we have no produce or other fund upon which to draw. The well. known course of our trade in Tennessee is to sell our cotton, bread stuffs, live stock, and other products at the south, and to purchase much the larger proportion of our supplies at the east. We sell our exports at New Orleans and other southern markets, and contract our debts for our supplies at the eastern cities. The proceeds of our exports must be remitted to the east to meet the eastern bills drawn upon them, to pay for our supplies. The banks usually perform this operation by purchasing in the first instance bills drawn on actual produce to be sold at the south, and then remitting the proceeds of sales to the east to furnish the means upon which they draw eastern exchange.— And so long as we purchase no greater an amount at the east, than we sell at the south to pay for, we will remain unembarrassed. A mistaken impression has prevailed, particularly among the mercantile and trading classes, that a National Bank could furnish_eastern exchange when the State Banks and individuals could not. Exchange is drawn on an equivalent value elswhere either at sight or on time, and a National Bank can no more furnish this to the drawer than can State Banks or an individual.

The act creating the "Bank of Tennessee," makes it unlawful for that bank "to issue and circulate" any bank note of less denomination than five dollars, and after the first of January, 1841, it is made unlawful for the bank to "issue and circulate" any note of less denomination than ten dollars. This is deemed to be a most valuable provision, and it is to be regretted that the same restriction is not contained in the charters of the Union Bank, and Planter's Bank, and the Farmer's and Merchants Bank. By the charter of each of these banks, it is provided that the bank notes which it shall be lawful for them to issue shall not be for a less sum than five dollars, but there is no provision similar to that contained in the act to create the "Bank of Tennessee," which restricts them after the first of January, 1841, from issuing or circulating notes or bills of a less denomination than ten dollars.

If the General Assembly shall be of opinion that it is proper to impose upon these corporations additional restrictions, none, it is believ ed, will be found to be more important than this. It is an invariable law of currency that two mediums of circulation of the same denomination, the one metallic and the other paper, the one possessing intrinsic value and the other being but the representative of value, the one superior, and the other inferior, cannot long exist together in the same community. The inferior, or mere representative of value, will drive out of circulation the superior, or the currency possessing intrinsic value, and will take its place. Paper change tickets below the denomination of one dollar will banish from circulation small silver coins; the paper dollar will drive out of circulation the silver dollar; and in like manner the paper five dollar note will drive out of circulation the gold half eagle. If all the channels of circulation below ten or twenty dollars were left to be supplied by gold and silver coins, leaving the banks to issue and circulate their notes above these denominations, it cannot be doubted that there would be a sounder and more stable state of the

currency than exists. If the banks were restricted to the issue and circulation of ten or twenty dollars for the convenience of merchants and larger dealers, the smaller transactions would be conducted in coin, and the effect would be greatly to enlarge the volume of metalic circulation, which would remain in general use in society, and at the same time protect the community against the frauds and impositions but too often practised by the use of the smaller denominations of paper circulation. If change tickets and the smaller bank notes circulate, the gold and silver will either be hoarded by banks or withdrawn from circulation by individuals, and being less in demand as a medium of circulation, because a paper medium takes its place, it becomes an article of commerce, and there is a constant tendency to export it from the country. The increased quantity of precious metal too, which would be kept constantly in circulation, would furnish to all solvent banks a ready resource from which to be replenished in case of sudden panic and alarm in the money market.

The last General Assembly passed a law "to prevent the issue and suppress the circulation of change bills, change tickets, paper bills or bills of credit, of any kind or denomination whatsoever, whose issue or circulation is not authorized by the laws of the United States or of this State." Since the act took effect, the small change bills with which the country was so much afflicted have wholly disappeared, and a sound circulation of specie change has taken their place. The same effect would follow, if the smaller denominatinos of bank notes were prohibited from being issued or circulated, under adequate penalties prescribed by law. I am so fully convinced of the importance of such a restriction upon the banks that I cannot too earnestly urge it upon your consideration. My opinion is, that all dealings and transactions. under twenty dollars could be conveniently and with advantage to the public, conducted in the precious metals, and that no bank note of less denomination need be issued; but as the General Assembly of 1837, in the act creating the "Bank of Tennessee," have fixed the limit of restriction to Bank notes of a less denomination than ten dollars, it may not be advisable for the present to disturb that limit. If it shall be found to produce a salutary effect, as I doubt not it will, the restriction may hereafter be extended. To make the restriction effective, the same provisions of law which may prohibit the issue and circulation of small notes by our own banks, should be applied to the circulation within the State of notes of the same denomination issued by the banks of other States.

The present banking capital of the State, as authorized by the exist ing charters and laws, is in my judgment sufficiently large for all useful purposes. Exclusive of the capital employed at the branch of the "South Western Rail Road Bank," located at Knoxville, the amount of which is not accurately known, the banking capital of the State exceeds ten millions of dollars. Under prudent and proper management the existing banks could undoubtedly keep themselves in a sound condition, and at the same time afford all the banking facilities really required to enable us to ship our crops to market, and to anticipate a rea

sonable amount of the proceeds, as well as to meet all the legitimate demands of the trade of the State. Beyond this, banks and banking facilities are an evil. Banks, and the use of bank paper and credits, have become from long habit interwoven and intimately connected with all our extensive commercial operations, and if it be conceded that their employment to a reasonable extent, in conducting our trade, has in the existing state of the currency, become conducive to our prosperity, it must also be allowed that no banks or bank issues should be tolerated which do not rest on a solid and substantial specie basis, and be required to meet the demands of trade. The limits to banking and banking privileges should be carefully defined by law and confined within proper bounds. An excess of paper circulation gives a fictitious value to property, paralyses the industry of the country, produces extravagant habits of living, and excites a thirst for wild and adventurous speculation. An excess of bank circulation must necessarily be followed by a contraction, which will operate severely upon the debtor classes, and especially upon such as have become so during such excess or the abundance of paper money. "Whatever be the relative abundance or scarcity of the article inoney, since a given quantum is necessary for the business of circulation, the money must of course advance in value as it declines in quantity." Nothing tends so ruinously to unsettle the value of our paper circulation as the measure of value of property as the alternate expansions and contractions by the banks. When the banks largely expand, their circulation becomes abundant, declines in value, and the price of property rises; and when they contract, their circulation becomes scarce, advancs in value, and the price of property falls. When bank paper constitutes the principal circulation in a given community, it is in the power of banks to advance or depress the price of property, of which their eirculation has become the measure of value, by enlarging or diminishing its quantity. Considering these as settled principles, it is a matter of great importance that our banks should adopt and pursue a regular and steady policy, furnishing an amount of circulation and exchange, reasonably demanded by our commercial wants, and avoiding, as far as practicable, sudden expansions and contractions that have been but too often resorted to to meet temporary exigencies, and which never fail to bring in their train pecuniary and commercial embarrassments and suffering. The circulation which they issue should be based upon a solid metallic foundation, such as will ensure an ability at all times to meet their liabilities promptly, and its quantity should be kept as nearly as practicable at the same amount; varying, as it necessarily must to a small extent, with the seasons of shipment of our produce to market, and the return of the proceeds; but this variation need not be such as to affect materially the amount or value of their circulation.

Though it is believed that the present banking capital of the State is large enough, and ought not to be increased, I am fully satisfied that in the location of the branches of the Bank of Tennessee the distribution of its capital has not been so as to do equal justice to large, populous and important sections of the State. Just complaints have been

made by the people residing in those sections, which will require, and I doubt not will receive, the prompt attention of the General Assembly. The Bank belongs exclusively to the State. It is founded upon the revenues and credit of the whole people of the State; and in the location of its branches, as well as in its general management, due regard should be had to the just claims of every section. The General Assembly possess the undoubted power, without the violation of any corporate or vested rights, to apply the proper remedies by directing the location of the branches at suitable points, not increasing the capital stock of the bank, and your attention is invited to the subject.

It is suggested further, whether some greater supervisory power than exists over the branches, should not be vested in the principal board with a view to secure uniformity and regularity in their operations.

Over the operations of the Bank of Tennessee, the General Assembly possess the exclusive control, and by the charter of the Union Bank in which the State is largely interested as a stockholder, a power is reserved by joint committee to examine into its condition. It is proper that the General Assembly, as often as they may be convened, should make the examination contemplated by the charter, and cause the result to be made public. A like examination should also be made into the condition of the Bank of Tennessee. No similar power of examination is reserved to the General Assembly or to its committees, by the charters of the Planters Bank, and Farmers and Merchants Bank, but it is not doubted that these institutions would readily permit such examinations to be made if desired,

It is earnestly recommended to the General Assembly at their present session to institute a full and thorough examination into the condition and management of all the Banks, and to exercise all the constitutional powers with which they are invested, in supervising their conduct and operations, to the end that proper remedies may be applied against abuses, if any exist; that they may be required to resume specie payments at an early day, that the public confidence in them may thereby be restored, and that they may be made to meet the just expectations of the public, and to answer the purposes for which they were created.

The last General Assembly made liberal provision for the encouragement of a system of State Internal Improvement-by a law passed at that session, it was provided that the "State shall become a subscriber for one half of the capital stock in all rail roads, M'Adamized turnpikes, graded turnpikes and sanded turnpikes, for which acts of incorporation have heretofore been granted or for which acts of incorporation may be hereafter granted." Many acts of incorporation had been granted previous to the enactment of the law, and many were subsequently granted. By the terms of the act, the State became an equal partner with the individual stockholders in all of them, upon the compliance on their part with certain conditions prescribed in the several acts of incorporation. Upon the performance of the conditions prescribed ou the part of the individual stockholders, the Governor was required to subscribe on behalf of the State for half the amount of the capital

stock in the companies respectively, and to issue the bonds of the State, bearing an interest of five per cent and redeemable at the expiration of thirty years, as the means of raising the funds necessary to pay the State subscription. By the same act, the amount of stock authorized "to be taken by the State in the several improvements" was limited to the sum of "four millions of dollars." Many companies incorporated by the State have organized and performed the conditions required by law, and the Governor has subscribed for the State's portion of the stock; the works are in progress of construction, and the State is bound in good faith to provide for the punctual payment of the State subscription in them. Many other acts of incorporation which have been granted have not been complied with by the individual corporators, and in them the State subscription has not been made. Had all the acts of incorporation granted to internal improvement companies been complied with by the individual stockholders, the sum of "four millions of dollars" to which the aggregate amount of the State subscription is limited, would not have been sufficient to enable the State to subscribe for one half the capital stock in all of them.

Charters of incorporation it is believed have been too indiscriminately granted for the construction of local and unimportant works, instead of confining them to works of general importance and permanent utility. The greatest difficulty with which our sister States, which have engaged in systems of internal improvement, have had to contend, was to draw the line of discrimination between works which when completed will be of general importance and permanent utility and those which were of a purely local character. And this I apprehend will be the chief difficulty which we will have to encounter in the incipient stages of our system.

Numerous acts of incorporation of Internal Improvement companies now stand on our statute book which have not yet been taken up by individual stockholders, and in which there are as yet, no individual vested rights. The General Assembly possess the undoubted power without a violation of any individual or corporate rights, to repeal all such as in their judgment are of a local and unimportant character, and which if constructed would not yield any, or, if any, a very small profit to the State, or the stockholders upon the capital invested, and the propriety of doing so is respectively recommended. By confining the improvements of the State to a judicious selection of objects of leading and general importance, and omitting or postponing for the present to engage in works of a less important character, there is reason to believe that the system will obtain popular favor, and that the works when completed will yield an income to the State, which will not only defray the annual interest on the capital invested by the State, but contribute annually to liquidate the cost of construction.

On the other hand, if the State patronage is given to unimportant as well as important objects, indiscriminately selected, there is danger that the income from them would not defray the accruing interest, that the public money would be wastefully expended, and that the State would be involved in an annually increasing debt, without any

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