III. That the capital stock of the bank should be increased to thirty millions of dollars, to be subscribed for, 1, five millions by citizens of the United States; 2, fifteen millions by the States; a branch to be established in each subscribing State; 3, payments by either individuals or States to be in specie or public stock of the United States at rates to be fixed by law; the subscribing States to pay in ten annual installments.
IV. That some share should be given in the direction to the general and state governments by appointment of directors in the general direction and branches.
The result of this plan would be, 1st, that the United States might, from the interest on the public deposits, accumulate during years of peace and prosperity a treasure sufficient to meet periods of war and calamity; 2d, that they might rely on a loan of eighteen millions of dollars in any sudden emergency; 3d, that by the payment in ten installments the increase in capital would be in proportion to the progressive state of the country; 4th, that the bank itself would form 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its affairs with such deliberation and prudence as to allow of the interposition of other bank credits in lieu of those withdrawn, and thus prevented a serious shock to the interests of the community.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.