The Writings of
Thomas Jefferson

editor H.A. Washington
New York :  H.W. Derby
To John W. Eppes. [son-in-law, at the time Chairman of the Committee of Ways and Means of the House of Representatives]
Monticello, November 6, 1813.

Dear Sir,—I had not expected to have troubled you again on the subject of finance ;  but since the date of my last, I have received from Mr. Law a letter covering a memorial on that subject, which, from its tenor, I conjecture must have been before Congress at their two last sessions.  This paper contains two propositions ;  the one for issuing treasury notes, bearing interest, and to be circulated as money ;  the other for the establishment of a national bank.  The first was considered in my former letter ;  and the second shall be the subject of the present.

The scheme is for Congress to establish a national bank, suppose of thirty millions capital, of which they shall contribute ten millions in new six per cent. stock, the States ten millions, and individuals ten millions, one-half of the two last contributions to be of similar stock, for which the parties are to give cash to Congress ;  the whole, however, to be under the exclusive management of the individual subscribers, who are to name all the directors ;  neither Congress nor the States having any power of interference in its administration.  Discounts are to be at five per cent., but the profits are expected to be seven per cent.  Congress then will be paying six per cent. on twenty millions, and receiving seven per cent. on ten millions, being its third of the institution ;  so that on the ten millions cash Which they receive from the States and individuals, they will, in fact, have to pay but five per cent. interest.  This is the bait.  The charter is proposed to be for forty or fifty years, and if any future augmentations should take place, the individual proprietors are to have the privilege of being the sole subscribers for that.  Congress are further allowed to issue to the amount of three millions of notes, bearing interest, which they are to receive back in payment for lands at a premium of five or ten per cent., or as subscriptions for canals, roads, and bridges, in which undertakings they are, of course, to be engaged.  This is a summary of the case as I understand it ;  but it is very possible I may not understand it in all its parts, these schemes being always made unintelligible for the gulls who are to enter into them.  The advantages and disadvantages shall be noted promiscuously as they occur ;  leaving out the speculation of canals, etc., which, being an episode only in the scheme, may be omitted, to disentangle it as much as we can.

1.  Congress are to receive five millions from the States (if they will enter into this partnership, which few probably will), and five millions from the individual subscribers, in exchange for ten millions of six per cent. stock, one per cent. of which, however, they will make on their ten millions of stock remaining in bank, and so reduce it, in effect, to a loan of ten millions at five per cent interest, This is good ;  but

2.  They authorize this bank to throw into circulation ninety millions of dollars, (three times the capital,) which increases our circulating medium fifty per cent., depreciates proportionably the present value of a dollar, and raises the price of all future purchases in the same proportion.

3.  This loan of ten millions at five per cent., is to be once for all, only.  Neither the terms of the scheme, nor their own prudence could ever permit them to add to the circulation in the same, or any other way, for the supplies of the succeeding years of the war.  These succeeding years then are to be left unprovided for, and the means of doing it in a great measure precluded.

4.  The individual subscribers, on paying their own five millions of cash to Congress, become the depositories of ten millions of stock belonging to Congress, five millions belonging to the States, and five millions to themselves, say twenty millions, with which, as no one has a right ever to see their books, or to ask a question, they may choose their time for running away, after adding to their booty the proceeds of as much of their own notes as they shall be able to throw into circulation.

5.  The subscribers may be one, two, or three, or more individuals, (many single individuals being able to pay in the five millions,) whereupon this bank oligarchy or monarchy enters the field with ninety millions of dollars, to direct and control the politics of the nation ;  and of the influence of these institutions on our politics and into what scale it will be thrown, we have had abundant experience.  Indeed, England herself may be the real, while her friend and trustee here shall be the nominal and sole subscriber.

6.  This state of things is to be fastened on us, without the power of relief, for forty or fifty years.  That is to say, the eight millions of people now existing, for the sake of receiving one dollar and twenty-five cents apiece, at five per cent. interest, are to subject the fifty millions of people who are to succeed them within that term, to the payment of forty-five millions of dollars, principal and interest, which will be payable in the course of the fifty years.

7.  But the great and national advantage is to be the relief of the present scarcity of money, which is produced and proved by,

1.  The additional industry created to supply a variety of articles for the troops, ammunition, etc.

2.  By the cash sent to the frontiers, and the vacuum occasioned in the trading towns by that.

3.  By the late loans.

4.  By the necessity of recurring to shavers with good paper, which the existing banks are not able to take up ;  and

5.  By the numerous applications of bank charters, showing that an increase of circulating medium is wanting.

Let us examine these causes and proofs of the want of an increase of medium, one by one.

1.  The additional industry created to supply a variety of articles for troops, ammunition, etc.  Now, I had always supposed that war produced a diminution of industry, by the number of hands it withdraws from industrious pursuits for employment in arms, etc., which are totally unproductive.  And if it calls for new industry in the articles of ammunition and other military supplies, the hands are borrowed from other branches on which the demand is slackened by the war ;  so that it is but a shifting of these hands from one pursuit to another.

2.  The cash sent to the frontiers occasions a vacuum in the trading towns, which requires a new supply.  Let us examine what are the calls for money to the frontiers.  Not for clothing, tents, ammunition, arms, which are all bought in the trading towns.  Not for provisions ;  for although these are bought partly in the immediate country, bank bills are more acceptable there than even in the trading towns.  The pay of the army calls for some cash, but not a great deal, as bank notes are as acceptable with the military men, perhaps more so ;  and what cash is sent must find its way back again in exchange for the wants of the upper from the lower country.  For we are not to suppose that cash stays accumulating there forever.

3.  This scarcity has been occasioned by the late loans.  But does the government borrow money to keep it in their coffers ?  Is it not instantly restored to circulation by payment for its necessary supplies ?  And are we to restore a vacuum of twenty millions of dollars by an emission of ninety millions ?

4.  The want of medium is proved by the recurrence of individuals with good paper to brokers at exorbitant interest ;  and

5.  By the numerous applications to the State governments for additional banks ;  New York wanting eighteen millions, Pennsylvania ten millions, etc.  But say more correctly, the speculators and spendthrifts of New York and Pennsylvania, but never consider them as being the States of New York and Pennsylvania.  These two items shall be considered together.

It is a litigated question, whether the circulation of paper, rather than of specie, is a good or an evil.  In the opinion of England and of English writers it is a good ;  in that of all other nations it is an evil ;  and excepting England and her copyist, the United States, there is not a nation existing, I believe, which tolerates a paper circulation.  The experiment is going on, however, desperately in England, pretty boldly with us, and at the end of the chapter, we shall see which opinion experience approves : for I believe it to be one of those cases where mercantile clamor will bear down reason, until it is corrected by ruin.  In the meantime, however, let us reason on this new call for a national bank.

After the solemn decision of Congress against the renewal of the charter of the bank of the United States, and the grounds of that decision, (the want of constitutional power,) I had imagined that question at rest, and that no more applications would be made to them for the incorporation of banks.  The opposition on that ground to its first establishment, the small majority by which it was overborne, and the means practised for obtaining it, cannot be already forgotten.  The law having passed, however, by a majority, its opponents, true to the sacred principle of submission to a majority, suffered the law to flow through its term without obstruction.  During this, the nation had time to consider the constitutional question, and when the renewal was proposed, they condemned it, not by their representatives in Congress only, but by express instructions from different organs of their will.  Here then we might stop, and consider the memorial as answered.  But, setting authority apart, we will examine whether the legislature ought to comply with it, even if they had the power.

Proceeding to reason on this subject, some principles must be premised as forming its basis.  The adequate price of a thing depends on the capital and labor necessary to produce it.  [In the term capital, I mean to include science, because capital as well as labor has been employed to acquire it.]  Two things requiring the same capital and labor, should be of the same price.  If a gallon of wine requires for its production the same capital and labor with a bushel of wheat, they should be expressed by the same price, derived from the application of a common measure to them.  The comparative prices of things being thus to be estimated and expressed by a common measure, we may proceed to observe, that were a country so insulated as to have no commercial intercourse with any other, to confine the interchange of all its wants and supplies within itself, the amount of circulating medium, as a common measure for adjusting these exchanges, would be quite immaterial.  If their circulation, for instance, were of a million of dollars, and the annual produce of their industry equivalent to ten millions of bushels of wheat, the price of a bushel of wheat might be one dollar.  If, then, by a progressive coinage, their medium should be doubled, the price of a bushel of wheat might become progressively two dollars, and without inconvenience.  Whatever be the proportion of the circulating medium to the value of the annual produce of industry, it may be considered as the representative of that industry.  In the first case, a bushel of wheat will be represented by one dollar ;  in the second, by two dollars.  This is well explained by Hume, and seems admitted by Adam Smith, B. a, c.2, 436, 441, 490.  But where a nation is in a full course of interchange of wants and supplies with all others, the proportion of its medium to its produce is no longer indifferent.  Ib. 441.  To trade on equal terms, the common measure of values should be as nearly as possible on a par with that of its corresponding nations, whose medium is in a sound state ;  that is to say, not in an accidental state of excess or deficiency.  Now, one of the great advantages of specie as a medium is, that being of universal value, it will keep itself at a general level, flowing out from where it is .too high into parts where it is lower.  Whereas, if the medium be of local value only, as paper money, if too little, indeed, gold and silver will flow in to supply the deficiency ;  but if too much, it accumulates, banishes the gold and silver not locked up in vaults and hoards, and depreciates itself ;  that is to say, its proportion to the annual produce of industry being raised, more of it is required to represent any particular article of produce than in the other countries.  This is agreed by Smith, (B. 2, c. 2, 437,) the principal advocate for a paper circulation ;  but advocating it on the sole condition that it be strictly regulated.  He admits, nevertheless, that “ the commerce and industry of a country cannot be so secure when suspended on the Daedalian wings of paper money, as on the solid ground of gold and silver ;  and that in time of war, the insecurity is greatly increased, and great confusion possible where the circulation is for the greater part in paper.” B, 2, c. 2, 484.  But in a country where loans are uncertain, and a specie circulation the only sure resource for them, the preference of that circulation assumes a far different degree of importance, as is explained in my former letters.

The only advantage which Smith proposes by substituting paper in the room of gold and silver money, B. 2, c. 2, 434, is “ to replace an expensive instrument with one much less costly, and sometimes equally convenient ; ” that is to say, page 437, “ to allow the gold and silver to be sent abroad and converted into foreign goods,” and to substitute paper as being a cheaper measure.  But this makes no addition to the stock or capital of the nation.  The coin sent out was worth as much, while in the country, as the goods imported and taking its place.  It is only, then, a change of form in a part of the national capital, from that of gold and silver to other goods.  He admits, too, that while a part of the goods received in exchange for the coin exported may be materials, tools and provisions for the employment of an additional industry, a part, also, may be taken back in foreign wines ;  silks, etc., to be consumed by idle people who produce nothing ;  and so far the substitution promotes prodigality, increases expense and corruption, without increasing production.  So far also, then, it lessens the capital of the nation.  What may be the amount which the conversion of the part exchanged for productive goods may add to the former productive mass, it is not easy to ascertain, because, as he says, page 441, “it is impossible to determine what is the proportion which the circulating money of any country bears to the whole value of the annual produce.  It has been computed by different authors, from a fifth* to a thirtieth of that value.  “ In the United States it must be less than in any other part of the commercial world ;  because the great mass of their inhabitants being in responsible circumstances, the great mass of their exchanges in the country is effected on credit, in their merchants’ ledger, who supplies all their wants through the year, and at the end of it receives the produce of their farms, or other articles of their industry.  It is a fact, that a farmer with a revenue of ten thousand dollars a year, may obtain all his supplies from his merchant, and liquidate them at the end of the year, by the sale of his produce to him, without the intervention of a single dollar of cash.  This, then, is merely barter, and in this way of barter a great portion of the annual produce of the United States is exchanged without the intermediation of cash.  We might safely, then, state our medium at the minimum of one-thirtieth.  But what is one-thirtieth of the value of the annual produce of the industry of the United States ?  Or what is the whole value of the annual produce of the United States ?  An able writer and competent judge of the subject, in 1799, on as good grounds as probably could be taken, estimated it, on the then population of four and a half millions of inhabitants, to be thirty-seven and a half millions sterling, or one hundred and sixty-eight and three-fourths millions of dollars.  See Cooper’s Political Arithmetic, page 47.  According to the same estimate for our present population, it will be three hundred millions of dollars, one-thirtieth of which, Smith s minimum, would be ten millions, and one-fifth, his maximum, would be sixty millions for the quantum of circulation.  But suppose that instead of our needing the least circulating medium of any nation, from the circumstance bef ore mentioned, we should place ourselves in the middle term of the calculation, to wit: at thirty-five millions.  One-fifth of this, at the least, Smith thinks should be retained in specie, which would leave twenty-eight millions of specie to be exported in exchange for other commodities ;  and if fifteen millions of that should be returned in productive goods, and not in articles of prodigality, that would be the amount of capital which this operation would add to the existing mass.  But to what mass ?  Not that of the three hundred millions, which is only its gross annual produce, but to that capital of which the three hundred millions are but the annual produce.  But this being gross, we may infer from it the value of the capital by considering that the rent of lands is generally fixed at one-third of the gross produce, and is deemed its net profit, and twenty times that its fee simple value.  The profits on landed capital may, with accuracy enough for our purpose, be supposed on a par with those of other capital.  This would give us then for the United States, a capital of two thousand millions, all in active employment, and exclusive of unimproved lands lying in a great degree dormant.  Of this, fifteen millions would be the hundred and thirty-third part.  And it is for this petty addition to the capital of the nation, this minimum of one dollar, added to one hundred and thirty-three and a third or three-fourths per cent., that we are to give up our gold and silver medium, its intrinsic solidity, its universal value, and its saving powers in time of war, and to substitute for it paper, with all its train of evils, moral, political and physical, which I will not pretend to enumerate.

There is another authority to which we may appeal for the proper quantity of circulating medium for the United States.  The old Congress, when we were estimated at about two millions of people, on a long and able discussion, June 22d, I decided the sufficient guantity to be two millions of dollars, which sum they emitted.** According to this, it should be eight millions, now that we are eight millions of people.  This differs little from Smith’s minimum of ten millions, and strengthens our respect for that estimate.

There is, indeed, a convenience in paper ;  its easy transmission from one place to another.  But this may be mainly supplied by bills of exchange, so as to prevent any great displacement of actual coin.  Two places trading together balance their dealings, for the most part, by their mutual supplies, and the debtor individuals of either may, instead of cash, remit the bills of those who are creditors in the same dealings ;  or may obtain them through some third place with which both have dealings.  The cases would be rare where such bills could not be obtained, either directly or circuitously, and too unimportant to the nation to overweigh the train of evils flowing from paper circulation.

From eight to thirty-five millions then being our proper circulation, and two hundred millions the actual one, the memorial proposes to issue ninety millions more, because, it says, a great scarcity of money is proved by the numerous applications for banks ;  to wit, New York for eighteen millions, Pennsylvania ten millions, etc.  The answer to this shall be quoted from Adam Smith, B. 2, c.2, page 462 ;  where speaking of the complaints of the trader against the Scotch bankers, who had already gone too far in their issues of paper, he says ;  “ those traders and other undertakers having got so much assistance from banks, wished to get still more.  The banks, they seem to have thought, could extend their credits to whatever sum might be wanted, without incurring any other expense besides that of a few reams of paper.  They complained of the contracted views and dastardly spirit of the directors of those banks, which did not, they said, extend their credits in proportion to the extension of the trade of the country ;  meaning, no doubt, by the extension of that trade, the extension of their own projects beyond what they could carry on, either with their own capital, or with what they had credit to borrow of private people in the usual way of bond or mortgage.  The banks, they seem to have thought, were in honor bound to supply the deficiency, and to provide them with all the capital which they wanted to trade with.”  And again, page 470 :  “ when bankers discovered that certain projectors were trading, not with any capital of their own, but with that which they advanced them, they endeavored to withdraw gradually, making every day greater and greater difficulties about discounting.  These difficulties alarmed and enraged in the highest degree those projectors.  Their own distress, of which this prudent and necessary reserve of the banks was no doubt the immediate occasion, they called the distress of the country ;  and this distress of the country, they said, was altogether owing to the ignorance, pusillanimity, and bad conduct of the banks, which did not give a sufficiently liberal aid to the spirited undertakings of those who exerted themselves in order to beautify, improve and enrich the country.  It was the duty of the banks, they seemed to think, to lend for as long a time, and to as great an extent, as they might wish to borrow.”  It is, probably, the good paper of these projectors which the memorial says, the bank being unable to discount, goes into the hands of brokers, who (knowing the risk of this good paper) discount it at a much higher rate than legal interest, to the great distress of the enterprising adventurers, who had rather try trade on borrowed capital, than go to the plough or other laborious calling.  Smith again says, page 478, “ that the industry of Scotland languished for want of money to employ it, was the opinion of the famous Mr. Law.  By establishing a bank of a particular kind, which, he seems to have imagined might issue paper to the amount of the whole value of all the lands in the country, he proposed to remedy this want of money.  It was afterwards adopted, with some variations, by the Duke of Orleans, at that time Regent of France.  The idea of the possibility of multiplying paper to almost any extent, was the real foundation of what is called the Mississippi scheme, the most extravagant project both of banking and stock jobbing, that perhaps the world ever saw.  The principles upon which it was founded are explained by Mr. Law himself, in a discourse concerning money and trade, which he published in Scotland when he first proposed his project.  The splendid but visionary ideas which are set forth in that and some other works upon the same principles, still continue to make an impression upon many people, and have perhaps, in part, contributed to that excess of banking which has of late been complained of both in Scotland and in other places.”  The Mississippi scheme, it is well known, ended in France in the bankruptcy of the public treasury, the crush of thousands and thousands of private fortunes, and scenes of desolation and distress equal to those of an invading army, burning and laying waste all before it.

At the time we were funding our national debt, we heard much about “ a public debt being a public blessing;” that the stock representing it was a creation of active capital for the aliment of commerce, manufactures and agriculture.  This paradox was well adapted to the minds of believers in dreams, and the gulls of that size entered bonā fide into it.  But the art and mystery of banks is a wonderful improvement on that.  It is established on the principle that “private debts are a public blessing.”  That the evidences of those private debts, called bank notes, become active capital, and aliment the whole commerce, manufactures, and agriculture of the United States.  Here are a set of people, for instance, who have bestowed on us the great blessing of running in our debt about two hundred millions of dollars, without our knowing who they are, where they are, or what property they have to pay this debt when called on ;  nay, who have made us so sensible of the blessings of letting them run in our debt, that we have exempted them by law from the repayment of these debts beyond a given proportion, (generally estimated at one-third).  And to fill up the measure of blessing, instead of paying, they receive an interest on what they owe from those to whom they owe ;  for all the notes, or evidences of what they owe, which we see in circulation, have been lent to somebody on an interest which is levied again on us through the medium of commerce.  And they are so ready still to deal out their liberalities to us, that they are now willing to let themselves run in our debt ninety millions more, on our paying them the same premium of six or eight per cent. interest, and on the same legal exemption from the repayment of more than thirty millions of the debt, when it shall be called for.  But let us look at this principle in its original form, and its copy will then be equally understood.  “A public debt is a public blessing.”  That our debt was juggled from forty-three up to eighty millions, and funded at that amount, according to this opinion was a great public blessing, because the evidences of it could be vested in commerce, and thus converted into active capital, and then the more the debt was made to be, the more active capital was created.  That is to say, the creditors could now employ in commerce the money due them from the public, and make from it an annual profit of five per cent., or four millions of dollars.  But observe, that the public were at the same time paying on it an interest of exactly the same amount of four millions of dollars.  Where then is the gain to either party, which makes it a public blessing ?  There is no change in the state of things, but of persons only.  A has a debt due to him from the public, of which he holds their certificate as evidence, and on which he is receiving an annual interest.  He wishes, however, to have the money itself, and to go into business with it.  B has an equal sum of money in business, but wishes now to retire, and live on the interest.  He therefore gives it to A in exchange for A’s certificates of public stock.  Now then, A has the money to employ in business ;  which B so employed before.  B has the money on interest to live on, which A lived on before ;  and the public pays the interest to B which they paid to A before.  Here is no new creation of capital, no additional money employed, nor even a change in the employment of a single dollar.  The only change is of place between A and B in which we discover no creation of capital, nor public blessing.  Suppose, again, the public to owe nothing.  Then A not having lent his money to the public ;  would be in possession of it himself, and would go into business without the previous operation of selling stock.  Here again, the same quantity of capital is employed as in the former case, though no public debt exists.  In neither case is there any creation of active capital, nor other difference than that there is a public debt in the first case, and none in the last ;  and we may safely ask which of the two situations is most truly a public blessing ?  If, then, a public debt be no public blessing, we may pronounce, a fortiori, that a private one cannot be so.  If the debt which the banking companies owe be a blessing to anybody, it is to themselves alone, who are realizing a solid interest of eight or ten per cent. on it.  As to the public, these companies have banished all our gold and silver medium, which, before their institution, we had without interest, which never could have perished in our hands, and would have been our salvation now in the hour of war ;  instead of which they have given us two hundred million of froth and bubble, on which we are to pay them heavy interest, until it shall vanish into air, as Morns’ notes did.  We are warranted, then, in affirming that this parody on the principle of “ a public debt being a public blessing, ” and its mutation into the blessing of private instead of public debts, is as ridiculous as the original principle itself.  In both cases, he truth is, that capital may be produced by industry, and accumulated by economy ;  but jugglers only will propose to create it by legerdemain tricks with paper.

I have called the actual circulation of bank paper in the United States, two hundred millions of dollars.  I do not recollect where I have seen this estimate ;  but I retain the impression that I thought it just at the time.  It may be tested, however, by a list of the banks now in the United States, and the amount of their capital.  I have no means of recurring to such a list for the present day ;  but I turn to two lists in my possession for the years of 1803 and 1804.

In 1803, there were thirty-four banks, whose capital was. . . . . . . . . . . . . $28,902,000
In 1804, there were sixty-six, consequently thirty-two additional ones.  Their capital is not stated, but at the average of the others, (excluding the highest, that of the United States, which was of ten millions,) they would be of six hundred thousand dollars each, and add. . . . . . . . . . . . . 19,200,000
Making a total of. . . . . . . . . . . . . . . . . . . . . . .$48,102,000

or say of fifty millions in round numbers.  Now, every one knows the immense multiplication of these institutions since 1804.  If they have only doubled, their capital will be of one hundred millions and if trebled, as I think probable, it will be one hundred and fifty millions, on which, they are at liberty to circulate treble the amount.  I should sooner, therefore, believe two hundred millions to be far below than above the actual circulation.  In England, by a late parliamentary document, (see Virginia Argus of October the 18th, 1813, and other public papers of about that date,) it appears that six years ago the Bank of England had twelve millions of pounds sterling in circulation, which had increased to forty-two millions in 1812, or to one hundred and eighty-nine millions of dollars.  What proportion all the other banks may add to this, I do not know ;  if we were allowed to suppose they equal it, this would give a circulation of three hundred and seventy-eight millions, or the double of ours on a double population.  But that nation is essentially commercial, ours essentially agricultural, and needing, therefore, less circulating medium, because the produce of the husbandman comes but once a year, and is then partly consumed at home, partly exchanged by barter.  The dollar, which was of four shillings and sixpence sterling, was, by the same document, stated to be then six shillings and nine pence, a depreciation of exactly fifty per cent.  The average price of wheat on the continent of Europe, at the commencement of its present war with England, was about a French crown, of one hundred and ten cents, the bushel.  With us it was one hundred cents, and consequently we could send it there in competition with their own.  That ordinary price has now doubled with us, and more than doubled in England ;  and although a part of this augmentation may proceed from the war demand, yet from the extraordinary nominal rise in the prices of land and labor here both of which have nearly doubled in that period, and are still rising with every new bank, it is evident that were a general peace to take place to-morrow, and time allowed for the re-establishment of commerce, justice, and order, we could not afford to raise wheat for much less than two dollars, while the continent of Europe, having no paper circulation, and that of its specie not being augmented, would raise it at their former price of one hundred and ten cents.  It follows, then, that with our redundancy of paper, we cannot, after peace, send a bushel of wheat to Europe, unless extraordinary circumstances double its price in particular places, and that then the exporting countries of Europe could undersell us.

It is said that our paper is as good as silver, because we may have silver for it at the bank where it issues.  This is not true.  One, two, or three persons might have it ;  but a general application would soon exhaust their vaults, and leave a ruinous proportion of, their paper in its intrinsic worthless form.  It is a fallacious pretence, for another reason.  The inhabitants of the banking cities might obtain cash for their paper, as far as the cash of the vaults would hold out, but distance puts it out of the power of the country to do this.  A farmer having a note of a Boston or Charleston bank, distant hundreds of miles, has no means of calling for the cash.  And while these calls are impracticable for the country, the banks have no fear of their being made from the towns ;  because their inhabitants are mostly on their books, and there on sufferance only, and during good behavior.

In this state of things, we are called on to add ninety millions more to the circulation.  Proceeding in this career, it is infallible, that we must end where the revolutionary paper ended.  Two hundred millions was the whole amount of all the emissions of the old Congress, at which point their bills ceased to circulate.  We are now ,at that sum, but with treble the population, and of course a longer tether.  Our depreciation is, as yet, but about two for one.  Owing to the support its credit receives from the small reservoirs of specie in the vaults of the banks, it is impossible to say at what point their notes will stop.  Nothing is necessary to effect it but a general alarm ;  and that may take place whenever the public shall begin to reflect on, and perceive the impossibility that the banks should repay this sum.  At present, caution is inspired no farther than to keep prudent men from selling property on long payments.  Let us suppose the panic to arise at three hundred millions, a point to which every session of the legislatures hasten us by long strides.  Nobody dreams that they would have three hundred millions of specie to satisfy the holders of their notes.  Were they even to top now, no one supposes they have two hundred millions in cash, or even the sixty-six and two-third millions, to which amount alone the law compels them to repay.  One hundred and thirty-three and one-third millions of loss, then, is thrown on the public by law ;  and as to the sixty-six and two-thirds, which they are legally bound to pay, and ought to have in their vaults, every one knows there is no such amount of cash in the United States, and what would be the course with what they really have there ?  Their notes are refused.  Cash is called for.  The inhabitants of the banking towns will get what is in the vaults, until a few banks declare their insolvency ;  when, the general crush becoming evident, the others will withdraw even the cash they have, declare their bankruptcy at once, and leave an empty house and empty coffers for the holders of their notes.  In this scramble of creditors, the country gets nothing, the towns but little.  What are they to do ?  Bring suits ?  A million of creditors bring a million of suits against John Nokes and Robert Styles, wheresoever to be found ?  All nonsense.  The loss is total.  And a sum is thus swindled from our citizens, of seven times the amount of the real debt, and four times that of the fictitious one of the United States, at the close of the war.  All this they will justly charge on their legislatures ;  but this will be poor satisfaction for the two or three hundred millions they will have lost.  It is time, then, for the public functionaries to look to this.  Perhaps it may not be too late.  Perhaps, by giving time to the banks, they may call in and pay off their paper by degrees.  But no remedy is ever to be expected while it rests with the State legislatures.  Personal motive can be excited through so many avenues to their will, that, in their hands, it will continue to go on from bad to worse, until the catastrophe overwhelms us.  I still believe ;  however, that on proper representations of the subject, a great proportion of these legislatures would cede to Congress their power of establishing banks, saving the charter rights already granted.  And this should be asked, not by way of amendment to the Constitution, be cause until three-fourths should consent, nothing could be done ;  but accepted from them one by one, singly, as their consent might be obtained.  Any single State, even if no other should come into the measure, would find its interest in arresting foreign bank paper immediately, and its own by degrees.  Specie would flow in on them as paper disappeared.  Their own banks would call in and pay off their notes gradually, and their constituents would thus be saved from the general wreck.  Should the greater part of the States concede, as is expected, their power over banks to Congress, besides insuring their own safety, the paper of the non-conceding States might be so checked and circumscribed, by prohibiting its receipt in any of the conceding States, and even in the nonconceding as to duties, taxes, judgments, or other demands of the United States, or of the citizens of other States, that it would soon die of itself, and the medium of gold and silver be universally restored.  This is what ought to be done.  But it will not be done.  Carthago non delibitur.  The overbearing clamor of merchants, speculators, and projectors, will drive us before them with our eyes open, until, as in France, under the Mississippi bubble, our citizens will be overtaken by the crush of this baseless fabric, without other satisfaction than that of execrations on the heads of those functionaries, who, from ignorance, pusillanimity or corruption, have betrayed the fruits of their industry into the hands of projectors and swindlers.

When I speak comparatively of the paper emission of the old Congress and the present banks, let it not be imagined that I cover them under the same mantle.  The object of the former was a holy one ;  for if ever there was a holy war, it was that which saved our liberties and gave us independence.  The object of the latter, is to enrich swindlers at the expense of the honest and industrious part of the nation.

The sum of what has been said is, that pretermitting the constitutional question on the authority of Congress, and considering this application on the grounds of reason alone, it would be best that our medium should be so proportioned to our produce, as to be on a par with that of the countries with which we trade, and whose medium is in a sound state ;  that specie is the most perfect medium, because it will preserve its own level ;  because, having intrinsic and universal value, it can never die in our hands, and it is the surest resource of reliance in time of war ;  that the trifling economy of paper, as a cheaper medium, or its convenience for transmission, weighs nothing in opposition to the advantages of the precious metals ;  that it is liable to be abused, has been, is, and forever will be abused, in every country in which it is permitted ;  that it is already at a term of abuse in these States, which has never been reached by any other nation, France excepted, whose dreadful catastrophe should be a warning against the instrument which produced it ;  that we are already at ten or twenty times the due quantity of medium ;  insomuch, that no man knows what his property is now worth, because it is bloating while he is calculating ;  and still less what it will be worth when the medium shall be relieved from its present dropsical state ;  and that it is a palpable falsehood to say we can have specie for our paper whenever demanded.  Instead, then, of yielding to the cries of scarcity of medium set up by speculators, projectors and commercial gamblers, no endeavors should be spared to begin the work of reducing it by such gradual means as may give time to private fortunes to preserve their poise, and settle down with the subsiding medium ;  and that, for this purpose, the States should be urged to concede to the General Government, with a saving of chartered rights, the exclusive power of establishing banks of discount for paper.

To the existence of banks of discount for cash, as on the continent of Europe, there can be no objection, because there can be no danger of abuse, and they are a convenience both to merchants and individuals.  I think they should even be encouraged, by allowing them a larger than legal interest on short discounts, and tapering thence, in proportion as the term of discount is lengthened, down to legal interest on those of a year or more.  Even banks of deposit, where cash should be lodged, and a paper acknowledgment taken out as its representative, entitled to a return of the cash on demand, would be convenient for remittances, travelling persons, etc.  But, liable as its cash would be to be pilfered and robbed, and its paper to be fraudulently re-issued, or issued without deposit, it would require skilful and strict regulation.  This would differ from the bank of Amsterdam, in the circumstance that the cash could be redeemed on returning the note.

When I commenced this letter to you, my dear Sir, on Mr. Law’s memorial, I expected a short one would have answered that.  But as I advanced ;  the subject branched itself before me into so many collateral questions, that even the rapid views I have taken of each have swelled the volume of my letter beyond my expectations, and, I fear, beyond your patience.  Yet on a revisal of it, I find no part which has not so much bearing on the subject as to be worth merely the time of perusal.  I leave it then as it is ;  and will add only the assurances of my constant and affectionate esteem and respect.

* The real cash or money necessary to carry on the circulation and barter of a State, is nearly one-third part of all the annual rents of the proprietors of the said State ;  that is, one-ninth of the whole produce of the land.  Sir William Petty supposes one-tenth part of the value of the whole produce sufficient.  Postlethwait, voce, Cash.

** Within five months after this, they were compelled by the necessities of the war, to abandon the idea of emitting only an adequate circulation, and to make those necessities the sole measure of their emissions.