the Bank of the United States, because they held specie paid in by the people of Massachusetts, and wanted the same or their own notes paid out to them. It seemed that the Middle States, which had gone so deeply into the paper system, had now organized a big bank to draw the specie which the Eastern States had kept during the war, giving United States bank notes for it. Here, then, we find that in the East the operation of the Bank was to draw into the paper system this section which had thus far kept out of it. In 1814, the Boston banks had circulation and deposits to the amount of $1.66 for every $1 in specie they possessed; in 1815, $2,07; in 1816, $3.45; in 1817, $4.08; in 1818, $5.78. The ratio then improved until 1821, when it was $2.58.[1] Silver was at seven per cent. premium in Boston, October 17, 1818.
If we now turn our attention to the Western States, we find that the notes issued by the branches there were obtained on easy credit and remitted East in purchase of commodities. The cashier of the branch at Lexington, Kentucky, being alarmed at this remittance of his notes to be redeemed at Philadelphia, thought best to use the notes of the State banks, and to restrict his own circulation. For this he received a rebuke of extraordinary severity from the president of the parent Bank, who instructed him that his business was to issue and circulate his own notes, and directed him to sell drafts at a low enough rate to hinder the shipment of his notes, and to buy drafts when he could get them. This drew out a remonstrance from Crawford, who warned the Bank that the public, who had been pleased at the apparent success of the Bank in equalizing the exchanges [that is, the improvement of the exchanges up to February 20, 1817], would be very much dissatisfied if it should now appear that the Bank and its branches were about to establish a system of internal exchanges, "without reference to the commercial relation which exists between the two places."[2] In fact this arrangement made little difference in respect to the operation of the Bank on the western country. The loans were repaid in local notes, which accumulated in the branch until they were presented for redemption; then the silver obtained for them was shipped eastward. At the same time the notes of the United States Bank and the local banks together increased to occupy the space left, and then to become redundant and depreciate.[3] Therefore in this section also the operation of the Bank was mischievous, and we find it drawing into the inflation another section which had not yet taken part in it. In the South it had very much the same effect, although that effect was not developed until somewhat later.[4]
The Bank had scarcely gone into operation before it began to make difficulties about paying specie for its notes without reference to the place of issue. Jones wrote that it would furnish weapons for its own destruction by so doing. He illustrates this as follows: "During the existence of the late compact between the Bank of the United States and the State banks
