There appears to be increasing disposition in Philadelphia and New Orleans towards an early resumption, and I cherish the hope that it will be found practicable in both places. That event would in its consequences be decisive and restore the currency almost universally.

My last essay, published in June, consists principally of an inquiry into the means by which a recurrence of the evil may be prevented. I have requested the publishers to send you six copies, to be distributed as you may think proper, and I will thank you to let me know whether you have received them.

I have, &c.

GALLATIN TO A. C. FLAGG.

NEW YORK, 24th December, 1841.

DEAR SIR,-I have directed Messrs. Wiley & Putnam, booksellers, to forward to you twenty copies of my last essay on banks and currency; and I pray you to accept one for yourself, and to have the goodness to distribute the others amongst such persons (legislators, editors, &c.) as, in your opinion, are disposed to investigate the subject. I am sensible of the intrinsic difficulties of the subject; that a paper currency, by whomsoever and however issued, will ever be a dangerous instrument; and that business cannot be carried on as advantageously for the parties concerned, or with equal safety to the public, by joint stock companies as when managed by the parties themselves. But efficient and perfect remedies for those evils, if there be any such, cannot be applied at this time, nor at any time, otherwise than gradually. My object has been only to suggest such provisions as, in the mean while, may be applicable to the present state of things, supersede the necessity of special laws, assimilate the chartered and the free banks, and do equal justice to all. If my health and strength permit, I will address to you some further observations on those topics. In the mean while, I embrace with pleasure this opportunity of renewing the assurances of my high consideration and sincere regard.

Respectfully, your obedient servant.

I hope that the Legislature will stop the farther increase of public debt, which is the road to ruin. Far better to lay equal taxes than to borrow in time of peace. The public is greatly indebted to you for having called their attention to the frightful amount of debt incurred by the several States.

GALLATIN TO CALEB CUSHING, M.C.

NEW YORK, 28th December, 1841.

I write with difficulty, and have on hand a work which must be terminated this week, and will occupy me exclusively to the end of it. I have only time to acknowledge the receipt of your letter of the 23d, and to say that I am averse to the issuing of a paper currency, by government, of the same character as banknotes, as contemplated by the report of the Secretary of Treasury, and equally so to government dealing in any way in exchanges, otherwise than for its express wants and purposes. If health and strength permit, I will try, in the course of next week, to state to you the reasons on which my opinion is founded.

I have, &c.

GALLATIN TO A. C. FLAGG.

NEW YORK, December 31, 1841.

DEAR SIR,-In my letter of the 24th I announced my intention of adding some further observations on the subject-matter of my last essay on banks and currency. These, however, will be little more than a recapitulation of that portion of the essay which relates to the double banking system of this State.

In order that I may not be misunderstood, some preliminary explanations may be proper.

I use the term banking in that sense in which it is universally understood in the United States; that is to say, as implying the permission to issue a paper currency.

By free banking, in its genuine sense, I understand the exten

sion of that permission to all persons or associations of persons, free of all restraints, but on his or their personal responsibility.

It is only as regards the permission to issue a paper currency that I think restrictions to be necessary. In every other respect there is no more reason for laying restrictions on banking operations than on any other species of business; at least when the parties are personally responsible.

It appears to me unnecessary at this time to discuss the question whether the best ultimate plan would not be the adoption of a true free banking system as I have defined it.

Such is, indeed, the system which has prevailed for more than a century in Great Britain. I am nevertheless of opinion that it cannot be practically or usefully applied to the United States. I believe that, with our present inveterate habits on the subject of bank-notes, the poor and the ignorant would be incapable of judging between sound and bad paper, that they would be exposed to perpetual impositions and losses, and that it is one of the cases in which, for their protection, legislative interference is legitimate and necessary. This, however, is matter of opinion. If the people are in favor of the experiment, let it be tried. I will only observe that the profits of honest banking by the existing banks or banking associations are so small, when compared with those generally realized by men in active business, that I do not believe that honest and responsible capitalists could be substituted for the existing banks. It would, at all events, be necessary to enable them to lend their money at its market price, and for that purpose to repeal the usury laws to the same extent as in Great Britain; that is to say, in reference to bills of exchange and negotiable or mercantile paper payable to bearer or to order.

For the present, taking things as they now are, I have confined my observations to the remedies which may be applied to the evils growing out of the existence of irresponsible banks or banking associations.

It is not necessary to inquire whether the banks created under what is called the free banking law are technically corporations, or are according to the provisions of the Constitution to be considered as such. It is sufficient to observe that, in point of fact, they have not only all the privileges necessary to enable them to

make contracts, to institute suits, and generally to carry on all their operations in their joint name and character, in the same manner as private persons, or as if they were technically incorporated; but that they are also, in common with specially chartered banks, exonerated from all personal responsibility.

The two prominent defects of the existing law, and which must strike every one on the first view of the subject, are, first, the inconsistency of having two different systems in operation at the same time for equally irresponsible joint stock companies, between which there is no other difference than that some were originally created by special laws, and the other by virtue of a general law; secondly, that, having exonerated all the parties concerned, either as stockholders or as officers, in the new joint stock companies from any personal responsibility, no other efficient guarantee should have been required from them as a substitute for that responsibility.

On the first point it would seem that there could be no difference of opinion. Restraints are either necessary or useless. If necessary, they should be equally applied to all; if useless, they should be repealed in reference to all the banking institutions. By assimilating the chartered banks and the new banking associations, there will be no use or pretence for special laws on that subject. After having determined on the conditions and restraints which may be deemed efficient and essential, nothing more will be necessary than a legislative provision which will enable the chartered banks to come at once under the general law without being obliged to undergo the process of dissolution and of a new reorganization. The second point appears to be the only one which requires more minute investigation.

If we have the example of Great Britain in proof of the practicability of a system of true responsible free banking, we had none whatever of a general permission to issue paper currency without either personal responsibility or some conditions and restraints substituting another sufficient guarantee in lieu of personal responsibility. It must ever be remembered that the exoneration from such responsibility is by far the most important and most dangerous privilege bestowed upon the old and new banks, and that no reason can be alleged why that privilege

should be allowed, without a satisfactory guarantee, to the issuers of a paper currency rather than to any other class of merchants or dealers.

The conditions or restraints which had heretofore been deemed necessary, referred either to the objects for which the banks were created, to the guarantee substituted in lieu of personal responsibility, or to the event of banks becoming insolvent or suspending their payments.

With respect to the objects of the banking institutions, dearbought experience must have taught the absolute necessity of defining with precision the species of business which the banks might lawfully carry on, and of expressly excluding such as they might naturally be tempted to connect with their legitimate operations. It is notorious that, independent of the fraudulent institutions to which the general law gave rise, there is hardly one which has not been induced, compelled, or invited to deal more or less in public stocks, and which has not been injured by it. Examples might be quoted where the law was, contrary to the intention of the Legislature, used for the sole purpose of creating associations of irresponsible stock-jobbers. It has already been found necessary by an amendatory Act to prohibit the issue of post-notes or of notes bearing interest. It appears equally essential to prohibit the dealing in stock of any description on the part of those institutions. The example of a neighboring State has clearly proved the danger, both to the State and to the banks, of resorting to them, even for the purpose of supplying temporary wants, but still more so when the object is to sustain by artificial means the credit of the State and the market price of its stocks.

It cannot be necessary at this time to bring additional arguments for the purpose of showing the necessity of an absolute prohibition to deal in any stocks foreign to the State.

The guarantee substituted for personal responsibility, which had always been required from the chartered banks, was the actual payment in specie of a capital fixed by law. The omission of a similar provision is the fundamental error of the existing free banking law. It appears essential that those provisions to which the chartered banks were subject, and which