James Madison Papers

To James Madison from Edmund Pendleton, 28 January 1782

From Edmund Pendleton

Tr (LC: Force Transcripts). Another copy taken from the original is printed in the Proceedings of the Massachusetts Historical Society, 2d ser., XIX (1905), 145–47. An extract is given in Stan. V. Henkels Catalogue No. 694 (1892).

Virga Jany 28th 1782

Dear Sir.

I have yr favr of the 8th. The Objections1 yr Bank was to encounter had not occurr’d to me, since if such a measure was useful, it seems necessary that Congress should have power over the Regulations which were to direct its operations, it being of General & not local concern, and as the confederation had not given such a power, the medium adopted appears to be the proper & indeed the only recourse[,]2 to call for the Individual confirmation of the States, to the granting which I se[e] no possible objection, but on Account of the restriction3 in your scheme upon the Institution of State Banks, which at some future day may become very4 useful & necessary.5 Whatever evils may have been experienced & ever will be, from a Redundancy of paper Credit, yet my opinion is that the History of all Countries, as well as the reason of the thing, prove that the circulation of a moderate quantity of paper may be made in every Countrey without danger of depreciation & with many advantages to Commerce & business even Superior to the precious metals. Its locality, the principle6 source of Objection, has its use in preventing that stagnation in a circulating medium, which in the Flux & reflux of the Metals will unavoidably happen, especially since the Marchants have practiced the import and export of those7 as a subject of trade, as they rise at one Market and fall at another, instead of a mere Medium or representative of Ballances in Barter:8 Of all kinds of paper circulated as the representative of money, That of a Bank has undoubtedly the preference, because it has a real constituent,9 a stock of Cash deposited & kept always ready to take its place when any foreign purpose10 shall make it necessary, whereas if we were ask’d what our late paper represented?11 Candor would compel us to answer, what it has come to: Nothing. I can foresee that when the Mass of paper is totally anihilated, and before a general free trade takes place, we may be distressed for a sufficient medium of Commerce & might prefer a Bank scheme to any other, & why should we be restrained[?]12 If it be said that the States might increase their Bank so as to answer the purposes of all the States in the Union, I answer that a general & equally valuable circulation of Bank notes can only prevail to a certain distance from the Bank; as the difficulty of Access to that is increased so will the Value diminish, til a total stop is put to its circulation—for instance suppo[s]e a Man at Charles Town with a Bank note applying to a foreign Mercht to purchase goods, he would refuse it, since in Vain would the holder say you may have gold for it by going to the Bank, since that would require another Voiage, not a very short one, to accomplish; In Philadelphia the note would be taken with Avidity.13 The notes of the Bank of England circulate indeed to a great distance, but so does the trade which centers in London; and yet that Bank has no such exclusive restrictions,14 a multitude of other Banks subsist & with other mediums supply all Occasions of Commerce without experiencing inconvenience; that is not the Case in America. Phila. is not nor ever will be the centre of its trade, tho’ a considerable Branch, and remittances from the different states, will be much oftner wanted to other parts than to that City.

I hope the states comply with the recommendation respecting the forfeiture of British Goods, since tis a most ungrateful & Impolitic abuse of the kindness of our Allies to throw the money they so generously supply us with, into the hands of their & our Enemy, to the neglect of their trade.15 Wisely & Prophetically did honest Genl Gadsden say to Congress in 1774, “Take care, or yr liberties will be traded away.”16

By letter just received from Genl Green’s camp of the 28th past I find he was alarm’d for his Situation, having certain & Authentic Accts that the Cork fleet with 4 Regiments of Infantry & two of dismounted Dragoons, Victulars & Store Ships, & 3 Regts from New York, were seen on the Coast going into17 Charles Town, wch would give the Enemy a Superiority, that would oblige him to abandon the Countrey to their ravages, Or Sacrifice the remains of his brave little Army: a dreadful alternative.18 I am

Yr very affc

Edmd. Pendleton

1In the Proceedings of the Massachusetts Historical Society and in Henkels Catalogue, this word is “objection.”

2The versions in the Proceedings of the Massachusetts Historical Society and in Henkels Catalogue have “resource.” Pendleton probably intended to write “recourse.” For the background of his observations about the Bank of North America, see JM to Pendleton, 8 January 1782; and Virginia Delegates to Harrison, on the same day. See JM to Pendleton, 25 February 1782, for JM’s comments upon Pendleton’s remarks.

3In Henkels Catalogue, the word “restitution” instead of “restriction” is obviously a copyist’s error.

4This word appears also in the Henkels Catalogue copy but is omitted in the Proceedings of the Massachusetts Historical Society.

5Pendleton’s meaning would have been clearer if he had placed a period after “recourse” and followed it with a new sentence of this tenor: “Although I am completely in accord with having the states ratify the ordinance establishing the Bank, I believe state banks will be necessary in the future, and hence I cannot support the request of Congress that each state grant to the Bank of North America a banking monopoly as long as the war continues.” See Virginia Delegates to Harrison, 8 January 1782, n. 7.

6This word and “Marchants,” which appears later in the sentence, are spelled correctly in the Henkels Catalogue and Proceedings of the Massachusetts Historical Society copies. By “Its locality,” Pendleton meant that, as compared with specie, bank notes or other paper currency circulated only within a small circle of territory, having as its center the place where this money was issued.

7The word is “these” in the Proceedings of the Massachusetts Historical Society.

8Since this phrase appears in both the Force transcript and the Massachusetts Historical Society copy, Henkels’ meaningless “Balance and Barter” is most probably an error.

9If Pendleton had followed “constituent” with an expression like “back of the bank notes,” he would have clarified his meaning. As he used the word “constituent,” the reader is reminded of the same word when it is employed to signify a member of the constituency of a public officeholder.

10Pendleton meant that, because of the cash reserve behind bank notes, a holder of them who wished to pay a debt in another country or even in another state where these bank notes would be unacceptable could readily exchange them for specie at the bank of issue. Further along in this paragraph, he comments on this matter at greater length.

11Probably a reference to an act of 5 January 1782 of the Virginia General Assembly, declaring that, since the greatly depreciated paper currency of the state was “neither a proper medium of circulation nor a just standard whereby to settle and adjust debts and contracts,” it “shall no longer pass current” (Hening, Statutes description begins William Waller Hening, ed., The Statutes at Large; Being a Collection of All the Laws of Virginia, from the First Session of the Legislature, in the Year 1619 (13 vols.; Richmond and Philadelphia, 1819–23). description ends , X, 471).

12See n. 5, above.

13See n. 10, above.

14That is, “monopoly”; see n. 5, above.

15See Papers of Madison description begins William T. Hutchinson, William M. E. Rachal, et al., eds., The Papers of James Madison (4 vols. to date; Chicago, 1962——). description ends , III, 338; 339, n. 2; Virginia Delegates to Harrison, 8 January 1782, and n. 4.

16Pendleton probably was recalling what he heard the Charleston merchant and fiery patriot, Christopher Gadsden (1724–1805), later a brigadier general in the continental army, say in the First Continental Congress. In that body, Gadsden, an uncompromising opponent of continuing economic relations between the colonies and the mother country, championed the Association and was a member of the important committee “to examine & report the several Statutes, which affect the trade and manufactures of the Colonies” (JCC description begins Worthington Chauncey Ford et al., eds., Journals of the Continental Congress, 1774–1789 (34 vols.; Washington, 1904–37). description ends , I, 26, 29; Burnett, Letters description begins Edmund C. Burnett, ed., Letters of Members of the Continental Congress (8 vols.; Washington, 1921–36). description ends , I, 30, 49, 86).

17The copy in the Proceedings of the Massachusetts Historical Society has this word as “in.”

18Pendleton almost certainly derived most of this information from Greene’s letter of 27 December 1781 (Jameson to JM, 26 January 1782, n. 1).

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