Albert Gallatin Part 11

In 1809 the stockholders of the Bank of the United States memorialized the government for a renewal of their charter, which would expire on March 4, 1811; and on March 9, 1809, Mr. Gallatin sent in a report in which he reviewed the operations of the bank from its organization. Of the government shares, five million dollars at par, two thousand four hundred and ninety-three shares were sold in 1796 and 1797 at an advance of 25 per cent., two hundred and eighty-seven in 1797 at an advance of 20 per cent., and the remaining 2220 shares in 1802, at an advance of 45 per cent., making together, exclusive of the dividends, a profit of $671,680 to the United States. Eighteen thousand shares of the bank stock were held abroad, and seven thousand shares, or a little more than one fourth part of the capital, in the United States. A table of all the dividends made by the bank showed that they had on the average been at the rate of 8-3/8 (precisely 8-13/34) per cent. a year, which proved that the bank had not in any considerable degree used the public deposits for the purpose of extending its discounts. From a general view of the debits and credits, as presented, it appeared that the affairs of the Bank of the United States, considered as a moneyed inst.i.tution, had been wisely and skillfully managed. The advantages derived by the government Mr. Gallatin stated to be, 1, safekeeping of the public moneys; 2, transmission of the public moneys; 3, collection of the revenue; 4, loans. The strongest objection to the renewal of the charter lay in the great portion of the bank stock held by foreigners. Not on account of any influence over the inst.i.tution, since they had no vote; but because of the high rate of interest payable by America to foreign countries. If the charter were not renewed the princ.i.p.al of that portion, amounting to $7,200,000, must at once be remitted abroad; but if the charter were renewed, dividends equal to an interest of about 8-1/2 per cent. per annum must be remitted. Mr. Gallatin's report closed with the following suggestions:--

I. That the bank should pay an interest to the United States on the public deposits above a certain sum.

II. That it should be bound to lend the United States a sum not exceeding three fifths of its capital.

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, acc.u.mulate 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 inst.i.tution 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 a.s.sumed the att.i.tude 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 partic.i.p.ation 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 princ.i.p.al 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 h.o.m.ogeneous 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 Const.i.tution 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 Const.i.tution 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 Ma.s.sachusetts. Their added capital amounted to two millions of dollars, and their issues were inconsiderable.

Mr. Gallatin estimated that in January, 1811, just before the expiration of the bank charter, there were in the United States eighty-eight state banks with a capital of $42,612,000.

--------------------------+-------------+---------------+------------ | | Notes in | | Capital. | Circulation. | Specie.

--------------------------+-------------+---------------+------------ Bank of the United States | $10,000,000 | $5,400,000 | $5,800,000 Eighty-eight State Banks | 42,610,601 | 22,700,000 | 9,600,000 --------------------------+-------------+---------------+------------ | $52,610,601 | $28,100,000 | $15,400,000 --------------------------+-------------+---------------+------------

Over the local inst.i.tutions the Bank of the United States always exercised a salutary control, checking any disposition to overtrade by restraining their issues and holding them to a proper specie reserve; and this by no other interference except its countenance or ill favor, as such banks severally observed or disregarded the ordinary rules of financial prudence. The immediate effect of the refusal of Congress to recharter the Bank of the United States was to bring the Treasury to the verge of bankruptcy. The interference of Parish, Girard, and Astor alone saved the credit of the government, and this interference was no doubt prompted by self-interest. That Mr. Astor was hostile to the bank is certain. Gallatin wrote to Madison in January, 1811, that Mr. Astor had sent him a verbal message, "that in case of non-renewal of the charter of the Bank of the United States, all his funds and those of his friends, to the amount of two millions of dollars, would be at the command of government, either in importing specie, circulating government paper, or in any other way best calculated to prevent any injury arising from the dissolution of the bank," and he added that Mr.

Bentson, Mr. Astor's son-in-law, in communicating this message said, "that in this instance profit was not Mr. Astor's object, and that he would go great lengths, partly from pride and partly from wish, to see the bank down." In 1813, when the bank was "down," Mr. Gallatin was no longer master of the situation. He offered to treat directly with Parish, Girard, and Astor for ten millions of dollars, but finding some hesitation, he opened the loan for subscription. When the subscription failed, he was at the mercy of the capitalists.

Another immediate effect of the dissolution of the bank was the withdrawal from the country of the foreign capital invested in the bank, more than seven millions of dollars. This amount was remitted, in the twelve months preceding the war, in specie. Specie was at that time a product foreign to the United States, and by no means easy to obtain.

Specie, as Mr. Gallatin profoundly observed, does not precede, but follows wealth. The want of it nearly destroyed Morris's original plan for the Bank of North America, and was only made up by the fortunate receipt of the French remittances. In 1808 the specie in the vaults of the treasury reached fourteen millions of dollars, but during the operation of the Embargo Act, the banks of New England had gradually acc.u.mulated a specie reserve, and that of Richmond, Virginia, pursued the same policy. Together they held one third of the entire specie reserve of the banks. The amount of specie in the Bank of the United States, January 1, 1811, had fallen to $5,800,000, which soon found its way abroad.

The notes of the Bank of the United States, payable on demand in gold and silver at the counters of the bank, or any of its branches, were, by its charter, receivable in all payments to the United States; but this quality was also stripped from them on March 19, 1812, by a repeal of the act according it. To these disturbances of the financial equilibrium of the country was added the necessary withdrawal of fifteen millions of bank credit and its transfer to other inst.i.tutions. This gave an extraordinary impulse to the establishment of local banks, each eager for a share of the profits. The capital of the country, instead of being concentrated, was dissipated. Between January 1, 1811, and 1815, one hundred and twenty new banks were chartered, and forty millions of dollars were added to the banking capital. To realize profits, the issues of paper were pushed to the extreme of possible circulation.

Meanwhile New England kept aloof from the nation. The specie in the vaults of the banks of Ma.s.sachusetts rose from $1,706,000 on June 1, 1811, to $7,326,000 on June 1, 1814. This was a consequence of the New England policy of opposition. Mr. Gallatin estimated that the proceeds of loans, exclusive of treasury notes and temporary loans, paid into the treasury from the commencement of the war to the end of the year 1814 were $41,010,000: of which sum the Eastern States lent $2,900,000; the Middle States, $35,790,000; Southwestern States, $2,320,000.

The floating debt of the United States, consisting of treasury notes and temporary loans unpaid, amounted, January 1, 1815, to $11,250,000, of which nearly four fifths were loaned by the cities of New York, Philadelphia, and Baltimore, and the District of Columbia. The suspension of the banks was precipitated by the capture of Washington.

It began in Baltimore, which was threatened by the British, and was at once followed in Philadelphia and New York. Before the end of September all the banks south and west of New England had suspended specie payment. In his "Considerations on the Currency," Mr. Gallatin expressed his--

"deliberate opinion that the suspension might have been prevented at the time when it took place, had the Bank of the United States been in existence. The exaggerated increase of state banks, occasioned by the dissolution of that inst.i.tution, would not have occurred. That bank would _as before_ have restrained them within proper bounds and checked their issues, and through the means of its offices it would have been in possession of the earliest symptoms of the approaching danger. It would have put the Treasury Department on its guard; both, acting in concert, would certainly have been able, at least, to r.e.t.a.r.d the event; and as the treaty of peace was ratified within less than six months after the suspension took place, that catastrophe would have been avoided."

But within fifteen months the bank issues increased from forty-five and a half to sixty millions.

----------------------+-------------+--------------+------------ | Capital. | Circulation. | Specie.

----------------------+-------------+--------------+------------ Banks of New England. | $15,690,000 | $5,320,000 | $8,200,000 Other Banks | 66,930,000 | 44,730,000 | 8,600,000 ----------------------+-------------+--------------+------------ 1815. 208 State Banks.| $82,620,000 | $50,050,000 | $16,800,000 1816. 246 State Banks.| 89,822,422 | 68,000,000 | 19,000,000 ----------------------+-------------+--------------+------------

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 circ.u.mstances." 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 inst.i.tutions 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 pa.s.sed by Congress, but returned to it by Madison with his veto on January 15, 1815. In this peculiar doc.u.ment Madison "waived the question of the const.i.tutional authority of the legislature to establish an incorporated bank, as being precluded, in his judgment, by repeated recognitions, under varied circ.u.mstances, of the validity of such an inst.i.tution 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 unconst.i.tutional, 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 ma.s.s 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 Peac.o.c.k, 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 inst.i.tution 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 a.n.a.lyzed 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.

On December 3, 1833, Roger B. Taney, secretary of the treasury, reported to Congress that he had directed the removal of the deposits of the government from the Bank of the United States and placed them in banks of his own selection. He gave a number of reasons for this extraordinary exercise of the power which he obtained by his appointment on September 23, 1833. He received his reward in June, 1834, being then transferred by President Jackson to the seat of chief justice of the Supreme Court.

In his annual report Taney named, among his elaborate reasons for the removal, that the bank had used its money for electioneering purposes, and that he "had always regarded the result of the last election of 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 inst.i.tutions 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 inst.i.tution 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 inst.i.tutions 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 princ.i.p.al 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 princ.i.p.al 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 a.s.serting 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 inst.i.tutions which preceded it, yet, from its similarity of name and ident.i.ty 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.