A History of Banking in the United States/Chapter 11

by William Graham Sumner

CHAPTER XI.

The National Bank and the Local Banks Co-ordinated into a New System.

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§1.—Local Banks on the Atlantic Coast from the Liquidation of 1819-1822 until the Bank Expansion Produced by the Bank War.

T

HE panic of 1819, with the wide-spread bankruptcy of the banks having passed away, the isolated cases of bank failure, which nearly always involved fraud or folly in some great degree, attracted very great attention. In 1823, the Bank of the Northern Liberties of Philadelphia failed. The overdrafts were nearly equal to its capital. The Bank of Hudson failed, the loans to its officers being $143,794, of which $100,000 was uncollectible. The State Bank at Trenton failed in 1825, having $92,400 capital, and $339,238 debts. It refused its own notes as an offset to a judgment, but after some litigation was forced to allow it.^[1]

Massachusetts.—The Suffolk Bank was chartered in 1818. It was "required to appropriate one-tenth of its whole funds to loan to citizens of the Commonwealth, residing out of Boston, engaged in agriculture or manufactures, in sums not less than one hundred or over five hundred dollars, with interest annually, these loans to be secured by mortgage." "The State was at liberty to subscribe for an increase of stock equal to one-half of the paid up capital; to appoint a pro rata proportion of directors; and to borrow at any one time any sum not exceeding ten per cent. of the capital of the bank, payable at any time short of five years, at five per cent. interest; and its total liability to the bank was limited to 20 per cent. of the capital."^[2]

A committee of this bank to take into consideration the subject of country notes reported, February 24, 1819, "That it is expedient to receive at the Suffolk Bank the several kinds of foreign money which are now received at the New England Bank, and at the same rates. That if any bank will deposit with the Suffolk Bank $5,000 as a permanent deposit, with such further sums as shall be sufficient from time to time to redeem its bills taken by this bank, such bank shall have the privilege of receiving its own bills at the same discount at which they are purchased." "That should any bank refuse to make the deposit required, the bills of such banks shall be sent home for payment at such times and in such manner as the directors may hereafter order and direct."

The Bangor Bank failed in 1822, having a large circulation at Boston. "Some say that there has been first-rate swindling in this affair, which is likely enough. It is estimated that before the failure of this bank, the people of New England had suffered a loss of more than $1.3 millions by the failure of country banks."^[3]

The difficulties with the country notes continued, although they had been reduced in amount during the years 1820-24. "The money thus exchanged was partly received back by the issuing banks, at the same discount at which it was sold here by persons who had received it at par, they making the whole profit of the discount, and was put again into circulation by them at par; part was purchased at the discount for the purpose of paying shopkeepers, tradesmen and marketers, by rich men and others who received their income in Boston money, and who thus made an ignoble profit by making their payments in a currency baser than they would consent to receive; and part was occasionally carried home to the issuing banks for redemption, by brokers who were compensated for the trouble and expense by the premium paid in the exchange."^[4]

"After the New York banks had adopted (1824) the measure of receiving country bills, and among others those of the Connecticut banks, at par, Connecticut money became a convenient and profitable remittance from this city [Boston] to New York, and in consequence came into demand at a discount of a half per cent., while other current bills remained here at one per cent. This state of things threatened to withdraw the Connecticut bills from their forced circulation here, and to leave their place to be occupied by those of this State [Massachusetts], New Hampshire and Maine. To avoid this misfortune, and to aid in regulating more to its own advantage the circulation of this city, one of the banks of Connecticut actually made a deposit of $50,000 in one of the banks of this city, for the term of one year, without interest, to induce that bank to undertake the measure of receiving all current money at a half per cent. discount. In consequence of this measure of the Connecticut bank, and of some competition which it produced, the discount was soon after reduced to a quarter per cent."^[5]

On the first Suffolk Bank scheme, the associated banks contributed $300,000 in their notes in proportion to their capital. This was a fund for taking up the foreign notes received by all, redeeming them in those notes in the proportion of the subscription, and sending them home. The specie replaced the fund.^[6] This business was commenced May 24, 1824. "The country banks naturally were very much excited and loud in their opposition. They felt that the result must be the curtailment of their circulation, and the necessity of keeping a larger specie reserve. In derision they called the associated banks the 'Holy Alliance,' and some dignified the Suffolk Bank with the title of the 'Six Tailed Bashaw,' but they soon became convinced that a promise to pay, printed on the face of a bank note, meant a promise to pay in specie on demand." To the complaints the Suffolk Bank replied that they thought it "unnecessary to make any remark upon the right which one corporation has to demand of another the payment of its just debts," which was a very pertinent reply, since the complaints were a noteworthy revelation of the strange perversion of mind which reigned in the banks, in respect to the difference of obligation of debts to the bank and from the bank.

Within two years, the business grew very rapidly and took a somewhat different shape.

"The general arrangement made with the New England banks, which opened an account with the Suffolk Bank for the redemption of their bills, was as follows: Each bank placed a permanent deposit with the Suffolk Bank of $2,000 and upward, free of interest, the amount depending upon the capital and business of the bank. This sum was the minimum for banks with a capital of $100,000 and under. In consideration of such deposit the Suffolk Bank redeemed all the bills of that bank which might come to it from any source, charging the redeemed bills to the issuing bank once a week, or whenever they amounted to a certain fixed sum; provided the bank kept a sufficient amount of funds to its credit, independent of the permanent deposit, to redeem all of its bills which might come into the possession of the Suffolk Bank; the latter bank charging it interest whenever the amount redeemed should exceed the funds to its credit; and if at any time the excess should be greater than the permanent deposit, the Suffolk Bank reserved the right of sending home the bills for specie redemption. As soon as the bills of any bank were charged to it, they were packed up as a special deposit, and held at the risk and subject to the order of the bank issuing them. In payment the Suffolk Bank received from any of the New England banks, with which it had opened an account, the bills of any New England bank in good standing at par, placing them to the credit of the bank sending them on the day following their receipt."^[7]

In 1826, there was great stringency of the money market in New England; the rate of discount at Boston being from one and one-half per cent. to two per cent. a month. This was charged by some to the Suffolk Bank system. Specie was moving about quite actively on account of the necessary steps to set that system in operation.^[8]

In 1826, a regulation was adopted of passing money received at the banks to the credit of the depositor only at the expiration of ten days from the date of deposit. "It is now only the regular depositors at the eight allied banks who have the privilege of exchanging country bills for Boston at par. Even the Savings Bank receives only Boston money in deposit, and all payments to the seven other Boston banks, and to the United States Bank, are required to be made in Boston or United States money."^[9]

The oppression of the allied banks of Boston was so keenly felt that a convention was called of stockholders of country banks, at Boston, January 16, 1826, to take measures to crush the Boston alliance by means of a more formidable one. This convention recommended its constituents to withdraw their deposits from the Suffolk and to arrange for redemption amongst themselves so as to lessen their circulation in Boston.

Under the old system, those banks had gained the most which were farthest from Boston, because it was harder to send their notes home, while those country banks which were near at hand and whose notes could easily be returned, gained the least. The effect of the Suffolk system was to put the latter comparatively in a much better position. Their support probably insured the success of the system.

It is evident that the great gains of the Suffolk system, when it was in full operation, came from the fact that it exploited the ignorance of the country bankers, who were over-issuing on accommodation paper, falling in debt to the Suffolk Bank, fearing its power and hating it. It did not really keep them sound, but let them go wrong only to a certain point, holding them by a cord and making them pay for the indulgence.^[10] Appleton said, in 1831, that the gain to the Boston banks by the Suffolk system was largely lost by the increase of banks in the country, yet near to Boston, which had gained the most by it. As time went on, the system was extended until it embraced nearly all New England, and held the notes of that region very nearly uniform. There was, however, always friction in it between the city and country banks.^[11]

Rhode Island.—In 1826, it was stated that nearly one-third of the capital of the Rhode Island banks was loaned to directors and other stockholders. This accounted for the small proportion of notes in circulation.^[12] There were forty-three banks in the State, which was more than one for every two thousand souls.^[13]

Connecticut.—In 1825, some New York speculators took up the charter of the Derby Bank, which had wound up and gone out of existence, and put about $80,000 of notes bearing its name in circulation. It then failed. The failure, however, which has remained the most famous in southern New England was that of the Eagle Bank at New Haven. It had loans outstanding of $2 millions, of which $1.7 millions were bad, being in the hands of a single firm. The liabilities were $1.5 millions, nearly all for circulation, and the assets were only $300,000 on a liberal valuation. The notes were quoted at 50 cents on $1. The president was arrested and imprisoned, but he compromised and was released.^[14] There was a clause in the charter of this bank, of the kind mentioned above,^[15] that various ecclesiastical and educational societies might at any time subscribe shares at par, with their funds, which shares should not be transferable, but should be withdrawable on six months' notice. In the first case of trouble, of course, the question arose whether these were deposits or shares in the capital, involving the question whether the owners were debtors or creditors in bankruptcy. In the case of the United Society against the Eagle Bank,^[16] it was held that the society could not, after the insolvency of the bank, withdraw its shares or recover the amount as a debt of the bank. Its position was that of a stockholder. The case of the Bishop's Fund vs. the Eagle Bank,^[17] involved the same point. The Eagle Bank had also $80,000 or $90,000 deposited by the New Haven Savings Bank, "all money which it had received," at four per cent. interest. An attempt to break down the special assignment in favor of the Savings Bank failed.^[18]

New York.—The scandals which had occurred in the State of New York in connection with legislative charters for banks led the Constitutional Convention of 1821 to put a provision in the Constitution that a two-thirds vote of both Houses should be required to incorporate a bank. This provision proved entirely useless for its purpose. It only made it necessary to take more comprehensive and elaborate measures when attempting to secure charters, and strengthened the monopoly of note issue in the hands of the existing banks.^[19]

In 1824 the charter of the Chemical Bank of New York was connected with great political and legislative corruption. It was also mixed up with the election of that year.^[20] The lobbyists of the bank were indicted for using improper means to affect legislation.^[21] Forty-seven charters were applied for in New York in 1824. Niles said, "It is to be feared that we are getting mad again." There were seventeen banks and forty insurance companies already.^[22]

There was great prosperity at New York. Three thousand new buildings were being erected.^[23] In the spring of 1825 the exchange with England showed that our currency was as good as theirs and our mint was reported well supplied with bullion silver and foreign coin.^[24] There was abundance of capital, the stock of the Morris Canal and Banking Company was subscribed at Philadelphia twenty times over, and that of the Blackstone Canal at Providence three times over.^[25]

In 1825, the banks of New York City agreed no longer to accept on deposit the notes of country banks which did not keep a deposit and an account with them. The "Evening Post" said that the city banks had, within twelve months, been at the expense of sending home $25 millions of country bank notes for redemption; they had suffered losses by the Eagle Bank of New Haven, from not having persisted in sending its notes home.^[26]

In January, 1826, the applications for charters in New York City included twenty-seven banks with a capital of $22,500,000, thirty-one other companies with a capital of $14,300,000, thirty-six country banks with a capital of $13,200,000, thirty-nine other companies with a capital of $5,400,000, and fourteen additional companies with a capital of $5,500,000.^[27] A year later there was a legislative investigation of alleged bribery and 1obbying.^[28]

In order to escape the stringency of the New York law, several banks were also set up in New Jersey opposite New York, in order to do business there. In 1825-6, a number of these failed on account of more or less reckless or, as was alleged, dishonest banking. The two banks on Nantucket failed. They were one of Jacob Barker's jobs.^[29] It was another scheme for playing off banks at a distance against each other.

In January, 1826, occurred the failure, at New York, of the Marble Manufacturing Company, which had been founded by one Malapar, a French oyster-house keeper. He ran away, but we hear that he was admitted to the poor-house in 1834.^[30] In July there was a grand bank explosion at New York with trials for conspiracy. A large number of the companies which had been started in the preceding years were proved to be swindles. Two of the accused were sentenced to imprisonment for two years and two others for one year, but a year later the Supreme Court quashed the indictments for irregularity.^[31] The New Hope Delaware Bridge Company is a good specimen of one class of companies which were in fashion at the time. It had a charter for building a bridge across the Delaware river, with perpetual banking privileges, dating from 1812. The company failed in 1821 and their property was put in the hands of a receiver in 1824. In 1825 they issued new notes and failed again in 1826. We hear of them again, however, as making large issues of notes which were worth six to twelve cents on the dollar.^[32]

A law of December 3, 1827, enacted that the charter of every corporation that should thereafter be granted by the Legislature should be subject to alteration, suspension, and repeal.

Two pamphlets on banking were published at this time, which are worth noticing on account of the influence they had on public opinion and probably on legislation. McVickar^[33] maintained that banks were not necessary to support credit or supply currency. Credit supports banks, not vice versa. Law cannot regulate credit. The present system of banks is "in too many of its features, a dark and disgraceful picture." Contraction is a policy by which banks save themselves and ruin the community after leading it into error. The great fault of the banks is that they are not founded on real capital. He proposed a system of free banking, the capital to be invested in stocks, etc.; the fundamental idea of the free banking law of 1838. In "A Peep into the Banks," the anonymous author criticized adversely a project which was then proposed for a Bank of the State. "The time was," he says, "when to get a bank, it was thought necessary to have money to put in it; now men get a bank charter for the contrary reason,—because they have no money and want some. Fools and knaves in their individual transactions obtain little or no credit, but when congregated by a legislative act, have too frequently been invested in the eyes of humble but honest and industrious mechanics with a dignity and importance that have been alike ruinous to the possessor and beholder."

By an act of April 2, 1829, in accordance with a recommendation of Governor Van Buren, the safety fund system of banking was established in New York. There were forty banks whose charters were about to expire. In a work on "Banks and Banking in the State of New York" by A. C. Flagg, the system is said to have been imitated from a combination of the Hong merchants in China for mutual support. Hammond says^[34] that it was invented by Joshua Foreman. The notes were not to exceed twice the capital paid in, and loans were not to exceed two and a-half times the capital. Each bank was to put in the hands of the Treasurer of the State annually one-half of one per cent. of its capital stock until it had paid three per cent. of its capital. The fund thus constituted was to be used to pay the circulation and other debts of any one of the included banks if it should become insolvent, and if the fund was thus diminished, it was to be restored by pro rata payments as before. After the three per cent. fund was constituted, the accumulations were distributed amongst the contributing banks, unless the insolvency of some of them drew the fund down below its normal amount. The banks were thus to be compelled to watch each other.

Experience quickly developed two great faults in this system; the responsibility of the safety fund for all the debts of the bank, and the rating of the contribution to the fund on the capital and not on the circulation. Isaac Bronson touched the weak point of it, saying: "But it is not perceived how the Commissioners of the safety fund are to have any influence in preventing all the banks in the State from suspending payment at once." All the banks, he thought, would continue to issue paper, as in the past, if the exchanges should continue favorable, and if there were no restraints by a national bank.^[35] This was exactly what happened. Gallatin, in his Essay of 1841, made the following criticism: "The annual tax of onehalf per cent., imposed under the name of 'a safety fund,' is unjust towards the banks which are well administered, and injurious to the community at large. To make a bank responsible for the misconduct of another, sometimes very distant, and over which it has no control, is a premium given to neglect of duty and to mismanagement, at the expense of the banks which have performed their duty and been cautiously administered. That provision gives a false credit to some institutions, which, not enjoying perfect confidence, would not otherwise be enabled to keep in circulation the same amount of notes; and it therefore has a tendency unnecessarily to increase the amount of paper money. The fund would be inadequate in case of any great failure; and it provides at best only against ultimate loss, and not at all against the danger of a general suspension."^[36]

The New York City banks opposed the scheme because it would reduce them to the level of the country banks, and they refused at first to come into the system, but afterwards did so. The number of banks with which it started in was thirty-one. Contributions were first made to the fund in 1831. There were three Bank Commissioners to supervise the system and report on it annually to the Legislature. The Governor appointed one Commissioner with the consent of the Senate. The banks in the southern part of the State named the second and the other banks the third.

The first number of the New York "Sun," September 3, 1833, is a sheet of four pages, eleven by nine inches in size. One column, that is onetwelfth of the whole paper, is taken up with a list of banks in and near New York City, with a statement of their standing. On the whole the showing is not very bad, but we may see what interest such information had for all the people of that time and how important it must have been for merchants and others to study this column.

In Pennsylvania the act of March 2, 1817, prohibited under a penalty the issue of any notes or tickets for less than $5 except by banks duly authorized, and also prohibited any bank to issue such notes after the 1st of October following, thus withdrawing a privilege which had been granted December 28, 1814. Small notes, however, came in from Delaware, New Jersey, and New York. The attempt to forbid these notes was frustrated from a fear that if they were excluded the people would have no money.^[37]

On account of the lack of small notes the Bank of North America was allowed, in 1819, to issue 1's and 2's "on the best paper."^[38] Niles timidly proposed that some Maryland bank should be allowed to do the same. A month later he complained of the flood of small notes.

In the early part of this century, as we have already seen, all the operations of banking were carried on with great secrecy. "A Friendly Monitor" writing in 1819, said that he had found great difficulty in obtaining information about the Bank of the United States. "If I ask a director, the seal of his finger is significantly impressed on his lips. There is a species of masonry in banking which to a certain extent is highly proper and necessary. It implies a mutual pledge among the directors that nothing shall be divulged which may be prejudicial to the interests of the bank." The banks of Pennsylvania made no regular returns to the Legislature until after 1817. Then annual accounts were published, but for many years before 1833 the Banks of Pennsylvania and North America had made no return.^[39]

The forty banks which had been chartered in 1814 sought a renewal in 1823, but in vain. They were, however, all re-chartered in the following year. By a law of Pennsylvania, in 1823, every note of the Camden Bank in New Jersey was made liable to forfeiture in Pennsylvania, the one who tendered it to pay the costs.

On account of the scarcity of money there were loud demands for a national currency.^[40]

One of the most elaborate statutes of this period to try to prevent the suspension of specie payments by the banks was enacted in this State in 1824. If payment in specie was refused the noteholder was to have six per cent. interest for three months, when he must make a new demand. If refused he was to have interest for another three months and so on. The cashier or president was bound to endorse the date of refusal on the note, or he became liable to the holder for the sum of $25. "Upon the refusal to pay, after three months from the first refusal, it shall be lawful for the holder to make application to any Judge of any Court to allow him or her to make proof of said refusal, on oath or affirmation, by one or more disinterested witnesses, whose duty it shall be to give at least ten days' notice to the president or cashier of such bank, in order that an opportunity may be afforded for rebutting the same. If the facts be substantiated, it shall be the duty of the said Judge to reduce the same to writing and transmit it to the Governor, who shall issue proclamation declaring the charter forfeited. After the tenth day of the proclamation the charter shall be absolutely null and void." "In case of suspension it shall not be lawful for such bank to issue its own notes, except to claimants of deposit moneys, or make any new loan, until said bank shall pay, in gold or silver, its obligations. If such note be issued, the directors shall be liable, each in his individual capacity to pay the amount thereof."

At length, April 12, 1828, small notes were prohibited by law in Pennsylvania, and the prohibition appears to have been more effectual than it generally was in other places. After some struggle, the small notes of the neighboring States were excluded and silver came into use.^[41]

The new Constitution of Delaware, 1831, required a two-thirds vote for the passage or renewal of any act of incorporation, with a reserved power of revocation by the Legislature; and such acts could only run for twenty years.

Maryland.—The banks of Baltimore adopted a resolution, September 7, 1820, to withdraw all notes under $5 and to allow no small notes to circulate.^[42] As a condition of a renewal of their charters, in 1822, they agreed to build a piece of the Cumberland road, about ten miles long, the only part which was lacking between Baltimore and Wheeling.^[43]

An earnest effort was made in Maryland, at the session of 1829-30, to establish a Bank of the State; but it was defeated in the House, 46 to 23.^[44]

North Carolina.—After the stress of the war passed away, the difficulties of the State finance ceased. In 1820, there was a surplus in the treasury which the Treasurer was directed to invest in bank stock. In 1823, a further issue of treasury notes was ordered to the amount of $100,000, in denominations of five to seventy-five cents, receivable for dues to the State. It appears that they were not needed for State expenses, so it was provided that they should be issued in exchange for specie or bank notes, which was to be expended for bank stock; so that the State manufactured and sold a State paper issue, in order to buy bank stock. In 1824, the Treasurer was directed to invest his balances in bank stock until otherwise ordered, or until a bank should be established on funds of the State. In the following years dividends on bank stock appear in the revenue of the State. In 1828, the Treasurer bought stock in the Bank of the State at 90 and in the Cape Fear and Newbern Banks at 80. He reported in that year that $106,469 in treasury notes had been burned, out of the $262,000 which had been issued in 1814, 1816, and 1823, as above. He said that those still out were very ragged and dirty. In the same year commissioners were appointed to vote on the State shares in the banks. They were instructed by law "not to give their consent to any proposition or regulation for the too rapid reduction of the debts to said banks, or to the too sudden winding up of the affairs thereof;" also to inquire and report on what terms the existing banks would merge in another bank to be made. During the first part of 1828, North Carolina notes were at from five to twelve and one-half discount at Philadelphia. The South and Southwest were flooded with them.^[45] This state of things appears to have led to a special investigation by a legislative committee at the session of 1828-9.^[46] Raguet says that the banks of North Carolina had long refused specie payments. "A law was proposed but not enacted which has induced them to call in their issues, the commencement of which has produced such an alarm throughout the State that the grand jury in several counties have recommended a special call of the Legislature in order to prevent a measure which they have the folly to believe will ruin the whole people."^[47]

The Committee of 1828-9 declared that the banks made usurious contracts, lending depreciated paper to be repaid with specie funds, and that they purchased their own notes at a depreciation. The Bank of the State put out its own notes in the purchase of cotton, and at one time they adopted a rule that any one who demanded specie must take an oath that he was not a broker. It is in evidence that the Bank of the State has made false statements to the Legislature of the amount of specie on hand. It counted under that head stock of the United States Bank, which it had bought in violation of its charter. The amount of actual specie now in the Bank of the State is certainly not $1,000. This bank is now considering whether it will not wind up. It holds the notes of the people for more than $5,000,000. They proposed that the Attorney-general should be instructed to institute a judicial inquiry into the conduct of the banks, but it does not appear to have been done.^[48]

The Bank of the State declared two and a-half per cent. dividend; the Bank of Cape Fear four per cent., and the Bank of Newbern four per cent. for the year 1828.^[49] At the session of 1829-30, the State Treasurer was directed to call for returns from all the banks, as to the debts of directors and stockholders, and the amount of stock notes then due. The statement of the Bank of Newbern, in January, 1829, showed cash liabilities $961,041; cash assets $115,768. The bills receivable were $1,427,216. In a note, it is stated that this report is as correct as can be made, on account of the confused state of the books. The accounts of the late cashier were under investigation. The defalcations of all persons in positions of trust during this entire period constitute a social feature. Some States carried along, as an appendix to their session laws, a list of persons through whose hands public money had passed, and who had failed to return it. The accountability which is a test and guarantee of all financial affairs grew up very slowly, and, in the early part of the century, was extremely weak. The lack of it went far to account for the calamities of banks. The great banks in the southern and southwestern States furnished lamentable proofs of the effects of a want of it.

Acts were passed to enable the Bank of the State, the Bank of Newbern, and the Bank of Cape Fear to wind up "gradually, and to fix a uniform rate of collection."

The new Bank of the State of North Carolina^[50] redeemed the issues of the Bank of the State, with which we have been acquainted up to this time, and of the Bank of Newbern.^[51] The affairs of the old Bank of the State were closed in 1837, a dividend of six per cent. being awarded.^[52] The dividends on the State stock, in the Bank of the State and the Bank of Newbern, were employed in retiring the treasury notes, which were burned; but in 1836, $50,887.75 of them, of the issues of 1814, 1816, and 1823, were reported still outstanding.^[53]

South Carolina.—The charters of the State Bank and the Bank of the State of South Carolina were extended December 2, 1822, for twelve years, each to pay a bonus to the State of $20,000. The Dorchester Free School was authorized to pay all its funds into the Bank of the State; the profits on the same to be paid by the bank to the commissioners of Dorchester. The Bank of Hamburg was chartered in 1822 to last until 1837, and the Bank of Cheraw in 1824, to last until 1836.

There appears to have been some difficulty in the Bank of the State, in 1824, when a committee was appointed to investigate it and report whether there had been any mismanagement. Perhaps as a consequence of this, private stockholders were allowed to be admitted by a law of December 20, 1826. Commissioners were to be appointed to value the existing assets, which the State should make equal to $1.2 millions; individuals might subscribe $1.6 millions, paying $20,000 bonus on each million. The charter was to be extended until 1848, but after 1840 the State might withdraw its capital. The next year another law was passed for the same purpose; but either the plan failed or the opponents, who wanted the bank to remain a purely State institution, prevailed; for the act was repealed December 19, 1828.

One Billis, having altered a note of the Bank of the State, pleaded on his trial that it was a bill of credit. The Supreme Court of the State decided to the contrary, laying stress on the fact that the bank had a real capital on the credit of which the notes were drawn.^[54] A debt to this bank was held not to be a debt to the State having such priority as a debt to the State would have.^[55]

Georgia.—The Committee on Banks reported in 1824 that all the banks were sound. The same report was repeated a year later by a committee which had been examining them during the recess, but they added that there were not banks enough, for which reason the notes of out-of-State banks circulated. December 20, the Marine and Fire Insurance Company of Savannah was incorporated with banking privileges, and, December 24, the Bank of Macon, with $300,000 capital on which the State had an option of $50,000; to last until 1850.

By Joint Resolution of May 31, 1825, it was ordered that the Treasurer should take Darien notes in all payments to the State, They were then at fifteen or twenty per cent. discount.^[56]

A law of December 22, 1826, provided that if any bank or broker should collect the notes of any bank and present them for redemption, not more than four per cent. interest should be paid on them. If any one who demanded specie was suspected of being the agent of any bank, he might be put to oath, and if he acknowledged that he was such, he could obtain only four per cent. per annum on the amount he held. Individuals, except brokers or their agents, were to have the same rights as hitherto. The charter of the Bank of Augusta was extended December 22, 1826, until 1850, and the capital might be increased to $600,000. The charter of the Marine and Fire Insurance Company was amended December 24, 1827, so that if its notes were presented for redemption by any bank, it might redeem them with the notes of that bank; and that its branches might be compelled to take only each its own notes. December 26th, the Merchants' and Planters' Bank of Augusta was chartered; capital, $300,000; $20,000 at the option of the State. This charter contained a new provision similar to that which was common in Connecticut,^[57] that any religious, charitable, or literary institution incorporated by the State might deposit not more than $50,000 and have scrip for it at par of the stock, entitling it to dividends on the same terms as the stockholders. If it was desired to sell this stock, it must first be offered to the bank at the price paid for it. This bank was to last until 1858.

The Committee on Finance reported, December 22, 1826, that the cash balance in the treasury of the State was $792,122. Of this $590,301 was in notes of the Bank of Darien. November 21, 1827, the same Committee recommended the acceptance of an offer by the Bank of Darien, to pay in notes such as were receivable at the treasury, $75000 each half year until its notes in the treasury were redeemed. The amount, December 11th, had been reduced about $100,000; the remainder was sealed up in six packages of varying amount, and left with the Treasurer. In 1826, the notes of the State Bank of Georgia were quoted at Philadelphia at four discount; at the end of the year they were a little worse than the other Georgia notes.^[58]

The Central Bank of Georgia was another attempt to construct a great Bank of the State, as an improvement on the existing bank which bore that title. It was incorporated December 22, 1828, and founded on the funds of the State. The surplus in the treasury, the shares owned by the State in the Planters' Bank, Bank of Augusta, of the State, and of Darien, with all the credits and unliquidated claims of the State were put in the capital. The directors were to collect all these, but were to give extensions to the debtors of the State such as were customary on accommodation paper. The revenue from taxes and dividends was to go into the bank; the Governor to appoint three directors, each of whom was to give $100,000 bonds, and the cashier the same; to discount notes of two or more endorsers; debts not to exceed the capital; to last until 1840; all accommodation notes to be renewed every six months, six per cent. interest being paid in advance. The directors "shall loan as much money upon accommodation paper as the interest and safety of said bank will permit," and not call for more than 20 per cent. per annum on these loans unless the exigencies of the bank require it. The directors were to prepare notes as soon as they should be appointed, and to draw on the Governor for the expense; they were to "distribute their loans as equally as practicable among the citizens of this State, having due regard to the population of the different counties;" maximum loan to be $2,500; never to issue more than the aggregate it possessed of the notes of other chartered banks of the State and United States Bank notes and specie; to take no note for collection; to be suable. There was no provision for redemption of the notes. By an amendment to this charter, December 19, 1829, it was provided that debtors to the State for land might have their notes discounted in this bank, and upon filing with the Surveyorgeneral a certificate of the cashier "that his said debt has been fully settled by note or notes," such debtor may demand of the. Governor such a title as he would have obtained on full compliance with the original contract. In the Central Bank of Georgia vs. Little,^[59] it was decided that a debt to this bank was not on general principles such a debt to the public as would have priority of payment from a decedent's estate, but the Legislature could give priority to debts to the bank and it had done so by the charter. As to the bank, the State had divested itself of its sovereign character. "Bills of credit * * * are such as are drawn or issued by the State upon the general credit thereof, without the appropriation of any specific fund for the payment or ultimate redemption of such bills."

It appears that the notes of the Darien Bank lying in the treasury^[60] were amongst the assets which were delivered to the Central Bank. The contract with the Darien Bank that it should pay $75,000 every six months was re-affirmed, and the Central Bank was forbidden to demand more, December 22, 1829. A Legislative committee had reported, at the beginning of this session, in November, that the Darien Bank was sound again; that its notes were at par, having recovered from great depreciation; and that it had emitted new notes, which it was fully within its power to redeem. All the other banks were also reported to be in fine condition. A report was also made on the Bank of the State of Georgia, which dealt chiefly in complimentary commonplaces, as indeed all the other reports about banks at this session did; but the following passage occurred in it: "The Bank of the United States, wielding an immense capital, with powers more dangerous and imposing than ever were intended to be granted by the State, has and will, during its corporate existence, have a blighting influence on the State institutions, which will be felt as that influence is used by those who direct its operation and regulate its intercourse with the State institutions." This appears to show that the friction of 1820 had left an enduring inflammation behind.

A heavy fine was laid on the issue of notes under $1, November 25, 1830. All previous penalties which had been laid were remitted if the issuers would make tax returns and pay taxes on their capital.

 

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In March, 1828, there were said to be excessive exports of specie. "Gold has disappeared." The banks were in distress, but dray-loads of specie were coming into Baltimore, or rather passing through, for three hundred thousand dollars' worth of it is said to have been sent on, and Niles reckoned up seven hundred and fifty thousand dollars, "which New York has gathered to herself within a few days, the whole of which is probably on its way to England."^[61] He tried to connect all this with the tariff, especially as it affected wool, but he had recorded, just before, the fact that there was a loss on all the dollars brought from Valparaiso and that it would have been profitable rather to bring wool and sell it at cost, if there had been no duty.^[62] He always used the importation or exportation of specie as an indicator of prosperity or the reverse. He was now compelled to change his argument, which he did by saying that the exportation of specie proved that there was no reciprocity in trade. The Americans worked for specie only to send it to England.^[63] The Baltimore Bank would take only notes. which were depositable in New York and Philadelphia.^[64] There was a great stringency in money and fall in prices. The auctions were said to be crowded with goods from England. With exchange at 111 and discount rates high, United States Bank stock advanced, being used probably as a remittance.^[65] In October of 1830 specie was flowing into the United States in abundance. It was being exported from England both to the United States and to the Continent.^[66] In January, 1830, the influx of specie had become an incumbrance. The banks did not have room in which to keep it.^[67] Niles says that this is the good result which he had promised, yet he states that the Baltimore banks would not pay the cost of bringing silver from Philadelphia to get it. Capital was plentiful. He puts the specie in the banks of the United States at thirty million dollars, besides ten million dollars in circulation.^[68] In April he says that great sums have been sent to the United States for investment, through the Bank of the United States, on account of apprehensions in Europe.^[69] In October we find him complaining once more that money is very scarce among all who depend on bank accommodation, and that six or seven millions of dollars have lately departed for England. Prices are falling under forced sales.^[70] In 1831 the Bank of England exported specie and curtailed its circulation.^[71] In February, 1832, there are complaints of a great stringency of money and exportations of specie with bankruptcies because banking assistance is refused. There is a great contraction of the currency.^[72] In the same month McDuffie, in a report to the House, said that there was "not nearly enough money afloat to meet the general demand for it."

In the decade from 1820 to 1830, the banks of the Atlantic coast settled down to a system of circulation banking. Out of the troubles of the second decade, some rules and maxims for this kind of banking had been developed, and some men had been trained by experience to its methods. In fact, the system of banking which Hamilton had introduced might be regarded as now operating according to his theory of it, and the Bank of the United States was now acting as a regulator, according to the theory. Gouge, who had studied this system in its operation more thoroughly and with more intelligence than anybody else, maintained that it was a system of alternate expansions and contractions. The years of expansion and "good times" were 1821, 1824, 1827, 1830-31. The years of crisis and "hard times" were 1822, 1825, 1828-9, 1832.

That the system should have tended to these heats and chills seems a necessary consequence of its character. There was no limit to the bank note issue, except the utmost which each bank could keep afloat. The Specie reserve was made as small as the banker dared to risk. This specie became the vital nerve of the entire economic system of the country. The jealousy with which it was watched over seemed sometimes ridiculous and sometimes tragic. When things seemed prosperous and the exchanges were favorable, the banker put out his circulation. When one did it, the others did it, and the consequence was a general inflation. Presently the issue became excessive. The exchanges turned and a little specie was shipped. Thereupon, the vital nerve being touched, a shock went through the entire system. Discounts were refused; loans could only be obtained through brokers at extravagant rates; the circulation was contracted very suddenly; the commercial system was arrested; then industry stopped; production was reduced; wages were lowered; and finally the farmers, so far as they were debtors, were reached. This severe remedy operated a cure, and all were ready to begin again. This course was not accomplished, of course, in its complete round every few months. The minor fluctuations touched only the first mentioned part of the industrial organization. The greater ones produced little crises. The banks, generally speaking, sowed the storm and left others to reap the whirlwind. Considering the fact that the bank circulation was very strictly localized, it is possible that the expansions and contractions may have had that prompt effect upon prices which Gouge, Raguet, and others attributed to them. Amongst the evil influences which intensified the effects of these methods, the usury law must be put amongst the very first. Nine-tenths of the evil practices of the banks were due to attempts to evade that law in obtaining rates which were legitimately theirs by the operation of the market.^[73] If they had been allowed to operate on their discount rate, they would have had less motive to operate on the amount of their circulation.

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§ 2.—The Bank of the United States from Biddle's Accession until the Bank War.

Nicholas Biddle was appointed a government director of the Bank in 1819, and was elected a stockholders' director in 1820. After some contest, he was elected president of the Bank November 25, 1822. The struggle was between two parties in the Bank,—a conservative party, which was satisfied with Cheves's administration, and another which wanted a more enterprising policy. The latter party thought it bad policy to make such a free exposition of the affairs of the Bank as Cheves made in his report of 1822 which was laid before the triennial meeting of the stockholders.^[74]

The Bank held 37,954 shares of its own stock; forfeited collateral. Cheves considered this a useful reduction of a capital which was quite too large. The strictures passed by him in this report on the operations of Smith, Williams, and Buchanan called out a protest from Williams which was sarcastic and angry; but he did not even take up a single one of the allegations of fact. A committee of the directors resolved that Cheves had "fully and satisfactorily proved the facts detailed in his statement of the past and present condition of the Bank."

Biddle took charge of the Bank in January, 1823, when he was only thirty-seven years old. He was of a sanguine and poetical temperament, and it is only fair to him to emphasize the fact that he was surrounded and urged on by a party which applauded bold financiering; at least as long as they could win under his leadership. Nathan Appleton, in the retrospect of Biddle's career, said that it was the opinion of those who watched him "that he was a bold navigator; that he kept his ship under a press of sail, relying upon his skill in taking in canvas in case of a squall; of which he has occasionally given us evidence himself."^[75]

When Biddle took charge, the circulation was $4.3 millions; the specie, $4.4 millions; the public deposits, $2.7 millions; credit of public officers, $1.5 millions; private deposits, $3.3 millions; loans, $30.7 millions; public stocks, $11 millions.

The Bank had petitioned Congress, in 1818,^[76] for an amendment to the charter to allow some other person than the president and cashier of the parent Bank to sign the notes; but the petition had been refused. This labor was very great, the circulation then being over $8 millions. The reason for not letting any one but the president and cashier of the head bank sign the notes was that the variety of signatures would make the notes non-uniform, which was one of the evils the bank was intended to correct. The Senate authorized the appointment of special officers for this duty, but the House declined, chiefly, as it appears, on the ground that the big Bank would get too much power over the local banks. Smith of Maryland said that the officers could not sign more than fifteen hundred notes each day, in view of their other duties.^[77] The same petition was renewed in 1820 and again in 1823. In the latter petition, which was made the subject of a report of a committee of the House of Representatives, it was prayed that the part of the charter might be changed which provided that no director, except the president, should be eligible for more than three years in four; that a law should be passed providing for the punishment of persons convicted of fraud on the Bank; that the Board might be authorized to appoint persons to sign notes of the smaller denominations at the parent bank; that the notes of the Bank might be made receivable by law in payments to the United States only at the bank or branch where they are made payable. The committee reported against the first point; in favor of the second and third. In regard to the fourth point, they say that the existing regulation operates as a practical prohibition to issue any notes in the western States and to a like prohibition to issue them to the South during six months in the year. They propose, therefore, that this request also be granted. The document is in fact an exposition of the difficulty in which the Bank found itself, with branches scattered all over the country, in each district of which there was a strictly local currency, while the notes of the national Bank were to be maintained at an equal value everywhere. This committee argue that if the notes of the branches also had only local circulation, specie would be drawn and transmitted when the exchanges so required, and that the expense of this would provide the required check and guarantee on the transactions. No action was taken.^[78]

The liquidation had reached such a point, in 1823, that the currencies of the different States were all substantially equal on the Atlantic coast, having all been brought to par. The Bank of the United States therefore yielded on the point about receiving branch notes; but it is a significant fact that those notes of large denominations were quoted at one-quarter of one per cent. discount at Philadelphia in 1824.^[79] The usage of the Bank in 1830 was to redeem all its five's everywhere, and generally any small amount anywhere.

It was a trifling incident, but an unpopular one, that the Bank of the United States, in 1823, reduced the rating of pistareens from twenty cents to seventeen cents; It was a necessary consequence of the restoration of the currency to specie value.

The directors of the Bank resolved, December 2, 1823, to "operate in exchange." In the next two years, the active capital was increased by the sale of $3 millions or $4 millions worth of stock which had been forfeited in the stock jobbing operations of 1818. In the same years it took government loans of $10 millions. Gouge asserts that this proceeding brought it and all the other banks in the country, in 1825, to the verge of suspension.^[80] It is certain that the crisis here preceded that in England and was not a direct consequence of it.

Raguet says that formerly the banks of the United States only discounted notes payable on the spot, and if for accommodation they discounted a bill payable at a distance, it was done on the same terms as if on the spot, no profit in the way of exchange being expected. The Bank of the United States began the business of dealing in inland bills of exchange, buying and selling bills on all points where it had branches upon terms which gave it a profit. He regards this dealing as mischievous for reasons which are connected with the expansions and contractions of the currency; that is, at different places the Bank makes money easy when it wants to sell bills and tight where it wants to buy them. He represents the Bank as trying to act as the arbiter of exchange. This had been claimed as a merit on its part by its friends. The suggestion is that the Bank creates and overrules the exchange and does not follow the market.^[81]

April 9, 1825, seven expresses arrived at Philadelphia from New York in one day with news of a great rise of prices in the markets of Liverpool and London. All prices advanced, especially cotton. In July the price of cotton fell 3d. a pound at Liverpool. This produced a crisis in New York with many failures. "Many of the banks were in great difficulties. Several of them broke, and such were the straits of the United States Bank that one of the directors talked publicly on the exchange at Philadelphia of the expediency of suspending specie payments." Biddle wrote that the storm passed over this country a few weeks earlier than over England. He had never felt any uneasiness about the banks of this country except on that occasion. October 1st, the government paid off a loan of $7 millions, nearly half of which was payable at Philadelphia, whereby the United States Bank was brought in debt to the local banks of Pennsylvania and New York. It sold its funded debt for nearly $2 millions, and some bank stock besides, and extricated itself by November 1. Two circumstances increased the difficulty: a demand for specie for the British army in Canada and a demand for specie to found a bank at New Orleans. "I went immediately to New York," says Biddle, "where I sought the gentleman who was preparing to draw specie from the banks of Philadelphia in order to send it to New Orleans, and gave him drafts on that city. These drafts were not given to protect the Bank itself, which was then a creditor of the Philadelphia banks for more than the amount of them, but they were employed to arrest from these city banks a drain which could not fail to embarrass them." He declared that he had met the panic by an increase of the loans of the Bank at that time.^[82]

The specie in the Bank of the United States in July, 1821, was $5.8 millions. It declined to $3.3 millions one year later. Then it increased steadily to $6.7 millions, January, 1825. In July it was down to $4 millions, and in the following January to $3.9 millions.^[83]

In 1827, the Bank renewed its petition with regard to the compulsion on the chief officers to sign the notes; once more in vain. This led to the revival of the use of branch drafts. They were drawn by the cashier of any branch on the parent Bank, to the order of some officer of the branch, and endorsed by the latter to bearer. They then circulated like bank notes. At first the denominations were five's and ten's. In 1831, twenty's were added. They were also payable at the place where issued. Binney, Wirt, and Webster gave opinions that these drafts were legal. The Secretary of the Treasury approved of them and allowed public dues to be paid in them. They were a most unlucky invention. Most of the subsequent real trouble of the Bank can be traced to them. Immediately upon their re-introduction, the "race-horse bills" reappeared,—that is, drafts drawn between the different places where there were branches, so that a bill falling due at one place was met by the discount of a bill drawn on another place. The name, which is said to have been invented by Cheves, was derived from the nimbleness which was required of the drawers to keep up with the system. The device largely robbed the Bank of the control of its own business.

The receipt of branch drafts at New York in 1828 was nearly $12 millions and in 1829 over $11 millions. The total receipt of them in 1828 and 1829 at Philadelphia, New York, Baltimore, and Boston was over $37 millions. They became the medium with which the South and West paid for its purchases.^[84] Gallatin said of them that they "are of the same character, depend on the same security, and in case of failure, would share the same fate with bank notes. Though not usually included in the amount of the circulation of the Bank, we cannot but consider the average amount in actual circulation as making part of the currency of the country."^[85]

In December, 1827, the Bank of the United States was able, by putting out its branch drafts to stop the circulation of the notes of the Cape Fear Bank of North Carolina. To this operation of the branch drafts Gouge attributes in part the difficulties of 1828.^[86]

At the triennial meeting of the stockholders, in 1828, the enthusiasm was very great over the good management and prosperity of the Bank. The increase of the value of real estate at Cincinnati made it probable that the loss there would be recovered. The suspended debt was $7.1 millions. The whole anticipated loss was $3.1 millions, to meet which there were reserves, etc., for $2.9 millions. The domestic exchange business was $22 millions, on which the profits were nearly half a million. The circulation was $13.4 millions; the specie $5.8 millions; the loans $31.5 millions.^[87] Commenting on this report, Niles said: "The Bank now appears devoted to the purposes for which it was instituted, with much steadiness and great care, and, on that account, deserves well of the country," but he clung to his conviction of its unconstitutionality. He apprehends trouble from the multitude of five-dollar notes issued by the branches, many counterfeits on them being already in circulation. These are facilitated by the great number of different signatures. The last detail shows that he means branch drafts.^[88]

There was great popular suspicion and jealousy of the operations of domestic exchange at this period. The charges were thought to be unwarranted, which the Bank made for drafts between different places. If the great Bank secured through its branches, as it appears to have done, all the internal exchange business of the entire country, it would indeed, by promising to pay everything, never need to pay anything, but settle the whole by bookkeeping balances. It appears that it charged only such rates as might be considered a commission for the facilities thus offered. The best proof we have of this is in a statement of the inconvenience which was suffered, and the greater expense which was incurred, after it was destroyed.^[89] Wickliffe declared in the Senate of Kentucky, in 1838, that one purpose of chartering the Southwestern Railroad Bank, was to "redeem the trade of the South and West from the shameful brokerage and shaving on the exchanges practiced by the banks of the South and West since the fall of the United States Bank."

On the other hand Nathan Appleton affirmed that "The late United States Bank took care to charge the highest rates for exchange which the alternative of transporting specie would admit." Biddle acquired a very thorough understanding of all the movements of trade inside of the United States. In an Essay published in 1828, he describes some of these operations: "A merchant borrows from the bank and sends abroad $100,000 in coin or he buys bills from one who has shipped the coin. With these he imports a cargo of goods, obtaining a long credit for the duties, sends them to auction where they are sold, and the auctioneer's notes given for them. These notes are discounted by the banks, and the merchant is then put in possession of another $100,000 which he again ships and thus he proceeds in an endless circle, so long as the banks by discounting his notes enable him to send the coin and tempt him to do so by keeping up prices here by their excessive issues. The banks, therefore, begin by diminishing or withdrawing these artificial facilities, leaving the persons directly concerned in this trade to act as they please with their own funds, but not with the funds of the banks. The immediate consequence is that the auctioneers can no longer advance the money for entire cargoes; that they no longer sell for credit but for cash; that the price of goods falls; that instead of being sold in large masses they are sold slowly and in small parcels, so that the importer is not able to remit the proceeds in large amounts. This diminishes the demand for bills and for specie to send abroad. * * * Time is thus gained until the arrival of the southern exchange which will supply the demand without the aid of coin and then everything resumes its accustomed course."

Upon this occasion it suited the Bank to stand off from the market, and Biddle made the following exposition of the policy which it had pursued. As we shall see, on other occasions, when it suited his purpose to adopt the policy of interference and paternal control, he found grounds for that as good as those he here gives for the let-alone policy.^[90]

He says that the exportations of specie in the winter of 1827-8, and the imports of goods were very large. The cotton bills were late in coming forward, so that the demands for payment fell on the vaults of the Bank. "Such an effect was to be averted without loss of time. The directors of the Bank of the United States, as was their natural duty, were the first to perceive the danger, and the Bank was immediately placed in a situation of great strength and repose." He thinks that but for the restrictions placed by the Bank of the United States on the local banks the latter would, within the previous six weeks, have been brought to the verge of insolvency. He says that the people are extragavant and contract debts imprudently. "The Bank of the United States is invoked to assume that which whoever attempts deserves the ruin he will suffer. It is requested to erect itself into a special providence, to modify the laws of nature, and to declare that the ordinary fate of the heedless and improvident shall not be applied to the United States. * * * But if the Bank of the United States blends any sense with its tenderness, it will do nothing of all this." The most remarkable passage in the essay, however, is the one which describes banking on a mixed currency. The writer was a master of the art he described, and the literary merit is so high that the passage is fit to be incorporated in a text book of the subject. "The law of a mixed currency of coin and paper is that when, from superabundance of the mixed mass, too much of the coin part leaves the country, the remainder must be preserved by diminishing the paper part, so as to make the mixed mass more valuable in proportion. It is the capacity of diminishing the paper which protects it. Its value consists in its elasticity; its power of alternate expansion and contraction to suit the state of the community, and when it loses its flexibility it no longer contains within itself the means of its own defense and is full of hazard. In truth, the merit of a bank is nearly in proportion to the degree of this flexibility of its means." If a bank lends on long terms with renewals, its debts cannot be called in at once, while its notes are payable on demand. "This is the general error of banks who do not always discriminate between two things essentially distinct in banking, a debt ultimately secure and a debt certainly payable." If a bank which lends only on short business paper finds its coin called for, it lends less every day than what is paid in. "The operation proceeds thus: by issuing no new notes, but requiring something from your debtors, you oblige them to return to you the bank notes you lent them or their equivalents. This makes the bank notes scarcer; this makes them more valuable; this makes the goods for which they are generally exchanged less valuable, the debtor in his anxiety to get your notes being willing to sell his goods at a sacrifice; this brings down the prices of goods and makes everything cheaper. Then the remedy begins. The foreigner, finding that his goods must be sold so low, sends no more; the American importer, finding that he cannot make money by importing them, imports no more. The remainder of the coin of course is not sent out after new importations, but stays at home and finds better employment in purchasing these cheap articles, and when the foreigner hears of this state of things, he sends back the coin he took away. * * * We therefore get back our coin by diminishing our paper and it will stay until drawn away by another superabundance of paper. Such is the circle which a mixed currency is always describing. Like the power of steam, it is eminently useful in prudent hands, but of tremendous hazard when not controlled, and the practical wisdom in managing it lies in seizing the proper moment to expand and contract it, taking care, in working with such explosive materials, whenever there is doubt, to incline to the side of safety."^[91]

This is the art of the "complete banker" of the period. It describes the bankers in full possession of an "elastic currency," and manipulating it to the full limit of its capacity of vibration. How could any business firm, which relied on bank accommodations, traverse ten years of it?

From 1820 to 1826 the Bank did very little business in New England, New York, or the South and West. From 1826 to 1832 it did a very large business in the Mississippi Valley, but still little in New England or New York.^[92] After 1832 its business was more evenly distributed over the country.

In 1830, the Bank of the United States began to draw bills on England to be negotiated beyond the Cape of Good Hope, thus diminishing the export of specie. This was one of the causes of the accumulation of silver. here at the end of 1829 and in 1830 and 1831.^[93]

In the early twenties the circulation of the Bank was $4 millions or $5 millions. Towards 1830 it increased to $10 millions. In July, 1830, the Bank had $12.1 millions in specie. Its usual full stock had been between $6 millions and $7 millions. In July, 1831, it held $7 millions, the minimum of the period at the end of the second decade.

The Government paid $3 millions on its stock note in the Bank in 1830, and the other $4 millions in 1831, so that after that it was a holder for value.

It is stated that the annual expense of the Bank in 1821 was about $300,000; in 1833, it was put at $500,000, including all the branches.^[94]

In 1829 Secretary Ingham expressed great satisfaction with the way in which the Bank made transfers of public money, and also with its arrangements for paying the public debt, as he said, in that year of commercial distress, "without causing any sensible addition to the pressure, or even visible effect upon the operations of the State banks."^[95] In the President's message of the same year he said, with reference to the debt payment of the previous July: "It was apprehended that the withdrawal of so large a sum from the banks in which it was deposited, at a time of unusual pressure on the money market, might cause much injury to the interests dependent on bank accommodations, but this evil was averted by an early anticipation of it at the Treasury, aided by the judicious arrangements of the officers of the Bank of the United States." It was indeed in operations of this kind that Biddle was most skillful.

 

PERIOD IV.—1829 TO 1845.

The War of the Jackson Administration on the Bank of the United States Breaks up the Existing System of Banks and brings in Local Banks again as Currency-Providers and Fiscal Agents. Another Bank Inflation Crisis, and Liquidation Ensue. The Bank of the State Institution Undergoes Great Extension and Variation.

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CHAPTER XII.

The Bank War.

T

HE opposition party which was forming around Jackson during Adams's administration, especially the southern and western wing of it, was disposed to put opposition to the Bank of the United States on its program. At the session of 1827-8, P. P. Barbour brought forward a proposition to sell the stock owned by the United States in the Bank. The debate which followed is chiefly important as showing to what an extent the Bank had lived down the evil reputation of its first years, and how difficult it was to start a movement against it. The stock fell two points when the proposition was made, but recovered when Barbour's resolution was tabled, 174 to 9.

Jackson was inaugurated March 4, 1829. The campaign had been passionate and malignant on both sides, but there was peace and prosperity in spite of monetary stringency. "The currency of the country was as sound in the year 1829 as may probably be expected under any system which admits the substitution of paper for the precious metals."^[96] The United States Bank had lived down its early bad behavior, and. was accepted as one of the fundamental institutions of the country. It is true that it was allowed to pass with reservations by many democratic politicians of the old school, who still denied its constitutionality, but only on dogmatic grounds.

1. 29 Niles, 20, 73, 211.
2. Whitney; Suffolk Bank, 4.
3. 22 Niles, 305.
4. Hale; Banks and Currency of the United States, 11.
5. Hale, 18.
6. Whitney, 14.
7. Whitney, 19.
8. 28 Niles, 167.
9. Hale, 20. (1826.)
10. See Whitney, 37; 1 Bankers' Magazine, 79.
11. Gouge; Journal of Banking, 351.
12. Hale, 8.
13. 28 Niles, 258.
14. 29 Niles 151, 364; 34 Niles, 315.
15. Page 42.
16. 7 Connecticut, 456. (1829.)
17. Ibid., 475.
18. 6 Connecticut, 233.
19. 1 Hammond, 337.
20. 2 Hammond, 178.
21. 27 Niles, 57.
22. 26 Niles, 268.
23. 27 Niles, 5.
24. 27 Niles, 391.
25. 28 Niles, 147.
26. 29 Niles, 179.
27. 29 Niles, 324.
28. Life of Silas Wright, 67.
29. 29 Niles, 275.
30. 30 Niles, 237; 46 Niles, 301.
31. Life of Jacob Barker, 201.
32. Mackeinzie, Lives of Butler and Hoyt, 69; 30 Niles, 411. In 1848 the Governor of New Jersey was trying to get the Attorney-general instructed to proceed against this company. It had notes out for $100,000, all illegal, and failed three or four times, and had never had any capital. (2 Bankers' Mag., 502, 509, 510.)
33. Hints on Banking.
34. Vol. II., p. 297.
35. Letter to a Member of Congress, 1832.
36. 3 Writings, 423.
37. Raguet; Currency snd Banking, 129.
38. 29 Niles, 177.
39. Gouge, Journal of Banking 405.
40. 24 Niles, 389.
41. Raguet, last citation.
42. 19 Niles, 17.
43. 22 Niles, 179.
44. 37 Niles, 412.
45. 34 Niles, 154.
46. See pages 45, 85.
47. 1 Free Trade Advocate, 303.
48. Raguet; Currency and Banking, 112; Gouge; Journal of Banking, 334.
49. Session Laws, 1829-30, 99.
50. See page 238.
51. Treasury Report, January 4, 1837.
52. Raguet's Register, 235.
53. Session Laws, 1836; Appendix 15.
54. 2 McCord, 12. (1822.)
55. 3 McCord, 377. (1825).
56. 29 Niles, 99.
57. See page 42.
58. Elllot's Funding, 1116.
59. 11 Georgia, 346. (1852).
60. See page 179.
61. 34 Niles, 35.
62. 34 Niles, 3.
63. 34 Niles, 35.
64. 34 Niles, 139.
65. 34 Niles, 100.
66. 39 Niles, 105, 174.
67. The New York "Journal of Commerce" in 39 Niles, 353.
68. 39 Niles, 458.
69. 40 Niles, 87.
70. 41 Niles, 98.
71. 41 Niles, 379.
72. 41 Niles, 468.
73. Raguet, Currency and Banking, 104.
74. See page 97.
75. Currency, 27. (1841.)
76. See page 96.
77. Gouge, Journal of Banking, 287. Charles Biddle, who was one of the commissioners to sign the United States treasury notes during the second war, said that he signed his name sometimes fourteen hundred times in one day. His maximum was eighteen hundred. (Memoir, 340.) Hugh McCulloch says that he signed his name four thousand times a day, on bank notes, as a day's work; and that, kept up for weeks and months, it was a punishment too inhumane to be inflicted on the most guilty criminal. (Men and Measures, 130.)
78. 4 Folio Finance, 285.
79. Elliot's Funding, 1114.
80. Journal of Banking, 69.
81. Currency and Banking, 114, 121.
82. 22 Cong., 1 Sess. 4 Reports, 460.
83. Treas. Rep., Jan. 15, 1838.
84. Gouge; Journal of Banking, 396.
85. 3 Writings, 265. (1831).
86. Gouge; Journal of Banking, 384.
87. Annual Register, 1827-8-9, I, 577.
88. 35 Niles, 37.
89. See pages 338-9.
90. See page 208.
91. National Gazette, April 12, 1828.
92. 3 Gallatin's Writings, 453.
93. Gouge; Journal of Banking, 395.
94. 19 Niles, 269; Gouge; Journal of Banking, 128.
95. Quoted in the Letter of the Bank to the Committee on Ways and Means, Jan. 28, 1833.
96. Gallatin's Writings, 390. (1841.)