for several years. The fluctuations of our circulating medium have committed greater depredations upon the property of honest men than all the French piracies. To what greater lengths this evil may be carried I know not. The Massachusetts Legislature are authorizing a number of new banks. The cry is the immense advantage to agriculture. Credit cannot be solid when a man is liable to be paid a debt, contracted to any, by one-half the value a year hence."[1] The rise of a bank mania in Massachusetts, to which he here alludes, produced consequences which we shall soon have to notice.
In 1797, a federal tax was laid on all notes of banks, not exceeding $50, of six mills on a dollar, and lower rates on higher denominations. These taxes might be commuted at one per cent. on dividends. In 1798, an act of Congress made it felony to counterfeit notes of the Bank. In 1807, passing counterfeit notes was included. This latter was made necessary by a decision that the former law was inconsistent with itself, and void, so that it would not support an indictment for knowingly uttering as true a forged paper.[2]
Under Gallatin's administration of the Treasury we find one case of "arbitration" between banks, and we find proofs of Jefferson's ideas of the proper relations between those institutions and the federal government. In 1802, the Bank of Pennsylvania applied to Gallatin for help. It fell one hundred thousand dollars per week in debt to the Bank of the United States. Upon this Gallatin comments: "They have extended their discounts too far."[3] On an application of the Bank of Baltimore for a share of the federal deposits, Jefferson commented favorably, because he said that the stock of the Bank of the United States was almost all owned by foreigners.[4] Jefferson wrote to Gallatin, July 12, 1803: "As to the patronage of the republican bank at Providence, I am decidedly in favor of making all the banks republican by sharing deposits amongst them in proportion to the dispositions they show. If the law now forbids it, we should not permit another session of Congress to pass without amending it."[5] May 3, 1804, Gallatin reported to Jefferson that there was a great drain of dollars out of the country.
"There are not at present one hundred thousand dollars in Philadelphia, New York and Boston put together. More than three millions of dollars have been exported in six months from the vaults of the Bank of the United States alone."[6]
The banks which were in existence at the end of the century were paying from eight to fifteen per cent. dividends. This stimulated a movement for the creation of more of them.
The first bank mania, with inflation and collapse, after the introduction of convertible note banking, took place in New England, and the rest of the country came tb look on that section as sunk in the follies and vagaries of paper money.[7]
Massachusetts.—In 1799 a law was passed making it unlawful to join
