Albert Gallatin
an additional bond of common interest and union amongst the several
States. But these arguments availed not against the blind and ignorant
jealousy of the Republican majority in the House. The days of the bank
were numbered. Congress refused to prolong its existence, and the
institution was dissolved. Fortunately for the country, it wound up its
affairs with such deliberation and prudence as to allow of the
interposition of other bank credits in lieu of those withdrawn, and
thus prevented a serious shock to the interests of the community. In the
twenty years of its existence from 1791 to 1811 its management was
irreproachable. Its annual dividends from 1791 to 1809 were 8-2/3 per
cent., and its stock, always above par, from 1805 to 1809 ranged from 20
to 40 per cent. premium.
In its numerous and varied relations to the government it had been a
useful and faithful servant, and its directors had never assumed the
attitude of money kings, of which the Jeffersonian democracy pretended
to stand in hourly dread. To the general and important nature of its
financial service Mr. Gallatin gave his testimony in 1830; after his own
direct participation in public affairs had ended.
"Experience, however, has since confirmed the great utility and
importance of a bank of the United States in its connection with
the Treasury. The first great advantage derived from it consists in
the safekeeping of the public moneys, securing in the first
instance the immediate payment of those received by the principal
collectors, and affording a constant check on all their
transactions; and afterwards rendering a defalcation in the moneys
once paid, and whilst nominally in the treasury, absolutely
impossible. The next, and not less important, benefit is to be
found in the perfect facility with which all the public payments
are made by checks or treasury drafts, payable at any place where
the bank has an office; all those who have demands against
government are paid in the place most convenient to them; and the
public moneys are transferred through our extensive territory at a
moment's warning without any risk or expense, to the places most
remote from those of collection, and wherever public exigencies may
require."
Late in life, in a letter to John M. Botts, June 14, 1841, Mr. Gallatin
expressed the same opinions with regard to the usefulness of a
government bank as an aid to the Treasury Department, but limited his
approval to that use. "Except in its character of fiscal agent to the
general government I attach much less importance to a national bank than
several of those who are in favor of it." "Did I believe," he adds in
the same letter, "that a bank of the United States would effectually
secure us a sound currency, I would think it a duty at all hazards to
promote the object."
The reason for his doubts in 1841 is easily seen in the impossibility of
annihilating or controlling the three hundred distinct currencies of as
many banks, each nominally convertible into specie at its point of
issue; a financial puzzle which Mr. Chase solved in the device and
organization of the present national banking system, which, without
involving the government in banking operations, affords to the people a
homogeneous currency of uniform value, and secures its convertibility by
reasonable but absolute restrictions, upon conformity to which the
existence of the banks depends. The exigencies of war compelled an
acquiescence in the plans of Mr. Chase, which, at the time when Mr.
Gallatin expressed his doubts, could not have been had in any system
whatever which involved the subordination of the banks.
The wide spread of the state bank system, with its irresponsible and
unlimited issues, occurring subsequent to Mr. Gallatin's withdrawal from
the Treasury, was a consequence of the failure to renew the charter of
the Bank of the United States; and if ever there were a system by which
the inhabitants of States whose floating capital was small were placed
at the mercy of moneyed corporations of the States where it was
abundant, it was the state bank system. The experience of the old
confederation had not taught this lesson. The colonial system was
continued by the several States, and bills of credit were issued on
their faith. The continental system was a compound of the main features
of this plan. The bills were issued by the Congress, but the States were
relied upon for their ultimate redemption.
The collapse of the entire fabric of finance led to the establishment of
the Bank of North America, the notes of which were redeemable and
redeemed at the bank counters. The article in the Constitution of 1787,
prohibiting the issue of bills of credit by the States, was evidently
intended to secure a uniform currency to the people of the United
States, and it has been by a strange perversion of this manifest
intention that the power has been conceded to the States to charter
corporations to do that which was forbidden to themselves in their
sovereign capacity; namely, to issue bills of credit, which bank-notes
are. It is idle to say that, because such bills were not a "legal
tender," they were therefore not of the character which the Constitution
forbade. Necessity knows no law, and in the absence of any other
currency the people were perforce compelled to take what they could get.
Experience later showed that large amounts of paper money manufactured
in one State were easily put in circulation in far distant communities,
and considerable sums, through the operations of wear and tear and the
vicissitudes incident to its fragile nature, never returned to plague
the inventor.
At the time of the organization of the National Bank by Hamilton, there
were but three banks in the United States: the Bank of North America,
the Bank of New York, and the Bank of Massachusetts. Their added capital
amounted to two millions of dollars, and their issues were
inconsiderable.
Mr. Gallatin estimated that in January, 1811, just before the expiration
of the bank charter, there were in the United States eighty-eight state
banks with a capital of $42,612,000.
--------------------------+-------------+---------------+------------
| | Notes in |
| Capital. | Circulation. | Specie.
--------------------------+-------------+---------------+------------
Bank of the United States | $10,000,000 | $5,400,000 | $5,800,000
Eighty-eight State Banks | 42,610,601 | 22,700,000 | 9,600,000
--------------------------+-------------+---------------+------------
| $52,610,601 | $28,100,000 | $15,400,000
--------------------------+-------------+---------------+------------
Over the local institutions the Bank of the United States always
exercised a salutary control, checking any disposition to overtrade by
restraining their issues and holding them to a proper specie reserve;
and this by no other interference except its countenance or ill favor,
as such banks severally observed or disregarded the ordinary rules of
financial prudence. The immediate effect of the refusal of Congress to
recharter the Bank of the United States was to bring the Treasury to the
verge of bankruptcy. The interference of Parish, Girard, and Astor alone
saved the credit of the government, and this interference was no doubt
prompted by self-interest. That Mr. Astor was hostile to the bank is
certain. Gallatin wrote to Madison in January, 1811, that Mr. Astor had
sent him a verbal message, "that in case of non-renewal of the charter
of the Bank of the United States, all his funds and those of his
friends, to the amount of two millions of dollars, would be at the
command of government, either in importing specie, circulating
government paper, or in any other way best calculated to prevent any
injury arising from the dissolution of the bank," and he added that Mr.
Bentson, Mr. Astor's son-in-law, in communicating this message said,
"that in this instance profit was not Mr. Astor's object, and that he
would go great lengths, partly from pride and partly from wish, to see
the bank down." In 1813, when the bank was "down," Mr. Gallatin was no
longer master of the situation. He offered to treat directly with
Parish, Girard, and Astor for ten millions of dollars, but finding some
hesitation, he opened the loan for subscription. When the subscription
failed, he was at the mercy of the capitalists.
Another immediate effect of the dissolution of the bank was the
withdrawal from the country of the foreign capital invested in the bank,
more than seven millions of dollars. This amount was remitted, in the
twelve months preceding the war, in specie. Specie was at that time a
product foreign to the United States, and by no means easy to obtain.
Specie, as Mr. Gallatin profoundly observed, does not precede, but
follows wealth. The want of it nearly destroyed Morris's original plan
for the Bank of North America, and was only made up by the fortunate
receipt of the French remittances. In 1808 the specie in the vaults of
the treasury reached fourteen millions of dollars, but during the
operation of the Embargo Act, the banks of New England had gradually
accumulated a specie reserve, and that of Richmond, Virginia, pursued
the same policy. Together they held one third of the entire specie
reserve of the banks. The amount of specie in the Bank of the United
States, January 1, 1811, had fallen to $5,800,000, which soon found its
way abroad.
The notes of the Bank of the United States, payable on demand in gold
and silver at the counters of the bank, or any of its branches, were,
by its charter, receivable in all payments to the United States; but
this quality was also stripped from them on March 19, 1812, by a repeal
of the act according it. To these disturbances of the financial
equilibrium of the country was added the necessary withdrawal of fifteen
millions of bank credit and its transfer to other institutions. This
gave an extraordinary impulse to the establishment of local banks, each
eager for a share of the profits. The capital of the country, instead of
being concentrated, was dissipated. Between January 1, 1811, and 1815,
one hundred and twenty new banks were chartered, and forty millions of
dollars were added to the banking capital. To realize profits, the
issues of paper were pushed to the extreme of possible circulation.
Meanwhile New England kept aloof from the nation. The specie in the
vaults of the banks of Massachusetts rose from $1,706,000 on June 1,
1811, to $7,326,000 on June 1, 1814. This was a consequence of the New
England policy of opposition. Mr. Gallatin estimated that the proceeds
of loans, exclusive of treasury notes and temporary loans, paid into the
treasury from the commencement of the war to the end of the year 1814
were $41,010,000: of which sum the Eastern States lent $2,900,000; the
Middle States, $35,790,000; Southwestern States, $2,320,000.
The floating debt of the United States, consisting of treasury notes
and temporary loans unpaid, amounted, January 1, 1815, to $11,250,000,
of which nearly four fifths were loaned by the cities of New York,
Philadelphia, and Baltimore, and the District of Columbia. The
suspension of the banks was precipitated by the capture of Washington.
It began in Baltimore, which was threatened by the British, and was at
once followed in Philadelphia and New York. Before the end of September
all the banks south and west of New England had suspended specie
payment. In his "Considerations on the Currency," Mr. Gallatin expressed
his--
"deliberate opinion that the suspension might have been prevented