Albert Gallatin
at the time when it took place, had the Bank of the United States
been in existence. The exaggerated increase of state banks,
occasioned by the dissolution of that institution, would not have
occurred. That bank would _as before_ have restrained them within
proper bounds and checked their issues, and through the means of
its offices it would have been in possession of the earliest
symptoms of the approaching danger. It would have put the Treasury
Department on its guard; both, acting in concert, would certainly
have been able, at least, to retard the event; and as the treaty of
peace was ratified within less than six months after the suspension
took place, that catastrophe would have been avoided."
But within fifteen months the bank issues increased from forty-five and
a half to sixty millions.
----------------------+-------------+--------------+------------
| Capital. | Circulation. | Specie.
----------------------+-------------+--------------+------------
Banks of New England. | $15,690,000 | $5,320,000 | $8,200,000
Other Banks | 66,930,000 | 44,730,000 | 8,600,000
----------------------+-------------+--------------+------------
1815. 208 State Banks.| $82,620,000 | $50,050,000 | $16,800,000
1816. 246 State Banks.| 89,822,422 | 68,000,000 | 19,000,000
----------------------+-------------+--------------+------------
The depression of the local currencies ranged from seven to twenty-five
per cent. In New York and Charleston it was seven to ten per cent. below
the par of coin. At Philadelphia from seventeen to eighteen per cent. At
Washington and Baltimore from twenty to twenty-two, and at Pittsburgh
and on the frontier, twenty-five per cent. below par. The circulating
medium, or measure of values, being doubled, the price of commodities
was doubled. The agiotage, of course, was the profit of the bankers and
brokers; a sum estimated at six millions of dollars a year, or ten per
cent. on the exchanges of the country, which McDuffie, in his celebrated
report, estimated at sixty millions annually.
In November the Treasury Department found itself involved in the common
disaster. The refusal of the banks, in which the public moneys were
deposited, to pay their notes or the drafts upon them in specie deprived
the government of its gold and silver; and their refusal, likewise, of
credit and circulation to the issues of banks in other States deprived
the government also of the only means it possessed for transferring its
funds to pay the dividends on the debt and discharge the treasury notes.
Mr. Dallas found himself compelled to appeal to the banks by circular to
subscribe for sufficient treasury notes to secure them such advances as
might be asked of them for the discharge of the public obligations.
"In the latter end of the year 1814," says Mr. Gallatin, "Mr. Jefferson
suggested the propriety of a gradual issue by government of two hundred
millions of dollars in paper;" commenting upon which Mr. Gallatin
remarks that Mr. Jefferson, from the imperfect data in his possession,
"greatly overrated the amount of paper currency which could be sustained
at par; and he had, on the other hand, underrated the great expenses of
the war;" but at "all events," he adds, "the issue of government paper
ought to be kept in reserve for extraordinary circumstances." But here
it may be remarked that the evolution of the systems of American finance
seems to lead slowly but surely to an entire divorce of banking from
currency, and the day is not far distant when the circulating medium of
the United States will consist of gold and silver, and of government
issues restricted, according to the English principle, to the minimum of
circulation, and kept equivalent to coin by a specie reserve in the
treasury; while the banks, their circulation withdrawn and the
institutions freed from any tax, will be confined to their legitimate
business of receiving deposits and making loans and discounts.
On October 14, 1814, Alexander J. Dallas, Mr. Gallatin's old friend, who
had been appointed secretary of the treasury on the 6th of the same
month, in a report of a plan to support the public credit, proposed the
incorporation of a national bank. A bill was passed by Congress, but
returned to it by Madison with his veto on January 15, 1815. In this
peculiar document Madison "waived the question of the constitutional
authority of the legislature to establish an incorporated bank, as being
precluded, in his judgment, by repeated recognitions, under varied
circumstances, of the validity of such an institution in acts of the
legislative, executive, and judicial branches of the government." But he
objected for reasons of detail. Mr. Dallas again, as a last resort,
insisted on a bank as the only means by which the currency of the
country could be restored to a sound condition. In December, 1815,
Dallas reported to the committee of the House of Representatives on the
national currency, of which John C. Calhoun was chairman, a plan for a
national bank, and on March 3, 1816, the second Bank of the United
States was chartered by Congress. The capital was thirty-five millions,
of which the government held seven millions in seventy thousand shares
of one hundred dollars each. Mr. Madison approved the bill. This
completed the abandonment of every shred of principle claimed by the
Republican party as their rule of action. They struggled through the
rest of their existence without a political conviction. The national
bank, and the system of internal taxation which had been scorned by
Jefferson and Madison as unconstitutional, were accepted actually under
Madison's administration. Gallatin's success, owing to the development
and application of Hamilton's plans, was a complete vindication of the
theory and practice of the Federalists which they abhorred; Jefferson's
plan of a government issue of paper money was a higher flight into the
upper atmosphere of implied powers than Hamilton ever dreamed of.
The second national bank of the United States was also located at
Philadelphia, and chartered for twenty years. The manner in which it
performed its financial service is admirably set forth in Mr. Gallatin's
"Considerations on the Currency," already mentioned. It acted as a
regulator upon the state banks, checked excessive issues on their part,
and brought the paper currency of the country down from sixty-six to
less than forty millions, before the year 1820.
In April, 1816, Mr. Dallas having signified his intention to resign the
Treasury, Mr. Madison wrote to Gallatin, offering him his choice between
the mission to France and the Treasury Department. Mr. Gallatin's reply
was characteristic. He declined the Treasury, but with reluctance, since
he thought he would be more useful at home than abroad, and because he
preferred to be in America rather than in Europe. One of his
preponderating reasons was that, although he felt himself competent to
the higher duties of the office, there was, for what he conceived "a
proper management of the Treasury, a necessity for a mass of mechanical
labor connected with details, forms, calculating, etc., which having
lost sight of the thread and routine, he could not think of again
learning and going through." He was aware that there was "much confusion
due to the changes of office and the state of the currency, and thought
that an active young man could alone reinstate and direct properly that
department."
In June of the same year, while waiting for the Peacock, which was to
carry him across the sea, Gallatin wrote Mr. Madison an urgent letter,
impressing upon him the necessity of restoring specie payment, and his
perfect conviction that nothing but the will of the government was
wanted to reinstate the country in its moral character in that respect.
He dreaded the "paper taint," which he found spreading as he journeyed
northward.
In January 1817, delegates from the banks of New York, Philadelphia,
Baltimore and Virginia met in Philadelphia and agreed to a general and
simultaneous resumption of specie payments. The Bank of the United
States proposed a compact which was accepted by the state banks and
ratified by the secretary of the treasury. That institution engaged, to
a reasonable extent, to support any bank menaced. This engagement and
the importation of seven millions of specie from abroad by the Bank of
the United States secured a general restoration of specie payment. In
1822 Mr. Gallatin was tendered and declined the office of president of
the Bank of the United States.
In 1829 he prepared for Mr. Ingham, then secretary of the treasury, a
masterly statement of the relative value of gold and silver. In 1830 Mr.
Gallatin wrote for the "American Quarterly Review" his essay,
"Considerations on the Currency and Banking System of the United
States." Appearing at the time when the renewal of the charter of the
Bank of the United States was an absorbing question, this essay was
equally sought for by both the friends and opponents of the bank. It is
not confined, however, to this subject, but covers the entire field of
American finance. His treatment of the currency question was novel. He
analyzed the systems of Europe, compared them with those which prevailed
in the United States, and reached the conclusion, the general
correctness of which has been justified by the experience of all other
nations, and sooner or later will be accepted by our own; namely, the
necessity of a currency strong in the precious metals, and the
restriction of paper money to notes of one hundred dollars to be issued
by the government. This limit is higher than that adopted in France and
England, but the general principle that a circulating medium is sound
only as it is strong in gold and silver, and that gold and silver can
only be retained permanently by making a place for them in the
circulating medium by a restriction of paper issues, will yet find
favor even in this paper-loving country.
In 1832 Mr. Gallatin accepted the presidency of a bank in New York, the
subscription to the stock of which, $750,000, was completed by Mr. John
Jacob Astor on condition that Mr. Gallatin should manage its affairs.
The direction of its concerns, without absorbing his time, kept him in
the financial current. The bank was called the National Bank of New
York. But not in this modest post was he to find the financial path
smooth. It is true he had lived in the flesh to see the financial
millennium. The rapid growth of the country and the faithful adherence
of his successors in the Treasury Department to the funding principle
had at last realized his dream. The national debt was extinguished. The
last dollar was paid. Louis McLane, secretary of the treasury, on
December 5, 1832, in his report on the finances, said that the dividends
derived from the bank shares held by the United States were more than
was required to pay the interest, and that the _debt_ might therefore be
considered as substantially extinguished after January 1, 1833.
On December 3, 1833, Roger B. Taney, secretary of the treasury, reported
to Congress that he had directed the removal of the deposits of the
government from the Bank of the United States and placed them in banks
of his own selection. He gave a number of reasons for this extraordinary
exercise of the power which he obtained by his appointment on September
23, 1833. He received his reward in June, 1834, being then transferred
by President Jackson to the seat of chief justice of the Supreme Court.
In his annual report Taney named, among his elaborate reasons for the
removal, that the bank had used its money for electioneering purposes,
and that he "had always regarded the result of the last election of