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__No. 105. IN SENATE, March '24, 1834. Message from the Governor* 3 ^ E L L . O W - 6 I T I Z E N S O F T H E S E N A T E AM> A S S E M B L Y : S i n c e m y communication to the l e g i s l a t u r e at the commencement* of, the present session, the unusual derangement of the busi jaess operations of the community has been such, as in my judgment Jta r e n d e r it the duty of the Executive to call your attention to the subject. I t w a s not then perceived that the order of the Treasury Detoattment, directing the accruing receipts of the public moneys to |>e deposited in the local banks instead of the Bank of the Umted S t a t e s , could essentially interrupt the business transactions of the eomjmunity; nor is it now supposed that any necessary connect i o n exists between that act, and the present state of commercial e m b a r r a s s m en t, A l t h o u g h it was known that the Bank of. the United States had c o m m e n c e d a rapid curtailment^ cf( ILF debt anterior to the action o f t h e government upon the deposit^?, r.iiUiad actually, reduced it m o r e than four millions of dollars during the sixty d^y* previous t o t h e first of October, when the order of the Secretary took effect; y e t as the g o v e r n i n g L had d i r e ^ e l the\ch*trge to be ma'Io in a m a n n e r best calculated to avoia any pressure upon the bank 01^ injurjr to the ccm(nunity, U was not ( reason a]t>le tc suppose that the Occasion would have bbe£ sci>ed for'tlCe nurposc of irivinar an unn e c e s s a r y shock to business, much less of exciting a causeless panic. C e r t a i n it is, however, that since the change referred to, such has been the attitude assumed by that institution in regard to the local b a n k s , that the latter a r e u n a b l e to afford to the community those assurances of future accommodations, which are so essentially nec e s s a r y to inspire confidence among business men in entering into n e w engagements. T h e partisans of that institution, and certain presses devoted to its recharter, b y systematic and persevering efforts in disseminat i n g distrust of the credit of our monied institutions, particularly [ S e n a t e N o . 105.] 1 2 [SENATE those of this State, of the credit of individuals, of the resources of the country, and its ability to meet the crisis; and by endeavoring to fasten public opinion upon this act of the government as the cause of all the depression which has been experienced, as well as that which is daily predicted and held up to the public view in a distorted and exaggerated form; have also produced an excitement among the business community, calculated essentially to aggravate the pressure* and prolong its existence. Looking at the immense wealth and resources of the country—*^ presenting externally, as indicated by the course of exchange, an appearance of prosperity unknown for many years, and internally y until within a short period, the same favorable appearance, as indicated by abundant crops, fair prices, active mercantile and manufacturing operations; it appears to be impossible that the existing state of things should have sprung from a cause so inadequate as the mere substitution of one place for another as the depositary 4>f the accruing receipts by the government. Although the removal of the deposites, effected as it was prospectively, and operating upon the funds in hand, not withdrawing the whole suddenly, but gradually, as the wants of the government required, furnished of itself no sufficient cause for the results which in point of time have followed it; yet it is said that its operation has been to derange the currency, to destroy confidence^ and thus to produce the present er-ibarrassment. It is undoubtedly true that much of the pressure upon the money market has been occasioned by the destruction of confidence; but it is not ^asy to p^rc^ive how that is to be charged as the necessary camrujuence of the action of ih^ government. It is the conse-~ quence of the attitude assumed by the Bank of u.e United States towards othsr banks—r.n attitude no1; n-wessary, although its advocates attempt to justify it, cither as a measure of r e t a l i a t i o n upon the government, or for the purpose of compelling those institutions to surrender or to refuse to accept the public deposites. Nor is it easy to perceive how the action of government should of necessity derange the currency or the commercial operations of the country, through the medium of domestic exchanges* T h e ability of the bank to conduct all ordinary business, has not been essentially impaired, and its amount of discounted bills of exchange is at this moment as large or about as large as it ever has been. W h a t e v e r inconveniences may have resulted from its refusal latterly to furnish drafts at sight between its different offices at t h e I t f o . 105.] 3 visual r a t e s , (and tliese inconveniences undoubtedly have been g r e a t , ) would seem, therefore, to be of its own creation, or the res u l t of t h a t position in regard to the other banks which it has chosen t o assume. I t is-believed that the principal causes of the present embarrassm e n t h a v e no essential connection with the removal of tho depositee. In D e c e m b e r , 1830, the Bank of tho United States commenced <a r a p i d increase of its loans and circulation, and continued augm e n t i n g them until M a y , 1832, having within that period added a b o u t t w e n t y - e i g h t millions of dollars to its accommodations to the p u b l i c , and over four millions to its notes in circulation. T h e nec e s s a r y eon-sequence of such a large and sudden increase of facilit i e s t o business men, was to encourage a corresponding liberality o n t h e p a r t of the local banks, overaction in trade, and to stimul a t e to excess the industry and enterprise of the country. A t all e v e n t s , since that period., foreign commercial operations, domestic t r a d e and manufactures, speculations in stocks, lands and produce, h a v e been carried on to an extent and upon a scale before entirely -unknown* T h e policy of contraction on the part of the Bank, which imm e d i a t e l y followed this unexampled expansion, had scarcely been -commenced when the tariff law of July. 1S3-2, went into effect, t h e operation of which, with its subsequent modification, was well calculated to dcvelope the injurious eonscquencos of the overtrad i n g which had preceded. U n d e r the former law, duties to the amount of about fifteen millions annually accrued upon imports at the port of N e w - Y o r k , the p a y m e n t of which was secured by bonds payable at different periods, some as long as eighteen months. As the merchandize was g e n e r a l l y sold by the importer, soon after the execution of hi* b o n d for the duties, it is obvious that the credit afforded by the g o v e r n m e n t , was to him equivalent to so much capital until the t i m e of p a y m e n t should arrive. Before this time, a fresh importation enabled him to create a new credit, and thus a v e r y large a m o u n t of capital was constantly in use among those engaged in commercial pursuits. T h e law of J u l y , 1832, considerably reduced the amount of duties, while that of 1833, operated still further to diminish the capital of the importer thus derived from g o v e r n m e n t credits, by adm i t t i n g m a n y n e w articles to the free list, by shortening the 4 [SENATE bonds in some cases, and by substituting cash payments on many articles subject to duty. This law took effect on the fourth of March 1S33, and during the past year the bonds of the preceding year have been falling due, while the shortened bonds and cash duties have created an additional demand for money, thus casting upon the importer the burthen of repaying the capital formerly loaned to him by the go^ vernment. and also of paying the cash duties required upon his recent importations. It has been estimated that the effect of this law has been equivalent to the withdrawal from commercial investments of from twelve to thirteen millions of capital. T h e depressed rate of foreign exchange also> although an indication favorable to the general condition of the country, has, it is understood, prevented the drawing of considerable sums of money from Europe, the proceeds of produce as well as of stocks sold abroad. These causes, together with the rapid curtailment of its debf hy the United States bank, between the first days of August and December, amounting to nearly ten millions of dollars, and all operating upon a state of trade unusually and extravagantly extended, are supposed to be sufficient to account for most of the distress hitherto experienced. T h e severity of the pressure in New-York, has undoubtedly been very much mitigated, by placing the public deposites in the local banks, which have thereby been enabled to discount, and have actually discounted upwards of four millions more than they otherwise could have done. And as the charter was soon to expire, and the bank had actually commenced its curtailments sometime previous to the action of the government, that action would seem to have been indispensably necessai-y for the protection of the public, so far as the funds of the government would afford the means. This measure, however, which as we have seen, involved no necessary destruction of individual confidence or credit, no necessary derangement of ordinary commercial operations, much less any necessity for the panic which has followed, has furnished to the bank the pretext for niacin** itself in a new and menacing attitude, and to its partisans the occasion of wantonly sporting with the fears of the timid, the standing of the weak, the stability of the currency, and the credit of our monied institutions. No. 105.] 5 T h i s Corporation, brought into existence for the purpose of sub* s e r v i n g the general good, (if for any justifiable purpose,) seems to b e bending the whole of its prodigious energies towards compelling t h e people, by force of pecuniary suffering, to acknowledge the nec e s s i t y of its recharter. O u r constituents have distinctly expressed their unbiassed judgm e n t upon the question of recharter; and I cannot doubt that they possess sufficient patriotism to meet any crisis, which the controv e r s y m a y produce, and that in the maintenance of principles of vital importance to themselves and to posterity, they will be ready t o endure any pecuniary privation, rather than to submit to the dictation of a great monied power. F r o m recent debates in the National Legislature; from the tone of the presses which advocate the cause of the Bank; from the l a n g u a g e of public incetings; from the organizations of p a r t y ; and from other indications too plain to be mistaken, /the efforts on the p a r t of the Bank seem to be directed especially against the monied institutions and the business relations of the State of New-York. U n d e r such circumstances, I deem it the imperative duty of the S t a t e to put forth its energies to aid these institutions in the struggle, and to protect its citizens from oppression. Connected as these institutions are, with the industry and prosperity of the State pll classes of our constituents, whether agricultural, mercantile or manufacturing, are equally interested in their welfare. I am furnished by the Bank Commissioners, with a statement of the condition of the banks subject to their supervision on the fourth of M a r c h instant, by which it appears that their circulation had been diminished since the first day of January last, more than three millions of dollars; and that the country institutions, or those located out of the cities of New-York and Albany, while they had reduced their loans and discounts only about $600,000, had reduced their circulation about two millions of dollars. The entire resources of the country banks on the fourth of March, excluding the bank fund, amounted to $21,984,000, and their entire liabilities to $12,462,000. Notwithstanding the redemption, between those dates, of about two millions of their paper, the reduction of their specie was less than $25,000; and their immediate means of redemption, consisting of specie at home and funds on deposite in Albank and New-York, subject to be drawn at sight, amounted to m o r e than thirty-five per cent, of their whole circulation. tf [SENATS So far, therefore, as the banks themselves are concerned, I entertain not the slightest doubt, either of their present or future ability to meet any crisis that can occur; but under a state of things which may be imagined, a proper regard for their own safety, may put it out of their power to afford those accommodations to the public, which its interests may require. T h e Bank of the United States has recently declared its intention to continue its curtailments, but in what ratio we know not. It probably has due to it in this State about seven millions; and what portion of this amount our citizens may be called upon to pay before the next session of the Legislature, cannot now be determined. If this amount shall be called in rapidly, our banks must necessarily strengthen themselves by calling in a portion of their debt; and thus it will be in the power of the Bank of the United States, if it should have the disposition, to occasion serious embarrassment to all classes of the community, unless the Legislature make some suitable provision to guard against such a resultIt has been suggested to me by several intelligent and practical gentlemen from the city of New-York, for whom and for whose opinion I entertain the highest respect, and who, I am sure, were governed by no motives of individual interest in the matter, that the establishment of a large banking institution in that city was called for at the present time. A capital of ei.srht or ten millions was mentioned; and it was proposed that the State should take one half, and pay for it by a State stock, bearing an interest of four or five per cent., redeemable at the expiration of the charter; the balance of stock to be distributed by commissioners to bo appointed by the Governor and Senate, or in such other manner as should be thought best; the State to appoint its share of directors; the rate of discount to be fixed at six per cent., and if deemed proper, the surplus profits over six or seven per cent, per annum to be paid into the State treasury; the institution to issue no notes under twenty dollars, and in other respects to bq made subject to the general laws of the State, reserving to the Legislature the usual right to modify or repeal the charter. It was urged that the stock issued by the State might readily be disposed of in Europe for specie, and that such a charter would furnish a sufficient inducement to insure the necessary subscriptions for the residue of the capital; that such an institution would be able to take the debt now due to the United States Bank in this State, whenever it should be called in; to furnish the requisite facilities to the commercial interests of the city of N e w - Y o r k in N o . 105.] T the discount and collection of domestic exchange; to acquire & c h a r a c t e r in Europe which would enable it to sustain mercantile c r e d i t in times of revulsion in trade; and, in short, to exercise a healthful iniluence over all the diversified interests of that great city, and consequently over every branch of industry throughout the State. Although many of the advantages anticipated from an institution of such a character, might and probably would be realized, there a r e , nevertheless*, objections to this proposition, of serious if not preponderating weight* It is deemed by many to be objectionable in principle for any government to ^fgage in the ordinary pursuits of individual enterprise. Such an institution, possessing ample p o w e r s over the currency of the State, which, properly directed, might be productive of salutary effects, might also, by a misdirect tion of its efforts, be equally capable of producing serious and extensive injury. It might in its administration be subject to the fluctuations of political power, and thereby be in danger of becoming an engine wielded to subserve the interests of a party. It might, by the acquisition of political influence, paralize the controlling power reserved to the Legislature; it might, for the purpose of acquiring this influence, openly take the field of party politics, and exhibit the disgusting spectacle, with which wc are alr e a d y too familiar, of a large monied corporation arrayed in political opposition to the government of the county. Unless, therefore, such an institution, or one of a somewhat similar character, should be found indispensably necessary to enable us to counteract a greater evil, I should be unwilling to hazard so dangerous an experiment. It has occurred to me, that a remedy, as well for the existing evil, as for the inconvenience which may in any event result from the withdrawal oi the capital now employed by the Bank in this State, may be provided, by the issue of a State Stock, if necessary, to the amount of four or fivG millions of dollars, and by increasing the ability of the banks in the city of New-York with loans of this stock, in such manner as would be perfectly safe to the State, and at the same time enable them to extend their accommodations so as to supply the amount of capital to be withdrawn by the Branch in that city. It is due to the city banks to say, that this suggestion does not proceed from them; they have thus far sustained themselves with creditable ability, and feel a perfect confidence in their resources to do so under any emergency that may happen; but the suggestion is intended for the relief of the whole community, by 8 [SKNATE sustaining the markets for our agricultural and manufacturing productions, and giving activity and vigor to commercial enterprize. Should this measure be adopted, the necessity will at once be perceived of imposing upon certain persons to be designated bv the Legislature* the power and responsibility of carrying it int feet. Ample provision should be made to secure the regul* ment of interest, and the ultimate redemption of the stocK v banks to which the loans may be made, so that the State v ther be subject to inconvenience, nor incur any responsibl y yond the loan of its credit to stable and well conducted in* tions. It may also be necessary to provide, that during the continuance of the loans to the banks, they shall possess the power of discounting upon them as upon so much additional capital, without allowing them to extend their circulation beyond the limits now prescribed by law. T h e banks in New-York, from their position, must necessarily meet and sustain the first shock of any pressure upon the money market, and by strengthening them therefore, \fre aid every branch of industry throughout the State. A depression in the city necessarily affects prices in the country, and ope. to the injury of the agricultural, as well as the manufacturing, i mercantile interests of the whole State. Should it be deemed visable, a portion of this stock might be disposed of, and the av>'!*s loaned in the different counties of the State through the agency of the county loan officers, as has heretofore been done on sever - *•• casions, to the great relief of the community. It is not doubted that the State, by the loan of its credit in <f such manner, may, without incurring any loss or inconvenient do much to sustain the great interests of the people, if the nee* sity for it should arise; and I cannot entertain the slightest doui that the measure would meet with their cordial approbation. Being perfectly satisfied, that the energies and resources of this State, will enable it to bear up against any temporary depression of business which can be anticipated; that in this desperate struggle by a great monied power to perpetuate its own existence by the force of its pressure upon the community, the patriotism of the people will be found to rise, regardless of mere pecuniary sacrifices: and that it is the duty of the State to stand forth in its strength, and by the use of its credit and the sanction of its name, to shield its institutions and its citizens from h a r m ; I commit the entire subject to your deliberate considerationW . L. M A R C Y . Albany, March 22, 1834.
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