Page:A History of Banking in the United States.djvu/85

PERIOD III: 1812 TO 1829-32.

Local Banks are Multiplied to Replace the Bank of the United States. Their Issues are Stimulated by their Fiscal Functions, soon Intensified by War Financiering. Commercial Crisis is Produced with a Prolonged Liquidation, Attended by Various Experiments in Bank Issues and Stay Laws for Relief. A Banking System is Created Consisting of Local Banks Co-ordinated Around a Bank of the United States, as a Regulator of the Currency, and Fiscal Agent of the Government.

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CHAPTER V.

Inflation on the Atlantic Coast.

T

HE war of 1812 was undertaken in the belief that it could be conducted by loans, and without the necessity of taxation. Gallatin was relied upon as a competent financier, but the role which had been assigned to him he was not willing to undertake. He accepted an appointment as one of the Peace Commissioners, and departed to Europe. As soon as the attempt was made to obtain resources by loans, the fact was developed that they could be obtained only in the Middle States. The New England States were strongly opposed to the war. In the South there was no superfluous capital. The Middle States were enthusiastic for the war as a continuation of the embargo system, and a "protection to domestic industry." The stringent measures which were taken to prevent importations, as a war measure, cut off the revenue. The loans met with only slight success, and the real financial resource consisted in treasury notes, bearing five and two-fifths per cent. interest. These at once stimulated banking issues in the Middle States. Campbell, Secretary of the Treasury, in 1813, wanted the exportation of specie forbidden, believing the banks would then loan to the government more freely, and the President recommended it in a message, but Congress would not adopt it.

In order to supply the place of one bank with $10 millions capital, 120