Thomas Jefferson Papers

Thomas Jefferson to John Wayles Eppes, 6 November 1813

To John Wayles Eppes

Monticello Nov. 6. 13.

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 recieved from mr Law a letter covering a memorial on that subject which from it’s 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, & to be circulated as money; the other for the establishment of a National bank. the 1st was considered in my former letters; the 2d shall be the subject of the present.

The scheme is for Congress to establish a National bank, suppose of 30. millions capital, of which they shall contribute 10. Millions in new 6. percent stock, the states 10. millions, & individuals 10. 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 or the states having any power of interference in it’s administration. discounts are to be at 5. p.cent, but the profits are expected to be 7. percent. Congress then will be paying 6. p.c. on 20.M. and recieving 7. p.c. on 10.M. being it’s third of the institution: so that on the 10.M. cash which they recieve from the states and individuals, they will in fact have to pay but 5. p.c. interest. this is the bait. the charter is proposed to be for 40. or 50. 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 3.M. of notes bearing interest, which they are to recieve back in paiment for lands at a premium of 5. or 10. p.c. or as subscriptions for canals, roads, and bridges, in which undertakings they are of course to be engaged. this is a summary of the scheme as I understand it: but it is very possible I may not understand it in all it’s 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 recieve 5.M. from the states (if they will enter into this partnership, which few probably will) and 5.M. from the individual subscribers, in exchange for 10.M. of 6. p.c. stock, one percent of which however they will make on their 10.M. stock remaining in bank, and so reduce it, in effect, to a loan of 10.M. at 5. p.c. interest. this is good: but

2. they authorise this bank to throw into circulation 90.M. of Dollars, (3. times the capital) which increases our circulating medium 50. p.c. depreciates proportionably the present value of the Dollar, and raises the price of all future purchases in the same proportion.

3. this loan of 10.M. at 5. p.c. 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 circulation1 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, & the means of doing it in a great measure precluded.

4. the individual subscribers, on paying their own 5.M. of cash to Congress, become the depositories of 10.M. of stock belonging to Congress, 5.M. belonging to the states, and 5.M. to themselves, say 20 Millions, with which, as no one has a right ever to see their books, or to ask a question, they may chuse 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 1. 2. or 3. or more individuals (many single individuals being able to pay in the 5.M.) whereupon this Bank-Oligarchy or Monarchy enters the field with 90.M. of dollars to direct & controul 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 40. or 50. years. that is to say, the 8. millions of people now existing, for the sake of recieving 1. Dollar 25 cents apiece at 5. p.c. interest, are to subject the 50.M. of people who are to succeed them within that term, to the paiment of 45.M. of Dollars, principal and interest which will be payable in the course of the 50. years.

7. but the great & 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 for bank charters, shewing that an increase of circulating medium is wanting.

Let us examine these causes and proofs of the want2 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 & 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 altho these are bought partly in the intermediate 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 it’s way back again, in exchange for the wants of the upper from the lower country. for we are not to suppose the cash stays accumulating there for ever.

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 paiment3 for it’s necessary supplies? and are we to restore a vacuum of 20.M. of D. by an emission of 90. 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 18. millions, Pensylvania 10. Millions Etc but say more correctly, the speculators and spendthrifts of N. York & Pensylva, but never consider them as being the states of N. York and Pensylvania. 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 US. 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 mean time however let us reason on this new call for a National bank.4

After the solemn decision of Congress against the renewal of the charter of the bank of the US. and the grounds of that decision, the want5 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 it’s 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, it’s opponents, true to the sacred principle of submission to a majority,6 suffered the law to flow thro’ it’s term without obstruction.7 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 it’s basis. the adequate price of a thing depends on the capital & 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 it’s production the same capital & 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 it’s 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 1.D. if then by a progressive coinage their medium should be doubled, the price of a bushel of wheat might become progressively 2.D. 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 1.D. in the second by 2.D. this is well8 explained by Hume, and seems admitted by Adam Smith B.2. 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 it’s medium to it’s 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 it’s 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 & silver will flow in to supply the deficiency; but if too much, it accumulates, banishes the gold & silver not locked up in vaults and hoards, and depreciates itself; that is to say, it’s 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’:9 that is to say, pa. 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 & taking it’s 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 recieved in exchange for the coin exported, may be ‘materials,10 tools and provisions for the emploiment 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 expence & consumption, 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, pa. 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 a11 5th to a 30th of that value.12 in the US. 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 merchant’s ledger, who supplies all their wants thro’ the year, and at the end of it, recieves the produce of their farms, or other articles of their industry. it is a fact that a farmer with a revenue of 10,000 D. 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 US. is exchanged without the intermediation of cash.13 we might safely then state our medium at the minimum of ¹⁄₃₀. but what is ¹⁄₃₀ of the value of the annual produce of the industry of the US? or what is the whole value of the annual14 produce of the US?15 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 4½ millions of inhabitants, to be 37½ millions sterling, or 168¾ M. of Dollars. see Cooper’s Political arithmetic 47. according to the same estimate for our present population it will be 300.M. of Dollars, ¹⁄₃₀ of which, Smith’s minimum, would be 10.M. and , his maximum, would be 60.M. for the quantum of circulation. but suppose that, instead of our needing the least circulating medium of any nation, from the circumstance before mentioned, we should place ourselves in the middle term of the calculation, to wit at 35. millions. one fifth of this at the least, Smith thinks should be retained in specie, which would leave 28. millions of specie to be exported in exchange for other commodities; and if 15 M. 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 300.M. which is only it’s gross annual produce; but to that capital of which the 300.M. are but the annual16 produce. but this being gross, we may infer from it the value17 of the capital by considering that the rent of lands is generally fixed at one third of the gross produce, and is deemed it’s nett profit, and twenty times that it’s feesimple 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 US. a capital of 2000. millions, all in active employment, and exclusive of unimproved lands lying in a great degree dormant. of this, 15 millions would be the hundred and thirty third part. and it is for18 this petty addition to the capital of the nation, this minimum of 1.D. added to 133 or ¾ p.c. that we are to give up our gold & silver medium, it’s intrinsic solidity, it’s universal value, and it’s saving powers in time of war, and to substitute for it paper, with all it’s train of evils, moral, political and physical, which I will not pretend to enumerate.19

There is another authority, to which we may appeal for the proper quantity of circulating medium for the US.20 the old Congress, when we were estimated at about21 two millions of people on a long and able discussion, June 22. 1775.22 decided the sufficient quantity to be two millions of Dollars which sum they then emitted;23* according to this it should be 8.M. now that we are 8.M. of people. this differs little from Smith’s minimum of 10.M. and strengthens our respect for that estimate.

There is indeed a convenience in paper, it’s 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 8. to 35. millions then being our proper circulation and 200.M. the actual one, the Memorial proposes to issue 90.M. more because, it says, a great scarcity of money is proved by the numerous applications for banks, to wit, N. York for 18.M. Pensylvania 10.M. Etc. the answer to this shall be quoted from Adam Smith B.2. c.2. pa. 462. where speaking of the complaints of the traders against the Scotch bankers, who had already gone too far in their issues of paper, he says ‘those traders and other25 undertakers having got so much assistance from banks wished to get still more. the banks, they seem to have thought, could extend their credits26 to whatever sum might be wanted, without incurring any other expence 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 pa. 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 & 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 paper27 of these projectors which the Memorial says the banks 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 pa. 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 Missisipi scheme, the most extravagant project, both of banking & 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 & 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 Missisipi scheme, it is well known, ended in France28 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 an29 invading army burning & 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 bonâ fide into it. but the art & 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, & agriculture of the US. here are a set of people for instance who have bestowed on us the great blessing of running in our debt about 200.M. of D. 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 blessing of letting them run in our debt, that we have exempted them by law from the repaiment of these debts beyond a given proportion (generally estimated at one third.) and to fill up the measure of blessing, instead of paying, they recieve 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 thro’ 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 90. Millions more, on our paying them the same premium of 6. or 8. p.c. interest, and on the same legal exemption from the repaiment of more than 30.M. of the debt when it shall be called for. but let us look at this principle in it’s original form, and it’s copy will then be equally understood. ‘a public debt is a public blessing.’ that our debt was juggled from 43.30 up to 80.M. 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 then31 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 5. p.c. or 4.M. of D. but observe that the public were at the same time paying on it an interest of exactly the same amount of 4.M. of D. 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 recieving 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, tho 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 any body, it is to themselves alone who are realising a solid interest of 8. or 10. p.c. 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 200.M. of froth and bubble, on which we are to pay them heavy interest, until it shall vanish into air, as Morris’s notes did. we are warranted then in affirming that this parody on the principle of ‘a public debt being a public blessing,’ and it’s mutation into the blessing of private instead of public debts, is as ridiculous as the original principle itself. in both cases the truth is that Capital may be produced by industry, and accumulated by economy; but juglers only will propose to create it by legerdemain tricks with32 paper.

I have called the actual circulation of bank paper in the US. 200. 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 US. 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 1803. and 1804.33

in 1803. there were 34. banks whose capital was 28,902,000.
in 1804. there were 66. consequently 32. additional ones. their capital is
 not stated, but at the average of the others (excluding the highest, that
 of the US. which was of 10.M.) they would be of 600,000.D each and add 19,200,000
 making a total of 48,102,000

or say of 50.M. in round numbers.34 now every one knows the immense multiplication of these institutions since 1804. if they have only doubled, their capital will be of 100.M. and if trebled, as I think probable, it will be of 150.M. on which they are at liberty to circulate treble the amount. I should sooner therefore believe 200.M. to be far below than above the actual circulation.   In England, by a late Parliamentary document, (see Virginia Argus of Oct. 18. 13. & other public papers of about that date) it appears that 6. years ago the bank of England had 12. millions of pounds sterling in circulation, which had increased to 42.M. in 1812. or to 189 M. of D. 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 378.M. 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 4/6 sterl. was by the same document stated to be then 6/9 a depreciation of exactly 50. p.c. the average price of wheat on the continent of Europe, at the commencement of it’s present war with England, was about a French crown of 110. cents the bushel. with us it was 100. 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 altho’ a part of this augmentation may proceed from the war demand, yet from the extraordinary nominal rise in the prices of land and labour 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 tomorrow, & time allowed for the reestablishment of commerce, justice and order, we could not afford to raise wheat for much less than 2.D. while the continent of Europe, having no paper circulation, & that of it’s specie not being augmented, would raise it at their former price of 110. 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 it’s price in particular places, and that then the exporting countries of Europe could undersell us.

It is said our paper is as good as silver, because we may have silver for it at the bank from which 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 it’s 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, & there on sufferance only, and during good behavior.

In this state of things we are called on to add 90.M. more to the circulation. proceeding in this career it is infallible that we must end where the revolutionary paper ended. 200.M. 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 at about 2. for 1. owing to the support it’s credit recieves 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 percieve 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 paiments. let us suppose the panic to arise at 300.M. a point to which every session of the legislatures hastens us by long strides. nobody dreams that they would have 300.M. of specie to satisfy the holders of their notes. were they even to stop now, no one supposes they have 200.M. in cash, nor even the 66 M. to which amount alone the law obliges them to repay. 133 M. of loss then is thrown on the public by law: and as to the 66 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 US. 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 a little. what are they to do? bring suits? a million of creditors bring a million of suits? against John Nokes and Robert Stiles wheresoever to be found? all nonsense. the loss is total. and a sum is thus swindled from our citizens of35 seven times the amount of the real debt and 4. times that of the factitious one of the US. at the close of the war. all this they will justly charge on their legislatures; but this will be poor satisfaction for the 2. or 300.M. 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 motives can be excited thro’ so36 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 powers of establishing banks, saving the charter rights already granted. and this should be asked, not by way of amendment to the constitution, because 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 it’s interest in arresting foreign bank paper immediately, and it’s 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 ensuring their own safety, the paper of the non-conceding states might be so checked and circumscribed by prohibiting it’s reciept in any of the conceding states, and even in the non-conceding as to duties, taxes, judgments or other demands of the US. or of the citizens of other states, that it would soon die of itself, and the medium of gold & silver be universally restored. this is what ought to be done. but it will not be done. Carthago non delebitur. the overbearing clamor of merchants, speculators and projectors, will drive us before them with our eyes open until, as in France, under the Missisipi bubble, our citizens will be overtaken by the crush of this baseless fabrick, 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 emissions of the old Congress & of 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 independance. the object of the latter is to enrich swindlers at the expence of the honest & 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 it’s 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 it’s convenience for transmission weigh nothing in opposition to the advantages of the precious metals; that it is liable to be abused, has been, is, and for ever 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 10. or 20. 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 it’s 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 a 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-acknolegement taken out as it’s representative, entitled to a return of the cash on demand would be convenient for remittances, travelling persons Etc. but, liable as it’s cash would be to be pilfered & robbed, and it’s paper to be fraudulently re-issued, or issued without deposit, it would require skilful & strict regulation. this would differ from the bank of Amsterdam in the circumstance that the cash could be re-demanded on returning the note.

When I commenced this letter to you37 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 assurance of my constant and affectionate esteem and respect.

Th: Jefferson

RC (ViU: TJP); at foot of first page: “John W. Eppes esq.” PoC (DLC). Tr (ViU: TJP-Ca, TB [Thurlow-Berkeley] no. 1299); consisting of extracts in Joseph C. Cabell’s hand of this letter and of TJ to Eppes, 24 June, 11 Sept. 1813. Tr (MHi); incomplete. Enclosed in TJ to Wilson Cary Nicholas, 6 Nov. 1813, TJ to Cabell, 17 Jan. 1814, Cabell to TJ, 6 Mar. 1814, TJ to James Monroe, 3 Aug. 1814, and Monroe to TJ, 26 Apr. 1815.

Congress chartered the bank of the us. on 25 Feb. 1791 but did not renew it once its twenty-year term had expired (U.S. Statutes at Large description begins Richard Peters, ed., The Public Statutes at Large of the United States … 1789 to March 3, 1845, 1845–67, 8 vols. description ends , 1:191–6). TJ is citing David hume, Political Discourses (Edinburgh, 1752), esp. 46–7, and the first volume of adam smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 3d ed., 3 vols. (London, 1784; Sowerby, description begins E. Millicent Sowerby, comp., Catalogue of the Library of Thomas Jefferson, 1952–59, 5 vols. description ends no. 3546). Although TJ’s quotations from Smith are not always exact, he accurately conveys the author’s meaning. French comptroller-general John Law’s overly ambitious missisipi scheme collapsed in 1720, leading to his dismissal from office and financial ruin for many investors (ODNB description begins H. C. G. Matthew and Brian Harrison, eds., Oxford Dictionary of National Biography, 2004, 60 vols. description ends ). Alexander Hamilton included a variation of the phrase a public debt is a public blessing in his January 1790 report on public credit (Harold C. Syrett and others, eds., The Papers of Alexander Hamilton [1961–87], 6:106). Robert morris’s notes, which were backed by his own fortune, played an important role in public finance during the final years of the American Revolution, but he later went bankrupt (ANB description begins John A. Garraty and Mark C. Carnes, eds., American National Biography, 1999, 24 vols. description ends ). The names john nokes and robert stiles, like John Doe, were used in court and legal documents to refer to imaginary or unknown persons (Black’s Law Dictionary description begins Bryan A. Garner and others, eds., Black’s Law Dictionary, 7th ed., 1999 description ends ). carthago non delebitur (correctly, “deleretur”): “Carthage should not be destroyed.” The Roman senator Publius Scipio Nasica supposedly added this exclamation to the end of his speeches (Plutarch, Cato, book 27, in Plutarch’s Lives, trans. Bernadotte Perrin, Loeb Classical Library [1914–26; repr. 1968], 2:382–3; Charles E. Little, “The Authenticity and Form of Cato’s Saying ‘Carthago Delenda Est,’” Classical Journal 29 [1934]: 432–3). baseless fabrick: William Shakespeare, The Tempest, act 4, scene 1.

1RC: “circulalation.”

2MHi Tr begins here.

3RC: “paimemt.”

4TJ originally placed the following paragraph just after the opening paragraph of this letter. He then canceled it (although the text remains fully legible) and appended a marginal note to the PoC stating that the deleted material had been “inserted afterwards.”

5The canceled version reads “and the known grounds of that decision to have been the want.”

6The canceled version reads “true to the principle that the will of the Majority is to prevail.”

7The canceled version has “further difficulties” instead of this word.

8MHi Tr: “will be.”

9Omitted closing quotation mark editorially supplied.

10Omitted opening quotation mark editorially supplied, with passage that follows taken from Smith, Wealth of Nations, 1:438.

11In PoC TJ here placed an asterisk keyed to a note running perpendicularly along the right margin: “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. Sr Wm Petty supposes ¹⁄₁₀th part of the value of the whole produce sufficient. Postlethwait. voce [“word”] ‘Cash.’” This note also appears in MHi Tr.

12Unmatched closing quotation mark editorially omitted.

13ViU Tr begins here.

14Word interlined.

15Text from “of the US? or what” to this point not in ViU Tr.

16Word interlined.

17TJ here canceled “profit.”

18Text from “but this being gross” to this point interlined in RC in place of a heavily canceled passage.

19ViU Tr ends here.

20ViU Tr resumes here.

21Word interlined.

22Date added in margin.

23Preceding five words interlined, with extraneous period at end of addition editorially omitted.

24ViU Tr ends here.

25Word interlined.

26MHi Tr: “creditors.”

27MHi Tr: “people.”

28Preceding two words interlined.

29MHiTr: “any.”

30Preceding two words added in margins.

31MHi Tr ends here.

32Word interlined in place of “on.”

33ViU Tr resumes here.

34ViU Tr ends here, with concluding comment by Cabell that “200 m. Mr J. thinks would be a moderate estimate of the amt of Bank paper in circulation at the date of this letter.”

35TJ here canceled “eight.”

36Word interlined in place of “too.”

37Preceding two words interlined.

Authorial notes

[The following note(s) appeared in the margins or otherwise outside the text flow in the original source, and have been moved here for purposes of the digital edition.]

* * within 5. 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.24

Index Entries

  • American Revolution; U.S. financing of search
  • Bank of the United States; opposition to search
  • banks; European search
  • banks; T. Law on search
  • Cabell, Joseph Carrington; and TJ’s ideas on finance search
  • Congress, U.S.; and renewal of bank charter search
  • Cooper, Thomas; Political Arithmetic search
  • Eppes, John Wayles (TJ’s son-in-law); and TJ’s letters on finance search
  • Eppes, John Wayles (TJ’s son-in-law); letters to search
  • France; financial system of search
  • Great Britain; financial situation of search
  • Hamilton, Alexander (1757–1804); secretary of the treasury search
  • Hume, David; cited by TJ search
  • Jefferson, Thomas; Literary Quotes; Plutarch search
  • Jefferson, Thomas; Literary Quotes; Shakespeare search
  • Jefferson, Thomas; Opinions on; American Revolution search
  • Jefferson, Thomas; Opinions on; banks search
  • Jefferson, Thomas; Opinions on; government finance search
  • Jefferson, Thomas; Opinions on; paper money search
  • Jefferson, Thomas; Opinions on; public debt search
  • Law, John; Mississippi scheme of search
  • Law, Thomas; on banks and banking search
  • Law, Thomas; on interest-bearing treasury notes search
  • Mississippi scheme search
  • Morris, Robert (1735–1806); and public finance search
  • Petty, Sir William; economic theory of search
  • Philippe II, duc d’Orléans; and paper currency search
  • Plutarch; TJ quotes search
  • Political Arithmetic (Cooper) search
  • political economy; TJ’s letters on finance search
  • Postlethwayt, Malachy; and economic theory search
  • Shakespeare, William; TJ quotes search
  • Smith, Adam; economic theories of search
  • Smith, Adam; The Wealth of Nations search
  • The Wealth of Nations (A. Smith) search
  • War of1812; U.S. financing of search
  • “John Nokes”; mentioned search
  • “Robert Stiles”; mentioned search