Albert Gallatin

by John Austin Stevens

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of circulation, and kept equivalent to coin by a specie reserve in the treasury; while the banks, their circulation withdrawn and the institutions freed from any tax, will be confined to their legitimate business of receiving deposits and making loans and discounts.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.