Report of Secretary of Treasury (Alexander J. Dallas),
on Treasury Notes



[Source: American State Papers, Finance, Vol. 2, pp. 872-873]

TREASURY DEPARTMENT, November 27, 1814.

I have the honor to acknowledge the receipt of your letter, requesting, for a committee of the House of Representatives, an opinion upon the following inquiries:

1. The effect which a considerable issue of treasury notes, with the quality of being receivable in subscriptions to a national bank, will have upon the credit of the Government; and particularly, upon the prospects of a loan for 1815.

2. The practicability of getting forty-four millions of treasury notes, forming, with six millions of specie, the capital for a national bank, into circulation, without depreciation.

The inquiries of the committee, cannot be satsifactorily answered, in the abstract, but must be considered, in connexion with the state of our finances, and the state of the public credit.

When I arrived at Washington, the treasury was suffering under every kind of embarrassment. The demands upon it were great in amount; while the means to satisfy them, were, comparatively small, precarious in the collection, and difficult in the application. The demands consisted of dividends upon old and new funded debt, of treasury notes, and of legislative appropriations for the army, the navy, and the current service; all urgent, and important. The means consisted, first, of the fragment of an authority to borrow money, when nobody was disposed to lend, and to issue treasury notes, which none but necessitous creditors, or contractors, in distress, or commissaries, quartermasters, and navy agents, acting, as it were, officially, seemed willing to accept: 2d. Of the amount of bank credits, scattered throughout the United States, and principally in the southern and western banks, which had been rendered, in a great degree, useless, by the stoppage of payments in specie, and the consequent impracticability of transferring the public funds from one place, to meet the public engagements in another place: 3d. Of the current supply of money from the import, from internal duties, and from the sales of public lands; which ceased to be a foundation of any rational estimate, or reserve, to provide even for the dividends on the funded debt, when it was found that the treasury notes (only requiring, indeed, a cash payment at the distance of a year), to whomsoever they were issued at the treasury, and almost as soon as they were issued, reached the hands of the collectors, in payment of debts, duties, and taxes; thus disappointing and defeating the only remaining expectations of productive revenue.

Under those circumstances, (which I had the honor to communicate to the Committee of Ways and Means,) it became the duty of this department, to endeavor to remove the immediate pressure from the treasury; to endeavor to restore the public credit; and to endeavor to

provide for the expenses of the ensuing year. The only measures that occurred to my mind, for the accomplishment of such an important object, have been presented to the view of Congress. The act, authorising the receipt of treasury notes in payment of subscriptions to a public loan, was passed, I fear, too late to answer the purpose for which it was designed. It promises, at this time, little relief, either as an instrument to raise money, or to absorb the claims for treasury notes, which are daily becoming due. From this cause, and other obvious causes, the dividend on the funded debt, has not been punctually paid; a large amount of treasury notes, has already been dishonored; and the hope of preventing further injury, and reproach, in transacting business with the treasury, is too visionary to afford a moment's consolation.

The actual condition of the treasury, thus described, will serve to indicate the state of the public credit. Public credit depends, essentially upon public opinion. The usual test of public credit is, indeed, the value of public debt. The faculty of borrowing money, is not a test of public credit; for a faithless Government, like a desperate individual, has only to increase the premium, according to the exigency, in order to secure a loan. Thus, public opinion, manifested in every form, and in every direction, hardly permits us, at the present juncture, to speak of the existence of public credit; and yet, it is not impossible, that the Government, in the resources of its patronage, and its pledges, might find the means of tempting the rich, and the avaricious, to supply its immediate wants. But, when the wants of to-day are supplied, what is the new expedient, that supply the wants of tomorrow? If it is now a charter of incorporation, it may then be a grant of land; but, after all, the immeasurable tracts of the western wild, would be exhausted in successive efforts to obtain pecuniary aids, and still leave the Government necessitous, unless the foundations of public credit were re-established, and maintained. In the measures, therefore, which it has been my duty to suggest, I have endeavored to introduce a permanent plan for reviving the public credit; of which the facility of borrowing money, in anticipation of settled and productive revenues, is only an incident, although it is an incident as durable as the plan itself. The outline seemed to embrace whatever was requisite, to leave no doubt upon the power and the disposition of Government, in relation to its pecuniary engagements, to diminish, and not to augment the amount of public debts, in the hands of individuals, and to create general confidence, rather by the manner of treating the claims of the present class of creditors, than by the manner of conciliating the favor of a new class.

With these explanatory remarks, sir, I proceed to answer, specifically, the questions which you have proposed:

1. I am of opinion, that considerable issues of treasury notes, with the quality of being receivable in subscriptions to a national bank, will have an injurious effect upon the credit of the Government; and, also, upon the prospects of a loan for 1815.

Because, it will confer, gratuitously, an advantage upon a class of new creditors, over the present creditors of the Government, standing on a footing of at least equal merit.

Because, it will excite general dissatisfaction among the present holders of the public debt; and, generally, distrust among the capitalists, who are accustomed to advance their money to the Government. Because, a quality of subscribing to the national bank, attached to treasury notes, exclusively, will tend to depreciate the value of all public debt, not possessing that quality; and whatever depreciates the value of the public debt in this way, must necessarily impair the public credit.

Because, the specie capital of the citizens of the United States, so far as it may be deemed applicable to investments in the public stocks, has already in a great measure, been so vested; the holders of the present debt, will be unable to become subscribers to the bank, (if that object should, eventually, prove desirable) without selling their stock at a depreciated rate, in order to procure the whole amount of their subscriptions in treasury notes; and a general depression in the value of the public debt, will inevitably ensue.

Because, the very proposition of making a considerable issue of treasury notes, even with the quality of being subscribed to a national bank, can only be regarded as an experiment, on which it seems dangerous to rely; the treasury notes, must be purchased at par, with money; a new set of creditors are to be created; it may, or it may not, be deemed an object of speculation, by the money holders, to subscribe to the bank; the result of the experiment cannot be ascertained, until it will be too late to provide a remedy, in the case of failure; while the credit of the Government will be affected, by every circumstance which keeps the efficacy of its fiscal operations in suspense or doubt.

Because, the prospect of a loan, for the year 1815, without the aid of a bank, is faint and unpromising; except, perhaps, so far as the pledge of a specific tax may succeed; and then, it must be recollected, that a considerable supply of money will be required for the prosecution of the war, beyond the whole amount of the taxes to be levied.

Because, if the loan for the year 1815 be made to depend upon the issue of treasury notes, subscribable to the national bank, it will, probably fail, for the reasons which have already been suggested; and, if the loan be independent of that operation, a considerable issue of treasury notes, for the purpose of creating a bank capital, must, it is believed, deprive the Government of every chance of raising money, in any other manner.

2. I am of opinion, that it will be extremely difficult, if not impracticable, to get forty-four millions of treasury notes, (forming, with six millions of specie, the capital of a national bank,) into circulation, with or without depreciation.

Because, if the subscription to the bank becomes an object of speculation, the treasury notes will probably be purchased at the treasury, and at the loan offices, and never pass into circulation at all.

Because, whatever portion of the treasury notes might pass into circulation, would be speedily withdrawn, by the speculators in the subscription to the bank, after arts had been employed to depreciate their value.

Because, it is not believed, that, in the present state of the public credit, forty-four millions of treasury notes, can be sent into circulation. The only difference between the treasury notes now issued, and

dishonored, and those proposed to be issued, consists in the subscribable quality; but reasons have already been assigned for an opinion, that this difference does not afford such confidence in the experiment, as seems requisite to justify a reliance upon it, for accomplishing some of the most interesting objects of the Government.

I must beg you, sir, to pardon the haste, with which I have written these general answers to your inquiries. But, knowing the importance of time, and feeling a desire to avoid every appearance of contributing to the loss of a moment, I have chosen rather to rest upon the intelligence and candor of the committee, than to enter upon a more labored investigation of the subject referred to me.

I have the honor to be, very respectfully, your obedient servant,



Veto Message-James Madison, on Bank of United States


Thirteenth Congress, 3d Session

[Source: American State Papers, Finance, Vol. 2, pp. 891-895]

To the Senate of the United States:

Having bestowed on the bill, entitled "An act to incorporate the subscribers to the Bank of the United States of America," that full consideration which is due to the great importance of the subject, and dictated by the respect which I feel for the two Houses of Congress, I am constrained by a deep and solemn conviction that the bill ought not to become a law, to return it to the Senate, in which it originated, with my objections to the same.

Waiving the question of the constitutional authority of the legislature to establish an incorporated bank, as being precluded, in my 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, accompanied by indications, in different modes, of a concurrence of the general will of the nation, the proposed bank does not appear to be calculated to answer the purposes of reviving the public credit, of providing a national medium of circulation, and of aiding the treasury, by facilitating the indispensable anticipations of the revenue, and by affording to the public more durable loans.

1. The capital of the bank is to be compounded of specie, of public stock, and of treasury notes convertible into stock, with a certain. proportion of each, of which every subscriber is to furnish himself. The amount of the stock to be subscribed, will not, it is believed, be sufficient to produce, in favor of the public credit, any considerable or lasting elevation of the market price, whilst this may be occasionally depressed by the bank itself, if it should carry into the market the allowed proportion of its capital, consisting of public stock, in order to procure specie, which it may find its account in procuring, with some sacrifice on that part of its capital.

Nor will any adequate advantage arise to the public credit from the subscription of treasury notes. The actual issue of these notes nearly equals, at present, and will soon exceed, the amount to be subscribed to the bank. The direct effect of this operation is simply to convert fifteen millions of treasury notes into fifteen millions of six per cent. stock, with the collateral effect of promoting an additional demand for treasury notes beyond what might otherwise be negotiable.

Public credit might, indeed, be expected to derive advantage from the establishment of a national bank, without regard to the formation of its capital, if the full aid and co-operation of the institution were secured to the Government during the war, and during the period of its fiscal embarrassments. But, the bank proposed will be free from all legal obligation to co-operate with the public measures; and, whatever might be the patriotic disposition of its directors, to contribute to the removal of those embarrassments, and to invigorate the prosecution of the war, fidelity to the pecuniary general interest of the institution, according to their estimate of it, might oblige them to decline a connexion of their operations with those of the national treasury, during the continuance of the war, and the difficulties incident to it. Temporary sacrifices of interest, though overbalanced by the future and permanent profits of the charter, not being requirable of right in behalf of the public, might not be gratuitously made; and the bank would reap the full benefit of the grant whilst the public would lose the equivalent expected from it. For it must be kept in view, that the sole inducement to such a grant, on the part of the public, would be the prospect of substantial aids to its pecuniary means, at the present crisis, and during the sequel of the war. It is evident that the stock of the bank will, on the return of peace, if not

rise in the market to a value, which, if the bank were established in a period of peace, would authorize, and obtain for the public, a bonus to a very large amount. In lieu of such a bonus, the Government is fairly entitled to, and ought not to relinquish or risk, the needful services of the bank, under the pressing circumstances of war. 2. The bank, as proposed to be constituted, cannot be relied on, during the war, to provide a circulating medium, nor to furnish loans, or anticipations of the public revenue.


Without a medium, the taxes cannot be collected, and, in the absence of specie, the medium understood to be the best substitute, is that of notes issued by a national bank. The proposed bank will commence and conduct its operations, under an obligation to pay its notes in specie, or be subject to the loss of its charter. Without such an obligation, the notes of the bank, though not exchangeable for specie, yet resting on good pledges, and performing the uses of specie, in the ment of taxes, and in other public transactions, would, as experience has assertained, qualify the bank to supply at once a circulating medium, and pecunary aids to the Government. Under the fetters imposed by the bill, it is manifest, that, during the actual state of things, and probably during the war, the period particularly requiring such a medium, and such a resource for loans and advances to the Government, notes, for which the bank would be compellable to give specie in exchange, could not be kept in circulation. The most the bank could effect, and the most it could be expected to aim at, would be to keep the institution alive, by limited and local transactions,

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