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Subject Area: Economics
Subject Area: Political Theory

GALLATIN TO JOHN A. DIX. - 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 JOHN A. DIX.

New York, April 2, 1842.

Sir,—

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.