Albert Gallatin letter to Willis Hall, 20 February 1838

New York, February 20, 1838.

Sir, - I had the honor to receive on Saturday last your letter of 14th instant, asking my opinion on the question " whether a law authorizing the banks to issue post-notes for a limited time would facilitate the resumption of specie payments ?" As, from the time when I became connected with one of the banks of this city, the law forbidding the issue of such notes has always been in force, I have had no opportunity to become practically acquainted with the use or abuse of post-notes. On consulting some of the most intelligent and experienced officers of the banks, and who are also earnestly desirous that specie payments may be resumed and maintained, I found that their opinion coincided with the general view I had taken of the subject. We think that the repeal of the prohibitory law could not in any shape facilitate the resumption of specie payments, and that it would at this time be inexpedient.

Post-notes, in that respect similar to Treasury notes, are the promise to pay at a subsequent day. Their value depends, therefore, on the market price of the use of money, or the true rate of interest at which money may be borrowed. Fluctuating, therefore, in value according to the fluctuations of that price, they never can, from the moment we return to specie payments, be used as currency. The banks could not substitute them for their notes payable on demand. Nothing can then serve as currency but paper bona fide exchangeable on demand for gold or silver. If not used as a substitute for currency, the only way in which post-notes could be supposed to add to the resources of the bank would be as means of borrowing money. But there is no solid bank in good credit that could 'not borrow as well without as with them. It is not for the purpose of increasing the resources of the banks in order to facilitate the resumption that post-notes are desired and suggested. It is simply in order that the banks may be induced to increase their discounts by an exchange of those notes for the notes offered for discount. This would only increase the liabilities of the banks and render them less able to maintain specie payments. Without reference to specie payments, and apart of the present crisis, post-notes, as a negotiable paper, are often useful to the commercial community. Their legitimate use consists principally in facilitating the transmission of funds to other parts of the United States ; and even in that respect bank-notes payable on demand, not to bearer, but to order, or drafts at sight accepted by the banks, would answer the same purpose. But, whatever advantages may be derived by merchants from post-notes fairly and soberly used for such purposes as those or other legitimate operations, we were all of opinion that to repeal at this moment an existing restrictive law, and to authorize the banks to issue a new species of paper payable at a future day, would have a pernicious effect on public opinion, impair the public confidence, on which we must principally rely, and be, therefore, for the present, altogether inexpedient.

The city banks appear now to expect and to be determined to resume specie payments on or before the 10th of May. They are strong, and are pursuing the measures necessary still more to strengthen themselves. If they do not formally declare a day, it is principally because it is thought that, by meeting the other banks in convention on the 11th of April, those of New York will have more weight in inducing those of the East, South, and North-West, which are believed to be well disposed, to resume simultaneously with themselves or at a very early day. The fall in the rate of foreign exchanges, the expected influx of specie, and the still stagnant state of business are highly in their favor. The only difficulty in the way is the apprehended continued determination of the banks of Philadelphia, principally of the United States Bank, to prolong the suspension. Even in that case I do not apprehend positive acts of hostility ; but others do.

To guard against that danger I do not perceive that the State can assist the banks otherwise than by interposing its credit, by authorizing, if necessary, the loan to them of a certain amount of State stock. If, as I do believe and hope, the Legislature is determined not to extend the time for resuming, and will let the charters of the banks be forfeited, according to law, on the 10th of May, some evidence of that determination might be useful.

I will shortly send you a correct statement of the city banks, and ask your permission to add some observations on our banking system generally and the improvements of which it appears to me to be susceptible.

I have the honor to be, &c.