James Madison Papers

To James Madison from Tench Coxe, 10 November 1810

From Tench Coxe

November 10. 1810.


The great intrinsic importance of Banking institutions, both associated and incorporated, will be considered, I trust, by you as a sufficient apology for this respectful solicitation of a small portion of your valuable time.

The system of commerce and credit, and the laws of property in the United Kingdom of Great Britain & Ireland have been considered, as on the whole, the most perfect in Europe. Yet it is certain, that excluding entirely the evidences of their public debt of 4100 millions of Dollars, the administrations of their banks, public & private, have suffered themselves to inundate their whole commercial & financial field with an embarrassing flood of circulating paper and with an unascertained quantity of bank credits given in the form of discounted pr⟨ivate⟩ obligations, notes, or bills, and loans to the British & foreign Governments.

The incorporated Banks of G. Britain & Ireland have also practiced another grant of credit in the acquisition of a portion of their national and other public debts to an amount fully equal to their whole clear estate and equivalent to the sum total of the coin usually supposed to be possessed in Great Britain & Ireland.

In many cases also of individual embarrassment, arising often out [of] the gambling operations of the Stock exchange, the insolvent estates of such persons, and of many others have obtained extensive credits [illegible] of evidences of further portions of the public debt.

It appears necessary that we should consider in time the solemn admonition of these great & undeniable facts, and that we should not know in time & yet in vain, that the United Kingdoms of Great Britain & Ireland besides their immense discount credits, have apparently in circulation five hundred & sixty Millions of paper dollars of associate and incorporated companies, the legal tender of which, in all payments, they have reported by a special legislative committee, that they cannot for years discontinue, or abridge.

As a very strong inducement to new measures of caution & prudence, it ought not to be reserved, that there are no proofs of an unwise or criminal maladministration of banking institutions in the British Kingdoms more ⟨cle⟩ar and notorious than some, which have occurred in two or three of our own states. It is in the ground of the foreign & domestic cases most re[s]pectfully suggested, Sir, that the nature, the operations, and the consequences of Banking institutions, abroad and at home, appear to require a timely, sober, honest and profound consideration in order to prevent the ills, which legislative, directorial, and individual errors may occasion them to produce to this fine country, which by the favor of Heaven, is yet orderly, sound & happy.

The history of corporations of business & property, in many countries abundantly proves their errors, their misconduct & their necessities, & the injuries they have sometimes brought upon other parts of the community and upon the state itself.

The use of the deposits of public treasures is in effect a temporary loan enabling the Banks to discount & is worth some compensation, in reason & practical Business.

The Monopoly of paper bills of credit redeemable on demand is also worth some compensation, both in reason and in practice.

As our public debts shall be discharged, the community and individuals will have occasion for banks to employ their private and their public monies.

It is necessary to render perfectly visible the solid benefits resulting to Banking institutions from the transfer to them of the Monopoly of issuing paper bills of credit bearing no interest. This Monopoly, as enjoyed and exercised in Pennsylvania for example, was very considerable and was often happily applied to public uses, and to private objects.

If a grant of £15.000 ⅌ Annum, for example, for 25 years ⟨was⟩ made by the legislature of that province to the crown for the defence of the cisatlantic colonies, it could be raised without a tax on persons or property, by the legislative issue of £⟨4⟩00000 in paper bills of credit, guarrantied by the Province. These bills were loaned on solid personal & Landed security to the builders of mills, and other private improvers, & produced at the lawful interest of six ⅌ Cent the whole grant to the crown of £15000 & £9000 ⅌ annum as a sinking fund. In the same manner an emission was made to build the fortifications on the Delaware & the Light House. Other operations of the same nature were thus conveniently & profitably performed. A few thousand Bank Stockholders enjoy at present all these advantages of the issue of paper Bills in the United States; & they have been induced, like those of Great Britain & Ireland, to issue too much paper taken alltogether, & seperately also, in some serious instances, in order to encrease the profits of this gainful, unlimited & dangerous portion of their business.

It is certain that the governors and managers of public & private banks have in some instances in all countries been inconsiderate & imprudent; deceitful and fraudulent; shameless & unfaithful, to the injury of the stockholders & creditors of the banks, the commercial credit of the Country, and the best interests of their States. The Question of the responsibility of the directors of these institutions is respectfully conceived to require the most serious consideration. It is perfectly reasonable, for so far as the legislative grant of a Corporate Being, Agency & benefit extends they may be considered as compensated public trustees and functionaries, who ought to be under A responsibility essential[ly] official.

After the liberty [of] these preliminary and explanatory observations, I propose respectfully to submit a few examples of the kin⟨d of⟩ cautionary provisions, which recent circumstances abroad & at home appear to require, in order to avoid those evils which have subjected banks to embarrassment, discredit & odium, individuals to danger, fraud & ruin, & the state to dishonor, confusion and alarm, disordering its finances in time of need, & threatening it with fearful agitations. I have the honor to be, Sir, your most respectful Servt.

Draft (PHi: Coxe Papers). Damaged by tears at folds. Docketed by Coxe, “To the Chief Magis. on Banks.”

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