James D. Richardson.

A Compilation of the Messages and Papers of the Presidents Volume 3, part 2: Martin Van Buren online

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collection can not, it is believed, exceed $60,000. The defalcation
of the late collector at that city, of the extent and circumstances
of which Congress have been fully informed, ran through all the modes
of keeping the public money that have been hitherto in use, and was
distinguished by an aggravated disregard of duty that broke through
the restraints of every system, and can not, therefore, be usefully
referred to as a test of the comparative safety of either. Additional
information will also be furnished by the report of the Secretary of
the Treasury, in reply to a call made upon that officer by the House
of Representatives at the last session requiring detailed information
on the subject of defaults by public officers or agents under each
Administration from 1789 to 1837. This document will be submitted to
you in a few days. The general results (independent of the Post-Office,
which is kept separately and will be stated by itself), so far as they
bear upon this subject, are that the losses which have been and are
likely to be sustained by any class of agents have been the greatest by
banks, including, as required in the resolution, their depreciated paper
received for public dues; that the next largest have been by disbursing
officers, and the least by collectors and receivers. If the losses on
duty bonds are included, they alone will be threefold those by both
collectors and receivers. Our whole experience, therefore, furnishes the
strongest evidence that the desired legislation of Congress is alone
wanting to insure in those operations the highest degree of security
and facility. Such also appears to have been the experience of other
nations. From the results of inquiries made by the Secretary of the
Treasury in regard to the practice among them I am enabled to state
that in twenty-two out of twenty-seven foreign governments from which
undoubted information has been obtained the public moneys are kept in
charge of public officers. This concurrence of opinion in favor of
that system is perhaps as great as exists on any question of internal

In the modes of business and official restraints on disbursing officers
no legal change was produced by the suspension of specie payments. The
report last referred to will be found to contain also much useful
information in relation to this subject.

I have heretofore assigned to Congress my reasons for believing that
the establishment of an independent National Treasury, as contemplated
by the Constitution, is necessary to the safe action of the Federal
Government. The suspension of specie payments in 1837 by the banks
having the custody of the public money showed in so alarming a degree
our dependence on those institutions for the performance of duties
required by law that I then recommended the entire dissolution of that
connection. This recommendation has been subjected, as I desired it
should be, to severe scrutiny and animated discussion, and I allow
myself to believe that notwithstanding the natural diversities of
opinion which may be anticipated on all subjects involving such
important considerations, it has secured in its favor as general a
concurrence of public sentiment as could be expected on one of such

Recent events have also continued to develop new objections to such a
connection. Seldom is any bank, under the existing system and practice,
able to meet on demand all its liabilities for deposits and notes in
circulation. It maintains specie payments and transacts a profitable
business only by the confidence of the public in its solvency, and
whenever this is destroyed the demands of its depositors and note
holders, pressed more rapidly than it can make collections from its
debtors, force it to stop payment. This loss of confidence, with its
consequences, occurred in 1837, and afforded the apology of the banks
for their suspension. The public then acquiesced in the validity of the
excuse, and while the State legislatures did not exact from them their
forfeited charters, Congress, in accordance with the recommendation of
the Executive, allowed them time to pay over the public money they held,
although compelled to issue Treasury notes to supply the deficiency thus

It now appears that there are other motives than a want of public
confidence under which the banks seek to justify themselves in a refusal
to meet their obligations. Scarcely were the country and Government
relieved in a degree from the difficulties occasioned by the general
suspension of 1837 when a partial one, occurring within thirty months
of the former, produced new and serious embarrassments, though it had
no palliation in such circumstances as were alleged in justification
of that which had previously taken place. There was nothing in the
condition of the country to endanger a well-managed banking institution;
commerce was deranged by no foreign war; every branch of manufacturing
industry was crowned with rich rewards, and the more than usual
abundance of our harvests, after supplying our domestic wants, had left
our granaries and storehouses filled with a surplus for exportation.
It is in the midst of this that an irredeemable and depreciated paper
currency is entailed upon the people by a large portion of the banks.
They are not driven to it by the exhibition of a loss of public
confidence or of a sudden pressure from their depositors or note
holders, but they excuse themselves by alleging that the current of
business and exchange with foreign countries, which draws the precious
metals from their vaults, would require in order to meet it a larger
curtailment of their loans to a comparatively small portion of the
community than it will be convenient for them to bear or perhaps safe
for the banks to exact. The plea has ceased to be one of necessity.
Convenience and policy are now deemed sufficient to warrant these
institutions in disregarding their solemn obligations. Such conduct
is not merely an injury to individual creditors, but it is a wrong to
the whole community, from whose liberality they hold most valuable
privileges, whose rights they violate, whose business they derange, and
the value of whose property they render unstable and insecure. It must
be evident that this new ground for bank suspensions, in reference to
which their action is not only disconnected with, but wholly independent
of, that of the public, gives a character to their suspensions more
alarming than any which they exhibited before, and greatly increases
the impropriety of relying on the banks in the transactions of the

A large and highly respectable portion of our banking institutions are,
it affords me unfeigned pleasure to state, exempted from all blame on
account of this second delinquency. They have, to their great credit,
not only continued to meet their engagements, but have even repudiated
the grounds of suspension now resorted to. It is only by such a course
that the confidence and good will of the community can be preserved, and
in the sequel the best interests of the institutions themselves

New dangers to the banks are also daily disclosed from the extension
of that system of extravagant credit of which they are the pillars.
Formerly our foreign commerce was principally founded on an exchange
of commodities, including the precious metals, and leaving in its
transactions but little foreign debt. Such is not now the case. Aided
by the facilities afforded by the banks, mere credit has become too
commonly the basis of trade. Many of the banks themselves, not content
with largely stimulating this system among others, have usurped the
business, while they impair the stability, of the mercantile community;
they have become borrowers instead of lenders; they establish their
agencies abroad; they deal largely in stocks and merchandise; they
encourage the issue of State securities until the foreign market is
glutted with them; and, unsatisfied with the legitimate use of their own
capital and the exercise of their lawful privileges, they raise by large
loans additional means for every variety of speculation. The disasters
attendant on this deviation from the former course of business in this
country are now shared alike by banks and individuals to an extent of
which there is perhaps no previous example in the annals of our country.
So long as a willingness of the foreign lender and a sufficient export
of our productions to meet any necessary partial payments leave the flow
of credit undisturbed all appears to be prosperous, but as soon as it
is checked by any hesitation abroad or by an inability to make payment
there in our productions the evils of the system are disclosed. The
paper currency, which might serve for domestic purposes, is useless
to pay the debt due in Europe. Gold and silver are therefore drawn in
exchange for their notes from the banks. To keep up their supply of coin
these institutions are obliged to call upon their own debtors, who pay
them principally in their own notes, which are as unavailable to them as
they are to the merchants to meet the foreign demand. The calls of the
banks, therefore, in such emergencies of necessity exceed that demand,
and produce a corresponding curtailment of their accommodations and
of the currency at the very moment when the state of trade renders it
most inconvenient to be borne. The intensity of this pressure on the
community is in proportion to the previous liberality of credit and
consequent expansion of the currency. Forced sales of property are made
at the time when the means of purchasing are most reduced, and the worst
calamities to individuals are only at last arrested by an open violation
of their obligations by the banks - a refusal to pay specie for their
notes and an imposition upon the community of a fluctuating and
depreciated currency.

These consequences are inherent in the present system. They are not
influenced by the banks being large or small, created by National
or State Governments. They are the results of the irresistible laws
of trade or credit. In the recent events, which have so strikingly
illustrated the certain effects of these laws, we have seen the bank
of the largest capital in the Union, established under a national
charter, and lately strengthened, as we were authoritatively informed,
by exchanging that for a State charter with new and unusual
privileges - in a condition, too, as it was said, of entire soundness
and great prosperity - not merely unable to resist these effects, but
the first to yield to them.

Nor is it to be overlooked that there exists a chain of necessary
dependence among these institutions which obliges them to a great extent
to follow the course of others, notwithstanding its injustice to their
own immediate creditors or injury to the particular community in which
they are placed. This dependence of a bank, which is in proportion to
the extent of its debts for circulation and deposits, is not merely on
others in its own vicinity, but on all those which connect it with the
center of trade. Distant banks may fail without seriously affecting
those in our principal commercial cities, but the failure of the latter
is felt at the extremities of the Union. The suspension at New York in
1837 was everywhere, with very few exceptions, followed as soon as it
was known. That recently at Philadelphia immediately affected the banks
of the South and West in a similar manner. This dependence of our whole
banking system on the institutions in a few large cities is not found
in the laws of their organization, but in those of trade and exchange.
The banks at that center, to which currency flows and where it is
required in payments for merchandise, hold the power of controlling
those in regions whence it comes, while the latter possess no means
of restraining them; so that the value of individual property and the
prosperity of trade through the whole interior of the country are made
to depend on the good or bad management of the banking institutions in
the great seats of trade on the seaboard.

But this chain of dependence does not stop here. It does not terminate
at Philadelphia or New York. It reaches across the ocean and ends in
London, the center of the credit system. The same laws of trade which
give to the banks in our principal cities power over the whole banking
system of the United States subject the former, in their turn, to the
money power in Great Britain. It is not denied that the suspension of
the New York banks in 1837, which was followed in quick succession
throughout the Union, was produced by an application of that power, and
it is now alleged, in extenuation of the present condition of so large
a portion of our banks, that their embarrassments have arisen from the
same cause.

From this influence they can not now entirely escape, for it has its
origin in the credit currencies of the two countries; it is strengthened
by the current of trade and exchange which centers in London, and is
rendered almost irresistible by the large debts contracted there by our
merchants, our banks, and our States. It is thus that an introduction of
a new bank into the most distant of our villages places the business of
that village within the influence of the money power in England; it is
thus that every new debt which we contract in that country seriously
affects our own currency and extends over the pursuits of our citizens
its powerful influence. We can not escape from this by making new banks,
great or small, State or national. The same chains which bind those
now existing to the center of this system of paper credit must equally
fetter every similar institution we create. It is only by the extent to
which this system has been pushed of late that we have been made fully
aware of its irresistible tendency to subject our own banks and
currency to a vast controlling power in a foreign land, and it adds
a new argument to those which illustrate their precarious situation.
Endangered in the first place by their own mismanagement and again by
the conduct of every institution which connects them with the center of
trade in our own country, they are yet subjected beyond all this to the
effect of whatever measures policy, necessity, or caprice may induce
those who control the credits of England to resort to. I mean not
to comment upon these measures, present or past, and much less to
discourage the prosecution of fair commercial dealing between the two
countries, based on reciprocal benefits; but it having now been made
manifest that the power of inflicting these and similar injuries is by
the resistless law of a credit currency and credit trade equally capable
of extending their consequences through all the ramifications of our
banking system, and by that means indirectly obtaining, particularly
when our banks are used as depositories of the public moneys, a
dangerous political influence in the United States, I have deemed it my
duty to bring the subject to your notice and ask for it your serious

Is an argument required beyond the exposition of these facts to show
the impropriety of using our banking institutions as depositories of
the public money? Can we venture not only to encounter the risk of
their individual and mutual mismanagement, but at the same time to place
our foreign and domestic policy entirely under the control of a foreign
moneyed interest? To do so is to impair the independence of our
Government, as the present credit system has already impaired the
independence of our banks; it is to submit all its important operations,
whether of peace or war, to be controlled or thwarted, at first by our
own banks and then by a power abroad greater than themselves. I can not
bring myself to depict the humiliation to which this Government and
people might be sooner or later reduced if the means for defending their
rights are to be made dependent upon those who may have the most
powerful of motives to impair them.

Nor is it only in reference to the effect of this state of things on the
independence of our Government or of our banks that the subject presents
itself for consideration; it is to be viewed also in its relations to
the general trade of our country. The time is not long passed when a
deficiency of foreign crops was thought to afford a profitable market
for the surplus of our industry, but now we await with feverish anxiety
the news of the English harvest, not so much from motives of commendable
sympathy, but fearful lest its anticipated failure should narrow the
field of credit there. Does not this speak volumes to the patriot? Can
a system be beneficent, wise, or just which creates greater anxiety for
interests dependent on foreign credit than for the general prosperity of
our own country and the profitable exportation of the surplus produce of
our labor?

The circumstances to which I have thus adverted appear to me to afford
weighty reasons, developed by late events, to be added to those which
I have on former occasions offered when submitting to your better
knowledge and discernment the propriety of separating the custody of the
public money from banking institutions. Nor has anything occurred to
lessen, in my opinion, the force of what has been heretofore urged.
The only ground on which that custody can be desired by the banks is
the profitable use which they may make of the money. Such use would
be regarded in individuals as a breach of trust or a crime of great
magnitude, and yet it may be reasonably doubted whether, first and last,
it is not attended with more mischievous consequences when permitted to
the former than to the latter. The practice of permitting the public
money to be used by its keepers, as here, is believed to be peculiar to
this country and to exist scarcely anywhere else. To procure it here
improper influences are appealed to, unwise connections are established
between the Government and vast numbers of powerful State institutions,
other motives than the public good are brought to bear both on the
executive and legislative departments, and selfish combinations leading
to special legislation are formed. It is made the interest of banking
institutions and their stockholders throughout the Union to use their
exertions for the increase of taxation and the accumulation of a surplus
revenue, and while an excuse is afforded the means are furnished for
those excessive issues which lead to extravagant trading and speculation
and are the forerunners of a vast debt abroad and a suspension of the
banks at home.

Impressed, therefore, as I am with the propriety of the funds of the
Government being withdrawn from the private use of either banks or
individuals, and the public money kept by duly appointed public agents,
and believing as I do that such also is the judgment which discussion,
reflection, and experience have produced on the public mind, I leave the
subject with you. It is, at all events, essential to the interests of
the community and the business of the Government that a decision should
be made.

Most of the arguments that dissuade us from employing banks in the
custody and disbursement of the public money apply with equal force to
the receipt of their notes for public dues. The difference is only in
form. In one instance the Government is a creditor for its deposits, and
in the other for the notes it holds. They afford the same opportunity
for using the public moneys, and equally lead to all the evils attendant
upon it, since a bank can as safely extend its discounts on a deposit
of its notes in the hands of a public officer as on one made in its own
vaults. On the other hand, it would give to the Government no greater
security, for in case of failure the claim of the note holder would be
no better than that of a depositor.

I am aware that the danger of inconvenience to the public and
unreasonable pressure upon sound banks have been urged as objections
to requiring the payment of the revenue in gold and silver. These
objections have been greatly exaggerated. From the best estimates we may
safely fix the amount of specie in the country at $85,000,000, and the
portion of that which would be employed at any one time in the receipts
and disbursements of the Government, even if the proposed change were
made at once, would not, it is now, after fuller investigation, believed
exceed four or five millions. If the change were gradual, several
years would elapse before that sum would be required, with annual
opportunities in the meantime to alter the law should experience prove
it to be oppressive or inconvenient. The portions of the community on
whose business the change would immediately operate are comparatively
small, nor is it believed that its effect would be in the least unjust
or injurious to them.

In the payment of duties, which constitute by far the greater portion of
the revenue, a very large proportion is derived from foreign commission
houses and agents of foreign manufacturers, who sell the goods consigned
to them generally at auction, and after paying the duties out of the
avails remit the rest abroad in specie or its equivalent. That the
amount of duties should in such cases be also retained in specie can
hardly be made a matter of complaint. Our own importing merchants,
by whom the residue of the duties is paid, are not only peculiarly
interested in maintaining a sound currency, which the measure in
question will especially promote, but are from the nature of their
dealings best able to know when specie will be needed and to procure
it with the least difficulty or sacrifice. Residing, too, almost
universally in places where the revenue is received and where the drafts
used by the Government for its disbursements must concentrate, they have
every opportunity to obtain and use them in place of specie should it be
for their interest or convenience. Of the number of these drafts and the
facilities they may afford, as well as of the rapidity with which the
public funds are drawn and disbursed, an idea may be formed from the
fact that of nearly $20,000,000 paid to collectors and receivers during
the present year the average amount in their hands at any one time has
not exceeded a million and a half, and of the fifteen millions received
by the collector of New York alone during the present year the average
amount held by him subject to draft during each week has been less than
half a million.

The ease and safety of the operations of the Treasury in keeping the
public money are promoted by the application of its own drafts to the
public dues. The objection arising from having them too long outstanding
might be obviated and they yet made to afford to merchants and banks
holding them an equivalent for specie, and in that way greatly lessen
the amount actually required. Still less inconvenience will attend the
requirement of specie in purchases of public lands. Such purchases,
except when made on speculation, are in general but single transactions,
rarely repeated by the same person; and it is a fact that for the
last year and a half, during which the notes of sound banks have been
received, more than a moiety of these payments has been voluntarily made
in specie, being a larger proportion than would have been required in
three years under the graduation proposed.

It is, moreover, a principle than which none is better settled by
experience that the supply of the precious metals will always be found
adequate to the uses for which they are required. They abound in
countries where no other currency is allowed. In our own States, where
small notes are excluded, gold and silver supply their place. When
driven to their hiding places by bank suspensions, a little firmness in
the community soon restores them in a sufficient quantity for ordinary
purposes. Postage and other public dues have been collected in coin
without serious inconvenience even in States where a depreciated paper
currency has existed for years, and this, with the aid of Treasury
notes for a part of the time, was done without interruption during the
suspension of 1837. At the present moment the receipts and disbursements
of the Government are made in legal currency in the largest portion of
the Union. No one suggests a departure from this rule, and if it can now
be successfully carried out it will be surely attended with even less
difficulty when bank notes are again redeemed in specie.

Indeed, I can not think that a serious objection would anywhere be
raised to the receipt and payment of gold and silver in all public
transactions were it not from an apprehension that a surplus in the
Treasury might withdraw a large portion of it from circulation and lock

Online LibraryJames D. RichardsonA Compilation of the Messages and Papers of the Presidents Volume 3, part 2: Martin Van Buren → online text (page 32 of 44)