MADISON, James. Autograph letter signed ("James Madison") [to Dr. Cutting], Montpelier, [Virginia], 7 December 1822. 1 page, 4to, discrete repairs to folds from verso.
THE BALANCE OF TRADE, FEAR OF INFLATION AND MADISON'S DISTRUST OF PAPER CURRENCY
A letter in which the ex-President discusses monetary and banking policy, especially the danger of paper currency compared with coin and specie and the nation's balance of trade. While a delegate to the Virginia legislature during the period of Confederation, Madison had opposed the printing of currency during the economic downturn in the wake of the Revolution. "This fictitious money," he warned Thomas Jefferson, "will rather feed than cure the spirit of extravagance which sends away the coin to pay the unfavorable balance [in foreign trade] and will therefore soon be carried to market to buy up coin for that purpose. From that moment depreciation is inevitable" (Ketcham, James Madison, p. 175). During Washington's administration, Madison took an even more uncompromising stance on the establishment of a national Bank and its impact on the national economy. But during his own presidency, confronted with the problem of funding the War of 1812, he belatedly acknowledged the necessity of the institution and signed the bill chartering the Second Bank of the United States.
Neverthless, Madison never overcame his mistrust of paper currency. Here, he praises the author of a pamphlet on finance: "I have always regarded Mr. Law as a man of genius as well as of singular philanthropy," and "in his occasional publications...I have observed many sound principles, and valuable suggestions." However, he cannot unqualifiedly endorse Law's recommendations for improving the balance of trade: "I must own...that I have never had the confidence he has felt in his favorite plan for putting an end to the evils of an unfavorable balance of trade, and the fluctuations of an exportable currency. There would seem to be much danger at least that the disposition to borrow the paper issuable by a public board would bring an excess into circulation, and that this instead of reducing of interest, would have the effect of depreciating the principal."