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At successive intervals the best and most enterprising men have been tempted to their ruin by excessive bank loans of i&ere paper credit, exciting them to extravagant importations of foreign goods, wild speculations, and ruinous and demoralizing stoek gunbling. When the crisis arrives, as arrive it must, the banks can ertend no relief to the people. In a vain struggle to redeem their liabilities in specie, they are compelled to contract their loans and their issues; and, at last, in the hour of distress, when their ass-irtance is most needed, they and their debtors together sink into iwolmiey.
It is this paper system of extravagant expansion, raising the nominal price of every article far beyond its real value, when compared with the cost of similar articles in countries whose circulation u wtfely regulated, which has prevented us from competing in our own markets with foreign manufacturers, has produced extravagant imporUtiung, and has counteracted the effect of the large incidental protection afforded to our domestic manufactures by the present revenue tariff. But for this, the branches of our manufactures composed of raw materials, the production of our own couutry— u cotton, iron, and woollen fabrics—would not only have acquired almost exclusive possession of the home market, but would hwe created for themselves a foreign market throughout the world.
Deplorable, however, as may be our present financial condition, wr may yet indulge in bright hopes for the future. No other nation b*» ever existed which could have endured such violent expansions ■no" contractions of paper credits without lasting injury; yet the bnoymcy of youth, the energies of our population, and the spirit •ten never quails before difficulties, will enable us soon to recover from oar present financial embarrassment, and may even occasion w speedily to forget the lesson which they have taught.
Io the mean time it is the duty of the Government, by all proper means within its power, to aid in alleviating the sufferings of tie people occasioned by the suspension of the banks, and to provide «»ui§t a recurrence of the same calamity. Unfortunately, in either *«pect of the case, it can do but little. Thanks to the independent the Government has not suspended payment, as it was to do by the failure of the banks in 1837. It will coni to discharge its liabilities to the people in gold and silver. Its entente in coin will pass into circulation, and materially assist «n restoring a sound currency. From its high credit, should we be to make a temporary loan, it can be effected on advaui terms. This however, shall, if possible, be avoided; but, if **, then the amount shall be limited to the lowest practicable sum.
I have therefore determined, that whilst no useful Government *ork« already in progress shall be suspended, new works, not already
commenced, will be postponed, if this can be done without injury to the country. Those necessary for its defence shall proceed as though there had been no crisis in our monetary affairs.
But the Federal Government cannot do much to provide against a recurrence of existing evils. Even if insurmountable constitutional objections did not exist against the creation of a national bank, this would furnish no adequate preventive security. The history of the last bank of The United States abuntantly proves the truth of this assertion. Such a bank could not, if it would, regulate the issues and credits of 1,400 State banks in such a manner as to prevent the ruinous expansions and contractions in our currency which afflicted the country throughout the existence of the late bank, or secure us against future suspensions. In 1825 an effort was made by the Bank of England to curtail the issues of the country banks, under the most favourable circumstances. The paper currency had been expanded to a ruinous extent, and the bank put forth all its power to contract it in order to reduce prices and restore the equilibrium of the foreign exchanges. It accordingly commenced a system of curtailment of its loans and issues, in the vain hope that the jointstock and private banks of the kingdom would be compelled to follow its example. It found, however, that as it contracted they expanded, and at the end of the process, to employ the language of a very high official authority, "whatever reduction of the paper circulation was effected by the Bank of England (in 1825) was more than made up by the issues of the country bauks."
But a bank of The United States would not, if it could, restrain the issues and loans of the State banks, because its duty as a regulator of the currency must often be in direct conflict with the immediate interest of its stockholders. If we expect one agent to restrain or] control another, their interests must, at least in some degree, be antagonistic. But the directors of a bank of The United States would feel the same interest and the same inclination with the directors of the State banks to expand the currency, to accommodate their favourites and friends with loans, and to declare large dividends. Such has been our experience in regard to the last bank.
After all, we must mainly rely upon the patriotism and wisdom of the States for the prevention and redress of the evil. If they will afford us a real specie basis for our paper circulation by increasing the denomination of bank notes, first to 20, and afterwards to 50 dollars; if they will require that the banks shall at all times keep on hand at least one dollar of gold and silver for every three dollars of their circulation and deposits; and if they will provide by a selfexecuting enactment, which nothing can arrest, that the moment they suspend they shall go into liquidation, I believe that such provisions, with a weekly publication by each bank of a statement of it* condition, would go far to secure us against future suspensions of specie payments.
Congress, in my opinion, possess the power to pass a uniform bankrupt law applicable to all banking institutions throughout The United States, and I strongly recommend its exercise. This would make it the irreversible organic law of each bank's existence, that a suspension of specie payments shall produce its civil death. The instinct of self-preservation would then compel it to perform its duties in such a manner as to escape the penalty and preserve its life.
The existence of banks and the circulation of bank paper are so identified with the habits of our people, that they cannot, at this day, be suddenly abolished without much immediate injury to the country. If we could confine them to their appropriate sphere, and prerent them from administering to the spirit of wild and reckless (peculation by extravagant loans and issues, they might be continued with advantage to the public.
But this I say, after long and much reflection: If experience •hall prove it to be impossible to enjoy the facilities which wellregulated banks might afford, without at the same time suffering the calamities which the excesses of the banks have hitherto inflicted upon the country, it would then be far the lesser evil to deprive them altogether of the power to issue a paper currency, and confine then to the functions of banks of deposit and discount.
Oar relations with foreign Governments are, upou the whole, in i ntisfactory condition.
The diplomatic difficulties which existed between the Government of The United States and that of Great Britain at the adjournn>ent of the last Congress have been happily terminated by the appointment of a British Minister to this country, who has been cordially received.
Whilst it is greatly to the interest, as I am convinced it is the sincere desire, of the Governments and people of the two countries to be on terms of intimate friendship with each other, it has been Tot misfortune almost always to have had some irritating, if not dangerous, outstanding question with Great Britain.
Since the origin of the Government we have been employed in negotiating treaties with that power, and afterwards in discussing their true intent and meaning. In this respect, the convention of April 19, 1850,* commonly called the Clayton and Bulwer Treaty, has been the most unfortunate of all; because the two Governments pttoe directly opposite and contradictory instructions upon its first lad moat important article. Whilst, in The United States, we believed that this Treaty would place both Powers upon an exact • Vol. XXXVIII. Pago 4.
equality by the stipulation that neither will ever "occupy, or fortify, or colonize, or assume or exercise any dominion" over, any part of Central America, it is contended by the British Government that the true construction of this language has left them in the rightful possession of all that portion of Central America which was in their occupancy at the date of the Treaty: in fact, that the Treaty is a virtual recognition on the part of The United States of the right of Great Britain, either as owner or protector, to the whole extensive coast of Central America, sweeping round from the Bio Hondo to the port and harbour of San Juan de Nicaragua, together with the adjacent Bay Islands, except the comparatively small portion of this between the Sarstoon and Cape Honduras. According to their construction, the Treaty does no more than simply prohibit them from extending their possessions in Central America beyond the present limits. It is not too much to assert, that if in The United States the Treaty had been considered susceptible of such a construction, it never would have been negotiated under the authority of the President, nor would it have received the approbation of the Senate. The universal conviction in The United States was, that when our Government consented to violate its traditional and timehonoured policy, and to stipulate with a foreign Government never to occupy or acquire territory in the Central American portion of our own continent, the consideration for this sacrifice was that Great Britain should, in this respect at least, be placed in the same position with ourselves. Whilst we have no right to doubt the sincerity of the British Government in their construction of the Treaty, it is at the same time my deliberate conviction that this construction is in opposition both to its letter and its spirit.
Under the late Administration negotiations were instituted between the two Governments for the purpose, if possible, of removing these difficulties; and a Treaty having this laudable object in view was signed at London on the 17th October, 1856, and was submitted by the President to the Senate on the following 10th of December. Whether this Treaty, either in its original or amended form, would have accomplished the object intended without giving birth to new and embarrassing complications between the two Governments, may perhnps be well questioned. Certain it is, however, it was rendered much less objectionable by the different amendments made to it by the Senate. The treaty, ns amended, was ratified by me on the 12th March, 1857, and was transmitted to London for ratification by the British Government. That Government expressed its willingness to concur in all the amendments made by the Senate with the single exception of the clause relating to Buatan and the other islands in the Bay of Honduras. The Article in the original Treaty, as submitted to the Senate, after reciting that these islands and their inhabitants "having been, by a convention bearing date the 27th day of August, 1856, between her Britannic Majesty and tho Bepublic of Honduras, constituted and declared a free territory under the sovereignty of the said Republic of Honduras," stipulated that "the two contracting parties do hereby mutually engage to recognize and respect in all future time the independence and rights of the said free territory as a part of the Republic of Honduras."
Upon an examination of this Convention between Great Britain and Honduras of the 27th August, 1856, it was found that, whilst declaring the Bay Islands to be "a free territory under the sovereignty of the Bepublic of Honduras," it deprived that Bepublic of rights without which its sovereignty over them could scarcely be said to exist. It divided them from the remainder of Honduras, and gave to their inhabitants a separate Government of their own, with legislative, executive, and judicial officers, elected by themselves. It deprived the Government of Honduras of the taxing power in every form, and exempted the people of the islands from the performance of military duty, except for their own exclusive defence. It also prohibited that Bepublic from erecting fortifications upon them for their protection—thus leaving them open to invasion from any quarter; and, finally, it provided " that slavery shall not at any time hereafter be permitted to exist therein."
Had Honduras ratified this Convention, she would have ratified the establishment of a State substantially independent within her own limits, and a State at all times subject to British influence and cunlroL Moreover, had The United States ratified the Treaty with Great Britain in its original form, we should have been bound "to recognize and respect in all future time" these stipulations to the prejudice of Honduras. Being in direct opposition to the spirit and meaning of the Clayton and Bulwer Treaty as understood in The United States, the Senate rejected the entire clause, and •abuituted in its stead a simple recognition of the sovereign right of Honduras to these islands in the following language: "The two Contracting Parties do hereby mutually engage to recognize and respect the Islands of Buatan, Bonaco, Utila, Barbaretta, Helena, and Morat, situate in the Bay of Honduras, and off the coast of the Kepublic of Honduras, as under the sovereignty and as part of the attd Bepublic of Honduras."
Great Britain rejected this amendment, assigning as the only reason that the ratifications of the Convention of the 27th August, liOC,* between her and Honduras, had not been " exchanged, owing to the hesitation of that Government." Had this been done, it is stated that "Her Majesty's Government would have had little iifficuity in agreeing to the modification proposed by the Senate, • Yd. XLVI. Pago 168.