Front Page Titles (by Subject) CHAPTER IV.: The Earliest Banks in the Mississippi Valley. - A History of Banking in all the Leading Nations, vol. 1 (U.S.A.)
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CHAPTER IV.: The Earliest Banks in the Mississippi Valley. - William Graham Sumner, A History of Banking in all the Leading Nations, vol. 1 (U.S.A.) 
A History of Banking in all the Leading Nations; comprising the United States; Great Britain; Germany; Austro-Hungary; France; Italy; Belgium; Spain; Switzerland; Portugal; Roumania; Russia; Holland; The Scandinavian Nations; Canada; China; Japan; compiled by thirteen authors. Edited by the Editor of the Journal of Commerce and Commercial Bulletin. In Four Volumes. (New York: The Journal of Commerce and Commercial Bulletin, 1896). Vol. 1: A History of Banking in the United States.
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The Earliest Banks in the Mississippi Valley.
AT no place and at no time has the history of banking ever been so varied, so bold, and so rich in experience, as it was in the Mississippi Valley in the first thirty years of this century. It was intertwined there with a number of the matters which touch the interests of men and excite their passions in the highest degree. It was thus linked with the political interests which were connected with the growth of the United States into a federal State; with the questions of constitutional law concerning the inviolability of contracts and the independence of the judiciary; with the question of disputed title to land, which of course affected every man in the community; and with the system of execution for the collection of debts.
The Governor of Kentucky, in his message of 1800, complained of a lack of revenue and of the economic situation which he described as “almost destitute of specie.” The exports would not pay for the imports. He proposed an effort to open trade down the Mississippi. The notion was that the eastern trade drew off specie because the exchange of commodities was not mutually advantageous.* Here we see a recurrence of the ideas and of the misinterpretation of facts which we noticed on the Atlantic coast in the colonial days, in regard to the trade with England. It has been stated that silver ceased to come up the Mississippi Valley after the peace between Spain and England in 1801, but this is certainly a mistake, for that movement of silver continued to be large and important for twenty-five or thirty years more, and it would be difficult to say when it stopped.
By an Act of December 6, 1802, the Kentucky Insurance Company was chartered until January 1, 1818. The purpose was to insure boats and cargoes on their way down the river. This company was not explicitly authorized to issue notes for circulation, but it was incidentally provided that its notes payable to bearer should pass by delivery only. On reading the section of the charter it is difficult to say whether it was very craftily or very carelessly drawn. Butler says in regard to the institution that “it began in fraud and ended in bankruptcy.” “The political party which then controlled Kentucky held banks in horror and never would have passed the bill had they understood its provisions.”*
December 27, 1806, the Bank of Kentucky at Frankfort was chartered, to last until December 31, 1821. The capital was to be $1 million, half of it to be subscribed by the State. It was to begin when $20,000 were subscribed. All the debts, exclusive of deposits, were not to exceed three times the capital. It was to loan only to Kentuckians; no director might borrow over $5,000 or be an endorser for more than $10,000 in the bank. It might have branches in the State for discount and deposit only. It was to make weekly reports to the Governor, and its notes “payable on demand in current money” were to be received by the State. The debt to the State from the settlers on the vacant lands was relied upon to pay the State’s subscription. The Legislature had the power to elect the president and six directors. “The political majority, when times of excitement arose, drove the bank on the shoals of party and ultimately shipwrecked the institution. The power of branching the bank became a subject of local and party contention, and the influence of the Legislature, through its election of the majority of the directory, was brought to bear upon the decision. The extension of the bank then ceased to be a mere fiscal or mercantile question to be governed by the interests of the corporation, but was converted into one of political influence.”†
Ohio.—The Miami Exporting Company was incorporated in April, 1803, with “banking privileges.” February 10, 1808, the Bank of Marietta asked for a charter until 1818, from which it appears that it was an already existing association. The limit of the capital was set at $500,000, besides such shares as the State might take. The State might subscribe one share for every five subscribed by individuals. It was to have one year’s credit in paying for them, but was to receive dividends on them as if paid for. There was no clause providing for specie payment and no penalty for suspension; but the bank was forbidden to issue notes or contract debts “payable in the bills of credit emitted by the laws of this State.” A week later the Bank of Chillicothe was incorporated, with a capital not to exceed $100,000. The State subscription and the prohibition against dealing in State notes were the same as in the case of the former bank. It was provided that this act “shall be construed in all courts and places benignly and favorably for any beneficial purposes thereby intended.” At the same time the Bank of Steubenville was incorporated with all the same features. Three other banks were incorporated in 1812 and 1813. At the session of 1813-14 a number of manufacturing companies and companies to make canals and harbors were incorporated, but they were expressly forbidden to engage in banking.
In the Territory of Michigan, the Governor and three Judges constituted the Legislative Council. They passed an act “Concerning the Bank of Detroit,” September 19, 1806; which act was disallowed by Congress March 3, 1807. An act of November 4, 1815, imposed a penalty on any proprietor or member of an unincorporated bank. The first bank was the Bank of Michigan, chartered December 19, 1817. The power of the Territorial authority to charter it was affirmed by the Court in 1831.*
Tennessee.—Hugh L. White, in a speech in the Senate, March 24, 1838, described the currency of the State of Franklin in eastern Tennessee, in the years following the Revolution. The salaries of the Governor, Chief-Justice and other great officers were paid in deer skins; those of the inferior officers in raccoon skins. The tax collectors cheated the Treasurer, who was not an expert in furs, by putting raccoon tails on opossum skins, and paying them in instead of the raccoon furs which they had collected.
The Nashville Bank was chartered in 1807, to last until 1818.† A copy of its charter has not been accessible, November 20, 1811, the Bank of the State of Tennessee at Knoxville was incorporated, with a capital of $400,000. The shares were apportioned amongst the counties, and there were to be commissioners in each to receive the subscriptions. It was to begin when $25,000 were paid in in specie, and the State might subscribe not more than $40,000 of the total proposed capital. It was not to owe, exclusive of deposits, more than twice its capital, and was to issue no notes under $5. It was to last thirty years; to report to the Treasurer of East Tennessee annually, and to establish branches if thought expedient. The Nashville Bank might unite with it and become a branch of it. November 19, 1811, the charter of the Nashville Bank was extended until 1828, and November 16, 1813, it was extended until 1838, the capital being increased from $200,000 to $400,000.
The Legislative Council of the Mississippi Territory enacted, December 24, 1807, that taxes should be receivable in “any territorial paper, duly and legally issued by the Auditor of public accounts.” All the civil organizations in the Valley seem to have used auditor’s certificates as a currency from their earliest organization. In this Territory it was also necessary to provide against the malfeasance of the sheriffs, collectors, and clerks of court, by providing that they must pay in the currency which they received, whether it was specie or auditor’s warrants; from which it is inferable that the latter were not at par of specie.‡ December 23, 1809, the Legislative Council of the Territory incorporated the Bank of Mississippi at Natchez, with a capital of $500,000, as a limit; $50,000 to be raised at once; to last until 1834. A supplementary act, February 6, 1818, changed the name of the bank to the Bank of the State of Mississippi. The Governor was to subscribe, on behalf of the State, one share for every four subscribed by individuals, and to appoint five directors. The capital was raised to $3 millions; it was to last until 1840. It might have branches; was to report to the Governor at his demand, not more frequently than monthly; its notes were to be receivable by the State; no other bank was to be chartered so long as it lasted.
Alabama.—The Planters’ and Mechanics’ Bank at Huntsville was chartered by the Legislative Council of the Mississippi Territory December 11, 1816; with $50,000 capital; to last until 1837; never to owe more than three times its capital, deposits being left out of account; to issue no note under $1; five hundred shares to be reserved for the Territory for ten years. February 13, 1818, its name was changed to the Planters’ and Merchants’ Bank. On the last date, the Tombeckbee Bank, at St. Stephens, was chartered, to last until 1838, with $500,000 capital, with the same limit on its debts, and the denomination of its notes; two-fifths of the capital to be reserved for the Territory for ten years. The Bank of Mobile was chartered November 20, 1818, with a capital of $500,000, payable in gold and silver (a specification which had not been included in the former charters), to last until 1839. One-fifth of the shares were reserved for the Territory for ten years. As soon as the State government was formed, in the following year, we find it borrowing from these banks. In the Constitution of the State, it was provided that one State bank might be established, with such branches as the Assembly might deem expedient. No branch and no bank charter was to be renewed, except by a two-thirds vote of both Houses, and only one bank or branch might be chartered or renewed at the same session of the General Assembly. At least one-fifth of the shares of every bank must be reserved for the State, which was also to have a number of directors in proportion. The State and the stockholders were to be liable for the debts of any bank in the proportion in which they shared the stock. Remedies for the collection of debts were to be reciprocal for and against banks. No bank was to begin until half its capital was paid in in gold and silver. Twelve per cent. penalty was imposed for a failure to redeem bank notes in specie, unless the suspension should be sanctioned by the Assembly. Whenever a State bank should be founded, the existing banks might become branches of it.
When Louisiana was bought by the United States, the movement of silver thither from Mexico was arrested for a time, and there was a complaint of lack of currency, although Spain had a quantity of paper money called “liberanzas” afloat, which were not redeemed at once. One of the first acts of Governor Claiborne was to found the Bank of Louisiana. The non-American population was extremely displeased at this, regarding a bank as an instrument of robbery, and fearing more paper money.*
In 1811, two banks were chartered—the Planters’ Bank and the Bank of Orleans. The former was an already existing association. The capital was to be $600,000, payable in specie. It was to last fifteen years. The Bank of Orleans was to have a capital of $500,000, to last for fifteen years, and the subscriptions were made payable in money or “notes payable to the directors.” This and the following are the only cases in which we have found, in a charter, an explicit provision for what appear to be stock notes. It may be added here that the charter of this bank was extended March 26, 1823, until 1847, it being provided that a bonus of $25,000 should be paid, and that the old notes should be replaced by new. The Louisiana State Bank was chartered March 14, 1818, with a capital of $2 millions. One-fifth of the subscription was to be paid at once “in cash or notes payable to the directors,” endorsed to the satisfaction of the managers, who might also accept mortgages. One-quarter of the capital was reserved for the State, which was to subscribe $100,000 at once, and appoint six directors out of eighteen. The bank was to last until 1870; to organize when $500,000 had been subscribed by private individuals; to establish five branches within six months; and to pay a bonus of $100,000. No provision was made in any of these charters for the case of suspension.
March 3, 1819, the Louisiana Bank was ordered to liquidate before March 12, 1822.
Missouri.—The Bank of St. Louis was chartered August 21, 1813, to last until 1838, with a capital of $150,000. The Territorial government might take one-tenth of its shares; it might have branches in the Missouri Territory, and could carry on a lombard business with fur, lead, or other commodities deposited in the control of the bank. Not more than one-quarter of the capital might be sold out of the Missouri and Illinois Territories.
The Bank of Missouri was incorporated, existing already as an association, January 31, 1817, with a capital of $250,000. It might have branches. The Territory reserved an option for ten years to subscribe 1,000 shares. It was to last until 1838, and must pay specie or forfeit five per cent. per month during refusal. Unauthorized issues were forbidden December 12, 1820, and it was forbidden to pass them. Notes of incorporated banks of other States, if not under $1, were not included.
The earliest State Constitution which contained any mention of banks was that of Indiana, of 1816, in which it was forbidden that any corporation should be created to issue “bills of credit or bills payable to order or bearer,” but a State bank with branches might be established. The Mississippi constitution of 1817 provided that no bank should be incorporated in which one-fourth of the stock was not reserved for the State, with the power to appoint a proportionate number of the directors. The provision on this subject in the Constitution of Missouri, 1820, was: “The General Assembly may incorporate one banking company, and no more, to be in operation at the same time.”
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. A 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.
[* ] Butler, 295.
[* ] Collins, 56.
[† ] Butler, 332.
[* ] 7 Wendell, 539.
[† ] 3 Humphreys, 525.
[‡ ] Act of December 24, 1807.
[* ] Gayarre, Louisiana under American Domination, 15.