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Subject Area: Economics
Subject Area: Political Theory

GALLATIN TO R. M. T. HUNTER, 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 R. M. T. HUNTER, M.C.

New York, 12th July, 1841.

Sir,—

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.