws, assimilate the chartered and the free banks, and do equal justice to all. If my health and strength permit, I will address to you some further observations on those topics. In the mean while, I embrace with pleasure this opportunity of renewing the assurances of my high consideration and sincere regard.
Respectfully, your obedient servant.
I hope that the Legislature will stop the farther increase of public debt, which is the road to ruin. Far better to lay equal taxes than to borrow in time of peace. The public is greatly indebted to you for having called their attention to the frightful amount of debt incurred by the several States.
GALLATIN TO CALEB CUSHING, M.C.
New York, 28th December, 1841.
I write with difficulty, and have on hand a work which must be terminated this week, and will occupy me exclusively to the end of it. I have only time to acknowledge the receipt of your letter of the 23d, and to say that I am averse to the issuing of a paper currency, by government, of the same character as bank-notes, as contemplated by the report of the Secretary of Treasury, and equally so to government dealing in any way in exchanges, otherwise than for its express wants and purposes. If health and strength permit, I will try, in the course of next week, to state to you the reasons on which my opinion is founded.
I have, &c.
GALLATIN TO A. C. FLAGG.
New York, December 31, 1841.
In my letter of the 24th I announced my intention of adding some further observations on the subject-matter of my last essay on banks and currency. These, however, will be little more than a recapitulation of that portion of the essay which relates to the double banking system of this State.
In order that I may not be misunderstood, some preliminary explanations may be proper.
I use the term banking in that sense in which it is universally understood in the United States; that is to say, as implying the permission to issue a paper currency.
By free banking, in its genuine sense, I understand the extension of that permission to all persons or associations of persons, free of all restraints, but on his or their personal responsibility.
It is only as regards the permission to issue a paper currency that I think restrictions to be necessary. In every other respect there is no more reason for laying restrictions on banking operations than on any other species of business; at least when the parties are personally responsible.
It appears to me unnecessary at this time to discuss the question whether the best ultimate plan would not be the adoption of a true free banking system as I have defined it.
Such is, indeed, the system which has prevailed for more than a century in Great Britain. I am nevertheless of opinion that it cannot be practically or usefully applied to the United States. I believe that, with our present inveterate habits on the subject of bank-notes, the poor and the ignorant would be incapable of judging between sound and bad paper, that they would be exposed to perpetual impositions and losses, and that it is one of the cases in which, for their protection, legislative interference is legitimate and necessary. This, however, is matter of opinion. If the people are in favor of the experiment, let it be tried. I will only observe that the profits of honest banking by the existing banks or banking associations are so small, when compared with those generally realized by men in active business, that I do not believe that honest and responsible capitalists could be substituted for the existing banks. It would, at all events, be necessary to enable them to lend their money at its market price, and for that purpose to repeal the usury laws to the same extent as in Great Britain; that is to say, in reference to bills of exchange and negotiable or mercantile paper payable to bearer or to order.
For the present, taking things as they now are, I have confined my observations to the remedies which may be applied to the evils growing out of the existence of irresponsible banks or banking associations.
It is not necessary to inquire whether the banks created under what is called the free banking law are technically corporations, or are according to the provisions of the Constitution to be considered as such. It is sufficient to observe that, in point of fact, they have not only all the privileges necessary to enable them to make contracts, to institute suits, and generally to carry on all their operations in their joint name and character, in the same manner as private persons, or as if they were technically incorporated; but that they are also, in common with specially chartered banks, exonerated from all personal responsibility.
The two prominent defects of the existing law, and which must strike every one on the first view of the subject, are, first, the inconsistency of having two different systems in operation at the same time for equally irresponsible joint stock companies, between which there is no other difference than that some were originally created by special laws, and the other by virtue of a general law; secondly, that, having exonerated all the parties concerned, either as stockholders or as officers, in the new joint stock companies from any personal responsibility, no other efficient guarantee should have been required from them as a substitute for that responsibility.
On the first point it would seem that there could be no difference of opinion. Restraints are either necessary or useless. If necessary, they should be equally applied to all; if useless, they should be repealed in reference to all the banking institutions. By assimilating the chartered banks and the new banking associations, there will be no use or pretence for special laws on that subject. After having determined on the conditions and restraints which may be deemed efficient and essential, nothing more will be necessary than a legislative provision which will enable the chartered banks to come at once under the general law without being obliged to undergo the process of dissolution and of a new reorganization. The second point appears to be the only one which requires more minute investigation.
If we have the example of Great Britain in proof of the practicability of a system of true responsible free banking, we had none whatever of a general permission to issue paper currency without either personal responsibility or some conditions and restraints substituting another sufficient guarantee in lieu of personal responsibility. It must ever be remembered that the exoneration from such responsibility is by far the most important and most dangerous privilege bestowed upon the old and new banks, and that no reason can be alleged why that privilege should be allowed, without a satisfactory guarantee, to the issuers of a paper currency rather than to any other class of merchants or dealers.
The conditions or restraints which had heretofore been deemed necessary, referred either to the objects for which the banks were created, to the guarantee substituted in lieu of personal responsibility, or to the event of banks becoming insolvent or suspending their payments.
With respect to the objects of the banking institutions, dear-bought experience must have taught the absolute necessity of defining with precision the species of business which the banks might lawfully carry on, and of expressly excluding such as they might naturally be tempted to connect with their legitimate operations. It is notorious that, independent of the fraudulent institutions to which the general law gave rise, there is hardly one which has not been induced, compelled, or invited to deal more or less in public stocks, and which has not been injured by it. Examples might be quoted where the law was, contrary to the intention of the Legislature, used for the sole purpose of creating associations of irresponsible stock-jobbers. It has already been found necessary by an amendatory Act to prohibit the issue of post-notes or of notes bearing interest. It appears equally essential to prohibit the dealing in stock of any description on the part of those institutions. The example of a neighboring State has clearly proved the danger, both to the State and to the banks, of resorting to them, even for the purpose of supplying temporary wants, but still more so when the object is to sustain by artificial means the credit of the State and the market price of its stocks.
It cannot be necessary at this time to bring additional arguments for the purpose of showing the necessity of an absolute prohibition to deal in any stocks foreign to the State.
The guarantee substituted for personal responsibility, which had always been required from the chartered banks, was the actual payment in specie of a capital fixed by law. The omission of a similar provision is the fundamental error of the existing free banking law. It appears essential that those provisions to which the chartered banks were subject, and which relate to the duration of the bank, to the amount of capital, and to its actual payment in specie and only in specie, should be applied to the new joint stock companies.
For the same reason it appears equally proper that the preventive restraints intended to preserve the capital should apply to all the banking associations. The reasons why the limitation of the amount of the loans and discounts of a bank may alone be sufficient for the purpose intended, and why that amount should not exceed fifty to sixty per cent. beyond the amount of the capital of the bank, have been given in the essay, to which I beg also leave to refer you as regards some other suggestions of a similar character, but of less importance. A prohibition to make dividends beyond a certain rate might prove advantageous, but would not alone prevent a dangerous increase of loans and discounts.
The paramount utility of the general law, by which it was enacted that any incorporated company insolvent or having suspended its payment for one year should be deemed to have surrendered all its rights and privileges and should be adjudged to be dissolved, has been sufficiently tested by experience, and no doubt is entertained that it ought to be expressly applied to all joint stock banking associations.
I had at an early date suggested to you, and have since tried to show, the propriety of arresting at once the circulation of the notes of any suspended bank from the moment when it suspends its specie payments to the time when it may resume them.
It will be generally admitted that if, on account of their irresponsibility, chartered banks and other banking associations must be permitted to carry on their operations only upon certain conditions and under certain restraints defined by an equal and general law, any restriction either unnecessary, purely nominal, or which cannot be carried into effect is dangerous, has a tendency to deceive the public by the appearance of a fallacious guarantee, and should therefore be avoided or repealed. It cannot be denied that the application to the new joint stock companies of those conditions which are proper with respect to the old banks is just and necessary. And I think that I am fully warranted in saying that the utility and practicability of those few and simple conditions, now applicable to the chartered banks (which I wish to be preserved and applied to all banking associations), has been satisfactorily approved by experience. A few solitary exceptions will happen under the operation of any law whatever, and afford no argument against the general utility of the law.
Independent of some less important regulations or restraints which might be dispensed with, I have pointed out, as appearing to me either improper in themselves or affording only a false security, the three following:
First, any attempt whatever to regulate exchange, to compel banks to redeem their notes at par or at a certain discount at any other place than that specified on the face of the notes, or in any way to give a uniform value in different places to banknotes, which are in their nature a local currency. All such attempts appear to me to have been made under the erroneous belief that a paper currency can do that which gold and silver, of which it is the representative, cannot perform.
Secondly, any provision which makes a well-conducted bank responsible for the acts and misdeeds of another bank, over which it cannot possibly have any control.
Thirdly, the obligation on the part of a bank or banking association to deposit in the hands of a public officer either mortgages or stocks, for the purpose of securing the ultimate payment of its notes or other liabilities. Although this last mode affords no remedy against the losses always incident to a suspension of specie payments even when the notes are ultimately redeemed, it may, if properly modified, give some security for that ultimate redemption, and is much less exceptionable than the obligation imposed on every chartered bank to be responsible for the misconduct of the others to an amount not exceeding an annual payment of one-half per cent. on its capital. Although it may be with propriety alleged that the banks did voluntarily accept their charters with that condition annexed, the obligation is nevertheless unjust in itself; it is also injurious to the public, in as far as it gives to some banks an artificial credit beyond that to which they may be justly entitled; and it appears to me that in this, as in all other cases, the law ought to be the same for every species of irresponsible bank or banking association.
Permit me to advert here to the extraordinary difference in the public opinion on the subject of banks between this State and other parts of the Union.
The banks, with a few insulated exceptions, have, in all the States south and west of New York, suspended specie payments for more than two years; a state of things which could not have continued to exist so long had it not been prolonged by successive legislative enactments, and therefore been sustained by public opinion.
On the other hand, although the banks of New York can claim no other merit than that of having performed their duty, yet it was an arduous one. It was, in the first instance, performed by them alone, and in the face of a strong opposition; and it cannot be denied that it is in a great degree to their conduct at and since that time that the country is indebted for a speedy resumption and for the maintenance of a sound paper currency in this State and in the eastern portion of the Union. Even now the task of maintaining that currency rests almost exclusively on them. This city is the centre of all the great moneyed operations of the country; whenever foreign exchanges are unfavorable, the consequent exportation of specie is principally from New York, and immediately affects the city banks. It can hardly be doubted that a suspension of specie payments on their part would instantaneously cause a similar result wherever those payments are still maintained.
The fact to which I call your attention is that, whilst the banks in other States, which have persisted in a continued violation of their engagements, have been and continue to be specially favored, those of this city have been more vehemently attacked and appear to be more unpopular than anywhere else. That the warfare was carried on against the system generally and was not personal may be admitted. But the fact is not less true that, taking the country at large, those banks have been treated with most indulgence which least deserved it. I do not wish for the slightest relaxation in favor of those of this city and State if they should fail to perform their engagements. But I may ask for strict justice as well towards them as on their part; that they should not continue to be charged with a monopoly which no longer exists; that they should not be subject to unequal and unjust taxation; and that their profits, which, when they confine themselves to their lawful operations, are perfectly honest and legitimate, should not be represented as founded in fraud and deception.
I cannot close this letter without adverting to a subject of still greater and more immediate importance than that of the currency.
The aggregate amount of the State debts, to which you were the first to call the public attention, and its fatal consequences, are truly alarming. It is difficult to find an apology for those who have used, or rather abused, the credit of the States for banking purposes. It would be unjust and uncharitable to be too severe towards those who have promoted premature or unprofitable internal improvements and have fearlessly contemplated an indefinite increase of public debt, to be provided for by the revenue that might be derived from those works, or by the growing resources of the country. Nor can the charge be made exclusively against either of the political parties. In truth, it is only one, though probably the most fatal, branch of that universal overtrading, of that delusion from which few have escaped, and which has led into greater errors men of sanguine temper and vivid imagination.
The consequences are worse than had been anticipated by the most sober and cautious observers. The catastrophe of the United States Bank, the almost general suspension of specie payments, the continued system in Pennsylvania and elsewhere to borrow annually the amount necessary to pay the interest on the public debt, the inability on the part of some States to pay that interest, and, more fatal than all the rest, the unjust and dishonest attempt or threat, under unfounded and frivolous pretences, to repudiate the debt itself, have destroyed confidence to an extent heretofore unknown. There is at this moment what may be properly called a general panic. It exists in reference to every species of American stocks in Europe as well as here. The most inconsiderable amount of any species, without excepting those of the State of New York, thrown in the market is sufficient at once to sink its price. The reaction is perhaps still more exaggerated than the former anticipations of speculators had been.
Those apprehensions are certainly erroneous, so far at least as relates to this State. Its resources are entire and untouched. Its great improvement, the Erie Canal, is highly productive, instead of being a charge on the public. The principal of the State debt compared with its population is at the rate of less than nine dollars a head (whilst it amounts to twenty-two dollars in Pennsylvania), and a State direct tax of 2½ mills (¼ per cent.) would, exclusive of other existing resources, pay the interest and in a few years discharge the principal.
Yet you may rely upon it that confidence will never be restored till the State ceases to borrow for itself or to lend its credit to others; nor indeed, as I believe, so long as it does not stop all its expenditures for internal improvements beyond the amount of its annual revenue. This may seem harsh doctrine, only because of late a different course has been pursued. No maxim is more certain than that a nation never ought to contract a debt in ordinary times, I would almost say, whilst at peace, and that at all other times it must provide by taxes for its annual expenditures. With the single exception of the debt incurred for the purchase of Louisiana, this had ever been done by the government of the United States from its organization, or at least from the year 1796, until, under some misapprehension of the amount of actual revenue, 28 millions were taken from the Treasury and distributed amongst the States; whilst at the same time the miserable Seminole war gave rise to an enormous unexpected expense. Even England, whose public debt is so frightful, has never increased, but, on the contrary, lessened it during every period of peace since the revolution of 1688 to this day.
If this maxim should hereafter be rigidly adhered to, we have nothing but a temporary embarrassment to encounter. It may be that on account of existing contracts, or of some portion of the public works which it is absolutely necessary to complete, the State will be compelled still to borrow something this year. This will be an evil, which should be reduced to the smallest possible amount. It cannot be effected without a loss. Forced loans, in imitation of Pennsylvania, will not be thought of. The credit cannot be restored and the price of the stocks be raised till there is a guarantee that the amount will not be further increased.
As an apology for expressing myself in strong terms on that subject, I pray you to recollect that I have at all times tried to inculcate those principles, that I have always acted in conformity with them, and that the eighteen best years of my life were almost exclusively employed in successfully carrying them into effect.