The Life of Albert Gallatin

by Henry Adams

Unfortunately, the fact became immediately obvious that, whatever were the ultimate and permanent advantages gained by the extinction of the debt, the immediate consequences were disastrous and alarming in the extreme. Nullification and imminent civil war were at the head of the list, but were neither the most serious nor the most corrupting. Perhaps a worse result than civil war was the rapid decline in public economy and morality; the shameless scramble for public money; the wild mania for speculation; the outburst of every one of the least creditable passions of American character. At this revelation of the consequences of his own favorite political dogma, Mr. Gallatin stood positively appalled. “I find no one who suffers in mind as I do at the corruption and degeneracy of our government. But I do not despair, and cannot believe that we have lived under a perpetual delusion.” So he wrote to his oldest friend. To his alarm he found that extinction of the national debt was a signal for an astonishing increase in the indebtedness of the community at large, one significant sign of which was that the individual States contracted, between 1830 and 1838, new debts to the amount of nearly one hundred and fifty millions, that is to say, very nearly as much as had been discharged by the national government since 1789. Under any circumstances this tendency to extravagance would have been dangerous, but when the President seized this moment for his attack upon the bank, he immensely aggravated the evil. From 1830 to 1837, in anticipation of the failure to renew the bank charter, three hundred new banks were created, with a capital of one hundred and forty-five millions of dollars, precisely doubling the banking capital of the country. Meanwhile, after the discharge of the last instalment of national debt, an alarming surplus rapidly accumulated in the hands of the Treasury officials, until forty millions had been deposited by them in State banks and had become the means of an excessive expansion of credit, acting as a violent stimulus to the wild extravagance of the time.

All these causes produced five or six years of intoxication, during which the public morality was permanently lowered and the seeds of future defalcations, public and private, rapidly matured. Then the tide turned; England stopped lending money and called for payment; the President and Congress attacked the resources and credit of the State banks as earnestly as they had previously helped to create and extend both; the New York banks stopped discounting; a terrible crisis came on; and on the 10th May, 1837, the New York banks suspended specie payments. The universal suspension of all banks throughout the country instantly followed.

Mr. Gallatin’s bank suspended with the rest, not because it was obliged to do so, for it might perhaps have held out, but this would have answered no special object and would have produced considerable inconvenience. Mr. Gallatin himself, therefore, was personally involved in, and partially responsible for, an act of bankruptcy which was to him the substance of everything most galling and reproachful. He could not but remember how, in 1815, he had urged on the government the necessity of specie payments after the war, and how there had arisen almost a coldness between him and his friend Dallas, then Secretary of the Treasury, on the subject; how he had remonstrated against waiting for the restoration of the bank, and had pressed the Treasury to resume at once, by funding the excess of Treasury notes, and rejecting the notes of suspended banks when offered in payments to the government. That he should himself now belie his old teachings and become in practice if not in theory an advocate and supporter of an irredeemable paper currency, was intolerable. He had made every effort to prevent the necessity of suspension. He was now called upon by every feeling of self-respect to bring about resumption.

The State law required that a suspended bank, which did not resume its payments before the expiration of one year from the date of suspension, should be deemed to have surrendered its rights, and should be adjudged to be dissolved. This was the principal lever with which Mr. Gallatin could work. He represented an institution which of itself had very little weight; but, although his only means of interfering at all was in the character of president of a new and unimportant bank, his real authority was wholly personal, and it was fortunate for him that the want of capital behind him was supplied by the active and able co-operation of other bank officers, especially by Mr. George Newbold, of the Bank of America, and by Mr. Cornelius W. Lawrence, of the Bank of the State of New York.

On the 15th August a general meeting was held by the officers of the city banks. A resolution was adopted appointing a committee to correspond with the leading State banks throughout the Union, for the purpose of agreeing on the time and the measures for resumption. This committee consisted of Mr. Gallatin, Mr. Newbold, and Mr. Lawrence, and proceeded almost immediately to carry out its instructions. Three days afterwards, on August 18, a circular-letter was despatched, inviting the other banks to a conference, and laying down in very energetic language the rules which should guide their action: “By accepting their charters the banks contracted the obligation of redeeming their issues at all times and under any circumstances whatever; they have not been able to perform that engagement; and a depreciated paper, differing in value at different places and subject to daily fluctuations in the same place, has thus been substituted for the currency, equivalent to gold or silver, which, and no other, they were authorized and had the exclusive right to issue. Such a state of things cannot and ought not to be tolerated any longer than an absolute necessity requires it.... As relates to the banks of this city, we are of opinion that, provided the co-operation of the other banks is obtained, they may and ought to, we should perhaps say that they must, resume specie payments before next spring.”

This circular had one immediate effect: it developed the force and character of the opposition; it brought out the fact that the real point of resistance was to be in Pennsylvania, and that of this resistance the old Bank of the United States was to be the main stay; it showed that politics had been dragged into alliance with the less solvent banking institutions, and that the party opposed to President Van Buren’s Administration had hopes of forcing the re-establishment of a national bank by making this the condition of resumption. Mr. Gallatin had no great sympathy with the Administration and no favors to ask from it, but he was not at all disposed to allow his ideas of public duty to be subordinated to the political purposes of the opposition.

On the expiration of the bank charter in March, 1836, the old Bank of the United States had accepted a new charter from the State of Pennsylvania, and had attempted to carry on its business. Bad management, want of confidence, and the universal financial pressure soon reduced it to such a condition that the general suspension of specie payments alone concealed its insolvency; yet its controlling influence over the other Pennsylvania banks was such that they still followed its lead, and all united in replying to Mr. Gallatin’s circular, that they deemed it inexpedient to appoint delegates to the proposed meeting of bank officers, for the reason that general resumption depended mainly, if not exclusively, on the action of Congress; thereby implying that no permanent resumption was possible without the adoption of their policy of renewing the charter of the United States Bank. The Baltimore banks followed their example, and those of Boston returned no positive answer.

Unsatisfactory as this result was, the New York banks, with Mr. Gallatin at their head, resolutely pursued their object. On the 20th October the committee issued another circular, in pursuance of a resolution passed at a general meeting on the 10th, and formally invited the other State banks over the whole Union to meet in convention at New York on November 27. This step compelled both Philadelphia and Boston to accede, for fear of the consequences in case New York should act alone. The convention met, and Mr. Gallatin acted in it the prominent part which naturally fell to his share as chairman of the New York committee. His opponents did not, however, press the political argument, but rested their case principally on the injury that would be caused by a premature resumption. Mr. Gallatin met this objection with that direct assertion of moral obligation always so fatal as an argument, raising disputes, as it does, above the ordinary level of expediency, and throwing opposition into an apologetic defensive. He said it was monstrous to suppose that, if the banks were able to resume and to sustain specie payments, they should have any discretionary right to discuss the question whether a more or less protracted suspension was consistent with their views of “the condition and circumstances of the country.” There would be no limit to such supposed discretion. The evidence was irresistible that the banks were able to resume. Exchange was favorable. No known cause existed which could prevent a general resumption. The arguments and objections of the United States Bank of Pennsylvania were neither more nor less than excuses for an intended protracted suspension for an indefinite period of time, which was shown by the fact that this bank had actually put in circulation, since the suspension, a large amount of the notes of the dead and irresponsible Bank of the United States.

1838.

The situation was thus narrowed down to a local contest between the New York banks, represented by Mr. Gallatin, and the United States Bank of Pennsylvania, directed by Mr. Biddle. The influence of party sympathy led the Boston banks to sustain Mr. Biddle to the last against Mr. Gallatin; Baltimore followed the same course; outside of New York Mr. Gallatin found support only in the North-West and South. Yet, although the convention was nearly equally divided and nothing more than general professions could be obtained from it, the contest was really unequal, and there could be no question that Mr. Gallatin was master of the situation. The New York banks, actively supported by the comptroller and the State government, proceeded to take such measures as would enable them to resume at almost any moment, but they waited still some length of time in the hope of obtaining co-operation. The convention had adjourned to meet again on the 11th April, 1838. Mr. Gallatin and his colleagues, who represented the New York banks in the convention, made a report on the 15th December, 1837, representing in strong language the evils of the situation and pressing for combined action. On the 28th February the same gentlemen made another report on measures, “in contemplation of the resumption of specie payments by the banks of the city of New York, on or before the 10th day of May next.” Nothing was omitted that could tend to secure the banks from accident or designed attack, and even the popular feeling was enlisted on their side.