Albert Gallatin
life. He managed his own household expenses, and at a time when
bountiful stores were the fashion in every household he insisted on a
rigid observance of the more precise French system. He made an
appropriation of a certain sum each day for his expenses, and required
from his purveyor a strict daily account of disbursements. An amusing
story is told of him at his own table. On an occasion when entertaining
a company at dinner, he was dissatisfied with the menu and expressed his
disapprobation to his maitre d'hotel, a Frenchman, who replied to him
in broken English, that it was not his fault, but that of the
"mal-appropriations."
The example set by Mr. Gallatin in this particular was never forgotten,
and from his day to this strict accountability has been the tradition of
the Treasury Department, now greatly increased in detail, but in
structure essentially as it was originally organized. Of its management
Mr. Sherman was able to say in his report of December 1, 1879, "The
organization of the several bureaus is such, and the system of
accounting so perfect, that the financial transactions of the government
during the past two years, aggregating $3,354,345,040, have been
adjusted without question with the exception of a few small balances,
now in the process of collection, of which it is believed that the
government will eventually lose less than $13,000, or less than four
mills for each $1000 of the amount involved;" and in 1880 he said with
entire truth, "The department is a well organized and well conducted
business office, depending mainly for its success upon the integrity and
fidelity of the heads of bureaus and chiefs of divisions."
_Banking_
There is no more instructive chapter in the history of finance than that
upon the banking system of the United States. It has its distinct eras
of radical change, each of which presents a series of tentative
experiments. The outcome, by a process of development, in which
political expediency has been as effective an agency as financial
necessity, is the present national banking system. Though the term
"government," or "national," bank is constantly used in reference to the
great banking institutions of England, France, and the United States, no
one of these is in the true sense of the word a national bank. The Bank
of England is a chartered corporation, the Bank of France an association
instituted by law. The Bank of North America, and the Bank of the United
States which followed it, were founded on the same principle. Both were
corporations of individuals intimately connected with the government,
enjoying certain privileges accorded and being under certain
restrictions, but otherwise independent of government control.
The Bank of North America, the first bank established in the United
States, was also the first which had any direct relation to the
government. It was the conception of the comprehensive and original mind
of Robert Morris, the financier or superintendent of the public finances
of the United States. Its purpose was not the convenience or profit of
individuals, but to draw together the scattered financial resources of
the country and found a public credit. He submitted his plan to
Congress, which adopted a resolution of approval May 26, 1781. The
original plan contemplated a capital of ten millions of dollars; but the
collection of such a sum in gold and silver in one depository was beyond
the range of possibility at that period, and the capital was finally
fixed at four hundred thousand dollars, in one thousand shares of four
hundred dollars each. Subscription books were immediately opened, but
not more than $70,000 was entered during the summer months. The arrival
at Boston of a French war frigate with a remittance of $470,000 in
specie, which was brought to Philadelphia and deposited in the vaults of
the bank, enabled Mr. Morris to mature his plans. He designed to retain
this sum in the bank as a specie basis; but the necessities of the
country were so urgent during the critical season of the Yorktown
campaign, that nearly one half of it was exhausted before an
organization could be effected. In December Congress passed an ordinance
of incorporation. Mr. Morris then subscribed the specie remaining in the
Treasury, about $254,000, for shares for account of the United States,
which became thereby the principal stockholder. The limit assigned by
the ordinance remained, however, at ten millions of dollars. There was
nothing in the acts of Congress which implied any exclusive right of the
United States government in the bank except during the war of the
Revolution. A local charter was obtained from the legislature of
Pennsylvania, and the bank was opened in Philadelphia for the
transaction of business in January, 1782. Its services to the government
during the period of the war were inestimable. In the words of Hamilton,
"American independence owes much to it." But after the war such were
the local jealousies, the fears of oppression, and the dread of foreign
influence, that, on the petition of the inhabitants of Philadelphia and
some of the neighboring counties, the legislature of Pennsylvania
repealed its charter on September 13, 1785. The bank continued its
operations, however, under the charter from Congress. On March 17, 1787,
the legislature of Pennsylvania renewed the charter for fourteen years
and limited the capital to two millions of dollars. The charter was
extended for a similar term of fourteen years on March 26, 1799. Thus in
the beginning of the American banking system are found that distrust and
jealousy of money power which seem inherent in democracies. The exercise
of state jurisdiction over the existence of the Bank of North America
suggested possible embarrassments, which could not escape the
discernment of Hamilton, whose policy, as it was also that of the
Federal party, was to strengthen the powers of the government in every
vital branch of administration.
* * * * *
In his comprehensive plan of government Hamilton included a financial
institution to develop the national resources, strengthen the public
credit, aid the Treasury Department in its administration, and provide a
secure and sound circulating medium for the people. On December 13,
1790, he sent in to Congress a report on the subject of a national bank.
The Republican party, then in the minority, opposed the plan as
unconstitutional, on the ground that the power of creating banks or any
corporate body had not been expressly delegated to Congress, and was
therefore not possessed by it. Washington's cabinet was divided;
Jefferson opposing the measure as not within the implied powers, because
it was an expediency and not a paramount necessity. Later he used
stronger language, and denounced the institution as "one of the most
deadly hostility existing against the principles and form of our
Constitution," nor did he ever abandon these views. There is the
authority of Mr. Gallatin for saying that Jefferson "died a decided
enemy to our banking system generally, and specially to a bank of the
United States." But Hamilton's views prevailed. Washington, who in the
weary years of war had seen the imperative necessity of some national
organization of the finances, after mature deliberation approved the
plan, and on February 25, 1791, the Bank of the United States was
incorporated. The capital stock was limited to twenty-five thousand
shares of four hundred dollars each, or ten millions of dollars, payable
one fourth in gold and silver, and three fourths in public securities
bearing an interest of six and three per cent. The stock was immediately
subscribed for, the government taking five thousand shares, two millions
of dollars, under the right reserved in the charter. The subscription of
the United States was paid in ten equal annual installments. A large
proportion of the stock was held abroad, and the shares soon rose above
par. By an act of March 2, 1791, the funded three per cents. were also
made receivable in payment of subscriptions to the bank, whence it has
been said that out of the funding system sprung the bank, as three
fourths of its capital consisted of public stocks. Authority was given
the bank to establish offices of discount and deposit within the United
States. The chief bank was placed in Philadelphia, and branches were
established in eight cities, with capitals in proportion to their
commercial importance.
In 1809 the stockholders of the Bank of the United States memorialized
the government for a renewal of their charter, which would expire on
March 4, 1811; and on March 9, 1809, Mr. Gallatin sent in a report in
which he reviewed the operations of the bank from its organization. Of
the government shares, five million dollars at par, two thousand four
hundred and ninety-three shares were sold in 1796 and 1797 at an advance
of 25 per cent., two hundred and eighty-seven in 1797 at an advance of
20 per cent., and the remaining 2220 shares in 1802, at an advance of 45
per cent., making together, exclusive of the dividends, a profit of
$671,680 to the United States. Eighteen thousand shares of the bank
stock were held abroad, and seven thousand shares, or a little more than
one fourth part of the capital, in the United States. A table of all the
dividends made by the bank showed that they had on the average been at
the rate of 8-3/8 (precisely 8-13/34) per cent. a year, which proved
that the bank had not in any considerable degree used the public
deposits for the purpose of extending its discounts. From a general view
of the debits and credits, as presented, it appeared that the affairs of
the Bank of the United States, considered as a moneyed institution, had
been wisely and skillfully managed. The advantages derived by the
government Mr. Gallatin stated to be, 1, safekeeping of the public
moneys; 2, transmission of the public moneys; 3, collection of the
revenue; 4, loans. The strongest objection to the renewal of the charter
lay in the great portion of the bank stock held by foreigners. Not on
account of any influence over the institution, since they had no vote;
but because of the high rate of interest payable by America to foreign
countries. If the charter were not renewed the principal of that
portion, amounting to $7,200,000, must at once be remitted abroad; but
if the charter were renewed, dividends equal to an interest of about
8-1/2 per cent. per annum must be remitted. Mr. Gallatin's report closed
with the following suggestions:--
I. That the bank should pay an interest to the United States on the
public deposits above a certain sum.
II. That it should be bound to lend the United States a sum not
exceeding three fifths of its capital.
III. That the capital stock of the bank should be increased to thirty
millions of dollars, to be subscribed for, 1, five millions by citizens
of the United States; 2, fifteen millions by the States; a branch to be
established in each subscribing State; 3, payments by either individuals
or States to be in specie or public stock of the United States at rates
to be fixed by law; the subscribing States to pay in ten annual
installments.
IV. That some share should be given in the direction to the general and
state governments by appointment of directors in the general direction
and branches.
The result of this plan would be, 1st, that the United States might,
from the interest on the public deposits, accumulate during years of
peace and prosperity a treasure sufficient to meet periods of war and
calamity; 2d, that they might rely on a loan of eighteen millions of
dollars in any sudden emergency; 3d, that by the payment in ten
installments the increase in capital would be in proportion to the
progressive state of the country; 4th, that the bank itself would form