In March, 1840, affairs between the banks at Philadelphia were in great confusion. Each bank refused to issue its own notes. The Girard Bank and the Bank of the United States, which had been furnishing the current circulation, now refused to do so, and the other banks refused to accept their certified checks.[1] The neglect of Pennsylvania to provide for the interest on her debt by taxes produced a great feeling of distrust in London, which affected the value of all the State stocks.[2]
The strong and conservative banks of Philadelphia issued no notes in 1840. This compelled them to do business with the notes of the others. The United States Bank furnished a circulation, in 1839-40, and failed, owing the good banks $7.5 millions. Then the Girard furnished the circulation in 1841 and failed, owing them $1 million. Then the Pennsylvania Bank furnished it until the need of paying $1 million State interest in its notes, and the danger that the same thing would result to them from it, if this was done, caused them to reject its notes; whereupon it failed.[3] Still it owed them $745,000 when it failed. The operation is thus described:
Sound banks, wishing to resume as soon as possible, have issued no notes. Having no notes of their own outstanding, they have been compelled to receive, on deposit and in payment of debts, the notes of others, constituting the circulating medium. Unable to obtain any settlement of these bills, the bills accumulated rapidly until, unwilling to trust the issuing banks longer, the sound banks refused to take them. This involved the stoppage of the banks issuing them. "This has been the general operation of suspension throughout the South. The practical operation is gradually to change the assets of the banks which issue no bills, consisting of individuals' notes, into the bills of other banks; that is, to convert their claims upon good individuals into a claim upon a bad bank, consequently depreciating their assets, and ruining their property."[4]
In January, 1840, the United States Bank loaned the State of Pennsylvania its share of a loan made by all the banks, $870,000. No dividend was made at that time, although the Dividend Committee figured out a surplus of $5.2 millions.
The shares fell two pounds sterling in England on the news that there was no dividend. In April the stock was quoted here at 78 1-3. In June the six per cent. bonds of the Bank were at 98. In September, Jaudon came home and was reported to have brought with him a hundred thousand sovereigns for the Bank. His errand was understood to be to bring about resumption.[5] He had exhausted his system of finance. If he was to do anything to escape from his position and go on, he must pass over to the system of hard cash.
Governor Letcher of Kentucky, in his message of 1840, bewailed the destruction of the United States Bank, not only because the local banks
