To the Senate and Assembly:

The circumstances in which we meet for the discharge of our respective duties under the Constitution, are of more than ordinary interest.

Towards the close of a year marked by general health, abundance and prosperity, with overflowing harvests, and a busy, peaceable and contented people, we suddenly found ourselves involved in one of those financial convulsions which seem unavoidable, and almost regularly periodical, among enterprising people, free to pursue every branch of industry.

Confidence, the vital breath of trade, which had been so great and so unquestioning, was struck down, as it were, in an instant, and perished, and undertakings and engagements of widest reach and range, based upon its continuance, although backed by undoubted wealth and resources, were forced into liquidation. A most honorable struggle was indeed maintained by the business community against this calamitous alternative. But the banks, under ordinary circumstances the helpers of the sorely pressed merchant, became in their turn dependent upon the forbearance of their dealers, whom, in order to avoid the discreditable and dangerous resort to a suspension of specie payments, they were obliged, by constant and stringent reduction of their discounts, to disappoint of accustomed supplies. Instead of reciprocal aid and co-operation, it became a strife who could endure most and longest. The consequence was obvious. After many and disastrous failures among the merchants, the banks themselves followed, and on the 14th of October last, those of the city of New-York suspended specie payments. The country banks of this State, and the banks, indeed, throughout the United States, with the exception of those of New Orleans, were swept away in the same vortex. How far, by a judicious concert of action, and more considerate watchings of the signs of the times, the banks might, by earlier adoption of restrictive measures, have averted or mitigated the calamity, or whether, when it became certain that unless the sharp and sudden contraction of the circulation, resorted to by the banks, could be arrested, and a more liberal view be made to prevail, commercial credit would be prostrated, and panic take its place, it belongs not to this place nor to my purpose to inquire; suffice it to say, the panic came, and banks, alike with individuals, were powerless against it.

It is a noticeable characteristic of this suspension of specie payments, that it came in no sense from, and was not occasioned by, the bill holders. By the wise laws of this State, the bills of our banks are so effectually secured, that about their essential value, if not immediate convertibility, no one had a doubt. It was the depositors that made the run upon the banks which forced them into suspension. It was the owners of the property that combined to carry it off from the depositories which they had chosen for it, and where it had ceased to represent a capital

for furnishing discounts. This fact seems to point in the direction in which a preventive for the future may be found.

In the alarm and confusion consequent upon the suspension, urgent appeals were made to me to convene the Legislature, in extra session, in order that it might consider of the measures fit to be taken in such an emergency.

I listened with all respect and attention to the arguments for such a course, addressed to me by the deputations which came to the seat of government from the cities of New-York and Albany; but without being moved from my early and steadfast conviction that such a step was not expedient. I had the fullest confidence, that both from an enlightened sense of duty, and from a wholesome fear of the legal consequences of prolonged suspension, the banks would make strenuous efforts to resume specie payments at the earliest day, if not unwisely harrassed, or more unwisely indulged. A judicial opinion from the supreme court, promulgated in the city of New-York, quieted the immediate apprehension of the banks of being forced into liquidation And the whole business community pledged themselves to stand by and aid, instead of crippling or annoying them. It is, therefore, with the deepest satisfaction I have found my confidence in the will and in the ability of the banks to effect an early resumption, amply vindicated by the spontaneous return to their regular course of business, of all the banks of the city of New-York, on the 16th of December, within two months of the period of their suspension. The banks of the whole State followed the lead immediately, and those of other cities and States, with few exceptions, did likewise, and now the liabilities of the banks are redeemed on demand in coin, as quietly and surely as though no interruption had occurred.

I confess to some pride, as a citizen of the State of New-York, in such an exhibition, alike of the high sense of duty, of the integrity and of the solvency of the banks, as contrasted, moreover, with the necessity which recently forced the Bank of England to ask and to avail itself of the intervention of the Government, for its relief, although armed with a defensive power, which our banks have not, of raising the rate of discount to a percentage that may become prohibitory. It is a just cause of satisfaction that our banks, partaking of all the freedom of our political institutions, after yielding for a brief space, yet, of their own motion, vigor and sense of duty, triumphed over like difficulties without aid from the Government. It would be unwise, however, to let the present opportunity pass without seeking some preventive of these periodical convulsions, so fraught with disaster, both to individuals and the public.

The effect of the recent derangement in business, has been to bring about a general settling up of accounts, and no period could, therefore, well be more propitious for the inauguration of any new provisions having for their object the greater security

and steadiness of the business of banks, which combine, as ours do, the character both of banks of issue and banks of discount and deposit. With regard to the issues of the banks, I propose no change, for I perceive no necessity for any. The bank notes circulating as money, are now so well secured, and so firmly established in public confidence, that even the suspension of specie payments did not, as we have seen, sensibly affect their value, and though not at the moment redeemable in coin, they continued to pass current as before. These derangements in the money market have their source, not in the issues but in the deposits of banks. Great competition exists among these institutions to secure large deposits at a low rate of interest. These deposits become the basis of extended and profitable discounts, thereby unduly expanding the circulation. Various expedients, more or less complicated, have been suggested to guard against this danger. But a simple and effectual course would seem to be, to require each bank to keep on hand a fixed relative proportion of coin to the total amount of its cash liabilities, exclusive of its notes, and to impose adequate penalties for the violation of this law. This would go to the root of the evil; for the cost of keeping in the vaults so much unproductive coin would be certain. There would be less desire, therefore, for large deposits; and these would be more equally diffused among many banks-of itself, an advantage, instead of being, as now, monopolized by a few. Entertaining these views, I submit, for the consideration of the Legislature, the expediency of requiring, by law, under adequate penalties, that every bank shall keep on hand twenty-five per cent. in coin, on the amount of all its cash liabilities, exclusive of its notes. In order to avoid unnecessary inconvenience in carrying such a provision into effect, it might be so graduated as to time, as to reach the minimum by a progressive monthly percentage; but whenever reached, at a day to be fixed, not to be departed from Under a law similar to this, the chief banks of New-Orleans, alone of all the banks of the country, were enabled to resist the pressure of universal suspension elsewhere, and maintain their integrity. Such a law in this State, together with the weekly statements, under oath, of the New-York city banks-now so judiciously required to be published-and the operation of the daily settlements at the clearing-house, would, it is believed, go very far to prevent catastrophes such as that from which we are just emerging. I can perceive no objection, in expediency or equity, to such a restriction upon the banks, which, as creatures of the State, may and should be required so to conduct their operations as that the public safety should not be postponed to the desire of adding to the profits of their private stockholders.

The condition of the banks, in all of their details, will be communicated to you at an early day, by the Superintendent of the

Banking Department, to which I would beg leave to refer you for such further information as you may desire upon these subjects.

The condition of the finances of the State is such as to require, I am concerned to say, continued taxation, in order to the maintenance of the public credit, and the due provision for the ordinary expenses. The canal revenues are again deficient, and it becomes a duty to express the opinion that under existing circumstances, the Legislature may, with equal fitness and justice, repeal the law of 10th July, 1851, entitled "An act to abolish tolls on railroads," and then, by a further act, re-establish the tolls on competing railroads, which had been pledged by the Constitution, as part of the canal revenues, for the security and ultimate redemption of the public debt.

Railroads are great public benefits, and there should be no desire to deal in an illiberal spirit with their owners and managers. It is for the general safety and convenience, that those who invest their money in such enterprises, should be permitted to derive therefrom a just return of profits, but always in subordination to the public good and the rights of others. It is in this view I recommend, as an equivalent for re-establishing the tolls on freight, that railroad companies paying such tolls, be permitted to make such equitable increase in their present charges for the transportation of passengers as the Legislature may authorize.

There will doubtless be addressed to you applications for grants of money to various deserving enterprises and institutions; but it is my duty to say that, in the present condition of the treasury, a deaf ear should be turned to all such applications; for it can only be through the exercise of the strictest economy, and retrenchment wherever retrenchment can properly be made, that we shall be able to meet our ordinary expenditure, and to fulfil our obligations to those State institutions which habitually rely upon our annual appropriations.

The reports annually presented to the Legislature, will make known to you the general condition of the State, of its eleemosynary institutions, of its houses of refuge, its prisons and penitentiaries, and to these I refer without reproducing their statements here.

The Superintendent of the Onondaga salt springs reports to me that the inspection of salt manufactured on the Onondaga salt springs reservation, during the past year, is 4,312,000 bushels. This is a falling off of the production of the preceding year of about 1,700,000 bushels. The Superintendent ascribes this falling off to the recent general derangement of business in the country; but expresses the confident belief that this important staple will speedily recover from its depression, and go on, as heretofore, with steady increase.

Of the canals, however, I must speak at some length, and with entire frankness, not concealing whatever there may be of dis

herein and thereby put the State in possession of a system of internal navigation, unsurpassed in its extent and completeness, and unequalled in its productiveness. The net tolls of the past year, extending from 1st October, 1856, to 1st October, 1857, fall short, as appears by the annexed abstract from the report to me, of the Auditor of the Canai Department, by $110,984.40 of the sum of $1,700,000 required by the Constitution to be anappointment and discouragement in the statement to be made, but as certainly not doubting nor desponding, either as to the ability, the obligation, or the expediency of persistent efforts and sacrifices, if need be, speedily to complete the enlargement; and nually set apart from the surplus revenues of the canals, as a Sinking Fund for the redemption of the canal debt, as it existed in 1846. The Constitution further requires that $350,000 be annually set apart from the surplus funds, to provide for the interest and principal of the General Fund Debt. This also is deficient, thus making the whole deficit of the tolls to satisfy the requirements under 1st and 2d sections of article 7 of the Constitution, $461,984. The work of enlargement has, it is believed, been advantageously and steadily prosecuted during the past year, though I am unable to furnish you with any details. These will be presented to you in the report which the State Engineer is preparing, and will make to the Legislature at an early day. Assuming, however, as accurate, the estimates in his annual report of the cost of completing the enlargement, from 1st December, 1853, at .... $14,250,000 00

To meet this there is only the loan of $500,000 authorized by the last Legislature, not yet negotiated. It will devolve upon you, therefore, to provide the additional means. I have already suggested, that tolls on competing railroads be restored, and would further suggest, as an additional resource, such increase of canal tolls as may be found expedient, and for the balance, we can only look to direct taxation; and accordingly, I recommend that recourse be had thereto, in such measure, and with such apportionment of the burthen over two years, as will render it least onerous to the people, while fulfilling the end pr