Front Page Titles (by Subject) 1842: GALLATIN TO CALEB CUSHING, M.C. - The Writings of Albert Gallatin, vol. 2
The Online Library of Liberty
A project of Liberty Fund, Inc.
1842: GALLATIN TO CALEB CUSHING, M.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.
About Liberty Fund:
Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals.
The text is in the public domain.
Fair use statement:
This material is put online to further the educational goals of Liberty Fund, Inc. Unless otherwise stated in the Copyright Information section above, this material may be used freely for educational and academic purposes. It may not be used in any way for profit.
GALLATIN TO CALEB CUSHING, M.C.
New York, January 7, 1842.
I will now try, in compliance with your request, to state my objections to the plan for a fiscal agency proposed by the Secretary of the Treasury. They apply to the issue by government of the intended paper currency, and to its dealing in exchanges otherwise than for its own express wants and purposes.
It is necessary in the first place to recollect the essential points of difference which distinguish such paper currency as is now contemplated from the Treasury notes heretofore issued by government, and which are precisely of the same character with the English exchequer bills.
These Treasury notes may indeed, under existing circumstances, be advantageously substituted for currency, for the special purpose of paying taxes and other debts due to the United States; but they never can become a part of the general currency. Being payable at a future day, and bearing interest, their market price fluctuates like that of other stocks; and they are sold and paid for, in the ordinary currency, in the same manner as any other commodity.
Inasmuch as these notes are issued regularly and gradually, and made payable on fixed days (generally one year after date respectively), government is always apprised one year in advance of the precise sum it has to pay, and may accordingly always provide for a punctual payment. But government never can ascertain what amount of a paper currency payable on demand it may be called on to pay at any time whatever. It is in that respect as much exposed as other banks of issue to the fluctuations in the demand for specie, and to all the contingencies of general overtrading, unfavorable foreign exchanges, and panic.
This last consideration points out the first great danger of an issue by government of a paper currency payable on demand, and for the payment of which in gold or silver, to its full amount, and at any time, it stands pledged. It is the same danger to which all our banks are perpetually exposed: an involuntary inability, even in time of peace, to maintain specie payments. It is obvious that such a suspension by government would be attended with still more fatal consequences than a similar suspension by ordinary banks. It would almost necessarily induce and sanction a general suspension by those institutions; it would inflict a deep injury on the credit of the federal government; and its deleterious effect on the moral feeling of the community cannot be overrated.
The proposed issue of a stock of the United States to the amount of five millions would not afford a sufficient guarantee, even for the ultimate redemption of an issue in paper money of fifteen millions. But this contingent power to borrow money, which should always be avoided if possible, cannot prevent a temporary suspension, unless we suppose sufficient sagacity on the part of the board of control to have foreseen in time the impending crisis. It is precisely the want of that sagacity which constitutes the danger; and there is no reason to suppose that the intended board of control will, in that respect, be more highly gifted than the practical men of business who direct our banks.
Supposing, however, the new exchequer to be administered in the best possible manner, and that it should, under the proposed limitation in the amount of issues, maintain specie payments in time of peace, this would not remove the principal danger which forever attends the issue of any species of paper money by a government.
There is always in time of war, or indeed of any extraordinary pressure, the strongest temptation on the part of any government to resort to that most easy resource, a gradual but indefinite increase in the amount of that paper. We must now be satisfied by our own experience that the original promise to redeem at all times the currency on demand in gold or silver affords no guarantee against its being converted into irredeemable and depreciated paper money. There may be, but I do not recollect any instance of any paper currency issued by any government, and, once depreciated, having been redeemed at par by it. Of the reverse we have abundant proofs both abroad and at home.
The novelty of the experiment, and at this time, is another strong objection. In calling this a new experiment, I mean to say that, with a single exception abroad and some disastrous of a late date by members of the Union, no government has, within my knowledge, ever attempted to issue on its own responsibility a paper currency redeemable on demand. The suspension of specie payments by all the State banks, which were only subordinate departments of the treasury of the State, will not be quoted in support of that system.
The exception to which I allude is that of Prussia, which has within a few years put in circulation a paper currency of that description. However successful the experiment may as yet have proved, we must wait till that government has passed through the ordeal of war, or of some other equally disturbing cause, before we can draw any legitimate inference from the attempt.
England is certainly the country in which, notwithstanding a suspension of twenty years by the banks of issue, the system of a paper currency has been most extensively and successfully carried into effect. But the government of that country has always taken special care that that currency should be issued by corporations or individuals; that no responsibility should in that respect attach to government; and that its credit should not be affected by a failure on the part of those who issued the paper to perform their engagements.
I feel satisfied that the issue of a paper such as is proposed would inflict a permanent injury on the credit of the government of the United States. It appears to me equally certain that it would be most injudicious at this time of real difficulty, of alarm and panic, when confidence in the fidelity or ability of some of the States is impaired, and the effect is felt by all the other members of the Union and by the general government.
It seems to me that a power given to the proposed exchequer to deal in exchange for any other purpose than for that of transmitting or obtaining funds where they are wanted by government, though perhaps not threatening such extensively fatal consequences as that of issuing the intended paper currency, is in other respects equally, if not more, objectionable.
In the first place, I would ask whence the power is derived. I have believed, contrary to the opinion of many respected friends, that the power of the government of the United States to select its own agent for transacting its own business did, in the present general use of banks for all fiscal purposes by the States and by individuals, imply the power to incorporate a bank of its own. But I cannot perceive from which power vested in the general government that of government to deal in exchange for the benefit of individuals is derived.
The power of regulating the rate of exchanges is not implied in that of regulating commerce. At least no trace of any attempt for that purpose is to be found either in the commercial code or in the treaties of commerce of any country. But even supposing that Congress was authorized to regulate in that respect the dealings of individuals, neither this nor any of the powers specially vested in the general government does directly or indirectly imply that of converting itself into a trading company. It may be observed in connection with that branch of the plan that it authorizes the dealing in exchanges on time for the benefit of individuals, which, however limited, is thus far an authority to discount.
Independent of the undignified position in which a government places itself when attempting to compete with individuals in any commercial pursuit, and of the pecuniary losses which must almost necessarily ensue, the danger, or at least the suspicion, of favoritism, if not of corruption, cannot be avoided. It is a matter of regret that we need not resort to foreign precedents for proofs of the reality of that danger.
That some institutions of that kind, such as the State Bank of South Carolina, have been skilfully and honestly conducted, is true. But, amongst others, it is only necessary to advert to the fate of the State Bank of Alabama, which has lost one-half of its capital, and the directors of which, appointed by the Legislature, have been exposed to charges not only of gross mismanagement, but, though perhaps unjustly, to other of a more grave character. The recommendation of the late Governor, to transfer the appointment from the Legislature to the Executive, is alone a conclusive argument against any attempt to establish a bank on account of government.
Without even discussing the arguments adduced in support of the plan suggested by the Secretary of the Treasury, it appears to me that all the benefits, in reference either to currency or to exchanges, which, in his view of the subject, may be derived from it, are greatly outweighed by the dangers attending any system founded on that principle, and which I have attempted to point out.
On the subject of currency, I will only say that I cannot perceive how a currency equal in value to specie can displace one that is depreciated, so long as this is tolerated by the several States; nor how it can, in any respect, induce or compel a return to specie payments. It is true that this observation, if correct, would apply equally to the notes of a bank of the United States, founded on the capital of individual subscribers.
The report of the Secretary of the Treasury is not only a well-written and imposing paper, but, whether considered as an attempt to reconcile opinions perhaps irreconcilable, or viewed as an argument on one side of the question, it does great credit to the author. The most vulnerable part of it appears to me to be that which relates to exchanges.
The rates of exchange have always been regulated by the natural laws of trade, and require no other regulation. The difference in the nominal exchange between two countries or districts which is due to the depreciation of the local currency of one of them is not at all a difference of exchange, but a difference of currency. It is only because the currency is of the same denomination in both districts that, in common parlance, exchange and currency are confounded. There is no other remedy in that case but a return to specie payments.
But the true rates of exchange, that is to say, the rate at which specie, or funds equal to specie, may be transferred from one country or district to another, are necessarily governed by the relative amount of supply and demand. If a country becomes greatly indebted to another and has neither products nor specie to pay its debt, the rate of exchange may rise even above the expense and risk incident to the transportation of specie. The competition between bankers reduces it to the lowest possible amount. A banking corporation, with a very large capital and branches disseminated throughout the country, may increase the competition and be able to afford the requisite facilities on cheaper terms than private bankers. But government has no other legitimate resources for the same purpose than that portion of the balance in the Treasury which accumulated in one or more places is not immediately wanted by it in any other quarter. The necessary transfer of public moneys from the places where they are not wanted to those places where they must be expended may occasionally assist in restoring the equilibrium. But this has been and must always be done by the Treasury, without regard to the effect it may produce, and is wholly distinct from the sale or purchase of bills of exchange for other purposes than that of transmitting the public funds to the places where they are wanted.
The amount in the Treasury, beyond the immediate or proximate wants of government, will generally be too small to produce any sensible effect; at present it is a negative quantity. If government should purchase exchange beyond that amount, it must be by a dangerous additional issue of notes, payable on demand at a place where they have not sufficient funds.
But there is no necessity for such an interference on the part of government. The use of bills of exchange is coeval with the existence of commerce between different countries. That commerce between the different parts of Europe has been prodigiously increased within the last hundred years; and the exchanges from Leghorn to London, from Cadiz to St. Petersburg, and through all the intermediate places, have been and continue to be effected with perfect convenience and facility without the slightest interference on the part of governments, and, I may add, without the establishment of a bank of Europe.
With respect to the part of the plan which relates to the safe-keeping of public moneys, as these must necessarily be collected and ultimately disbursed by the officers of government, the question is only in reference to moneys in transitu, that is to say, which remain in the Treasury between the time of collection and that of disbursement. This resolves itself into the question whether they are safer in the hands of officers selected by government, or when secured by the capital of the banks in which they may be deposited. It has been decided in favor of the banks by all the States, partly on account of the great inconvenience of resorting to any other but the general local currency. To this the general government cannot resort universally without violating that clause of the Constitution which prescribes uniformity in the collection of imposts and other taxes.
The plan proposed is an improvement of the sub-treasury, in as far as it permits the use of the currency issued by specie-paying banks. It increases unnecessarily the number of officers beyond the number wanted for the special purpose of safe-keeping. The board of control, and most of the additional officers, may be dispensed with if the fiscal agency does not deal in bills of exchange for individual purposes. The plan does not give the security resulting from the capital of State banks; it affords no other guarantee, in reference to the public moneys, than the fidelity of the officers appointed by government.
The only apparent advantage that I can perceive is the active employment of the actual balance in the Treasury. The true remedy consists in reducing that balance to the smallest possible amount. This is generally the natural result of the operations of most governments. England always owes a much larger amount to the Bank of England than this owes to government, although the bank is always intrusted with the amount necessary to pay the interest on the public debt. The prospect of the revenue and expenditure, as contemplated in the reports of the Treasury and of the other Departments, do not induce an apprehension of any great danger of an extraordinary accumulation in the Treasury.
Even in case of such a temporary accumulation, highly inconvenient as it must necessarily be, I think it would be safer and more consistent with the permanent interests of the community to have the money locked up rather than that it should be used by the banks and produce an unnatural expansion and that overtrading which is invariably followed by curtailment and distress. Might it not be better to use specie-paying banks only as depositories for safety and as disbursing agents, on the express condition that the public moneys should be considered as a special deposit not to be used for discounts, and to pay them a reasonable commission for their labor and risk?
I can really see no other reason for the plan proposed than the wish to be doing something on the subject of the currency. Some imprudent commitments may have taken place; expectations may have been inconsiderately raised. But can anything efficient in reality be accomplished? Without adverting either to the danger of an attempt to cure the evils of paper money by issuing more paper, and, in order that a bank of the United States may check the excessive issues of State banks, of allowing it a capital commensurate with the object, or to the general unpopularity, increased by late events, of such a bank, it is sufficient that at this time the establishment of a bank founded on individual subscriptions is impracticable. I am sure that this cannot and ought not to be attempted unless a great change should take place both in public opinion and in the money market. My own opinion respecting the most efficient remedy by Congress to the disordered state of the currency has already been publicly given. You know that it consists in the application of the bankrupt law to banking corporations or associations.
You suggested that anything I might write on the subject would, if I desired it, be deemed confidential. There is nothing in this letter that may not be freely communicated; and you are at liberty to use it as you may think proper.
I have, &c.
P.S.—You would confer a favor on me by sending me, if you can do it conveniently, the documents at large accompanying the annual reports of the several heads of Department, the estimates of appropriations for this year, and the annual statement of the commerce and navigation of the United States. I feel much less interest in the proposed fiscal agency than in the actual fiscal situation of the country, and in the measures which may be adopted equalizing after this year the receipts and expenditures and for meeting the deficiency of this year. You have in both respects more than ordinary difficulties to encounter.
NEW YORK BANK PRESIDENTS TO MICHAEL HOFFMAN.1
New York, February, 1842.
Mr. Mann has communicated to us your letter to him requesting that he should inquire whether the banks of this city were able and willing to aid by additional loans in extricating the State from its present financial embarrassments.
The banks are so deeply interested in the result; it is so essential to the public welfare, to the commerce of this city, and to their own safety that the credit of the State should be restored and its finances placed on a permanent and secure footing, that there can be no doubt of their disposition to promote those objects to the utmost of their ability. But we are compelled to say that, in our opinion, farther advances on their part to the State would, in their situation and at this time, be highly inexpedient and improper. The comptroller, in his report of the 15th instant, has justly observed that “the commissioners of the canal fund had carried to exhaustion the questionable expedient of temporary loans from banks.” Believing that the great object we have all in view may be attained without recurring to that expedient, we beg leave to state somewhat at large the reasons on which our opinions are founded.
The primary duty of banks is to maintain specie payments. How this has been performed by the banks of this city and of the State is well known. They resumed alone in 1838; the resumption which ensued in other States was due to their example and influence; and they have maintained their position notwithstanding the suspensions which have since occurred.
This city is almost universally a creditor place, with respect to the country and to the other States, and has therefore little to fear from the situation or action of any other part of the Union. But, though safe in that respect, it has become the centre of all the moneyed operations of the country, and the point where almost all the balances between the United States and foreign countries are ultimately settled. The city banks must therefore always be ready to meet every extraordinary demand for specie growing out of an unfavorable rate of foreign exchanges. For that reason, seeking much more for safety than for profit, they have reduced their circulation and their discounts within very narrow limits. Yet such was the effect of the enhanced rate of foreign bills during the last summer and autumn that the specie which, in the seventeen safety fund and the three free banks of the city, amounted, on the 1st of July, 1841, to $6,082,884, was, on the 1st of January, 1842, reduced to $3,688,806; being a diminution in six months of $2,394,078, or near two-fifths. We cannot give the precise comparative statement for the four other chartered banks (Manhattan, Fulton, North River, and Chemical), but we know that the diminution was in about the same proportion. The consequence was a corresponding lessening of loans and discounts, which, together with the stocks and all other items in their possession bearing an interest, did, on the 1st of January last, amount to less than 40 per cent. beyond their capital.
It is obvious that the banks have no other means to arrest the drain of specie than the curtailment of their discounts. State stocks owned by them prove a valuable resource only when they can be readily disposed of. The process of curtailing, inconvenient and even harsh as it may be, is the only remedy, and which cannot be applied with effect except to short business paper. The banks could not make further advances to the State without curtailing the discounts of such paper, already much reduced; and, in case of a renewed unfavorable rate of foreign exchanges, the pressure on the commercial community might prove too severe to be passively borne.
We may appeal to experience to prove the danger of extraordinary demands on the part of governments on banks. The lamentable state of those of Philadelphia is principally due to the fatal influence of the late United States Bank of Pennsylvania. But the evil has been greatly aggravated by the forced loans extorted year after year by the State, the result of which has been not less disastrous to the State itself than to the banks. In analyzing the causes of the general suspensions in the United States of 1814 and 1837, and of that of the Bank of England in 1797, it will be found that the action of government upon the banks was, though in different degrees, in some instances the primary, in other the immediate, cause of the suspensions.
We will now submit to your consideration the reasons which induce us to believe that the finances of the State may be placed on a safe permanent footing, and its present temporary embarrassments be removed, without recurring to the banks for any direct assistance.
The 6 per cent. stock of the State was at par in the beginning of June last; and the comptroller might probably have obtained at that rate the money he wanted for the service of the year. The principal causes of the subsequent depression have been the pressure on the money market caused by the unfavorable rate of foreign exchanges; the irregular manner in which new issues of 6 per cent. stock of the Erie Railroad have time after time been thrown into the market; the dishonest voluntary repudiation of State debts, avowed in some quarters and not sufficiently discountenanced in others; above all, the apprehension of a continued and indefinite increase of the State debt. The remedy will be found, first, in making efficient provision for the payment of the interest and for the extinguishment of the principal of the existing debt, including the loan which may be absolutely necessary for the service of the year and for the payment of the floating debt; secondly, in a guarantee that no further debt shall be incurred without providing at the same time adequate resources for the payment of both principal and interest within a short period.
The public accounts are too complex to enable us to make a correct statement of the resources and liabilities of the State. Yet we will be better understood by resorting to figures, and you may easily correct our errors in that respect. We will only try to err on the safe side, and you will perceive that those errors cannot affect the argument.
We assume that the legitimate resources of the general fund are sufficient to meet the current expenses of government, including the interest on the stock charged to it in the public accounts, and amounting to $1,255,193.
According to your statement, confirmed by the communication of the comptroller to the Legislature, of the 15th February, a loan of $3,000,000 will be sufficient to pay the temporary loans, the debts due to contractors, and (including the Chemung locks) to complete all the repairs necessary to put the canals in operation at the beginning of the season.
It appears, therefore, to us that the only provision to be made must be in reference to the punctual payment of interest on the debt and its final extinguishment within the period contemplated by law, keeping in view the obligation to reimburse about 5,000,000 of the principal in 1845 and 1846.
The interest is estimated as follows:
Which last-mentioned sum is more than 42 per cent. beyond the interest, amounting, as per above, to $1,314,604. An annual appropriation of 33⅓ per cent., in addition to the interest payable on a 6 per cent. stock, is sufficient to extinguish the principal in twenty-two years and a half; and the old 6 per cent. domestic debt of the United States was actually paid off in that manner. The above-mentioned resources are therefore sufficient to pay within the period fixed by law the whole debt, including the $1,255,193 now charged to the general fund, even if the State was ultimately obliged to pay the $1,200,000 loaned to three companies, which have been deducted in the above estimate.
It is true that the difference between the resources and the annual interest will produce little more than two millions before the end of the year 1845, when $4,370,000 of the principal of the debt becomes due. The residue ought to be paid out of the existing available balance of moneys in the hands of the commissioners of the canal fund. The nominal amount of that balance was on the 1st October last $3,157,264, to which should be added four years’ interest on the same from that date to the 30th September, 1845. But it is stated in the last communication of the comptroller that more than $500,000, part of that balance, had been loaned to banks which have suspended, and a further portion of the same balance consists of $917,385 loaned to the Treasury for the United States deposit fund. It appears, therefore, that there will be a deficiency which must be provided for out of the said deposit fund. It is also believed that if a small loan should be necessary in 1845, in order to complete the payment of the debt then becoming due, it will be obtained on advantageous terms, inasmuch as the credit of the State will then have been restored, in consequence of the provisions now contemplated.
It is evident that those provisions must be of the following character, to wit:
1st. A tax of one mill on the assessed property of the people of the State.
2d. An Act by which the following funds shall be and remain exclusively pledged for the payment of interest and principal of the whole debt due or guaranteed by the State, and including the loan of three millions intended to be authorized at this time, till the final reimbursement and extinction of the said debt; that is to say, 1st, the proceeds of the one mill tax aforesaid; 2dly, the balance of moneys now remaining in the hands of the commissioners of the canal fund, together with the interest which may hereafter accrue on the same balance; 3dly, the net proceeds of the tolls on all the State canals, after deducting therefrom the amount expended for salaries, repairs, and charges on the said canals, but not including amongst such charges and repairs those that may be incurred for the enlargement of the Erie Canal, or for any other new works, and also the annual contribution of $200,000 to the general fund.
Provided, that whenever the annual amount of the said funds shall, after the reimbursement of the loans contracted for the construction of the Erie and Champlain Canals, and of the Chenango Canal, as also of the three million loan now to be authorized, exceed the sum of $1,869,000, the surplus may be applied to such other purposes as the Legislature may direct, or the amount of the one mill tax may be proportionably reduced.
It is to a provision of this nature that we wish particularly to call your attention. We repeat that we do not pretend to have made a correct statement in all its details of the resources, liabilities, and temporary embarrassments of the State, and that we have attempted an estimate only by way of illustration. The general principles of the contemplated provisions are alone essential. We will only observe that if we have underrated the immediate wants of government, it seems to us that it would be safer to add another half-mill to the tax than either to increase the amount of the proposed three million loan, or to be compelled again to recur to temporary loans or questionable expedients.
The contemplated proposition makes efficient provision for the payment of interest and reimbursement of principal of the whole debt out of the existing resources of the State, and independent of any contingent increase either of the canal tolls or of those general resources. And it affords, short of an amendment of the constitution, the best possible guarantee against an increase of the public debt. For, since the proposition embraces the proceeds of all the existing available funds of the State, it will be impossible to raise new loans without providing new resources for the payment of interest and principal.
On the other hand, should the sanguine expectations of a great and rapid increase of the canal tolls, which have been heretofore entertained, be realized, the annual surplus, which, according to the estimate of the late canal commissioners, would, in the year 1846, exceed $700,000, will, by the proviso, be at the disposal of the Legislature. It is perfectly clear that all the available resources of the State will, till that year, be wanted in order to meet the payment of the large amount due in 1845. It is equally evident to us that no loans can be obtained on reasonable terms until the credit of the State shall have been restored, and that this cannot be otherwise effected than by an ample and effective provision for the reduction of the existing debt, and by opposing a barrier against any subsequent increase not accompanied by actual instead of prospective additional resources for the payment of both principal and interest.
We have estimated the interest on the proposed three million loan at 7 per cent. When the object to be attained is nothing less than the restoration of the credit of the State and placing its finances on a safe and permanent footing, the difference of $30,000 a year for six or seven years appears to us to be a consideration of subordinate importance. It is unfortunate that the State should be obliged to borrow at a time of general pressure, and when the market price of its stocks is so much depressed. But every State must, when it wants money, pay for it according to that price. In this instance the State will have to compete with the corporation of this city, which has opened a loan at the rate of seven per cent. on account of its water-works. The loans wanted by the general government, if thrown on this market, will also have an unfavorable effect on the rate of interest and the price of stocks. No considerable amount can be loaned either to the general or State government, by either the banks or individuals of this city, that will not cause a pressure upon its commercial interest. All this proves not only that the loan will, at all events, be inconvenient and should be reduced to the smallest possible amount, but also that any attempt to raise it at a lower rate of interest than consists with the actual price of stocks will fail. On the contrary, the issue of a stock which may hereafter be disposed of at par may perhaps induce some of the banks to take it in exchange of their temporary loans.
The actual price of the State five per cent. stock, redeemable in 1855 to 1860, is now 77 per cent., which is nearly equivalent to a seven per cent. stock redeemable in seven years. Whether it be preferable to sell at a discount a six per cent. stock, or to borrow at par at the rate of seven, may be a debatable question, to be decided according to the market price of each. It seems to us that when for a short term of years, the preference should be given to the seven per cent. stock, the premium for which is paid gradually in the shape of annual interest. Upon the whole, it is believed that the officer whose duty it shall be to negotiate the loan may be safely trusted with discretionary power in that respect.
Believing the present to be a most important crisis in the affairs of this State and of the Union, we trust that it will be met with firmness, and that the Legislature will adopt those efficient measures which, by restoring the credit of the State, will promote the interests and secure the welfare of every class of its inhabitants.
GALLATIN TO JOHN A. DIX, Albany.
New York, 30th March, 1842.
I have been requested by gentlemen connected with the banks of this city to write to you on the subject of a bill before the Senate calling on the safety fund banks to make further or greater payments than was provided by the Act which created that fund.
It is not my intention to discuss the legal or constitutional power of the Legislature to pass an Act in conformity with the proposition now before them. It is sufficient to observe that the constitutional power does not imply the moral right of enacting a law, and that such power does not release a Legislature from their moral duties. I will accordingly examine the question only in reference to its justice and expediency.
The object of the bill is to replenish the safety fund promptly, that is to say, by further means than the annual payment of one-half per cent. on their capital, the condition on which charters were granted by the Legislature and accepted by the banks. Not having seen the bill, I do not know to what extent the additional payment is to be carried, either as to amount or time. But, whatever the extent may be, the principle is the same. It is that the safety fund banks may be justly compelled to pay whatever losses might otherwise be incurred by the creditors, or at least by the holders of the bank-notes, of any of those banks.
Those creditors, or bill-holders, have no natural right of recourse on any other bank than that of which they are creditors or bill-holders. They have, by virtue of the Safety Fund Act, acquired an indubitable, though artificial, right to the proceeds of that fund; that is to say, to one-half per cent. a year on the capital of each of the safety fund banks. But that right goes thus far and no farther. On anything beyond it they have neither a natural nor an artificial legal right.
Men, whether acting individually or as members of an association, and, in the last case, whether incorporated or associated either by virtue of any legislative act or spontaneously, are naturally responsible for their own acts only, and not at all for those of other men or associations. If it has been a condition of the charters of the banks that they should become responsible to a certain extent, to that extent only are they bound, and no further. To compel them to pay anything beyond that amount, or at a different time, is to take their property for the benefit of those who have no right to it, and is, therefore, manifestly unjust. Even when it becomes absolutely necessary to take property for public use, it cannot be done without just compensation.
Our system of chartered banks may be founded on erroneous principles; and it may become proper, if it be practicable, to substitute for it one that shall be free to all and rest exclusively on personal responsibility. In the mean while, and so long as those banks are permitted to exist, the rights of the stockholders are as sacred as those of the owners of any other species of property.
There is a striking contrast in the treatment respectively experienced by the banks in this State and by those of some other parts of the Union. Those in the States south and west of New York have, through the extraordinary and unaccountable indulgence of the respective Legislatures, been permitted, after having suspended their specie payments, to persist in a continued violation of their engagements for more than two years. Those in this State, which in the first instance resumed those payments alone, which have ever since continued to supply a currency equal to specie, and whose failure would infallibly be followed by a general suspension of specie payments throughout the Union, are alone selected as special objects of aggression.
The banks of this State are entitled to no particular merit for that which was only the performance of a sacred duty. I do not wish for the slightest relaxation in their favor if they should fail to fulfil their engagements; and it is evident that they must pay their proportionate share of the general taxes. I ask only for strict justice, as well towards them as on their part, and that, therefore, they should not be subject to special and unjust taxation.
A deviation from justice has no limits, and naturally leads to acts of the same character. Thus, a proposition was lately made to substitute for a general tax of one mill intended for general purposes, a special tax of ten mills on banks and other moneyed corporations or associations. The holders of bank stock consist almost exclusively of two classes: 1st, women, children, and generally persons unable to engage in any active pursuits; 2d, capitalists, who divide their investments between stocks, mortgages, and real estate. The first class is in every respect utterly powerless, and may be oppressed with impunity. The second is that on which the State must exclusively rely for the loans it may want and for sustaining its credit. On the ground of expediency alone, an unjust tax laid on them is not calculated to increase their confidence in the State.
Whether it be for the payment of the floating debt, for the reimbursement, when it shall become due, of the funded debt, or for carrying on internal improvements, it is agreed on all hands that the State must raise money by loan; and it is evident that, in the present prostrated state of the public credit, it is impossible to obtain a loan without a loss, which will be greater in proportion to the amount of the loan required. The first indispensable preliminary is, therefore, to restore as far as practicable public credit and to raise the price of the public stocks.
The principal causes of the depression are not under the control of the Legislature. Such are the catastrophe of the United States Bank, the repudiation of their just debts, or the inability of paying the interest, by some of the States, and the lamentable situation of the fiscal concerns of the general government. It seems that the only other causes must be the disproportion between the supply and demand, or a want of confidence either in the resources or the integrity of the State. That disproportion is the only real difficulty in the case. To restore the equilibrium may require time. It is obvious that the object cannot be attained so long as the demand is not increased and new issues of stock take place. There are no other means of increasing the demand than to recur by equal taxation to the resources of the country, and to inspire a full confidence in the integrity of the State as well as in its resources. It should never be forgotten that every unjust legislative act is injurious to the character and to the credit both of the State and of individuals.
My opinion on the subject of the safety fund has always been the same, and it was expressed in the following words in an essay published in the month of June last:
“The annual tax of one-half per cent. imposed under the name of ‘safety fund’ is unjust towards the banks which are well administered, and injurious to the community at large. To make a bank responsible for the misconduct of another, sometimes very distant and over which it has no control, is a premium given to neglect of duty and to mismanagement at the expense of the banks which have performed their duty and been cautiously administered. That provision gives a false credit to some institutions which, not enjoying perfect confidence, would not otherwise be enabled to keep in circulation the same amount of notes; and it therefore has a tendency unnecessarily to increase the amount of paper money. The fund would be inadequate in case of any great failure, and it provides at best only against ultimate loss, and not at all against the danger of a general suspension.”
The loss which has now been incurred, and the delay which must ensue under the existing provisions of the law before the holders of the bills of the broken banks can be reimbursed, are to be regretted. But I am perfectly satisfied that the public good, not less than justice to the sound banks, requires that the safety fund should be no otherwise replenished than as now provided by the law. It is proper and useful that the people should learn that the fund gave but an imperfect and fallacious guarantee; that they should know that they must rely for the payment of bank-notes on the bank by which they were issued; and that each bank also should feel that it must henceforth rely exclusively on its own resources and the proper management of its affairs. This must necessarily check improper expansion either in circulation or in discounts. Instead of deteriorating, it will be a step towards improving our banking system. Instead of increasing, it will lessen the danger to which the community, and more particularly the most ignorant part of it, is exposed from the issues of unsound paper money.
I have, &c.
P.S.—I pray you to communicate this letter to the chairman of the committee on banks of the House of Assembly.
GALLATIN TO JOHN A. DIX.
New York, April 2, 1842.
I did not, in the letter which I had the honor to address to you on the 30th ult., attempt to discuss the question which may arise on the constitutional power of the Legislature to pass an Act such as that respecting the replenishing of the safety fund, which has now received the sanction of the Senate. Permit me to submit to your consideration some observations on that subject.
It will not, it is hoped, be asserted that the Legislature is vested, under the words “legislative powers,” with a general authority to take the property of any citizen or class of citizens, or, which is tantamount, to compel any citizen or class of citizens to pay debts contracted by other persons or associations and not guaranteed by him or them. Such assertion would lead to the monstrous doctrine that the citizens of New York hold their property subject to the will and pleasure of the Legislature. It is, moreover, expressly provided by the constitution of the State that “No person shall . . . be deprived of life, liberty, or property without due process of law; nor shall private property be taken for public use without just compensation.” Unless it be taken for public use and for a just compensation, no person can be deprived of his property without due process of law, of the law of the land, of a pre-existing law, and not, most certainly, by virtue of a special law passed for the special purpose of depriving him of his property.
The authority claimed on this occasion must therefore be derived from some specially reserved power applicable to the case. I am not aware of any other such reserved legislative power in relation to bank charters but that which the Legislature has to alter or repeal any such charter; and it is probably on account of some supposed inference from that power that the bill in question has been favorably entertained. In that case, the first indubitable consequence is, that the bill requires the assent of two-thirds of all the members elected to each branch of the Legislature. But this is only a subordinate incident.
Certain powers and privileges have been granted to chartered banks, either by the general laws respecting moneyed corporations and banks, or by special provisions of the charters. All such powers or privileges may be abrogated altogether, altered, or modified, by the Legislature.
The authority thus reserved is applicable to a variety of objects, and may indeed be abused. It is undoubtedly on that account that it cannot be exercised without the assent of two-thirds of the members.
The most important and dangerous of the privileges is that which releases the stockholders from personal responsibility. Thence arises the propriety of providing for the preservation of their capital, and of reserving to the Legislature the power at all times to restrain the objects to which and the manner in which it shall be applied. But the power thus to preserve the capital is not a power to take from its owners any part of it.
The power to annul, alter, or modify the privileges granted by the charters is not, and does not include, a power to deprive the parties to the charters of any portion of their property by applying it to the payment of debts contracted by others and not guaranteed by them. To be exempted from such payment is not a privilege, but a right enjoyed by all. It is a natural right, in no shape granted by or derived from the charters, but belonging to the parties antecedent to and independent of any charter or legislative act whatever. Any attempt, under color of the reserved legislative power, to alter the charters, to deprive the stockholders of that natural, antecedent, and indisputable right to their own property, is not an alteration of the provisions of the charters and of the privileges derived from them, but an attempt to exercise an arbitrary and illegitimate power in relation to a subject foreign to the charters.
That right has been abridged by the Safety Fund Act to the extent and in the manner prescribed by that Act. That Act was made by the Legislature the indispensable condition on which bank charters should thereafter be granted. All the banks subsequently incorporated have assented to that condition, which has thus become, to all intents and purposes, a contract between the stockholders and the public. Neither party has the right to alter it in any manner whatever without the consent of the other party; and the State is expressly forbidden to pass any laws impairing the obligation of contracts.
The arguments appear to me conclusive, and will, I think, be sustained by every sound constitutional lawyer.
I have the honor to be, respectfully, sir, your obedient servant.
P.S.—Mr. Lawrence has returned from Albany, and informs [me] that on reconsideration the bill has been amended in the Senate so as to insert as the annual payment required from the bank one half of one per cent. on their capital. If this be only a confirmatory provision of the condition which the banks are already by law bound to perform, if it amounts only to this, viz., that they shall pay one-half of one per cent. a year till the liabilities on the fund are paid, and till it amounts again to three per cent., it is all very well, and I would have supposed that no new law was necessary for that purpose; but if it be intended that the banks shall pay this annual one-half per cent. in addition to the half per cent. which they may already be called upon to pay; if on any account they are required to pay more than a half per cent. a year, the objection will still subsist, and I pray you to attend so far to the subject as that no misunderstanding may take place on the subject.
LORD ASHBURTON TO GALLATIN.
Washington, 12th April, 1842.
Dear Mr. Gallatin,—
My first destination was to approach America through New York, but the winds decided otherwise, and I was landed at Annapolis. In one respect only this was a disappointment, and a serious one. I should have much wished to seek you out in your retreat to renew an old and highly-valued acquaintance and, I believe and hope I may add, friendship; to talk over with you the Old and the New World, their follies and their wisdom, their present and by-gone actors, all which nobody understands so well as you do, and, what is more rare, nobody that has crossed my passage in life has appeared to me to judge with the same candid impartiality. This pleasure of meeting you is, I trust, only deferred. I shall, if I live to accomplish my work here, certainly not leave the country without an attempt to find you out and to draw a little wisdom from the best well, though it may be too late for my use in the work I have in hand and very much at heart.
You will probably be surprised at my undertaking this task at my period of life, and when I am left to my own thoughts I am sometimes surprised myself at my rashness. People here stare when I tell them that I listened to the debates in Congress on Mr. Jay’s treaty in 1795, and seem to think that some antediluvian has come among them out of his grave. The truth is that I was tempted by my great anxiety in the cause, and the extreme importance which I have always attached to the maintenance of peace between our countries. The latter circumstance induced my political friends to press this appointment upon me, and with much hesitation, founded solely upon my health and age, I yielded. In short, here I am. My reception has been everything I could expect or wish; but your experience will tell you that little can be inferred from this until real business is entered upon. I can only say that it shall not be my fault if we do not continue to live on better terms than we have lately done, and, if I do not misunderstand the present very anomalous state of parties here, or misinterpret public opinion generally, there appears to be no class of politicians of any respectable character indisposed to peace with us on reasonable terms. I expect and desire to obtain no other, and my present character of a diplomatist is so new to me that I know no other course but candor and plain-dealing. The most inexpert protocolist would beat me hollow at such work. I rely on your good wishes, my dear sir, though I can have nothing else, and that you will believe me unfeignedly yours.
GALLATIN TO LORD ASHBURTON.
New York, 20th April, 1842.
Dear Lord Ashburton,—
Your not landing here was as great disappointment to me as to you. I have survived all my early friends, all my political associates; and out of my own family no one remains for whom I have a higher regard or feel a more sincere attachment than yourself. If you cannot come here, I will make an effort and see you at Washington. Your mission is in every respect a most auspicious event. To all those who know you it affords a decisive proof of the sincere wish on the part of your government to attempt a settlement of our differences as far as practicable; at all events, to prevent an unnatural, and on both sides absurd and disgraceful, war. There are but few intrinsic difficulties of any magnitude in the way. Incautious commitments, pride, prejudices, selfish or party feelings present more serious obstacles. You have one of a peculiar kind to encounter. Our President is supported by neither of the two great political parties of the country, and is hated by that which elected him, and which has gained a temporary ascendency. He must, in fact, negotiate with the Senate before he can agree with you on any subject. It is the first time that we have been in that situation, which is somewhat similar to that of France; witness your late treaty, which the French Administration concluded and dared not ratify. It may be that under those circumstances our government may think it more eligible to make separate conventions for each of the subjects on which you may agree than to blend them in one instrument.
The greatest difficulties may be found in settling the two questions in which both parties have in my humble opinion the least personal or separate interest, viz., the right of visitation on the African seas for the purpose only of ascertaining the nationality of the vessel; and the North-Western boundary. I have no reason, however, to believe that the Administration, left to itself, will be intractable on any subject whatever; I hope that higher motives will prevail over too sensitive or local feelings, and I place the greatest reliance on your sound judgment, thorough knowledge of the subject, straightforwardness, and ardent desire to preserve peace and cement friendship between the two kindred nations. You cannot apply your faculties to a more useful or nobler purpose. I am now in my eighty-second year, and on taking a retrospective view of my long career I derive the greatest consolation for my many faults and errors from the consciousness that I ever was a minister of peace, from the fact that the twenty last years of my political life were almost exclusively employed in preventing the war as long as I could, in assisting in a speedy restoration of peace, and in settling subsequently as many of the points of difference as was at the time practicable. May God prosper your efforts and enable you to consummate the holy work!
GALLATIN TO SISMONDI.
New York, le 10 juin, 1842.
Mon cher Monsieur Sismondi,—
Permettez-moi de vous prier de vouloir bien présenter en mon nom à la Bibliothèque de Genève quatre volumes que vous recevrez par la voye de Paris, savoir:
1. Sketch of the Finances of the United States, 1796.
2. Speeches (1794-1799) and Miscellaneous Reports (1802-1810).
3. Essays on various subjects, 1830-1841.
4. Synopsis of Indian Tribes, 1836.
J’y ajoute une note ou explication et deux autres exemplaires du volume d’Essais. L’un d’eux est destiné pour mon parent et ami, le Syndic Gallatin; je vous prie d’accepter l’autre comme souvenir et comme témoignage de ma considération distinguée. Je n’ai plus d’exemplaires des autres ouvrages; il m’a même été difficile de receuillir les discours et les rapports contenus dans le volume sous ce titre (2), et impossible de les tous retrouver. J’aurais désiré faire à ma patrie natale un hommage plus digne d’elle, en lui présentant la série de mes travaux tant comme Secrétaire du Trésor que dans les missions extérieures dont j’ai été chargé. Il me sera peut-être possible de me procurer et de vous envoyer par la suite la plupart de mes rapports sur les Finances. Quant à ma correspondance diplomatique, quelques parties détachées seulement ont été publiées par ordre du Congrès, et j’ai ajouté au volume (2) la discussion des droits de l’Angleterre et des Etats-Unis sur les contrées au-delà des montagnes Rocky et qui s’étendent sur l’Océan Pacifique entre les 42e et 56e degrés de latitude.
A l’exception près des recherches sur les Indiens, tous mes écrits ne sont que des ouvrages de circonstance dans lesquels on peut trouver quelques vues saines et générales, mais qui se rattachent à ma carrière politique et n’ont eu qu’une importance locale et momentanée. Je ne regrette point que telle ait été ma destinée; je n’avais pas les talents nécessaires pour cultiver avec succès les lettres ou les sciences; et mes facultés ont été probablement employées plus utilement dans la vie active où j’ai été jeté et pour laquelle j’étais plus propre.
La dernière révolution de Genève m’a profondement affligé; je n’en connais point le résultat et vous m’obligeriez infiniment si vous pouviez m’envoyer quelqu’écrit qui en traçat les causes, les détails et les effets. Il ne m’appartenait pas de donner des avis pendant mon séjour à Genève en février, 1814. Je ne pus cependant m’empêcher d’exprimer à quelques amis les craintes que m’inspiraient l’accroissement de territoire qu’on désirait et les dispositions singulières par lesquelles on avait restreint et entravé le droit de suffrage.
Genève n’a subsisté comme état indépendant que par une force purement morale à laquelle douze mille âmes de plus n’ajoutaient rien. Je craignais la malveillance des puissances qu’on dépouillait et surtout la difficulté d’amalgamer une population ignorante et catholique avec la nôtre. Cette dernière considération me paraissait beaucoup plus grave que l’inconvénient des enclaves. Mes désirs aurait été satisfaits par une lisière le long du lac qui rendit Genève limitrophe de la Suisse, et du côté de la Savoye par l’acquisition de Landessi et des autres hameaux protestants abandonnés par le traité de 1764.
Quant à la constitution, j’avais cru comprendre que les dispositions qui entravaient le droit de suffrage n’étaient que provisoire. Du moins M. le Syndic Desarts m’avait dit qu’on ne les avait adoptées qu’afin d’exclure des emplois publics ceux qui avaient été impliqués dans les meurtres judiciaires de l’an 1794. Et je m’étais flatté que ce qu’il y avait de défectif serait corrigé par degrés, tranquillement et légalement. L’ancienne aristocratie de Genève s’était toujours distinguée par ses lumières, ses talents, son désintéressement et son excellente administration. Je suis sûr que ses descendants qui ont gouverné pendant les 27 dernières années, ont marché sur ses traces et n’ont rien laissé à désirer sous aucun de ces rapports. Mais je crains qu’ils n’aient pas pu se guérir d’un défaut qui semble être inhérent à tous les gouvernements, celui de ne pas se mettre au niveau de l’esprit du tems et des lieux, et de ne pas sentir la nécessité de prévenir les révolutions par des réformes spontanées. J’espère encore humblement que la Providence qui a créé, conservé et protégé la République ne l’abandonnera pas dans cette crise dangereuse, et que la sagesse et le patriotisme éclairé des membres de l’assemblée constitutionnelle surmonteront les grandes difficultés de la tâche qui leur est imposée.
GALLATIN TO THOMAS RITCHIE.
New York, August 2, 1842.
In compliance with your request, I send you by mail a copy of the argument in support of the right of the United States to their North-Eastern boundary as heretofore claimed by them. I had been engaged in collecting the evidence and preparing the statements laid by the United States before the King of the Netherlands, and bestowed more time on that than I ever did on any other subject. I investigated it more thoroughly, I believe, than any other individual, and, I may be permitted to add, with a pure love of truth and justice and perfect impartiality. The result has been a thorough conviction that Great Britain had not even the shadow of a claim; and I think the equivalent offered to be inadequate. Yet, and though personally disappointed, I am clearly of opinion that the public interest requires that the treaty should be ratified.
England has been fifty years in possession of the inhabited part of the disputed territory, a circumstance which, connected with the award of the King of the Netherlands, renders it difficult for her government, even if so inclined, to do us justice, and would have its weight with any new arbiter that might be selected. The arrangement being founded on a supposed equivalent, the principal part of which is of an indefinite value, may be accepted without wounding the honor of the country. And since the acquiescence of Maine, the party most interested, removes the great obstacle to an accommodation, I would think it not only unwise in the present situation of the country, but quite unjustifiable, to run the risks incident to a failure of the pending negotiations.
It is unnecessary to dwell on the calamities and baneful effects of war, on its wickedness unless in defence of sacred rights; but the positive benefits arising from the confirmation of the arrangement deserve also consideration: 1. The settlement of this vexed question will have a tendency to create better feelings between two kindred but rival nations, and lead to a final adjustment of the other subjects of difference. 2. A period of peace is at this time of the highest importance to us, for the purpose of restoring not only the finances by equalizing the receipts and expenditures of the general government, but also the public credit—I should say the public faith—of the several States, as well as private credit and confidence, all which are prostrated to a degree which affects materially the national character.
I know the terms of the treaty only from the newspapers. A note in pencil on the map A, annexed to the pamphlet, will show how I understand them.
I have not received the Richmond Enquirer mentioned in your letter. Your determination not to be governed on this occasion by party feelings is highly commendable. The sacrifice, however, is not great. You may rely on the Whigs (so called) for destroying themselves without your aid. It is a second edition, not improved, of the conduct of the Federalists in 1798.
I have, &c.
Although I have nothing to conceal, at my advanced age (82) and with a weak health, I want quiet, and do not wish to be conspicuous in newspapers.
GALLATIN TO FRED. DE PEYSTER.
New York, October 22, 1842.
I had the honor to receive your letter informing me that I had been elected a resident member of the New York Historical Society. This alone would have been gratifying to me; but I pray you to present my thanks to its members for the unusual and very kind manner in which I was chosen. I wish I could in return do something towards promoting the objects of the Society; but, independent of other circumstances, the increasing difficulty I experience in reducing my ideas to writing seems to forbid the hope of my being able to produce anything worthy of the public attention.
I pray you to accept the assurances of the high consideration, &c.
GALLATIN TO LOUIS PICTET, Genève.
New York, le 23e octobre, 1842.
. . . Il n’y a que quelques jours que j’ai reçu les divers projets, le rapport de la commission et la constitution de Genève, telle qu’elle a été adoptée, que vous avez eu la bonté de m’envoyer. Je regrette encore plus la manière dont cette révolution s’est opérée que son résultat. Quelqu’accoûtumé que je sois au suffrage universel, je dois dire d’après notre expérience que ses effets sont plus nuisibles et plus dangereux dans l’administration et le gouvernement d’un cité, que dans ceux d’un grand pays. Mais s’il y avait nécessité absolue de considérer ce principe comme un fait déjà accompli, il me paraît que vous avez tiré tout le parti possible des circonstances où vous étiez placés et que la constitution est beaucoup meilleure qu’on n’avait droit de l’espérer. Le rapport de la commission aborde toutes les questions avec franchise et elles y sont discutées avec un profondeur et un talent remarquables. Il y a pour l’avenir bien des sujets de crainte; mais l’espérance n’est pas perdue là où on peut parler ainsi au peuple et le convaincre par la raison sans en appeler à ses passions. L’embarras d’une population catholique est devenue inévitable; mais elle ne peut s’amalgamer que difficilement, et elle dérange un des principaux éléments de la considération morale dont Genève jouissait. Malgré toutes ces difficultés, il me semble qu’on est en général trop effrayé des innovations qu’amène l’opinion publique et l’esprit du siècle. J’ai vu le temps où vos ayeux et les miens croyaient la république perdue parceque le peuple leur avait arraché le droit de déplacer annuellement la sixième partie du conseil d’état; sans avoir cependant obtenu celui de choisir les remplaçants. Dans tous les cas je crois qu’au lieu de se retirer et de tout abandonner à quelques meneurs temporaires, il faut redoubler d’efforts, s’emparer de l’état des choses quel qu’il soit et apprendre l’art difficile, mais devenu partout nécessaire, de diriger dans un sens convenable au lieu de chercher à comprimer le formidable élément populaire, tant qu’il ne sort pas des voies légales et constitutionnelles. Le grand danger surtout dans les petits états est celui de l’appel à la force physique de ces émeutes qui renversent en un jour l’œuvre des années; et c’est celui surtout qu’il faut prévoir et savoir prévenir. Nous venons d’en faire l’expérience dans le petit état de Rhode Island.
Il ne m’appartient pas de donner des conseils; je vous raconte seulement ce que j’ai vu, un peu ce que j’ai tâché de faire; et quoique je n’ai pas toujours réussi, je crois que mes efforts n’ont pas été entièrement inutiles. J’ai donc vu avec grand plaisir votre nom, celui de Messrs. Naville et de beaucoup d’autres qui ne me sont connus que de réputation, parmi ceux qui ont coöpéré à la nouvelle constitution et qui continuent à se dévouer au service de la république. Avec la masse de lumières, de talents distingués, de vertus publiques et privées, dont Genève s’honore, j’ose encore espérer que la Providence qui a d’une manière presque miraculeuse conservé et protégé notre patrie, ne l’abandonnera pas entièrement, et qu’après des épreuves moins terribles que celles qu’essuyèrent vos pères, vous vous retrouverez placés dans une situation beaucoup moins pénible que vous ne paraissez le craindre.
Veuillez, je vous prie, me rappeler au souvenir de mes parents et amis, et agréer l’assurance de ma haute considération.
[1 ]Chairman of the Committee of Ways and Means of the New York Assembly.