improvement system or not, what policy can be adopted which will best subserve the present emergency, and promote the public weal in our future operations. Laying aside any doubt as it regards the payment of the January interest, which can only be done by the hypothecation or sale of State bonds at some price, how is a permanent fund to be provided to meet the future interest, anc:, eventually, the principal, as they respectively become due and payable.

The policy of paying the interest out of the money borrowed must ere long be abandoned, and the only alternatives which have suggested themselves to me is an increase of our banking capital, and a resort to direct taxation. The solution of these questions call into requisition the united wisdom of this General Assembly; and, in order to enable you to arrive at a correct conclusion, and settle down upon a policy, the momentous consequences of which deeply involve the interest and patriotism of the people, too much care cannot be taken in adopting the line of action to be pursued. Shall the first alternative be adopted? The consequences attendant upon and inseparably connected with an increase of our banking capital, should be narrowly scanned and well weighed in the balance before venturing upon such a resort. In the first place, should that policy be pursued, the capital cannot be obtained without involving the State in an additional debt corresponding with the increase; and if obtained, could such a resource be relied upon to pay any portion of our liabilities beyond the interest accruing upon its own account? To insure such a result to an extent commensurate with the object for which it would be designed, you would necessarily be compelled to raise the interest upon bank accommodations to ten or twelve per cent., and in this way tax the people some five or six per cent. upon the whole amount of notes issued under such a system, the benefit of which would accrue as well to the private stockholder as to the State. Then, if the bank should be well managed, we might expect the highest dividends, but the late and repeated expansions, suspensions, and contractions of the banks generally, furnish ample proof that the paper system is fundamentally wrong in principle, destructive in practice, and at war with the best interest of the country, and the genius and spirit of our republican institutions. Its tendency and inevitable result is, to spread merely the appearance of prosperity for a season, and then gloom, revulsion, and distress; thus proving that it has no power to regulate and render stable the currency of the country.

Whatever plan may be devised to provide means to pay off the liabilities of the State, none can be adopted that will not operate as a tax upon the property and industry of our citizens; and it ought not to be concealed that if the vast debt which has been incurred on account of our internal improvements is ever paid, it must be done through the medium of taxation. The dictates of wisdom and prudence, as well as sound policy, therefore, require that the most simple and economical plan should be pursued; and it only remains to determine between a direct and an indirect mode. I am aware it has often been alleged that the people would not submit to a system of direct taxation; hence, the erroneous, ruinous and irrepublican policy of indirect taxation has crept into our institutions, and so fearful have legislators been of the indignation of their constituents that the sources of its origin have been carefully concealed; to which cause, more than any other, may be attributed the host of monopolies, with their train

of desolating evils, that are fastened and preying upon the vitals of the country. By such an iniquitous system large and excessive revenues are collected, and, conseqently, wild and extravagant appropriations made. If, in a Government like ours, based upon the virtue and intelligence, and administered by the will of its citizens, we are to be told that they will not tolerate the most economical, certain and effectual mode of discharging their liabilities, then, indeed, we are compelled, however reluctant, to subscribe to the federal doctrine of their incompetency to regulate their own affairs, and constrained to acknowledge that we only enjoy the name and shadow and not the reality of republicanism.

But being, as I am, firrily persuaded that they are always patriotic in their sentiments; instead of temporary expedients, I have no doubt they would gladly embrace the most direct and judicious plan to relieve themselves from any embarrassments in which they may be involved. This would especially be true if they were always kept acquainted with their real condition, which would place them upon their guard, and enable them to avoid many calamities which otherwise would be entailed upon them. I cannot therefore, consistently with that duty I owe to the public welfare or my private feelings recommend to your favorable consideration an increase of our banking capital as a source of revenue or for any purpose whatever. I do not believe the people require it, or, if they did, that it would afford them any assistance.

The question hence arises whether we shall resort to direct taxation. I am clearly of opinion that it would be better to postpone the adoption of this policy for the ensuing two years. Although an increase of taxes may ultimately be inevitable, yet, under existing laws, the amount collected will annually become greatly enhanced.

The vast quantity of public lands entered in 1835, '6, "7 and '8, which are not yet taxable; the continued increase of wealth pouring into our State through the channels of emigration and trade, and the present scarcity of money, point out the propriety of making a loan to meet the interest upon our internal improvement debt until your next regular session.The quantity of lands entered during the year 1835 and 1836 exceeds 5,229,227 acres. Estimating its value at $5 per acre, the additional revenue which will annually arise from this source under the present law, after the expiration of one and two years will be $52,292 26, and an undiminished augmentation from lands entered in 1837 and '8 will be continued, and so on continually, at a less rapid rate, however, for many years to come. By setting apart, and exclusively applying the proceeds arising from this continual, unfailing and increasing source of revenue to the liquidation of the interest of our internal improvement debt, and by adopting rigid economy in the public expenditures of the State, the lands now taxable, together with the personal property, will ere long, yield a surplus, which added to the above resources, will go far towards the payment of that interest as it accrues. Under this policy the augmentation of taxes, when resorted to, would be comparatively of inconsiderable amount. In connection with this subject, I would suggest the propriety of reducing the county levies of taxes, and in the same, or less proportion, increasing the State taxes. By amending the revenue law so as to limit the county tax to one fifth, and increasing the State tax to one fourth per centum, the taxes would be reduced instead of increased, and the counties would still, with proper economy, be supplied with means to meet all necessary expenditures.

In the meantime, or before resort is had to an increase of taxes, the State may derive aid from other sources. Mr. Calhoun, of South Carolina, at the last session of Congress, introduced into that body a bill ceding to the States the public lands lying within their respective limits, on condition of their paying into the National Treasury, on the first of February annually, one half of the proceeds arising from the sales, reserving the other half to themselves. The adoption of this measure would be nothing but an act of justice to the new States, and coming, as it does, from a distinguished southern Senator, it exhibits the liberal and enlightened policy of the statesman. In view of its justice and propriety I would recommend that you instruct our Senators and request our Representatives in Congress to use their endeavors to procure its passage.

The issue of scrip on account of the internal improvement system and canal, has resulted, like most other temporary expedients, in a great depreciation of its value, which is working a pernicious influence upon the interest and credit of the State. Large amounts of it have been purchased by speculators at prices greatly below par, to the injury of the community, to an amount corresponding with its depreciation, and but little hope can be entertained of advanced prices so long as its circulation. is contiuned as an article of trade. I would, therefore, respectfully recommend the adoption of such measures as will provide the means for its carliest redemption.

In the month of March last, General Thornton and others, as a committee on the part of the canal contractors, visited me for the purpose of making arrangements to provide means to pay off the estimates as they would become due for the remaining part of the year; alledging that unless a positive assurance was given that the money would be forthcoming to meet these estimates, the contractors would be forced to abandon their contracts, and that in this event general distress and bankruptcy in most cases would ensue, and consequently great loss to the State. Knowing that bonds could not, at that time, be sold at par to raise money for that purpose, they proposed, on the part of the contractors, that bonds should be placed in the hands of suitable agents to the probable amount of the expenditures for the year, to be paid to them at par; to which I assented, conditioned that the bonds so paid should be placed in the hands of an agent whom I might approve, to be sold for their benefit in our eastern cities or a foreign market to which condition they assented, and I, therefore, placed in the hands of Gen. Thornton, Canal Commissioner, $1,300,000 in bonds for that purpose, $1000,000 of which has since beenjsold by him in London, as agent for the contractors, at the rate of eighty-five per cent., which has enabled them to prosecute the work on the canal throughout the season with energy and success, and, as I am informed, without loss, as the reduc tion in the price of labor, provisions and materials has equalled the fifteen per cent. reduction on the bonds. Under the circumstances, I would suggest the propriety of the State incurring the expense and compensation of the agent while engaged in the performance of his agency. This would seem to be just and equitable, as the payment of bonds, instead of money, to the contractors, superceded the necessity, on my part, of employing an agent to sell them in a foreign market, and consequently threw the expense and responsibility of the negotiation upon the contractors themselves, besides the loss of fifteen per centum upon the whole amount of bonds sold.

It is proper that I should here remark, that I exceedingly regretted the necessity of paying the contractors with bonds, but as money could not be raised by a sale of them at par, to meet the estimates on the canal as they became due, and the contractors propced to receive them at that rate, and hazard a sale of them on their own account, I felt constrained from a sense of duty towards them, and good faith on the part of the State, to place the bonds in the hands of the Canal Commissioners for their benefit. By an act of the 1st of February last, the Commissioners of the Illinois and Michigan canal were required "to sell so much of the canal lands and lots the present year as were required to pay the interest on loans made for canal purposes." As early as April last the President of the Board verbally informed me that it would be impossible to realize money from the sale of these lands to pay the interest due in July following, and, consequently, other means were necessary to be resorted to to furnish the funds for that purpose. To meet the interest upon bonds sold prior to 1839 by Gov. Duncan, and payable in New York, the sum of $30,000 was loaned by Col. Mather, President of the State Bank of Illinois, and to pay that portion of the interest falling due in Europe, a draft was drawn by Judge Young upon Messrs. John Wright & Co., of London, for £20,000, it being part of £30,000 advanced by said company on a contract for $1,000,000 canal bonds entered into in October, 1839. £10,000 being the residue of the above £30,000 advanced by said Wright & Co. has been placed on deposite in the U. S. Bank, and I have instructed Judge Young to apply so much thereof as may be necessary for the payment of the interest becoming due in N. York on the first Monday of January next; and I am informed by Gen. Thornton that the means are provided to meet the interest due in London at the same time. As the contract with the Messrs. Wright & Co. was much animadverted upon by the last Legislature, notwithstanding I was convinced that no sale could be made more advantageous to the State at the time it was effected or during the present year, yet I hesitated much before assenting to its confirmation. Being, however, informed that no other means could be obtained to meet the July interest in London to prevent a forfeiture of good faith on the part of the State, I at once determined to confirm the contract. The residue of the bonds, after deducting the £30,000 advanced, still remain in the hands of Messrs. Wright & Co., and are as yet unavailable to the canal fund. If they are not sold prior to the 1st day of April next, the contract ceases by its own stipulations, and, in that event, no means are provided for the prosecution of the work on the canal for the ensuing year.

Subsequent to being informed by Gen. Thornton, that canal lands could not be sold to meet the July interest upon the canal debt, he communicated to me, that in June last, the Board effected a sale, to the amount of $70,000.

Whether the money is available or not, I am uninformed, not having been furnished with the proceedings, or report of said Board during the year, which prevents me from laying before you as full and complete a statement, in relation to the progress and condition of the Canal, as I desired.

About $2,215,000 of Canal stock has been sold under the act of 1839, leaving a balance, authorized to be sold by said act, of $1,755,000; but

the present depreciation of American securities does not afford a reasonable expectation that a sale can be made of the residue of the stock at par, in time to meet the wants of the Canal. The great amount already expended upon this stupendous work, and the vast sum yet required for its completion, a portion of which must be immediately had, presents a subject for your consideration well worthy of mature deliberation. The accruing interest upon the debt which has already been incurred, the delapidation of the work which has been done, and the destruction of fixtures and other preparations for its prosecution, the loss of which must fall upon the State if it is abandoned, seems to forbid its suspension. It is, therefore, submitted to your wisdom and discretion what means are to be provided for its future progress. In view of the difficulties to be encountered in obtaining money, I would renew my former recommendation of selling so much of the Canal lands as will be sufficient to pay the accruing interest upon its debt.

Rigid accountability being essential to the fidelity of public officers, I feel it my duty again to recommend a thorough and rigid scrutiny into the conduct of all those connected with the management of our finances.

It again becomes my duty to call your attention to the suspension of specie payments by the State Bank, and the Bank of Illinois, at Shawneetown. The frequent failures of institutions of this character to meet punctually their engagements, solemnly admonish us that they can never be of any permanent utility, until the security to the public that their notes will be redeemed upon presentation, is increased, and they are thrown entirely upon their own resources, instead of Legislative indulgence. Twice, in the short space of two years, have they violated their obligations, and twice has that violation received legislative sanction. It is to be hoped, however, that a similar occurrence will not again take place, and that our Banks will prepare for resumption of specie payments at an early day, and, at least, take care of themselves for the future.

Having found no cause to change my sentiments in relation to the banking system generally since the date of my last message, it is unnecessary that I should enter upon that subject at length on the present occasion. The pernicious consequences inflicted upon the country by the operations of Banks, within the last few years, is too indelibly stamped upon every department of business to be misapprehended by the most sceptical. The fluctuation in the prices of labor, property and trade of every description, have kept pace with the alternate expansions and contractions of their issues; and whether the injuries thus sustained are attributable to their guilt or innocence, the effect upon the prosperity of the people is the same. So interwoven have the affairs of our cit izens become with those institutions, that it cannot be denied that they control and direct the circulating medium, commerce and wealth of the country; and not only so, they frequently wring from legislative bodies an acknowledgment of their utility, and exercise an influence over the public mind which it is difficult to overcome. Thus have they fortified themselves behind an almost invulnerable rampart, erected by encroachment, and justified by the tyrant's plea, "necessity."

Usurpations of whatever character are usually preceded with the persuasion that they are essential to the advancement of the people in the