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Stedman and Hutchinson, comps. A Library of American Literature:
An Anthology in Eleven Volumes. 1891.
Vols. IX–XI: Literature of the Republic, Part IV., 1861–1889

The Currency and Banking System

By Albert Gallatin (1761–1849)

WE do not wish, by the preceding observations, to be understood as objecting generally to the extension of the banking system to the country, but only to the indiscriminate establishment of banks without regard to the actual wants and means of the districts which may apply for that purpose. There is a general spirit of enterprise in the United States, to which they are greatly indebted for their rapid growth, and it is difficult to ascertain in all cases to what extent it should be encouraged and when it ought to be checked. The remarks apply particularly to the newly-settled parts of the country, which present a state of things different from that found in any other part of the civilized world, and to which, therefore, even the most generally admitted principles of political economy will not always apply.

Amongst the first emigrants there are but few possessed of much capital, and these, generally employing it in the purchase of land, are soon left without any active resources. The great mass bring nothing with them but their industry and a small stock of cattle and horses. A considerable portion of the annual labor is employed in clearing, enclosing, and preparing the land for cultivation. Those difficulties and all the privations incident to their new situation are encountered with unparalleled spirit and perseverance. Within a very short time our numerous new settlements, which in a few years have extended from the Mohawk to the great western lakes, and from the Alleghany to the Mississippi and beyond it, afford the spectacle of a large population with the knowledge, the intelligence and the habits which belong to civilized life, amply supplied with the means of subsistence, but without any other active capital but agricultural products, for which, in many instances, they have no market. It is in this last respect that their situation essentially differs from that of any other country as far advanced in civilization. We might even add that there is, in several ancient settlements of the United States, a less amount of active capital than in the interior parts of many European countries. The national industry, out of the seaports, has, at least till very lately, been exclusively applied to agriculture, and circulating capital will rarely be created out of commercial cities without the assistance of manufactures.

With the greatest abundance of provisions, it is impossible for a new country to purchase what it does not produce unless it has a market for its own products. Specie is a foreign product, and, though one of the most necessary, is not yet always that which is most imperatively required. We may aver from our own knowledge that the western counties of Pennsylvania had not, during more than twenty years after their first settlement, the specie necessary for their own internal trade and usual transactions. The want of communications and the great bulk of their usual products reduced their exports to a most inconsiderable amount. The two indispensable articles of iron and salt, and a few others almost equally necessary, consumed all their resources. The principle, almost universally true, that each country will be naturally supplied with the precious metals according to its wants, did not apply to their situation. Household manufactures supplied the inhabitants with their ordinary clothing, and the internal trade and exchanges were almost exclusively carried on by barter. This effectually checked any advance even in the most necessary manufactures. Every species of business required the utmost caution, as any failure in the performance of engagements in the way of barter became, under the general law of the land, an obligation to pay money, and might involve the party in complete ruin. Under those circumstances even a paper currency, kept within proper bounds, might have proved useful. We know the great difficulties which were encountered by those who first attempted to establish the most necessary manufactures, and that they would have been essentially relieved and some of them saved from ruin by moderate bank loans. Yet there were instances where those difficulties were overcome, and the most successful manufactures of iron and glass were established and prospered prior to the establishment of any bank; but the general progress of the country was extremely slow, and might have been hastened by such institutions soberly administered. It is obvious that in this and other similar cases where there is an actual want of capital, this should, in order to insure success, be obtained from the more wealthy parts of the country, either by subscriptions to local banks or by the establishment of branches of the city banks.