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Subject Area: Economics
Subject Area: Political Theory

GALLATIN TO NATHANIEL MACON. - Albert Gallatin, The Writings of Albert Gallatin, vol. 1 [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 NATHANIEL MACON.

New York, 23d April, 1816.

Dear Sir,—

Yours of 18th instant is received. The sale of United States stock will undoubtedly assist not only the banks but also their debtors. The banks may sell theirs instead of curtailing discounts, or for the purpose of purchasing specie. Those of their debtors who own such stock, and they are numerous, principally in Baltimore, may pay their discounted notes by a similar sale. But I think an additional issue of Treasury notes one of the worst measures that could be adopted. We have a redundancy of currency, and to raise its value its amount must necessarily be diminished. What is called scarcity of money is not the scarcity of circulating medium, but a greater desire of borrowing than there are means to satisfy it. So long as banks do not pay in specie, they may, indeed, by new issue of paper, increase their loans. But this is effected by depreciating the currency; in other words, by raising a tax on the community for the benefit of the banks and borrowers, and, what is worse, by impairing the sanctity of contracts. This is the evil to be cured; and if you add to the circulation as many Treasury notes (receivable in duties but not payable in specie) as you subtract bank-notes from it, you undo with one hand what you were repairing with the other. In my opinion, the surplus of Treasury notes beyond the amount which could have been circulated at their specie par value ought to have been funded as soon as peace was made. At all events, this should have been done with respect to all those which became due. This was done but in part, and the effect of the revenue was relied on to absorb the residue. The consequence has been that nothing could be received in payment of that revenue but Treasury notes, depreciated 15 per cent. below specie, or bank paper, still worse. All the public creditors have since the peace, when necessity could no longer be pled, in direct violation of the pledged faith of the United States, been paid in similar depreciated currency, instead of the gold and silver promised to them. The army and navy, the public officers of government, have been paid in the same manner. The Treasury has gained what it would have lost in funding the Treasury notes at their market specie price; but it was an illicit profit. The consequence has been that the public stocks have never been since the peace higher than 85 per cent., a lower price than they were during the war prior to the suspension of payments in specie by the banks. At last the revenue begins to operate. A greater demand exists for Treasury notes; they are for the first time, without any artificial means, on a par with New York paper; that is to say, about 8 per cent. below specie. If you issue an additional quantity at this time, a retrograde motion will take place, and instead of gradually rising to specie par they will again depreciate. The Treasury will again be without money here, the public creditors paid with paper worse than at present, and the prospect of that sound state of currency and fidelity in fulfilling public and private engagements which rest alone on the resumption of specie payments by the Treasury and by the banks, will still be farther removed. Public confidence will again be further impaired, and the difficulty of filling the national bank and carrying it into operation will be increased.

I write hastily and perhaps with not sufficient perspicuity on this complex subject. There is none on which I ever had more perfect conviction of the soundness of my opinion; for it rests not only on supposed advantages, but on a strong sense of justice. I also think that instead of striking out in the bill the coercive clause on the banks, it would have been far better to retain it, removing to a greater distance (say 1st July or 31st December, 1817) the day on which it was to operate.

Ever yours.

I believe that the banks here, if you do nothing more than to require specie payment into the Treasury after 1st January next, will resume their specie payments; but I fear those of Baltimore will not do it unless coerced.