The Oregon Question

by Albert Gallatin

The amount of Treasury Notes issued during the year 1814 amounted to near eight millions, and there had been paid off during the same year, including interest, $2,700,000; making an addition of about five millions and a half, and the total amount outstanding about ten millions and a half. The receipts during that year, on account of the direct tax and internal duties, amounted to $3,877,000, from war loans to $15,080,000, and from customs to only six millions. Before the end of the year, Government was unable to pay the notes which had become due. It is perfectly clear that, if new notes could not be issued in lieu of those which had become due, it was because they had fallen below par, and therefore that the amount outstanding was greater than the demand for them. There was but one remedy, and it was very simple. A reduction in that amount must be made, by funding at their market price a quantity sufficient to re-establish the equilibrium. But all the banks west of New England had in the meanwhile suspended their specie payments. A period of anarchy in the currency of the country was the consequence, and lasted till those payments were resumed in the year 1817.

The result of the suspension of specie payments in England was, that the notes of the Bank of England became in fact a legal tender and the standard of the currency. All the other banks were obliged to keep their own notes on a par with those of that bank; and all that was necessary in order to prevent a depreciation, was to regulate the issues of the Bank of England, so as to keep them at par with gold and silver. Nevertheless, the clamor for more currency prevailed; the bank found it very convenient and profitable to issue notes which it was not obliged to pay, and these finally depreciated twenty-five per cent. But in the United States the banks were under no other control than that of the several States respectively. The consequence was, that we had fifty and more species of local currencies, varying in value in the different States or districts of country, and from time to time in the same district. The banks might with facility have resumed specie payments during the first year of peace. The efforts of the Secretary of the Treasury to induce them to resume proved unsuccessful; and the resumption did not take place till after a new Bank of the United States had been organized.

We have had two general suspensions of specie payments, the last at a time of profound peace. I was then behind the scenes, had some agency in restoring specie payments, and may speak on that subject with knowledge and confidence. The obstacles came partly from the Banks, principally from the Debtor interest, which excites sympathy and preponderates throughout the United States. The mis-named Bank of the United States, and the banks under its influence, were, it is true, a formidable impediment; and this obstacle is now fortunately removed. Still the continuance of specie payments stands, whenever a crisis occurs, on a most precarious basis; and if any important place, especially New York, happened to break, all the banks through the United States would instantaneously follow the example. This is the most imminent danger to which the Treasury of the United States will be exposed in time of war; and what effect the Sub-Treasury system may produce in that respect remains to be tested by experience.

It is impossible to draw any inference respecting Treasury Notes, from what took place in the United States during the confused state of the currency in the years 1815 and 1816. The taxes were paid everywhere with the cheapest local currency, in Treasury Notes only in the places where specie payments had been continued, or where bank notes were nearly at par. The depreciation of the Treasury Notes was arrested by the fact, that they might at all times be converted into a six or seven per cent. stock; but in that case they became assimilated to a direct loan. They never can become a general currency, on account of their varying value, so long as they bear an interest and are made payable at some future day. In order to give them that character, they should assume that of bank notes, bearing no interest and payable on demand. It does not require the gift of prophecy to be able to assert that, as the wants of Government increased, such notes would degenerate into paper money to the utter ruin of the public credit.

They may, however, be made a special currency for the purpose of paying taxes as gold and silver, and to the exclusion of any other species of paper currency. The amount which might be thus kept in circulation, in addition to that wanted for short investments, would be limited by the gross amount of the annual revenue, and bear but a small proportion to it; since one thousand dollars, in silver or in any paper currency, are sufficient to effect in one year fifty payments of the same amount.

Although the amount kept in circulation may fluctuate according to circumstances, the fundamental principle is, that the issue of such notes is an anticipation of the revenue, which, after it has reached the maximum that may be kept in circulation without being depreciated, never can be increased. Be the amount ten or twenty millions, the anticipation may be continued, but not renewed; it is not an annual resource, but one, the whole amount of which never can exceed that which may be kept in circulation. The operation consists in re-issuing annually the amount which is paid off in the year. Whenever, owing to incidental fluctuations, the amount to be redeemed by the Treasury exceeds that which may be re-issued, the difference must be immediately funded at the market price of the notes, so as to keep them always at par or a little above par.

It is evident, that if the direct tax and internal duties laid in August, 1813, had been imposed in July, 1812; and if the acts of January, 1815, which increased both, had been enacted in August, 1813; there would have been an addition of at least eight millions to the revenue of the years 1812 and 1813; the Treasury Notes which had become due would have been paid, public credit would have been maintained, and the amount of war loans lessened.

The principal causes of the fall of public stocks during a war, and of the consequent necessity of borrowing on dearer terms, are a want of confidence in Government, and the large amount of stocks thrown in the market beyond the natural demand for them. The effect of this last cause is remarkably illustrated by the fluctuations in the price of the stocks of Great Britain, where it does not appear that there ever was a want of confidence in the ability and fidelity of Government in fulfilling its engagements. The British three per cents. are now, and were before the war of American Independence, and before those which had their origin in the French revolution, near par or at par. They fell gradually during the war of independence, and were as low as fifty-four in February, 1782. The long war with France was attended with the same result, and the three per cents. had fallen to fifty-five in July, 1812. Notwithstanding the deranged state of the finances of the United States in 1814, the American stocks had not fallen in the same proportion. Such great depreciation is the result of the long continuance of a war. No one can say what would have been its progress, had the last war with England continued much longer.

There was not, however, at that time, at least in America, any want of confidence in the Government: no one doubted that it would ultimately faithfully discharge all its engagements. Although the General Government is in no way responsible for the errors of any of the individual States, it is nevertheless certain, that the credit of the Union has been injured abroad by the failure of several of the States to fulfil their engagements, and that no expectation can be entertained of being able to borrow money in Europe. It is not less true that the Administration will cease to enjoy the confidence of American capitalists, if the measures it has recommended should be adopted and productive of war. No one can doubt that, if that event should take place, the Americans will fight in defence of their country, and none with greater zeal and bravery than the people of the Western States. During the last war, their militia and volunteers flocked either to the Lakes, to New Orleans, or wherever there was danger; nor did they refuse to take part in offensive operations, and to serve without the limits of the United States. But men cannot, either there or elsewhere, afford to render gratuitous services. Whether regulars, volunteers, or militia, they must be fed, clothed, transported, supplied with arms and artillery, and paid. There is as yet but very little active circulating capital in the new States: they cannot lend; they, on the contrary, want to borrow money. This can be obtained in the shape of loans only from the capitalists of the Atlantic States. A recurrence to public documents will show that all the loans of the last war were obtained in that quarter.

Men of property are perhaps generally more timid than others, and certainly all the quiet people, amongst whom the public stocks are ultimately distributed, are remarkably cautious. Prudent capitalists, who do not speculate, and consider public stocks only as convenient and safe investments, will not advance money to Government so long as it is controlled by men whom they consider as reckless, and as entertaining rather lax opinions respecting public credit. Yet money will be obtained, but on much dearer terms than if public confidence was unimpaired. There will always be found bold speculators, who will advance it at a premium—enhanced by the want of competition, and proportionate to the risks they may be supposed to incur. Independent of this, it is most certain that the rate of interest at which loans may be obtained, will always be increased in proportion to their magnitude. The only ways by which these difficulties may be obviated, or at least lessened, are perfect fidelity in fulfilling the engagements of Government; an economical, that is to say, a skilful application of the public moneys to the most important objects, postponing all those which are not immediately wanted, or are of inferior real utility; and an increase of the amount of revenue derived from taxation. This has the double advantage of diminishing the amount to be borrowed, and of inspiring confidence to the money-lenders. In all cases, direct loans will be preferable to, and prove a cheaper mode of raising money than the over issues of Treasury Notes.