Albert Gallatin
President of the United States as the declaration of a majority of the
people that the charter ought not to be renewed." He further expressed
the opinion "that a corporation of that description was not necessary
either for the fiscal operations of the government or the general
convenience of the people." It mattered little to him that Mr. Gallatin
had only recently pointed out that from the year 1791 the operations of
the Treasury had, without interruption, been carried on through the
medium of banks; during the years 1811 to 1814, by the state banks, with
a result which no one had as yet forgotten; before and since that brief
interval through the Bank of the United States. Enough for Taney, that
it was the will of his imperious master, 'the pugnacious animal,' as
Gallatin aptly termed him.
In October, 1834, Taney's successor in the Treasury, Levi Woodbury, gave
notice that the remaining debt, unredeemed after January 1, 1835, would
cease to bear interest and be promptly paid on application to the
commissioners of loans in the several States. On December 8, 1835, Mr.
Woodbury reported "an unprecedented spectacle presented to the world of
a government virtually without any debts and without any direct
taxation." The surplus revenues, about thirty-seven and a half millions
of dollars, had by an act of the previous session been distributed among
the several States. But the secretary and the country soon found that
they were on dangerous ground. In December, 1837, the same secretary,
alarmed at his responsibility, said to Congress, in warning words, "We
are without any national debt to absorb and regulate surpluses, or any
adequate supply of banking institutions which provide a sound currency
for general purposes by paying specie on demand, or which are in a
situation fully to command confidence for keeping, disbursing, and
transferring the public funds in a satisfactory manner."
The Bank of the United States, on the expiration of its charter in
March, 1836, accepted a charter from the State of Pennsylvania; but,
though its influence continued to be as great, its direction was no
longer the same. Abandoning its legitimate business, it speculated in
merchandise, and even kept an agent in New Orleans to compete with the
Barings in purchases of the cotton crop as a basis for exchange.
Precisely as in 1811, after the withdrawal of the control of the Bank of
the United States, the state banks ran a wild career of speculation.
From 1830 to 1837 three hundred new banks sprang up with an additional
capital of one hundred and forty-five millions, doubling, as twenty
years before, the banking capital of the country. This volume the
deposits of the Treasury continued to swell. Mr. Woodbury was the first
to take alarm. In December, 1836, he reported the specie in the country
to have increased from thirty millions in 1833 to seventy-three millions
at the date of his report, and the paper circulation, in the same
period, to have advanced, since the removal of the deposits from the
Bank of the United States, from eighty millions to one hundred and
twenty millions, or forty millions in eighteen months; and the bank
capital, in the same period, to have increased from two hundred to three
hundred millions. Importation augmented; the balance of trade suddenly
turned against the United States to the extent of one hundred and fifty
millions, and coin began to flow abroad to liquidate the account. There
was no debt to attract foreign investment and arrest the export of
specie. Added to this was the withdrawal of the government deposits from
the pet banks, which compelled an immediate contraction. The result was
inevitable. On May 10, 1837, the New York banks suspended, Mr.
Gallatin's institution being of course dragged down with the rest. It is
idle to suppose that any single bank can hold out against a general
suspension. It may liquidate or become a bank of deposits, but it cannot
maintain its relations with its sister institutions except on a basis of
common accord.
A general suspension followed. Mr. Woodbury proved himself equal to the
emergency, and recommended a plan of "keeping the public money under new
legislative provisions without using banks at all as fiscal agents."
This was the beginning of the sub-treasury system, a new departure in
treasury management, and a further evolution in American finance. It
still remains, and will no doubt be permanent. Its establishment was
necessary because of the absence of a national bank.
Mr. Gallatin at once turned his attention to bring about first a
liquidation and then a resumption. It was a favorite maxim with him,
that "the agonies of resumption are far harder to endure than those of
suspension," as it is easier to refrain from lapse of virtue than to
restore moral integrity once impaired. But in resumption the suffering
falls where it belongs, on the careless, the improvident, and the
over-trader.
On August 15, 1837, the officers of the banks of New York city, in a
general meeting, appointed a committee of three to call a convention of
the principal banks to agree upon a time for a resumption of specie
payments. This committee, of which Mr. Gallatin was chairman, on August
18 addressed a circular to the principal banks in the United States,
inviting the expression of their wishes as to the time and place for a
convention, suggesting New York as the place, and October, 1837, as the
time. They said, in addition, that the banks of New York city, in view
of the law of the State dissolving them as legal corporations in case
of suspension for one year, must resume at some time between January 1
and March 15, 1838. The circular committed the New York banks to no
definite action, but expressed the opinion that the fall in the rate of
exchanges indicated an early return of specie to par, when resumption
could be effected without danger. The banks of Philadelphia held a
meeting on August 29, and adopted resolutions declaring it inexpedient
to appoint delegates to the proposed convention. Aware of the reasons
for this action, the chief of which was the extended and perhaps
insolvent condition of the United States Bank of Pennsylvania, the New
York committee invited the banks in the several States to appoint
delegates to meet on November 27, 1837, in New York. Delegates from
banks of seventeen States and the District of Columbia appeared. On the
30th resolutions were brought in recommending a general resumption on
July 1, without precluding an earlier resumption on the part of such
banks as might find it necessary. The Pennsylvania banks opposed this
action with resolutions condemning the idea of immediate resumption as
impracticable, and also, in the absence of delegates from the banks of
Louisiana, Mississippi, Alabama, and Tennessee, as unwise. The
convention met again on December 2, when an adjournment was carried to
April 11, 1838, when delegates from the banks not represented were
invited to attend. Mr. Gallatin saw that the combination of the
Philadelphia and Boston banks, under the lead of Mr. Biddle, would
certainly force a further postponement. Exchange on London, which had
been as high as 121, the true par being about 109-1/2, nominal, had
fallen to 111-1/2, which, considering that the city bank paper was at a
discount of five per cent., was at the rate of 2-1/2 per cent. below
specie par. The exportation of specie had entirely ceased.
On December 15 Mr. Gallatin and his committee appointed at the general
convention submitted a report which he had drafted, which, though
addressed to the New York banks, covered the whole ground. Meanwhile the
highest authority in Pennsylvania had given it as his opinion "that the
banks of Pennsylvania were in a much sounder state than before the
suspension, and that the resumption of specie payments, so far as it
depends on their situation and resources, may take place at any time."
On February 28, 1838, Mr. Gallatin's committee made a further report
showing that the liabilities of the New York banks had been reduced more
than twelve millions and a half, or fifty per cent., and asserting that
with the support of the community and the state authorities they could
resume on an equal footing on May 10. This declaration was welcomed with
great satisfaction by a general meeting of the citizens of New York. On
April 11 the general convention again met in New York. The Philadelphia
banks declined to attend. A letter from Mr. Woodbury promised the
support of the Treasury Department. A committee of one from each State
was appointed, which recommended the first Monday in October as the
earliest day for a general resumption. The convention could not,
however, be brought to fix upon so early a day, but finally fixed upon
January 1, 1839, and adjourned. The New York banks would have accepted
July 1, 1838, but this being refused they resumed alone on May 10, and
the force of public opinion compelled resumption by nearly all the banks
of the country on July 1.
The terrible contraction was fatal to the United States Bank of
Pennsylvania, which after a vain struggle closed its doors in October,
1839, and carried with it the entire banking system of the Southern and
Southwestern States. Although in no way similar to the semi-governmental
institutions which preceded it, yet, from its similarity of name and
identity of location, its disastrous failure added to the blind popular
distrust of its predecessors, which narrow-minded politicians had
fostered for their own selfish purposes. Fortunately the sub-treasury
plan of Mr. Woodbury supplied the need of a safe place of deposit which,
since the refusal of Congress to renew the charter of the old bank, had
been sorely felt.
In 1838, on the foundation of the Bank of Commerce under the free
banking law of the State of New York, the presidency of it was first
tendered to Mr. Gallatin. The directors of this bank were among the most
distinguished financiers of the city, and its object was to provide a
conservative institution with sufficient power and capital to act as a
regulator upon the New York banks. Profit to the stockholders was
secondary to the reserve power for general advantage.
In June, 1839, Mr. Gallatin resigned his post as president of the
National Bank of New York. In 1841 he published a financial essay, which
he entitled "Suggestions on the Banks and Currency of the United
States," a paper full of information, but from the nature of the subject
not to be compared in general interest with his earlier paper, which is
as fresh to-day as when it was written. Mr. Gallatin condemned paper
currency as an artificial stimulus, and the ultimate object of his
essays was to annihilate what he termed the "dangerous instrument." He
admitted its utility and convenience, when used with great sobriety, but
he deprecated its tendency to degenerate into a depreciated and
irredeemable currency. This tendency the present national banking law
arrests, but the law rather invites than prohibits the stimulus of
increased issues. The last word has not yet been said on national
currency, which, though the basis of all commercial transactions, has
necessarily no other relation to banks than that which it holds to any
individual in the community.
Economic questions have interested the highest order of mind on the two
continents. Sismondi published a paper on commercial wealth in 1803, and
in 1810 a memoir on paper money, which he prepared to show how it might
be suppressed in the Austrian dominions; Humboldt made a special study
of the sources and quantity of the precious metals in the world, in
which Mr. Gallatin aided him by investigation in America. Michel
Chevalier was interested in the same subjects; surviving his two masters
in the art and witnessing the marvelous effects of the additions made by