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 LETTERS 
 
 HONOURABLE LEVI WOODBURY, 
 
 SECRETARY OF THE TREASURY 
 
 NITED STATES. 
 
 
 N E W- Y li K ; 
 
 I.. IS. ( I.AVI'ON. I'KIN'I'llli AM) ST \Tlo\KU. 
 
 1837. 

 
 LETTERS 
 
 HONOURABLE LEVI WOODBURY, 
 
 SECRETARY OF THE TREASURE 
 
 UNITED STATES. 
 
 I 
 
 V ~ 
 
 NEW-YORK: 
 E. B. CLAYTON, PRINTER AND STATIONER, 
 
 No. 59 WALL-STREJT. 
 
 1837. 
 
 UBRAk'Y
 
 LETTER I. 
 
 To the Hon. Levi Woodlury, Secretary of the Treasury of the 
 United States. 
 
 SIR: The subversion of the business and currency of the 
 United States, has become a subject of deep concern, as 
 well as extensive suffering. To you, as presiding over the 
 financial duties of the administration, it presents more weighty 
 cares than have ever before occupied the consideration of 
 the Department. Had the catastrophe resulted from any of 
 the causes by which nations have been overthrown, the 
 strength of man withered, or his wisdom baffled had war, 
 famine, or pestilence been its origin we might foster the 
 hope of better days when those evils should cease to afflict 
 us. But in a time of profound and continued peace, unin- 
 terrupted for more than twenty years; when health, with 
 little exception, has been universal ; when the earth has yield- 
 ed its abundance ; when industry and enterprise, in every de- 
 partment, stimulated by the richest rewards to unexampled 
 efforts, were putting forth all their powers ; when the national 
 debt was paid, and our only fiscal embarrassments arose 
 from excess of revenue ; when wealth seemed to pour spon- 
 taneously into the coffers of every individual; what appeared 
 
 20O3514
 
 like a spell of enchantment suddenly paralysed the nation, 
 and overwhelmed both government and people with bank- 
 ruptcy. Utter death has come over the business and cur- 
 rency, and all confidence is annihilated. The prostration is 
 so entire, as to leave no hope but by such an extraordinary 
 application, as will at once impart new life to the dead mass, 
 and control those causes of dissolution, which, if left unre- 
 strained, would again prove too powerful for even the best 
 established system to sustain. In this appalling state of the 
 country, sir, I take the liberty to suggest some considerations 
 on its causes, and the remedies which may minister relief. 
 
 Just anterior to the prostration of business, our manufac- 
 tures and commerce were greatly extended, and conducted 
 mainly upon credit. Individuals and companies, with little 
 or no capital, were often found to employ tens and hundreds 
 of thousands. These borrowed means were supplied by the 
 immense amount of paper currency furnished by the banks, 
 which had been established in all parts of the United States. 
 The banks on the one hand and men of business on the other, 
 considered it for their respective interests to employ the 
 greatest possible amount of paper money. As the profits of 
 the banks were proportional to their discounts, and these 
 were done by the issuing of paper, it is very obvious, that 
 there would be a constant tendency to excess. This would 
 be restrained by nothing but the necessity of redemption. 
 But unless an adverse balance of trade, requiring remittances 
 to foreign countries, or some other exigency out of the ordinary 
 course of domestic business, should create a demand for 
 specie, none would be exacted. Paper, being the more conve- 
 nient currency, would be preferred in the common exchanges 
 of trade, and the gold and silver would repose in the banks. 
 During such a period no redemptions are necessary, and 
 emissions maybe unlimited, but for the fear of its termination. 
 Men of business who expect emoluments proportioned to the 
 number and amount of their operations, stand ready to gratify
 
 the cupidity of the bankers, and employ all the paper 
 which they can persuade them to issue. Experience has 
 ever shown, that there is no foresight, either in those who 
 manage moneyed institutions, or in those whose extravagance 
 they stimulate and sustain, sufficient to restrain the most 
 ruinous excesses. An increasing currency occasions in- 
 creasing prices. These react upon the spirit of trade and 
 manufactures, and by their mutual influence, engender the 
 utmost excesses. A circulating medium on a par with specie, 
 and which costs nothing but the work of the engraver, is a 
 manufacture too precious to be monopolized by a, few moneyed 
 institutions ; and the legislatures of the several States must be 
 plied with continual memorials for acts of incorporation. 
 Thus banks become multiplied, their competitions sharpened, 
 prices raised, overtrading and speculation cherished, and 
 imaginary fortunes acquired ; and the necessary consequen- 
 ces of this factitious and unnatural state of society must soon 
 be expected to follow. But no artificial state of the currency 
 can be long preserved. The quantity of the circulating me- 
 dium of any country, while its general standard value is pre- 
 served, cannot be permanently augmented beyond the natural 
 quantity allotted by the laws of trade, nor can its value be 
 increased by any artificial expedients. No attempts to ac- 
 complish either have ever been successful, even when made 
 by the most despotic monarchs. All laws relative to tender, 
 or prohibiting exportation, or adulterating coin by a mixture 
 of the baser metals, or augmenting the whole mass by a con- 
 vertible paper currency, have proved utterly impotent. The 
 last expedient that of convertible paper money will in- 
 crease the relative value of the currency for a little while, 
 until it finds its level in the market. This renders it more 
 mischievous than if its decline were instantaneous ; for, as 
 there must be a change of prices, in the progress of its de- 
 preciation, without any change of values, all contracts fixing 
 on a stipulated sum to be paid at a future period, must ope-
 
 rate to the injury of one of the parties. If the seller should 
 insist on payment in specie, he will sustain the same loss as 
 if he received paper, for the depreciation extends equally 
 to both, so long as the banks redeem their issues. If the 
 increase of the currency has raised the price of commodities 
 twenty-five per cent., between the time of the making and the 
 maturity of the contract, that proportion will be the measure 
 of his loss, as the money has lost so much of its value. All 
 who have fixed revenues from past investments all who 
 depend on stated salaries as the officers of government and 
 others and, in short, all who receive money on past contracts, 
 must suffer in proportion to the change it has undergone in 
 the intermediate period. But the value of money must be, 
 and will be inversely as its quantity. It has been well re- 
 marked by some sound political economists, that if every 
 man's money throughout the world were doubled in one 
 night, by a miracle, the mass would be worth no more. The 
 only effect would be, that two dollars would be necessary, 
 afterwards, to do the office which one performed before. He 
 who previously carried one dollar to market to buy a bushel 
 of wheat, must afterwards, other things remaining the same, 
 carry two for the same purpose. Would such an increase 
 be of any use ? The precious metals derive their value from 
 their scarcity. A quantity sufficient for an adequate subdi- 
 vision, has all the value, and all the usefulness, of any greater 
 amount. Beyond this, the amount of currency in the world 
 adds nothing to its value, and does but increase its burden 
 and inconvenience. Silver is more plenty than gold, and for 
 this reason its value is less and its inconvenience greater. 
 Were silver annihilated, the value of the currency would not 
 be diminished, for gold would assume the entire value of 
 both; although its quantity might not be\ sufficient for the re- 
 quisite subdivisions for small change. 
 
 The remarks which we often see in the public addresses, 
 and in newspapers abroad and at home, that the quantity
 
 of specie in the world is not sufficient to perform the ex. 
 changes of trade, and needs, for that reason, the addition 
 of paper, is adverse to well established principles, which 
 are confirmed by the experience of every age and nation. 
 
 Perhaps the language here adopted, that the prices of 
 commodities are raised or depressed by the greater or less 
 amount of the circulating medium, is not as strictly accurate, 
 as to say, that the value of the money itself is varied from 
 that cause. All which is meant is, that money, like mer- 
 chandise, is subject to that great law of the market, by 
 which the price of any thing depends on the demand and 
 supply. In the case above supposed, of doubling the whole 
 amount of money in one day, it is the value of the money 
 only, and not the value of commodities, which is affected. 
 The supply and demand of wheat will remain the same as 
 before ; but its price is raised, because the supply of money 
 in proportion to the demand for it, is increased, and thereby 
 the value of each dollar is lessened. If such increase in the 
 mass of money takes place in one market only, each dollar 
 will be of less value there, than in others, where no such 
 change has occurred; and by the laws of trade, the currency 
 will flow into that market where it is more scarce, and there- 
 fore more valuable. If wheat has the same price in Russia 
 and the United States, and by a sudden increase of the 
 currency, its price is doubled here, the merchant who sends 
 his money to Russia and imports wheat to this country, will 
 make a great profit in the operation. In this manner money 
 will become equalized, by an exportation of that portion of it 
 which is current abroad, as certainly as a heavy body will 
 fall to the earth by the force of gravitation. As money is 
 unlike any other article, in that it is the common measure of 
 value, and gives the nominal price to all commodities, we 
 speak of the rise and fall of these commodities, when the rise 
 and fall of money only is intended. Other articles rise and 
 fall in the same manner as money by changes in their intrin-
 
 8 
 
 sic value, by reason of the relative demand and supply. 
 Hence, the vacillations in the market price of cotton, or any 
 other commodity, may occur, independently of any change 
 in the value of money. This may cause an exportation of 
 specie to meet the demand of creditors abroad. But no con- 
 vulsion in the currency can result from it, if the natural amount 
 of money has not been increased, by the issue of paper, as 
 will be more fully explained hereafter. Changes may, and 
 will continually occur, in the prices of each article of mer- 
 chandise, from a change in its intrinsic value ; but those 
 resulting from money are general, and affect every commodity 
 alike. 
 
 Therefore, an amount of money in this country, above its 
 portion allotted by the laws of trade, cannot be long preserved. 
 The rise of prices is the inevitable consequence. As soon as 
 this is found, by a comparison with foreign markets, impor- 
 tations will take place from abroad. This will create a 
 balance against the country, which must be settled by that 
 portion of the mixed currency which will circulate abroad. 
 Thus, specie will begin to flow from the United States to 
 Europe. This movement will hardly be perceived at first, 
 in its influence on our domestic operations ; but the loss of 
 every successive million, which leaves our shores, will be 
 more heavily felt than the last. Whether banks have forty 
 or thirty per cent, of specie, in proportion to their circulation, 
 is of little moment, if they can still meet their redemption, 
 without embarrassment. But the gradual exhaustion will 
 soon reach a point which will compel them to contract their 
 discounts. When this is done, especially after such an 
 enormous expansion of business and currency as we have just 
 experienced, the shock pervades the country. The present 
 crisis was unexpected, mercantile sagacity had overlooked the 
 laws of trade, which are grounded on the laws of nature, and 
 had embarked, with reckless confidence, on the ocean of a 
 baseless credit. But they soon began to feel its ebb. For
 
 9 
 
 some time prior to the suspension of business, as the banks 
 found themselves unable to meet the growing demands of the 
 country by mearis which were daily diminishing, their de- 
 pendants, to sustain a credit now in peril, and clinging with 
 the grasp of death to the enterprises in which they had em- 
 barked, were found in the shops of usurers, borrowing money 
 on the sale of notes at from one and a half to five per cent, a 
 month. Under this lash, the merchant, manufacturer, and 
 speculator began to sink the crisis came they were com- 
 pelled to stop the banks soon followed their example, and 
 the whole country is now in ruins. 
 
 Whenever the foreign debt is extinct, partly by remittance 
 and partly by bankruptcy, so that the exportation of specie 
 will cease, the banks may recover and business recommence ; 
 for there is no difficulty in sustaining an unlimited paper 
 circulation, during that state of the country which renders 
 redemption unnecessary. The same train of causes and effects 
 will then again commence, and result in the same catastrophe. 
 As the quantity of money, augmented by the paper issues, 
 while they are convertible, cannot be permanently increased, 
 nor any thing added to its natural value, prices will again 
 rise importations of goods exportations of specie the con- 
 sequent disability of banks embarrassment of their debtors 
 suspension of specie payments and general insolvency 
 will again fill the country with high hopes and broken hearts 
 in regular succession, and deepen the corruption of morals 
 which extravagance, speculation, and luxury, followed by 
 disappointment and despair, never fail to produce. 
 
 From these facts and considerations, it is clear, that the 
 present state of the country is the effect of a fluctuating cur- 
 rency, occasioned by the vacillations and excesses which 
 must inevitably result from an unregulated system of banking. 
 From 1792, when we had only eleven banks, with an au- 
 thorized capital of eighteen millions, until the present year, 
 when their number, including branches, is about 800, with
 
 10 
 
 an authorized capital of near four hundred millions, they have 
 been constantly, but not uniformly, increasing. As the money 
 market has been affected by the state of the country, their 
 increase has been accelerated or retarded, but never prevent- 
 ed. Their effects, although less severe, have been the same 
 in their essential characteristics, from the time they became 
 the chief reliance of commercial operations to the present 
 period. The shocks on the market have increased in severity, 
 in proportion to the number and capital of banking institu- 
 tions. This is the first instance of the entire suspension of 
 specie payments from this cause. Eight hundred banks have 
 effected what a less number had failed to accomplish, although 
 in 1825 less than half as many almost consummated a similar 
 result. 
 
 Your extensive observation, Sir, will approve these re- 
 marks. They embrace a simple detail of a series of causes 
 and effects in the commercial world, which you have again and 
 again witnessed. But the system needs correction only, not 
 annihilation. " The perversion of the best things converts 
 them to the worst." We should not discard a powerful agent, 
 merely because its energies may be so employed as to pro- 
 duce destruction. The world would be unwise to dispense, 
 for that reason, with the use of steam or fire. Banks would 
 become as harmless as they are powerful, under proper 
 regulations. We want a medium, through which the money 
 of the capitalist may pass into the hands of the man of 
 business, to stimulate and reward the industry of the nation. 
 In our extensive country, we eminently need those facilities 
 of exchange which shall render money, in the most remote 
 districts, of equal value ; and which shall enable purchasers 
 in one part of the United States, to remit to distant sellers in 
 another, any sums, large or small, without the transportation 
 of specie. That neither the government nor people may 
 suffer injustice, the payment or receipt of a hundred dollars 
 by the national treasury in the city of New-Orleans, must be
 
 11 
 
 equal to the same in the city of New- York. The government 
 must be enabled, without diverting the currency from its 
 channels of circulation, and without loss, to disburse in one 
 part of the country the revenue collected in another. These 
 several objects cannot be effected but by a well regulated 
 banking system. Such a system, therefore, is essential to 
 the prosperity, and important to preserve the union, of these 
 States. If it can be so constructed and regulated as to 
 accomplish these objects, and at the same time, be made 
 incapable of disturbing the trade or currency, its utility will 
 be universally admitted. That these desirable ends may be 
 effected, 1 will endeavour to show in a future communication ; 
 but, in my next letter, will consider the question, whether 
 any adequate power for this purpose is conferred on Congress 
 by the Constitution of the United States. 
 
 FRANKLIN. 
 
 August, 1837. 
 
 LETTER II. 
 
 To the Han. Levi Wbodbury, Secretary of the Treasury of the 
 United States. . 
 
 SIR : In my last letter I endeavoured to show, that the 
 general suspension of business, and perfect destruction of 
 " commerce with foreign nations and arriong the several 
 states," was caused by the excess of paper issued by about 
 eight hundred banking institutions. So long as like causes 
 produce like effects, we may expect a similar succession of 
 events, and a similar catastrophe, whenever there is time for 
 the maturity and explosion of another paper bubble, unless a 
 power is somewhere lodged to prevent its repetition. It is the 
 interest and duty of every citizen, and especially of those in- 
 trusted with public authority, to consider whether such a 
 power exists, and, if it does, in what manner it may be exerted
 
 12 
 
 and applied, and to you, sir, the financial counsellor of the 
 national government, the subject addresses itself with solemn 
 emphasis. Although the states have power over their respec- 
 tive banks, yet the authority of each is confined to those 
 within its own territory, and no one can control those of other 
 states. All attempts, therefore, by the states severally, to 
 regulate the national currency, would be limited and abor- 
 tive, even if they should make any ; which is utterly hope- 
 less and chimerical. But I shall endeavour to show, that this 
 power resides in the Congress of the United States, to whom 
 the duty is explicitly intrusted by the constitution/ 
 
 Although the provisions of the constitution which bear on 
 the subject are very familiar, yet I will cite them, that I may 
 more clearly assign the reasons on which my opinion is ground- 
 ed. In enumerating the powers of Congress, in the third 
 clause of the 8th section of the first article, are these words 
 " To regulate commerce with foreign nations, and among the 
 " several states, and with the Indian tribes." In this section, 
 the powers of Congress are enumerated, not defined ; but the 
 language is so plain and explicit, that no exposition or com- 
 mentary was necessary for its clear apprehension. It is often 
 contended, that no implied powers are conferred; that we 
 should reject all constructive authority ; and consider that 
 which is not expressly given, as denied. This is considered as 
 being the object of the tenth article of the amendments, which 
 is in these words : " The powers not delegated to the United 
 " States by the constitution, nor prohibited by it to the States, 
 " are reserved to the States respectively, or to the people." 
 Without this amendment, it would seem too clear for contro- 
 versy, that powers not delegated are reserved. We have 
 still to go back, unfurnished with any new rule of construction, 
 to ascertain, by the language of the constitution itself, what 
 powers are, or are not, delegated. But for the purposes of the 
 present question, I will assume, that Congress have no con- 
 structive powers, but are confined to such only as are expressly
 
 13 
 
 given. No one, however, who contends for this rule of con- 
 struction, will say, that no power to regulate commerce is 
 conferred at all. because no act, to be done by Congress, in 
 regulating commerce, is particularly named or described. It 
 will be admitted, that in regulating commerce Congress must 
 do something. How, then, as the power is conferred in gene- 
 ral terms, and no act specified in the constitution, are we to 
 determine what they may DO ? Either they have no power 
 given by the clause at all, or else they have power to do any 
 act which is necessary or proper for regulating commerce. 
 The wise men who made the constitution, seem to have pre- 
 sumed so much on the folly of those who should come after 
 them, as to foresee the strange doubt, whether the conferment 
 of an authority bestowed the power of exercising it. In order 
 to dissipate that doubt, they expressly provided, in the 17th 
 clause of the same section, that the Congress should have 
 power " to make all laws which shall be necessary OR proper, 
 " for carrying into execution the foregoing powers, and all 
 " other powers vested by this constitution, in the government 
 " of the United States, or in any department or officer thereof.'* 
 So that, in this case, we are brought, by the reason of the 
 thing, and by the provisions of this 17th clause, to the 
 conclusion, that Congress " may make ALL LAWS necessary or 
 "proper" "to regulate commerce with foreign nations and among 
 " the several States." This power is conferred; and that ex- 
 pressly, not by implication. 
 
 By what power has the commerce of this country with 
 foreign nations, and among the several States, been hitherto 
 regulated ? The answer is, not by Congress, on whom the 
 power is conferred, but by the several States, through the 
 medium of banking institutions. The word " commerce" 
 comprehends " every species of commercial intercourse," as 
 used in this clause of the constitution ; (9 Wheat. Rep. 193,) 
 and the power conferred extends, therefore, to every part. 
 But the regulation of the currency, more than any other thing,
 
 14 
 
 controls commercial operations. It is the instrument of all 
 exchanges. If the banks are liberal in their discounts and 
 emissions, trade is brisk ; if they withhold their favours, it 
 languishes. By creating an excess they raise the prices of 
 labour and of all commodities, and occasion extensive impor- 
 tations ; they withdraw their paper, and prices fall, and 
 importations cease. Indeed, the national government itself is 
 the victim of state banks. The several States have usurped 
 the power of regulating the currency, and have laid Congress 
 in the dust. They have not only wrested from them the regu- 
 lation of commerce with foreign nations and among the seve- 
 ral States, but many other important prerogatives. How can 
 " Congress borrow money on the credit of the United States," 
 if they have no credit, and the money is withdrawn from cir- 
 culation ? How can they " regulate the value thereof," if an 
 alloy of convertible paper is infused, by a power over which 
 they have no control ? How can they "lay and collect taxes, 
 " duties, imposts, and excises, or pay the debts and provide 
 " for the common defence and general welfare of the United 
 " States," if the people have not the means, except in the paper 
 of broken banks, of answering the demands of the government? 
 How are they to see that " all duties, imposts, and excises 
 shall be uniform throughout the United States," when the 
 duties paid in Boston are in an inconvertible paper, worth 
 double that which is received at New-Orleans ? How are 
 they " to declare war," " raise and support armies," " pro- 
 vide and maintain a navy ?" Have not those who have 
 deprived them of the purse, bereft them of the sword also ? 
 Indeed, if Congress discard the power of regulating the cur- 
 rency, they violate their oaths. They no longer " support the 
 constitution of the United States." The constitution is as pal- 
 pably violated by expunging the powers it delegates, as by 
 exercising those which are not conferred. If Congress deny 
 the right, and decline the duty, of regulating the currency, not 
 only will commerce and all national industry be prostrated,
 
 15 
 
 but the government will become an empty name ; and our 
 union, independence, and liberties will all be put at hazard. 
 If any one act can be done, and ought to be done, by virtue 
 of the power to regulate commerce, that act is the regulation 
 of the currency. If any "laws be necessary and proper for 
 carrying into execution" all the powers above enumerated, 
 they are laws for the regulation of the currency. Consequently, 
 if any power is expressly and clearly conferred by the consti- 
 tution on the Congress of the United States, it is the power of 
 regulating the currency. 
 
 But the restoration of our currency to a sound State, ought 
 to be effected with as little injury as possible to existing mo- 
 neyed institutions. Although they have been the sole origin 
 of all the calamities which have been described, yet our suffer- 
 ings are not the result of any conspiracy, or malignant inten- 
 tions. Banks were carried along upon the tide of business, 
 utterly unconscious of the fatal termination of their career. 
 They were violating laws of trade, as irreversible as the laws 
 of Heaven, but they knew it not. For this they are not to 
 blame ; for even you, sir, and others in the most distinguished 
 stations in the national councils, were equally inapprehensive 
 of the fatal precipice : or the public treasures would not have 
 been committed to the deposite banks. Where the actors are 
 involved in the losses which themselves occasion, it is the 
 highest proof of innocence. The little fortunes, too, of widows, 
 orphans, and innumerable others, who do not presume to inter- 
 fere in the management of banks, are invested in their stocks, 
 and must partake of their destinies. A just system of redress 
 will be pro motive of the good of all. The banks need to be 
 brought under national regulation, to save them from self ruin. 
 They and the public must partake alike of common prosperity 
 or adversity. They ultimately gain no good by an unsound 
 or unstable currency. 
 
 Having endeavoured to show, and, as I trust, successfully, 
 the causes of the present prostration of business, and of the
 
 16 
 
 extensive bankruptcies which pervade the country, and that 
 the national government have power to provide relief; I will, 
 in my next letter, suggest such remedies as the interests of 
 our domestic and foreign commerce seem to me to require. 
 
 FRANKLIN. 
 
 Augusl, 1837. 
 
 LETTER III. 
 
 To the Hon. Levi Wbodbury, Secretary of the Treasury of the 
 United States. 
 
 SIR : I have attributed the present derangement of the bu- 
 siness and currency of the country to our banking institutions. 
 As I now propose to recommend a national bank, it is incum- 
 bent on me to show why another such establishment will not 
 augment, rather than correct, the evils which it is intended to 
 remedy. For this purpose, I ask your attention to the parti- 
 cular manner in which banks have produced this derangement. 
 
 As already explained, the whole has been owing to a re- 
 dundant currency, occasioned by the excessive creation of pa- 
 per money. The mixture of paper with metallic money will 
 produce no such consequences, if the whole mass is not there- 
 by increased in amount. If the laws of trade allot to the Uni- 
 ted States one hundred millions of dollars, the withdrawment 
 of one half that amount into the vaults of a bank, and the 
 emission, instead thereof, of fifty millions of paper money, by 
 which this specie may be withdrawn at the pleasure of the 
 holder, would not increase the amount of the circulating me- 
 dium, and would not, consequently, cause the exportation of 
 specie, or any of the other evils which we have experienced 
 from banks. Thus the paper issued by the old Bank of Am- 
 sterdam, never increased the amount of money in the Dutch 
 provinces, or caused any exportation, speculation, or embar- 
 rassment. It was only a bank of deposits, and its paper 
 issues were merely in exchange for so much specie deposited.
 
 17 
 
 That paper never depreciated ; but while in circulation, for 
 reasons which need not be here stated, it bore a small agio, 
 or premium, when exchanged for specie. But our banks 
 created a redundant currency. Their power to do this is the 
 precise point in which they need correction. Take from 
 them that power, and they are harmless as well as useful. 
 Prescribe to them such a course, that all their paper in circu- 
 lation shall be represented by an equal amount of specie in 
 their possession, and the remedy is perfected. 
 
 This object will be accomplished by the simple require- 
 ment, that they shall discount no paper on a longer credit 
 than sixty or ninety days, and shall require punctual pay- 
 ment, without renewal, at the time it falls due. If the issues 
 on these discounts average at one thousand dollars a day, the 
 income on the paper discounted, after a bank has been ninety 
 days in operation, will also average at the same rate. So far 
 as these payments are made in the bills of the bank, those bills 
 are redeemed ; and so far as they are not, specie or its equi- 
 valent will be taken in their stead. Such a portion of the 
 bills as remains in circulation, will be represented by specie 
 thus received, which will always equal the amount of those 
 bills, and lie ready for their redemption, if a suitable limita- 
 tion is imposed on the amount of discounts. As the receipts 
 and emissions are necessarily equal, no addition will be made 
 to the amount of circulating medium ; for just so fast as the 
 bank pours currency into the country, the country pours an 
 equal stream back again into the bank ; after this system of 
 operation has become established, no part of the capital need 
 be retained for the purpose of redeeming the paper of the bank ; 
 but the whole may be invested in permanent loans on safe 
 security, and be made productive to the institution. 
 
 But if payment of discounted paper is not required at ma- 
 turity, and the credit is enlarged by renewals, the circulation 
 of the bank will continually increase ; for no returns will be 
 made to counterbalance the emissions. The bills issued will 
 
 3
 
 18 
 
 not be represented by the specie in the bank, but by the pa- 
 per of its debtors. The general prevalence of this practice 
 has caused the redundancy of the circulating medium, and 
 all the fatal consequences which we have seen it produce. 
 
 A national bank should be so constituted, as not only to be 
 incapable of these abuses, but be obliged, by the rules of its 
 organization, to counteract them in other institutions. The 
 stagnation of all business, the extinction of the currency, the 
 loss of control over the revenue, and the general bankruptcy, 
 poverty, and distress which now prevail, have all been 
 achieved by long credits and renewals. Although a bank of 
 the United States, constituted in the usual form, may execute 
 exchanges, collect and disburse the public revenues, and ren- 
 der many other services of great national importance ; yet it is 
 exposed to the same temptations as other banks, to grant ac- 
 commodations on protracted credit, and sustain an excessive 
 circulation. It should therefore be a cardinal object to impose 
 the most effectual restraints on its giving long credits or re- 
 newing notes. Had all banks been under this restriction, 
 they could never have overthrown the credit of the country. 
 
 The credit of a national bank should be established on a 
 basis as firm as the foundations of the government itself. It 
 should not only be unquestionable, but should be universally 
 known to be so, at home and abroad. Its credit is identified 
 with the honour of the nation, and should be secured with 
 equal care. Such should be its constitution that no adver- 
 sities, while our government exists, can impair the public 
 confidence in its engagements. 
 
 Permit me, sir, with great respect, to suggest the plan of a 
 national bank, which I think would attain the ends of such an 
 institution. 
 
 Sixty millions would be a competent capital. This should 
 all be ultimately invested in bonds, secured by mortgages on 
 real estate, of at least double the value of the sums secured. 
 The rate of interest should be very moderate, not exceeding
 
 19 
 
 five per cent. All these bonds and mortgages should be made 
 over to the United States, to secure, from them, a guaranty of 
 thirty millions, to which sum the circulation of the bank should 
 be limited. This guaranty should consist of national stock, 
 bearing an interest of six per cent. A national office should 
 be established near the principal banking house, in which the 
 securities made over to the United States, and the stock 
 created as a guaranty, should be deposited. This office 
 should be kept by a commissioner, appointed by the govern- 
 ment, who should have power to reject any security which he 
 should deem inadequate. Although the national stock pur- 
 ports to carry an interest of six per cent., yet none is to be paid 
 while it is in the hands of the commissioner. It can never 
 be assigned, except under the order of a court of justice ; and 
 after such assignment its interest will begin to accrue. The 
 bank is to be strictly prohibited discounting any paper which 
 will not attain maturity in ninety days ; and although it may 
 take additional securities, yet all agreements, by renewal notes 
 or otherwise, to extend the original credit, should be declared 
 void. Whenever a bond and mortgage is paid, the money 
 should go into the hands of the commissioner, to be held as 
 security for the United States, until it shall be lent on another 
 bond and mortgage, to be by him approved. The paper of 
 local banks, which may be received by the bank of the United 
 States, may be exchanged for specie, or returned for pay- 
 ment, to the bank by whom it was issued, but not used for 
 any other purpose. All collections, exchanges, and disburs- 
 ments for the United States, should be made gratuitously. 
 The bank should at all times pay the bills it issues as a cur- 
 rency, in specie, on demand, at its principal banking house, 
 which should be established in the city of New- York, the great 
 emporium of our national commerce. On violation of any 
 of the provisions of its charter, the Attorney General of the 
 United States should have power to file an information be- 
 fore the Circuit Court, who should have original jurisdiction
 
 20 
 
 of the subject. If for forfeiture of the charter, or any other 
 cause, money is to be appropriated to the creditors of the bank, 
 its other assets should be exhausted before any disposition is 
 made of the national stock created as a guaranty. 
 
 This would constitute the outline of the charter. As the 
 circulation of the bank is only thirty millions and its pledged 
 capital sixty, a resort to the national stock for the payment 
 of the debts of the bank, would not, in any probability, ever 
 be necessary ; and, as it bears no interest until appropriated, 
 it would require no advances from the public treasury. Still, 
 as this pledge would give the banks such a credit in the view 
 of all foreign nations, as well as at home, as nothing else 
 could. confer, it would be of great practical importance to the 
 institution. 
 
 As the bills issued by the bank, at the commencement of its 
 operations, may return before the maturity of discounted 
 paper, so much capital must be reserved in specie as will 
 redeem them. For this reason, the investments in real estate 
 must be gradually made. As soon as the receipts on dis- 
 counted paper commence, provision to redeem the bills will 
 begin to be furnished from that source, and all those suspend- 
 ed in circulation will soon be represented by specie and bul- 
 lion in possession of the bank. After that, a prudent manage- 
 ment of the affairs of the institution will require no capital for 
 any banking operation ; and any future use of it, to sustain 
 the circulation, should be strictly prohibited, that the currency 
 of the country may be wholly subservient to the laws of trade, 
 and not controlled by an artificial power. So long as the bank 
 is confined to the resources which its own discounts may sup- 
 ply, without the aid of its capital to redeem its bills, it will 
 stand " bound to it? good behaviour." Its debtors will be 
 made punctual the paper of other banks be converted into 
 specie and the guards against a redundant currency will be 
 strengthened. This is no new expedient. Neither the bank 
 of England, nor any other incorporated bank in Europe, em-
 
 21 
 
 ploys its capital in making discounts, or in any of its ordinary 
 business. That of England is invested in government stock. 
 If the bank is required to make its bills redeemable at the 
 city of New- York, they will generally be above par in other 
 parts of the United States, from the well known course of 
 exchange. A thousand dollars paid into the branch in New- 
 Hampshire, will purchase a draft which may be remitted to 
 New-Orleans with little cost or hazard, and will there, gene- 
 rally, command a premium in specie, if made payable in 
 New- York, and will be equal to specie if payable at the New- 
 Orleans branch in the bills of the bank. Should this draft 
 be purchased with the bills of a specie paying bank in New 
 Hampshire, the paper of that bank may thus be applied to 
 pay a debt in any part of the United States. The same paper 
 will then be returned to the local bank and converted into 
 specie. This must be done ; for any other use of it is to be 
 forbidden. Thus, the effects of making a remittance, by a 
 draft of the national bank, are, first-, the accommodation of 
 the purchaser of the draft, and his distant correspondent, by 
 furnishing a cheap and safe exchange; secondly, giving an 
 additional value to the local paper, beyond what even specie 
 itself would ha\ e had, without the aid of a national bank : 
 thirdly, compelling the local bank to take in so much of its 
 paper, and thereby check its extravagance : fourthly, com- 
 pelling the same bank to stand in readiness to make redemp- 
 tions, by retaining a competent supply of the precious metals, 
 and thereby reducing, to that extent, the ampunt of currency 
 in circulation : fifthly, supplying the bank of the United States 
 with specie to fulfil its obligations. All payments of local 
 bills into the bank, in any part of the country, must have a 
 like salutary influence on the currency and the respective 
 institutions. But it is unnecessary, sir, to go into detail, to 
 show how such a national bank would meet every want of 
 the government and people, equalize the value of money 
 every where, restrain excess in the issue of paper, and
 
 22 
 
 thereby prevent the exportation of specie, and secure a sound 
 metallic currency ; while disabled from affording those long 
 indulgences which are the basis of speculation and extra- 
 vagance ; and compelled, by its own necessities, to impose 
 a like disability on all subordinate institutions. 
 
 It is common for banks to make an acknowledgment for 
 their charters, by paying a sum of money to the public trea- 
 sury. But this bank would pay its bonus directly to the peo- 
 ple. If its capital, sixty millions, is let out on mortgage at 
 the low interest of five per cent., it confers an annual value of 
 one per cent, upon the loan, on every piece of real estate in 
 which it is invested. If the use of money is worth six per 
 cent., and a farm is encumbered with a loan at five, the pur- 
 chaser, if he can be indulged on the same terms, acquires a 
 credit at a reduced price, and can afford to add a proportional 
 consideration for the property. These mortgages will facili- 
 tate the transfer of real estate, by lessening the sum to be 
 paid in advance. The owner has the same products from its 
 occupancy as if it were not under mortgage, while he is 
 enabled to enjoy the use of the money at a low interest. The 
 bank, in its loans in this department, is accommodated by a 
 long credit ; and the tradesman relieved from the humiliating 
 necessity of frequent renewals, and changing his endorsers. 
 Short accommodations, on business paper, should be opera- 
 tions of discounting ; and the paper of the bank should be em- 
 ployed in them alone. Loans to those who borrow should be 
 made only from the capital, on securities of real estate. 
 
 The dividends of this bank, arising chiefly from its mort- 
 gages and discounts, would be moderate probably seldom 
 over six per cent. but the stock would be valuable from its 
 unquestionable safety. The people of every State should be 
 equally favoured with the oppoitunity of becoming stock- 
 holders. The stock may be contributed by a bond and mort- 
 gage simply, without the payment of any money ; unless it 
 might be deemed necessary to require the advancement of a
 
 23 
 
 proportion, in order to supply the bank with a sufficient sum 
 for the commencement of its operations. 
 
 This bank, if established, would soon restore specie pay- 
 ments, and inspire universal confidence and credit. The 
 great safety of its stock would command a price in Europe, 
 which would extinguish the balance of foreign debt, prevent 
 the further exportation of specie, and secure its introduction 
 from abroad. It would stand between the local banks and 
 the country, and be an impassable barrier against another 
 inundation of paper money. Bereft of its capital, and for- 
 bidden to extend credits on discounted notes, it could not 
 overcharge the channels of trade by excessive issues. Its 
 necessities could not affect its debtors, and compel them to 
 abandon enterprise which its own encouragements had 
 induced, for a certain day of payment, both on discounts and 
 mortgages, is fixed, and cannot be either shortened or extend- 
 ed at the will of the bank. Its operations would soon subject 
 all other banks to the same salutary law. If any future 
 changes and embarrassments should occur in the market, they 
 would be attributable to the laws of trade, which would then 
 govern, and not to the banks, which would then be subject to 
 those laws. The government of the United States would 
 not only have provided an important " regulation of com- 
 merce with foreign nations among the several States," but 
 would be able to perform those other functions to which a 
 sound currency is essential. 
 
 To you, sir, I respectfully submit these views of the con- 
 stitutionality and necessity of a national bank, and of such an 
 organization as would secure its usefulness and deny it the 
 means of injury. 
 
 If any doubt of the power of Congress to create such a 
 bank could be reasonably indulged, after the construction 
 given the constitution at the origin of the government, and 
 the repeated decisions of the Supreme Court of the United 
 States, whose province it is to decide all questions arising
 
 24 
 
 under it ; our late experience would settle the fact to which 
 the constitution refers as the basis of this power, more 
 clearly than in any former period of our history. That " all 
 laws necessary or proper" for regulating the commerce might 
 be made by Congress, is the express language of the constitu- 
 tion. That a law establishing a national bank is of this de- 
 scription, has of late become peculiarly manifest; every 
 other expedient having failed. This is our only remaining 
 hope. 
 
 The people of the United States, bereft of employment, and 
 appalled at the gloomy prospects of the country, are looking 
 to Congress, imploring that relief which no other power can 
 give. They pray, that not only the fiscal concerns of the 
 treasury, but the business and commerce of the whole nation, 
 may be restored to order ; that the people, as well as the 
 government, may participate in a sound currency, and be 
 enabled to discharge the duties which they reciprocally owe. 
 They wish means to be applied which are safe, plain, and 
 practical which present no new experiment, but are built 
 on well known principles, embracing the guards and securi- 
 ties which experience commands that the enjoyment of 
 the ample resources of the country, may renew their enter- 
 prise and revive their hopes ; and they confidently trust that 
 in this period of universal prostration and suffering, the inte- 
 rests and wants of the country will exclude all party influence 
 from our public councils. FRANKLIN. 
 
 Avgnft, 1837.
 
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