The Online Library of Liberty

A project of Liberty Fund, Inc.

• Editor’s Preface.
• Author’s Preface.
• Banks In the United States.
• Period I.—1630 To 1780.: The Colonists Experiment With Joint Stock Banks of Issue On Land Security, and With Provincial Mortgage Loan Offices Issuing Currency.
• Chapter I.: Banks In the Colonies.
• Period II.—1780 To 1812.: Banks Are Incorporated In the States, Also a Bank of the United States On the Type of the Bank of England. the Colonial Idea Is Continued In Banks of the States, Being Institutions Based Either On the “faith and Credit” of the St
• Chapter II.: The Earliest Banks of Discount, Deposit, and Convertible Circulation.
• Chapter III.: The First Bank of the United States and Its Times.
• Chapter IV.: The Earliest Banks In the Mississippi Valley.
• 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, a
• Chapter V.: Inflation On the Atlantic Coast.
• Chapter VI.: Inflation In the Mississippi Valley.
• Chapter VII.: The Crisis On the Atlantic Coast.
• Chapter VIII.: The Crisis In the Mississippi Valley.
• Chapter IX.: The Liquidation On the Atlantic Coast.
• Chapter X.: Liquidation In the Mississippi Valley.—relief Measures.
• Chapter XI.: The National Bank and the Local Banks Co-ordinated Into a New System.
• § 1. —: Local Banks On the Atlantic Coast From the Liquidation of 1819-1822 Until the Bank Expansion Produced By the Bank War.
• § 2.—: The Bank of the United States From Biddle’s Accession Until the Bank War.
• Period IV.—1829 To 1845.: The War of the Jackson Administration On the Bank of the United States Breaks Up the Existing System of Banks and Brings In Local Banks Again As Currency-providers and Fiscal Agents. Another Bank Inflation, Crisis, and Liquidatio
• Chapter XII.: The Bank War.
• Chapter XIII.: Measures and Events Antecedent to the Crisis of 1837.
• § 1.—: The United States Bank of Pennsylvania.
• § 2.—: The Multiplication of Local Banks.
• § 3.—: The Inflation of 1835 and 1836.
• Chapter XIV.: The Financial Revulsion; 1837 to 1842.
• § 1,: 1837. The Suspension of Specie Payments. the United States Bank of Pennsylvania In the Crisis. Its Cotton Operations. the Federal Treasury In the Crisis.
• § 2.—: The Resumption of 1838. The New York Plan Versus the Philadelphia Plan.
• § 3.—: 1838 and 1839. Treasury Notes and Bank Notes. Continuation of the Cotton Operations. Second Failure of the United States Bank of Pennsylvania. Second General Bank Suspension, South and West of New York.
• § 4.—: The Banks In the States; 1837 to 1840.
• § 5.—: 1840 and 1841. The Third Failure and Final Bankruptcy of the United States Bank. the Bank Failures of 1841. The Extra Session of Congress of 1841. The Last Attempts to Charter a National Bank. the Pennsylvania Relief System.
• Chapter XV.: The Liquidation; 1842 to 1845.
• Period V.—1843-5 To 1863.: Under the Independent Treasury System, the Regulation of Banking and Currency Is Left Entirely to the States. the Federal Government Handles Only Coin. Banks Organized Under General Joint Stock Laws Gradually, and to a Great Ext
• Chapter XVI.: The Local Bank System. the Gold Discoveries and Consequent Expansion. the Commercial Crises of 1854 and 1857. The Aid Given By the Banks to the Federal Government At the Beginning of the Civil War.
• § 1.—: The Local Banks, By States; 1845 to 1860.
• § 2.—: The Banks At the Outbreak of the Civil War; 1860 to 1863.
• Period VI.—FROM 1863.
• Chapter XVII.: The National Bank System.

PERIOD IV.—1829 TO 1845.

The War of the Jackson Administration on the Bank of the United States Breaks up the Existing System of Banks and brings in Local Banks again as Currency-Providers and Fiscal Agents. Another Bank Inflation, Crisis, and Liquidation Ensue. The Bank of the State Institution Undergoes Great Extension and Variation.

CHAPTER XII.

The Bank War.

THE opposition party which was forming around Jackson during Adams’s administration, especially the southern and western wing of it, was disposed to put opposition to the Bank of the United States on its program. At the session of 1827-8, P. P. Barbour brought forward a proposition to sell the stock owned by the United States in the Bank. The debate which followed is chiefly important as showing to what an extent the Bank had lived down the evil reputation of its first years, and how difficult it was to start a movement against it. The stock fell two points when the proposition was made, but recovered when Barbour’s resolution was tabled, 174 to 9.

Jackson was inaugurated March 4, 1829. The campaign had been passionate and malignant on both sides, but there was peace and prosperity in spite of monetary stringency. “The currency of the country was as sound in the year 1829 as may probably be expected under any system which admits the substitution of paper for the precious metals.”* The United States Bank had lived down its early bad behavior, and was accepted as one of the fundamental institutions of the country. It is true that it was allowed to pass with reservations by many democratic politicians of the old school, who still denied its constitutionality, but only on dogmatic grounds. In the campaign of 1824 only the faintest suspicions of political influence exerted by it had found expression. When, however, in any arena a power is present which might be of decisive importance as an ally of one party or the other, it is inevitable that its alliance will be contended for by them. Its efforts to remain neutral will be vain, and will expose it to greater danger from both than an alliance with either. Either party which thinks that it has lost the chance of winning the alliance will turn against the intervening power with fierce animosity, and will try to destroy it or drive it from the arena. This is what happened in the case of the United States Bank. As an ally it might be of the utmost value to either political party; as the ally of an opponent it was dreaded and detested by either. The federalists had opposed the charter because the Bank was to be organized under democratic auspices. By the natural tendency of things, however, it had gravitated into the hands of the capitalist class. It was enough, therefore, for the democrats to know: It is not on our side.—Hence we find that the charges against it are prognostications. It is said that it is a dangerous power, that it may win control, decide elections, defeat the will of the people, etc., all of which means that it may defeat us. The conflict was therefore irrepressible, and the Bank war may be held to demonstrate that a national bank in this country is impossible, because it would be sure to become an object of conflict between political parties. During the fifteen years of political strife over banks, banking, and currency, which began in 1829, angry recriminations were often exchanged as to who dragged these subjects into politics. Priority depended on the question whether Jackson found the United States Bank, as he said, active in politics at his accession or not. The answer of history must be that he did not; that he and his followers provoked the conflict, and were responsible for it.

There was no new element in the Bank war of Jackson’s time. It was only a revival of antagonisms which we have seen in play around the Bank of North America and the first Bank of the United States.

If Jackson intended to open a war on the Bank, it is strange that he should have chosen a Pennsylvanian, Samuel Ingham, as Secretary of the Treasury. It fell to the lot of that gentleman to open the war on the institution, of which all Pennsylvanians were especially proud. After the report of the Investigating Committee on the Bank of the United States, in 1832, he published an apology for his own action in the matters which are about to be narrated, in which he said that, soon after he entered on the duties of his office, he heard the President make frequent declarations in conversation which showed that “he had imbibed strong prejudices against the United States Bank and was distinctly opposed to the existence of that institution,” and that he (Ingham) was “appealed to as the head of the department charged with official intercourse between the government and the Bank for protection against what was termed the political abuses of that establishment. It was often stated to me that the branches in Louisiana and Kentucky had greatly abused their power for political purposes, not only in elections for the general government, but in State elections, from whence it was inferred that other branches had done the same elsewhere.” The specification under this last head was the above mentioned interference in Kentucky, in 1825,* which was asserted by Kendall, although, when he endeavored to obtain corroboration for it from his informant, he failed to do so.† The “Louisville Advertiser,” speaking from an inside knowledge of the managemement of the old court campaign of that year, contradicted the assertion that any aid had been given by the Bank of the United States, and the president and seven out of eight surviving directors of the Lexington Branch published affidavits denying that their bank had ever contributed to the funds of any political party. This one disputed allegation of fact was made to bear a tremendous superstructure of assertion, inference and conviction.

Our narrative will now follow the order of events in time, although the facts were not known to the public until 1832.‡

June 27, 1829, Levi Woodbury, Senator from New Hampshire, wrote to Ingham a confidential letter, in which he made complaints of Jeremiah Mason, the new president of the Portsmouth, New Hampshire, branch of the Bank of the United States; because, first, of the general brusqueness of his manner and, second, of his severity and partiality in the matter of loans and collections. He added that Mason was a friend of Webster. “His political character is doubtless known to you.”§ He added that the complaints were general, and while referring to the fact, as a matter of common notoriety, that all banks were political, he said that the complaints in this case were made by adherents of all political parties.

Ingham inclosed this letter to Biddle, writing: “The character of Mr. Woodbury justifies the belief that he would not make such a charge upon slight or insufficient grounds, and from some expressions in his letter it may be inferred that it is partly founded on a supposed application of the influence of the Bank with a view to political effect.” He said that the administration wanted no favors from the Bank. Public opinion in the vicinity of a bank was the best test of the truth of such charges. Biddle replied that he would investigate.

In his apology “To the Public,” in 1832, Ingham interpreted this first letter of his as follows: in transmitting Woodbury’s letter he felt bound to let the Bank know “that some jealousy existed as to the integrity of some of their officers,” in order to give them a chance to make a defense which he could use against those influential persons at Washington who were pushing him on to take action hostile to the Bank. This is only another way of saying that the purpose was to draw Biddle out. Whether it was from a deep and crafty calculation, or only from a fortunate chance with respect to the purpose in view, he certainly entrapped Biddle as if he had known the deepest weaknesses of the latter’s character. After Biddle’s troubles came, somebody said that he should never have been anything but a professor of belles lettres. He wrote with great facility and good literary skill, but his great weakness was to write too much. In his first reply to Ingham he wrote a long letter, without apparently imagining that he had to deal with any active hostility, opening points at which his enemies could attack him. He said that Mason had been appointed to a vacancy caused by the resignation, not by the removal, of his predecessor; that the salary of the position had not been increased for Mason; that after Mason’s appointment Webster had been asked to persuade him to accept. He quoted a letter from Woodbury to himself in July in which Woodbury said that Mason was as unpopular with one party as the other, from which Biddle inferred, no doubt correctly, that Mason, as banker, had done his duty by the Bank without regard to politics. Biddle further explained that the branch had previously not been well managed and that Mason had been appointed as a competent banker and lawyer to bring about necessary reforms. It is easy to see that Mason, in this attempt to reform the bank, had to act in a manner which, in those days, was considered severe, and that he disappointed those who, on account of political sympathy, expected favors but did not get them.

Biddle had thus played directly into the hands of his enemies in his first letter. “I chose,” says Ingham, “rather than leave suspicion to interpret my silence, to make a frank avowal of the principles which, it appeared to me, ought to regulate the actions of the Bank.” Every one of the suggestions which he put in stung Biddle to controversy. The latter even was compelled to write a second letter, in which he recurred more fully to the point about politics, declaring that the bank had nothing to do with politics; that people were all the time trying to draw it into politics; but that it always resisted.

To this Ingham replied, July 23, insisting that there must be grounds of complaint and that exemption from party preference was impossible. He added that he represented the views of the administration. Ingham says that this letter unfortunately fell into the hands of General Cadwallader, the acting president, who, instead of strengthening the case of the Bank by furnishing Ingham with some reply by which he could silence its enemies, made it weaker by still more positive asseverations that the Bank had never meddled with politics, which, says Ingham, was far beyond what he could know, in view of the number of branches and officers scattered all over the country, while Ingham supposed that he had positive knowledge that at least one such case had occurred.

In the midst of this correspondence, in August, the Secretary of War ordered the pension agency transferred from the Portsmouth branch to the bank at Concord, of which Isaac Hill had been president. The parent Bank forbade the branch to comply with this order on the ground that it was illegal. The order was revoked.

Biddle had visited the Buffalo and Portsmouth branches during the summer. September 15, he wrote again to Ingham. He says that two memorials have been sent to him by Isaac Hill, Second Comptroller of the Treasury, one from the business men of Portsmouth, and the other from sixty members of the Legislature of New Hampshire, requesting Mason’s removal, and nominating a new board of directors, “friends of General Jackson in New Hampshire.” There is a co-ordination about these numerous petty attacks which makes them look as if they had been planned by the clique at Washington which was hostile to the Bank. If the purpose was to sting Biddle into imprudence, they met with complete success. The tone of his letter is sharp and independent. Ingham had not formulated any definite statements of fact or opinion. He had dealt in inuendo. Biddle formulated the issues which, as he perceived, lurked in the inuendo. He denies that public opinion in the community around a bank is any test of bank management, and declares that the reported opinion at Portsmouth upon examination “degenerated into the personal hostility of a very limited and for the most part very prejudiced circle.” He then takes up three points which he finds suggested in Ingham’s letters: first, that the Secretary, by virtue of the relations of the government to the Bank, has some supervision over the choice of officers of the Bank; second, that there is some action of the government on the Bank, which is not precisely defined, but of which the Secretary is the proper agent; third, that it is the right and duty of the Secretary to make known to the president of the Bank the views of the administration on the political opinions of the officers of the Bank. To these points he rejoined that the board of directors of the Bank acknowledge no responsibility whatever to the Secretary, in regard to the political opinions of the officers of the Bank; that the Bank is responsible to Congress only, and is carefully shielded by its charter from executive control. He indignantly denies that freedom from political bias is impossible; shows the folly of the notion of political “checks and counter-balances” between the officers of the Bank, and declares that the Bank ought to disregard all parties. He would have won a complete victory on the argument of his points, if he had been before an impartial tribunal, but he stung Ingham’s vanity, and on the main issue he delivered himself into the hands of his enemies.

“It never occurred to me,” says Ingham, in his apology of 1832, “that these [my] friendly intentions could be so misunderstood, or my expressions so perverted and misrepresented, as they were found to be in Mr. Biddle’s letter of the 15 September.” He calls Biddle’s denial that the Bank ever made or withheld a loan for political reasons “too confident if not presumptuous;” and laments that his own “motives were misunderstood and his friendly purposes wholly disappointed.” Instead of being furnished with a triumphant answer with which to defeat the enemies of the Bank, he found himself forced to defend himself from the charge of trying to “seduce” the Bank into political relations with the administration; hence his letter of October 5th.

That letter is smooth, courteous, and plausible; but with a knowledge of the ideas and sentiments which were behind it in the administration circle, it is full of menace and deep hostility. Ingham discusses the points implied by him, but in form raised by Biddle, as if they had been brought forward by the latter. He says that if the Bank should abuse its powers, the Secretary is authorized to remove the deposits. Hence the three points which Biddle found in his former letter are good. It does not appear that Biddle, up to that time, had ever thought of this power as within the range of the discussion, or of the exercise of it as amongst the possibilities. Ingham says that there are two theories of the Bank: first, that it is exclusively for national purposes and for the common benefit of all, and that the “employment of private interest is only an incident—perhaps an evil,—founded in mere convenience for care and management.” Second, that it is intended “to strengthen the arm of wealth, and counterpoise the influence of extended suffrage in the disposition of public affairs,” and that the public deposits are one of its means for performing this function. He says that there are two means of resisting the latter theory: the power to remove the deposits, and the power to appoint five of the directors. He adds that if the Bank should exercise political influence, that would afford him the strongest motive for removing the deposits.

Biddle’s reply of October 9th is still gay and good-natured. He recedes from the controversy, only maintaining that it is the policy of the Bank to keep out of politics.* Ingham in his reminiscences of 1832 says that this letter showed a disposition to do him justice.

In Ingham’s letters of July 23 and October 5 is to be found the key to the Bank war. In the first place the Bank is viewed as a political engine. The Secretary argues that the Bank cannot keep out of politics; that its officers ought to be taken from both parties; and that if it meddles with politics, he will punish it by removing the deposits. The only escape from the situation thus created is to go into politics on his side. If the Bank does not do so, it is an enemy and must be treated as such. In the second place, the most important point in the whole correspondence is Ingham’s attempt to define the issue between two different theories of the political philosophy of a national bank. The second proposition which he formulated expounds the notion which the Kentucky relief men had developed about the Bank, and which they attributed to it as the theory and purpose of its existence. It was indeed ridiculous to allege that the stockholders of the Bank had subscribed $28,000,000 in order to go crusading against democracy and universal suffrage; but we must bear in mind also that there was, as there always had been, a very large party all over the Union, who believed that, as a matter of fact, the Bank in its practical operation was inimical to democracy. After all, this was only a hostile, invidious, and exaggerated construction of the purpose which Hamilton had put forward as the political philosophy of the first Bank.*

The public deposits, including the amount to the credit of disbursing officers, increased suddenly in 1824, being $7.7 millions. They fluctuated between $6 millions and $10 millions from that time until the time of this correspondence. They were sure to increase. They were $10 millions or $12 millions during the following years.

The ultimate agents in bringing on the Bank war were Amos Kendall and Isaac Hill. The origin of Kendall’s eager hostility to the Bank can only be inferred.† Jackson is not known to have had any opinion about the Bank when he came to Washington; nor is it known that he had had any collision with the Bank, except that, when he was on his way to Florida as Governor, the branch at New Orleans refused his request that it would advance money to him on his draft on the Secretary of State at its face value.‡ His only public act, in connection with matters at all related to banking and finance, had been in opposition to paper issues and relief.§ Isaac Hill contributed the element of local bank jealousy and party rancor. These two men, either by telling Jackson that the Bank had worked against him in the election, or by other means, infused into his mind the hostility to it which had long rankled in theirs. They were soon reinforced by Blair.

In November, just before Congress met, an editorial appeared in the New York “Courier and Inquirer,” containing a series of questions, among which were the following: “Will sundry banks throughout the Union take measures to satisfy the general government of their safety in receiving deposits of the revenue, and transacting the banking concerns of the United States? Will the Legislatures of the several States adopt resolutions on the subject, and instruct their Senators how to vote? Will a proposition be made to authorize the government to issue exchequer bills to the amount of the annual revenue, redeemable at pleasure, to constitute a circulating medium equivalent to the notes issued by the United States Bank?” This editorial was based upon a letter from Amos Kendall.∥ It contains a premonition of the “pet bank” system and also of the scheme of a Treasury note issue,—two alternative projects which recur often in the following years. The article caused some vague wonder, but attracted no serious attention. After the message of the year was published, the retrospect gave it greater importance. Niles republished it, Jan. 30, 1830.

Jackson’s first annual message contained a paragraph on the Bank, which struck the whole country with astonishment. “We had seen,” says Niles, “one or two dark paragraphs in certain of the newspapers which led to a belief that the administration was not friendly to this great moneyed institution, but few had any suspicion that it would form one of the topics of the first message.”* After mentioning the fact that the charter would expire in 1836, and that a renewal would no doubt be asked for, the message said that such an important question could not too soon be brought before Congress and the people. “Both the constitutionality and the expediency of the law creating this Bank are well questioned by a large portion of our fellow citizens, and it must be admitted by all that it has failed in the great end of establishing a uniform and sound currency. Under these circumstances, if such an institution is deemed essential to the fiscal operations of the government, I submit to the wisdom of the Legislature whether a national one, founded upon the credit of the government and its revenues might not be devised, which would avoid all constitutional difficulties, and at the same time secure all the advantages to the government and country that were expected to result from the present Bank.”

Statistics exist which show the value of the currency in different parts of the country for every year from 1814. These show that the currency had steadily grown toward uniformity at par of specie from 1819 to 1829. No person living could remember when the currency had been as good as it then was, including that of the new States. So much as to the matter of fact; as to the matter of opinion, the correctness of which is open to doubt, there was scarcely anybody amongst the classes conversant with affairs who did not believe that the Bank of the United States was to be credited with having brought about this state of things. The vague and confused proposition of the President about a bank “founded upon the credit of the government and its revenues” caused alarm. What did he mean by it? It sounded like, what it undoubtedly was, a bank on the southwestern Bank of the State plan, or a Bank of the Commonwealth of Kentucky. The stock of the United States Bank declined from 125 to 116, on account of the message. It was supposed that the President of the United States must have knowledge of some facts injurious to the credit of the Bank.

In the House this part of the message was referred to the Committee on Ways and Means, from which a report was made by McDuffie, April 13, 1830. He defended the constitutionality of the Bank and its expediency at every point, and declared the Bank proposed by the President to be very dangerous and inexpedient, both financially and politically—the latter because it would increase the power of the Executive. In the Senate, Smith, of Maryland, reported from the Committee on Finance in favor of the Bank at every point. His topic was the expediency of establishing a uniform national currency. He declared that the notes of the United States Bank were such a currency, and that funds were transferred from Philadelphia to St. Louis, New Orleans, and other extreme points for one-half of one per cent.

When a word of order is given out to a party, the partisans, eager to distinguish themselves by their zeal, hasten to push it to extravagance. It must therefore be regarded as one of the strongest proofs that the attack on the Bank responded to no strong feeling in the popular mind, that it hung fire for two or three years. The leading politicians in the Jackson party were so committed to the Bank that it was awkward for them to turn against it, and it was at least three years before the local banks, seeing the opportunity which was offered to them, began to join in the war on the Bank. Politically this last effect was the most important of all. It was the formation of the bank democrats, as a wing of the Jackson party, which gave that party its strength and accounted for its great victories.* The bank democrats were all won from amongst those who would otherwise have been whigs. The distribution of the deposits in 1836 weakened them, and the independent treasury alienated them from the democratic party, and brought about the great defeat of the latter in 1840.

The House, May 10, 1830, tabled by 89 to 66, resolutions that the House would not consent to renew the charter, and on May 29th it tabled, 95 to 67, a series of resolutions calling for a comprehensive report of the proceedings of the Bank. As yet there were no allegations against the management of the Bank. The stock rose to 130.

In the message for 1830 Jackson again inserted a paragraph about the Bank, and proposed a new Bank, as a “branch of the Treasury Department.” The outline was very vague. It has been interpreted by different writers as approximating to the sub-treasury idea or to the exchequers and fiscal agencies of 1841.

Wayne of Georgia distinguished himself in the effort to sustain the message, which is an interesting fact in view of his subsequent appointment to the bench of the Supreme Court, and his share in the decision of Briscoe’s case. He only asked that the message might be referred to a special committee, instead of to the already hostile Committee on Ways and Means. He thought that such a bank as was suggested could be devised, and he wanted it considered by an unprejudiced committee. The House refused, 108 to 76, to grant even this much. Benton offered a resolution in the Senate, February 2, 1831, “that the charter of the Bank of the United States ought not to be renewed.” The Senate refused leave, 23 to 20, to introduce it. In July, the Secretary of War ordered the pension funds for the State of New York to be removed from the New York branch. Biddle remonstrated, because there was no authority of law for the order and the Auditor had refused to accept such an order as a voucher in a previous case. Secretary Cass revoked the order March 1, 1832.

The message of the next year was much more tame in regard to the Bank. The President referred to it as a subject on which he had discharged his responsibility. The Secretary of the Treasury, McLane, in his annual report, made a long and strong argument in favor of the Bank. From this it appears that the response to the suspicions aimed at the Bank by the President had been so faint that the administration was ready to give up the Bank war. Perhaps this encouraged the opposition to think that it would be good policy for them to take up the Bank issue. It was in this same month of December, 1831, that Clay was nominated candidate for the presidency in the campaign of the following year. At a conference of his supporters at Washington, he assumed control of the campaign, and claimed a right to make the platform, in a very dictatorial manner.* The chief point of interest then was the tariff, but, for the fight out of doors, he thought that the recharter of the Bank was the strongest issue that could be made. The Clay convention, in its address to the public, said: the President “is fully and three times over pledged to the people to negative any bill that may be passed for rechartering the Bank, and there is little doubt that the additional influence which he would gain by a re-election would be employed to carry through Congress the extraordinary substitute which he has repeatedly proposed.”

If we believe that the administration had receded from its attack on the Bank, then there would be a color of truth in Benton’s assertion that the Bank attacked Jackson. The friends of the Bank were later accustomed to say that its disinterested friends in both parties had strongly dissuaded Biddle from allowing the question of recharter to be brought into the campaign.† Clay’s advisers tried in vain to dissuade him. The Bank could not oppose the public man on whom it depended most, and the party leaders deferred at last to their chief. Adams, however, who had as little passion as any politician of the time, told the Secretary of the Treasury, early in January, that he had “prepared a resolution for bringing to issue, in the House of Representatives, the question of rechartering the Bank.”

The position then was that Jackson had made a challenge, had receded from it, and his opponents had taken it up and turned it as a challenge against him. What would he do? It seems that no one who knew the facts of his career could doubt what he would do. He would return to the issue and would fight it out, regardless of all considerations whatsoever, to a definite and conclusive victory or defeat. That is what he did do.

On the 9th of January, 1832, in prosecution of the Clay program, the memorial of the Bank for a renewal of its charter was presented in the Senate by Dallas and in the House by McDuffie, both of whom were democrats but in favor of the Bank. The Bank wanted Webster or some such unequivocal friend to present the memorial, but Dallas claimed the duty as belonging to a Senator from Pennsylvania.‡ There was great dissatisfaction with him for the way in which he managed the business. He intimated a doubt whether the application was not premature, and a doubt about the policy of the memorial, lest “it might be drawn into a real or imaginary conflict with some higher, some more favorite, some more immediate wish or purpose of the American people.” In both Houses the reports were favorable. The proposition to recharter had called out a number of wild and extragavant propositions, and it was thought expedient to close the matter up as soon as possible, in order to put a stop to such schemes.

The issue having thus been made up, Jackson’s supporters in Congress determined to fight the charter at every point and to bring the Bank into odium as much as possible.* Benton organized the movement in the House. He incited Clayton of Georgia to demand an investigation of the Bank, and furnished him with seven important and fifteen minor charges and specifications on which to base that demand. Clayton presented them and moved for the investigation February 23d. The Committee reported April 30th. This is the great investigation of the Bank in 1832. There were three reports. The one which was called the majority report was signed by R. M. Johnson, out of good nature. He rose in his place in Congress and said that he had not looked at a document at Philadelphia. This report recommended that the Bank should not be rechartered until the debt was all paid and the revenue adjusted. The minority reported that the Bank ought to be rechartered; that it was sound and useful. John Quincy Adams made a third report, in which he discussed with great discrimination all the points raised in the attack on the Bank. It is to his report that we are indebted for a knowledge of the correspondence of 1829 between Biddle and Ingham, and of the controversy over the Portsmouth branch.

The charges against the Bank and the truth about them, so far as we can discover it, were as follows:

1.—Usury. The bank sold Bank of Kentucky notes to certain persons on long credit, and afterwards granted an allowance for depreciation. In one case these contracts got into court, but the decision went off on technicalities which were claimed to amount to a confession by the Bank that it had made an unlawful contract.† The Bank had also charged discount and exchange for domestic bills when these two together amounted to more than six per cent., the rate to which it was restrained by its charter. This charge was no doubt true. All banks employed these means more or less to evade the usury law.

2.—Branch drafts issued as currency. The amount of these outstanding was $7.4 millions. The majority of the Committee doubted the lawfulness of the branch drafts, but said nothing about the danger from them as instruments of credit. Adams said that they were useful but likely to do mischief. Their operation will appear sufficiently in the course of this history. When Biddle was asked how the branch draft arrangement differed from an obligation of a Philadelphia bank to redeem all the notes of all the banks of Pennsylvania, he answered that the Bank of the United States controlled all the branches which issued drafts on it. That was indeed the assumption, but it was by no means true in fact, as the experience of the previous winter had taught him.

3.—Sales of coin, especially American coin. The Bank had bought and sold foreign coin by weight, and had sold $84,734.44 of American gold coin. The majority held that the foreign coins were not bullion because Congress had fixed their value by law. Adams easily controverted this. All gold coins at that time, American included, were a commodity, not money.

4.—Sales of public stocks. The Bank was forbidden by its charter to sell public stocks. In 1824, upon a refunding of the public debt, the Bank subscribed for a new issue. It had special permission by act of Congress to sell them. Nevertheless the majority disapproved of the sale.

5.—Gifts to roads, canals, etc. The Bank had made two subscriptions of $1,500 each to the stock of turnpike companies. The other cases were all petty gifts to fire companies, etc. The majority argued that since the administration had pronounced against internal improvements, the Bank ought not to have assisted any such works. Adams said that the administration had opposed internal improvements on the ground that they were unconstitutional when undertaken by the federal government; but he asked what argument that furnished against such works when undertaken by anybody else. The petty gifts were such as it was thought for the interest of the Bank to make, as douceurs, etc. As it was an expenditure of the stockholders’ money, it seemed to belong to them alone to complain of it.

6.—Building houses to rent or sell. The Bank had been obliged in some cases to take real estate for debts. When it could not sell, it had in a few cases improved. The amount was trivial and the cases such as involved no intentional violation of the charter.

These points were the alleged violations of the charter. The charge of non-user in failing to issue notes in the South and West for seven years Biddle met with a point blank denial. Adams pointed out that these charges would only afford ground for a scire facias to go before the jury on the facts.

The charges of mismanagement and the truth about them, so far as we can ascertain, were as follows:

1.—Subsidizing the press. Webb and Noah of the “Courier and Inquirer” (administration organ until April, 1831, when it went into opposition on the Bank question) were borrowers from the Bank. Noah got a loan from it through Silas Burrows, with which to buy half the paper. When two New York banks refused discounts to Webb and Noah, they got long and large loans from the United States Bank. If these transactions had been openly avowed, they would have had no importance, but the attempt was made to cover them over by excuses and explanations which produced a bad effect. Gales and Seaton of the “National Intelligencer” (independent opposition), Duff Green of the “Telegraph” (Calhoun’s organ and therefore administration, until the spring of 1831) and Thomas Ritchie of the “Richmond Inquirer” (administration) were on the books of the Bank as borrowers. The change of party by the “Courier and Inquirer” was regarded as very significant. Adams said that there was no law against subsidizing the press, and that the phrase meant nothing. If State banks could punish those who favored the United States Bank, why should not the United States Bank help them? Should editors be allowed no bank accommodation? If the Bank discounted a note for an administration editor, it was said to subsidize him. If for an opposition editor, it was said to bribe him.

2.—Favoritism to Thomas Biddle, second cousin of the president of the Bank, and its broker. N. Biddle admitted that the Bank had allowed a usage adopted by other banks of allowing cash in the drawer to be loaned out to particular persons and replaced by memorandum checks which were passed as cash for a few days. He said that the practice had been discontinued. Reuben M. Whitney made a very circumstantial charge that T. Biddle had been allowed to do this and that he had paid no interest for the funds of the Bank of which he thus got the use. The loans to him were very large. October 15, 1830, he had $1,131,672 at five per cent. N. Biddle proved that he was in Washington at a time when Whitney’s statement implied that he was in Philadelphia. Adams said that Whitney lied. It was certainly true, and was admitted, that T. Biddle had had enormous confidential transactions with the Bank, but Whitney was placed in respect to all the important part of his evidence in the position of a convicted calumniator. We shall hear of him again below. In 1837 he published an address to the American people, in which he reiterated all his charges against Biddle.*

3.—Exporting specie, and drawing specie from the South and West. From 1820 to 1832, $22.5 millions were drawn from the South and West to New York. This was charged to the Bank. Silver was, however, regularly imported from Mexico to New Orleans, whence it passed up the river to the North and East, and was exported from there to China. The paper issues in the Mississippi Valley prevented it from staying there. So far as the branch drafts after 1827 helped to produce this result, the Bank had some share in it, but, as there were then very few banks of issue in the Valley,† a greater amount of specie was probably retained at that time than ever before. The Bank was also charged with exporting specie as a result of its exchange operations. It sold drafts on London for use in China, payable six months after sight. They were sold for the note of the buyer at one year, so that the goods could be imported and sold to meet the draft. In this way they produced an inflation of credit, but the charge of causing an export of specie was only an expression of ignorant popular prejudice.

4.—The improper increase of branches. No doubt there were too many. Cheves in his time thought some of them disadvantageous to the Bank, but it had been importuned to establish them; there was complaint if a branch was lacking where the government or influential individuals wanted one, and there would have been a great outcry if a proposition had been made to abolish one. How then could their excessive number be made a charge against the Bank?

5.—Expansion of the circulation by $1.3 millions between September 1, 1831, and April 1, 1832, although the discounts had been reduced during the winter. The Bank was struggling already with the branch drafts, and this struggle produced the facts which were alleged. The majority found that the bank had only $9,640,000 in cash and cash securities to meet $42.6 millions in cash liabilities. Very few banks of the period could have made so good a showing.

6.—Failure of the Bank to serve the nation. The majority argued that as the duties were paid at New York and Philadelphia, and as drafts on those cities were always at a premium, the Bank gained by transferring these funds inland for the government. The minority ridiculed this as an annihilation of space, a means of making a thing worth more the further it was from where it was wanted.

7.—Mismanagement of the public deposits. The majority declare that the Bank ought to use its capital as a permanent fund and loan the public deposits on time, so that they would be repaid near the time when they would be required by government for the debt payment. How to manage the government deposits was already becoming a question of the first importance to the Bank and the public, but if the Bank had done what was here proposed, it would have carried to a maximum the disturbances in the money market which were actually produced by the semi-annual payments on the debt. Biddle’s fashion of banking, consisting in adroit tactics, adjustments, and offsets, won its only important triumphs in smoothing over the effects on the money market of the public debt payments.*

8.—Postponement of the payment of the three per cents. These bonds were issued in 1792 for the accrued interest on the revolutionary debt, and were to be paid at 100. The Secretary informed the Bank, March 24th, just before the Bank Committee was raised, that he should pay half the three per cents in July. Biddle hastened to Washington to secure a postponement, not, as he affirmed, for the sake of the Bank, but for three other reasons: first, nine million dollars duty bonds would be payable July 1, so that the merchants would be put to inconvenience if the debt payment fell at that time; second, a visitation of cholera was to be feared, which would derange industry, and the payment of the debt, with the recall of so much capital loaned to merchants, would add to the distress; third, a large amount of specie would go out of the country if these bonds were paid. This last argument the Committee criticised correctly, showing that no export of specie worth noticing would be occasioned. The most probable result would be that the capital would be re-invested in American securities. Louisiana was then contracting with the Barings a loan of seven million dollars. Nobody understood this better than Biddle. The reader is often amazed that Biddle should have dared to put out his plausible “explanations.” They were always apparently reckoned for the uninitiated public alone. It seems that his pen ought to have been arrested by the thought of this and that competent banker and financier who might also read the publication, see through it, and lower Biddle’s credit on account of it. We have found no cases in which such effects were produced, but on this occasion the headstrong old man at Washington saw that Biddle’s reasons were only pretexts. He made up his mind that the truth which they covered was that the Bank was in great distress. He never altered that conviction afterwards, and his opinion was fateful for the Bank.

The friends of the Bank said that the explanations given under this head were good and sufficient: its enemies said that they were only specious pretexts; that the Bank was so weak as to need government support, the reason being that its receipts were in branch drafts while the payments on the debt must be made in current money. The Secretary agreed to defer payment of five million dollars of the three per cents, until October 1st, the Bank agreeing to pay the interest during the extension.

9.—Incomplete number of directors. Biddle was both government director and elected director, so that there were only twenty-four in all. This was because the appointment of government directors was often delayed in the Senate, or because the government director might be reappointed indefinitely while the others rotated. The stockholders elected him also, in order that he might always be eligible to the Presidency.*

10.—Large expenditures for printing; $6,700 in 1830, $9,100 in 1831. From 1829, the date of Jackson’s first attack, the Bank spent money on pamphlets and newspapers to influence public opinion in its favor.

11.—Large contingent expenditures. There was a contingent fund, the footings of which in 1832 were six million dollars, to sink the losses of the first few years, the bonus, premiums on public stocks bought, banking house, etc., etc. The suggestion was that this was a convenient place in which to hide corrupt expenditures, and that the fund was so large as to raise a suspicion that such were included in it.

12.—Loans to members of Congress in advance of appropriations. Adams objected to this as an evil practice. He said afterwards that the investigation into this point was dropped because it was found that a large number of Congressmen of both parties had had loans.

13.—Refusal to give a list of stockholders resident in Connecticut to the authorities of that State, so that it might collect taxes from them on their stock.

14.—Usurpation of the control of the Bank by the Exchange Committee of the Board of Directors to the exclusion of the other directors. This charge was denied.

In all this tedious catalogue of charges we find nothing but frivolous complaint and ignorant criticism successfully refuted, except when we touch the branch drafts. If we sum up all the points made by the majority of the Committee, they appear to maintain that the Bank ought to lend the public deposits liberally, and draw them in promptly, when needed, in order to pay the public debt, yet refuse no accommodation (especially to any one who was embarrassed), not sell its public stocks, not increase its circulation, not draw in its loans, not part with its specie, not draw on the debtor branches in the West, not press the debtor local banks, and not contract any temporary loan. The student of the evidence and reports of 1832, if he believes the Bank’s statements in the evidence, will say that it was triumphantly vindicated. Such was the verdict of the reading and thinking public of the day, almost without exception, if persons with a political bias are left out of account. The verdict of the investing public was unanimous and enthusiastic. If this was all that malevolence, armed with the most powerful means of attack, could bring out to the injury of the Bank, it was exactly the investment which they were all seeking. They fixed their confidence on it with a tenacity which in the end became one of the most notable facts in the history of credit; for neither incidental evidence, which should have awakened their alarm, nor positive events, which should have given them warning, availed to do so.

We are forced to distrust the apparent result of the investigation of 1832, because of the light which is thrown back upon it by the history of the last years of the Bank. The very things which it was charged with doing in 1832, and of which it seemed to be acquitted, were the things which it did do, between 1836 and 1840, and which produced its ruin. These were the things mentioned under the second charge, involving Whitney’s veracity, and the fourteenth charge, which the bank denied. Was it not guilty on these points in 1832, and did it not successfully conceal the facts?

Furthermore we know that in the matter of the three per cents Biddle was guilty of a plausible perversion of the truth. He wanted to defer the payment for the sake of the Bank, and for no other reason, and he had recourse to his masterly skill in decking out plausible pretexts in fine rhetoric, in order to make it appear that the Bank was acting only from benevolence to the merchants and loyalty to the government. The position in which the Bank found itself was a result of the working of the branch drafts. Their effect was just beginning to tell seriously, and it was cumulative in a high ratio.

We have already seen that there was a great movement of free capital in the form of specie to this country in 1830,* and that in that and the following year the United States paid its stock note in the capital of the Bank. Capital was easy to borrow until October, when a certain stringency set in. The branch drafts were transferring the capital of the Bank to the western branches, and locking it up there in accommodation paper indefinitely extended by drawing and re-drawing. Curtailments were ordered in the Mississippi Valley October 7, 1831. They were interpreted by Benton as arbitrary inflictions for political effect. All through the winter, Biddle was writing to the southern and western branches to contract their loans and pay to New York and Philadelphia, so as to strengthen the Bank for a payment on the public debt which was to be made in April. He could not succeed in making the western branches pay, and was therefore forced to impose a curtailment on the eastern branches. The following table shows this relation of things:

In such a state of things it was impossible for Biddle to see with equanimity a debt which bore only three per cent. interest paid off at one hundred when the market rate was seven or eight per cent. Even before he received notice that the three per cents were to be paid, he tried to negotiate with Ludlow, the representative of a large number of English holders of the three per cents for the purchase of the same. Ludlow had not power to sell. Having obtained a postponement until October, under the conditions above mentioned, the Bank sent Gen. Cadwallader to England to negotiate a postponement for a year. The bondholders were to take the Bank as their debtor instead of the United States. The Barings negotiated this extension with such of the bondholders as were willing, but the administration raised loud objection to an arrangement by which the securities of the United States would remain outstanding after they had been paid.

On the 11th of October a New York newspaper published an account of the arrangement which the Bank had made with the Barings in regard to the three per cents, which was to have been kept secret. The Barings had bought $1,798,597, and had extended $2,376,481. October 15th Biddle repudiated the contract, because under it the Bank would become a purchaser of public stocks. He proposed to credit the extended stock to its holders on the books of the Bank, and to pay for that which the Barings had bought when government should redeem it, or to hold the sum to the credit of the Barings at four per cent.

In fact the sinking fund was not made as good on the first of October as it would have been if the three per cents had been paid on July 1st, although the Bank had promised that it should be made so, as one of the stipulations when they were extended.

These matters and their complications were what weakened the Bank in its defense against its enemies, and gave them the opening for further attacks upon it. They also entailed one difficulty upon another in the next years. In a letter intended as an apology for the Bank and a reply to the Committee of 1832, Biddle wrote, “Undoubtedly if the Bank had chosen to adopt such a course, it would have been easy, by an immediate diminution of its loans, to place itself out of the reach of all inconvenience; but it would at the same time have inflicted very deep wounds on the community, and seriously endangered the revenue of government. These exertions of mere power have no attraction, and it was deemed a far wiser policy to deal with the utmost gentleness to the commercial community; to avoid all shocks; to abstain from countenancing all exaggerations and alarm; but to stand quietly by and assist, if necessary, the operations of nature, and the laws of trade, which can always correct their own transient excesses. Accordingly the whole policy of the Bank, for the last six months, has been exclusively protective and conservative, calculated to mitigate suffering and yet avert danger.”*

The facts above narrated in regard to the attempted curtailments, etc., also account for the heats and chills of the money market, which the anti-Bank men interpreted either as attempts of the Bank to make its power felt and dreaded, or to curry favor. No such explanations are called for. We have already seen ample evidence that such recurrent heats and chills were incident to the “credit system.” The momentum of the movements which had been started in the affairs of the Bank since 1823 fully suffice to account for all the phenomena that are presented. A candid student of the history of the Bank cannot say that it was above panic-mongering or popularity-hunting, but it was quite fully occupied, in 1831 and 1832, in mitigating its own sufferings and averting its own dangers, and had no freedom to do anything for effect.

Gallatin says† that the Bank of the United States ceased to regulate the currency in 1832 and 1833, when it expanded its discounts and stock investments to 185 per cent. of its capital, while sound city banks did not carry their profit-bringing investments beyond 160 per cent. of their capital. It was, he argues, only by keeping this proportion lower than that of the city banks that the Bank of the United States could keep them debtors, and so exert its regulating power. From this point of time also dates another very important fact, namely, the complete predominance of Biddle’s personal authority in the Bank. He was flattered and caressed, was encouraged to consider himself the prince of financiers, was allowed almost free control of the Bank, and his authority was accepted as decisive in many of the great financial enterprises allied with it.

During the spring and summer of 1832, he took quarters at the city or Washington, from which he directed the congressional campaign on behalf of the recharter, which was a part of the presidential campaign which was then agitating the whole country. He and Jackson were personally pitted against each other. If Biddle had succeeded in defeating Jackson, what would he himself have become? As it was, he was talked of for President of the United States.* He was not absolutely sanguine of victory, and he must have felt what a tremendous stake he had risked, for he put a letter in Livingston’s hands saying that he would accept any charter to which Jackson would consent.† Jackson never fought for compromises, and nothing was heard of this letter. Jackson drew up a queer plan of a bank which he thought constitutional and suitable, but it remained in his drawer.‡ The anti-Bank men affirmed that Biddle was corrupting Congress, but no positive or serious assertion of this kind ever was made.

The charter passed the Senate June 11, twenty-eight to twenty. It had a few new features which were obviously suggested by the experience of the past. The renewal was for fifteen years. The directors might appoint officers to sign notes for less than a hundred dollars; no notes or drafts for less than $50 might be issued which were not payable at the bank where issued, and the Bank must receive from other banks at any branch the notes issued at any branch; it was to pay $200,000 a year to the United States for the benefits of the charter; Congress might at any time forbid it to issue notes of a less denomination than $20; a list of stockholders was to be reported to the Secretary of the Treasury annually, and a list of the stockholders in any State was to be furnished to the Treasurer of that State upon his request. It was expected that the Bank would be forbidden to issue notes under $20 in order to leave the small note circulation to the local banks.

In the House no debate was allowed. Nathan Appleton complained of this because he wanted to propose an amendment; but he says that at that time every one took Biddle’s ipse dixit, and that politics forced the bill through just as it was. “My faith in Mr. Biddle,” says Appletion, “had at that time been materially shaken.”§ The charter passed the House July 3, one hundred and seven to eighty five, and was sent to the President, July 4. The Senate voted to adjourn July 16. It was a clever device of theirs to force Jackson to sign or veto by giving him more than ten days. They wanted to force him to a direct issue. Niles says that a week before the bill passed the best informed were “as six to half a dozen” whether the bill if passed would be vetoed; but that for the two or three days before the bill was sent up a veto was confidently expected.∥ Appleton quotes Clay as having said: “Should Jackson veto it, I will veto him.” History does not record that this threat ever was fulfilled.

The veto was sent in July 10. The reasons given for it were: 1.—the Bank would have a monopoly for which the bonus was no equivalent; 2.—one-fifth of the stockholders were foreigners; 3.—banks were to be allowed to pay the Bank of the United States in branch drafts, which individuals could not do; 4.—the States were allowed to tax the stock of the Bank owned by their citizens, which would cause the stock to go out of the country; 5.—the few stockholders here would then control it; 6.—the charter was unconstitutional; 7.—the business of the Bank would be exempt from taxation; 8.—there were strong suspicions of mismanagement in the Bank; 9.—the President could have given a better plan; 10.—the bank would increase the distinction between rich and poor. Especial stress was laid upon the second, fourth, and tenth, with an appeal to popular prejudice against foreigners and the drain of specie. The operation of the Bank was also represented as a constant oppression of the people of the West by the people of the East and of Europe. This is all an echo of the arguments and notions of the Kentucky relief contest.

The bill was put to vote in the Senate July 13th, but failed of two-thirds (22 to 19). If the Bank was to continue to exist it was necessary to defeat Jackson’s re-election. The local bank interest, however, had now awakened to the great gain it would make if the Bank of the United States should be overthrown. The safety fund banks in New York were bound into a solid phalanx by their system, and they constituted a great political power. The chief crime alleged against the Bank of the United States was meddling with politics. It denied it, and defended itself with such success as to leave the matter at most very doubtful. There was no doubt whatever that the safety fund banks of New York were an active political power under Van Buren’s control. They went into this election animated by the hope of a share in the deposits.* The great Bank also distributed pamphlets and subsidized newspapers in the campaign, fighting for its existence. The Jackson men always denounced this action of the Bank as corrupt and as a proof of the truth of the charges that it had done so before. They unquestionably measured by two standards, one for themselves and their allies and the other for the Bank.

Jackson’s success in the election meant that the fate of the Bank was sealed. Its charter would expire one year before the term for which he had been elected, but he and those followers who had been the chief agents in the Bank war were by no means disposed to allow it to run peacefully to the allotted term of its existence. They wanted to crush it; to win a brilliant and noisy victory over it; to punish it for its audacity in resisting the will of the popular hero; and to vindicate the positions which they had adopted in respect to it. The message of 1832 was temperate in tone but very severe against the Bank. As above stated, the eagerness of the Bank to get possession of the three per cents, had established a conviction in Jackson’s own mind that it was weak and unsound, and with his characteristic disposition to exaggerate any conviction which he had once adopted, he declared that it was bankrupt. “An inquiry into the transactions of the institution, embracing the branches as well as the principal Bank, seems called for by the credit which is given throughout the country to many serious charges impeaching its character, and which, if true, may justly excite the apprehension that it is no longer a safe depository of the money of the people.”

Here was a new and startling suggestion, different from anything which had gone before. The corporation had been arraigned for violating its charter. The financial institution was now arraigned as to its financial integrity. This was the second stage of the Bank war. Behind both of these, predominating over them, but never brought to trial, was the arraignment of the plutocratic engine for hostility to democracy.

At the present stage, however, the arraignment was positive, and if there were grounds for it, it was proper to make it. It is only a pity, if the administration had means of knowing how bad the Bank was, that it did not also see how bad the local banks were, and how much more mischief they were capable of doing, with the same opportunities, than the big Bank had done.

This charge by the President produced considerable alarm for a time and runs on the branches occurred at some places.* That effect speedily passed away, however, and what Jackson had said was regarded, by all but his strongest adherents, as an exaggeration of malignant animosity.

An agent, Henry Toland, was appointed to investigate the Bank on behalf of the Treasury, with especial reference to the point whether it was financially sound enough to make the public deposits safe. He reported that it was.

The Committee on Ways and Means, in the winter of 1832-3 also investigated the Bank with respect to the points raised in the message. February 13, 1833, Polk reported a bill from this Committee to sell the stock owned by the nation in the Bank. It was rejected, 102 to 91. The report of this Committee on its investigations is another of the great documents about the Bank.† The majority (Verplank’s Report) declared that the Bank was sound and that the deposits were safe. On January 1, 1833, the assets were $80.8 millions, the liabilities $37.8 millions, leaving $43 millions to pay $35 millions of capital. The circulation was $17.5 millions, specie $9.0 millions. The State banks were estimated to have $68 millions circulation, and $10 millions or $11 millions specie. The minority (Polk’s Report) doubted if the assets were all good. They said that they had not been able to find out clearly what was the final arrangement made by the Bank with respect to the three per cents, but it appeared that the certificate obligations of the United States had been surrendered, and that the Bank had, by means of the transaction, obtained a loan in Europe. The majority said that the Bank had receded from the project, and that there was, therefore, nothing more to be said about it. In a supplementary report, the minority showed that they had succeeded in probing deeper into the actual condition of the Bank, especially with respect to the western debt. The facts revealed by their investigation were as follows:

As early as October 4, 1832, Biddle informed the directors that the Bank was strong enough to relax the orders given to the western branches a year before, to contract their loans and remit eastward. He then supposed that the arrangement with the Barings about the three per cents had been concluded, so that he had obtained a new resource on that side and need not further insist upon the curtailment. He succeeded in meeting all the inquiries of the Committee on Ways and Means in such a way as to satisfy the majority that the debt in the Mississippi Valley was perfectly sound, and that there was no re-drawing going on there. Polk’s supplementary report, however, contains conclusive evidence that the western branches were in a very critical condition, that there had been drawing and re-drawing between the branches, and that Biddle knew it. September 11, 1832, the cashier of the branch at Lexington, Ky., wrote that he was enduring a run. Two hundred and seventy thousand dollars was sent to him from Philadelphia and the branches nearest to him. A letter from Biddle to the president of the Nashville branch, November 20th, shows plainly that he knew that re-drawing was going on. In a letter from the president of the Nashville branch November 22d, it is said: “We will not be able to get the debts due this office paid. Indeed if any, it will be a small part. The means are not in the country.” The letter of the same officer of November 24th reveals the operation distinctly. “The parent bank and the offices at New York, Baltimore, Washington, Richmond, Pittsburgh, Cincinnati, Louisville, and Lexington have been and still continue the practice of discounting bills and notes made payable at this office and forwarding them for collection. This has been done this season to, I would say, three times the amount of any previous year, and to add to our difficulties last season we had a very short crop of cotton, so that our own drafts predicated on the crop and payable at New Orleans could not be paid out of the crop, in consequence of which drafts to a very large amount have been drawn by the commission merchants of New Orleans on their funds here and made payable at this office. These drafts cannot be met when due at this office by the payment of cash on account of its scarcity, and no other means could be resorted to but drafts again on New Orleans which our directors thought right to purchase.” From this it is very plain that the drafts in question were not created by shipments of produce down to New Orleans, but consisted very largely of accommodation paper. Again, on the 26th of November, the same officer states that he had, within a year, collected drafts for a million dollars, for the Bank and branches, “which with small exceptions have been paid through our bill operations.” The majority of the Committee of 1833 had interpreted the fluctuations in the amount of bills at Nashville as proof that when the crops came in the debts were cancelled. The minority showed that these fluctuations were due to the presence of the “racers” at one or the other end of the course. It is quite beyond question that a mass of accommodation bills were chasing each other from branch to branch in the years 1832 and 1833, and that they formed a mass of debt which the Bank could not, for the time, control.

On the same day on which Polk’s supplementary report was presented, and without giving any consideration to it, the House adopted a resolution, 109 to 46, that the deposits might safely be continued in the Bank. The Bank question was now a party question, and men voted on it according to party, not according to evidence. Whatever force might be attributed to any of the facts brought out by Polk in the minority report, it does not appear that anybody in Congress really thought that the Bank was insolvent and the deposits in danger. Polk himself did not propose to withdraw the deposits. He wanted to avoid any positive action for the time being, and have a still more searching investigation. “Nothing short of a personal, impartial, and thorough examination of the books and papers of the principal Bank and many of its branches can develop its policy and management, the security of its debt, and the soundness of its condition.” McDuffy objected that if Congress took no action before it adjourned, Jackson would remove the deposits on the principle that silence gives consent.*

Although the House of Representatives had thus answered the exhortation of the President to find out whether the deposits were safe by categorically declaring that they were, the wish and purpose to remove them was not checked in the least. On the contrary a new line of attack was opened in April by obtaining a report from the government directors of the Bank. Three of them complained that they were excluded from a knowledge of what was being done. They declared that the Exchange Committee had taken control of the Bank, and they reported especially large loans to Gales and Seaton. In August, four of them joined in a second report in which further stress was laid on the large expenditures for printing, that is, for what the anti-Bank men construed as corrupt efforts to win political influence. They considered the inference direct that the public money, which was, perhaps, what was being used for this purpose, should be removed from the Bank. Everything which touches upon the history of the Exchange Committee demands our attention on account of the great part which that organization played in the final catastrophe of the Bank. The government directors, in the former of the above reports, say that the directors had condemned this arrangement, and that, by votes of October 31, 1823, and February 20, 1830, they had forbidden the branches to make use of it.

The question naturally presents itself: who were the prime movers in the desperate and useless enterprise of the removal? William B. Lewis† said that he did not know who first proposed the removal of the deposits, but that it began to be talked about in the inner administration circles soon after Jackson’s second election. In the cabinet, McLane and Cass were so earnestly opposed to the project that it was feared that they would resign. McLane sent for Kendall to know why it was desired to execute such a project. He had told Adams a year before that the Treasury could not go on without the Bank.* Kendall endeavored to persuade McLane to execute the removal. Cass finally said that he did not understand the question, and withdrew from any share in it. Woodbury was neutral. Barry assented to the proceeding but had no active share in it. Taney warmly favored it and became Jackson’s most trusted adviser at this time. Van Buren was at first strongly opposed, but yielded to Kendall’s persuasion. He wavered afterward but Kendall succeeded in keeping him to it. Benton approved of the proceeding but was not active in bringing it about. Blair’s chief point was that the Bank would corrupt Congress.† Lewis gives a report of a conversation with Jackson in which he tried to persuade Jackson to desist from the project. The latter’s points were: “I have no confidence in Congress.” “If the Bank is permitted to have the public money, there is no power that can prevent it from obtaining a charter. It will have it if it has to buy up all Congress; and the public funds would enable it to do so.” “If we leave the means of corruption in its hands, the presidential veto will avail nothing.” The statements in Kendall’s Autobiography are in perfect accord with these. They seem to indicate that the anti-Bank men saw one chance yet remaining to the Bank, namely, to get a two-thirds majority in both Houses of Congress within the next three years, using corrupt means for this purpose, and so to pass a charter over the veto. One must have Jackson’s relentless determination to pursue an enemy to the point of extermination before one could spend great energy to render such a chance impossible.

It appears therefore that the removal of the deposits was due first of all to Jackson himself. He “took the responsibility,” and history must leave it with him. It is not at all impossible that he originated the purpose to make the removal. The moving spirits, who had first animated him with a hatred to the Bank, and who now were his ministers, although it is very possible that his zeal outstripped their impulses, were Blair and Kendall, with Whitney as their tool.‡

As McLane persisted in his refusal to be the agent of removal, he was transferred to the State Department, and William J. Duane, of Pennsylvania, was appointed to the Treasury. Jackson assumed that Duane was a man like his father, the editor of the “Aurora,” and he expected to find in him one who would sympathize with all the motives of the removal. Duane was a lawyer. He had never been a politician or office-holder, and his temper and opinions were quite different from those of his father. On the first day of his official life, June 1, Whitney called on him and made known to him the project to remove the deposits from the Bank and to use local banks as depositories and fiscal agents. Instead of accepting the role for which he had been selected, Duane objected and refused. Jackson sent to him from Boston, where he then was, a long argument to try to persuade him to concur in the project. Upon Jackson’s return, in July, he urged Duane to consent, but in vain, and an arrangement appears to have been made with Taney to take the Treasury if Duane should still refuse.

In August, Duane wrote, “It is true that there is an irresponsible cabal that has more power than the people are aware of. * * * What I object to is that there is an undercurrent, a sly, whispering, slandering system pursued.”* October 23, he wrote: “I had not been twenty-four hours in office when I felt, as I wrote my father, my vessel on the breakers. I found that the President was in the hands of men whom I would not trust, personally or politically. A contest at once began, the object of which was to drive me out of office, as the “Globe” called me ‘a refractory subordinate.’ ”† In his history of the matter, written five years later, he says: “I had heard rumors of the existence of an influence at Washington unknown to the Constitution and to the country; and the conviction that they were well founded now became irresistible. I knew that four of the six members of the last cabinet, and that four of the six members of the present cabinet, opposed a removal of the deposits, and yet their exertions were nullified by individuals whose intercourse with the President was clandestine. During his absence [in New England] several of those individuals called on me and made many of the identical observations in the identical language used by himself. They represented Congress as corruptible, and the new members as in need of special guidance. * * * In short, I felt satisfied from all that I saw and heard that factious and selfish views alone guided those who had influence with the Executive, and that the true welfare and honor of the country constituted no part of their objects.”

In July occurred an incident which increased very much the animosity which was felt against the Bank. The line of action which it adopted was blamed by many of its friends.

July 4, 1831, a treaty was made with France by which she agreed to pay certain claims for spoliations during the Napoleonic wars. According to the treaty, the first installment was due February 2, 1833, but on account of the unpopularity of the treaty in France no appropriation had been made to pay it. The Secretary of the Treasury drew a draft for it on the 7th of February, as for a commercial debt, which draft he sold to the Bank for $961,240,30. Congress passed an act, March 2, ordering the Secretary to loan this sum at interest. The draft when presented at the French Treasury could not be paid. It was protested and was taken up by Hottinguer for the Bank as endorser. The Bank had put the money to the credit of the Treasury, and it claimed to prove, by quoting the account, that the purchase money had actually been drawn. Hence it declared that it was out of funds for twice the amount of the bill.‡ It demanded 15 per cent. damages under an old law of Maryland which was the law of the District of Columbia. The Treasury repaid the purchase money and offered to pay the actual damage incurred, but no more. July 8, 1834, Biddle informed the Secretary of the Treasury that the sum of $170,041 would be retained out of a three and one-half per cent. dividend, payable July 17, on the stock owned by the United States. March 2, 1838, the United States brought suit against the Bank in the federal Circuit Court of Pennsylvania to recover the sum so withheld. It got judgment for $251,243,54. The Bank appealed to the Supreme Court, which, in 1844, reversed the judgment, finding that the Bank was the true holder of the bill and entitled to damages. On a new trial the Circuit Court gave judgment for the Bank. The United States then appealed, on the ground that a bill drawn by a government on a government was not subject to the law merchant. The Supreme Court sustained this view in 1847, and again reversed the decision of the Circuit Court.* No further action was taken. We must accept the decision as proving that the Bank was unwarranted in its action in paying itself.

In July rumors became current that the President intended to remove the deposits. On the 17th, Jacob Barker insured the non-removal until the meeting of Congress for 25 per cent. premium.† In August Kendall was appointed by the Secretary of the Treasury as agent to negotiate with the local banks of the Middle and Eastern States, so as to find out whether they would undertake the fiscal operations of the government. His first project seems to have been to group the selected deposit banks into a combined responsibility analogous to the New York safety fund system. He got no encouragement for this; but he obtained a number of favorable replies to more general inquiries as to a willingness to enter into some arrangement.‡ This errand of Kendall of course became known through the newspapers, although it was made as secret and confidential as possible.§ Rives published an article in the “Washington Globe,” June 23, 1856, in which he stated that Kendall was so disappointed at the result of his mission that he wrote to Jackson, who was then at the Rip Raps, that the deposits could not be removed. Blair was there with Jackson, and was much influenced by Kendall’s report. Jackson, however, maintained against Blair that the Bank was broken. The proof was that Biddle came to Washington to beg that the payment on the United States loan might be deferred. He said that Biddle was proud and brave and never would have humbled himself to this step but under necessity. Kendall, however, denied that he had ever written that the deposits could not be removed.∥ Commenting on the results of Kendall’s mission, Duane said: “It was into this chaos that I was asked to plunge the fiscal concerns of the country at a moment when they were conducted by the legitimate agent with the utmost simplicity, safety, and dispatch.”

The Bank had warning of what was intended from the public rumors, if in no other way. August 13, strict orders were issued to restrict discounts and to cut off extensions, buying only short bills, especially at the western offices, and also to restrict purchases to bills which would throw funds into the Atlantic cities. These orders were repeated and made more stringent October 3. Ninety days was too short a time for the “racers,” considering the difficulty of communication. It appears that they had also been reduced by steady pressure during the last twelve months. The cry now was that the great Bank was making the stringency in order to show its power. The threat of removal affected the money market.

The wording of the Bank charter was that the Secretary of the Treasury might remove the deposits, and the laws constituting the Treasury Department give to the Secretary a certain independent authority and responsibility, although this is inconsistent with his position as a subordinate who may be peremptorily removed. Jackson now said to Duane: “I take the responsibility,” a phrase which became current in the political slang of the next ten years. On the 18th of September, he read in the meeting of his cabinet a paper prepared by Taney,* in which he argued that the deposits ought to be removed, the grounds being the three per cents, the French bill, the political activity of the Bank, and its unconstitutionality. He would not dictate to the Secretary, but he took all the responsibility of deciding that, after October 1, no more public money should be deposited in the Bank, and that the current drafts should withdraw all money then in it. The “Globe” announced this decision September 20. Duane refused to give the order and refused to resign. He was dismissed September 23. In a letter which he wrote in 1837, he complained that he had been politically outlawed on all sides for having had the courage to do right, but rebelling against party discipline.† Immediately upon his dismissal he published the final correspondence between the President and himself, in which he gave fifteen reasons why the deposits ought not to be removed. One of them was: “I believe that the efforts made in various quarters to hasten the removal of the deposits did not originate with patriots or statesmen, but in schemes to promote factious and selfish purposes.” He ascribed it chiefly to vindictiveness. The administration press immediately turned upon Duane with fierce abuse. Taney was transferred to the Treasury Department and gave the order for the removal. He told Kendall that he was not a politician, and that, in taking a political office, he sacrificed his ambition, which was to be a Judge of the Supreme Court.‡

No political act before the civil war created such intense excitement as the removal of the deposits. We may pass over the political aspects of it; but very exaggerated financial importance was attached to it, and for that generation it continued to be the point from which the subsequent vicissitudes of banking and currency were reckoned. No one, however, ever told why this act had such great importance. It produced a panic perhaps because the alarm was not rational.§ The stock of the Bank fell one or two points at New York, but it recovered as soon as the paper read in the cabinet was published, because the grounds were only the old charges, which, as we have said, the investing public considered to be entirely refuted. We find it suggested that the politicians were short of the stock and were in great trouble because it did not fall.* The Bank replied to the President’s paper by a long statement, no doubt written by Biddle, in which he took up seriatim the points raised by Jackson.

The average monthly balance in the Bank to the credit of the Treasury, from 1818 to 1833, was $6.7 millions. In 1832 it was $11.3 millions, and in 1833, $8.5 millions. In September of the latter year it was $9.1 millions.† It should, however, be noted that the deposits on the 1st of January, 1833, excluding the credits of public officers, were less than eight hundred thousand dollars, and that the amount in October had been deposited within the preceding nine months, having accumulated gradually. Nothing was drawn from the Bank by the removal. It was not compelled to call any of its loans at the time that step was announced. The amount on the 1st of January, 1834, was nearly $850,000, and it was not reduced to zero until the end of 1835.‡ It is difficult to see how this transaction could have had any great financial effect.

There was, however, another and far more serious ground of anxiety than the undefined panic on account of the removal of the deposits. Those who could remember 1817, and who recalled what they supposed to be the absolute demonstration of that period,§ were alarmed at the prospect that its evils were to be renewed. This alarm was best expressed by Binney: “It is here that we find the pregnant source of the present agony—it is in the clearly avowed design to bring a second time upon this land the curse of an unregulated, uncontrolled State bank paper currency. We are again to see the drama, which, already in the course of the present century, has passed before us and closed in ruin. If the project shall be successful, we are again to see these paper missiles shooting in every direction through the country—a derangement of values—a depreciated circulation—a suspension of specie payments—then a further extension of the same detestable paper, with failures of trade and failures of banks in its train—to arrive at last at the same point from which we departed in 1817.”

The removal of the deposits is the date of, and in some sense the cause of, the multiplication of local banks,∥ and the beginning of the series of financial errors and disasters which marked the next ten years.

Kendall reported to the cabinet the result of his negotiations with the banks. One bank was objected to on “political grounds.”¶ Twenty-three were selected before the end of the year.

The contract between the Treasury and the deposit banks, in September, 1833, provided that each bank should receive all deposits offered by the Treasury, whether in coin, notes of the Bank of the United States or its branches, notes of any neighboring bank convertible into coin, or notes of any bank which the deposit bank is for the time being in the habit of receiving. If the deposit exceeds half of the capital of the bank, or for any other reason the Secretary thinks it necessary, the bank is to give collateral security for the deposit. It is to report to the Secretary weekly and submit its books to him or his agent whenever he shall require. It is to transfer the deposits upon the drafts of the Secretary to any other deposit bank without any charge of any kind whatsoever, but it is to have reasonable notice when this transfer will be required. It is also to furnish the Secretary with exchange on London at the current market price, and to guarantee the bills without any charge whatever. The Secretary may discharge the bank from the service of the government whenever the public interest may require.

January 30, 1834, Silas Wright made a statement on the deposit system which was understood to be authoritative. He said that the Executive had resumed the control of the public money, which belonged to him before the national bank was chartered; that the administration would bring forward no law to regulate the deposits, but that the Executive would proceed with the experiment of using State banks. March 18th, Webster proposed a bill to extend the charter of the Bank of the United States for six years, without monopoly, the public money to be deposited in it, it to pay to the Treasury two hundred thousand dollars annually, and none of its notes to be for less than twenty dollars. The Bank men would not agree to support it. April 15, Taney sent to the Committee on Ways and Means a plan for the organization of the deposit bank system; but it was a mere vague outline. December 15, Woodbury sent in a long essay on currency and banking, but no positive scheme or arrangement. It was not until June, 1836, that the deposit system was regulated by law. The administration, however, had some definite ideas about what it ought to require of the deposit banks. Taney, in his communication of April 15, proposed rules by which a broader specie basis could be obtained. Monthly reports were to be required; no deposit bank was to deal in any stocks except those of the United States and of the State in which it was. After March 3, 1836, no bank was to be a depository which issued notes under $5, nor were the notes of any such to be received in payments to the United States. The banks treated these regulations with the same indifference with which they had treated those of the States.

Taney desired that Kendall should be president of the Bank of the Metropolis and organize the system, but he declined. The Bank of the Metropolis was then asked to admit Whitney as agent and correspondent of the deposit banks. The bank refused to do this, and the plan of making that bank the head of the system was given up.* The deposit banks were recommended to employ Whitney as agent and correspondent at Washington for their dealings with the Treasury. He did not escape the charge of abusing the power which this position gave him, and an investigation in 1837 produced evidence very adverse to his character. From the correspondence between him and the banks which was then published, it is plain that the chief argument which was used to support an application for a share of the deposits or other favor was political; above all, devotion to Jackson and hatred of the Bank of the United States.

Taney assumed that the Bank of the United States would make a spiteful attempt to injure the deposit banks by calling on them to pay balances promptly. He therefore placed some large drafts on the Bank of the United States in the hands of officers of the deposit banks at New York, Philadelphia, and Baltimore, so that they might offset any such malicious demand. Otherwise the drafts were not to be used. The Bank took no steps which afforded even a pretext for using these drafts, but the president of the Union Bank of Maryland cashed one of them for one hundred thousand dollars a few days after he got it, and used the money in stock speculations.* For fear of scandal this act was passed over by the Executive, but it led to an investigation by Congress. Taney was a stockholder in the Union Bank.† The Manhattan Company also used one of these drafts for five hundred thousand dollars. Here, then, at the very outset, experience was made of the reliance which could be placed on the “pet banks” in confidential dealings with them.

Taney claimed the right to give these transfer drafts, by way of arbitration between the banks, by virtue of the precedent set by Crawford. Here we have a full-fledged administrative abuse, the steps of whose growth we have noticed all the way down from its beginning by Alexander Hamilton.‡

By a resolution of the House of Representatives of Pennsylvania, December 20, 1833, the Committee on Ways and Means were directed “to inquire how far the public interests might be promoted by the continuation of the operations of the Bank of the United States under a charter from this Commonwealth, should its present charter not be renewed by the United States.” In their report on this resolution the Committee expressed the opinion that the Bank, under a State charter, would speedily run down into a mere State bank, as the Bank of North America had done. They thought that it was essential to a national bank that it should be under the federal courts, which a State bank would not be; that it should be charged with the collection of the revenue, because otherwise it could not regulate the local banks; and that it should have branches. While they did not report against the proposal, they gave the weight of argument against it.

The session of 1833 and 1834 was the most excited that took place before the civil war. Of course the President’s message and the report of the Secretary of the Treasury must justify what had been done. The President threw the justification of it chiefly on the report of the government directors of the Bank, which showed, as he said, that the Bank had been turned into an electioneering engine. This referred to the documents which it had distributed in the campaign. The Secretary said that, although he alone had the power to remove the deposits, and Congress could not order it to be done, yet that the Secretary must discharge any duties laid upon him under the supervision of the President. He put the removal which had been accomplished on the ground of public interest. The people had shown in the election that they did not want the Bank rechartered. It was not best to remove the deposits suddenly when the charter should expire. He tried to show from the statistics of the Bank that it had operated inflations and contractions, and he suggested that this had been done for political effect. He reiterated the charges of improper expenditures. “Some of the items accounted for sufficiently show in what manner it was endeavoring to defend its interests. It had entered the field of political warfare, and as a political partisan was endeavoring to defeat the election of those who were opposed to its use. It was striving by means of its money to control the course of the government by driving from power those who were obnoxious to its resentment.”

All the debates and proceedings of this session were passionate and violent. The Senate refused, 25 to 20, to confirm the reappointment of the government directors, who were said to have acted as the President’s spies. Jackson sent the names in again, with a long message, and they were again rejected, 30 to 11. Taney’s appointment as Secretary of the Treasury was rejected. He was then nominated for Judge of the Supreme Court and again rejected. In January, Jackson sent in a message complaining that the Bank still kept the books, papers, and funds belonging to the pension agency, with which it had hitherto been charged. The Senate voted, May 26th, 26 to 17, that the Secretary of War had no authority to remove the pension funds from the Bank.

December 11th, Clay moved a call for a copy of the paper read in the cabinet. Jackson refused it, on the ground that Congress had no business with the paper. Clay introduced resolutions which finally took this shape: “Resolved—First, That the President, in the late executive proceedings in relation to the public revenue, has assumed upon himself authority and power not conferred by the Constitution and the laws, but in derogation of both. Second, That the reasons assigned by the Secretary for the removal are unsatisfactory and insufficient.” January 7th, Benton offered a counter-resolution that Biddle should be called to the bar of the Senate to give the reasons for the recent curtailments of the Bank, and to answer for the use of its funds in electioneering. February 5th, Webster reported from the Committee on Finance, on the subject of the removal and on Clay’s resolutions. The second of these was at once adopted, 28 to 18. March 28th, the first resolution was adopted, 26 to 20. April 15th, Jackson replied to the latter resolution with a protest, construing it as an invasion of Executive rights and independence. The Senate refused to receive this protest, 27 to 16, declaring it a breach of privilege. The administration press next directed its attacks against the Senate as an institution. This attack was organized in support of Benton’s proposition to expunge the resolution of censure on the President from the records of the Senate; so that one of the bitterest purely political struggles in the history of the country, before the civil war, grew out of the removal of the deposits. Jackson’s supporters won control of the Senate in 1836, and the resolution was expunged, January 16, 1837.

In the House, Polk reported from the Committee on Ways and Means, March 4, 1834, supporting Jackson and Taney in all their positions about the removal. He offered four resolutions, which were passed, April 4th, as follows:—First, That the Bank ought not to be rechartered, 132 to 82; second, that the deposits ought not to be restored, 118 to 103; third, that the State banks ought to be depositories of the public funds, 117 to 105; fourth, that a select committee should be raised on the Bank and the commercial crisis, 171 to 42. The committee last mentioned was appointed, and endowed with inquisitorial power, which J. Q. Adams thought was unjust and un-American. They reported, May 22d, that the Bank had resisted all their attempts to investigate, which was so far true that the Bank had drawn the line beyond which they would not allow the committee to go. The majority proposed that the directors should be arrested and brought to the bar of the House. The minority of the committee justified the Bank in the position which it had taken, and while they were very careful to ascribe only the purest motives to the majority, yet showed strong disapproval of the line of examination which had been attempted; that was, to find evidence to support the charges against the Bank and its officers in the books and in an inquisitorial examination of the officers themselves.

The Senate also undertook another investigation. It instructed the Committee on Finance, June 30th, to investigate all the allegations against the Bank made by Jackson and Taney in justification of the removal. This produced Tyler’s report of December 18, 1834, which is very valuable for the history, but was very little heeded at the time. Its conclusions were all favorable to the Bank.* Tyler appended to his report statistical statements of the condition of the Bank, which show what its internal history had been during the last years. It had drawn back from the perilous position into which it was drifting under the western debt, and the operation of the branch drafts, in the spring of 1832, and had improved its whole status down to October, 1833, when it was extremely strong.

We have already noticed the panic which was occasioned by the removal of the deposits and which may properly be so called, if we are correct in the opinion that there was no rational ground for commercial distress in that proceeding. During the winter of 1833-4, there was a stringent money market, and commercial distress due to other causes, which were indeed incidental to, or contingent on, the removal. The State banks were trying to strengthen themselves and to put themselves on the level of the Treasury requirements, in the hope of getting a share of the deposits. It was they who operated a bank contraction during the winter. It was more than a year before the new system began to operate in place of the old. Stocks fell from 20 per cent. to 50 per cent. In February, 1834, sterling exchange was down to 98, par being 108. There was a great fall in prices, and commercial paper rose to two per cent. or three per cent. per month.* A great number of banks failed on account of the shrinkage in securities. In New York, State stocks were loaned to the banks to ward off an apprehended suspension of specie payments. Hammond says that this frustrated the desire of the Bank of the United States to force a suspension.† Nathan Appleton ascribed the commercial crisis to Biddle. “No one can doubt that his contractions in 1834, so distressing to the community, were pushed beyond reasonable measure, for the purpose, by that means, of effecting the renewal of the charter, under the pretense of the necessity of preparing for winding up its concerns, whilst his subsequent expansion had a full share in producing the mad and wild speculations of 1835-6.”‡ In another letter, in 1857, Appleton said that, in March, 1834, a committee of New York merchants and bankers told Biddle that, unless the Bank desisted for thirty days from any calls on the other banks, he would be denounced on the Merchants’ Exchange for “flagitiously endeavoring to force Congress to grant him a charter.” When the thirty days were up he renewed the pressure and kept it up until July, when Congress adjourned. The “pressure was wholly owing to the unprincipled action of Mr. Biddle.”§ If this story is correct, it seems that the merchants and bankers unwarrantably intimidated Biddle from collecting debts justly due to the Bank for a period of thirty days.

The anti-Bank men pointed to the statements of the Bank as obvious proof of panic-making and popularity-hunting. In eighteen months from January, 1831, to July, 1832, when it was working for the renewal, its loans increased $23.4 millions; in the next eighteen months they were reduced $21.9 millions, as was said, out of spite and revenge, to show its power; in the next six months they were increased again $19.6 millions.

Benton and others denied that there was any distress, and said that the petitions presented to Congress were gotten up for effect, to frighten Jackson into restoring the deposits. Delegations went to Washington to represent to Jackson the state of the country. He became violent; told the delegations to go to Biddle, that he had all the money; that the Bank was a monster, to which all the trouble was due. In answer to a delegation from Philadelphia, February 11, 1834, Jackson sketched out the bullionist program, which the administration pursued from this time on. Up to this time it had been supposed that Jackson rather leaned to that class of paper money notions represented by the big banks of the States of the Southwest. He now proposed, as an “experiment,” to persuade the local banks, by the inducement of the deposits, to come up to a higher and higher standard, until there should be no bank notes under $20, and a large part of the circulation should consist of coin. For the next ten years there were, therefore, four schools of opinion and four systems of currency contending for the mastery: the national bank system, the local deposit bank system, the bullionist system, and a government inconvertible treasury note system.

For a short time in the summer of 1834, the currency was in a very sound condition. The Bank of the United States was, by the necessity of its position, under strong precautions. The local banks, by their efforts to meet the Treasury requirements, were stronger than ever before. In May it was said that there was more specie in the United States than ever before.* Silver was imported during the fiscal year to the value of $3.7 millions. A statement which pretended to give the ratio of circulating paper to specie in the different States showed that, with the exception of Tennessee, Mississippi, Maine, Connecticut, Massachusetts, and South Carolina, the ratio was under 7 to 1.†

This, however, was a mere transition. As we shall see in the next chapter, the effect of the transfer of the government money to the local banks was that their number was greatly increased and a bank inflation was produced.‡ The state of things which existed in the summer of 1834 passed as mere phenomena of transition.

November 5, 1834, Secretary Woodbury informed the Bank of the United States that the Treasury would not receive branch drafts after January 1, 1835. This led to a spirited correspondence with Biddle in which the latter defended the drafts as good, both in law and in finance.§

In the message of 1834 Jackson recapitulated all the old complaints against the Bank and recommended that its notes should no longer be received by the Treasury, and that the stock owned by the nation should be sold. January 10, 1835, Polk introduced a bill to forbid the receipt of notes of the Bank of the United States at the Treasury, unless the Bank would pay at once the dividend which had been withheld in 1833. Bills were also proposed for regulating the deposits in the deposit banks, but no action was taken on any of these matters, and the session was fruitless as to banking and currency. The Committee on Finance of the Senate was, however, ordered to investigate the specie transactions of the Bank.

In the message of 1835, Jackson referred to the war which, as he said, the Bank had waged on the government for four years as a proof of the evil effects of such an institution. He declared that the Bank belonged to a system of distrust of the popular will, as a regulator of political power, and to a policy which would supplant our federal system by a consolidated government. Thus at the end of the Bank war we meet again with that allegation in regard to the constitution and purpose of the Bank as a plutocratic engine, which Ingham had formulated in his letter to Biddle, October 5, 1829.

CHAPTER XIII.

Measures and Events Antecedent to the Crisis of 1837.

§ 1.—

The United States Bank of Pennsylvania.

THE Committee of Stockholders to investigate the Bank of the United States, January 4, 1841, said: “The origin of the course of policy which has conducted to the present situation of the affairs of the institution dates beyond the period of the recharter by the State.” We shall therefore use the information which that Committee obtained in regard to the internal history of the Bank, so as to present both that and the external history at the same time.

“When it was perceived,” the Committee go on to say, “that the charter of the late Bank of the United States would not be renewed or extended by Congress, the president and directors commenced winding up its concerns, and among the first measures taken to that end was to sell or dispose of, as far and as speedily as could be effected, the assets of its several branches. This was generally done to State banks, who gave for them their obligations, payable by installments at distant periods. At the same time the policy was adopted of converting the active debt into loans upon the security of stocks, by which permanent investments might be provided for the capital of the bank during the long period of its anticipated liquidation.” On the 6th of March, 1835, “the president submitted to the Board a general view of the situation of the Bank, its means and liabilities, its circulation and deposits, and the probable future demands upon it, showing its ample resources and power of expansion; whereupon” the Committee of Exchange, which was composed of three directors, appointed by the president, were authorized by the Board “to make loans on the security of the stock of this Bank, or other approved security, and if necessary at a lower rate than six, but not less than five per cent. per annum.” “This delegation of power to the Exchange Committee was never expressly and formally renewed under the new charter, unless it be considered as included under a general resolution of the new Board adopting ‘the By-Laws, Rules, and Regulations’ of the former Bank. By the statement of the condition of the Bank upon the 2d of March, 1835, the whole amount of loans upon Bank stock and other than personal security, was $4,797,936.25, while by that of March 3, 1836, these loans had increased to the sum of $20,446,367.88. Under such circumstances, the active means of the Bank were comparatively small to pay the immediate demand of the State for the bonus, to settle with the government of the United States for its stock, and to meet its circulation of $20,114,227.56, which, contrary to the anticipation, expressed at the period of its recharter, soon began to be rapidly presented for redemption. The Bank was of necessity driven into the market as a borrower, and very soon the first step was taken to obtain loans abroad, by sending the cashier to Europe for that purpose. Two loans were accordingly negotiated by him; one in England of £1 million sterling; and another in France of 12,500,000 francs, on favorable terms.”

“To this [foreign indebtedness] has been superadded extensive dealing in stocks, and a continuation of the policy of loaning upon stock securities, though it was evidently proper upon the recharter that such a policy should be at once and entirely abandoned. Such indeed was its avowed purpose, yet one year afterwards, in March, 1837, its loans upon stocks and other than personal security had increased $7,821,541, while the bills discounted on personal security and domestic exchange had suffered a diminution of $9,516,463.78. It seems to have been sufficient to obtain money on loan, to pledge the stock of an ‘Incorporated Company,’ however remote its operations or uncertain its prospects. Many large loans, originally made on a pledge of stocks, were paid for in the same kind of property, and that too at par, when in many instances they had become depreciated in value. It is very evident to the Committee that several of the officers of the Bank were themselves engaged in large operations in stocks and speculations, of a similar character, with funds obtained of the Bank, and at the same time loans were made to the companies in which they were interested, and to others engaged in the same kind of operations, in amounts greatly disproportionate to the means of the parties, or to their proper and legitimate wants and dealings.”

In other words, the United States Bank of Pennsylvania became a Credit Mobilier, and engaged in promoting all sorts of enterprises all over the Union, and making financial contracts of various kinds.

“From March, 1835, the chief control and management of the affairs of the institution appears to have passed from the hands of the directors. The mode in which the Committee of Exchange transacted their business shows that there really existed no check whatever upon the officers, and that the funds of the Bank were almost entirely at their disposition. That committee met daily and were attended by the cashier and at times by the president. They exercised the power of making loans and settlements to full as great an extent as the Board itself. They kept no minutes of their proceedings, no book in which the loans made and the business done were entered, but their decisions and directions were verbally given to the officers, to be by them carried into execution. The established course of business seems to have been for the first teller to pay on presentation at the counter all checks, notes, or due bills, having endorsed the order or the initials of one of the cashiers, and to place these as vouchers in his drawer for so much cash, where they remained until just before the regular periodical counting of the cash by the Standing Committee of the Board on the state of the Bank. These vouchers were then taken out, and entered as ‘Bills Receivable’ in a small memorandum book, under the charge of one of the clerks. These bills were not discounted but bore interest payable semi-annually and were secured by a pledge of stock or some other kind of property.”

In November, 1835, fifteen of the branches had been sold. Until this time, therefore, it appears that the Bank was proceeding directly and steadily with the work of winding up its affairs. In November, however, projects began to be talked about for getting a State charter from Pennsylvania. One of the controlling motives, and perhaps the most powerful of all, in this and the subsequent proceedings, was the jealousy between New York and Philadelphia. There was a proposition to establish a great fifty-million-dollar bank at New York, and it seemed that if Philadelphia lost her bank and New York got one, the financial hegemony would be permanently transferred to the latter city. On two occasions already since the fate of the Bank was sealed New York had been in trouble, and had turned to Biddle for help. In December, 1835, after the great fire in New York, the Bank opened credits for two million dollars in favor of the insurance companies.* In May, 1836, in the midst of the financial stringency† New York called on the Bank of the United States for aid, which it gave. In the newspaper discussion over the first proposition that Pennsylvania should charter the Bank, the probable effect of such a step on the rivalry of the two cities was openly debated.‡

The whigs had a majority of forty-four in the House of Representatives of Pennsylvania, in January, 1836, but the democrats had five majority in the Senate. The proposition was first broached in the shape of a letter to Biddle from two members of the Legislature, asking him what should be the main features of a charter which would be satisfactory to the Bank. Biddle afterwards referred to this as if it had been a bona fide offer from these gentlemen, and in no way inspired by the Bank.§

The act for the Pennsylvania charter was passed February 18, 1836. It comprised three projects in an obviously log-rolling combination; remission of taxes, public improvements, and bank charter. It was no new thing in Pennsylvania or elsewhere to put into bank charters a requirement that the bank should subscribe to some public improvement, or charitable enterprise. Education was very commonly dragged in as a make-weight. This might be regarded as only an appropriation of a bonus which was exacted. In any case, the appropriation of it to some purpose which some people had very much at heart was intended to help the bill through. Remission of taxes was the most effective lever of this kind. The Bank was chartered for thirty years. It was to pay a bonus of two and a half million dollars; pay a hundred thousand dollars per year for twenty years for schools; loan the State not over a million dollars a year, in temporary loans at four per cent., and six million dollars on State bonds, payable in 1868 at four per cent., and subscribe six hundred and forty thousand dollars to railroads and turnpikes. The lowest note was to be $10, and elaborate rules which the law of the State already contained for enabling note-holders to enforce a remedy for non-redemption were here repeated. Personal taxes were repealed by other sections of the bill, and $1,368,147 were appropriated out of the Bank bonus for various canals and turnpikes. Evidently all the hobbies and local schemes in the State clustered around this big carcass and fought with one another for slices of it. The charter passed the Senate 19 to 12, and the House 57 to 30.*

A loud outcry was at once raised that this bill could only have been passed by corruption, because of the democratic majority in the Senate. A member of the House who had made such a statement was, after an investigation, called to the bar of the House and reprimanded for “an attempt to mislead public sentiment at the expense of the character and reputation of the Legislature of the Commonwealth.”† At the next session the Legislature ordered an investigation of the method by which the United States Bank had obtained its State charter. The majority of the committee reported denying that the letter which had been written to Biddle was intended as an application to him on behalf of the State. A particular question had arisen already with regard to the continued issue of the notes of the old Bank. This the minority of the committee justified. As to the alleged corruption, nothing was discovered.

There was a mysterious item of $400,000 in the accounts at about this date which is often referred to. The only approximate explanation is in the second report of the Committee of 1841. On February 29, 1836, there were in the teller’s drawer Biddle’s receipts for money received on cashier’s checks to the amount of that sum. They were taken out. At the same time a lot of notes of the old Bank were burned, including ten post-notes of $40,000 each, which had never been issued. One of these items was made to cover the other. The clerk, however, later discovered that the account of notes showed more burned than issued. June 27, 1840, the account was balanced by charging $400,000 to the contingent fund as losses.

It was common tea-table gossip in Philadelphia that the State charter was obtained by bribery.‡

Jackson’s chief charge against the Bank at last was that it spent large sums to influence politics and legislation. This charge the Bank seemed to repel successfully, but the United States Bank of Pennsylvania began in political corruption and legislative abuse and never desisted from them while it existed.

Upon the passage of this charter the stock rose to 126. At the meeting of the stockholders Biddle said that the Bank had a surplus with which it could pay all the sums which the charter imposed upon it. The charter was accepted two days after it was passed, with great enthusiasm, and a service of plate was presented to Biddle for his services in getting it.* His salary was $8,000. Bevan was made president of the old Bank for the purpose of transferring it to the new, and on the 2d of March, all the assets of the old Bank were turned over to the new one on condition that the latter should assume all the obligations of the former.

April 11, 1836, Congress repealed the act of 1817, by which the United States Bank was charged with the duties of commissioners of loans. The Bank was ordered to hand over all the books, papers, and money within three months. April 20th, its duties as agent for the payment of pensions were ended. June 23d, the Secretary of the Treasury was charged with the property rights of the United States in the Bank, and was directed to act on its behalf, by virtue of its stock. June 15th the fourteenth section of the old charter was repealed, which made the notes receivable at the Treasury. This crippled the circulation of the Bank to some extent.

In October there was a report that the Bank would surrender its State charter if it could get back its bonus. In that same month, however, Biddle wrote another letter to Adams, showing the wrong which would be done by a plan which was on foot to call a State convention for the purpose of repealing the State charter. In November the question was raised in the Legislature whether the charter could not be repealed. It was disposed of by a general resolution affirming the inviolability of charters except by the action of the courts.

June 23d Congress authorized the Secretary of the Treasury to negotiate with the Bank for the payment of the government stock. No agreement was reached, but, February 25, 1837, the Bank sent a memorial to the Speaker of the House, in which it offered to pay off the public shares at $115.58 per share, in four installments; September, 1837, 1838, 1839, 1840. This proposition was accepted and the installments were all paid.† As the Bank sold new shares in England at £24 and £25, it gained on this operation. The Treasury tried, at this time, to induce the Bank to repay the damages which it had retained on the French bill.

In his message of 1836, Jackson discharged his last broadside at the Bank. He was very angry that it should have taken the State charter and prolonged its existence. His fears and the hopes of the Bank centered on the same point,—that it would be taken up again as a national bank. The most important complaint which he made of it was that it was re-issuing the notes of the old Bank.

When the State charter was taken, there were 3,417 stockholders, of whom there were Pennsylvanians 590; other citizens of the United States, 2,267; foreigners, 560. The distribution of the capital by ownership was, in the New England States, $3.1 millions; New York and New Jersey, $4.5 millions; Delaware, Maryland, and the District of Columbia, $2 millions; Virginia and North Carolina, $0.8 million: South Carolina and Georgia, $3 millions; other States, $99,000; Pennsylvania, $5.2 millions; foreigners, $9.1 millions.

The loans made by the Exchange Committee to the officers of the Bank and to the favored clique connected with it amounted, March 4, 1836, to $6.2 millions. On the same date, one year later, they were $8.1 millions. With regard to these loans the Committee of 1841 said: “In the list of debttors on ‘Bills Receivable’ of the 1st of January, 1837, twenty-one individuals, firms, and companies stand charged, each with an amount of $100,000 and upwards. One firm of this city [Philadelphia] received accommodations of this kind between August, 1835, and November, 1837, to the extent of $4,213,878.30, more than half of which was obtained in 1837. The officers of the Bank themselves received in this way loans to a large amount. In March, 1836, when the Bank went into operation under its new charter, Mr. Samuel Jaudon, then elected its principal cashier, was indebted to it $100,500. When he resigned the situation of cashier and was appointed foreign agent, he was in debt $408,389.25, and on the 1st of March, 1841, he still stood charged with an indebtedness of $117,500. Mr. John Andrews, first assistant cashier, was indebted to the Bank in March, 1836, $104,000. By subsequent loans and advances made during the next three years, he received in all the sum of $426,930.67. Mr. Joseph Cowperthwaite, then second assistant cashier, was in debt to the Bank, in March, 1836, $115,000; when he was appointed cashier in September, 1837, $326,382.50; when he resigned, and was elected a director by the Board, in June, 1840, $72,960, and he stands charged, March 3, 1841, on the books with the sum of $55,081.95. It appears on the books of the Bank that these three gentlemen were engaged in making investments on their joint account, in the Stock and Loan of the Camden & Woodbury Railroad Co., Philadelphia, Wilmington & Baltimore Railroad Co., Dauphin & Lycoming Coal Lands, and Grand Gulf Railroad and Banking Company.”

Such was the internal condition of the Bank when the crisis of 1837 occurred.

§ 2.—

The Multiplication of Local Banks.

Taking the whole country over, there was a lull in the activity of the bank-making legislator from 1825 to 1832.

As has been said, the local banks did not arouse themselves against the great Bank at Jackson’s first attack. They were not dissatisfied with their relations to it. The best of them stood in as much fear as anybody in the community of the possibilities of a bank mania. It was only after the debt was paid and the surplus revenue began to accumulate that the attraction of this bonanza overcame prudence and good sense. The popular sentiment now swung over again to a mania for banks. Each district wanted a deposit bank so as to get a share in the stream of wealth which was expected to flow from the public treasury. If a deposit could not be obtained, then a bank was formed in order to participate in the carnival of credit and speculation; for a non-deposit bank had the advantage of being bound by no rule. The deposit banks drew together from a community of interest, in order not to share the public deposits with a larger number. For two years, however, the amount increased faster than the banks did.

In order to take the place of one bank with $35 millions capital, which, after all, did not go out of existence, there were organized, between 1832 and 1837, 340 banks with $99 millions capital. The mania for banking was such that formal riots occurred at the subscription of stock, and men of pugilistic ability were employed to enter the subscriptions.* The fortunate few who could subscribe the whole sold to the rest at an advance. As the commissioners enjoyed this advantage, it was worth from $500 to $1,000 to be a commissioner.† The prospect that a bank could get some government money given to it intensified the notion already entertained by those who were desperately in debt, that the best way to escape was to join together and make a bank. The Tammany society being in debt, a plan was proposed for paying the debt by making a bank.* When the great fire occurred in New York, in 1835, a proposition was made to create a bank as a mode of relieving the sufferers. “To make a bank,” said Niles, “is the great panacea for every ill that can befall the people of the United States; and yet it adds not one cent to the capital of the community.”†

The effect of this multiplication of banks and of the scramble between them for the public deposits was that an enormous amount of capital was arbitrarily distributed over the country, according to political favoritism and local influence, and in disregard of the industrial and commercial conditions. The banks which received this public money were expressly encouraged to Ioan it freely. Secretary Taney wrote to the deposit banks: “The deposits of the public money will enable you to afford increased facilities to the commercial and other classes of the community; and the Department [Treasury] anticipates from you the adoption of such a course respecting your accommodations as will prove acceptable to the people and safe to the government.”

The banks used these deposits as a “basis for circulation.” As soon therefore as this system began to work it produced a grand inflation, reaching out in all directions. In some cases the banks used the deposits which were given to them to put themselves in the position which they were required to occupy as a condition precedent to acceptance as deposit banks. The preliminary appearance which they presented was fraudulent, and was healed by the deposits after they got them.

The banks of Vermont‡ were established by separate charters until 1831, the charters having, however, certain common features. The limit of issue was three times the capital; six per cent. of the profits to go to the State for a school fund. A peculiar feature was a provision that every bank director must give a bond for $8,000 to the State, to perform his duties faithfully under the charter. Any person who suffered by the bank might sue on one of these bonds. A safety fund act was passed in 1831. Each bank was to pay three-quarters of one per cent. per annum for six years, thus constituting a fund of four and a-half per cent. of the capital, which was to be kept good by assessments not exceeding three-quarters of one per cent. per annum. This fund was liable for all debts of a failing bank. No bank was to begin until fifty per cent. of its capital was paid in, for which oath should be taken to the Bank Commissioners appointed in the act. In 1840 this act was amended and extended, so that the whole of the capital stock must be paid in within two years, or the bank could not go on. The directors were made liable for any losses sustained by individuals through a violation of this act, and each of them must execute a bond to the State Treasurer such that the aggregate for each bank should equal its capital, with sureties residing in the State and not directors, or with mortgage security to the approval of the Bank Commissioners. Every cashier must also give bonds to the State in $20,000. The Bank Commissioner or receiver might order prosecution on these bonds for the benefit of claimants against the bank. No stockholder, director, or officer might owe a bank over five per cent. of its capital, and all of them together not more than what three per cent. for each would aggregate. No loan might be made on the stock of the bank; debts were limited to twice the capital plus the deposits; the banks were offered an inducement to comply with the Suffolk system by the provision that there should be one per cent. tax on capital, which should be remitted on any bank which kept a deposit in Boston for redemption. Instead of paying to the safety fund, a bank might give bonds with sureties or security to redeem its notes. In 1844, all the banks under this law redeemed in Boston, and paid no tax, and three gave bond instead of contributing to the safety fund.

In 1839 the Essex Bank failed. Its notes were presented to the amount of $34,426, of which $28,000 became involved in litigation. In 1844 the fund was $31,000; that is, inadequate to meet this loss if the entire claim was declared valid.*

Massachusetts.—“Between the years 1831 and 1833, a great increase took place in the number of banks in New England. During this period 90 new banks were chartered, of which 45 were located in Massachusetts. The Suffolk Bank became overloaded with redeemed bills; the banks were slow in making remittances; and the accounts of many of them were overdrawn. Accordingly the Suffolk Bank sent a circular to such of its correspondents as it allowed to overdraw, informing them that on account of the scarcity of money, and in order to have some control over its own funds, over-drafts must be limited to $10,000. It also adopted the rule that foreign money deposits must be made before one o’clock, otherwise they would not be credited till the following business day. At the same time it reduced the permanent deposits required from the Boston banks to $15,000 as a minimum.”

“In 1834 the redemption business had increased five-fold; from $80,000 to $400,000 daily. The officers were employed till nearly midnight, and then often obliged to lay aside a large number of bills to be counted the next morning. To reduce the business and keep it within bounds, it became necessary to modify the arrangement made with the Boston banks. Heretofore they had been allowed to send in all their foreign money at par;—now they could send in on any one day an amount equal to one-half of their permanent deposit. If they exceeded that amount they were charged one-tenth of one per cent. on the excess. They were also restricted to the foreign money received by them in the regular course of their business. excluding deposits from banks and brokers. By these means it was hoped the business could be brought within reasonable limits. At the same time the permanent deposit of the Boston banks was reduced to $10,000; and in May, 1835, a further reduction was made to $5,000.”

“During the winter of 1835-6 thirty-two new banks were chartered in Massachusetts, making a total increase of 78 new banks in this State during a period of six years, or more than double the number of banks in operation in 1830. And nearly the same ratio of increase took place in the number of banks in the New England States. In 1830 they numbered 169; in 1837, they numbered 321. Many of these banks were started with little or no real capital; specie was borrowed for one day to be counted by the Bank Commissioner, and on the next it was replaced by the notes of the stockholders. The bills of these banks, loaned in violation of the usury laws at high rates of interest, were used in the wildest speculations. The country was flooded with them, and specie was becoming scarce. The ratio of specie to deposits and circulation had fallen to one to thirteen and a-half, or less than seven and a-half per cent., the smallest then ever known. These bills poured into the Suffolk Bank for redemption; and in April, 1836, it sent a circular letter to 44 banks, whose accounts were overdrawn in the aggregate sum of $664,000, saying that it would send their bills home.”*

In March, 1836, the Massachusetts Legislature allowed banks to issue post-notes to an amount not exceeding fifty per cent. of the paid-up capital, provided they issued no notes less than $5. This was repealed February 1, 1838. The tenor of the post-notes was: the bank promises to pay A. B. or bearer $1,000 in 7 months, with interest at the rate of four and one-half per cent. per annum until due and no interest after. This privilege was principally used by weak banks.†

This was properly a bond because it bore interest, but the term post-note was used at this time for notes which bore interest or did not, often producing serious confusion.

In 1836, a memorial was addressed to the Massachusetts Legislature for a Bank of the State, to have $10 millions capital, and the Banks of the State in Louisiana and Alabama were pointed to as models. “The wants of this community require the establishment of a bank with a capital sufficient to do the business which has heretofore been done by the Branch Bank of the United States.” “It is proposed to establish a bank of $10 millions, one-half of which is to be subscribed by the State, and borrowed in Europe on State scrip, bearing interest at four per cent. per annum, redeemable in twenty years; and the other half to be subscribed by individuals.

“This scheme is based on the supposition that money can be borrowed in Europe, on the credit of Massachusetts, at four per cent. per annum, and that the difference between the interest paid by the State, on the money borrowed, and the dividend received from the bank on $5 millions bank stock owned by the State, will, if reserved as a sinking fund, redeem the State scrip in twenty years, and leave the State the clear amount of $5,060,625. “To produce this result it is assumed that the bank will make semi-annual dividends of three per cent., after paying into the treasury one-seventh part of its profits, according to the experience in other banks; assuming also that the proposed sinking fund can be invested at five per cent. per annum, payable semi-annually, and that the State will add to this sinking fund the State tax on its own portion of the stock.”

The memorialists think that within two years the stock of the bank would, if wisely managed, bring as high price in the New York market and on London Exchange as the average value of the stocks of the large banks in the middle and southwestern States—a premium of from ten per cent. to twenty-five per cent.

In 1838, the Committee on Banks was ordered to inquire into the expediency of this scheme; the bank to have branches in each county; the State to own part of the capital and to control the direction.*

The banks of Rhode Island were organized, in 1836, around the Merchants’ Bank of Providence, on the Suffolk system, the Merchants’ itself being a satellite of the Suffolk.† The number of banks in 1838 was sixty-four, “being nearly one for every fifteen hundred persons. Almost every village has one, and their capitals vary from $20,000 to $500,000.”‡

Connecticut.—The charter of the City Bank of New Haven, May 28, 1831, varied considerably from the Connecticut type. The bank was bound to subscribe $100,000 to the Hampshire and Hamden Canal, and was not to be obliged to take in the State of Connecticut or any society as a stockholder; it was to be free from taxation until the canal should pay six per cent. on its capital. Being subject to charges and investigation, in 1837, the bank replied that it had been forced to invest its funds out of the State because the additional banking capital was not needed; that the canal men got up the bank in order to get the capital; that the canal had been sold out and the subscription of the bank lost. It claimed to be almost the only bank north of the Potomac paying its promises in “constitutional currency.” The chartered banks of the State resented the appointment of Bank Commissioners, in 1837, and refused to pay their share of the expenses of the commission, as provided by law. The Legislature did not try to force them, but paid their quota from the State Treasury.

New York.—An amendment to the safety fund law was adopted May 11, 1835, which was chiefly aimed against usurious devices. The Bank Commissioners were to examine the officers on oath on these points, and obtain an injunction against any bank violating this law. In April, 1836, there were in the city seventeen safety fund banks and six others; in the country, sixty safety fund banks and four others. January 1st, the safety fund was estimated at $540,285.§

The circulation of the safety fund banks was limited, May 16, 1837, by an elaborate scale; a bank of $100,000 capital being allowed $150,000 circulation; one of $120,000 capital, $160,000 circulation, and so on, the proportion of circulation to capital diminishing with the increase of the latter, until, at $200,000 the two were equal. Then the circulation was made less than the capital, until a $1 million bank was allowed only $800,000, and one of $2 millions only $1.2 millions circulation. The Comptroller was authorized to apply a portion of the safety fund to the redemption of the notes immediately after a failure, so as to prevent them from depreciating; but a Bank Commissioner must make a certificate before this could be done “that the amount of the debts of such banking corporation over and above its property and effects, will not exceed two-thirds of the amount of the bank fund then paid in and invested, exclusive of all prior established claims thereon.”

The safety fund law originally provided that the Governor and Senate should appoint one Commissioner, the banks in the city and southern part of the State a second, and the other banks the third. This was changed in 1837 to give the appointment of all three to the Governor and Senate. “This of course brought them within the vortex of the great political whirlpool of the State, and the place was sought for and conferred upon partisan aspirants without due regard in all cases to their qualifications to discharge the delicate trust committed to them.”*

So much of the law of 1818 as forbade any person or association of persons to keep offices for the purpose of receiving deposits or discounting notes or bills was repealed by a law passed February 4, 1837, but any corporation, created by the laws of any other State or country, was still forbidden to keep any office for the purpose of receiving deposits, discounting notes or bills, or issuing bank notes. This shut out any branch of the United States Bank of Pennsylvania.

Pennsylvania.—The most perfect specimen we have of a deposit bank, showing the demoralization and mischief produced by that system, is the Girard Bank. It was founded in 1832; in 1834 it got a share of the public deposits. To make this share larger an act of Assembly was procured in 1836, increasing the capital from one and a-half million to five millions and extending the charter twenty years. The stockholders gave the cashier two hundred shares of the stock for his agency in procuring the passage of the act. The increase of capital was paid by stock notes and the bank was largely occupied in stock-jobbing to carry out this operation. “The maximum of government deposits having been obtained, a system of prodigality in loaning them out was commenced, which baffles the conception of sober and reflecting minds, and of which we have but few examples, even in the annals of modern banking.” In fact, the paid-up capital was never over two-thirds of five millions, but the government deposits ran at times as high as four millions. The assets consisted very largely of unavailable loans, so that with a discount line of six or seven millions, scarcely two hundred thousand dollars was in active business paper.*

In 1836 Dr. Dyott of Philadelphia established what he called a Manual Labor Bank. “His motive for this is to give to the meritorious working-man the full legal interest which he ought always to obtain for his savings.” The doctor filed a mortgage for $500,000 on his own real estate, as security for his notes, which were for five cents and above. He also issued post-notes for sums from $1 to $20. He owned glass-works and houses, and had a store containing various commodities. He seems to have been another case of a man who committed crime under the influence of a mixed philanthropic and financial delusion.† He was 70 years old and was sent to the penitentiary for three years, but was pardoned by the Governor.‡

Virginia.—The charter of the Bank of Virginia, having been extended January 24, 1814, until 1833, was further extended, February 17, 1830, for nine years and one month. As will be seen in the other renewals which follow, the plan was adopted of making all the charters expire June 1, 1842; that then all the banks might be put under a general law. A bonus of $51,306 was demanded for the State, to be obtained by reserving from the dividends of the private stockholders 30 cents per share. The State deposits were to be put in this bank. Its notes were to be receivable by the State while it paid specie; but this provision might be revoked. The charter of the Bank of the Valley was extended, February 18, 1830, for eight years and one month, to bring it to June 1, 1842; bonus, $10,000, which was not to be taken from the State stock. March 4, 1831, the charter of the Northwestern Bank was extended to the same date, with an increase of capital of $300,000; bonus, $5,000.

At this time the State of Virginia was out of debt and its finances in good order. In 1833, a reduction of taxation was proposed, but, instead, the State took up the policy of internal improvements. In 1832 the James River and Kenawha Company was incorporated; also several railroad companies. “The State took stock in most of these companies, and appropriations were made in aid of the Chesapeake and Ohio Canal, besides many other minor works. In the course of a few years large sums of money had to be raised by the State.” One party insisted that the improvements, as they were made, would provide the interest and when finished would pay that and sink the principal too; another party insisted that taxes should be laid for the interest, lest the State credit should suffer. Within ten years a debt of $7,650,000 was contracted, of which the banks had taken $770,000; $1.4 millions belonging to the State and State institutions had also been absorbed; $2.3 millions were held abroad. The works in which the State held stock produced scarcely any revenue.§ The effects of this policy appear immediately in the history of the banks. February 16, 1833, the Bank of Virginia and the Farmers’ Bank were authorized to subscribe to the James River and Kenawha Company not more than 5,000 shares. March 4th, they were allowed to increase their capital, in order to pay for these subscriptions.

The Merchants and Mechanics’ Bank of Wheeling was incorporated March 7, 1834; capital $500,000; to last until 1854; bonus $25,000; 12 per cent. penalty for suspension; debts, exclusive of deposits, limited to twice the capital. In an explanatory act, February 17, 1835, the intention was declared to allow no notes under $5 after June 1, 1842; and the right was reserved in this charter to legislate further as to the lowest denomination of notes.

An act for the general regulation of banks was passed March 22, 1837. Banking powers were defined; three-fifths of the capital was to be paid in in coin before beginning; the lowest denomination of notes, until July 1, 1840, was to be $10; after that $20; the circulation was never to exceed five times the coin reserve; 15 per cent. penalty for failure to redeem; a bonus of a quarter of one per cent. on the capital was to be paid by creating extra stock, which should be a fund for internal improvements. The act was long and full of detail, embracing the general features of the Virginia charters with some comprehensive improvements. It stands in the history as a record of the pious intentions of the Legislature at the moment that the storm burst upon them. They proceeded, however, at once to other legislation likely to have a very different effect. The Exchange Bank of Norfolk, with three branches, $1.8 millions capital, half by the State, to last until 1852, was chartered March 25th. Additions, aggregating $3.2 millions, to the capital of the existing banks were proposed, half by the State, and the charters were extended until 1857, if the banks would come under this law and the general law; the limit of notes to $10 was postponed until October 1st. The State proposed to pay its subscriptions with its share in the distribution of the federal surplus, the remainder of which was to be loaned to the Bank of Virginia and the Farmers’ Bank at 5 per cent.

North Carolina.—“An act to establish a bank in the State of North Carolina” was passed at the session 1833-4; capital $1.5 millions; until 1860; the State to have an option on two-fifths of the capital, and to pay its subscription, if it decides to use its privilege, as the other subscribers do, in specie or its equivalent; the option to be open until 1837; to have four out of ten directors if it takes all the shares reserved to it; the State Treasurer to be ex-officio a director; tax 25 cents per share; 12 per cent. penalty for non-redemption; lowest note $5; limit of circulation twice the capital. A supplementary act provided that the Treasurer might borrow of the Bank of Cape Fear and the bank at Newbern, if it should seem expedient, apparently implying that he might borrow to pay this subscription. In an account of the organization of this Bank of the State, it is stated that the commissioners at first found it difficult to decide what was “equivalent to specie.” Their decision was unanimous, but the document does not tell what it was. It is only stated that the subscriptions have all since been “rendered available as specie.” The subscriptions went on slowly. State deposits were still made in the old Bank of the State. The Treasurer wanted them put in the new one.* The Cape Fear bank was rechartered at the session of 1833-4, until 1855; capital $800,000; to have branches as might appear expedient; to lend the State not over one-tenth of its capital; twelve per cent. penalty for non-redemption; lowest note $3. Under the act of 1829 for winding up the bank, part of its capital stock had been bought in. New shares were now to be subscribed to restore it; to be paid in specie or its equivalent. At the same time the Merchants’ Bank of Newbern and the Albemarle Bank of Edenton were incorporated. The only peculiar feature was that no director might owe to the bank more than the stock he owned. The charter of the Merchants’ Bank of Newbern was re-enacted at the following session, with some slight changes; the lowest note was to be $5. In 1835, the State Treasurer was ordered to issue $400,000 in five per cent. certificates, payable in 1860, and to pay the proceeds on the State subscription of stock in the Bank of the State. The bank stock was pledged for these bonds.

The Southwestern Railroad Bank, being the banking side of the Louisville, Cincinnati, and Charleston Railroad, was chartered by North Carolina, January 20, 1837. Three of the States, North Carolina, South Carolina, Tennessee, and Kentucky must concur before this act would be valid. Every one who subscribed one share of the railroad stock at $100 might subscribe also one share of the bank stock at $50, until the former should be $12 millions and the latter $6 millions. The mother bank was to be in Charleston; the lowest note $5, until the railroad should be built, and after that, $10; twelve per cent. penalty for non-redemption; each share of stock in the railroad to be inseparably connected with one share of stock in the bank, and they were to be transferred together; the bank to pay no tax until the railroad was completed.

The charter of the Cape Fear Bank was extended January 23, 1837, until 1860; the capital might be increased to $1.5 millions, the State taking $300,000 and the public $400,000 of the increase. If this capital should prove too big, the bank might get permission from the Legislature to buy in shares.

South Carolina.—The charters of the Planters and Mechanics’ Bank and the Union Bank were extended, December 18, 1830, for twenty-one years; each to pay a bonus of $25,000. The Bank of Columbia was chartered December 17, 1831, until 1853; capital $500,000, increasable to $800,000. On the same day it was enacted that all the officers and directors of the Bank of the State of South Carolina should take an oath not to reveal the secrets of the bank. It was prescribed what records should be kept. The officers were not allowed to buy any State stock; the stock of the State Bank owned by the State was to be sold and other safe stock bought. The charter of the Bank of South Carolina was extended for twenty-one years, December 20, 1832; bonus $16,875; the capital might be increased to $1 million by paying a proportionate bonus. The charter of the State Bank was renewed December 19, 1833, for twenty-one years; bonus $20,000, provided the stockholders make up the deficiency in the capital. On the same day, the charter of the Bank of the State of South Carolina was extended until 1856. It was to call in all notes under $1 and issue no more. On the same day the Bank of Cheraw was incorporated. December 17, 1834, the Bank of Charleston was established; until 1856; capital $2 millions; bonus two and a-half per cent. of the paid-up capital. The Camden Bank followed, December 19, 1835, and the Bank of Hamburg the same day. The State Bank was allowed to increase its capital to $1 million, December 21, 1836, and the Southwestern Railroad Bank was incorporated the same day; also the Bank of Georgetown.

It is very doubtful whether the notes of the Bank of the State of South Carolina, under $1, were actually retired;* but that bank was required, by an act of December 20, 1837, to issue notes for 50 cents and 25 cents.

The subscription of the State of South Carolina to 10,000 shares of the Southwestern Railroad Bank was enacted December 19, 1838, and that bank was authorized to set up agencies in South Carolina. It was reported in the previous October that General Hamilton had secured a loan in Europe, which he was bringing home in specie to start that bank.†

In 1838 a debt was contracted by the State to rebuild the city of Charleston. The bonds were called “fire loan” bonds. These bonds were negotiated by the Bank of the State and the money realized from them was to be deposited in the bank and become a part of the capital of it, which should be loaned to persons who intended to rebuild. All the profits of this additional capital were to be set apart to pay the interest and principal of these bonds, which would fall due, half in twenty and half in thirty years. A special account was to have been kept with this fund, and the profits of the same, with the general profits of the bank, were to be applied to extinguish it. The separate account was not kept and the bonds were not retired.

Georgia.—In the years 1830 and 1831, the multiplication of banks commenced in this State also and the charter of the Bank of the State was extended until 1855. A committee of the House recommended, December 16, 1830, that the Darien Bank should be wound up, proposing either that the State should buy out the other stockholders or that it should refuse to extend the charter. The capital should be put into the Central Bank; the return would equal half the State tax, and would relieve the people of the burden of supporting the State government. Another gain would be, they said, that the Legislature would then no longer relieve debtors to the bank, because if they did, it would become necessary to lay taxes. A few days later a special report on the Darien Bank was made, which was very laudatory. Once it had a circulation of $1.8 millions; now it has only $200,000 out and is entitled to as much confidence as any bank in the State. A year later a legislative committee stated that the Central Bank had a circulation of $111,996; specie $80,656; United States Bank notes $50,805; notes of State banks $108,653.

All notes under $5 were forbidden, December 24, 1832, and on the same day the charter of the Bank of Macon was repealed because it was not redeeming its notes in specie. They had ceased to be current and were depreciated. Also ten per cent. damages and interest for a failure to redeem notes in specie were imposed on behalf of individuals; the law did not apply to banks which demanded specie. Also semi-annual reports were demanded from all banks, in order to keep them sound and to secure the noteholders. The notes of delinquent banks were not to be received by the State. At the same time the Central Bank was ordered to put to the credit of the treasury funds to meet the outstanding treasury warrants, not in excess of $180,000, charging the same to the capital stock of the bank. At this time a committee very pertinently raised the question whether the State intended to draw from the funds of the bank the means to pay the most ordinary expenses of government, and so to destroy its usefulness. A long report was also made on the Macon Bank, which had failed July 28, 1832, having a large outstanding circulation. The committee estimated it at $453,130, which was $127,231 in excess of the amount stated by the bank in its return. Schemers had bought up the whole capital of the bank at a premium with its funds. At last the sole owner died insolvent. False returns had been repeatedly made.

The charter of the Darien Bank was extended, December 19, 1834, until 1855.

The act against small notes was declared, December 22, 1835, to have been beneficial. For the future only five’s, ten’s, twenty’s, etc., were to be allowed. At that time the Bank of Milledgeville was incorporated and in December, 1836, five more. It was enacted, December 22, 1836, that debts to the Central Bank might be renewed once in twelve months instead of once in six months, and the trustees of Oglethorpe University were allowed by law to subscribe the funds of the University into the capital stock of the Bank of Milledgeville at par, because all other bank stock was at a premium. At this time the Central Bank had loans outstanding $1,103,111, of which there was in suit $46,924; unpaid $211,058; bills under protest $72,400. A report on the Bank of the State showed the capital, $1.5 millions; circulation, $151,742; surplus, $110,100.

Alabama.—Inasmuch as the Constitution of Alabama provided that there should be only one Bank of the State, it was necessary, when other banks with capital obtained on the State credit were thought to be required, that they should be organized as branches of the Bank of the State. The consequence was that the Bank of the State of Alabama came to consist of branches almost entirely independent of the first one, which was considered the parent bank, at Tuscaloosa. The first such branch was established January 21, 1832, at a place to be set by the Legislature. It became the branch at Montgomery. The capital was to be $300,000, provided it could be obtained on a five per cent. loan at par. It was not to come from the existing Bank of the State. The Legislature were to elect the president and directors; it was to last until 1845; lowest denomination of notes $1; to report to the Bank of the State at Tuscaloosa and be subject to examination by it; debts exclusive of deposits not to exceed twice the capital; the faith of the State was pledged for the redemption of the notes and payment of its debts. November 17th, another branch was established at Decatur, for which five per cent. thirty-year State stock to the amount of $1 million was to be issued.* The provision in the charter of the Bank of the State that its loans should be allotted to the counties by population was repealed January 12, 1833, and the Governor was to appoint three Commissioners to examine the Bank of the State at any time when they should see fit.

The Bank of Mobile was authorized, January 16, 1834, to increase its capital to $1.5 millions, two-fifths of which was to be reserved for the State; extended to 1859; bonus $100,000, to be paid in annual installments in lieu of taxes during the charter period. January 18th, the Bank of the State and its branches were allowed to issue post-notes payable to specified persons, running not over ninety days, and bearing no interest until after payment was demanded. This was extended January 2, 1835, by allowing them to issue post-notes for one-half their paper issue, one-half of which should be payable at Boston, New York, and Philadelphia, with the same restrictions as before. Another branch of the Bank of the State was established at Huntsville, January 10, 1835. Five per cent. thirty-year bonds were to be sold to the amount of $1 million, half for the capital of this bank, and half to increase that of the branch at Decatur. The lowest denomination of notes for this branch was set at $5. On the same day the capital of the Bank of Mobile was increased to $1,850,000, and State bonds were to be sold to take up the two-fifths reserved for the State.

The Planters and Merchants’ Bank of Mobile was chartered January 8, 1836, for twenty years; capital $5 millions; lowest denomination of notes $5; limit of issue, twice the capital; two-fifths of the capital reserved for the State; annual bonus, $7,500, in lieu of taxes. January 9th, all taxes were abolished except those on shows, games, etc. The sum of $100,000 was set aside from the revenue coming from the stock owned by the State in the Bank of the State to pay the State expenses. This sum was to be put to the credit of the State by the bank and branches, in the parent bank, November 1st of each year. On the same day the capital of the Huntsville branch was increased $500,000; that of the Bank of the State, $400,000; that of the Montgomery branch, $500,000; that of the Mobile branch, $1 million; and five per cent. thirty-year bonds were to be sold to raise the whole. At the next session, December 23d, the Governor was directed to appoint three Commissioners annually to examine the Bank of the State at Tuscaloosa as other commissioners already examined the branches. The president of the Bank of the State was to receive the dividends on the stock owned by the State in the Bank of Mobile, and pay the semi-annual interest on the bonds issued for that stock; any surplus to go to the sinking fund.

The surplus revenue distributed to the States in 1837 was deposited by this State in the Bank of the State and branches.

Thus Alabama had everything prepared for the millenium just as the judgment day dawned.

The whole amount of bonds issued by Alabama for banks was $15.4 millions. The State Treasurer reported that there was no record of some of the bonds in any department.* In 1837, there were seven banks in all, in which the State owned $10.1 millions stock, of which $6.8 millions were in the Bank of the State and branches. The circulation of the State, November 1, 1836, was $7 millions; February 1, 1837, $10 millions; May 1, 1837, $5.5 millions. At the last date the Bank of the State and branches had $9 of circulation to $1 of specie; the demand liabilities were to the cash assets as 18 to 1. The circulation of the two stock banks was to their specie as 3 1-2 to 1; their immediate liabilities to their cash assets as 7 to 1. The profits of all the banks from November to May were nearly ten per cent.†

The notes of the Bank of the State were decided not to be bills of credit by the Supreme Court of the State,‡ and by the Supreme Court of the United States.§ The latter case, Darrington vs. the Bank of Alabama, is a reaffirmation of Briscoe’s case.

Louisiana.—“A Bank of the State of Louisiana” was chartered April 7, 1824; capital $4 millions; half by the State; the installments of the private subscriptions extended over two years; State subscription in five per cent. bonds at $100 of bonds for $83 1-3 of stock; bonds payable to the bank and assignable by it; the bank to pay the interest on the bonds out of the State dividends and the surplus to be a sinking fund for the principal; if the dividends were less than the interest, the bank was to pay the deficiency and be repaid by the State; the Governor and Senate to appoint six out of thirteen directors; the directors to choose the president; half the capital to be loaned on land; never to suspend under twelve per cent. penalty; to have five branches, the directors of which to be appointed by the directors of the mother bank. In a supplementary act of April 10th, it was ordered that $5 should be paid in cash on each share, and $15 in a promissory note with endorsement. Nothing is said of its relation to the former Bank of the State of 1818. In a supplementary act of November 30th it is called the Bank of Louisiana.

The State directors in the “Bank of Louisiana”* were directed, April 7, 1826, to remonstrate against a reservation of surplus profits greater than the Legislature thought necessary.

The Bank of the State sold the State bonds to Thomas Wilson & Company, of London, October 23, 1824. The bank had resolved that if the bonds sold above 83 1-3, the surplus could not be divided as profits, except in proportion as the surplus of the State dividends above the State interest, being applicable to the redemption of the bonds, should cancel $400,000 of them (that is, the first sixth of the total issue of $2 millions at 83 1-3). The State’s share of the profit on the bonds was $300,931. The Legislature by an act of March 24, 1827, ordered the bank to buy bonds with this amount and put them in the sinking fund. The bank appears to have intended to hold this sum as a further guarantee to the bond-buyers. On the same day, the number of State directors was increased to seven.

We now come to the institution which proved the germ of a new class of land banks. The Consolidated Association of the Planters of Louisiana was incorporated March 16, 1827. The capital of $2 millions was to be raised by loan, the company selling bonds and taking mortgages from its members for the loans made to them. On this plan the scheme was not workable. The bonds of the company could not be sold, probably because there was no available capital in the State, and the association could not command credit abroad. Another act was accordingly passed, February 19, 1828, by which the State lent its bonds to this company to the amount of $2.5 millions, thus putting the State credit in the place of their credit, and enabling them to bring in capital from abroad. The company was to guarantee the State by assigning to it mortgages, given by the stockholders, to the amount of $3 millions, for their stock. Ten thousand shares were given to the State as a bonus.

The New Orleans Gas Light Company, which afterwards became a bank, was chartered February 7, 1829.

The City Bank of New Orleans was incorporated March 3, 1831, until 1850; capital, $2 millions; to lend the State $100,000; lowest note $5; never to suspend redemption in “current money of the United States” under a penalty of twelve per cent. Existing banks were authorized to pay interest on deposits. Two days later the New Orleans Canal and Banking Company was incorporated until 1870; $4 millions capital; to cut a canal through the city from Lake Ponchartrain. It was to lend the State, when required to do so, not over $600,000, for not less than ten nor more than twenty-five years, on bonds of the State. It was to have three branches and two-thirds of the capital at each was to be loaned on real estate; so that it appears that its capital was to be used three times, for a canal, a loan to the State, and private loans.

April 2, 1832, the Union Bank of Louisiana was chartered. It was an extension and perfection of the idea of the Consolidated Association, and was afterwards imitated in Florida, Arkansas, and Mississippi. The capital was $7 millions; to be subscribed by citizens and landowners of Louisiana only. The State was to issue to the bank $7 millions of assignable bonds, for which the subscribers to the stock were to give mortgage security. If mortgaged property was offered, double the previous mortgage must be deducted, and it might be taken as security only for the residue. The period of the bank was twenty-five years; the Governor and Senate to appoint six out of twelve directors; lowest note $5; commissioners in each parish were to appraise property as security for stock subscription or for loan; one-sixth of the profits to go to the State and the other profits to accumulate for the payment of the State bonds; never to suspend under ten per cent. penalty; the capital exempt from all taxes; the State entitled to a credit of $500,000 and each stockholder to a credit equal to half his shares; during the three last years of the period, the bank to be wound up; to be eight branches; two-thirds of the capital at each to be lent on mortgage; these loans to be repaid in eight years by annual renewals and curtailments; all of them to end with the twentieth year.

A year later, April 1, 1833, another of these “property banks” was founded; the Citizens’ Bank, with $12 millions capital; the stock to be subscribed by mortgage notes; the bank to issue bonds bearing a statement of the mortgages of the stockholders behind them; the titles to be searched and the property valued by persons appointed by the bank; to have full banking powers; never to suspend; the State to be entitled to a credit of $500,000; part of the capital to be allotted amongst the parishes; to last fifty-one years; lowest note $5. If this bank did not dig a canal named, within eight years, it was to pay the State $500,000. It also had permission to build a railroad. Commenting on this charter, the Supreme Court of the State said that insolvent laws and the statute of distributions did not exist for debts to it. “No legal incapacity could be pleaded by its debtors. No exceptional jurisdiction could obstruct the collection of debts due to it.”*

In the same year the Commercial Bank of New Orleans was organized to build water works, and the Mechanics and Traders’ Bank, of whose directors five were to be mechanics.

In 1836, a number of banks, improvement schemes, and railroads were authorized. It appears that the Citizens’ Bank had not been able to raise its capital. January 30, 1836, a law was passed to issue State bonds to enable it to do so; the State to take the stock mortgages, which must exceed the bonds by one-fifth; the State was to have one-sixth of the profits and the bank was to pay as a bonus annually, so long as the charter lasted, $5,000 to each of three colleges. The bonds were to be sold within two years at not less than par. Upon the subscription of its stock, 167 subscribers in the city got shares to the amount of $4.7 millions; 107 subscribers in the country got shares for $3.2 millions.* It carried on two lines of business,—a loan office business and that of discounts and deposits, also issuing circulation. March 13, 1839, the Legislature ordered it to establish more branches.

The Commercial Bank denied the right of the State to visit it, except with respect to its water works. By resolutions of March 2, 1836, the Attorney-general was called on for his opinion on this point, and to test it in the courts if he thought there was hope of establishing such a right.

Just before the crisis occurred a legislative committee, commenting on the two classes of banks in the State, the stock banks and the mortgage loan companies, gave the preference to the latter because the former, whose stock was chiefly owned by persons out of the State, drew away not only the interest on their capital but also all the profits on it, while, in the second class of banks, the outsiders were paid only the pure interest on their capital and the profits remained in the State.

Florida.—The first act passed by the Legislative Council, in 1828, over a veto, was the charter of the Bank of Florida. The charter was repealed and re-enacted in the following year. This bank was the subject of much complaint because it was managed with a view to private profit, and disappointed the hopes that it would serve the public. Hence the Central Bank was incorporated in 1832, which bought the former. The Bank of West Florida was chartered in 1829, over a veto, and the charter amended in the following years, likewise without the Governor’s assent. The Committee on Banks in 1839† said of it: “The pledges made having been violated, and thousands of dollars of the notes of this bank remaining unredeemed, and the bank appearing to have no fixed or permanent abiding place, subsequent Legislatures directed proceedings to be instituted to recover its violated, lost, and fugitive charter. Obedience to these directions has been neglected, and no proceedings have been instituted. This charter is defunct from misuser as well as non-user. The bank is not to be found in the Territory; no return has been made from it for several years, although the Committee have been informed that certain persons, formerly stockholders, and still claiming to own the charter, have been endeavoring to effect a sale of it.”

The Bank of Pensacola was chartered in 1831, against a veto. Many amendments followed until its capital stood at $2.5 millions. “The Governor was authorized to loan to this bank the guaranty of the Territory for $500,000 of its bonds, to be issued upon certain conditions; two-thirds of the proceeds of which are to be appropriated in the creation of a railroad to Pensacola, and the other third to be applied to banking purposes; but no dividends to be made until the bonds are paid. No bond was given, or other equivalent made, for the charter or for the aforesaid guaranty, nor any security but the hypothecation of the stock of the bank and railroad.” The individual liability of the stockholders of this bank was repealed, February 10, 1838, but it was still affirmed on all the bonds issued for it.

“In 1832, the Central Bank of Florida was incorporated against the executive veto. Its capital was $1 million, and the duration of its charter extended till 1850. This bank is in good credit, and is judiciously managed, and there can be no doubt of its continuance in sound condition while under the same control as at present.”

“In 1832 the Merchants and Planters’ Bank of Magnolia was incorporated, with a capital of $600,000. It got a short time after into the hands of some speculators from an adjoining State, and in January, 1834, broke; but, notwithstanding, upon the most solemn pledges, as in the case of the Bank of West Florida, of speedy redemption of its paper, a supplementary act amending the charter was passed within a fortnight afterwards, against the veto of the Governor. These pledges have never been redeemed, and thousands of dollars of the worthless notes of this institution are unpaid, in the hands of our suffering citizens.”

The Commercial Bank was incorporated in 1833; capital, $500,000. The Committee of 1839 spoke of it as “of undoubted credit and solvency.”

In 1833, the Union Bank of Florida, destined to become the most famous of them all, was incorporated. The charter is not copied as to language from that of the Louisiana Union Bank, but the institution is very closely imitated. The capital—$1 million, increasable to $3 millions—was to be raised by bonds of the Territory, made payable to the order of the bank, for which the Territory was to be secured by mortgages of the lands and slaves of the stockholders. A variation in this charter was that here there was to be no distribution of profits until the bonds were paid; then only by permission of the Legislature, and one-half the profits to go to the Territory.

The Farmers’ Bank was chartered in 1834; capital $75,000. The Committee of 1839 could not find out anything about it. It was reported to be operating in Georgia.

“In 1835, the Southern Life Insurance and Trust Company was chartered, with powers and privileges of the most extensive and diversified character. Its capital is $2 millions, with the privilege of increasing it to $4 millions. It is directed to report to the Court of Appeals annually, which report is to be made to Council. No such report has ever been made, or any other. The capital stock of said bank is to be taxed at the same rate as all other personal property of the Territory, but the tax is not to exceed $5,000. The Territorial guaranty is to be given on the bonds of the corporation, under certain conditions; $— of these bonds have been thus guaranteed. This bank claims to be located at St. Augustine, but, it is said, is chiefly conducted in New York, and has an agency at Appalachicola. No tax has ever been paid, and the Committee are totally in the dark in regard to the capital or other affairs of the bank, in consequence of the neglect to make returns according to its charter and the general law of 1833.”

At the session of the Council in 1836 the St, Joseph’s Banking Company, the Florida Insurance and Banking Company at Pensacola, and the St. Joseph’s Insurance Company (without banking privileges), were incorporated.

These proceedings of the Territory had attracted the attention of Congress. Webster made a report from the Committee on Finance strongly condemning the plan of most of these institutions.* The result was the act of July 1, 1836, by which it was enacted that no law of a Territory incorporating a bank should be of force until approved by Congress, and all the acts of Florida of 1836, which created banks, were disallowed. On this the Committee whom we have been quoting say: “This course on the part of Congress is not such as the people of this Territory had a right to expect, relying as they have, upon the liberality and intelligence of those bodies.”

Few will think that the power of the federal government to disallow the acts of a Territory had been exercised any too soon. In 1838, it was reported that the old Bank of West Florida had been re-organized.†

One-fifteenth of the shares of the Union Bank were held by one man, one-sixth by three men, one-third by eleven men, one-half by twenty-five men, and five-sixths, or nearly the whole by eighty men; who in addition to the loans upon their mortgages were supposed to be otherwise indebted to the institution.‡ Evidently a clique got the whole enterprise into their hands, substituted the stock for the bonds, sold them, divided the proceeds as loans on the mortgages of their plantations. Then the worse the bank became, the cheaper they could buy its notes with which to pay the loans; or, the more desperate the confusion and bankruptcy, the greater the chance of evading payment altogether. If interest was paid, the loans had twenty or thirty years to run, and the mortgaged property was barred against other creditors. If the lands were mortgaged for all they were worth, the insiders endorsed for each other and borrowed more. There were, therefore, several lines of exploitation on which they could operate.

Mississippi entered on her great experiment in banking February 10, 1830, with the charter of the Planters’ Bank. The preamble states the purpose to be to give an impulse to labor, by an increase of the circulating medium; to relieve taxation by creating a revenue for the people; and to “enable them to realize the blessings of a correct system of internal improvements.” This bank was established at Natchez; $3 millions capital, of which $2 millions by the State; until 1855; subscriptions to be in specie and notes of the Bank of the State; the Auditor to pay the State subscriptions, with five per cent. bonds, redeemable in four sections, in ten, fifteen, twenty, and twenty-five years, drawn to the bank and assignable by it; the bank to sell the bonds and provide for the interest; surplus of dividends over the interest of the bonds to be a sinking fund to redeem the bonds; if the interest was greater than the dividends, the bank was to pay it; the Governor and Senate were to appoint seven directors, the stockholders six; the Governor was to sell the stock of the State in the Bank of the State, except 50 shares, and apply the proceeds on the State subscriptions in this bank; the State funds invested in the bank were to be kept separate; the surplus in the treasury and the miscellaneous revenue were to go into the capital of the bank; no note to be issued under $5, and the note issue not to exceed three times the capital, plus the money on deposit; half the capital was to be loaned on mortgages of lands to be valued by five commissioners appointed by the president and directors, in each senatorial district; the loans were to be allotted between those districts; statements were to be rendered as often as the Legislature might require. The notes were receivable by the State and the State money was to be deposited in the bank. It was exempt from taxation. There were to be branches. On the same day it was provided that the Bank of the State of Mississippi might discount paper at twelve months, at not over 8 per cent.

The Bank of the State of Mississippi was authorized to wind up, December 19, 1831, taking no new business after January 1st. It might renew loans on notes of deceased persons until December 31, 1837, and might deal in exchange so long as the Planters’ Bank consented. In consideration of these privileges, the bank was to release the State from all claims for damages, etc., apparently on account of the breach of the promise that no other bank should be established before 1840.

The charter of the Planters’ Bank was revised February 5, 1833, to last until 1870. The private subscriptions might be increased $1 million and the State was to add $1.5 millions, in State bonds, to be negotiated by the bank. The Agricultural Bank of Mississippi was chartered February 27, 1833; $2 millions capital; until 1855; the issue limited to three times the paid-up capital; half the capital to be lent in loans at not less than one year. There was no provision about suspension or specie redemption.

At the next session, December 25, 1833, the Commercial and Railroad Bank at Vicksburg was chartered, because more banking facilities were needed; $4 millions capital; “identified and incorporated with the Clinton and Vicksburg Railroad Company,” the charter to become null if the railroad was not built in six years; the bank to cease in thirty-two years; the note issue not to exceed three times the capital and money on deposit; it was to have branches; no provisions about suspension or specie redemption.

There was now a lull for two or three years. The Jackson and Brandon Railroad and Bridge Company was incorporated February 5, 1836, apparently without banking privileges, and the Mississippi and Alabama Railroad Company, February 9th. This latter company might issue notes for $5 and above, to an amount not exceeding twice the capital not expended on the railroad; one-third of the capital to be lent on loans for one year or more; the banking powers to cease in 1860. This company was known popularly as the Brandon Bank, the banking house being at Brandon. The Grand Gulf Railroad and Banking Company was chartered February 20th; one section provides that this corporation “together with all other banking institutions in this State, shall at all times be obliged to redeem their notes in specie.” If any one of them refuses to do so, the cashier must endorse on the note the date of refusal, under a penalty of $500, recoverable by the holder; the note so endorsed was to bear interest at twelve and one-half per cent. per annum, from the date of endorsement until paid. February 26th, the Commercial Bank of Columbus was incorporated with a capital of $1 million. On the same day the Mississippi Railroad Company was incorporated. Banking was not explicitly included in its functions, but it might issue bonds secured by mortgages, given by the stockholders on their own estates, of double value. On the following day, the Tombigbee Railroad Company and the Aberdeen and Pototoc Railroad Company were incorporated, both with banking privileges; and on the same day the Commercial and Railroad Bank of Vicksburg was authorized to add $2 millions to its capital, in order to build a railroad to some undefined place on the northern boundary of Madison county. On the same day also the Commercial Bank of Natchez was founded, with $2 millions capital. On the same day also the Yazoo Railroad Company was incorporated, but banking is not discernible in its powers.

The first proposition for the Union Bank of Mississippi was made in 1835.* It was imitated and borrowed with only a few petty variations from the Louisiana Union Bank. The act incorporating it was passed January 21, 1837; capital, $15.5 millions; subscriptions to be taken in each county; citizens and landowners alone to subscribe; the State to issue bonds to the bank, payable in four sections, in twelve, fifteen, eighteen, and twenty years, endorsable and negotiable by the bank, principal and interest to be paid by the bank; the stockholders to give mortgages to secure their subscriptions; the land, if already mortgaged, being received as security only for the residue after subtracting twice the existing mortgage; to last forty years; the Legislature to elect five directors out of thirteen; the stockholders, on subscribing, to pay $10 on each share in cash; three commissioners in each designated district to appraise the lands mortgaged for the stock; no notes under $10; all profits of the bank to accumulate until the first section of the State bonds is paid (twelve years); then any surplus, after paying these bonds, to be divided amongst the stockholders; then the profits to accumulate again until the second section of the State bonds should be payable, with a division of any surplus amongst the stockholders, and so on, but the State to have as a bonus one-tenth of the net gains of the bank; never to suspend under fifteen per cent. penalty; the parent board to make rules for the branches; the capital to be exempt from taxation; the bank might sell lands mortgaged to it for stock or loans and was to be a preferred creditor; the Governor to deliver the bonds pro rata as the subscriptions went on. The State was entitled to a loan of $200,000, and each stockholder was entitled to a credit equal to one-half his shares for twenty-five years; that is, four per cent. to be paid annually on the principal, the notes being renewed annually. There were to be seven branches; two-thirds of the capital was to be lent on real estate, one-third on promissory notes; borrowers on mortgage were to pay one-eighth annually on their notes. The four last years of the charter period were to be employed in winding up the bank. After the bonds were issued by the State to the bank, and the bank was started, the $10 cash per share was to be paid back.

The Constitution of 1832 provided that no loan of money should ever be raised on the credit and faith of the State, unless the law should be passed by a majority of the members of each House, published for three months previous to the next regular election in three newspapers of the State, and re-passed by both Houses of the next following Legislature. The charter of the Union Bank was passed in the House, 47 to 7, and in the Senate, 11 to 8.

There was a called session of the Mississippi Legislature in May, 1837, at which a great number of banks, insurance companies, railroads, etc., were chartered just as the financial crisis occurred. April 28th, the Northern Bank of Mississippi was chartered until 1862; $2 millions capital; lowest note $5; if redemption refused, the cashier to endorse; twelve and one-half per cent. penalty; half the capital on loans for one year or more; must build a specified railroad within ten years, or forfeit the charter. Then followed charters every few days for the Citizens’ Bank, the banks of Vicksburg, Granada, Port Gibson, and Lexington. May 11th, it was enacted that the chartered banks might issue post-notes to bear interest receivable for taxes, having from six to thirteen months to run; the interest was not to exceed five per cent., and the notes were to be loaned at not over nine per cent. If not redeemed when due, to be endorsed and bear twelve and one-half per cent. interest. The bank must receive them for debts to itself, whether they were matured or not; their amount not to exceed the capital; no State officer was to take the post-notes of any bank which had failed to pay any of its notes, at any time, in specie. The next day three Bank Commissioners were constituted to visit and examine the banks and moneyed corporations; they might proceed in chancery against erring corporations, and were to report annually to the Legislature, by which they were to be elected. Any three banks might call for an examination of a designated one.

The Mississippi Railroad Company was re-organized May 12th and chartered as a bank with full powers. In the case of Hayne vs. Beauchamp,* we learn that the bank operated a “simultaneous transaction” on the subscriptions; ten per cent. was due upon subscription, for which a note was given and discounted by the bank, and a check given to pay the installment at the same time. It was held that this did not constitute the person in question a subscriber to the stock, nor liable as such, since specie or notes of specie-paying banks were alone receivable in payment of subscriptions,* but the note was binding for its amount, and was treated as a note for money borrowed, with which to pay the installment.

The Benton and Manchester Railroad and Banking Company was incorporated May 12th, the subscribers to the stock to mortgage their lands, and these mortgages to be made the security for bonds to be issued. On the following day, the Vicksburg Water Works and Banking Company and the Hernando Railroad and Banking Company were incorporated.

Having finished these labors they adjourned and were ready for the panic. It does not seem, however, to have made much impression on them before the next regular session. At that time the charter of the Union Bank was duly re-enacted, but, February 5, 1838, a supplementary charter was passed which made some very important changes in the organization of the institution. The State took $5 millions of stock and so changed its relation to the bank, becoming jointly liable and not simply lending bonds to it. The bonus to the State of one-tenth of the profits was stricken out, and also the provision that the State might have a loan from the bank of $200,000. There was no clause in the charter which explicitly granted the power to issue notes. This was only inferred from a provision that it might not issue any note under five dollars. It put on its post-notes a statement that they were issued upon a pledge of the faith of the State which was not true.†

The Paulding and Pontotoc Railroad Company was chartered February 16, 1838; mortgages for stock being made security for bonds, as in former cases; and it might issue notes for half its capital. On the same day an act was passed over a veto, suspending for eighteen months the penalty of twelve and one-half per cent. on post-notes, not paid on demand at maturity.

The amount of banking capital provided for in bank charters between 1833 and 1838 was $53.2 millions.

Tennessee.—The Bank of the State of Tennessee, No. III., was incorporated December 20, 1831; $2 millions capital; at Nashville, with one branch in East Tennessee and one in West Tennessee. It appears to have been intended that $500,000 should be subscribed by the State, and the Legislature was to appoint five directors out of fifteen. The public faith was pledged for the redemption of the notes and debts in proportion to the State stock. The old Bank of the State, No. II., was to pay to this one the $20,000 which had been subscribed to it by the State, and that sum was to be apportioned amongst the counties for schools in the manner provided in the act of January 11, 1830.

At a called session in 1832, the first steps taken seem to indicate trouble. The Bank of the State, No. II., was ordered to be wound up at once, and all the funds to be put in the Union Bank of Tennessee as soon as the latter should start. That bank was incorporated October 18th; $3 millions capital; half by the State; to be paid by five per cent. bonds, at equal steps with the private subscription; the bonds to be payable in fifteen, twenty, twenty-five and thirty years; the Governor to appoint five directors; the State dividends to go to the school fund; no loans for more than a year; ten per cent. penalty for non-redemption; lowest note $5. It might issue notes payable at any bank of “respectable standing” in the United States; to be a State depository; never to issue more than double the capital. The charter of Bank of the State, No. III., was repealed, probably because the private subscriptions could not be obtained.

The cashier of the Nashville branch of the Bank of the United States wrote to Jaudon, October 21st,* that the distress for money in Tennessee had led to the charter of a new bank. “The law passed contrary to my calculation, and from the present scarcity of money is likely to become so great a favorite with the people at large as to fill the subscription for the purpose of getting it organized, and then, if subscribers cannot pay the second and other installments, the board of directors will, as I believe, follow up the former customs of this State on similar occasions, by discounting the stockholders’ paper in some way or other, so as to get the bank in operation, when discounts will be granted with such a lavish hand as to fill every debtor’s pockets with their notes. The sequel of the fifth year’s operation of that bank, should it go into operation, will produce a state of things and of distress that none of its friends now dream of. My experience in the former local banks of this State enables me to foresee the consequences that will inevitably result from the operation of such a bank.”

The Planters’ Bank of Tennessee was chartered November 30, 1833, with $2 millions capital, on the same plan as the Union Bank; and the Farmers and Merchants’ Bank of Memphis, November 27th; capital $600,000, on the same plan.

The Superintendent of Public Instruction was ordered, February 19, 1836, to wind up the loans, land claims, etc., of the Bank of the State, No. II., investing his balances in stock of the Planters’ Bank for the interest of the school fund; but he is also ordered to redeem the notes of the Bank of the State. After the crisis came on, October 9, 1837, this order was revoked.

February 20, 1836, the Attorney-general was ordered to begin suit against the Union Bank for the bonus and dividends. The State had borrowed of the bank. Six per cent. certificates were to be given to it for this indebtedness. In a report of that bank October 3, 1837, it is said that the bank has changed the character of its notes and will no longer issue any but notes payable at its counter, because of the heavy run it had to endure in the previous spring by reason of its notes payable at New Orleans.

Kentucky.—The Louisville Bank of Kentucky was founded February 2, 1833; for twenty years; capital, $2 millions; lowest note, $5; notes discounted by it placed on the same footing as foreign bills of exchange; debts never to exceed twice the capital; twelve per cent. penalty for refusal or unreasonable delay to pay notes or deposits in specie, with forfeiture of charter; may begin when $200,000 paid in in specie and $300,000 in notes of the United States Bank; the State to have an option for five years, to take any part of 5,000 shares, and to have no other right than other stockholders; the bank not to lend on its own stock or on real estate.

The Bank of Kentucky was incorporated, with its seat at Louisville, February 22, 1834, for thirty years; capital, $5 millions; not more than six nor less than four branches; lowest note, $5; twelve per cent. penalty, as in the case of the Louisville Bank; the State to take 20,000 shares when 10,000 shares are privately subscribed; the State to appoint three out of eleven directors. The State scrip issued for the State subscription might be sold by the bank, which became liable, by endorsement, for the interest anywhere in the United States; but the State paid the interest into the bank. The section in all the bank charters about the obligation of the banks for the interest on the State scrip is very obscure. An act of March 3, 1842, shows that the Northern Bank of Kentucky was held bound to pay the interest on the State bonds in its capital. The bank was to redeem this scrip out of the dividends due to the State, paying over the residue to the State. The bank was to reserve the five per cent. on $1 million of scrip out of the dividend, and the surplus was to go to pay, as far as possible, for the second 10,000 shares, so that the dividends seemed to be appropriated twice.

The Northern Bank of Kentucky was incorporated February 20, 1835, for thirty years; capital, $3 millions; its seat at Lexington, with not less than three nor more than four branches; the State to take half the capital; the State dividends, over and above the charges on the scrip issued for its stock, were set apart for the interest on the internal improvement loans. Small notes were forbidden, February 28, 1835, after one year from that date. If received, they were not to discharge the debt. This was not to apply to the notes of the old Bank of Kentucky or of the Bank of the Commonwealth.

In 1838, a very earnest attempt was made to get a charter for the Southwestern Railroad Bank from Kentucky. The scheme was that North and South Carolina, Kentucky, and Tennessee should concurrently charter the Louisville, Cincinnati & Charleston Railroad, and the Southwestern Railroad Bank. Each State on State rights principles was to prescribe the action of the bank within its limits. The bank was to go into effect if three States consented to it, which they did; Kentucky alone rejected it. It passed the Senate by one majority and was lost in the House by a tie vote. Wickliffe, who was charged with the effort to carry the measure in Kentucky, explained that the Southwestern Railroad Bank was intended to negotiate the stock of the railroad in London and elsewhere. Two shares in the road go with one in the bank, so that the State or individual stockholder will receive through the bank a certain and immediate profit on one-third of the capital invested, and a remote profit on the two-thirds which is to be laid out in constructing the road.*

The Southern Bank of Kentucky was chartered February 20, 1839, to accommodate the people south of Green River; for thirty years; capital, $2 millions; half by the State. The main features of the charter were like those above.

Governor Letcher of Kentucky, in his message of 1840, said: “The State derived great benefit from the branches of the late Bank of the United States. They furnished the people with a sound currency, good at home and good abroad, and afforded every necessary facility to the commerce, business, and enterprise of the community. When it was unfortunately decreed that the United States Bank was to expire without a renewal of its charter and without a substitute, Kentucky, being compelled by necessity, went slowly and hesitatingly into the creation of local banks.”†

Ohio.—In 1833 and 1834, bank charters were multiplied in Ohio. February 12, 1834, the Ohio Life and Trust Company was chartered with $2 millions capital; permission to issue notes until 1843, for not more than twice the amount of deposits allowed to remain for not less than a year, and for not more than half the paid-up capital invested in loans on real estate; the charter to be forfeited if it should suspend for more than thirty days.

At the session of 1835-6 no banks were chartered.

The Auditor was directed, March 14, 1836, to draw on the banks for 20 per cent. of their dividends as a tax; but if any bank should give notice to the Auditor, before July 4th, that it renounced the right to issue notes under $3 after that date, and those under $5 after July 4, 1837, the tax on such bank should be only five per cent. of its dividends. Most of the banks accepted this law.

A great bank was set up by the Mormons, in 1836, at Kirtland, Ohio. No property was bound for the issue, which was very large. It had no coin and nobody was responsible for the notes. Before the word “bank,” in big letters was the word “anti-” in small letters, and after “bank,” “ing” in small letters. A Pittsburgh banker sent some notes to the bank for redemption. Sydney Rigdon, the president, replied that he had issued those notes to circulate for the convenience of the people; to redeem them would defeat the purpose. The bank stopped payment February 11, 1837, having $40,000 outstanding. This compelled the Mormons to leave that neighborhood.‡

Indiana was without a bank from 1820 to 1834. January 28th of the latter year, a Bank of the State with ten branches was incorporated, to last until 1859; ten districts were to be formed with one branch in each; two more might later be added. The office of the bank was to be in Indianapolis, where the directors were to meet at least once in three months. They were a Board of Managers only for the affiliated institutions which constituted the Bank of the State. They had no institution doing business under their immediate management. The branch at Indianapolis was subject to them only in the same way in which other branches were. The bank was never to suspend under twelve per cent. penalty; all the branches were responsible for each other; suits were to be against the State Bank; no stay of execution on judgments against it; it might receive federal deposits; lowest denomination $5, and the Legislature might forbid notes for $10; the Legislature to elect a president for five years, and four directors, all removable by joint resolution; each branch to elect annually one member of the Central Board; the Central Board to control the branches, examine and inspect them, and distribute the capital. If any branch becomes insolvent or disobedient or acts against the interest of the whole or of the State, the Central Board may appoint a receiver for it. All branches must make up a deficiency in liquidating any one. The Central Board to have charge of plates and paper; the stockholders of the branches to elect seven directors and the Central Board to appoint three for each branch. The capital was to be $1.6 millions, one half by the State; the first installment to be paid in specie; the other two at intervals of a year each; each resident stockholder had the right to have these installments paid for him by the State of Indiana, in specie, on giving security to pay it within nineteen years, with interest at six per cent., consisting of a mortgage on land of double the value. The dividends on the stock thus paid for by the State, on behalf of the stockholders, were to go to the State in payment of the interest; but if the dividends left a deficiency, the stockholder must pay it. No loans were to be made out of the bank to pay the subscription. A State loan of $1.3 millions was provided for to carry out this act, and the dividends of the bank and the interest on the loans to the stockholders were constituted a sinking fund. The banking powers were to cease in 1857, and the State might then found a new bank.

If a stockholder in this bank subscribed 100 shares ($5,000), he paid $1,875 money, and the State paid for him the remainder, he giving a mortgage at six per cent. The State got the money at five per cent. in London. As the dividend exceeded six per cent., the debt was extinguished in a few years.*

It appears that the banks could not be established in all the districts as planned, for, in 1836, they were abolished where no bank had been established, although the thirteenth branch was then constituted.

Illinois.—February 12, 1835, a Bank of the State of Illinois was created, to last until 1860; $1.5 millions capital; the State to take $100,000. The bill passed the House by a majority of 1. On the same day the charter of the Bank of Illinois, of 1816, was extended for twenty years. State Bank was a name of ill omen in Illinois, and there was great prejudice against it, but the rising tide of land speculation and the mania for internal improvements, which was connected with it, led to the creation of these banks. It was easy at the time to obtain subscriptions in the East for bank stock in these distant States.

The reader may ask: What could a bank be expected to do for public improvements? It might be compelled to pay a bonus which could be appropriated to public works. That would be a mulct or loss once for all. If bonds were to be sold, it might act as financial agent to market them. If it bought them itself, it would lock up its capital and become a canal or railroad company, not a bank. It might make temporary advances before stocks were sold or taxes collected; but if the bank was to stay sound, these must run but a short time and payment must be strictly secured. If banks were used otherwise than in these limits, they and the improvements must all fail together. This is what happened. The Bank of the State engaged at once in a supply of capital for speculative operations at Alton. Ford thinks that it must have lost $1 million and was nearly insolvent before the end of the second year of its existence. It was regarded as a whig bank and could not get a share in the public deposits.

The Bank of Illinois was authorized February 28, 1837, to borrow $250,000 and lend it on mortgages, having not more than five years to run, at not more than ten per cent. March 2d, the Governor was ordered to subscribe $100,000 to the stock of that bank, on behalf of the State.

The internal improvement system had been undertaken on a most extragavant scale in 1836. March 4, 1837, an act was passed to increase the capital stock of certain banks and to provide means to pay the interest on the loan authorized by the act to establish internal improvements. The capital of the Bank of the State was to be increased $2 millions, and that of the Bank of Illinois, $1.4 millions, if they consent. The State was to contract a loan of $3 millions, at six per cent., payable in 1860, with which to take all the increase in the capital of the Bank of the State, and $1 million of the increase in the capital of the Bank of Illinois; $400,000 of the latter were to be left for private subscription; the dividends on the State stock in the banks were to be applied first to pay the interest on the loan here provided for, and the remainder to pay interest on the internal improvement loan. The money obtained on loans was to be deposited in the banks, at interest, until used.

It was believed that the State bonds would sell for 110 and that the dividends on the bank stock would pay the interest and sinking fund on them. It was not possible to sell them at 100. The banks took them.*

§ 3.—

The Inflation of 1835 and 1836.

After the commercial crisis of 1837 broke out, a great deal of writing and talking was done in this country in respect to banking and currency. The disputants all traced the trouble to either one or other of the acts of Jackson’s administration; or of the opposition; or of the United States Bank; or to the lack of a United States Bank. Of course party spirit and the desire to win party advantages had a very large share in all these arguments. It is very doubtful, however, if any or all of these events and proceedings had more than a contributory share in producing the result. One of the most important facts, to which leading influence must be attributed, is the great and really irrational importance which was attached by Europeans to the extinguishment of the debt of the United States, and their exaggerated willingness, on that account, to lend their capital in America. There was no removal of the deposits in England, and no lack of a national bank in France. The whole civilized world shared in the convulsion. It seems to have been, when properly regarded, a revulsion in the midst of a great expansion of industrial power, which expansion produced modifications of the industrial organization which could not well take place without some greater or lesser catastrophes.

In England, after 1825, the factory system, which had been growing up for fifty years, had reached a stage of completeness. There was a definite extension in the application of power and machinery to the textile industries. After 1830 began the construction of railroads. The multiplication of joint stock banks, upon which the whole subsequent mischief was charged by a great many English writers, was incidental to this. At that time the banking system of England was carried on very much as that of America was. There were constant expansions and contractions of the circulation, and the writers on financial subjects directed their attention to these fluctuations as the controlling causes of the phenomena which were noticed. There was very general dissatisfaction with the management of the Bank of England, and a strong conviction was felt by the best students of finance that the rules by which it was governed were not adequate or correct. Accordingly, when the bank charter was renewed, in 1832, power was reserved to modify it after 1840. The general principle of management for the Bank, as it was stated to the Committee of 1832, by Horsley Palmer, was, when the exchange was at par, “to invest and retain in securities bearing interest a given proportion of the deposits, and the value received for the notes in circulation, the remainder being held in coin and bullion.” The proportion was two-thirds securities and one-third bullion. In the flood of pamphlets which was produced in the discussion of the following years, this rule was shown to be nugatory. Many interesting and important points in the doctrines of banking and currency were developed in this discussion, and the doctrines were established upon which the Bank act of 1844 was constructed. Among the most important of these doctrines for our present purpose, we may notice the following: An inflation or contraction of the currency does not have that prompt and direct effect upon prices and enterprise which they are popularly supposed to have. We may turn, therefore, with greater confidence to the great extension of production, and the great changes in the industrial organization as real causes.

The increased power in production, with the attendant movements of commerce, stimulated enterprise, or as it is commonly called, speculation. This new impulse was felt in every direction. It constituted a great demand for capital, and it went on inevitably to produce aberrations and extravagances. It also produced a new demand for raw materials, which in the next stage took the shape of new enterprises in opening land and mines.

The most important of all these effects for the United States was a new demand for cotton. Cotton was at that time the commanding article in the foreign trade of the United States. In value it constituted from 35 to 55 per cent. of the exports of the United States, and therefore might be regarded as the chief thing with which we paid for our imports. It was a natural monopoly. Its value rose steadily in spite of a very rapid increase in production. Inasmuch as the facts in this connection will demand our attention frequently as we pursue the history of this period, the following statistics of the production, in million pounds, and of the annual average price, in cents, will be found useful for reference.*

This rise in value of the leading staple product of the country had the most important effects politically as well as industrially and financially. It poured a stream of wealth into the cotton States. New cotton lands were opened and cultivated. Slaves, tools, machinery, and all supplies were in great demand, and for the most part, all had to be bought upon credit. Of course the rate of interest was very high, for there was no free capital in the cotton States. The next consequence was a multiplication of banks, either as institutions for drawing the capital from elsewhere, or as paper-money machines under the constant delusion which attends such circumstances. The great commercial and financial centers of the South, New Orleans, Mobile, Savannah, and Charleston, enjoyed a period of unprecedented prosperity.

The effect of the arbitrary redistributions of currency and capital which went on from 1833 to 1837 were to throw the domestic exchanges into the utmost confusion. “Even the monstrous anomaly was presented of bills being sold at a loss in Philadelphia upon New Orleans while at New Orleans bills on Philadelphia were also sold at a loss.” The rates of exchange were doubled and the banks made great profits. This was what drew such large amounts of northern and eastern capital into the banks of the Southwest.*

The Erie canal had proved a relative success, and had certainly been very useful in opening up access to the western country. It was imitated first in Pennsylvania, then in Maryland, and later in Ohio, Indiana, and Illinois. The southern and southwestern States also adopted plans of internal improvement. For all these things capital was necessary, and capital was just what was wanting. State bonds were issued in order to obtain this capital in the East and in Europe. They met with a sale which was amazing, considering the basis on which they rested. As long as this lasted there was great apparent prosperity in all the improvement States. Wages were raised to such an extent that labor was drawn away from the cultivation of the land. The historian of Illinois says that in 1837 nothing was exported from that State; everything from abroad was paid for by the borrowed money expended in the State.†

The residents of the cities shared in this prosperity through the operations of commerce and finance, and the distribution of the new capital to the manufacturing industries. The valuation of real estate advanced in all the cities with great rapidity. The valuation of real and personal estate in New York city and county was, in 1830, $125 millions; in 1836, it was $309 millions. It did not reach $300 millions again until 1851.

The people of the western improvement States had become convinced that without any taxation or other annoyance to themselves they were about to see the land around them very greatly increased in value; and every one was eager to get possession of as much of it as he could possibly acquire. In 1836, owing to the great land and town lot speculation which had then reached Illinois, it was supposed that all the towns of any note would soon become cities, and that other uninhabited towns, laid out only for speculation, would immediately become thriving, populous and wealthy, and the town-lot market would be established. “Chicago had been for some time only one great market town” for town lots.* The eastern people, however, were likewise led to adopt this notion of the prospective value of the new land. The sales of public land had been from $2 millions to $3 millions a year. In 1833 they rose to $4.9 millions; in 1834, $6 millions; in 1835, $15.9 millions; in 1836, $25.1 millions. They fell, in 1837, to $7 millions; in 1838, $4.3 millions; 1839, $6.4 millions; and 1840, $2.7 millions. These sales were made in 1835 and 1836 for the notes of the banks of the western States.

In the President’s message of 1836 the operation was described as follows: “The banks loaned out their notes to speculators, they were paid to the receivers, and immediately returned to the banks to be lent out again and again, being mere instruments to transfer to speculators the most valuable public lands, and pay the government by a credit on the books of the banks. Those credits on the books of some of the western banks, usually called deposits, were greatly beyond their immediate means of payment, and were rapidly increasing. Indeed each speculation furnished means for another; for, no sooner had one individual or company paid in the notes, than they were immediately lent to another for a like purpose, and the banks were extending their business and their issues so largely as to alarm considerate men, and rendered it doubtful whether these bank credits, if permitted to accumulate, would ultimately be of the least value to the government.”

On the 11th of July, 1836, the Secretary of the Treasury issued an order, afterwards known as the “Specie Circular,” in the name of the President, ordering the receivers to accept nothing in payment of public lands but gold and silver, or, in proper cases, Virginia scrip. The chief motive was declared to be “to discourage the ruinous extension of bank issues and bank credit.” This order was denounced by all those who were interested in the prevailing inflation and by all the believers in the “credit system.”

It is well worthy of notice that the whole of the great surplus which was at this time piled up in the treasury, that is, in the deposit banks, could be accounted for by the increased revenue from the sale of public lands. The outcry against the circular was so great that, in spite of the great administration majority, a bill was passed to supersede it. In form it specified what currency might be received for payments to the United States, but it included bank notes, provided that they were payable and paid in specie, and that the banks whose notes were taken issued no notes under five, later under ten, and later still under twenty dollars. These restrictions were idle because every one of the banks in question satisfied them, and they furnished no guarantee against the evils complained of. Jackson filed this bill unsigned, in the Secretary of State’s office, at eleven and three-quarters p. m., March 3, 1837. As he had not had it ten days it was not a law. A similar circular had heen issued in 1828; as there was then no active speculation, very little notice was taken of it.*

In April, 1835, a treasury circular forbade the payment out of the treasury of any notes under five dollars after September 30, 1835. February 22, 1836, another circular forbade the payment of any notes out of the treasury of a less denomination than ten dollars after May 1st. Congress superseded these circulars by an act of April 14, 1836, that no bank note under ten dollars should be paid out after that date, and that after March 3, 1837, no note under twenty dollars should be either given or taken by the United States Treasury or Post Office Department, and all notes given or taken must be payable in specie on the spot. This act was passed without a contest and with great unanimity. In 1835, the following States allowed no notes under five dollars: Pennsylvania, Maryland, Virginia, Georgia, Tennessee, Louisiana, North Carolina, Indiana, Kentucky, Maine, New York, New Jersey, and Alabama. Connecticut had none under three dollars. In Mississippi and Illinois, “it is understood that bills under five dollars have not recently been issued.” Missouri had no bank of issue. The specie in the country was estimated at sixty-four millions.†

From the time that the State banks began to be used as the depositories of the public money, the amount which they held went on steadily increasing. On the 1st of June, 1836, there were about eighty of these banks, with a capital of $46.4 millions. They held public money to the amount of $41 millions. Their loans were $71.2 millions, and domestic exchange, $37.1 millions. Their circulation was $27.9 millions, their private deposits $16 millions, and their specie $10.4 millions.

Jackson had himself proposed in his first message that, after the public debt was paid, the surplus revenue of the federal government should be distributed to the States. Clay and Calhoun, however, took up this project, the former especially aiming to distribute the proceeds of the public lands as such, or to regard the surplus revenue as due to the sales of lands. At the session of 1835-36, Clay introduced a bill to distribute the net proceeds of the lands after taking out ten per cent. for the ten new States. Calhoun had constitutional scruples about distribution, and proposed an amendment to the Constitution to authorize it. He also introduced a bill to regulate the public deposits, and there was another bill for distributing the surplus revenue. The land bill passed the Senate but was tabled in the House. The distribution bill and the deposit bill were consolidated into one, and passed by the Senate, June 17th, 38 to 6. On the 20th of June, in the House, an effort was made to divide the bill so as to separate the regulation of the deposits from the distribution, but the effort failed. As the bill then stood, the surplus was to be divided as a gift to the States. This could not pass the House. It was changed into a plan for “depositing” it with them, subject to recall. In this shape the bill passed, 155 to 38. It provided, at the same time, for the regulation of the deposit banks, for which up to this time there had been no law, in respect to the reception and use of the public money in the future, and also for the distribution of the great treasury surplus then in their hands. There was to be in each State a deposit bank, if a bank could be found which would fulfill the prescribed conditions. Each of these banks was to redeem all its notes in specie and to issue no notes for less than five dollars after July 4, 1836. The other provisions of law as to the bank notes receivable and payable, which already existed, were repeated. If the public deposits in any bank should ever exceed one-fourth of the capital in the bank, it was to pay two per cent. on the excess; and it was to give collateral security for the deposit, if the Secretary called for it. No transfers were to be made from bank to bank by the Secretary, except as the convenience of the treasury should require, and then he was to transfer from one deposit bank to the next nearest, and so on. This was intended to prevent him from redistributing the deposits arbitrarily or by favoritism, and it revoked entirely that power to arbitrate between banks which the Secretaries had gradually assumed by advancing precedents from Hamilton down.*

All the surplus money in the treasury, January 1, 1837, over $5 millions was to be deposited with the States, in the proportion of their membership in the electoral college, in four installments,—January, April, July, and October, 1837. The States were to give for these deposits negotiable certificates of deposit, payable to the Secretary or his assigns, on demand. If the Secretary should negotiate any certificate, it was to bear five per cent. interest from the date of assignment; while not assigned, the certificates bore no interest. This large sum of money must therefore be withdrawn from the loans in which the banks had invested it, within a year, and be paid over to the States, most of which were eager to get and use it in their internal improvements.

One of the earliest forms of speculative mania was that in lumber lands in Maine. This culminated in 1834. The center of it was at Bangor, and the town was so crowded with operators that scarcely a shed could be found for shelter.†

Some warning voices were raised early in the progress of the system of inflation. For instance, in the spring of 1835: “A crisis is approaching and is near at hand, to which the panic and pressure of last year will be trifling in comparison. There is a larger sum of money, or rather a larger amount of credit, loaned out in this community, at the present time, than there ever was before. Notwithstanding this extraordinary inflation of the currency the banks continue to discount every note which bears the semblance of responsibility, and as the ‘Journal of Commerce’ observes, ‘everything is dear but money.’ ”‡ In December, 1835, the money market at Philadelphia was very stringent; some political anxiety with reference to relations with France being added to the commercial difficulties. In January Bicknell quoted the rate for capital two per cent. per month and advancing. In the spring of 1836, there was a very great stringency in the money market of the North and East, but there were everywhere great signs of prosperity and business enthusiasm.* Sterling exchange was at 105, par 109.6. At the same time all prices were greatly inflated. The imports were extraordinarily large and included even wheat and flour, as they had in the previous year. The crops had, indeed, not been good, but the whole anomalous condition of things rested upon the fact that a great debt was being contracted in Europe, which depressed the exchange and protected the whole system of inflation here. Everywhere there was a scarcity of money, and a demand for more banks to furnish a supply. One per cent. a month was not considered a high rate in any of the great cities. In April the best commercial paper was quoted at New York at 30 per cent. to 40 per cent. per annum; second rate, at a-half of one per cent. per day. “There is an awful pressure for money in most of the cities.”†

In May, the “Globe” called on the deposit banks to contract loans, demand bank balances, and “check the raging mania for wild speculation and over-trading.” Governor Marcy, of New York, devoted a large part of his message to this subject. “The passion for speculation prevails to an extent heretofore unknown, not only among capitalists, but among merchants and traders. The funds of these capitalists have been withdrawn to some extent from situations in which they afforded accommodation to business men, and they have consequently been obliged to press upon the banks to supply this deficiency in their means. Merchants and others have abstracted from their business a portion of their capitals, and devoted it to speculations in stocks and lands; and have then resorted to the banks for increased accommodations. To these causes I ascribe most of the embarrassment now felt for the want of sufficient bank facilities to conduct successfully our ordinary business concerns. The proposed remedy, judging from the applications, is to double the present number of banks and nearly to treble the amount of banking capital. Before you apply this remedy, in whole or in part, you ought to be well satisfied that it will remove the difficulty, and that the use of it will not leave us in a worse condition than we are at present.”‡

In June, after the distribution law was passed, the money market became still more stringent, because the better banks were preparing to pay the deposits which they held. The Secretary of the Treasury had been directed to “equalize” the distribution of the deposits between the States, and he tried to carry out this delicate and difficult task, connecting it at the same time with an anticipation of the distribution which was to be made in the following year. The law was extremely crude, and seemed to proceed from a notion that the “redistribution” was as simple an operation as carrying bags of money from one room to another. A supplementary act was necessary to put the enterprise in any practicable shape. In the report of the Secretary for 1836 he showed how the undertaking had caused him to be importuned by Congressmen seeking favors for their States or their banks. He had redistributed about $40 millions, withdrawing $18 millions from the States in which the banks had more than their proportionate share. In the last six months of 1836, $22 millions more had been paid in, chiefly where there was an excess before, and this also had been redistributed. Biddle, in a public letter to Adams, November 11, criticized mercilessly these proceedings. Indeed we find it very difficult to understand what was done. The surpluses were in the great cities of the East. The deficiencies (according to the way of looking at the matter) were west of the Alleghanies. But, if it was proposed to transfer any money from the former to the latter, the latter would at once say: We do not want money sent to us from there. If we had any money to spare we would send it there. Give us rather eastern exchange.—This was the point of Biddle’s criticism, and no one was in a better position than he to understand the ignorant blundering of the process which was going on. His mind at once ran over those refined and skillful operations by which he would have made such a redistribution if he had been called on to do it. Even in September, 1836, the local currency at New Orleans was depreciated and the banks had to unite to import specie.*

In the six months before the suspension of 1837, although the amount of the currency was greater than it had ever been before in the United States, yet the scarcity of money was so great that it commanded from one per cent. to three per cent. per month.†

CHAPTER XIV.

The Financial Revulsion; 1837 to 1842.

§ 1,

1837. The Suspension of Specie Payments. The United States Bank of Pennsylvania in the Crisis. Its Cotton Operations. The Federal Treasury in the Crisis.

THE inflation in England reached a crisis in the course of 1836. In October, there was a run on most of the Irish banks, which proved fatal a month later to the Agricultural Bank, a great joint-stock association established about two years before, and having about thirty branches. The Northern and Central Bank of Manchester was compelled to apply to the Bank of England for assistance. It was only about two years old and had forty branches. The Bank of England, fearing that a catastrophe to this bank might occasion a panic in Lancashire, made large advances to it.* In the advances that were made to the discount houses to rediscount commercial paper, a great mass of bills was uncovered which had been produced by bill-kiting between six houses in London and one in Liverpool, whereby some £15 millions or £16 millions sterling had been advanced to Americans by banks whose total means were not one-sixth of that amount. The paper of some of these banks was rejected by the agency of the Bank of England at Liverpool, and three of them failed in March, 1837. On account, however, of the ramifications of their transactions, the Bank of England was obliged to carry them until their affairs could be liquidated. Their names were Wilson, Wildes, and Wiggins, and they became famous as the three W’s. These banks gave open credits to persons who went out to all parts of the globe to buy products. The agent of the bank drew a bill, the proceeds of which were to be invested in coffee, sugar, and other commodities, which were to be shipped to Europe subject to the order of the banking house for reimbursement. Many of these cargoes, instead of being sent to Europe, were sent to the United States, and for various reasons the returns upon them were delayed or were lost. The amount of credits which these houses had extended in the United States was estimated, toward the end of 1836, at £20 millions; but they had been reduced during the winter to the sum above named, or, as other authorities stated, to about £12 millions. At the same time the best authorities estimated the amount of American stocks held in England at about £20 millions sterling. There was, therefore, in March quite a well-defined commercial crisis in London. The policy of the Bank of England in sustaining the three W’s was much disputed, but the “Edinburgh Review” said that if the bank had refused to take their paper, “bills to the amount of from £8 millions to £12 millions would have instantly ceased to be negotiable, and it is all but certain that the shock which such an event would have given to credit would have produced an extent of bankruptcy and ruin to be paralleled only by what followed the breaking up of the Mississippi scheme in France.”

In New York, in January, several of the banks refused to receive on deposit checks on other banks. In the same month the Board of Trade of New York memorialized Congress in regard to the deranged state of the currency and exchanges, and asked their interposition to remedy it. They urged that another national bank should be chartered, particularly for the reason that it could regulate the local banks. “In short, such an establishment has existed and is familiar to the habits of the country, and your memorialists desire nothing better than to return to that system under which the commerce and currency of our country so long prospered.” It was very generally agreed on all sides that the currency was excessive and in great disorder.

After the 1st of January, the price of cotton fell four or five cents a pound in England, and during many months of the year, 1837, the price ranged four cents lower than in 1836. This was a fall of 30 per cent. or 40 per cent., and its effect upon the persons who had taken up cotton lands on credit, expecting a maintenance of the old price, was disastrous. It was not strange, therefore, that the first failures occurred at New Orleans. They happened on the 4th of March, so that Gen. Jackson left to his successor the task of reaping all the harvest which he had sown by his experiments of the last eight years. The first failure was that of Hermann, Briggs & Co., cotton factors, who had made advances to the cotton planters which the crop would not repay. Their correspondents, J. L. and S. Josephs & Co., of New York, failed as soon as the news reached New York. Six months later, however, their estate was said to show surplus assets for more than half a million of dollars.*

It will therefore be seen that this revulsion came upon the commercial centers of this country from two sides at once. The expansion in England had reached its limit and there was a reaction with a decline in demand for cotton. With the fall in the price of cotton, the whole cotton producing region was prostrated and could not pay for the supplies it had drawn from the Northeast. At the same time the credit which had been enjoyed in England by northern merchants and bankers was lost and payment was demanded. This overthrew the “credit system” here, and everything which depended on it. The latter revulsion fell upon the commercial and financial centers directly. Some writers on the events laid stress upon one of these sets of circumstances; others on the other.*

During the month of March the failures followed rapidly. On the 28th a committee of New York bankers turned to Biddle for help. He went to New York, where an agreement was made that the New York banks should increase their discounts $1.5 millions; that the Bank of the United States should issue bonds payable in London for $5 millions and send specie to the amount of $1 million; the Manhattan Company was to issue bonds, half payable here and half in London, for $2 millions; the Bank of America was to draw on Rothschild for $200,000 and the Girard Bank to issue bonds payable in London for $500,000 and the Morris canal for $1 million.† These bonds were sold for the bills receivable of the merchants at 112 and a half, and were sold by the merchants for current paper at 109, specie being at seven per cent. premium. Exchange was at 111 and a quarter or 112. The shares of the Bank were at 119 or 120. The bonds were made payable at the Barings. Biddle made the reservation that he must submit the exportation of specie to his Board of Directors.

Issuing bonds under such circumstances is a transaction which may have very different phases and significance. It may be that a great and strong institution puts its credit in the place of that of a solvent debtor who can give proper security to the Bank near at hand which he could not give to his creditor at a distance. Under other circumstances a weak and rotten bank issues post-notes to insolvent debtors, pretendedly for their relief, but it is really making use of their distress to borrow from them, or to borrow elsewhere on their security, thus driving them down to lower depths of bankruptcy. In the case now before us the Bank of the United States was supposed to be acting on the former principle. This was only partly true, and in the next two years that Bank gradually went over to the second use of post-notes. The great banks of the Southwest fully illustrated the second use of these instruments.

The Bank held a great amount of securities which were not immediately available and others which had fallen in value. It did not want to sell them. Hence, while borrowing by its post-notes, it was speculating in these securities. Although its margin on the bills receivable which it had taken from the merchants was wide, yet it really took a risk on the liquidation of the debt owed by Americans in England. When it began to buy cotton it engaged in a gigantic speculation in that staple, embracing the whole crop. These hazards all went against it more or less, and all became more and more complicated.

In April the bonds of the Bank of the United States were selling at one per cent. per month discount, and those of the Manhattan Bank at one and a-half per cent. The New York banks would not discount southern and western paper. It was estimated that the southerners did not pay over five cents on the dollar of what they owed. From the failure of Josephs to April 8th, there were ninety-eight failures at New York, with liabilities of $60.5 millions. At a meeting of the bankers it was proposed to petition the Legislature for permission to suspend, but the proposition met with no favor.*

The whole cotton region, however, seemed to be prostrated. A correspondent wrote from Charleston: “The credit system, the sure foundation of our prosperity, is abandoned. Four, five, six, and even ten per cent. a month has been paid by those requiring funds to sustain their credit.”† The failure of the bank of Yeatman, Woods & Co., of Nashville, was a great calamity to that region. “Their house occupied a very high ground in the confidence of millions of people. The result will be ruinous in Tennessee and Kentucky to the poor. Their notes make up almost one-third of the circulation in Tennessee.”‡

At New Orleans all but four or five of the principal cotton factors had failed. The planters depended on them for the advances by which they made their improvements and bought their supplies in anticipation of the crop. A correspondent, in April, said: “It can no longer be concealed that the commercial community of New Orleans is altogether in a complete state of bankruptcy or suspension. * * * One-fourth of our bank directors have become insolvent or suspended payment, there being now but four or five large commission establishments left as the pillars of the once prosperous commerce of this city. * * * Including the responsibilities of the cotton planters, the amount may be $100 millions; but taking into consideration the amount due on land or real estate speculation, the actual indebtedness of New Orleans may be estimated at $180 millions.”§ A New Orleans newspaper declared that “the monopoly of the cotton staple has fallen by its own weight. There will not be a house left to tell the tale.” It expressed the oft-repeated but as yet never-fulfilled hope that the rising generation would profit by the lesson.∥ At the same time a Mobile newspaper said: “There is a little trade to be seen going on here and there, but it is mournful even to look upon that, as it leads to comparison. Where nine-tenths of the merchants of a city, which until recently flourished and prospered beyond all others of its population, have suspended payment, it is enough to despond the stoutest heart.”

At a meeting in that city, April 22d, a review of the situation was presented in which occurred the following passage: “The fact of the indebtedness of the State having been adverted to, the question naturally suggests itself, How does this arise? The answer is plain and obvious. Such has been the productiveness of the State for several years past, and so large the returns of slave labor, that the purchases of that species of property from other States, since 1818, have, it is believed, not fallen short of $10 millions annually, while the average value of our exports has probably not exceeded $16 millions; thus leaving an amount for other expenditures entirely inadequate to meet them, and this will be the more evident when it is considered how large an amount has been expended, both in the interior and in this city, in making improvements.”*

The North and East had made great profits by selling goods to these cotton planters on long credit. When the revulsion came they were creditors for large advances made in the confidence of the continued prosperity of the planters. All sections therefore had a great stake in the market for cotton.

After the movement of revulsion began, the notes issued by the southwestern banks on discounts were remitted north and east by way of payment.† The accumulation of them there becomes a feature of the situation which we meet with in its consequences again and again.

In the New York Legislature it was proposed, in April, that the State should lend to the banks $3.5 millions five per cent. bonds, the issue of which had been authorized to pay for canals. The banks were to sell them in England and pay the State in such installments as were required for the canal expenditures. This plan was not actually carried out, although it was adopted, because some further legislation was necessary and the banks suspended before it could be obtained.‡

At a public meeting at New York, April 25th, resolutions were adopted declaring that the trouble was due to presidential meddling with business and currency; to the destruction of the national bank; to the attempt to substitute a metallic currency; and to the specie circular. A committee of fifty was appointed to go to Washington and ask the President to withdraw the specie circular. Biddle, being in Washington at this time, called upon the President in order to give him a chance to talk about the financial situation; but Van Buren did not seize the opportunity.§

Early in May three Buffalo banks were enjoined by the Bank Commissioners, and the Comptroller gave notice that the State would redeem their notes. Buffalo had suffered very much the year before by the failure of Rathbone, who had $1.5 millions forged paper out. May 3d, the loco focos held another of the meetings which they were in the habit of holding in the park at New York City, at which they adopted an “Address of the Producing Classes of the City of New York, friendly to the Policy of substituting a Specie Currency for a Promise Currency, to the People of the United States.” This meeting encouraged the run on the banks, which increased during the early days of May.

On the 8th, a meeting was held to hear the report of the committee which had been sent to Washington. They had read to the President an elaborate statement of the calamities of the last three months, and had stated to him their opinion that it was all due to the removal of the deposits and the specie circular. They had asked him to call an extra session of Congress; to suspend the specie circular; and to defer suits on duty bonds. He replied that he would inquire into the possibility of deferring the suits; that he would not suspend the specie circular; and that he could not call Congress together because many of the Representatives were not elected. The meeting, upon hearing this report, passed resolutions reiterating their view of the political mistakes of the last administration, which had caused the trouble. Some months later the delegates to the Bank Convention summed up more justly the causes of suspension, leaving out the chief alleged political causes: “The simultaneous withdrawing of the large public deposits, and of excessive foreign credits, combined with the great and unexpected fall in the price of the principle articles of our exports, with an import of corn and breadstuffs such as had never before occurred, and with the consequent inability of the country, particularly of the southwestern States, to make the usual and expected remittances, did, at one and the same time, fall principally and necessarily on the greatest commercial emporium of the Union.”*

On the 8th of May the Dry Dock Bank failed. On the 10th, the New York City banks all suspended. There were fears of an outbreak, especially on account of the inflammatory harangues by which the people had been excited at the loco foco meetings. These harangues had consisted of denunciations of the banks, which were only too well deserved, and of complaints about the bank note currency, which were very just; but they had run on also into anarchistic doctrines about property and vested rights. Another subject of their complaint, which was by no means without foundation, was the failure in the administration of justice against financial crimes, and the weakness of the law and the courts in all attempts to compel the banks to deal honestly and justly with the public. The militia were under arms on the day that the suspension took place.†

It spite of all that had happened during the preceding three years, it is stated on the best authority that the suspension of the banks had not been anticipated.‡ Under the safety fund act, any bank which refused to redeem its notes on demand was to be enjoined by the Chancellor, put in the hands of a receiver, and forfeit its charter. The Legislature hastened to suspend this law for a year. It was also proposed to suspend the law of 1835, which prohibited notes under five dollars. This was not passed, and it is said that this is the reason why the democrats were defeated at the next State election.* There were at this time ninety safety fund banks, with a capital of $32.2 millions, and nine chartered banks not in the safety fund, with a capital of $5.1 millions. Gallatin says that the suspension law was unnecessary and useless; that it gave the banks no new liberty, and was not wanted by them.

The Philadelphia banks suspended as soon as they heard that the New York banks had done so. They declared that they had plenty of specie for Philadelphia, but not enough for the “Atlantic seaboard.” They said that, as the balances stood, all their specie would have been drawn away. They agreed to pay each other interest on daily balances, and to limit the amount which one might owe another, under penalty of handing over to the creditor the choice of the bills receivable of the debtor.† As fast as the news spread the banks with very few exceptions suspended, from one end of the country to the other. The Governors were generally called on to summon extra sessions of the Legislatures. In some cases they did so and in others they refused. Governor Ritner of Pennsylvania published a proclamation stating that he would not call a session of the Legislature, because all the measures which it was proposed to adopt would be mischievous; namely, to issue small notes, which would increase the circulation instead of diminishing it; to prevent the forfeiture of the charters, which would relieve the banks of the necessity to resume, and would set them free to enter upon inflation; to enact a stay law, which would destroy all respect for law.

The banks of Natchez and Montgomery suspended some days before those of New York, and those of Mobile and New Orleans at about the same time, but without knowledge of what had taken place in the North. There was just at this time an extra session of the Legislature of Mississippi, which was diligently at work manufacturing bank charters.‡ It authorized the suspension, and authorized the banks to issue post-notes for a year. The Union Bank of Florida published a statement in the newspapers, May 10, 1837, before the suspension at the North was known, which showed that it possessed but $76 in foreign bank notes with which to pay deposits $108,694 and circulation $254,941. It never resumed afterwards.§

If the utterances of bank conventions, bank commissioners, legislative committees, etc., in the different States are read side by side, they are found to contain almost identical expressions to the effect that the public of “our” State is to be congratulated on the soundness of the banks in it, while the general suffering is attributed to the folly and errors of neighbors; that our banks have plenty of specie for themselves, but that they cannot be expected to provide all their neighbors with specie; that it is impossible for any to maintain specie payments unless all do.

May 20, Niles said: “There are still a few banks that continue to pay specie for their notes, but specie is nearly banished as a circulating medium, and its place is filled by those abominations called shinplasters, which are becoming as plentiful, and will prove as troublesome as the frogs of Egypt.”* This anticipation was only too completely fulfilled in the next three years, but the issuers of Shinplasters were rather individuals, firms, and municipal corporations, than banks.

Immediately after this suspension, Biddle published another letter to Adams to explain why the Bank of the United States had acted with the others. He said that the other banks were forced to suspend because the deposit banks had done so. The United States Bank could have gone on, but comity to the other Pennsylvania banks dictated that the people of Pennsylvania should not be compelled to pay in different money from that used in the other States.

This letter was another of Biddle’s meretricious literary productions. It is certain that suspension was no more welcome to anybody than it was to the Bank of the United States, and it was extremely satisfactory to be able to make it under the cover of a necessity alleged to arise from the action of the banks of New York. In Philadelphia the general opinion was voiced by the “United State Gazette,” which said, May 12th: “A large portion of the benefit of the measure would have been lost if any bank had declined to join with the rest. Great credit is due to the United States Bank for her accord, to which step Mr. Biddle has surrendered his reluctant consent in obedience to the obvious interests of the community, without impairing in the general opinion the stability or fame of his institution.” To the contrary of this we must believe that Biddle now lost the grandest chance which he and the Bank ever had. “If,” wrote Gouge in 1838, “he had maintained specie payments for only one month after the other banks suspended, the government would, under the existing law, have been compelled to employ his Bank as its sole financial agent; and thus his triumph over the government, which is the wish dearest to his heart, would have been complete.”† It was admitted on all sides that the “experiment” of using the local banks had failed, and there was a very strong revulsion of feeling in favor of the national bank. If the Bank of the United States had really been strong and sound, and had proved it by going on when the others suspended, it is as probable as any such historical speculation ever can be that it would have been reinstated in its former position.

General Hamilton of South Carolina, who was president of the bank which had bought the branch of the United States Bank at Charleston, in his turn addressed a letter to Biddle, proposing a bank convention to be held at Philadelphia in August, to bring about resumption. He declared that the speculation had its causes outside of all the controversies between the Bank and Jackson. He thought that the Pennsylvania charter for a $35 million bank was unwise, and only a sign of the infatuation for banks, and proposed that an amendment to the Constitution should be sought to incorporate a national bank.

Adams did not reply to Biddle, but he also wrote a public letter in July: “We are now told,” said he, “that all the banks in the United States have suspended specie payments; and what is the suspension of specie payments but setting the laws of property at defiance? If the president and directors of a bank have issued a million of bills, promising to pay five dollars to the holder of each and every one of them, the suspension of specie payments is by one act the breach of a million of promises. What is this but fraud upon every holder of their bills, and what difference is there between the president and directors of such a bank and the skillful artist who engraves a bank bill, a fac-simile of the bill signed by the president and directors, and saves them the trouble of signing it by doing it for them? The only difference that I can see in the two operations is that the artist gives evidence of superior skill and superior modesty. It requires more talent to sign another man’s name than one’s own, and the counterfeiter does at least his work in the dark, while the suspenders of specie payments brazen it in the face of day and laugh at the victims and dupes who have put faith in their promises.”

Public meetings were held from one end of the country to the other about the suspension of specie payments, at which resolutions were adopted embodying every conceivable view of the case, its causes and its remedies. A meeting of loco focos at Philadelphia declared that all the banks were in league with Britain and European monarchies to plunder free America by draining off the gold. They appointed a committee to ask the banks to pay their five and ten dollar notes. The banks replied that on a specie currency only those could do business who had gold and silver. The banks supply by their credit a deficiency which otherwise would exist in the circulation. This was another repetition of the notion that “there would not be money enough to do the business if it were not for the bank issues.” At the meeting at Baltimore the resolutions denounced the British party and the United States Bank for “preconcerted suspension;” they declared banking a fraud, and denounced the issue of small notes by corporations.

In May a Constitutional Convention was held in Pennsylvania, one of the chief causes for calling which had been the hope of introducing into the Constitution limitations on banking and paper money. A large party also hoped by this means to destroy the United States Bank. The attempt failed, but an article was put into the new Constitution requiring six months public notice of an intended application for the enactment or extension of a bank charter; no charter to run more than twenty years; every charter to reserve to the Legislature the right to amend or annul it, if injurious to citizens, though without injustice to corporators; no one law to create or extend the charter of more than one corporation.

On the 4th of July, an Anti-bank Convention was held at Harrisburgh, which endeavored to make the hostility to the banks a political force, and to organize it for the purpose of a “reform of banking.” In all these complaints and denunciations of banking the positive desire which is expressed is that the banks shall serve equality by their operations. A loco foco meeting at New York resolved that the banks ought to help poor men to emigrate and that Congress ought to give each one from eighty to two hundred acres.

In August, Biddle still hoped and believed that the Executive Department would find it necessary to return to the Bank of the United States.* In September Adams mentioned that he bought of the Bank in Philadelphia, with its own note, a draft on Washington. The draft was payable in current funds, which were depreciated eight per cent. or twelve per cent. He made no remark because he wanted to be unbiased about the Bank.

The method in which, at this time, the Bank operated the foreign exchange transactions of the country was as follows: “The cotton crop of the South beginning to come into market at New Orleans, Mobile, and other cities, in the month of October, and continuing to come until the following summer, a large share of the operations of the Bank of the United States, through its branches at those places, has been to purchase the bills of exchange drawn on Europe or the northern cities by the merchants who have shipped cotton. By the purchase of these bills, payable in the notes of the Bank, the merchants of the South have been enabled to pay the planters of Louisiana, Mississippi, Alabama, Tennessee, and other States, for their cotton; who in turn have been enabled to pay their debts to the country merchants; and these last again to the merchants in New York and Philadelphia. In performing this particular function, the notes of the Bank have in reality been nothing but duplicate bills of exchange, absolutely representing a certain quantity of cotton, taking the place of the original bills which the shippers of the cotton had drawn, and possessing this advantage over the latter, that, being universal credit and negotiable without endorsement, they could be applied to the payment of every debt, great or small. They were therefore preferred to any other form of bills to which a sale of cotton could give rise; and if they did not get back to the Bank in Philadelphia as soon as the bills for the purchase of which they were issued, it was because they had to traverse a more circuitous route.”†

Biddle was fully familiar with these operations. He had been practising them for ten or twelve years. It was with his mind on them that he made his contracts for the relief of New York. It was one of the dearest triumphs of his life to “save” New York, and he got, at the same time, a complete cover of magnanimity and glory for the things which he was most anxious to do, and which, if done upon his own motion, would not have looked well. In issuing his post-notes for the assistance of the New Yorkers, he found himself placed in far more complete control of the whole movement of commerce and banking in the United States, and the relations of the same with foreign countries, than he ever had been before; and if his Bank had been sound instead of being rotten, the plans which he made might have been crowned with complete success. The sale of securities in Europe and the constantly extended credits there had, as we have seen, produced an entirely artificial state of things here, inside of which the inflation had been pushed to extravagant limits. The failure of the credit abroad meant a turn in the exchanges, an export of specie, contraction by the banks, a fall in prices, a collapse of the improvement enterprises in the States, and a general bankruptcy. Biddle’s doctrine was that there must be an extension of credit until crops could be produced and marketed in order to reduce the debt. He said nothing of the frugality in expenditure, which must attend upon this as an essential factor. Indeed his position and that of his Bank made him necessarily an inflationist; and this, as we shall see, was why his plan failed. For the first step, however, he proposed to get the extension by substituting for the credit of individuals, which had broken down, the credit of his Bank, which was the best credit then in the market. Then his plan was to get control of the crops, which in fact meant cotton, on behalf of the Bank, and with the proceeds cancel his bonds.

In 1841, Biddle gave as the reason for buying cotton on account of the Bank, that it was not safe to buy private bills, in the summer of 1837, on account of their poor credit. It seems, however, that the Bank had already a large amount of southwestern bank notes in its possession, at that time, as it certainly had later, and that it was desired to use them. In this period, as in 1818, there was an immense speculation in uncurrent notes. The different artifices and methods by which they were employed constituted an art by itself. Such a speculation was combined with the operations of the Bank in cotton. In the absence of opportunities to study these tricks and devices thoroughly, there remains an element of mystery for us in some of them.

The purchases of cotton for account of the Bank began in July on the last of the crop of 1836-7.* In one of the cases at law which arose in 1842 a brother of Jaudon was put on the stand. He testified that Biddle and Jaudon entered into a partnership and furnished the witness with funds of the Bank to carry on the business as their agent. At different times he obtained $2 millions from the bank. He was allowed two per cent. commission, which was added to the cost of the merchandise. The goods were then shipped to Europe and sold. His commission on purchases amounted to $40,000, besides which he received a “bonification commission” on the sales, amounting to $20,000 more. The money was obtained from the Bank by credits passed to the witness’s account on tickets or orders signed by Cowperthwaite, cashier. The profits amounted to $50,000, which was divided between Biddle and Jaudon. The business was conducted through the Committee on Foreign Exchanges and apparently with their knowledge and consent. Two of the members of that Committee testified that they had been wholly ignorant of the nature of the transaction and would not have permitted it if they had known about it.*

The Investigating Committee of 1841 could not ascertain what had been the profit or loss of the first transactions because the papers had been withdrawn from the Bank. They said that accounts appearing on the books of the Bank as “Advances on Merchandise” were in fact payments for cotton, tobacco, and other produce, bought by Mr. Nicholas Biddle, and shipped by himself and others to Europe.

During the summer the great banks in the Gulf States began the same operation. This policy was extremely popular in the cotton region. The Vicksburg “Sentinel” said, in November, 1837, of the Brandon Bank: “It will be seen at a glance that the master stroke of policy pursued by this bank last summer, while it rallied around it the devotion of our planters, will give it the command of eastern funds or specie, and thus place it in a better position than any other banking institution in the United States. The timely aid which it afforded to our planters last summer has awakened a feeling in its behalf all over the country. It is decidedly the most popular bank in the State; and it has the means at its command of resuming specie payments sooner than any bank in the South.”†

The failure of the banks, including the deposit banks, almost arrested the operations of the treasury of the United States. May 12th the Secretary ordered collectors to keep in their own hands money collected for duties, if the deposit banks should suspend. Payments out of the treasury were to be made by checks on those banks. If such checks were not paid, at specie value, they would be received for dues to the government, and Congress would be asked to provide for them. Thus a new kind of currency was produced, and a kind of sub-treasury system grew out of the situation. A case is mentioned in which ten per cent. premium was paid for gold to pay duties, while debentures were paid by checks on the deposit banks payable in their notes.‡ Such cases might occur, if the person entitled to debentures was so eager for his money as to accept the notes of the suspended deposit bank; but the government never authorized this or recognized it, and the checks were salable at a slight discount to all persons who had anything to pay into the treasury. The premium on them steadily advanced during the summer until it was just less than that on specie. In the meantime the deposits lay untouched. May 14th, the Postmaster-general ordered postmasters to take only specie or specie notes for dues to that department. It was in this connection that the lack of small coin was most felt. May 15th the Solicitor of the Treasury ordered collectors to postpone suits on duty bonds, at six per cent., until October 1st, if proper security was given. At a meeting at Boston, May 17th, very violent language was used about the rule that the Post Office Department should take only specie. A committee which was appointed did not call the meeting together again because it was found that the law allowed no other course than that which had been taken. The Collector at New York declared that he would take bank notes for duties on his own responsibility, but was rebuked and corrected by the Secretary of the Treasury; yet the receipt of treasury drafts on the deposit banks for duties was authorized. In New Orleans the Collector and Postmaster seem to have nullified the orders.*

The Secretary of the Treasury also addressed a circular to the deposit banks, asking them whether they expected to resume soon, what steps they were taking to bring about resumption, and what measures they proposed to take to indemnify the government for the breach of contract.

The feeling of the administration and its supporters toward the deposit banks at this time was one of animosity and resentment. It was felt that the Jackson party had broken down the great Bank for them, had given them a magnificent chance, had put faith in them and loaded them with favors, and had even incurred odium on their behalf, and that the banks had returned this only by selfishness and folly. It was felt that they had made no return to the Jackson party, although they had in fact given it their votes, but that they had by their extravagant behavior brought disgrace upon the administration and betrayed its responsibility. No one took up the defense of these banks, and the rancor against them found little expression. The most outspoken denunciation of them was in a letter by Jackson, July 9th:

“The history of the world never has recorded such base treachery and perfidy as has been committed by the deposit banks against the government, and purely with the view of gratifying Biddle and the Barings, and by the suspension of specie payments, degrade, embarrass, and ruin if they could their own country.” “Now is the time to separate the government from all banks—receive and disburse the revenue in nothing but gold and silver coin, and the circulation of our coin through all public disbursements will regulate the currency forever hereafter—keep the government free from all embarrassment, whilst it leaves the commercial community to trade upon its own capital, and the banks to accommodate it with such exchange and credit as best suits their own interests—both being money making concerns, devoid of patriotism, looking alone to their own interests—regardless of all others.”†

The opposition exhausted the vocabulary of impatient derision and contumely upon the separation of the treasury and the banks. They built up a theory of due connection between the banks and the fiscal operations of the government, out of which they affirmed that specie payments and financial health must necessarily follow, and not otherwise. Webster especially distinguished himself by going about the country elucidating these doctrines. From them were derived the stock objections to the independent treasury which were reiterated again and again during the following five years. The policy adopted by the administration at this juncture prevented the national treasury from being dragged down into the sink of bankruptcy into which the banks had plunged themselves.

In the meantime the distribution of the surplus revenue had been taking place. The first three installments were paid to the States in January, April, and July. While this operation was going on, the Treasury, which was giving away $37 millions, and which had several millions more locked up in the deposit banks, which it could not use without sacrificing the principles of currency and banking to which it was bound by law, was falling into great distress to meet its current expenditures. May 15th the President called an extra session of Congress to meet September 4th. In his message he enlarged upon the mischievous effects of the expansion of credit, and said that “the selected banks performed with fidelity and without any embarrassment to themselves or to the community their engagements to the government, and the system promised to be permanently useful; but when it became necessary, under the act of June, 1836, to withdraw from them the public money for the purpose of placing it in additional institutions, or of transferring it to the States, they found it in many cases inconvenient to comply with the demands of the Treasury, and numerous and pressing applications were made for indulgence or relief. As the installments under the deposit law became payable, their own embarrassment and the necessity under which they lay of curtailing their discounts and calling in their debts, increased the general distress, and contributed with other causes to hasten the revulsion in which, at length, they, in common with the other banks, were fatally involved.” He declared that the law of the United States, from the beginning, provided that the revenue should be received in nothing but gold and silver. “Public exigency at the outset of the government, without direct legislative authority, led to the use of banks as fiscal aids to the Treasury. In admitted deviation from the law at the same period, and under the same exigency, the Secretary of the Treasury received their notes in payment of duties.”* The only justification for this was that the notes were immediately convertible into specie. The law of 1836 and the resolution of 1816 left the Treasury no place of deposit and no currency for its receipts. The government funds were locked up in the suspended banks, and there was a large deficit. He was opposed to the national bank; the State banks had proved incompetent; that “experiment had failed.” He proposed the independent treasury system, with gold and silver as the sole medium for the transactions of the government. This became the proposition around which the political battle was waged for the next four years. It split the democratic party, the radical or loco foco wing supporting the proposition, and the bank democrats going into the opposition in order to oppose it. The whole bank interest, therefore, was united against it. Sometimes they alleged that if the federal government did its business with gold and silver only, this would give it control of the entire commerce and finance of the country; sometimes, on the other hand, they declared that if this measure was adopted, the federal government would lose all power to bring about a resumption of specie payments, and would thus abandon its most important duty in the existing circumstances. It should also be noticed, with respect to the alleged curtailments by the banks, on account of distribution, that they made none during the latter half of 1836, but, on the contrary, increased their loans and discounts from $164 millions to $166 millions.*

The Secretary of the Treasury, in his report at the opening of the extra session, stated that, in trying to find other depositories which could satisfy the requirements of the law, he had succeeded in finding but one. Four had not suspended and one had resumed, so that he had six at his disposal.†

If, at this moment, the United States Bank of Pennsylvania had been a specie-paying bank, impregnable in its banking strength and integrity, pursuing its way in the midst of the storm as a model of sound finance, its notes alone would have satisfied the requirements of the law, and would have sufficed in quantity, so that they would have become the currency of the federal Treasury; neither would the Secretary have dared, when he was scanning the country for a depository, to pass it by.‡

The Secretary proposed that an issue of treasury notes should be authorized, both interest-bearing and non-interest-bearing; and in fact proposed the latter as a system of government currency. The Treasury report in December showed that the total amount nominally in the Treasury was over $34 millions. Of this, $28 millions was disposed of by deposit with the States. There were $1.1 millions of old, unavailable paper from 1819; $400,000 were in the mint for coinage. There were locked up in the deposit banks $3.5 millions, and there were trust funds $370,797. The net residue, therefore, actually at the disposition of the Secretary, January, 1838, was only $700,000. Of the eighty-six banks employed at the suspension, ten or eleven had paid over all the money held by them. Some still held very large sums.

In order to form some idea of the operations which were going on, and which within twelve months had been inflicting shocks upon the whole monetary system of the country, let it be noticed that the land speculations in the latter half of 1836 had been carried on under the specie circular, causing a movement of specie to the Mississippi Valley; also that the Secretary of the Treasury had been moving the public deposits inland, in order to distribute them “evenly.” The consequence was that the public deposits in the banks of the Mississippi Valley were some $8 millions in excess of the amount of surplus revenue to be distributed to the States of the Mississippi Valley; so that that amount in specie was called for to be transferred back again to the Atlantic coast.

Congress passed an act, October 2d, postponing the payment of the fourth installment until January 1, 1839. At that time there was no surplus, and the fourth installment never was paid. The whigs declared that there was a quasi contract, and they wanted to issue treasury notes in order to pay the amount. The Secretary of the Treasury wanted to recall or retain the installment because it was needed for current expenses. J. Q. Adams proposed to set apart the debt of the deposit banks to pay the fourth installment, and, if it was not sufficient, to appropriate the payments for the government stock in the Bank of the United States to make up the deficiency. He showed that the balances due from the deposit banks were nearly all due in the southwestern States. The Treasury had drawn nearly all its credit from its best debtors for the first three installments, and nearly all its credit was yet outstanding with its worst debtors for the remaining installment. “The balances due from the deposit banks in the single State of Mississippi, a State with four electoral votes, are nearly $100,000 more than adequate to pay the whole fourth installment, receivable by herself and the six New England States.” Another act of October 14th took from the Secretary of the Treasury the power to recall these “deposits” with the States and conferred it on Congress, who have never had courage, even in the exigencies of the civil war, to recall this money. October 16th, a law was passed to institute suit against the deposit banks for the deposits, unless they should pay or give bonds with security to pay, in three installments, July 1, 1838. January 1, 1839, and July 1, 1840. In his message to the New York Legislature in 1840, Governor Seward said that the fourth installment was still withheld. “I cannot,” he added, “doubt that you will insist upon the fulfillment of the pledge of the federal government, and will, at the same time, protest against the withdrawal of the installments already received.”

October 12th, treasury notes were authorized in denominations of not less than $50, receivable in all payments to the United States, and bearing not more than six per cent. interest. On the same day an act was passed extending the credit on all bonds for duties similar to the extension which had been granted by the Treasury Department since May. Each bond was to have an extension of nine months.

The first bond of the Bank for the government stock was due in September, 1837. It bought up, in anticipation of this payment, drafts by the Treasury on the deposit banks, in behalf of the States under the distribution. There was some objection at the Treasury to receiving these; but a clause was introduced into an appropriation bill allowing it.

The monthly reports to the Auditor of the State of Pennsylvania, which were called for by the charter of the United States Bank, were regularly made during 1837. The capital is put at $28 millions until July 1st, when it is put at $35 millions again. The loans in Europe, on the 1st of January, were $6,788,194, and so remained until August 1st, when they began to decline, and were, October 2d, $4,798,611, where they remained until the end of the year. The bonds in Europe begin May 11, at $4,318,149; December 1st they were $6,728,189. Bills receivable for post-notes begin, June 3d, at $2,644,242; they declined gradually to $713,570 in December. From July 1st the circulation of the old and new Banks was stated separately. December 1st that of the old Bank was $27.5 millions.

In September, 1837, Jaudon’s commission as agent in England was enlarged. He opened an agency with such extended functions as to be almost a branch of the Bank of the United States.

It was thought by some that Jaudon might injure the “situation and prospects” of the Bank of England.* In February, 1838, he was said to be exchanging shares of the Bank for its bonds. The correspondent thought that he must have disposed of $3 millions worth of shares. They were said to be the leading object of speculation, and the price ruled higher there than here.† March 2, 1838, Jaudon gave notice that he would discount at three per cent. the bonds of the Bank which would fall due April 1st. A correspondent says that, by this notice in respect to the bonds, the agent of the Bank “by the aid of his meltings of the bills given for cotton and State securities has succeeded in giving a couleur de rose aspect to that particular description of security.”‡ These operations were not, however, regarded by the Englishmen without suspicion. The correspondent says that it is hardly understood how Jaudon has accumulated the capital which he appears to have; “but some go so far as to say it has been done by the issue of fresh bonds on the sale of shares.” He also undertook to exercise some control of the London money market, and so found himself at war with the Barings and the Bank of England, who disapproved of his proceedings. The Barings refused to keep the agreement which they had made, the previous spring, to meet the drafts of the Bank of the United States. One object of enlarging Jaudon’s mission in September had been that he might take their place. This, however, made the bills of exchange drawn by the Bank, drafts of a principal on an agent, and the Bank of England refused to open an account with him.§ The London “Times” said, a year later, that he was able at first, when credit was easy, to get an appearance of success, but that afterwards his position was false.∥

In October, both in this country and in England, the financial situation seemed very much improved, and it was generally believed that the crisis was over. It was declared in London that the American debts had been paid with unexpected promptitude, and that this had greatly relieved the situation.¶ In November, $2.6 millions, five per cent. canal stock of New York, was sold to the Albany banks at 106, equal to specie par, to be paid for in specie as wanted for the canals, and in the meantime to be used solely to get specie. The banks were to provide the Commissioners with specie which would pay the interest on the State debt until April, 1838, and were to pay interest on the stocks sold or loaned to them.

In January, 1838, Charles Kuhn tried to force a forfeiture of the charter of the Bank of the United States under that section of it which provided that if it should ever refuse to pay any of its obligations in gold or silver, the holder thereof might apply to any Judge, who should give ten days’ notice of a trial, and if the facts were substantiated, should so certify to the Governor who should by proclamation declare the charter forfeited.* Kuhn commenced the proceedings, but during the ten days’ delay the Bank paid the note with twelve per cent. interest, and it was held that the former holder of it could no longer, for public purposes, bring about a forfeiture.† Kuhn seems to have renewed his attempt in March. The Court gave full validity to the notice which had been posted in the Bank upon the suspension of specie payments, that all notes, checks, and drafts would be “payable in current bank notes of the city of Philadelphia.” This was declared to be due notice and warning to Kuhn that he could not expect money for an obligation of bank notes, and the Judge said: “I decline reducing the testimony to writing and transmitting it to the Governor, the applicant not having, according to my judgment, substantiated the facts of his case.”‡ This rendered another of the supposed guarantees of the public against the abuses of banking nugatory. In another case Kuhn recovered $7,000 with twelve per cent. interest from the Bank, being deposits due him on the 8th of June, 1837, which the Bank had refused to pay except in current funds.

The current quotation of specie in 1837 and 1838 was for half dollars. The premium at New York, in May, was eleven; it declined steadily until the 1st of January, 1838, when it was three; and it ceased to exist on the 20th of May. The exchange at New York on New Orleans was at seven to ten discount in May; January 1, 1838, it was at two to three discount; but on the 19th of May it was from eight to ten discount. The exchange at New York on Mobile, January 1, 1838, was from five and a-half to six discount; April 21st, it was from twenty-five to thirty, but then improved until May 20th, when it was twelve to fifteen. February 10, 1838, exchange on London at New York was at seven and a-half premium; specie being at three and a-half premium; making sterling exchange really five and a-half below the true par. In March the domestic exchanges were quoted at New York as follows: Mississippi, twenty-five discount; Tennessee, twenty discount; Alabama, seventeen discount; Georgia, ten discount; Ohio, eight discount; Michigan, twelve discount; and Wild Cat, twenty-five discount.

About April 15, 1838, notice was posted at Prime, Ward & King’s that arrangements had been made with the Barings and the Bank of England to send to this country £1 million sterling in specie to support the banks in resumption, and that £100,000 had already come; but in May the Bank of England receded from this undertaking.* There had been some quarrel between Jaudon and the Bank of England, of which only obscure and certainly inaccurate information transpired here. “The cause of that quarrel originated in the jealousy with which Mr. Jaudon’s doings in London were watched.” “Mr. Jaudon, we all know, was very coldly received by the Barings. The Bank of England refused to keep an account with him, and he was tabooed for a while. He very quietly, however, worked his way and surprised everybody after a while by a great operation in which he underbid the Bank of England, as before stated in this paper, backed by the immense cotton batteries Mr. Biddle was sending him, and having principal control over that great staple. He had not much to fear even from the Bank of England, cotton being better than bank paper and quite as serviceable as specie.” The Bank of England has retired from its enterprise to export specie, sacrificing the insurance already paid on an amount on board ship. Specie is also being sent from New York to Philadelphia, which does not come from the New York banks, but may be part of the consignment from England. “The London ‘Morning Chronicle’ tells us the Bank of England has made peace with Mr. Biddle, and here we have a clue. The same journal insinuates that the Bank of England was weary of the war.” There were rumors that Jaudon was invading the business of the Bank of England and would demand specie of it. “The cotton market in Liverpool, we have reason to believe, has been sustained alone by the irresistible energies of Mr. Biddle. His stock has been immense, and he would not submit to the sacrifice, and he was not compelled to submit forthwith. However, to sustain the market forever, specie going out all the while, was a thing impossible. The cotton market began to droop. This effort of his with the Bank of England—this reconciliation—may have been to save it, and it may be that it will be kept stationary, the orders being countermanded for the exportation of specie. * * * Of the wisdom of Mr. Biddle’s policy in waiting for another crop before the resumption of specie payments, when all the banks of all the States could resume at once, we have never had a doubt; of the admirable manner in which he has carried through the storm every solvent merchant of his own city, all Philadelphia speaks with pride and exalted satisfaction, as it contrasts its own condition with the mischievous rashness which a violent contraction of the currency has inflicted here, but as New Yorkers we were compelled to resume, crop or no crop. * * * Among the other curious movements of the times is a petition now in circulation in this city, soliciting Mr. Biddle to establish a branch of his Bank, or a bank, in this city under a general banking law. Politically and commercially speaking, this is one of the phenomena of the day. To say the least, after all the hard hits he has had here, and the way we have legislated him out of our domain, the spectacle of his coming thus back would be a curious one, but mercantile men have the greatest confidence in his foresight and sagacity. Whatever be the differences of opinion about his policy as a Pennsylvanian, there is none of his skill as a financier for the section of country he works in.”* This passage has very little value for facts, but it is very important for the rumors which were afloat and the opinions which were current at the time. There was a great desire at New York that a branch of the Bank of the United States should be re-established there. This desire existed especially on the part of those who were dissatisfied with the policy of contraction, and thought that the policy advocated by Biddle was the proper one. May 31st, Biddle wrote to the New York Board of Trade: “The repeal of the specie circular by Congress, which took place yesterday, is deemed the commencement of a more harmonious relation between the banks and the government, and the Board of Directors hastened to show their confidence in it by renewing their connections with your city. Accordingly, I am instructed to apprise you that they will at an early period make the necessary arrangements for such an establishment as you request.”†

In August Richard Alsop of Philadelphia and George Griswold of New York deposited $200,000 in stocks, and organized a bank, under the general banking law of New York, with the name of the Associates of the United States Bank at New York. Some threats were made to enjoin the bank, but it commenced business on the 27th of September, and began to build a banking house on Wall street. It was always declared on behalf of it that it was an independent institution, allied with the Bank in Philadelphia, but not a branch of it.‡

On July 3, 1838, Biddle offered to loan $300,000 to the Governor of Pennsylvania, to repair the damages by a freshet in the Juniata, and look to the Legislature for reimbursement. The offer was accepted.§

§ 2.—

The Resumption of 1838. The New York Plan versus the Philadelphia Plan.

The most serious limitation on investigations in political economy and finance is that we can make no experiments, because we cannot dispose of the time and happiness of men. For this reason any historical incident which satisfies approximately the conditions of an experiment is of the highest value for the purposes of study. It is almost always the case, however, even when we find a typical instance, that we are left to infer what would have resulted if the case had contained different elements from those which it did contain. We have now before us, however, in this history, perhaps the most remarkable case that can be found of a complete experiment, at the same time and under the same conditions, of two different lines of policy. In May, 1837, the cities of New York and Philadelphia were in as nearly the same circumstances in every respect as any two communities well can be. New York adopted the policy of severe contraction, prompt liquidation and speedy re-commencement; Philadelphia adopted that of relaxation, indulgence, delay, and prolonged liquidation.

The opinion was almost universal amongst statesmen, men of business, and students of political economy that nothing could ever restore the currency but another Bank of the United States. Raguet had very much changed his ideas since 1828. He had accepted Biddle’s theories of banking and was a strong adherent of the great Bank. He believed that if any bank paid specie in the midst of others which did not, it would immediately be forced to pay every one of its notes in specie, and he did not make this opinion depend on the fact that all the banks were indebted to each other. He also thought that it was “utterly impossible for banks of two or three millions of dollars capital to exercise an influence over the money concerns of a whole community.” He argued that if the “government patronage” could be pledged to the Bank of the United States, it could resume specie payment in less than ninety days, by means of loans contracted in Europe. He had also adopted the notion that only the power of the general government could save the country, and to the question, How? he answered, “Through the agency of the Pennsylvania Bank of the United States, which, being already in operation, presents the only practicable mode by which immediate action can be effected.” He added a declaration that he wrote without any conference with the authorities of the Bank. His good faith and integrity of opinion are beyond all question. He always insisted that without a bank the government could not bring about a restoration of specie payment.* Calhoun declared in the Senate, September 18, 1837, that specie payments could be restored by re-adopting the Bank, but he would not vote for this, because it was unconstitutional. That all the whigs thought the same goes without saying.

The New York act of May 16, 1837, allowed suspension for one year; forced all the banks which took advantage of it to accept each other’s notes; forbade them to sell their specie; limited their circulation; provided that they should make monthly reports to the Bank Commissioners; and provided that the safety fund banks should have no income from the fund during suspension. All chartered banks which availed themselves of the act must submit to the visitorial power to which the safety fund banks were subject. Finally, they were forbidden to make dividends while suspended, which was the most effective provision of all to enforce resumption.† Really insolvent banks might still be enjoined by the Commissioners, when the others no longer need accept their notes. The law only remitted those penalties which were exactable by the State; forfeiture, etc. The remedies of private creditors remained intact, and if they were not enforced it was only because there was general acquiescence in the prevailing policy.

The leading bankers in New York began to prepare for resumption immediately after the suspension. Elsewhere the banks generally continued to pay dividends, sometimes eight or ten per cent., although they were not paying their debts. August 15th, a meeting of the officers of the New York banks was held, from which a circular was issued on the 18th, to some of the banks of other cities, inviting them to send delegates to a convention at New York in October, at which measures might be concerted for resumption. It was suggested that resumption might be reached between January and March, 1838, although they thought that the foreign exchanges must be reduced to specie par before specie payments could be re-established. The ground taken in this circular was that the banks were bound by law and honor to resume; that resumption did not depend on congressional action but must be accomplished by the banks. To this circular the banks of Philadelphia replied that they fully shared the anxiety for resumption and would join in the convention if it would do any good, but that, without the action of Congress, resumption could be only partial and temporary; hence they declined to appoint delegates. J. Q. Adams reports a conversation which he had with Biddle at this time. Biddle thought that the proposition of the “deposit banks” of New York “was a mere stratagem to procure the restoration to them of the public deposits;” that they knew that resumption was impossible until the foreign debt was paid, “and made the proposal to plume themselves upon it and gain credit for the performance under the delusion of a false promise.” He had told General Hamilton, of South Carolina, that resumption “could not be maintained a week.”

Here the matter rested until after the extra session of Congress, when, October 20th, the New York banks sent out invitations to a convention at New York, November 27th. As an indication of the jealousy existing between the two cities, it is instructive to note that so good a writer as Raguet, when trying to explain why the exchanges were against both Philadelphia and Boston, in November, declared that it was because drafts on New York were not paid, but were thrown back on the other two cities. “What therefore makes New York the creditor city is the fact that she is a debtor.”* As for Boston, the banks there had, since the suspension, pursued a policy of expansion. In general the banking system of Boston at this period was not strong.†

The bank convention sat from November 27th to December 2d. There were one hundred and thirty-five delegates from eighteen States, including Pennsylvania. The opposition was led by Pennsylvania and was dilatory and obstructive in its tactics. The leading proposition was to resume July 1, 1838. The other proposition was to appoint a committee to inquire, and to call together the convention again whenever it should seem best. The convention was adjourned until April 11th, without action.‡

A somewhat acrimonious controversy arose in the New York papers about this convention, and its apparent fiasco. The “American” said: “The most serious obstacle to New York resuming alone is a sort of vague and indefinite belief that unless the United States Bank of Pennsylvania comes into the measure, it cannot be successful.” The “Commercial Advertiser,” comparing all the banks of the State of New York with those of Boston, Philadelphia, and Baltimore, showed that the former were weaker than any of the latter, and repelled the imputation cast on the Bank of the United States by the “Albany Journal” for having attempted to thwart the efforts of the New York banks to resume. The “American” argued that while New York had been reducing her obligations, in order to resume, and Philadelphia had gone on expanding, the latter had won an apparent advantage at the expense of the former, and now New York was told that she should not collect her debts from Philadelphia, and resume, and take the benefit of resumption, but should allow the debt to stand. The “Commercial Advertiser” answered this, which it said was aimed at the Bank of the United States, by referring back to the aid given by Biddle to New York in March; but the “American” returned to the charge declaring that the issue was whether the United States Bank of Pennsylvania would allow the banks of New York to resume without its co-operation. To attribute such a position to that Bank was “a libel upon the common sense, upon the patriotism, upon the character, and the sagacity, of the eminent individual at the head of that institution.”

In January, the New York delegates to the bank convention published a report of its proceedings. They set aside, in the first place, all the “considerations of presumed expediency connected with the general situation of the country,” which had been urged in the convention, but which had nothing to do with the power of the banks to sustain specie payment. In this they referred to all the old familiar methods of arguing on these questions, which Biddle had used so much, and which had been echoed in the convention by his adherents. Against the doctrine of protracted suspension they denied that it would “be advantageous to the community at large; believing on the contrary, as we do, that its general and permanent interest would be sacrificed to temporary ease and particular classes, should the suspension be continued any longer than absolute necessity requires.” “When we see such extensive general, and, we may say, intolerable evils flowing from a general suspension of specie payments by the banks, it is monstrous to suppose that, if they were able to resume and sustain such payments, they should have any discretionary right to decide or even to discuss the question whether a more or less protracted suspension is consistent with their own views of ‘the condition and circumstances of the country.’ ” “It appeared to us that if, after the principal acknowledged cause of the suspension, and which presented the greatest obstacles to resumption had actually ceased to operate, we were permitted to allege conjectures and contingencies as a proper ground for protracting the suspension, there was no time at which some plausible reason of a similar character might not be adduced, and the resumption be indefinitely postponed.” Thus they brushed away the whole sophistry by which the prolonged suspension was defended. In January, the banks of Albany resumed; also the Farmers and Mechanics’ Bank of Hartford, the New Haven Bank, and the Camden Bank of South Carolina. In February, the banks of Maine held a convention, at which they expressed a hope that the adjourned convention would propose an early date.

In March the Committee on Banks made a report to the Senate of Pennsylvania in which the whole Biddle doctrine of resumption was fully expounded. The most effective point was the assertion that the banks could not resume without enforcing a collection of $15 millions or $20 millions from the public.

February 28th, a committee of the New York banks on resumption reported that resumption would be possible on or before May 10th, when the one year for which suspension had been sanctioned by the Legislature would expire. By way of preparation, they proposed that a system of settlement of balances between the banks should be introduced. The associated banks of Boston also proposed the same step and resolved to introduce the prompt payment of balances after resumption.*

The severity of the contraction by which the New York plan had been pursued during 1837 is shown in the following figures, Such a policy could not fail to produce a party of opposition. The demand liabilities of the New York city banks, exclusive of the Dry Dock Bank, were, on the 1st of January, 1836, $26.9 millions; on the same date, in 1837, they were $25.4 millions; and in 1838, $12.9 millions.† April 7, 1838, they had $2.50 of assets for $1 of debt. They also had New York State stocks to the amount of $1 million, for which specie was expected before May 10th. The banks of Pennsylvania owed to the banks of New York city $1.2 million.‡

As the time approached for the re-assembling of the bank convention, Biddle published another letter to Adams. He was bound to find some reasons for not participating in it, and they must be elevated. He declared that, “Our principles incline us to an early resumption; our preparations would justify it; and if we were at all influenced by the poor ambition of doing what others cannot do so readily, or the still poorer desire of profiting by the disasters of others, the occasion would certainly be tempting. * * * The great prerogative of strength is not to be afraid of doing right; and it belongs to those who have no fear that prudent counsels will be mistaken for timidity to examine calmly whether the general interest of the country recommends the voluntary resumption of specie payments in May next. * * * The credit system of the United States and the exclusively metallic system are now fairly in the field, face to face with each other; one or the other must fall.” It is a political struggle, and resumption is wanted for political effect. The Executive is entirely hostile to banks, and resumption can only be accomplished, as it was in 1817, with the help of a Bank of the United States. It is true that exchange is low at New York, but this is only temporary and unimportant. The plan of the Bank of the United States has been especially to produce no fall in prices, and to make no contraction, and to facilitate the shipment of the crops of the South and West, “placing its own confidential agent in England to protect the great commercial and pecuniary interests of the country. This seemed to be its proper function. It was thus that it hoped to discharge its duty to the whole Union.” He blames the New York banks for their rigorous contraction. The New Yorkers have sought loans elsewhere. The effect of this system has been to lower the value of the goods or currency in which the southern and western debtors must pay, and to have the same effect upon our means of paying the foreign creditor. May is a very unfit time to resume. Resumption ought to be general and include the South and West, but they cannot be ready then, because the returns on only a small part of the cotton crop will have been received. The New York men are coerced by their own Legislature, but their law has no importance for anybody else. New York “may perhaps bear it from one than whom she has never had a more true and constant friend, who although an entire stranger, has for a long series of years, done everything in his power to advance her prosperity, and never saw her in any misfortune which he did not anxiously strive to mitigate; but I wish to serve her—not to flatter her. I believe, then, that at this moment New York is in an entirely false position. She is obliged by the existing law to do what she feels to be wrong. Her natural course is to appeal to her Representatives to rectify their mistake, and not to thrust out their own State banks to be crushed by the Executive.” The other States ought to tell New York that they will not unite in this forced resumption. “The banks should remain exactly as they are, prepared to resume but not yet resuming. * * * The American banks should do, in short, what the American army did at New Orleans,—stand fast behind their cotton bales until the enemy has left the country.”

Nathan Appleton’s comment on this letter is: “It announced principles as false in political economy as its whole character was objectionable on the score of mercantile morality. Such was the influence which Mr. Biddle had unfortunately acquired in Philadelphia, that his views, so speciously set forth, were adopted in that city without hesitation, and have continued to control their operations to the present time.” That letter “announced distinctly that the banks should not resume until a change took place in the administration of the federal government. It also announced, in language not to be misunderstood, that no resumption should take place until the United States Bank was restored as the fiscal agent of the government.”*

The bank convention met again April 11th. There were 143 delegates from 18 States. It was voted to resume January 1, 1839, without precluding an earlier date for any who should prefer. New York and Mississippi alone voted No; the latter State desiring to defer resumption until July, 1839. The New England delegates generally joined Philadelphia and Baltimore in favor of a later day. We are somewhat surprised to find the Suffolk Bank leading those who held back from resumption, in Boston, but this is perhaps explained when we learn that, early in 1838, “the Suffolk drew its balance from the United States Bank, and received in payment United States Bank notes, guaranteed to be paid in specie upon resumption. These notes the directors of the Suffolk authorized their cashier to indorse to the amount of $200,000. It also authorized him to issue them; to receive them on deposit; and to pay them in specie upon resumption.”† The Philadelphia banks sent a statement of their reasons for being absent. The chief one was that they did not care to participate in the discussion of a question which the New York banks had decided in advance.‡

Some of the New York banks resumed in April, and those of Boston likewise, for $5 notes. The New York “Journal of Commerce,” of the 23d, said that the resumption was complete. This action of the New York banks set a standard and an example. It became an object of ambition at once for all banks which desired a good reputation to endeavor to follow this example. In May it was said: “Without naming any particular day, it is probable that all the sound banks east of New Jersey will, at an early day, one by one, slide into resumption. No symptoms of resuming have yet appeared in Jersey or Pennsylvania, or any State south or west of her, if we except the arrangement made by the Philadelphia banks on the evening of the 7th instant, of paying out in specie the fractions of a dollar, and the law of Michigan which requires resumption on the 16th of June.” May 31st, Biddle wrote another letter to Adams, saying that, since Congress had repealed the Specie Circular, he saw his way to resume and would do so. He would co-operate with the government. The leadership, however, had passed away from him, and he had to find a plausible pretext for following in a course which he had striven in vain to prevent. The associated banks of Philadelphia resolved that inasmuch as the Specie Circular had been rescinded, they would appoint a committee to confer with the banks of other States about preparations for resumption.

Governor Ritner, however, now took control of the matter. He published a proclamation, July 10th, requiring the banks to resume, and to pay and withdraw all notes under $5 on and after August 13th. July 23d, a convention was held at Philadelphia, at which the banks of Pennsylvania, Maryland, and Virginia agreed to resume August 13th. Those of New England, Kentucky, and Missouri assented to this action. August 15th, the Governor of New Jersey commanded all the banks of that State to resume within fifteen days. The Ohio banks resumed during the summer. Those of New Orleans resolved to resume January 1st, if the United States Bank would provide a currency until a national bank should be established.* All the Charleston banks except the Bank of the State agreed to resume September 1st. In October, the banks of Alabama held a convention but could not agree on a date, and adjourned without action. In general the banks of the southwest made no attempt to liquidate and resume at this time, but were following a policy of inflation. So far as any intelligent action can be traced in their proceedings, they seemed to believe that the price of cotton would rise again, pay all the debts, and bring back prosperity. The Bank Commissioners of Mississippi reported to the Legislature their opinion that the banks of that State could not resume before August, 1839. The Secretary of the Treasury, in his annual report, said: “It is believed that about seven hundred banks and branches, situated in twenty-two States and Territories, have already resumed specie payments. These, including not far from thirty which never suspended, make seven hundred and thirty now paying specie. Seventy more are expected to resume on or before the first of the ensuing month. Of the residue, amounting to about twenty-five, with a capital of from $3 millions to $4 millions, it is believed that six or eight are winding up their concerns because unprofitable; and that the rest are insolvent.”

§ 3.—

1838 and 1839. Treasury Notes and Bank Notes. Continuation of the Cotton Operations. Second Failure of the United States Bank of Pennsylvania. Second General Bank Suspension, South and West of New York.

The treasury notes authorized in 1837 were not re-issuable. In May, 1838, the amount authorized had been exhausted, and the Treasury was once more in distress. They were made re-issuable. May 31st, Congress resolved that there should be no discrimination in the currency received by the government for different parts of the revenue. This was a revocation of the Specie Circular. No other laws were passed in regard to the collection of the revenue.

In a new treasury circular, June 1, 1838, the Secretary declared that he was thrown back on the Resolution of 1816. He ordered that no bank note under $20 should be received; none which were not “payable on demand, in gold or silver coin, at the place where issued,” and “equivalent to specie at the place where” received; none of any bank which, since July 4, 1836, had issued any note for less than five dollars. As matters stood these were very stringent limitations. It was said that there were only four banks in New York City which could satisfy them.* The bank interest was by no means satisfied. Its influence had availed to cause the treasury notes (since their use was unavoidable), to be put under strict limitations, lest they should supersede bank notes. Necessity had now forced the step of making the treasury notes re-issuable, but the banks looked forward to a time, soon to come, when the public business would, once more, be done altogether with bank notes. They were banded together to bring this about and, if they could succeed, they were indifferent to the danger that some of their number would so abuse it that the Treasury might be left with their notes as an unavailable asset, as in 1818. The point was well stated by Silas Wright, in a report of the Senate Committee on Finance: “Try the proposition under consideration upon the banks themselves. Would they receive each other’s notes at par when they were all specie-paying banks? Will a single sound bank among the whole number now consent to the passage of laws which shall compel them to receive each other’s paper at par, or even to receive it at all, after they shall have resumed specie payments? Most certainly not. Then shall Congress by its legislation compel a credit for the notes of the banks at the Treasury, which they will not give, upon any terms, to the notes of each other? Most assuredly the banks will not have the effrontery to ask Congress to do this.”

By an act of July 5th, the clause of the deposit act which forbade the receipt of notes of banks which issued small notes was suspended until October 1st. The Finance Committee of the Senate had made a report construing that law that if a deposit bank had suspended, or had failed to honor government drafts in specie, it must be discontinued as a depository, but might, upon resumption, be reinstated.

One thing in the public action of the Bank which had caused more general dissatisfaction than anything else was the continued circulation of the notes of the old Bank. As the New York “Journal of Commerce” argued, April 18, 1838, nobody was responsible for them. “Suppose somebody should get possession of the old notes of Stephen Girard’s bank, which have been paid by his executors, and put them in circulation. No one will pretend that the executors of Mr. Girard would be bound to pay them. On the contrary, we reckon that whoever should be guilty of such an act would have his conduct characterized by some short words and be sent to prison to answer for his crime.” February 12, 1838, the Senate Committee on the Judiciary made a report condemning the Bank for keeping these notes out, and submitted a bill making it a misdemeanor for the officers of any bank whose charter had expired to issue its notes, punishable by a fine not exceeding $10,000, or imprisonment at hard labor for not more than ten years, or both. A very hot debate arose over this bill, not upon the issue directly presented by it, but upon the whole political struggle about the Bank and the financial situation. The act was passed July 7th, that part of the penalty consisting in imprisonment being reduced to not less than one nor more than five years, and it was also provided that the federal Circuit Court might prohibit such act by injunction.

In May the notes of the old Bank were at four discount in Boston.*

The Treasury of the United States being very destitute of funds, an act was passed July 7, 1838, authorizing the sale of the third bond of the Bank for the government stock, which would fall due in 1839. It was bought by the Bank. At the next session, in answer to a resolution of inquiry, the Secretary reported that the bonds of the Bank could not be sold either here or abroad on the terms set by law, except to the Bank; because the United States would not guarantee the payment. The purchase money was to be paid in specie or its equivalent, which was put to the credit of the United States August 1, 1838, and the Treasury found itself once more using drafts on the Bank. October 8th, the Paymaster-general made known to his subordinates that arrangements had been made with the Bank to pay the drafts of the Treasurer, and he authorized them to use its notes when they were acceptable to the payee and as far as they were legal.* This was regarded as no slight victory for the Bank.

In August there was a great improvement in trade at Baltimore, Philadelphia and New York, but the banks of Philadelphia had to contract suddenly, which produced a stringent money market.†

In that month the Smithson bequest, $500,000 in specie, was received. The act of July 7, 1838, ordered the Secretary of the Treasury to invest it in five per cent. State stock. He advertised for bids for it and bought bonds of Arkansas, issued for the Real Estate Bank.

In October, 1838, there was great speculation at New York on the debts of the sections still under suspension. Credits in that section were held over by means of certificates of deposit and post-notes, in the expectation that they would increase in value upon resumption. “The largest of all borrowers is the Bank of the United States. It has been able, by the establishment of its bank in New York, to borrow about half a million, by way of deposits, and its post-notes are constantly in market at six per cent. A large portion of those which have fallen due in September and October have been renewed for six months more. It is estimated that from $2 millions to $3 millions of the post-notes of the United States Bank are now held by our city banks.” The Bank of the State of South Carolina was also negotiating the “Fire Bonds” of that State, through the agency of the Bank of the United States.‡

At the opening of the cotton season of 1837-8, the speculation in cotton began to attract attention in England, where the buyers did not think that the state of the market for the finished goods warranted an advance in the raw material. The speculation, therefore, retarded the sales, but, in July, 1838, a correspondent writes from Liverpool:

“During the last few months, since the cotton has been arriving in great quantities from the United States, there has been a great struggle here between the buyers and sellers about the prices. The large holders here have been straining every nerve to hold the cotton in order to keep up the prices—the spinners and manufacturers have been pursuing the opposite policy of taking as little as possible. * * * But for the United States Bank, and the other banks of our country that came into the market, including also their policy of a suspension of specie payments, the value of our present cotton crop would have been $10 millions less than it will fetch. The agents of the United States Bank here, Humphreys & Biddle, have an immense stock on hand, and are daily receiving more. * * * The policy of delaying the resumption of specie payments in the South, whatever be the morals of it, has undoubtedly realized $10 millions to the United States that would have been thrown away here. Recollect I do not approve of any banks going into commercial operations; but our banks were forced into that position by an overruling emergency, and the doctrines held forth and violently persisted in by the Barings and their agents in New York were narrow, selfish, suicidal, and destructive to southern interests and southern property.” “Humphreys & Biddle will make large profits by their commissions; the Bank will lose.”* Ten days later the same correspondent wrote that the buyers and sellers of cotton differed greatly as to price. Humphreys & Biddle were carrying an immense stock, and the spinners were only buying for immediate needs.† In September the report was: “Cotton is offered in abundance and prices are supported in a remarkable manner; holders not submitting to any decline.”

‡ In October, the New York “Journal of Commerce” said: “A large part of two cotton crops has now been exported by incorporated banks. It was well for them, perhaps, to come forward at the moment of extreme panic eighteen months ago—for there seemed to be no other means of moving the produce of the country. But their interference extensively with the last crop was of very questionable propriety, and their further interference now ought to meet the most determined resistance.”

“The Bank of the State of Alabama has already announced its intention of dealing in cotton again, and on a plan which is especially objectionable. That bank has already so mismanaged its affairs as to throw the State into great difficulty, and if it is suffered to go on, the credit of the State and its merchants cannot be resuscitated. Specie payments will never be facilitated in this way.”

The plan was put forth by the Branch at Tuscaloosa, apparently as an improvement on the scheme which the Mobile Branch had published in the previous January. It was dated August 29, 1838; proposed that cotton should be sent to the warehouses, the warehouse receipts being taken as vouchers; shipments at the expense and risk of the owner; to be made only to agents of the bank at Mobile, New Orleans, New York or Liverpool; sales to be made in four months. The owner must give for advances a bill at nine months with two endorsers; differences to be adjusted, if in favor of the bank, by a bill running not beyond the following February 15th. No advance was to be made for more than twenty-five per cent in excess of the value of the cotton when it was received; all exchange to inure to the shipper, the bank taking only one and one-half per cent. commission (later one per cent.). Advances might be made before the delivery of the cotton if the citizen was in danger of having his property sacrificed. If he will give proof of solvency, and security to deliver cotton by February 1st, to cover a bill on New York running not beyond February 10th, the bank will buy such bill. The drawer, when he delivers the cotton, may take up the bill on New York by one on Mobile at nine months. If the cotton is not delivered, the bill to be sent to New York and protested.

We shall see below what the effect of this plan was on the bank which adopted it, but we may be sure that it was very popular at the time. It was considered a “liberal policy,” and the bank which undertook it was thought to discharge its great function as a Bank of the State. In a case which grew out of it the Court said that it was strange that the error in the plan was not perceived that, in offering to advance more than the value, speculation and lawsuits were sure to be fostered. Some features of the plan are so strange that a great deal of familiarity with local and temporary circumstances seems necessary to understand them. The Court say that “the bills and the property are primary and concurrent securities,” and add that the usual way formerly had been that the owner shipped his own cotton and sold the bill against it to a bank.* After the commercial revulsion came on this method seems to have been almost entirely abandoned.

The reason given by this bank, in its circular, for the plan proposed was, in order to get specie funds with which to resume.

A new Board of Directors of the Mobile Branch a year later abandoned the plan of these advances on cotton, because of the wild speculation which threatened losses. Of the notes received by the previous Board with endorsements for the fourth quarter of the assumed value of the cotton not a dollar had been paid.†

In June, 1838, a commercial convention was held at Richmond which recommended an increase of the banking capital and an extension of the means of communication, then being constructed, as essential means to the development of the South. The banks of the Gulf States “after having gone headlong into cotton, have turned their attention towards provisions. They have bought up nearly all the pork (in New Orleans) and their purchases in Cincinnati and other places have been on a monopolizing or forestalling scale. The article, in consequence, has advanced $6 per barrel. There have been more meetings in Mississippi to inquire into the conduct of the banks. The planters find that the depreciated currency will not pay for their supplies, unless at exorbitant prices, and that the high rates they received for their cotton was a mere delusion of the bank system.”‡

As the season of 1838-9 opened attempts were made to make the cotton monopoly more comprehensive and more close. In a statement published a year later we find the situation and the program set forth as follows:

It is stated that Biddle had carried out his plan on the short crop of 1838, “by granting facilities to southern banks,” but that for the following year, according to the principle of all monopoly, that the compass of the operations must be constantly increased, he “found it necessary to strengthen the southern banks which had, as his indirect agents, swindled the planters out of the cotton to be sacrificed in Liverpool at their expense; while they were compelled to receive depreciated and depreciating paper for their labor.” The notes of these banks were at twenty-eight per cent. discount in 1838, and the banks must resume specie payment or they could not get control of the crop of 1839. “Under these circumstances foreign capitalists would have flocked to the South and purchased the cotton at a fair price, and thus, by throwing it into the Liverpool market, would have compelled Mr. Biddle to do the same, or borrow money and risk the market another year. Accordingly Mr. Biddle, in August and September, 1838, commenced rebuilding the southern banks that had engaged in the cotton trade; and he purchased the bonds of others to enable them to go into operation and to continue the cotton monopoly.”* The officers of the Girard Bank and of the Bank of the United States bought the State and bank bonds, chiefly those of Mississippi, some of which were amongst those most hopelessly indebted to the federal government for the deposits. “In purchasing the bonds of these banks, Mr. Biddle and his compeers had other strong personal inducements. They had purchased an immense amount of their notes at twenty-eight per cent. discount, and by the operation were enabled to use it at par.” These banks flooded the country with post-notes, issued for advances on cotton, at $60 a bale. “By thus holding back the crop, Mr. Biddle might be enabled to realize a large profit on the crop of 1837-38, which he had purchased, and in the meantime the planters of the South would be left to bear the whole of the loss from a falling market, after the monopoly had become too heavy for the credit system and the gambling system to sustain it any longer.”†

We can follow the action of the Bank to “help the southwestern banks to resume” at New Orleans and in Mississippi. In June, 1838, the banks at the former place wrote to Biddle to ask him to help them to resume, on the following January 1st, by furnishing enough of his notes to meet the demand which otherwise they would have to meet with specie. September 8th, he answered that the policy of the Bank had been, for a year, “to defer the resumption of specie payments until it could be safe and general throughout the Union.” It has tried to facilitate this by two measures: “first, by large loans to banks in those States where the difficulty of resumption was greatest; and second, by advances to the government whose disbursements are spread mainly over the South and West.” “We are preparing a large amount of the issues of the Bank, which will be sent to New Orleans, with instructions to use them freely, not only in the immediate business of the Bank, but whenever they can be made to contribute to the defense of the banks of New Orleans.” The banks of New Orleans were perfectly satisfied and voted to resume at New Year. All that he had told them was that he was printing bits of paper with which to buy the great staple of Louisiana; that these bits of paper would presently appear in their banks and that they might keep them and use them “in the place of specie” as long as they chose.

In regard to the operations and influence of the United States Bank in Mississippi the Bank Commissioners of that State, in their report of 1838 on the Brandon Bank, said: “The [Brandon] bank purchased with New Orleans funds of the agent of Mr. Biddle $75,000 of the notes of the defunct Bank of the United States. By this transaction $7,500 was realized by the Brandon Bank. Mr. Biddle’s agent, in consideration of receiving New Orleans funds for notes that no one was compelled to redeem, exchanged an equal amount of Mississippi River bank notes.” If this traffic is allowed, why may not Biddle in another season send notes enough to buy the whole cotton crop with notes which no one is bound to redeem? “It is common to hear persons speak of the liberality of Mr. Biddle’s bank and that the southern banks must rely upon him to enable them to resume specie payment. So far from his having given support, the banks of this State have, with one exception, suffered by their connection with him; for he has repeatedly dishonored checks with funds in his possession, and it is believed that he has bought up at a discount the notes of those banks that have confided in him, and placed them against the proceeds of sterling bills on which they had expected to check. We are strengthened in this opinion from the fact that the name of one of the persons who attached funds of the Brandon Bank in the possession of Mr. Biddle is the same as that of one of his agents in Philadelphia.” Biddle said that he dishonored the checks of the Brandon Bank, although he held its funds far beyond the amount of the attachment, for fear that, if it was known that he held funds of the bank, further attachments would be made. The Commissioners do not accept this justification and imply that he wanted to lay hands on the balance. “As he was preparing to resume about that time, perhaps he yielded to the law of necessity.”

Wherever the investigator comes on any of the questionable banking or State financiering of the period, there he is very sure to find the United States Bank or some members of the Bank clique in the midst of it.

John Ingersoll issued a circular in Mississipi, October 22d, asking for consignments to Humphreys & Biddle, on which he would make a fair advance, for the purpose of holding the cotton over until the next summer, if desirable, in order to realize the highest possible price. Bevan & Humphreys published a denial that Ingersoll had any authority from Humphreys & Biddle, but they stated that all persons who would ship cotton to that house might draw upon them at sixty days for two-thirds of the price, selling the bills with the bills of lading in the open market at the current rate of the day.*

In New York it was said, at the end of November, that not a bill against cotton had been seen. The United States Bank was buying the cotton in the South and selling exchange in the North at 109 3-4 as a fixed price. At this time money was at twelve per cent. per annum in Philadelphia, and the Bank was depressing the exchange lest there should be an exportation of specie. “Money in New York and Boston is said to be abundant, owing probably to the banks in those cities having made their curtailments before the resumption. It is supposed that were it not for the Bank of the United States supplying the demand for bills on London at nine and a-half, the rate would go to ten or ten and a-half, in which case specie would be exported.”* At Philadelphia the state of the case was quite different. The Bank of the United States issued a notice requiring fifteen per cent. to be paid on all stock notes every sixty days, and stocks were falling. Post-notes of the best credit were quoted at twelve per cent. per annum discount. Among the causes stated were: “The neglect of the banks before the resumption to reduce the amount of their loans to an extent equal to the excess which occasioned the depreciation of the currency, by which the proper check would have been given in time to importations and fresh speculations.”† The New York banks were said to have loaned very carefully since resumption and to be in a very sound condition. There was no pressure on the merchants, who had made but few notes; but there was some complaint from the brokers, and stocks were low. It is very noticeable that this is stated by the same newspaper which in May had expressed doubts of the wisdom of the New York plan.‡

On account of the complaints which began be to heard of the action of the Bank, Biddle found it necessary to publish another letter to Adams, in which he rehearsed all the defense of the policy of the Bank in making a corner on cotton, representing it as done in the interest of the southern planters. He said that the operations had been relinquished, which was not true. Finally he withdrew the Bank from all functions as a national bank. It wanted only “repose;” “abdicated its involuntary power;” “it will take its rank hereafter as a simple State institution, devoted exclusively to its own special concerns.”

In December the Liverpool cotton market was very dull and feverish. The spinners were alarmed at the speculation and, anticipating its failure and a fall in price, shortened work and diminished the demand. As the year 1839 went on, the developments in England were unfavorable. The crop failed, there was great distress amongst laborers, specie was exported, and prices fell. These facts were all unfavorable to an extension of credit, a revival of business, and an improvement in the price of cotton.

Biddle resigned the presidency of the Bank March 29, 1839. In his second letter to Clayton, in 1841, he says that the circulation, deposits, and other debts then amounted to $35.4 millions while the specie and the loans amounted to $42.9 millions. The Committee of 1841, however, say that the assets were already at that time to a large extent unavailable. The stock fell from 116 to 111 3-4. Thomas Dunlap was elected his successor. After his resignation an account was rendered by Bevan & Humphreys of the cotton operations, which showed a profit of $1.4 millions, on total transactions of $8.9 millions, which was divided, $800,000 to the operators, and $600,000 for the Bank. The $800,000 was drawn out between March 25th and May 22d.* In this year the Bank loaned $1 million to the State of Illinois. According to the contract, its ten-dollar notes were to be paid out on the Illinois and Michigan Canal. July 19th, it was allowed by a special act of the State Legislature to issue five-dollar notes for the sum of $2 millions, which it loaned to the State.

The year 1839 opened with a gloomy outlook in the southwest, especially at New Orleans.† In the spring there was great distress in Mississippi. A great deal of property was changing hands. The state of things was far worse than in 1837.‡ In June the post-notes of the Planters’ Bank, which then fell due, were not taken up. The southwestern currencies were falling to heavier discount. The banks in the North and East were curtailing. At Philadelphia it was said to be the worst period since the panic. According to the news from England, in June, there was scarcely any market there for American securities.

In April, 1839, cotton was advanced one and a-quarter penny in Liverpool by sales on cross accommodation bills.§

In June the news from England was bad. The money market was stringent; the Bank of England was losing specie; there was less demand for cotton; and the mills were running short time or were idle; cotton was dull and lower; the Bank of England rate was five and one-half per cent.; and the bills for the speculative purchases in March and April were coming due.

A circular was issued by S. V. S. Wilder, in June, attempting to do more cleverly and completely what Ingersoll had tried the year before. It seems that the latter had blurted out the facts of the arrangement too distinctly. Wilder denied that the United States Bank had anything to do with his plan, which was false. The circular stated that cotton, by the latest advices, was dull and lower; that the English spinners were working short time, in order to get lower prices on cotton, since the great bull of the last year was out of the market. A grand combination to sustain cotton was proposed. Either the banks would advance enough to hold back the cotton for three months, or all might consign to one Liverpool house which should carry it until the present stock was worked off. In a conference at Philadelphia, the second plan was adopted, because, on the first plan, the market would not be provided with any bills of exchange. Advances of three-quarters of the value, at fourteen cents a pound, were to be made on all that was sent to Humphreys & Biddle, who would “hold on until prices vigorously rallv.” If the crops should prove large the “great and powerful interest” would hold back the first supplies of it. This circular was unsigned and was not to be published, but it got into the newspapers and, the New York “Journal of Commerce” having traced it up to Wilder and the leading officers of the Bank, the former published a vehement denial that the Bank of the United States had anything whatever to do with it.* It was afterwards stated that this circular was written by Gen. Hamilton of South Carolina.†

July 20th, a meeting at Macon called a southern convention to deliberate on the cotton circular and the means of giving stability to the price of cotton. They had before them a circular from southern representatives at New York, in which it was shown that cotton was a regulator of the exchanges and a standard of value. It was resolved that it was necessary to combine the banks with the cotton producers; that the banks of the South should take bills of lading and insurance policies and give post-notes at twelve and a-half cents per pound, so as to hold the crop for a price, the whole being consigned to a few houses in Liverpool and Havre. Just at this time the “Manchester Guardian” declared that there was no market for the amount of manufactured goods which the machinery could make, unless the price was lowered; that the advance in cotton therefore stopped spinning. “The evil does not consist in the high price of cotton so much as in the general distrust of the stability of that price, which is produced by a knowledge of the speculative dealing in the United States.” [In fact the crop was short, and if there had been no speculation, the price would probably have been higher than it really was when it was believed that a large amount was kept back. The supply for the last half of the year was twice the amount which had been used in the first half.] It is “one of the most rash and insane speculations of modern times.”‡

Under the State charter the Bank paid four per cent. dividends every half year until July, 1839. It was apparently these large dividends which deluded the small investors, and made them cling to the Bank long after men of affairs knew that it was a mere shell. When it failed this class of investors and foreigners owned nearly all of it. Biddle had then only one share.§ It is hardly too much to say that the Bank never had any right to pay a dividend after the State charter was taken.

In July the rate for loans at Philadelphia was fifteen per cent. and eighteen per cent.; the United States Bank was contracting. Its stock was at 114. The Bank was still trying to control the sterling exchange; but at New York there was opposition to this policy and a shipment of specie was declared necessary.∥

At the end of August the money market in England was so stringent that there was almost a panic. Cotton was a penny lower, and Jaudon was in great distress. A report reached the United States that the Barings had announced in their circular of August 26th the expectation that he would fail. This was afterwards corrected. They did not do this, but they sent out a list of the securities which he had offered them as collateral for a loan which he wanted.* He was, however, writing most earnestly to Humphreys & Biddle, demanding money. They must sacrifice cotton at any price in order to sustain him. “Life or death to the Bank of the United States is the issue.” The Bank at Philadelphia recognized and assumed the loss which was incurred, and urged Bevan & Humphreys to authorize Humphreys & Biddle to sustain Jaudon.†

The notes of the United States Bank of Pennsylvania were kept at par in New York by its ally there. Hence the Philadelphia brokers used them as a remittance. As the exchange was against Philadelphia, this must have occasioned a loss. In August, 1839, the Bank refused to keep brokers’ accounts in order to try to break up this arrangement, although it was afterwards said that only one account was closed.‡ In fact, this incident had no importance except as a symptom of an approaching crisis.

From the 17th to the 24th of August, 1839, the Bank of the United States sold, in New York City, bills on Hottinguer which were forced on the market at a loss. As the Bank had no balance with him, and he had given notice that he would not honor any drafts unless he was covered, it was necessary to remit specie to meet the bills which were sold. Coin was demanded of the New York banks in order to make this exportation. On the 27th, the checks which had been obtained for the bills sold were presented in the banks at 2:30 p. m. with a peremptory demand for specie, a notary being present to make the protest. The purpose was to compel the New York banks to suspend in order to give the Bank of the United States a pretext for doing so. The total amount of these bills was seven million francs.§

September 1st, there was a great demand for loans in New York, Boston, and Philadelphia, and still more in the Southwest. The Philadelphia banks now had large amounts of the southwestern paper, which they had continued to take for goods but which they could not now collect. They lent post-notes to the merchants, which were sold in the other cities, thus absorbing capital elsewhere, which all went into the gulf of this southwestern debt. The post-notes of the Bank of the United States were at eighteen per cent. discount per annum; its stock at 104 1-2. At the end of September the United States Bank ceased to supply exchange, and the New York banks began to draw. October 1st, it was reported that the banks of New York, Boston, and Philadelphia had been moving specie to and fro.

On the 9th of October, the United States Bank failed on its home business, all the Philadelphia banks being exposed to a run on account of drafts from New York. On the following day some of the drafts on Hottinguer came back protested. Jaudon had induced Rothschild to take them up for the credit of the Bank, ample security, as was then supposed, by State and other stocks being given.*

These proceedings were ruinous to the credit of the Bank. The Committee of 1841 say that on account of “the general derangement of affairs, the suspension of specie payments, and the discredit consequently thrown upon American securities, and more particularly from the course of the Bank’s dealing in foreign exchange, by drawing bills to a large amount without having previously provided the funds for their payment, and thus subjecting their agent in London to the necessity of obtaining money in haste, in order to maintain the credit of the Bank, it was no longer found possible to command funds there upon the same favorable terms as before. And accordingly upon Mr. Jaudon’s subsequent negotiations for loans, to the amount altogether of $12,212,697.46, there is chargeable to losses the sum of $1,149,907.04, being for discount, commissions to foreign bankers, and other charges; not including Mr. Jaudon’s own commissions, and the expenses of the agency in London.”

The stock of the Bank fell to 93 3-4; its notes were at eleven per cent. discount at New York. As soon as the disturbance produced by the Bank was withdrawn, things improved there, foreign exchange being at par.

The facts in regard to the proceedings of the Bank of the United States, at this juncture, if told by an enemy, might seem colored by malice, but they are stated by Cowperthwaite in a letter to Biddle, March 23, 1841. He says that a new crisis was anticipated in the fall of 1839, and “it was deemed best to make it fall first upon the New York banks.” In fact, the great Bank had been vindictive ever since the resumption of 1838. Its leadership had been set aside. The New York banks had proceeded without it and usurped its functions. In 1839 it found itself sinking and it was driven to the most desperate measures inspired by malice and rancor. The United States Bank and debtor interest caused a meeting to be held at New York as late as October 23d, in order to try to organize a run on the banks.†

At this time the following very strong criticism and review of the proceedings of the Bank during the preceding eighteen months appeared in a New York paper:

“The suspension of 1837 found it [Bank of the United States], as it was generally understood, greatly extended in every direction, with many millions due from the South and the West and from the insolvent interests here and elsewhere, with many other millions invested in various internal improvements, and with the bonds for the sale of the branches of the old Bank for the most part uncollected, constituting altogether a large portion of its capital rendered wholly unavailable. Hence, as was believed, the reluctance with which, after resisting to the utmost the exhortations and finally the example of New York, in 1838, in resuming specie payment, it came at last into that measure. But in order to do so, it, even then, is reported to have been largely a borrower, and up to the moment of its recent suspension it has continued the policy of borrowing and of extension, in the face of known losses, which the very silence observed concerning them and the withholding of all official reports, served in some sense to magnify, and when all knew that a large amount of its means was invested in inconvertible securities and consequently out of its own control.”

Probably it expected by its policy more easily to collect its outstanding credits.

“If by an opposite course, the Bank on resuming had drawn together its scattered resources, and instead of buying or advancing on all sorts of stocks and cotton, and extending itself by new issues, it had paid off its own debts and confined itself to the legitimate objects of banking, the dealing in the regular business of the internal exchanges, and discounting safe mercantile paper, it seems hardly questionable that not only the Bank of the United States, but all the banks, South and West, would have been in a safe position; that the foreign exchanges would have been in our favor; and that the vast mischief which now surrounds us would have been avoided.”

No doubt political and financial circumstances have made its management difficult, “but latterly even the government had made common cause with that institution, availed itself of its credit, and employed it as an agent for disbursing the public money. But this very connection, it may be, has rather served to stimulate than restrain its issues. Under all these circumstances it ceases to be matter of surprise that the bank has suspended its payments and dragged into its vortex so large a number of other banks that were more or less connected with or dependent upon it.”*

The banks of Philadelphia having suspended on the 9th, those to the South and West suspended as fast as the news reached them. Specie was at seven per cent. and seven and a-half per cent. premium at Philadelphia. On the 12th, the United States Bank stock was at seventy, but on the 15th it had risen to eighty. In November it was at sixty-five. The banks of Rhode Island suspended but soon resumed; those of New Jersey did not suspend.

In the month of October, the New York and Philadelphia newspapers were in open war about suspension. The Philadelphians declared that New York could not maintain specie payment; that the pretense of it was false, and the merchants all ruined. The New Yorkers answered that it was doubtful if the Bank of the United States was solvent.†

The extracts from the New York papers, in October and November, show that the public then had ample reason to doubt the solvency of the United States Bank. In November the “Harrisburg Reporter” said that it was insolvent; in London its securities were unsalable, and its credit was broken.*

The New York banks were confident of their ability to sustain specie payments. “There is every reason to be sure that New York will go on well.” The “American” said that the monetary stringency on both sides of the water was due to the borrowings of the Bank of the United States; that New York must persevere; that she would, if she kept a sound currency, become the center of home and foreign trade.† October 15th, the Philadelphia banks stopped redeeming their fives, having lost in five days $156,000 in that way. During 1837-8 the banks of Pennsylvania made dividends, although it was prohibited in the charters of most of them. After the suspension of 1839 most of the banks at Philadelphia resolved not to declare dividends until the pleasure of the Legislature could be known.

The monthly reports of the United States Bank to the Auditor-general were suspended from October, 1838. After its failure in October 1839, that officer demanded a return, and those for thirteen months were sent all together in November following. It is alleged in interrogatories put to the cashier in a suit by Kuhn against the Bank, on an attachment, that the latest one (November, 1839), showed a surplus of $4 millions, and that it was so published here, but that a committee in the Bank found that the surplus was only $1 million; it was so sent to Jaudon and published in England, and reprinted here. The post-notes were reported to the Auditor $900,000 more than to Jaudon. If these were subtracted the surplus would dwindle to $100,000.

October 11th, a meeting of merchants was held at Boston to confer with the banks about an extension of discounts. A resolution to suspend payment on notes of $5 and above was rejected. At a bank meeting on the 17th, it was resolved that the banks were able to sustain specie payments. On the 24th, the rate for first rate four months paper was three per cent. per month. The rate at New York was about the same. All the safety fund notes were discredited. Specie was coming from all parts of the country and being exported. On the 23d the banks of Philadelphia published an address to the public, in which they declared that the suspension of 1837 was necessary and proper; that all was going on well when New York prematurely resumed; that this forced the rest to follow; that Philadelphia had followed the correct policy in making loans to the South and Southwest; that the pretended resumption broke down in that section first. They then operate on the prejudice against the exportation of specie and against England, declaring that the banks could have paid specie but that it would have sacrificed the country around them to find means to buy food for the people of England.‡ This address well stated one view of the situation and of the policy to be pursued. Up to this time there had been hope and belief that the worst was over and that at any time prosperity might return, and it is possible that, if it had not been for the insane policy pursued in the cotton region under the leadership of the Bank of the United States, things might have turned for the better before this time; but the failure of October, 1839, was the real collapse of the movement which culminated in the crisis of 1837, and of the policy in respect to it, which had now been followed for two years. From this point on there was no escape from a complete liquidation, which would require that the industrial movement should be brought almost to a standstill before it could start again.

The New York banks resolved, October 25th, unanimously, that they would maintain specie payments, but according to the report of the Bank Commissioners, January 24, 1840, there was a contraction of $20 millions in the liabilities of the banks, within ninety days. November 8th, the safety fund banks of Western New York met at Auburn and made a plan for the redemption of their notes at the State Bank at Albany.

October 22d a cotton convention was held at Macon, at which a further and still more complete organization was aimed at, but it does not appear that the Bank of the United States was any longer a party to the enterprise. The wish at that convention was to get strength enough from the banks to hold on for a year, and there were loud complaints that consignments had been sacrificed to meet sixty-day bills. In November, there was a slight advance in the price, which was not maintained, but the English mills were generally on full time.

In March, 1840, the New York “Express” said: “The cotton business has entirely changed this year. Last year a large portion of it was in the hands of speculators, who, in many instances, with small means, were able by advances to control a large amount. The season turned disastrous and swept this class away. The facilities that were afforded by the southern banks induced large shipments, which in most cases turned out ruinous. The consequence is that the staple is now left to its own intrinsic value. Shippers buy and export as appears most for their interest. Manufacturers purchase to meet the demand, and the business is thus perfectly regular.”*

In regard to the last speculations of the Bank in cotton, we have the report of the Committee of 1841 as follows: The directors declared, December 21, 1840, that they had not known of the cotton transactions, and passed resolutions of “censure and condemnation.” “The third and last account, amounting to $3,241,042.83 [shipments of produce to the Liverpool firm] appears on the books [of the Bank] as ‘Bills on London; advances S. V. S. W.’ These letters stand for the name of S. V. S. Wilder of New York. Messrs. Humphreys & Biddle, to whom these consignments were made, continued their accounts in the name of Bevan & Humphreys, but without the knowledge of that firm, as appears by Mr. Cabot’s letter of December 28, 1840. The result of these last shipments was a loss of $962,524.13. Of this amount the sum of $553,908.57 was for excess of payments by Messrs. Humphreys & Biddle to the London agency, beyond the proceeds of sale, with interest thereon. The parties interested claimed and were allowed a deduction for loss on $526,000 of southern funds used in the purchase of cotton, when at a discount, the sum of $310,071.30; and also this sum, being bankers’ commission to Messrs. Humphreys & Biddle on advances to Samuel Jaudon, agent, $21,061,86; making $331,133,16, and leaving to be settled by the parties the sum of $631,390,97.”

§ 4.—

The Banks in the States; 1837 to 1840.

In reading this chapter it should be borne in mind that the decision in Briscoe’s case was rendered in January, 1837.

In 1837-8, eleven banks failed in Massachusetts, nearly all in Boston or the immediate neighborhood, with $4 millions capital. The investigation of the affairs of these banks showed that they had violated the law in respect to the organization and management of banks. “We find bank directors indicted for merely signing a false return. How far would the grand jury have to go should the fourth section of the bank law requiring that the capital must be paid in in specie before a bank might begin business, be applied to the origin of every bank in this Commonwealth, particularly within ten years past? It is the gross violation of this section which has been winked at by the Legislature in receiving bank returns, that has laid the foundation of the worthless, broken banking capital of Massachusetts. The money has never been there, the capital has never been paid in. The hard earnings of industry, and the portions of widows and orphans who were deceived by Mr. Degrand’s ‘leetle word confidence,’ have been actually paid in and not borrowed out by the owners of the stock; but this constitutes a small portion of the banking capital. The bulk of it has been made up of stock notes of the borrowers who got up the banks, put into its vaults bits of paper, and then drew out double or quadruple the amount in loans. Had the capital been actually paid in, in conformity to the statute, none of this trouble would have happened. * * * Our banks were manufactured by those who wanted to borrow all the fictitious capital they could create.”*

A law was passed in Rhode Island, in 1837, to restrict the loans and discounts of banks to a percentage of the capital “together with the amount of the sums deposited with or due from them, bearing interest.” For a bank with $50,000 capital, the percentage was 180; for larger banks the percentage was less, until for those having over $400,000 capital, it was 130. A bank of $50,000 capital was allowed circulation to the amount of seventy-five per cent. of the base sum; one of more than $400,000 capital only twenty per cent.

Upon the suspension, the Merchants’ Bank of Providence and the Rhode Island banks grouped around it fell heavily in debt to the Suffolk Bank. The president of the latter wrote to the Merchants’ Bank: “I hope you will take measures to induce the banks of your State to reduce their circulation to their means of redeeming as early as possible.” They did not comply, and in September, 1838, they were threatened with a return of their notes. In December a new arrangement was made, and the amount of over-draft allowed the Merchants’ Bank by the Suffolk was fixed at $50,000, “with the understanding that, if the banks of that State could not keep themselves in a condition to meet this limit, the Suffolk Bank would decline to receive their bills.”*

No bank failed in Connecticut in this period. Legislation was aimed against the indebtedness of directors, which was limited, in 1840, to one-third of the capital for the whole body of directors of any bank.

New York.—Before the suspension of 1837, some banks in Albany had adopted the custom of buying country bank notes at a small discount and sending them home. During the suspension, the city banks gave the country banks time for redemption, according to distance. After resumption, this ceased. A voluntary arrangement was then made by which time was given to the country banks to redeem in New York funds and take home their issues at their own risk and expense, the city banks receiving the country notes at one-half or three-quarters of one per cent. discount. When the crisis came on in the fall of 1839, the city banks could not spare capital for this purpose, and the country notes depreciated. The country banks then arranged an exchange of notes at Albany; but the arrangement was imperfect and unsatisfactory because it did not include New York City. The Bank Commissioners, in their report of 1840, after reciting this history, go on to discuss plans for redeeming the notes at New York, in order to avoid exchange and produce a uniform currency. They say: “The vice of banking here, particularly in the country, has always been a tendency to investments in accommodation paper, and too great a reliance upon credit in carrying on the active operations of trade; and many able and experienced financiers consider it a fault of the system that its organization is such as to bring the borrower of money directly in contact with the bank which issues the currency. That its effect is to increase or diminish the amount of currency according to the supposed rather than the real wants of business, and that its tendency is to create a reciprocal stimulus between trade and banking, there can be no doubt.”

The better writers on banking and currency in this country from 1820 to 1840 moved toward a concurrent opinion similar to that of Jones-Lloyd in England, although proceeding as much from considerations of profitable banking as from care for the interests of the note-holder, that it was expedient to separate issue banking from discount and deposit banking.

The general banking law of New York, of 1838, must be regarded as an outcome of this train of reasoning and reflection on the operation of banks. As early as 1831, a proposition of the same character was proposed in Maryland by C. F. Mayer.*

The Governor of New York outlined the plan and recommended it in his message of 1837. He thought that it would be necessary to pass the act by a vote of two-thirds of all the members of both Houses, because it might be construed as an act of incorporation for all the associations which might subsequently be formed under it. It passed the Assembly, 86 to 29, the democrats generally in the negative. The vote in the Senate was 20 to 8. A resolution declaring that two-thirds were necessary was defeated in the Senate.† The features of the law, which bore date April 18, 1838, are as follows: The Comptroller is to cause circulating notes in the similitude of bank notes to be engraved and printed, countersigned, numbered, and registered. Any association of persons for the purpose of banking who transfer to the Comptroller bonds of the United States, or of New York, or of such other States as he shall approve, shall receive from him an equal amount, in blank bank notes. The stocks are all to be or to be made equal to the New York five per cent. bonds. The bank is to execute and sign and may then circulate the notes. If any such bank fails to redeem any of the notes issued by it in lawful money of the United States upon a lawful demand, the note may be protested and the protest filed in the office of the Comptroller. The bank is then given ten days to pay. After that the Comptroller is to give notice in the State paper that all the notes of that bank will be redeemed by him out of the trust funds in his hands for that purpose. Interest on the bonds deposited is to be drawn by the banks owning them unless the bonds deposited become, in the opinion of the Comptroller, inadequate security for its notes, in which case it accumulates to make the security good. The banks may surrender their notes and take up the bonds. Instead of bonds, as above, bonds and mortgages upon real estate in the State, bearing at least six per cent. interest, payable annually or semi-annually, may be deposited for one-half of the total amount deposited by any bank. The mortgages must be upon unincumbered lands, independent of any buildings thereon, and worth double the amount of the mortgage. Nothing in the act is to be construed as a guarantee by the State of the notes beyond the application of the securities to their redemption. The banks are to pay the expenses incurred in executing this act. No bank may be formed under it with a capital of less than $100,000. Each bank shall make semi-annual reports to the Comptroller of its affairs under separate heads which are prescribed, and shall be liable to every note-holder to whom it refuses redemption at the rate of fourteen per cent. per annum from the time of refusal until the time of payment, by way of interest, and damages besides. No note for less than $1,000 shall be issued by any bank organized under this law, payable at any other place than its banking house. “No association of persons authorized to carry on the business of banking under this act shall at any time, for the space of twenty days, have on hand at their place of business less than twelve and a-half per cent. in specie on the amount of the bills or notes in circulation as money.”

As soon as the free banking law was passed the chance to carry on banking was seized with avidity. Before the end of 1839, one hundred and thirty-four certificates of the formation of associations were filed. Seventy of the associations commenced business. Also certificates of three private individual banks were filed. $6 millions of circulation had been issued on bonds to the value of $7.1 millions. “During the influx of this new medium, in the absence of organization and concert among the new banks, it is not surprising that the emission should become somewhat depreciated, more especially when it is considered how extremely difficult it has been to preserve the safety fund circulation of the country banks from a like depreciation, notwithstanding an organization of years’ standing and the great experience of the officers of these institutions, and the privilege of availing themselves to some extent of the aid of the State by receiving its deposits.”*

When this banking law went into operation, the mortgages which were deposited as security were transferred in many cases to the associations by individuals, who insisted as a condition, being in necessity, that accommodation loans should be made to them at once on long time for nearly or quite all the value of the security deposited.†

Comptroller Fillmore declared, in 1848, that the act of 1838 was passed because bank charters had been treated as the spoils of party, which practice had become so shameless and corrupt that it could no longer be endured.

The question whether a two-thirds majority had been requisite to pass this law came before the Court of Appeals in 1845, and was decided adversely to the constitutionality of the law, and the corporations created under it were declared null;‡ but this decision was reversed a year later.§ In a similar case, under a law of 1837, in Michigan, subject to a similar constitutional restriction, the decision was that the law was invalid for lack of a two-thirds vote.∥

Among the banking curiosities of this period may be mentioned the following: In May, 1837, four persons were arrested in New York City, on suspicion of being counterfeiters. They were at work in an attic, printing notes of the Ottawa Bank of Montreal. They were indignant at their arrest, claiming to be a true bank. One was president, another cashier, etc. They had $20,000 in notes and $800 in silver, and explained that it was cheaper to get their notes printed in New York. They were discharged because they had violated no law.*

Virginia was one of the States in which an extra session of the Legislature was called as soon as the suspension of specie payments took place. A stay law was adopted June 22, 1837, providing for a stay unless bank notes were received in payment. By an act of April 2, 1838, it was extended until April 1, 1839, and later there were further extensions until February 1, 1841. June 24, 1837, an act was passed for the relief of the banks, suspending all the penalties of non-redemption.†

A characteristic of the Virginia legislation was, that the laws for the relief of debtors and of the banks were repeatedly extended for short periods, as if they were enacted reluctantly and with a hope that the necessity for them would soon pass away.

The relief act was continued by an act of February 20th following, and later in the session still further extended until the end of the session; and the act to increase the capitals of the three old banks was suspended until April 1, 1839. April 2, 1838, the penalties on suspension were further suspended and the banks were allowed to issue one’s and two’s to the amount of four per cent. on their capital until April 1, 1839. These small notes, however, must be redeemed under a penalty of twenty-five per cent. damages. On the following day, severe penalties were imposed on savings banks, firms, and individuals for issuing notes under $5, all of which must be withdrawn.

The State subscribed to 4,500 shares of the Exchange Bank, March 19, 1839, by ordering the Treasurer to borrow the required amount on certificates of indebtedness having twenty years to run. Another loan was also to be contracted to pay the subscription to the Northwestern Bank. April 4, 1839, the Kenawha Bank was chartered. On the same day the banks were further relieved from forfeitures and penalties for suspension, and time was given to the Farmers’ Bank, the Valley Bank, and the Bank of Virginia to accept the acts increasing their capital, and this act. All the old stipulations are rehearsed as if nothing had been learned in two years. April 10th, the limitations on the debts of banks to twice their capital were suspended until January 1, 1840.

At the next session, December 11th, all the penalties of suspension were further postponed until March 1st, but as a condition the power was reserved to the State to modify existing charters. Other acts followed during the winter, so that at last the penalties and the prohibition of small notes stood postponed until April 1, 1841.

Banks of the State and Bank Wrecking.—When a State borrows capital and lends it to a bank, the taxpayers incur the risks and obligations of stockholders. The interests of stockholders are antagonistic to those both of depositors and borrowers, while the interests of the two latter may be antagonistic to each other. In strong, sound, and well-conducted banks these interests come to harmony, and illustrate well the true relation between social antagonisms and social harmonies. It is the interest of depositors that the bank shall be as strong as possible, even to a degree which would make it impossible that it should gain anything. It is the interest of the stockholders to make the borrowers pay as much as possible and to pay to the depositors nothing. It is the interest of the borrowers that the bank should fail, since they could then buy its obligations at a discount and pay their own debts to the bank with them. The debtor interest, so soon as the high and correct relations of sound banking and currency operations are abandoned, is a bank-wrecking, currency-debasing interest. It is these facts which make the play of interests through and around a bank so interesting. The strongest currents of interest there are in the economic organization run through it. The financial machinery, of which banks are one of the most important parts, keeps all the parts of the industrial organization in due correlation, discipline, and order. This is why the coercion of the financial system produces, upon occasion, so much irritation; it is also the reason why the banks, if they fail of their function, do so much mischief.

The great Banks of the States illustrate the truth of all these remarks. The debtors and taxpayers were at war. The latter were generally opposed to the bank schemes when they were first proposed, but were sometimes deluded into acquiescence by the hope of profits which would do away with the necessity for taxation. In time, when a great body of debtors had been formed around a bank, and when a large group of politician bankers had come into existence, the Bank of the State became a formidable political power. Two factions were then formed. One wanted to make the bank profitable. The other wanted to use it for “higher” purposes; to “develop resources,” to “accommodate,” to “give equal facilities,” etc. This latter series of hollow and high sounding phrases meant that it was to be sacrificed to its debtors. When crises arose, “relief” was called for, which always meant wrecking the bank that the debtors might be relieved from their obligations to it. Politicians sought popularity by bringing about that result. All these measures involved oppression to the taxpayers, but taxpayers are the one group who can be oppressed without exciting sympathy and almost with impunity. When the whole folly was over, they still had the bonds to pay, for the bonds were extant somewhere bearing the seal of the State.

If the taxes were repealed, and the State tried to live on the bank, perhaps at the same time with all the preceding—loading it up with payments for interest on the debt, for “education,” for “internal improvements,” etc.—the ruin was manifolded and hastened. As the president of the Bank of Tennessee set forth to the Legislature in 1845, they could not expect to live on the bank and plunder it too.

All the Bank of the State schemes rested upon a notion of the “credit” of the State as a metaphysical entity which could be called upon to do the work of capital, although capital cannot be produced without labor and frugality. This introduction into finance of the political glamour which surrounds the “State,” and which has done so much mischief in politics, was a multiplication of evils. That there may be “psychological elements” in finance is true enough, but it is well to analyze them rigorously when recognizing their existence. Confidence operations and swindles of all kinds would have comparatively little chance, if it were not for the psychological element, and it does not appear that that element has any place except amongst the dangerous delusions. As to the State and its credit we can define it rigorously. The State can tax its subjects, and can deliver the product to those who have acquired a right to it under such contract as may be made. The State can promise to do this, may be believed, and acts may follow which are beneficial according to the plan which was the motive of the State’s promise. This is the nature and limit of the credit of the State. The Bank of the State schemes assumed that the prestige of the “State” could be coined into food and clothes; that the imposing attributes of political power could do the work of an actual development of labor into product; and that, if the State talked about what it would do, never meaning to do it, all the same results could be obtained as if it did it. In politics we are very familiar with the notion that “resolutions” are effective social and political forces. They are used to make one set of people believe that they are about to have their wishes gratified while, at the same time, those who seem to be committed by the resolutions to some irksome responsibility are reassured by being told that they will not really have to do anything. Of course somebody is duped. The Banks of the States were attempts to transfer this method of operation to finance, but when capital is at stake the fact that somebody has been duped means that a vulgar crime has been committed. The most far-reaching vice in all these bank schemes was that they led the people to believe that the methods of a “boom” could be successfully employed in the place of the methods of thrift, and their most far-reaching corruption and demoralization lay in the fact that, in practice, they only offered a chance for a favored clique to win at the expense of the community.

To return for a moment to the antagonisms of the groups which have relations through a bank, it should be added that in stock banks which were formed with stock notes and were run for paper-mongering, the stockholder-debtors were the worst bank-wreckers of all. When they had used their bank to get possession of capital, often the best thing they could do with it was to ruin it. The greater the depreciation of its notes the more lucrative the traffic in those notes for the bank itself. When the notes had been bought up and the debts to the bank paid with them, the operation had raised their value. They were then put out again at a distance and the operation repeated. When the reputation of the bank was utterly lost, the stockholders paid their debts to it with their stock at par, slipped out, founded another bank and began again.

Georgia.—The Marine and Fire Insurance Bank was forbidden, December 23, 1837, any longer to do banking unless it should renounce insurance, and agree to pay the note-holders ten per cent. damages in case of non-redemption. The next day the Central Bank was ordered to borrow for the State $725,000 with which to meet the expenses of 1837. December 26th, the Bank of Brunswick was allowed to increase its capital to any amount which it should expend on the Brunswick and Florida railroad, not to exceed $3 millions. At the same time the Central Bank was authorized to borrow $150,000, “to carry out their distributions to the several counties not yet provided for.”

It was also enacted that no bank should issue any note payable otherwise than in gold or silver, upon which the Supreme Court of the State afterwards decided that a certificate of deposit payable “in current funds” was unlawful.*

A free banking act, like that of New York, was enacted December 26, 1838. December 28th, the Central Bank was directed to extend the loan contracted by it the year before, or to borrow $600,000 for State expenses. Its charter was extended until 1850.

The charter of the Central Bank limited its issue to the amount of its capital, but an act of December 21, 1839, authorized it to issue twice the amount of its capital. It need not pay specie to the agent of any suspended bank. The stocks of the State in the Bank of Augusta. Planters’ Bank, Bank of the State of Georgia, and Darien Bank were ordered to be sold for not less than par and the proceeds to be put in the capital of this bank. An appropriation act of the same day ordered this bank to put to the credit of the Treasurer enough to enable him to meet the warrants on him, “charging the same to the capital stock of said bank,” and to furnish him with its own notes or current notes with which he might pay the current demands on him. December 23d, no bank officer of a suspended bank might sell any bill of exchange payable within the United States after March 1, 1840, for more than two per cent. premium, under penalty of imprisonment for between one and four years. This was repealed a year later. Banks were also ordered to report the indebtedness of directors and stockholders.

The Central Bank was ordered, December 19, 1840, to pay the scrip issued by the Western and Arlington railroad, except such as was made payable in State bonds. December 18th, all the banks were ordered to resume January 1, 1841, or their charters would be annulled. Also, if they failed to do so, their notes might no longer be received by the State Treasurer or the Central Bank, the notes of the latter alone being receivable for dues to the State and to itself. This act was held to have condoned suspension and saved the charters.†

Florida.—In the Constitution, which was framed in 1838, it was provided that no person should be eligible to the office of Governor, Senator or Representative while he was an officer of a bank, or for a year after. No bank charter or other act of incorporation was to be granted for more than twenty years, and no bank charter ever to be extended. An article was inserted limiting at length the business which a bank might do. No bank was to have a capital of less than $100,000, consisting of specie actually paid in, nor borrow any addition to its capital, nor loan on stock, nor owe more than double its capital stock; nor make a note or security of any kind for a smaller sum than $5, which restriction the Legislature might raise to $20; nor pay more than ten per cent. dividends; any greater profits to be retained as a surplus; the stockholders were to be individually liable, upon dissolution, expiration, or forfeiture of the charter; banks were to be inspected by a Commissioner at least once a year; and to make quarterly returns of their condition to the Governor. “The General Assembly shall not pledge the faith and credit of the State to raise funds in aid of any corporation whatsoever.”

The District Attorneys were authorized and directed, March 4, 1839, to secure a forfeiture of banking charters, where forfeiture had been incurred, by non-user or otherwise.

The people of Florida now repented of their bank enterprises. The next thing to do was to throw the loss and blame on somebody else, and they set about it with a naïveté equalled only by that with which they had plunged into banking.

The Committee on the Judiciary, in 1840, raised the question of the validity of all the acts of incorporation which had been enacted by the Territorial Legislature. It gave a history of the legal question on this point. Kent, Binney, Peter Jay, and Webster had affirmed that the Territorial Legislature had such power.* The banks had already obtained from the Territorial government and issued $3.9 millions guaranteed bonds, and they claimed to be entitled of right to $5.6 millions more. The total population of the Territory in 1830 was 34,730; in 1840, 54,477.

The charter of the Union Bank, in 1833, as first passed, contained a clause that it should not be in force until approved by Congress. The Governor vetoed it until that provision was stricken out. This Committee of 1840 turn the matter in the other light, and claim that the people in the Territory are entitled to the protection of Congress. They propose resolutions that the Territory has no power to charter banks or to issue bonds to or for them, and that the pledge of the faith of the Territory is null and void. They refer very guardedly to repudiation, which had not yet been openly discussed anywhere, although their argument led up to it; but they state their purpose to be to prevent the issue of any more bonds to the banks.†

The Governor, in his message of 1840, uttered the earliest and most bare-faced defense of repudiation to be found in the literature of that subject. “So far from there being bad faith or a want of honor or honesty in repudiating these bonds, it is entirely consistent with good faith thus to deal with them. They were obtained through a legislation partial and unjust. What right had a few hundred stockholders to make the whole people tributary to their schemes of moneyed aggrandizement? Why should the holders of these instruments be longer deceived? They possess bonds which they never can collect from the Territory. It is proper they should distinctly understand this truth. It is to their interest to take the security which the bonds and mortgages of individuals afford and relinquish ‘the moonshine’ in the shape of Territorial faith, which when they attempt to touch, will elude the grasp.”

Default was made on the interest of the bonds which had been issued to the Bank of Pensacola, in January and July, 1840. The agent of the Bank of the United States in London paid the amount, $30,000, to save, as he said, the honor of the Territory. The United States Bank clique formed the Pensacola Association which took these bonds. They sold them, agreeing to pay the interest in London. Governor Call, in his message of 1842, described this transaction sarcastically, saying that Jaudon was one of those who were responsible on the endorsement, and hence that he was guarding his own honor, not that of the Territory. He went on to say that the bank, instead of building a railroad, as it was bound to do in consideration of the bonds, had removed and sold the materials for the railroad to the value of nearly $275,000. He ended by proposing that another bank should be founded on a specie basis.

The Union Bank petitioned the Legislature, in 1841, for permission to sell below par 704 territorial bonds which it held. The Committee on Banks reported favorably, connecting the concession with proposals for reorganizing the bank so as to separate the Loan Office from the bank. The Legislature peremptorily refused the petition.

The Bank of Pensacola became extinct in 1842. Its paper ceased to circulate; its assets had either been squandered or removed from Florida. In the same year the Union Bank ceased to pay the interest on the bonds issued to it. Its circulation had been reduced to $92,000; but was at two or three for one in specie. The Life and Trust Company’s notes were still worse, but there were not many of them. It returned the one hundred and fifty bonds which it held. The Governor hoped that it would retire all the bonds issued for it.

Alabama.—The Bank of the State and its branches were authorized, June 22, 1837, to issue notes “of less denomination than $5.” These banks were not to issue any notes under $5 nor receive any such, except their own,—that is, none from out of the State. June 30th, an act was passed with a preamble: “Whereas the Bank of the State of Alabama and its several branches have recently suspended specie payments, and whereas it is believed that said suspension has been produced by causes beyond the control of the president and directors of said banks in the exercise of ordinary prudence and caution;”—the suspension was therefore approved and sanctioned and the laws against it were suspended. All debts to the banks were divided into three installments, twenty-five per cent. to be paid between March and June of 1838, thirty-seven and a-half per cent. between March and June of 1839, and the remainder between March and June, 1840, with interest at eight per cent.; but every debtor who has $2,000 so extended shall have no accommodation until he pays, and he who owes less than $2,000 may apply only for the difference between his debt and $2,000 in the way of further loan. The banks are to require new security. Debts on foreign bills of exchange are excluded. The Bank of Mobile and the Planters and Merchants’ Bank are allowed to suspend until June 15, 1840, unless the State Bank resumes sooner, and provided that they accept this act and the other acts of this session; otherwise, forfeiture. The Bank of Mobile, when it resumes, must withdraw all notes under $5. All the banks in the State are required to buy, before July 1, 1838, specie to the amount of one-eighth of the capital; within the next year, one-eighth more; within the next year one-fifth; and within the fourth year one-quarter. This much specie they must have on hand and keep it. The Governor, Treasurer, Comptroller, and President of the Bank of the State are directed to issue six per cent. State bonds at two, four, and six years, in equal divisions, to the amount of $5 millions; $1 million to be deposited in the State Bank at Tuscaloosa, and $1 million in each of the branches, to be sold when it may be done at par, in aid of the capital of the banks, to the extent of one-half the amount for specie; the other half to be deposited in banks in New York. The note issues are to be kept up to the amount of the capital and these bonds together. In the apportionment of loans regard is to be had to the population of the counties. The banks are to discount “transaction notes” in payment of debts to the banks until March 1st, at seven per cent., not more than $2,000 to one borrower, with two good sureties, payable in one, two, and three years. The annual payments on these debts are to go to cancel the short bonds; the faith and credit of the State are pledged for the increased circulation. Every mortgage under this act is to contain a power of sale, and a default on one installment makes the whole due.

This act entailed more trouble and misery on the State than any other that was passed before the civil war. It was called the “Extension Law.”

The Commissioners to examine the Bank of the State, in 1837, reported that they could not balance the account of bills of exchange, the vouchers being in confusion, part of them in old receipt books of the bank attorneys since 1826. They could not find out the amount of bad debts, but thought it larger than had been reported; they had not had time to examine the account of notes discounted, but had no doubt that it was in the same condition as that of the bills of exchange. In the following year the branches were quarreling with each other, being almost entirely independent of each other, and not controlled by any central authority.

The Mobile branch was authorized, December 23, 1837, to increase its issues one-fourth more than was allowed by the act legalizing suspension; the increase to be used in advances on cotton at not more than three-fourths of its value.* On the same day the State officers were authorized to issue State bonds for $2.5 millions, in sterling, at five per cent., for twenty years, to be sold for specie; the proceeds to be deposited in the Bank of the State and branches, in equal shares, in aid of the capital. On the same day, also, a limit was set to the indebtedness which the president or any director might be under to the branch of which he was an officer. Any one who owed any branch $35,000 was ineligible as a director, and an oath must be taken by every candidate. Three Commissioners were to be appointed, in January, 1838, and annually thereafter to visit the Bank of the State and its branches twice a year. The president of each branch was to make monthly reports to the Comptroller, who was to publish them. The provision for Commissioners was repealed at the next session.

The report from Mobile, September 28, 1838, was as follows: “The State Bank and its branches, it is said, are to have a meeting on the 1st October, and if the Tuscaloosa Bank can be made to give up her absurd plan of advancing on cotton,† and come into the measure of resumption, but little notice will be taken of the two banks in the northern part of the State. We think everything looks fair for resumption, and on Monday next we shall get clear of shinplasters.” “If the thing [resumption] is practicable, why are they [the other banks] to be deterred from the step by the injurious and mischievous speculations into which the Tuscaloosa branch chooses to enter? Are the people forever to be oppressed and cursed with a depreciated paper, to enable bank directors and their favorites to job in cotton and fatten on bank agencies?”‡

“Stripped of all disguise, we ask, what is the proposition made to a sensible public? It is that the people at large shall continue to suffer the dishonor, the embarrassments and positive losses of a depreciated currency, in order that the debtors to the banks may make use of that currency to pay their debts. It is to tax the solvent, and enact a stop-law in favor of the embarrassed and insolvent—it is gross favoritism—to those to whose imprudences the State is indebted for its afflictions, at the expense of rank injustice to those who have not been seduced into engagements totally beyond their power to meet.”§

It was required, February 1, 1839, that the cashiers of the Bank of the State and branches should report to each Legislature the indebtedness of the president, directors, and members of the Legislature, to each bank, and also a list of debtors’ endorsers, and amounts of debt, by counties. These laws may be taken as evidence that these banks were in the hands of cliques consisting of their officers and leading members of the Legislature.

The banks of the State resumed January 7, 1839, but the Mobile branch was forced to suspend again February 2d, having paid out $217,987 in specie, besides checks on New York and New Orleans for half a million.* February 2d, it was enacted that the Bank of the State and branches should take for debts all bank and post-notes which had been issued by them, and they were forbidden to take interest in advance on loans under the act legalizing suspension. They were also ordered to require, on payment of the installments of the extended debt, only such amounts as the condition of the bank might compel them to call for. Those debtors who have not paid the first installment of the extended debt are allowed still to do so, and to give notes with security for the other installments to be paid as provided in the extension law. A Board of Control to govern the Bank of the State and branches was also constituted the same day, to consist of the Governor and the presidents of the bank and branches. It was now provided further that paper not having more than one hundred and twenty days to run might be discounted for persons who had taken the extension; but the proceeds were to be applied on the extended debt. The banks were directed to settle with their collection attorneys three times per year. Any president or director who was under protest for ten days was to vacate his place. The president and directors were made exempt from “working on the roads” and from jury duty. No corporation might tax the Bank of the State or its branches. On the same day it was further enacted that any one who issued currency without authority, or signed or passed the same, should be subject to a fine of not less than $100 nor more than $500. Any partner or stockholder was made liable to the note-holder. Passing a note was construed as endorsing it.

The Commissioners to examine the Mobile Branch, in 1839, approve heartily of the policy of the New Board in abandoning the advances on cotton.† They are most concerned about the possibility of collecting the loans. “The amount of bills under protest, on the 19th November, 1838, was $990,330.04. On the 18th November, 1839, they amounted to $3,345,374.88. We know not whether this extraordinary increase has been produced by the necessities of the times, or by the hope of extraordinary indulgence from the Legislature. So many individuals have a deep interest in preventing the collection of this debt, that the utmost caution, virtue, and firmness are now required in the selection of the agents to whom this great trust shall be committed—whether they be the ordinary Board of Directors, or extraordinary commissioners chosen for this purpose.”

In 1839 an attempt was made to prevent the United States Bank of Pennsylvania from doing business in Alabama. This raised the question of the right of a corporation chartered in one State to do business in another. That right, with some limitations as to banks, was affirmed in United States Bank versus Primrose and the other cases decided with it.*

Mississippi.—The “Free Trader” said, July, 1838: “Against the banking institutions of Mississippi we find the voice of their former warmest and most devoted friends becoming loud, indignant, and denunciatory. Every day only increases public imprecations against their unscrupulous swindling.” “They [the banks of the State] must raise the value of their paper, and they must do it soon. There is no time to be lost.” “In Lauderdale County, on the night preceding the time for the opening of the spring term of the Circuit, the court-house was burned down. The Judge, unwilling to be thus baffled, determined to hold the court in some other building, but the Sheriff resigned. The duties then devolved on the Coroner, but he too resigned; and the Judge was actually obliged to go home and leave the litigants to take care of themselves.”†

The Brandon Bank determined, April 10, 1838, to redeem its circulation with seventy-day post-notes payable in Philadelphia.‡ From the report of the Bank Commissioners in 1838, we get the following exposition of the proceedings and status of the Brandon Bank. In the statement of this bank the individual deposits appear under the resources to the amount of over $90,000. The reason was because persons who delivered cotton to the bank would not give notes when the amount received was less than the value of the cotton. The amounts thus appeared as over-drafts. “Their agencies exercised all the powers of a bank of discount, thus giving a locomotive character or the principle of ubiquity to the Brandon Bank.”

The bank intervened to give credit to planters who had put their cotton in its hands so that they could buy provisions. The Commissioners reckoned its profits for the year at fifty-one per cent. of its capital. If it is allowed to buy its own depreciated paper they will be much greater. “The mode by which such enormous profits are realized without other capital is very simple. A charter is first obtained from the Legislature. A small portion of stock is to be paid in before the bank goes into operation. A few honest planters desirous of promoting the improvement of the country, which the bank promises, take stock in good faith and pay it up in bona fide capital. Those, however, who are experienced in these matters pay up as little as possible, but as the latter are financiers they are elected to manage the bank. They soon discount paper for themselves and other stockholders of financial abilities. With this they buy more property to secure more stock, to get more discounts, to buy more property, to secure more stock, etc., etc., and finally they are able to write up a very respectable capital upon which they are permitted to issue double the amount. * * * So long as a few men can draw a profit of more than fifty per cent. from the labor of the country for merely writing their names on a slip of paper, promising to pay their own bank any given amount, it is natural that they should endeavor to protract their harvest. They could not be expected to know any limits but those of human gullibility and endurance. * * * The history of civilization affords no evidence of any device so simple and so efficient in reducing a country to vassalage as these principles of banking.”

“The practice pursued by the banks in advancing $60 a bale on cotton or $40 on the present and $20 on the coming crop is the principal cause of the great depreciation of our bank paper. Every dollar beyond the real price of the cotton was surplus and may be fairly adopted as the standard to measure the loss sustained by the country in the depreciation of the circulating medium. The banks made their discounts and the speculators who borrowed from them were enabled to change their creditors and protract the payment of their debts by the operation; but as soon as the paper passed into the hands of the community it depreciated, being inconvertible; the $60 would not pay for more pork or other necessary articles of consumption than the real value of the cotton would have purchased. The surplus circulation, therefore, was a total loss to the community. * * * No State in the Union was more deeply injured by an extended currency than Mississippi.” The depreciation doubles the cost of production without increasing the value of the cotton which must be exported. The ten directors of the bank have borrowed from it nearly $600,000; six of them have mutually endorsed for each other, so that the total liabilities as endorsers are over $2,600,000.

In November, a convention of the banks of Mississippi was held to agree upon a time for resumption; but they adjourned without agreeing.

The Commissioners to sell the Union Bank bonds, in 1838, were ordered in their commission not to sell them for less than par in current money of the United States. A select committee of the Legislature which reported on them in 1842 said that these Commissioners proposed to Biddle to make the bonds payable in London at four shillings and sixpence, although they also say that Biddle made this an indispensable condition. He agreed to pay $5 millions, lawful money of the United States, in five equal installments of $1 million each; the first four payments to be made in New Orleans and the last payment in Natchez, in July, 1839. It was agreed that the bonds should bear interest from their date, but Biddle was not to pay the accrued interest. His contract was guaranteed by the United States Bank, whose charter did not specify, amongst the things which it might do, the purchase of State stocks. The Committee of 1842 maintain that par means face and accrued interest. Biddle actually paid $5 millions; $1 million in specie; $150,000 in notes of the Merchants’ Bank of New Orleans; and the rest in exchange on New Orleans, on which the bank realized a premium.

In his message at the opening of the Legislature, January, 1839, Governor McNutt complained of the behavior of the Planters’ Bank and the Union Bank, which had refused to allow themselves to be examined by the Bank Commissioners, on the ground that the latter were not judicial officers; also because the Union Bank had issued depreciated post-notes whereby the borrowers had been forced to pay at the rate of twenty-two per cent. per annum.

In view of the complaints that were made that the Bank of the United States was not in due submission to the federal authorities, it is interesting to note the behavior of the State banks to the State authorities. The banks of the States, in which the State owned the whole or a large part of the capital, were the most recalcitrant and defiant; so that it seemed to be a rule that the nearer a bank was to the State authorities, the less the State was able to control it. The Planters’ Bank received the State deposits in a better currency and bought Brandon notes with which it paid the State creditors.* The banks of Mississippi generally responded to the Bank Commissioners in impudent terms.†

The following is from the report of the Bank Commissioners, January, 1839: “This company [Bank of Vicksburg] purchased pork in Cincinnati and Louisville at $13 to $14 per barrel, and sold it in Vicksburg at $28 to $32, and in New Orleans at $27 per barrel. The price of pork was raised in Cincinnati and Louisville, in less than two weeks, from $13.50 to $17 per barrel. These purchases were made with the date checks, which gave the company ample time to realize on the sale of the produce, and meet the checks without the investment of a single dollar of actual capital, of which they possess, bona fide but $120; the $100,000 [shown as capital] having long since been returned to New Orleans, where it belonged.”

This State now entered on the same course which we have noticed in some of the others. It began to use up so much assets as it possessed from its earlier operations. By a law of February 15, 1839, the 20,000 shares owned by the State in the Planters’ Bank were transferred to the Mississippi Railroad Company as subscription for its stock. The Mississippi Railroad Company was incorporated to build certain railroads. It built about twenty or twenty-five miles and then failed. The net returns from the railroad were $5,000 or $6,000.‡

A special examiner made the following report in December, 1839: “Nothing can arrest the Agricultural Bank in its ruinous course but the prompt interference of legislative power. It has existed in continual disregard of the law, as exemplified in its traffic in cotton, in its sale of post-notes, and in paying out Brandon Bank paper as money for notes discounted at its counter, when the said paper was at thirty-five per cent. discount. To terminate such gigantic frauds on the public, and to compel the bank to do equal justice to its debtors and creditors, it ought to be wound up and its charter abolished.”

The message of Governor McNutt, January, 1840, was chiefly about the Agricultural Bank and the Planters’ Bank. After showing what a bloated and rotten concern the former was, he said that both were indebted to the United States and were under bonds to pay at a set term. The Agricultural Bank had refused to answer the questions put by the special agent who was appointed to investigate it. As the Governor said, the bank used two rules at its convenience—what the charter did not forbid and what it did not impose on them. The United States District Attorney being instructed from Washington to examine the security which these banks offered, was apparently not satisfied. He obtained as collateral a large amount of their bills receivable. McNutt was afraid that he would put the bonds in suit in the federal court, and thus escape responsibility to the State institutions. He thought that the remonstrance of a sovereign State would not be unheeded, and he proposed to the Legislature to memorialize the federal government to remove the District Attorney. The suits were postponed by the intervention of Senator Walker.

In the references in this message of the Governor to the Union Bank there is as yet no repudiation. The same may be said of the report of a legislative committee at this session, although complaint was made of the terms on which the bonds had been negotiated. The committee stated that the losses of the Union Bank would be immense, and it was already evident that the State would have to pay the principal and interest of the bonds. Their argument is all directed to the point that the rest of the bonds should be withheld from the bank. They attributed the bad management of the Union Bank to the eagerness to provide “relief.” “When a community, by speculation, over-trading, and inflated prices, has become deeply involved, greatly increased banking facilities only increase the violence and malignity of the disease.”

Louisiana.—A committee of the Legislature made a report, March 14, 1838, from which it appears that twelve directors of the Gas Light Bank owed to it, December 23, 1837, $1.4 millions, as drawers, and nearly $400,000 as endorsers. Hermann, Briggs & Co. stand first on the list, debtors for a half million. The committee find that a large part of this indebtedness was for “kites or race-horses,” and that exchange operations to a large amount had been agreed to by the president, in which he was himself interested, when no one but the cashier and himself were present. The bank owed the Bank of the United States $2 millions, payable in one and two years.*

A statement of the condition of the sixteen banks of Louisiana, December 23, 1837, showed that they held undivided profits, $6.2 millions; protested paper on hand, $2.8 millions; besides $1 million held for account of the Bank of the United States. The total capital was $30.9 millions; the deposits, $7.4 millions; the circulation, $7.5 millions; the specie, $2.7 millions.†

The banks of Louisiana resumed about January 1, 1839. A healing act for the suspension was passed March 14th. This was not to be construed as authorizing any future suspension; weekly balances were to be paid between the banks.

Tennessee.—The Southwestern Railroad Bank was chartered by Tennessee December 5, 1837. The fourth Bank of the State of Tennessee was chartered January 19, 1838; capital $5 millions; all the school fund, the federal surplus revenue, and all the credits of the State were to be put into its capital, and the remainder was to be raised by bonds on the faith of the State. That part of the federal surplus which had been deposited in the three existing banks was to be paid over within two years to this bank. Six per cent. thirty-year bonds were to be issued to the president of the bank; the bank was also to negotiate bonds issued for internal improvement companies. The Governor, with the confirmation of the Legislature, was to appoint twelve directors; term of the charter, 1868; dividends to go to schools; lowest note $5; after January 1, 1841, $10; notes receivable by the State; the head and three branches to be in Middle Tennessee, two branches in the west and two in the east; the bank to pay interest out of the State dividends on the State bonds issued to internal improvement companies, which are also provided for in this act. It is enacted in general that the State shall take half the stock in any such companies which have been or may be incorporated. The president of the bank, in his report of 1839, said that there appeared to have been two motives for the establishment of the bank; one, to give relief, which required that its issues should be proportionately distributed over the State; the other, to provide a sound currency, assist commerce, education, and public works, by making large dividends. These purposes were somewhat antagonistic. The branches had been established with a view to the former purpose. Another president, in 1845, said that its profits had been sacrificed by the locations selected for its branches.

This bank apparently began under suspension June 27, 1838, for it was announced that its post-notes would be redeemed in specie as soon as other banks in the State should commence specie payments. On the 5th of December specie at Nashville was at twelve and thirteen premium.*

Its issues were pleaded against as bills of credit, but were held to be covered by Briscoe’s case.†

Ohio.—At the session of 1835-6, the United States Bank of Pennsylvania was forbidden to have any bank or banker as its agent in Ohio; the penalty on a bank which should act for it, $10,000, on a banker $1,000. It was made unlawful to circulate its notes; penalty $1,000, and any officer employed by the Bank was made subject to a penalty of $500. Action might be prosecuted by any citizen. This law was repealed January 26, 1838, but another law was passed February 9, 1839, making it unlawful for any bank or agent to act for that Bank or for any other bank, incorporated by any other State or by the United States. No foreign bank might establish an agency without the consent of the Legislature, and it was made unlawful to act as the agent to put the notes of such bank in circulation.

No State ever seemed to struggle so hard against unauthorized notes as Ohio. All unincorporated companies were forbidden, February 16, 1838, to issue notes without authorization. Any incorporated company which issued notes, not being authorized so to do, was to lose its charter. No individual, town, or city might issue notes; penalty, $50 for each offense. March 13th, the prohibition of small notes was repealed. Banks which would redeem them in specie might issue down to $1. The banks were required to resume by July 4, 1838, provided that the banks of New York, Philadelphia, and Baltimore should do so by that time; otherwise their notes would not be received by the State.

A convention of banks of the State was held April 30, 1838, for the purpose of equalizing the currency of the State by a system of mutual credits.*

All notes less than $3 were forbidden, February 9, 1939, after the following July 4th; also all under $5 after October 1st; the penalty for issuing or passing was $50 for each note, or an injunction might be obtained against the corporation. February 25, 1839, an attempt was made to establish a general law for the regulation of banks. Commissioners were appointed to visit. No bank was to owe, exclusive of its deposits, more than one and a-half times its paid-up capital, and shares paid for by stock notes were not to be considered paid-up. The circulation was never to exceed three times the specie; banks never to buy their own notes at a discount; twelve per cent. penalty for non-redemption; fine of $5 to $50 for refusal to endorse on a note the refusal to redeem it; the Commissioners to obtain a mandamus to the sheriff to close any bank which should not redeem for thirty days, and the Court to name three receivers to wind it up, the charter being annulled.

March 18th, another attempt was made to define more strictly unauthorized notes, so as to include all paper, no matter what its form, if it was intended to circulate as money.

The Auditor reported, December 3, 1839, that the Washington Social Library Company had commenced banking, declared a dividend, and asked the Auditor to draw for the State tax on it. The Granville Alexandrian Society had also taken the same step, the purpose being to win a recognition of their banking right. He had refused to draw for the tax and a quo warranto had been issued by the Supreme Court,

Gouge has the following story of an institution of this character. Some thirty years earlier a charter had been granted to a library company in Newtown, Hamilton County, Ohio, which company, after being in operation about ten years, sold its books by public auction and dissolved itself to all intents and purposes. In 1840, the shares were bought up by some eastern men on a pretext of establishing a manual labor school, but they began immediately to issue paper money. They have nothing with which to redeem these issues, “except the library, consisting of Harper’s family library, some old newspapers, and some rusty novels and tracts. The chief book in the collection is a copy of ‘Oliver Twist’ with engravings. It’s called the Bank of Hamilton County.”†

The report of the Bank Commissioners, January, 1840, showed that half the banking capital of the State was owned by non-residents; one-third of all the loans were to bank officers and directors as borrowers or endorsers. “The banks distrusted one another and the public distrusted them.” They had been warring on each other. Nine institutions are mentioned which have “illegal circulation;” one is the Orphans’ Institute. There are also a great many forged notes afloat and notes of Michigan banks payable in Illinois.

March 23, 1840, small notes were once more forbidden. Also it was forbidden to pass them except to redeem those now out; also it was forbidden to issue notes payable at a future day or elsewhere than at the place of issue. All notes were held payable on demand in specie at the place of issue. No broker might pay out illegal notes; no notes under $5 to pass if not issued by the banks of Ohio; no State officer was to receive or pay out notes under $5. The Bank Commissioners in their next report said that this law had greatly diminished the circulation of unauthorized notes.

Michigan.—The Farmers and Mechanics’ Bank was incorporated by the Territorial authority in 1829. A safety fund system was created. March 28, 1836.

A general banking law was passed March 15, 1837. Twelve freeholders of a county might form an association under certain conditions. The minimum capital was $50,000, of which $15,000 must be paid in before commencing. The allowed issue was $37,300. This law stimulated the formation of banking companies. In 1838, there were forty or fifty of them, for it appears that the number was not really known. It was a caricature of the New York system, and produced a swarm of small, swindling concerns. After the suspension, in 1837, the Legislature sanctioned the action of the banks in suspending, for one year, and a redemption law was passed for land sold on purchase-money mortgages, allowing the equity owner one year to redeem, with ten per cent. interest. The name “wildcat” banks is said to have originated in Michigan. Bank Commissioners were appointed, who made their first report April 6, 1838. In it we find the following: “On examination of the books of the Jackson County Bank, the following circumstances were exhibited: the names of all persons and corporations with whom accounts had been opened were written in pencil; the entries in ink. In a few minutes, therefore, the whole face of the business transactions of the bank could have at any time been entirely changed.” “The Commissioners proceeded to an examination of the specie of the [Jackson County] bank. Gold coin was exhibited loose in a drawer, which, being counted, amounted to the sum of $1,037,78; about $150 in loose silver was also counted. Beneath the counter of the bank, nine boxes were pointed out by the teller as containing $1,000 each. The teller selected one of these boxes and opened it; this was examined, and appeared to be a full box of American half dollars. One of the Commissioners then selected a box, which he opened, and found the same to contain a superficies only of silver, while the remaining portion consisted of lead and ten-penny nails. The Commissioner then proceeded to open the remaining seven boxes; they presented the same contents precisely, with a single exception, in which the substratum was window-glass broken into small pieces.” “On reference to the statement of the bank [of Jackson County], dated February 19, 1838, the third day previous to this examination it will appear that on that day the bank claimed, under the signatures of three of its directors, to be possessed of the sum of $20,000 in specie, independent of the certificate of deposit for $10,000.”

All the penalties of suspension were suspended, June 23, 1837, until May 16, 1838. The banks which availed themselves of this indulgence must come under the safety fund obligation, and submit to the visitation of the Bank Commissioner. December 30th, the number of Commissioners was increased to three, and they were to visit each bank at least once in three months.

Michigan money was reported in June, 1838, to consist of three kinds, red dog, wild cat, and catamount. “Of the best quality it is said that it takes five pecks to make a bushel.”*

The Bank of the State of Michigan was chartered April 2, 1839. It was imitated almost exactly from the Bank of the State of Indiana.† The difference in the history of the two shows how little the “plan” of a bank has to do with its success. December 30th following, the Bank Commissioners reported that this bank was under injunction and had been ordered to wind up. At that time all the banks in the State were broken.

Indiana.—The Bank of the State of Indiana suspended with the others in 1837. The Legislature at its next session declared by resolution that the suspension was “justifiable and necessary under the then existing circumstances, and that the approval thereof by the directors of the State Bank was properly given.” It was declared to be the duty of the bank to resume within thirty days after the resumption of the banks on the Atlantic coast, and with those of Ohio and Kentucky. The bank loaned to the State $286,751, the amount of the fourth installment of the federal surplus revenue. The State was then deep in expenditures for public works, which were all managed outside of the State treasury. The State Treasurer was alarmed at the growth of the debt; nevertheless, by an act of February 12, 1839, it was voted to contract a loan of $1.5 millions in that year, and $700,000 in each of the five following years, to increase the capital of the State Bank. This act only shows the mania of the moment. The State credit did not avail to contract the loan.

Inasmuch as this Bank of the State of Indiana is the only one of the great banks of the States which was successful, it is interesting to note any indications of the reason of its success. We note immediately that the Central Board exerted genuine and stringent discipline, and that their interests and feelings were not engaged in the banking business, because they had no bank to manage. In 1839, they issued peremptory orders to one of the branches to pay a sum due to the Treasury of the United States, and provided for the payment by the other branches, if the one in question should fail. They approved and allowed the dividend of each branch; inspected the branches and ordered their policy; gave or refused permission to take government deposits. They watched the tendency to accommodation paper and laid down banking rules.

The Bank of the State suspended a second time in the fall of 1839, with the exception of three of the branches. Its report for November, 1840, showed profits for the year of ten and a-half per cent. The president said: “There have been almost no difficulties in managing the bank, which have not arisen mainly from the purchase of stock by persons with the expectation of borrowing money on more favorable terms than could be allowed to others.”

Illinois.—As soon as the general bank suspension occurred, an extra session of the Legislature was called, at which all the acts against bank suspension were suspended until the end of the next session, but the banks were not to pay dividends nor sell specie nor increase the circulation beyond the paid-up capital; were to give monthly statements to the Governor, and to allow renewals to their debtors, ten per cent. being paid at each renewal.

Residents of Illinois, in June, 1838, owned $60,000 of the stock of the Bank of the State. The liabilities of these stockholders to it were about $900,000.*

The Bank of the State, having suspended again in 1839, was revived by an act of January 31, 1840, and the forfeiture of its charter was set aside, provided it would agree to the stipulations in the act of the extra session of 1837, authorizing suspension.

Arkansas.—The Governor, in 1846, said: “The financial history of the State exhibits a series of blunders.” A tax of one-fourth of one per cent. was levied by the first Legislature, 1836. It promised to produce more revenue than was wanted and the Governor hastened to call an extra session at which the levy was reduced to one-eighth, which did not, for ten years, give a revenue of $30,000. There was an annual deficit which was met by eating up the deposit of the federal surplus revenue. At that same called-session banks were planned to support the State and do away with taxation. The consumption of the federal surplus was a consumption of a part of the capital of the Bank of the State. The Governor also complained of the great amount of auditor’s warrants which had been issued during the first ten years of the State’s existence and which were at about fifty cents on the dollar.

The Constitution of 1836 provided that the Legislature might incorporate one Bank of the State, “which shall become the repository of the funds belonging to, or under the control of the State, and shall be required to loan them out throughout the State, and in each county, in proportion to representation. And they shall further have power to incorporate one other banking institution, calculated to aid and promote the great agricultural interests of the country; and the faith and credit of the State may be pledged to raise the funds necessary to carry into operation the two banks herein specified: Provided, Such security can be given by the individual stockholders as will guarantee the State against loss or injury.”

From this provision of the Constitution it is evident that the scheme of the banks was already in mind.

The report of the Committee of the Legislature, in 1836, on the proposition for the two banks, pointed to the example of the great Banks of the State in South Carolina, Georgia and Alabama; and spoke in general terms of the advantages of banking, with an issue of three for one on the capital. They said that the Bank of the State would gain not less than $50,000 per annum. Before it adjourned, the Legislature made plans to put the State in debt $3,040,000. Its population was about 90,000. It is one of the most astonishing facts in this marvelous period that communities like Arkansas, Illinois, Indiana, and Florida should have found anybody to lend to them, even if they were foolish enough to borrow. The best defense of themselves which they could make to their creditors afterwards was: We have all been crazy together.

The Real Estate Bank of Arkansas was incorporated October 26, 1836. It was on the model of the Union Bank of Louisiana, but its history was longer, fuller, and is better known to us than that of any other bank on that model. The capital was to consist of $2 millions, borrowed abroad by means of bonds of the State, and the stockholders were to subscribe $2.5 millions in mortgages, to be transferred to the State as its security. It was to begin with three branches, each to be independent. Each branch was to elect two of its directors, who, with the president of the branch and three members of the parent board, were to constitute the Central Board. They were to elect the president, hold all papers and records, receive the State bonds and negotiate them at not less than par, in current money; the bank to pay the principal and interest of them. Each stockholder was entitled to a credit equal to one-half his shares. All dues to the bank were to be arranged so as to run out twenty-two years from the date of the charter; non-stockholders might renew notes with mortgage, annually, for ten years; the incorporation was for twenty-five years, the last three years being allowed for liquidation. The bank was a preferred creditor, so that its mortgages are called privileged mortgages. All profits were to remain in the bank and accumulate until the State bonds were paid. Only at the end of twenty-two years could the surplus assets be divided amongst the stockholders. Borrowers paid to the bank eight per cent.

The fact that it was the State which organized this institution, and that it was called a bank, blinded the minds of its originators to the fact that it was a gigantic financial experiment, containing an enormous risk. When it failed, the mortgages for the stock and the mortgages for the loans, with the guarantee of the State to the bondholders, and of the stockholders to the State, were found to make an inextricable snarl. A Governor, in 1854, said: “It was never intended that the people should be taxed to pay the bonds or the interest on them.” This was naively true, but it implied that the loss, if the scheme did not succeed, was to be thrown on the purchasers of the State bonds. Fifteen hundred and thirty bonds were actually issued for the bank and five hundred more, a little later, for another branch. The latter issue was hypothecated with the North American Trust and Banking Company of New York for a loan, on which the actual amount received was $121,336. That bank failed and the collateral was sold, passing into the hands of Holford of London.

The number of acres mortgaged to the bank was 187,810, appraised at $3,380,772. Ten years later they were said to be worth about $2 millions. There were two hundred and eighty stockholders.

The Bank of the State of Arkansas was incorporated November 2, 1836; $1 million capital, to be raised by State loan; president and twelve directors to be elected by joint ballot of the Legislature; also a president and nine directors for each branch; lowest note, $5; never to issue more than three times the capital; to begin when $50,000 in coin paid in, and to establish a new branch for every $50,000 paid in; each branch to be independent in its business; the funds and revenues of the State to constitute the capital; trust funds might be placed in it for not less than a year and get the same dividend “as other stock belonging to said institution.” Not more than half, nor less than a quarter, of the means were to be used in the counties, in proportion to “representation,” in loans on real estate for five years. The number of bonds actually sold for this bank was 1,169.

The federal surplus revenue, which had been intended for the Bank of the State of Arkansas, was paid in drafts on the Agricultural Bank and the Planters’ Bank of Mississippi. After great difficulty, instead of $382,333, which was the State’s quota, the bank obtained only $286,757. The former amount was due to the United States in specie, but out of the amount which Arkansas obtained, only $91,167 was specie. The rest was in the notes of suspended banks in Ohio, Kentucky, Louisiana, and Mississippi. The bank put these notes afloat in Arkansas, and issued post-notes of its own. Of demand notes it issued only $8,310.

January 12, 1838, the directors of the Fayetteville branch resolved that as they received no compensation, the bank should lend them, on their notes at twelve months, $10,000 each, being the limit set in the charter. They were also to be allowed to renew their notes until all the debts should be called in. This branch was operating on a bare capital of $110,000, and these directors took $90,000 out of it. January 1, 1839, the bank was very strong and began to pay specie on its notes and post-notes; but each branch paid out the notes of others, keeping the circulation far away from the point of redemption. The Fayetteville branch suspended again October 31st.

The issues of this bank were assailed as bills of credit, but the State Supreme Court held* that, under Briscoe’s case, “by which in this case this Court is bound, whatever may be its opinion to the contrary, the notes issued by the Bank of the State of Arkansas are not bills of credit within the meaning of the federal Constitution, and that the act incorporating the bank is constitutional.” Referring to the cases of Craig and Briscoe, the Judge said: “Like Justice Story, we believe that the two cases stand on precisely the same ground and turn expressly on the same principle.”

The two banks suspended in the fall of 1839. This was done not from necessity but from policy. The immediate means of the Bank of the State were $469,949 and its immediate liabilities not over $400,000. It suspended in order to expand and inflate. In fact the banks lent out to the clique in control all the specie and real funds which they ever obtained, once for all, and then stopped. The bank at Little Rock resumed for a while October 1, 1840, to the great displeasure of the other branches. It had nearly twice as much specie as notes out. At the following session a legislative Committee was appointed to investigate the banks. Resolutions were adopted expressing dissatisfaction with the Real Estate Bank for suspending, and the report of the president was declared to be “not the most intelligible and satisfactory.” The report showed that the commissioners to sell the bonds for the bank sold $500,000 to the Secretary of the Treasury for the Smithsonian bequest, which had been imported into this country in specie. They paid $5,000 to a broker in Washington for negotiating the sale, and charged the same sum for themselves. They converted the money into southwestern paper, and pocketed the difference. They charged $28,394 for their expenses and services, and for considerations not stated loaned $8,500 to certain individuals in New York.†

More information was demanded in regard to specie, debts due to the bank, the amount of mortgage security to save the State from loss, etc. The Real Estate Bank paid the interest on the bonds issued for it until July, 1841, except on the Holford bonds, and on the cash received for a part of the same issue. December 15, 1842, the State appointed an agent to instruct and help the attorney of the Bank of the State in a suit aginst the North American Trust Company and its guarantors.

§ 5.—

1840 and 1841. The Third Failure and Final Bankruptcy of the United States Bank. The Bank Failures of 1841. The Extra Session of Congress of 1841. The Last Attempts to Charter a National Bank. The Pennsylvania Relief System.

The amount of circulation of the safety fund banks of New York, January 1, 1839, was $19.3 millions. During the year 1839, the withdrawal of safety fund notes exceeded $7 millions, while the issue of new notes was about $6 millions, so that there was a net diminution in that year of $1.7 millions. The Comptroller said: There is a reasonable and necessary depreciation of bank note currency as it is carried away from the place of issue equal to the expense of transporting gold and silver to the same point. “Any further depreciation is unjust to the community which has to sustain it.” He proposed that the banks under the general banking law should appoint agents to meet weekly to assort, count, and arrange in separate packages all the notes received at the agency, and adjust the balances between the different banks, with an allowance of time according to the distance, for the payment of the debtor balances. He was of the opinion that the safety fund banks and the general banking associations acted antagonistically to one another, and must do so unless some means of uniform redemption of their issues could be devised.*

April 25, 1840, the Legislature, in pursuance of these suggestions passed an act providing that every bank, banking association, and individual banker, except those in New York, Albany and Brooklyn, should appoint an agent in New York City to redeem their notes at not more than one-half of one per cent. discount. If the agent of any bank should fail to redeem its notes, that bank should pay interest on the same at the rate of twenty per cent. per annum, and if the redemption was delayed over twenty days, the bank should be liable to be proceeded against by the Bank Commissioners. No bank was to receive circulating notes after that time until after it had appointed a redemption agent. In May, 1840, the act was amended so that any person or association who should put in circulation any note not payable on demand, that is any post-note, should be punished by fine and imprisonment, as for a misdemeanor. The section requiring banks to keep twelve and a-half per cent. in specie on the amount of their notes was repealed. Banks were made liable to the inspection and supervision of Bank Commissioners.

In February, 1840, it was reported that there was a great decline in prices at New York and distress for capital. Little business was being done, rents had fallen from thirty per cent. to fifty per cent. Twenty-four establishments at Paterson were idle.* During the spring there were still some failures; southern remittances did not come to hand; the banks were strong in specie.† In May, the law compelling the country banks to redeem in Albany or New York at one-half of one per cent discount, was going into operation. It produced some difficulty, as the current discount was from one and a-half to two and a-half per cent.

The amount of capital invested by New York and Philadelphia in southern and southwestern banks was estimated at $15 millions, and this was held to account, in some degree, for the embarrassment experienced in those cities in 1840.‡

The Bank Commissioners of New York pointed out in their report of 1841, that the failure of one large bank might produce a loss so great that the annual income of the safety fund would not pay the interest on the loss. They referred to one bank whose liabilities were $7.6 millions in 1837, and if large federal deposits were again placed in any bank, the same state of things might recur.

January 1, 1841, the safety fund amounted to $914,342. Up to January 1, 1842, the Treasury had advanced for the redemption of the circulating notes of insolvent banks, under the act of 1837, $549,885. On that date the solvent banks were bound to pay in $183,342. The Comptroller construed the act of 1837 that the capital of the fund was never to be reduced below one-third of its amount by the redemption of notes in anticipation of the liquidation of the bank’s own assets, so that the only amount available was $243,108. Safety fund banks had failed in 1841 with $950,000 in circulation. The capital of the remaining safety fund banks was $30.7 millions, and consequently the annual contribution, $153,507.

The State now borrowed the safety fund, consisting at the time of $343,436, and spent it on the public works.

In March, 1841, there were twenty banks in central and western New York which failed to redeem their notes in Albany or New York, as required by the statute of May 4, 1840.

The decline in State stocks had so impaired the securities deposited under the free banking law that a panic arose in regard to the free banks in March. The notes of twenty-three of them were rejected, and all the safety fund and free bank notes were at a discount. The New York banks were refusing new accounts. New York notes were not then taken on New England railroads.*

A number of free banks failed at this time in connection with the decline in value of the securities deposited by them for their circulation, but not on account of it. “These stocks had not only been purchased at very high prices originally, but on credit, and without any means or resources, in many cases, for the payment of the debt thus created. The associations had been put into operation by borrowers instead of lenders of money, and the circulating notes had been employed to relieve the old embarrassments of the proprietors instead of being used either in the discount of business paper or even in the payment of the debt contracted in the purchase of the securities.”†

On the 3d of August, the Comptroller sold the securities of twelve free banks, of which six were in Buffalo. The securities of seven of these banks, consisting largely of mortgages on unproductive property in Buffalo, which were in the fund at a valuation of $169,540, sold for $97,116.‡

In September, the North American Trust and Banking Company was put in the hands of a receiver. This bank was organized in the summer of 1838. It was intended to have a capital of $50 millions, but started with $2 millions, consisting of bonds and mortgages. It was intended that it should obtain the federal deposits. It never had any solidity.§

The Commercial Bank failed at the same time. It had been founded in 1833, in order to get a part of the public deposits. The Comptroller of the State advertised for a loan of $120,000 at six per cent. in order to redeem its notes, because the safety fund then existed only as a credit due from the State.

In December, it was reported that few brokers would buy the notes of any of the free banking associations and “the notes of many of the safety fund banks of the interior are regarded with great distrust.”∥ In the year 1841, twenty-five free banks and ten safety fund banks failed.¶

Gouge** gives the following table of circulation in the State of New York, which shows the marvellous fluctuations to which it had been subjected:

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.* 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.†

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.‡ 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.”§

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.∥ 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 could not provide a uniform and sound currency, but also because they could not provide domestic exchange. The trade of Kentucky, he said, “without a Bank of the United States, is constantly, and oppressively, and unjustly burdened in both directions, towards New Orleans and towards the eastern cities. Its bills on New Orleans, of which it is generally a creditor, are usually sold at a discount of two per cent., besides interest, while remittances on the eastward, of which we are generally a debtor, command a premium of from two per cent. to three per cent. During the existence of the branches of the United States Bank they purchased generally the bills of our traders on New Orleans at from one per cent. to one and a-half per cent. discount, and supplied remittances in great abundance to any part of the United States at a premium of one-half of one per cent. The people of Kentucky have suffered constantly and severely by these operations, and have lost hundreds of thousands of dollars for the want of a Bank of the United States.”

The banks of the Mississippi Valley very much preferred the exchange business to the discounting of notes. In the former they escaped the restrictions of the usury law and also the necessity of making renewals. The exchange business was therefore more profitable and more punctual.*

In the Pennsylvania Legislature,† in 1840, there was a strong party of radical democrats, which was greatly irritated against the banks, especially against the Bank of the United States. The latter had, therefore, great cause to apprehend adverse legislation, especially in the way of a peremptory command to resume. A committee of the directors was appointed, of which George Handy was the only active and important member, to watch legislation and take measures to defeat any which should be hostile. Handy employed one or two experienced lobbyists; but in the course of the winter and spring there were a half-dozen persons who were active at Harrisburg in the interest of the Bank and who were in the end paid by it. It was inevitable that some action would be taken, and the points which the Bank wanted to secure were that a date should be set as distant as possible for resumption, and that all the laws imposing penalties for non-redemption should be suspended until that time. It attained its objects. Two years later an investigation was made, in which all these proceedings came to light, and the correspondence of the Bank’s agents with Handy, consisting of one hundred and nine letters, were published.‡ The Investigating Committee, in their report, construed all the evidence as proving that the lobbyists had duped the Bank and extorted money from it, but had never paid anything to any member of the Legislature, and had never really influenced legislation. This theory is not adequate to the facts presented in the testimony, which presents us a shameful picture of the Bank of the United States practising all the arts of legislative intrigue and corruption, because it was in the last stages of financial rottenness; and on the other side, the Legislature of a great State making demands on the Bank, which would have been sure to ruin a solvent institution, in order to try to carry on its “improvements” without taxation. It required folly and vice on both sides to bring to pass such a piece of legislation. In such an arena and under such circumstances, the lobbyists of course were triumphant masters, and the testimony shows that those who were employed were experts, that they had a definite aim to accomplish, and that they accomplished it. The Bank Committee, that is, Handy, drew from the Bank, in this connection, $131,175.

This intrigue is singularly interwoven with a political intrigue, in which the Bank party are working to give the State to Van Buren; and the jealousy of New York is another strand which is interwoven through the whole. The Governor of the State was in alliance with the Bank party and assisting them. The leading men in Pennsylvania at this time had all reached a conviction of some desperate necessity, in respect to the financial affairs of the State, the city of Philadelphia, and the Bank of the United States, which compelled the best of men to consent to measures which, at another time, they would have considered base and criminal.

The outcome of the legislative struggle was the joint resolutions of April 3, 1840, by which all the chartered banks were required to resume January 15, 1841, or forfeit their charters; but any one might “proceed to recover and collect in gold or silver coin the liabilities of, and the penalties recoverable from, any of said banks, according to the common law in force in this Commonwealth, and not otherwise.” This clause was the pride of the lobbyists. There were no penalties by the common law, and the “not otherwise” was intended to cut off all the statutory penalties.

The courts, however, did not take the view of this device which the schemers expected. It was held that the Legislature never could have intended to appoint a remedy which did not exist, or, in that way, to prescribe a denial of justice. Hence a demand was assumed to have been made, since it was not denied, and twelve per cent. was awarded from the time of commencing suit.*

The next section of the act prescribed the method of ascertaining that a bank did not redeem and the method of enforcing forfeiture. No such law had ever been enforced except in case of absolute bankruptcy, and the action of the courts on several cases brought by Kuhn showed that they felt called upon by some considerations of public policy to construe all the laws beneficently in favor of the banks. It was further provided that banks which had suspended since October 9, 1839, or should do so before January 15, 1841, must lend to the State, pro rata of their capital, within one year, not over $3 millions at not over five per cent.; the sum to be expended on the debts and interest of the State, and on repairs and continuation of the public works, for which certificates should be given in such sums as the lending banks might demand, and transferable in such manner as the Governor might direct, payable in not over twenty-five years. There was more lobby trickery in these provisions. Banks might issue their notes, and pay not over six per cent. dividends, as if paying specie, until the day set for resumption.

In May the Legislature reassembled, when the House ordered the Bank to lend to the State $4 millions at four per cent. or forfeit its charter; $3 millions being at the same time appropriated to public works. The Senate struck out the compulsion on the Bank and left the loan to be raised by ordinary methods.*

The land bank notion also now made its appearance again in Pennsylvania. A bank, with $500,000 capital was chartered by the Legislature, half the stock to be paid in in specie and half by mortgage of the full value of the stock. It was vetoed by the Governor, June 11, 1840, because there were too many banks, and those which existed were not paying their debts; without regard to the merits of the plan.†

In October, 1840, the banks of Pennsylvania were preparing to resume, but the Governor called on them to take another loan of a million under the resolutions of April 3, 1840. Philadelphia was heavily indebted to the East, and the United States Bank wanted a loan from the other banks to help it to resume. The latter request could not be granted unless an extension could be obtained on the former debt. The extension was also necessary to resumption. Confidence in the United States Bank, outside of Philadelphia was entirely gone.‡ It does not seem possible that it could have had credit amongst men of affairs after October, 1839, but there certainly was a stubborn faith in it, and the literature does not by any means show a widespread popular discredit of it.

Jaudon went back to England in November and published a statement in which he put the liabilities of the Bank at $72.8 millions, including $12.6 millions in Europe and $5.4 millions to other banks. The assets he stated at $76.1 millions, including $2.8 millions specie.§ The banks of Philadelphia owed $2.5 millions to New York and Boston. They applied to Boston to have balances put on interest to the amount of $1.5 millions. It is stated that on account of jealousy of New York they were not willing to apply there. New York was believed by the Philadelphians to desire the failure of the Bank of the United States. Nevertheless the former offered to put $1 million of debt on interest. “The Philadelphians are a peculiar people in the matter of currency. They have a strange fondness for inconvertible paper.”∥

Nathan Appleton blamed the banks of Philadelphia for entangling themselves with the Bank of the United States in 1839, which was the cause of the embarrassments of all the banks of the great commercial cities during the eighteen months following.*

When the Bank of the United States attempted to resume it held 24,714 of its own shares. It had in specie, on the 21st of December, $2,171,722. The circulation of the old Bank still out was $547,856; of the new Bank, $8,788,144; post-notes outstanding, $1,887,658. It owed the United States on a bond $633,643.

On the 4th of January, the stockholders’ meeting took place, which caused a report to be published with a list of the securities held by the Bank. These were seen at a glance to be among the poorest on the market. “Bicknell’s Reporter” estimated the losses, at the market price of these stocks, at $17.3 millions. The stock fell $17 on the publication of this report.

On the 15th, the banks resumed. The Philadelphia banks within the next three weeks paid out $11.3 millions, of which the Bank of the United States paid out $6 millions. The others tried to separate themselves from the Bank of the United States.† The latter failed February 4th. The deposits when it failed were stated at $2.2 millions, and the notes out at $2.8 millions. This does not include the notes of the old Bank, most of which were supposed to be lost. The stock fell $30 per share on this failure. In a report of the directors to the stockholders, April 3, 1841, it was stated that after the Philadelphia banks had exchanged $5 millions of their credit for post-notes at nine and eighteeen months, they still had $1.5 millions in notes of the Bank of the United States for which they demanded specie. This was paid. Then another call for $1.1 millions was paid to creditors in the East who had suits pending which they then withdrew. In January also, the Bank lent the State $400,000 in specie, and the other banks made a loan to it in notes of the Bank of the United States, which thus became a specie demand on the latter. After February 4th, the Philadelphia banks refused the notes of the Bank of the United States. It was a run from the eastward, therefore, which overthrew the Bank.

The Bank, when it failed, had eight agencies outside of Pennsylvania and three offices in that State. The number of stockholders in Europe and elsewhere abroad was 1,390; in Pennsylvania, 1,481; in the United States, outside of Pennsylvania, 1,658. Out of $35 millions capital, $27 millions were held abroad, $6 millions in New York, and $2 millions in Philadelphia. The number of persons owning five shares or less was 864; between five and ten, 661; between ten and twenty, 732; between twenty and fifty, 994; between fifty and one hundred, 588; between one hundred and five hundred, 614; over five hundred, 80. A great amount was held on the islands of Guernsey and Jersey. It was equal to three or four pounds per head of the population. The news of the failure reached England with the news of the resolution of Congress, threatening to support New York in the trial of McLeod, and produced a slight panic. The State stocks, however, had not, at this time, undergone any great decline. The London “Times” said that £2.4 millions sterling borrowed in England by the Bank had been so much saved for New York. “Such a wreck of a great banking concern has probably never before occurred.” The shares were quoted at £4 10s., nominal. All its drafts were accepted however.

February 13th, the Bank addressed a memorial to the Legislature praying not to be separated from the other banks in the relief which it was proposed to allow them by measures then under discussion. The memorial states that the Bank has paid the State $3,022,662, has subscribed $415,000 to railroads, etc., and has loaned the State $8,620,000 within five years of depression. In March, an act was passed which in many respects was nearer to what the lobbyists of the Bank of the United States wanted than the bill which was passed the previous year. The extra penalties for suspension were repealed. Permission was given to the banks to issue small notes for five years to the extent of fifteen per cent. of their capital; loans to directors and proxy voting were restricted; five per cent. dividends might be made during suspension; the Bank of the United States might reduce its capital to $14 millions, if it desired to do so, and was released from a part of the bonus. This bill was vetoed and failed.* The struggle was then re-opened, and finally on the last day of the session, May 4, 1841, the so-called relief act was passed over the Governor’s veto. The act was so loosely drawn that it is not easy to understand the relation of its separate parts.

A State loan of $3 millions at five per cent. was to be issued, no bond to be less than $100; the banks, with the exception of the Bank of the United States, might subscribe to this loan in their ones, twos, and threes, which bank notes should be redeemable in the State bonds whenever presented at their counters (i. e., after the State had put them in circulation); notes redeemed to be marked “canceled;” the bank’s charter to be forfeited if this redemption did not take place within ten days; the banks were to have one per cent. for the loan while the notes were out, but were to pay the interest on the State bonds with which they redeemed their notes, and to deduct that interest from the dividend tax which they would otherwise have to pay the State. The small notes issued in this way were to be receivable for debts to the State, re-issuable by the banks and the State, and receivable by the banks for debts and on deposit. The banks might pay five per cent. dividend in spite of suspension. The banks which, having paid a bonus, had no tax on dividends to pay, might deposit State stocks with the Auditor-general to the amount of five per cent. on their paid-up capital, and issue notes to that amount in denominations not less than fives. The dividend-paying banks might also take this latter course to the extent of seven per cent. of their capital. Charter forfeitures, on account of suspension, were not to be enforced until this loan was repaid. No penalty in excess of six per cent. was to be exacted from any bank which complied with this act. The Bank of the United States was excluded from it, unless it accepted this act and made itself liable to all future legislation. The Governor vetoed this act because it would make the suspension perpetual,—that is, until the loan provided for in the act was paid. Gouge said of the act: “This is a deplorable state of things; a bankrupt State orders the emission of upwards of $3 millions of State paper money, redeemable only in State stocks, which were at the time the act was passed twenty per cent. below par, which have since fallen several per cent. more and which may fall no one knows how low. Nor is this all. It authorizes this State paper money to be increased in amount to between $5 millions and $6 millions, and in order to obtain circulation for it consents that the banks shall, if they will receive it in payment of debts, postpone the resumption of specie payments as long as shall suit their own convenience.”*

Gallatin’s comment on this law was as follows:

“The banks of Philadelphia, notwithstanding the difficulties which they had to encounter, had succeeded in keeping their currency, their deposits, their liabilities payable on demand, all which is generally called “Philadelphia funds,” at a discount, compared with specie, of less than five per cent. An emission of a new species of currency is now authorized, which, being only a promise to issue a State stock to the same amount, is, on the day when it is issued, worth intrinsically no more than that stock, or less than eighty per cent. of its nominal value. It may be that the demand created by having made that currency receivable in payment of debts to the Commonwealth and to the banks may enhance that value. This is altogether conjectural, and it cannot certainly be expected that it will become equal to that of the actual currency at this moment of the Philadelphia banks. Under the most favorable aspect it is still a legalized emission of a depreciated, fluctuating, and irredeemable paper, analogous to a falsification of the legal coin of the country. And in order to carry this plan into effect it has been deemed necessary to compel the banks to receive that paper in payment of the debts due to them, and to give a solemn legislative sanction to a protracted suspension of specie payments; that is to say, to a continued immoral and illegal violation of engagements and contracts for a term which may be not less than five years.”†

April 17th, at a meeting of the stockholders of the United States Bank, it was voted to accept the relief bill and to become subject to any future general law of the State about banks; also that the directors should give notice of an application to reduce the capital and change the name.‡

It was at this time that the Committee of Investigation reported, which had been appointed at the stockholders’ meeting of January 4th. The general result of the investigation was that the capital was lost in bad debts and in the stocks of enterprises which could not, at best, be remunerative for a long time. At the estimate put on the assets by the Committee, there were $14.8 millions to meet $32.5 millions of capital; the Bank owning part of its own shares. The debt in Europe exceeded the active loans here. The “bills receivable” had been gradually reduced. In March, 1840, they were still $4 millions. During the following year they were reduced by transferring to the Bank the stocks in which the speculators had been operating. The Bank had, during the State charter, taken $31 millions in stocks, etc., in settlement of loans and advances. “Bills receivable” were still $1.4 millions. Some of them had been transferred from “suspended debt” to “active debt,” having been changed into bills discounted at deferred periods of maturity.

Biddle settled one-half the loss on cotton* with interest by giving Texan bonds for about two-thirds of the amount, and promising Texan bonds for the remainder. In their supplementary report of May, the Committee of Investigation say that the $800,000† appear not to have been liquidated profits of the cotton transactions, but, in part, anticipated profits, and they call on Biddle to repay. “We take the statement,” they say, “as correct, although there are some plain mistakes in the calculations.” There are no intelligible statements in the record of the profit and loss of the cotton operations, and we must accept the comment of this Committee as proof that it is impossible now to obtain any. Cowperthwaite had to pay one-quarter of the loss with interest. He gave land and stocks of very little value and $16,000 in cash. Wilder paid one-quarter by land and sundries, and $49,793 in cash. It is suggested that there was some one behind him. Who it was is not known. The Committee calculated that the stock of the Bank was worth $46.94 per share for the number of shares outstanding. Biddle published a criticism of the Investigating Committee’s report, which led to a supplementary report and rejoinder. He had endeavored to break the point of their condemnation by saying that the Bank had been supporting the Reading Railroad while the Committee were interested in the Schuylkill Navigation Company, which was a rival. Dunlap published a statement that the contract guaranteed by the Bank in his name was for the account of the Bank. He took $1 million of Illinois bonds which were to be paid for in ten monthly installments. All the bonds were sent to London and hypothecated there for loans to the Bank of the United States, to which the interest on them was paid. Biddle denied that the Bank ever owned a bale of cotton. He claimed that the cotton operations paid the debts of the American people, corrected the exchanges, saved the Bank, gave a price for cotton to the southerners, and enabled him to save New York. He said that the losses on cotton would have been paid, but that he thought his property had been sacrificed for the interests of the Bank. He only paid what he did pay for the sake of peace, and amongst the different securities which he offered, the Bank chose the Texan bonds. In a second letter, he declares that the Bank was sound and prosperous when he left it. He is not to blame, he says, that stocks have fallen within two years. He quotes a letter of Cowperthwaite to him, in which all subsequent calamities are traced to the premature resumption in 1838, but Biddle attributes the ruin of the Bank to the bill transaction in August, 1839, and the fatal attempt to resume in 1841. He says that the Court had decided that the Bank charter could not be forfeited for non-payment of specie, and that the Bank ought not to have obeyed the Legislature. All the banks ought to have withheld the $800,000 loan from the State, in January, 1841, unless it would extend the suspension. That is to say, he still adhered to the old policy of bluff and bounce which had been pursued by the Bank during the whole period of the State charter. In his third letter, he enlarges upon the rivalry of the Schuylkill Navigation Company and the hostile animus of the Committee, and at last runs off into personalities. In a fourth letter he denied favoritism to Thomas Biddle. In a fifth he defended Jaudon, and in a sixth, he said that all the items of account which the Committee say are not explained were passed by the directors. He tried to strip himself of responsibility for the Bank, and to answer only for his own person, but he had been so long identified with the Bank that he could not persuade the public to take this view.

The letters written by Biddle for the sake of influencing public opinion would make a large collection. In respect to all those which were written after 1836, we have the means of knowing that he was not honest and sincere. He was trying to deceive by false reasons, artful pretenses, and made-up excuses. The impression we gain from these letters we cannot but carry back to the earlier part of the history, and ask ourselves, when we feel disposed to believe that he has made out his case, whether we are not the victims of his deceit?*

Gallatin said that the United States Bank had been, since 1837, the chief cause of suspension and of delay in resuming. “In every respect it has been a public nuisance.” “The mismanagement and gross neglect which could, in a few years, devour two-thirds of a capital of $35 millions are incomprehensible, and have no parallel in the history of banks.” “How, after so many violations of its charter, its existence has been so long protracted is indeed unintelligible.” There seems to have been some hope as late as April or May that the Bank could be revived, but suits began to multiply against it. The total number which were begun from January to September was about one hundred and eighty. Over one hundred judgments were obtained against it, some for $100, some for $100,000. In May, another attempt was made to bring about a forfeiture of its charter on account of the refusal to pay specie, but the plaintiff did not keep the notes during the three months limit, which was provided for between the first demand and the second demand. Hence he lost the right to maintain the suit.*

“In 1841 [at New York] the necessity of again suspending was freely discussed, but such a course was strongly opposed by the larger banks. These sold their claims on Philadelphia at as high a rate of discount as thirteen per cent. Mr. Newbold, of the Bank of America, brought at one time from Philadelphia $400,000 in specie, which enabled the banks of that city to maintain specie payments.”†

The Wilmington banks suspended upon the news from Philadelphia. The Legislature of Delaware suspended the twelve per cent. penalty.‡ The Baltimore banks failed again, February 8th, after losing $100,000 specie. March 15th, the Georgia Railroad Bank failed, after paying out $200,000.§ On the following day the North Carolina banks failed. Those of Virginia held out until April 6th, suffering heavy runs.∥ As for the banks further south and west, it is difficult to say whether and when they resumed, and when they suspended again.¶

The capital of all the banks in the United States which failed in 1841 was nearly $70 millions, with a circulation of $24 millions. The total circulation was reduced below the point at which it stood in 1834.**

Inasmuch as the relief notes were receivable at the banks, they floated at bank par during 1841. In June, it was reported that money at Philadelphia was at eight and ten per cent. per annum; the small notes were not yet out. Five Philadelphia banks had refused the relief bill and would not accept the relief notes.††

Three counterfeit detectors were published at Philadelphia at this time. In an issue of one of them, in July, were described 1,727 counterfeits on bank notes; the greatest number on any one denomination was on the five’s,—namely, 588. The counterfeits on the Bank of the United States were not included. “They were so various that one specimen from each would have sufficed to paper one side of a room.”‡‡

The whigs, having won the election of 1840, were most impatient to undo everything which had been done during the last twelve years, and President Harrison immediately called an extra session of Congress to meet May 31st. Upon his death, the question at once arose: What are John Tyler’s opinions and wishes? His message at the opening of the extra session disappointed the whigs. It did not respond at all to the temper of eager purpose in which they were. Clay and Tyler came into collision at once, the one being the actual chief of the party, the other its official representative. With the political aspects of the period we are not here concerned, except so far as they affected the measures which were applied in respect to banking institutions; but it must be noted that on that matter they had very positive influence. The whigs had a majority of seven in the Senate and forty-nine in the House, and Clay made up a sweeping program of what they meant to do, in which it was assumed that the President was to take the role assigned to him. There were many reasons why this arrogant behavior of Clay was galling to Tyler, and was calculated to set a man of his abilities and character in very obstinate and resentful opposition. The first point on Clay’s program was the repeal of the sub-treasury, and the second was the charter of a national bank. The first step was accomplished in the Senate June 9th, 29 to 18; but Clay at once called attention to the fact that this would revive the deposit act of 1836, to which he could never consent, and that the repeal of the sub-treasury must go with the other proposed measures as a consistent series. The House repealed both the sub-treasury and the deposit act, and the Senate concurred. This carried things back to the law of 1789, which was substantially the independent treasury without the specie clause. There was still the law of March 3, 1809, which allowed specified disbursing officers to deposit public money in banks.

The Senate called on the Secretary of the Treasury for his project of a bank. It was called a “Fiscal Agency,” and was to be located in the District of Columbia; branches in the States if they assent; capital, $30 millions; United States to take $6 millions; to subscribe $9 millions for the States, supposing that the fourth installment is to be paid; government subscription by a stock note at five per cent., redeemable any time after fifteen years; if the fourth installment of the surplus revenue not paid, the States to be permitted to subscribe $10 millions in proportion to their population, issuing stock therefor; if the States do not subscribe, the United States may take $10 millions; seven directors, of whom two appointed by the President; each branch to have not more than seven nor less than five directors, of whom two to be appointed by the State, if the State is a stockholder, and the rest by the head bank; charter for twenty years and two years more to wind up.

This bill was smothered in committee in the Senate, the report declaring outright that the constitutional power of Congress to establish branches anywhere where the interests of the United States called for them must be affirmed and established. Clay’s “Fiscal Bank,” as it was called, was substituted for it, differing from it principally in not requiring the assent of the States to the establishment of branches. An amendment was made in it that this assent should be assumed, unless the State Legislature at the next session should refuse it, and then Congress might override the refusal if the public interests required it. In this form the bill passed the Senate, 26 to 23; the House, 128 to 97. The “Globe” at once declared that it had information that Tyler would veto it. There was great excitement, and public meetings were held at New York both for and against the bill.

In Tyler’s veto message of August 16, 1841, he laid his chief objection on the fact that the bill created “a national bank to operate per se over the Union.” He argues that in 1833 the United States Bank had carried its exchange transactions to $100 millions without the employment of extraordinary means. “The currency of the country became sound, and the negotiations in the exchanges were carried on at the lowest possible rates. The circulation was increased to more than $22 millions, and the notes of the Bank were regarded as equal to specie all over the country, thus showing almost conclusively that it was the capacity to deal in exchanges, and not in local discounts, which furnished these facilities and advantages.” The exchange transactions produced few losses. “Its power of local discount has, in fact, proved to be a fruitful source of favoritism and corruption, alike destructive to the public morals and to the general weal.” He ends with a declaration of his unalterable opposition to any bank created by Congess with the power to establish branches in the States independently of their consent.

At the same time that he vetoed this bill, he signed the repeal of the subtreasury. The State rights men of the strict school to which Tyler belonged laid great stress on the decision of the Supreme Court in the case of the Bank of Augusta vs. Earle.* International law was applied to the relations of corporations of one State doing business in another. Formal assent was held to be necessary for a bank of one State to discount notes in another, but as to exchange, assent was assumed until formally refused.

Another bank bill was introduced into the House August 20th, and hastily passed the Congress. The capital was to be $21 millions, increasable to $35 millions. It was to have agencies only, and to deal in exchange only.

In a veto of this bill September 9, 1841, Tyler repeated more than once, and with emphasis, his objection to a national bank acting per se over the Union. “It assumes that Congress may invest a local institution with general or national powers. With the same propriety that it may do this in regard to a bank of the District of Columbia it may as to a State bank.” He asked for a postponement of the subject to a “more auspicious period for deliberation.” He laid great stress on his conscientious and religious motives, his reverence for the Constitution, and his desire for harmony.

The men of 1841 reasoned that the issues of a bank of discount would depend for their value on the discount business. Hence the issues of currency should be divorced from that business; secondly, they reasoned that the government deposits, if put in a bank of discount, would be loaned and could not be recalled when wanted without creating a panic. Hence they were trying to create an institution to issue currency, hold the government deposit, and equalize the exchanges without any real banking function. Nearly all the whigs except Webster treated with scorn and derision Tyler’s notion of a national bank. He and his adherents were struggling with the notion of an Issue Department connected with the Treasury. It is not at all impossible that, if the plan could have been set on foot, it might have developed into a good solution of the currency problem.

It is impossible to resist the impression that the zeal on behalf of a national bank was almost entirely political. The struggle of the last twelve years had made the bank a party dogma. At the same time the failure of the United States Bank had been so shameful and had so wounded the vanity of everybody who had been on its side that there was something half-hearted in this fight. It was very hard to carry on a struggle in Congress to charter another Bank of the United States at the very time when the reports of the Investigating Committee of the stockholders of the old one were running through the newspapers of the country in all their shocking newness, and when the officers of the old Bank were being subjected to criminal prosecutions, whose futility was not yet proved. Gouge says that many members of Congress who voted for the bank act were rejoiced at the veto.

During this summer a great number of amateur projects were put forward for a national bank of the type which was then in fashion, and which was expected to obviate the objections to which the failure of the old Bank had given force.

In July, it was stated that the Bank had commenced a suit against Biddle for nearly $700,000, for which no vouchers could be found, including the mysterious $400,000 item.*

The number of defalcations and embezzlements which were brought to light at this period was very great. Only in two or three insignificant cases were the criminals punished by law. It came to be regarded almost as a demonstrated fact that financial irregularities, at least in the region of “high finance,” could not be reached by the criminal law.† A list of these defalcations, which was made up by the newspapers, began with the suspended debt of the Bank of the United States, consisting of $20 millions “lent to politicians,” and $1.2 millions taken by its officers, for which there were no vouchers. An attempt was made to levy attachments on the debts due by Webster, Biddle, and Riddle; and also on $90,000 which had been put in the hands of Handy, Lewis, and others, with the purpose, as was alleged, of improperly influencing Gov. Porter. December 14th, the grand jury made a presentment to the Court of General Sessions of the county of Philadelphia. “The deliberate opinion of the grand jury is that certain officers connected with the United States Bank have been guilty of a gross violation of the laws.” They ask for bills of indictment to be sent up against Biddle, Jaudon, and Andrews, “for entering into a conspiracy to defraud the stockholders of the United States Bank of the sum of $400,000 in 1836, and endeavoring to conceal the same by a fraudulent and illegal entry in 1841.” They also ask for a bill to be sent them against Biddle, Cowperthwaite, Dunlap, and others for a conspiracy to defraud the stockholders of the Bank of the United States of more than $300,000 in 1836, ’37, ’38, ’39, and ’40. Also for a bill against Lardner, Dunlap, Price, Lewis, and Handy for conspiring to cheat and defraud the stockholders of the United States Bank of Pennsylvania of about $130,000 in 1840.

The presentment of the grand jury was quashed on the ground that the accused should have had a preliminary hearing before a committing magistrate. Several of the politicians who were in debt to the bank settled. There were three notes for a total amount of $100,000 drawn by C. Hickman or C. Hickman & Co., and indorsed by John M. Riddle, on which Riddle was sued. He declared them forgeries. Hickman was a government director, who was retained as director by Biddle’s influence after the charter expired. “Some time since he found it convenient to migrate to South America.” Suits were brought by holders of post-notes against two clerks of the bank, to whose order they were payable and by whom they were indorsed. The clerks made affidavits that “these indorsements were mere clerical acts and not designed to create any contracts between them and any other person, and that it was so understood by the community generally.”*

In the spring of the following year another attempt to try Biddle and the other officers for conspiracy to defraud the stockholders was made. The Recorder found probable cause against them and bound them over to the General Sessions in $10,000 each.† Some of them went to jail and were released by habeas corpus proceedings. The prosecution came to nothing. The proceedings brought the law into contempt, and were used by the loco focos to prove that the law was only for the convenience of the rich and the oppression of the poor.

The Supreme Court of the State said, in 1851: “The charter [of the United States Bank] confers privileges with a prodigality never heard of before. Its insolvency in less than five years could hardly have occurred without criminal improvidence, and must have brought ruin on many citizens, yet no measures were taken either to protect the people or to punish the offending corporation.”‡

The special attitude of mind in which everything relating to banks was approached at this time constituted a social phenomenon, and it stood out more glaringly in connection with the United States Bank than anywhere else. The bankers had methods of doing things which were customary and conventional, but which were contrary both to ordinary morality and to law as applied to similar matters outside of banks. The courts recognized and gave validity to these conventions and customs. The banks also disregarded law so habitually that it became a commonplace that law could not bind them. “There is no more desperate undertaking than that of controlling the bank influence, and it is irredeemably and vitally dishonest. * * * This bill [to extend the District banks for two years] is bristled with three conditions, of which they complain; but of no avail. They will accept and break them with equal indifference.”* “The most stringent laws might be passed for the government of banks, yet experience has shown that as long as they had life they would set all laws at defiance as soon as the Assembly adjourned.”†

We search almost in vain through the law reports for any decisions on the rights or authority of the State over banks or the duties of banks to the State. It may be said that no attempts were made to test or enforce the rights of the State against banks, and that, as a matter of practice, it had none. The banks were almost irresponsible. Such decisions as bear at all on the authority of the State over banks proceed from the attempts of the banks to resist the exercise of any authority whatever. For instance: the banks which had charters resisted the appointment of Bank Commissioners,‡ which was an exercise of visitorial power, and was the lever by which the States, after 1840, began to reduce the banks to order. They would never have accomplished this, however, if it had not been that the banks themselves were weakened and humiliated by the consequences of their own misbehavior, and, being liable to forfeiture, were forced to come to terms during the liquidation of that period. The States were reluctant and timid, even about taxing banks, when the charter was silent on the subject, although the Supreme Court of Pennsylvania decided, as soon as the case was presented, that “the taxing power is an incident of the State’s sovereignty, and the State does not lose it by a charter which says nothing on the subject.”§

Three assignments were made for the United States Bank during the year 1841. The first trust was created in May for the post-notes in the hands of the city banks, $5.4 millions in amount. These were provided for by securities to the value of $7.7 millions. The liabilities in Europe, $15.8 millions, were to be provided for by collateral of the estimated value of $24.7 millions. The second trust was for the circulation, deposits, and other bank balances, amounting to $5.4 millions, for which assets were assigned amounting to $12.9 millions. The remaining liabilities were $2.2 millions and the remaining securities, $17.7 millions.∥ The third trust was created September 4th, the city of Philadelphia, as trustee of the Girard fund, having sued the Bank for $1.3 millions which had been loaned to the Bank out of that fund.¶ The United States, about the same time, got judgment against the Bank on the damages for the French bill, and applied to the United States Circuit Court of Pennsylvania for a bill in equity to have the trust set aside and a receiver appointed.** Some stocks, to the value of about $1,000, were reserved out of the assignments, in order to keep up the charter.††

In September, Gouge said that the Bank of the United States must be reckoned as definitively broken. “It may be revived some years hence as a paper money manufactory.” “The firm belief is that the Bank for many years had not $35,000 capital.”* During the year there were great fluctuations in the notes of the Bank, which had become an object of very active speculation. They were quoted at 37 to 40 in Philadelphia currency, which was itself five per cent. below par of specie. All those who had debts to pay to the Bank wanted to buy the notes as cheaply as possible, which gave a chance for a counter speculation.

As the Bank had opened an office in London without a British charter, it was maintained that the English stockholders were personally liable for any debts of the agency to British subjects.†

In November money was from seven per cent. to nine per cent.; stocks falling; bank capital locked up in the post-notes of the Bank of the United States. The Girard Bank, to save its charter, paid a dividend of one cent per share. “The truth is, we are in a sad way in Pennsylvania with regard to money and Bank matters.”‡

The Towanda Bank, in the northern part of Pennsylvania, several times made arrangements with agents in Philadelphia to redeem its notes. When they had thus gained currency, the agent ceased to redeem and the notes fell to a heavy discount. It accepted the relief system and issued $100,000 more than its share. The State Treasurer refused to receive any of its bills in payment of public dues. November 19th, its agent in Philadelphia ceased to redeem. The “Public Ledger” said: “Hundreds of poor laborers were to be seen running in every direction with their hands full of the trash and not able to induce a broker to give a sixpence in the dollar for them. We passed in the market a woman who makes her living by selling butter, eggs and vegetables, who had almost all she was worth, about $17, in Towanda bank notes. When apprized that it was worthless, she sank down in agony upon her stool and wept like a child. This is but one of a hundred similar cases, for the market has been full of the trash for a week or more.”§

In his message, December, 1841, Tyler said that he had a plan of a “Fiscal Agent” ready, which would be sent in by the Secretary of the Treasury if Congress asked for it. They did so. According to this scheme no capital was to be subscribed by individuals; governed by a Board of Exchequer at Washington, appointed by the President, with the consent of the Senate, the Secretary of the Treasury and the Treasurer of the United States being ex-officio members of the Board; to have two branches in each State and more if Congress so directs; the Board is to nominate and the Secretary of the Treasury is to appoint officers of the branches and the Board is to fix their compensation and establish by-laws for their government; to issue notes from $5 to $1,000; to pay the public creditors with its own notes or specie or the notes of specie paying banks; to receive deposits of specie to an amount not exceeding $15 millions and give certificates of deposit redeemable only where issued, with interest at one-half of one per cent.; to make no local discount; one branch may sell drafts on another at a premium never exceeding the cost of transporting specie and never exceeding two per cent.; such drafts on places distant 500 miles or less to be for no longer time than 30 days from date, on places distant over 500 miles, not longer than 30 days from sight; drafts to be discounted at not over six per cent.; no branch is to deal in bills of exchange or accept deposits in any State if the State forbids it; to make settlements with neighboring banks weekly; all dues of the United States to be paid in specie, notes of this bank or notes of specie paying banks immediately convertible where received; the amount of specie on hand at each branch to be always equal to one-third of the amount of its issues; the note issue to be $15 millions; the resources of the bank to consist of government bonds, of which the head bank at Washington may issue not more than $5 millions at five per cent.; a contingent fund of $2 millions to be formed from the profits, after which the profits to go to the Treasury; the accounts of the government and of individuals to be kept in separate books; its own officers to have no dealings with it on their private account; to report to Congress at the beginning of each session; defalcations by the officers are felonies to be punished by fine and imprisonment; it may appoint State banks as its agents; suits to be in the name of the United States; it is to be a corporation with five commissioners constituting a Board, two being ex-officio, as above stated, the other three holding office for six years with a vacancy every two years and irremovable except “for physical inability, incompetency, or neglect or violation of duties;” the officers of the branches to be irremovable without limit of time, “except for physical inability or incompetency, or neglect or violation of duty;” the bank may be dissolved by the concurrent action of the President, the House, and the Senate. This scheme was called the “Exchequer.” It was clearly a long advance towards a mere Issue Department of the Treasury. The whigs had said of the proposed banks of 1841 that they offered no inducements to capitalists, which would cause the capital to be subscribed. This one called for no subscriptions, but, for that reason, it had no interest for those who wanted a bank as a business enterprise and chance of profitable investment. It therefore never received serious attention, although it was made a text for long speeches in the party warfare.

Although the whigs had fought fiercely in 1841 for almost any kind of a national bank, yet in 1842 they nearly all agreed with Webster that a Bank of the United States, founded on a private subscription, was an “obsolete idea.”* Perhaps the “unkindest cut of all” was that the Whig Almanac for 1843 called “Nick Biddle a rascal” and spoke of his Bank as one which was “corruptly managed.”

The President reiterated the recommendation of the Exchequer in his message of 1842; but it was defeated in the House, January 27, 1843, by a vote of 193 to 18. It is remarkable how completely dead the whole subject of a national bank had then fallen.

In January, 1842, it was said that the Pennsylvania relief notes had produced a depreciation of the whole circulation, and that it would have been greater but that it had not been found possible to issue as much as the measure contemplated.*

The Bank of the Northern Liberties refused the notes of the Girard Bank, January 27, 1842. This produced a run on the latter to which it speedily succumbed. The Bank of Pennsylvania was the fiscal agent of the State. The Treasurer had accumulated in it, in anticipation of the payment of interest to be made on the State debt, February 1st, the sum of $788,000; chiefly in checks and notes on the Girard. The Pennsylvania thus became possessed of so many of the latter, that it paid them out, expecting to pay the interest with its own. It was subjected to a run on the 27th. In three days it paid $406,086 of its deposits and $60,692 of its notes. It then posted a notice that an injunction was expected upon the application of the Governor. Such an injunction was issued. Four other Philadelphia banks failed at this time.

These events produced a panic. No one knew what money was. Some paid their debts with their money in haste before it should be good for nothing. Those who were not in debt lent it to their friends. There was a run, not for specie, “for none was visible, but what seems ludicrous, a run to exchange one bit of paper for another bit of paper.”†

The “Commercial List” of Philadelphia could not quote bank notes and specie and exchange after the failure of the Pennsylvania and Girard, on account of the confusion. Specie was at ten per cent. premium, exchange on New York seven and a-half. The New York “Price Current” of the same day showed no material variation in that market from the previous rates, except for Pennsylvania, West Jersey, and Ohio notes.‡

The interest on the Pennsylvania debt was paid by the Bank of Pennsylvania with a nominal advance of four and a-half per cent. but in notes which were eight per cent. below specie.

A Committee of Investigation of the stockholders of the Girard Bank found that the assets, which amounted nominally to $5.6 millions, were worth $756,771.

Upon the failure of these banks, the Legislature once more took the matter of banks and resumption in hand and passed an act, March 12th, ordering the banks to resume immediately, with a proviso that the relief notes should be received by the State but not by the banks. The relief banks fell back on the bargain in the relief bill, and the others said that they had no official notice of the passage of the act. The relief notes fell at once, some fifty per cent., some twenty-five per cent. Nine Philadelphia banks which had not failed agreed to resume March 18th. The exchange turned in favor of Philadelphia and $500,000 in specie was taken thither from New York.

The opinion was expressed that the real object of the law for the immediate resumption of specie payments was to compel the banks which had kept out of the relief system to come into it.*

All notes under five dollars, except relief notes, were made unlawful, June 24th. An appraisement law, with no sale unless two-thirds of the appraisement was obtained, was passed July 16th. This was the stage of abasement to which the great State of Pennsylvania had been brought by five years of the Biddle policy; a flood of State paper money and a stay law. The one motive of Pennsylvania for all the bad public action of this period was the faith in her “internal improvements,” and the desire to complete them. This motive entered into the rivalry with New York. The worst consequence of the conviction that there was a public policy which would lead ultimately to some results so grand that any steps which would further it must be adopted, no matter how bad they were, was the ever ramifying and extending political and financial corruption. “Our internal improvement system,” said Gouge, “seems to be almost as corrupt and corrupting as our banking system. The jobbing and the favoritism it gives rise to, and the manner in which it increases executive influence, makes some Pennsylvanians almost regret that railroads and canals ever were invented.”†

From 1826 to 1857 Pennsylvania spent on the main line of her canal $18.6 millions. In 1857 she sold the whole for $7.5 millions. On branch canals and unfinished public works, she spent before 1844, $14 millions. Additional expenditures on the same before 1858 were $2.4 millions. These were all sold in the last-named year for $12.9 millions. The loss on the whole was $24 millions. The reason given for selling was, however, that the works caused political corruption.‡

The statement is made that, in 1843, Pennsylvania sold out the bank stock owned by the State, the par value of which was $2,533,676, for $389,056.§

In answer to a call of the Senate the Secretary of the Treasury attempted, in a report of February 12, 1841, to estimate the loss which the government and the people had incurred from banks. The Treasury had lost on bank notes, received before 1837, $5.5 millions, and by depositories, before the same date, $900,000. On bank notes taken since 1837, the loss was $40,000. This was a justification of the policy pursued in 1837, and which was so bitterly denounced at the time, by which the federal government cut loose from the banks and created its own currency of treasury drafts. The number of banks which had failed since 1789, was 389; the estimated loss on their circulation was $18.1 millions, and on their deposits and bank balances as much more. The net loss by suspension of banks which had resumed, or were expected to resume at the time of writing, attributable to the depreciation during suspension, was put at $95 millions, of which all but $22.5 millions belonged to the period 1837 to January, 1841. The loss by counterfeits since 1789 was set at $4.4 millions. In this report the Bank of the United States was not counted as definitely bankrupt. Of the losses during the following three years, in which the banks underwent a sweeping destruction, we have no estimate.

Gouge* estimated the losses of Philadelphians in two years before July, 1842, at $50 millions. “Of the losses sustained by depreciation of bank notes and bank deposits we have seen no estimate. The aggregate must be enormous, but it is divided among a great number, and as part of the loss is suffered on one day and part on another, the people are able to bear up under it. A direct tax of half the amount would have caused a rebellion.”

One writer of this period disputed the current notions of the great advantage from banks; maintaining “that banks as they have been managed have been among the retarding, and are not to be reckoned among the accelerating, causes of the accumulated wealth of the country. Reasonable proofs are found in treatises and essays of our own writers that the currency, as it has been managed by the banks the last thirty years, has cost the country more money than the whole peace expenditure of the government would probably have amounted to, under a metallic currency, or a mixed currency so managed as to be subject to no greater fluctuations than are incident to a metallic currency.”†

Gallatin was of very much the same opinion: “It may with truth be affirmed that the present situation of the currency of the United States is worse than that of any other country. * * * No hesitation is felt in saying that whatever may be the presumed advantages of a moderate use of a paper currency convertible into specie on demand, to have no issue of paper would be far preferable to the present state of things.”‡

Perhaps the best writer who undertook to controvert the Biddle theory of banking was Samuel Cox.§ He disputed Biddle’s assertion that “the banks of this country have been the great instruments of its improvement.” He referred to the physical, social, and political causes, and maintained that the country would prosper by virtue of these, with banks or without. No one has ever criticised better than he did the notion that banks create capital. He understood the need of a new country for capital and the phenomena which it produced, which were generally otherwise explained.

CHAPTER XV.

The Liquidation; 1842 to 1845.

MASSACHUSETTS.—The full force of the revulsion of the period whose history we have recounted in the last preceding chapters appears perhaps more distinctly than anywhere else in the following statistical statement about the banks of Massachusetts, which shows it in a comprehensive and yet concise form. The New England States escaped comparatively easily from the troubles of the period, yet the Massachusetts banks, which were the leading ones of the section, had their share in it, and these figures show that they went through the full measure of the liquidation. These figures are also the fairest representation we can find of the fluctuations and vicissitudes of the banking system of the country, where it was not dominated by the big Bank of the State experiments or by the mania for “internal improvements.”

The ratio of specie to the bills in circulation and to the sum of the circulation and deposits in all the banks in Massachusetts for the years given:*

According to a table in the report of the Bank Commissioners of Massachusetts, 1841, the banking capital of that State varied as follows: in 1803, $2.2 millions; from 1803 to 1816, it continually increased to $11.4 millions; from 1816 to 1817 it was reduced to $9.2 millions; from 1817 to 1820 it continually increased to $10.6 millions; from 1820 to 1821 it was reduced to $9.8 millions; from 1821 to 1829 it continually increased to $20.4 millions; from 1829 to 1830 it was reduced to $19.2 millions; from 1830 to 1837 it continually increased to $38.2 millions. We may add that it was then reduced to $30 millions in 1844.

By a law of 1840, no bank was allowed to pay out any but its own notes. The president of the Suffolk Bank informed a country bank president, who wanted help, in 1841, that the bank was making no discounts. “Our discount sheet is entirely closed, and we do not even look at the applications.”

New York.—After a great political struggle, in 1842, the public works of New York were suspended and taxes were imposed to sustain the credit of the State.

A question arose whether the payments out of the safety fund were to be made to redeem the circulation of the banks in the order of their failure, and an injunction was obtained against the Comptroller to force him to take that course. The movement was in the interest of other creditors of an insolvent bank besides the note-holders. Consequently, April 12, 1842, the safety fund system was further modified, so that any part of, or all, the money in the bank fund could be applied at once to the payment of the notes, the banks being taken in the order in which the injunctions were granted. This applied the whole safety fund to the redemption of the note issues. The banks were also allowed, within six months, to commute for the payment of the three per cent. which they would have to pay to the safety fund within the next few years, paying with the notes of any insolvent bank, and receiving interest at seven per cent. on the sum paid until the time when it would become due. A large part of the notes which were a charge on the safety fund were at this time held in masses by banks and brokers who had taken them as collateral for loans. As the redemption of the circulation of the banks was to be taken up in the order of the injunctions, these masses of notes would so absorb the fund that the holders of what was called the legitimate circulation of the banks which failed later would be forced to wait a long time. At the same time the banks which commuted could pay in the notes of any insolvent bank, even of one which failed after the law was passed; but those notes, the redemption of which was delayed, depreciated. Hence the Comptroller, in his report of 1844, said that the law of 1842 had benefited the banks and brokers, but that it had not “secured that relief to the great mass of the bill-holders which was anticipated, and which is promised in the title of the act.” The banks paid in, in 1842, in advance, in the notes of insolvent banks, $477,609.

No bank in New York City would discount any note or bill in October, 1842, which was payable in the interior of any southern or western State.*

The exchanges in May, 1842, at New York, were as follows: England, eight and one-quarter premium; Boston, Philadelphia, and Baltimore, par or one-quarter discount; Virginia, five and one-quarter; Charleston, one and one-quarter; Augusta, two; Savannah, two; Mobile, twenty-five; New Orleans, six; St. Louis, five; Cincinnati, eight; Nashville, fifteen; treasury notes, one-quarter;—discount.†

The Governor in his message, January, 1843, said that the bonds held for the State circulation were worth at par $4.6 millions; that their market value was $1.6 millions; all the mortgages and stocks together were worth less than the circulation by $0.5 million. A year later his statement showed that the securities were a little in excess of the circulation. As to the safety fund, it was in arrears $579,353, for the notes of the insolvent safety fund banks.

In 1843, the office of Bank Commissioner was abolished, and the duties were transferred to the Comptroller. Every chartered bank was required, on July 1, 1843, to deliver all its bank-note plates to that officer, and to make a return to him of all bank notes created by it then in existence. All notes issued before that date were to be countersigned by the Comptroller before July 1, 1844, or to be redeemed and destroyed in his presence. After that he was to cause to be printed, countersigned, and registered such notes as each bank might require, being within its lawful limit. Every bank in the State was to make quarterly reports to him, and he was to appoint an examiner for any bank whenever he thought there was reason to do so. The Comptroller remonstrated against this last provision.

The general banking law was so amended that only bonds of the State of New York could be deposited as security for circulation. The terms were so stringent that bonds of the United States were excluded.

Ninety-three banks were incorporated under the general banking law before 1844. Of these eight failed to organize, twenty-six were closed by the Comptroller, who redeemed of their circulation $1,153,984, at a cost of $881,070, leaving $27,974 outstanding. The stocks on deposit, January 1, 1844, at the average value of the preceding year, just about equaled the circulation which had been issued against them.

The provision of law by which country notes might be redeemed at a discount of one-half of one per cent. led to a new device. The Comptroller, in his report of 1844, mentioned a case of a bank organized under the free banking law in an out-of-the-way place in Orange county. Its nominal president lived in Connecticut and all its business was done in New York City. The arrangement was devised in order that it might make one-half of one per cent. on such of its notes as were presented for redemption in New York City.

All the banks of Delaware, six in West Jersey, and fifteen in the interior of Pennsylvania resumed about March 20, 1842. The report from Delaware, in 1847, was: “Delaware has, up to the present time, never had a broken bank.”*

Pennsylvania.—Philadelphia paper was quoted at par for the first time March 26, 1842.† Of the rural districts it was said that every county in Pennsylvania had its own currency.

In January, 1843, “Bicknell’s Reporter” said of the relief notes: “If any one can devise an immediate plan whereby the people can get rid of about $700,000 of paper trash, he would be entitled to the name of a public benefactor.”‡ A month later, the Legislature orderered the Treasurer to cancel $100,000 per month, but in April they reduced this amount to $50,000 and resolved to make further attempts to sell the public works. The total amount of the relief notes issued was $2,186,550; the amount outstanding in June was $684,521.§ The number of counterfeits was said to be equal to the original.

Mention is made of these notes from time to time, during the following years, in the Governor’s messages and other documents. The statements of the amount outstanding do not show a steady diminution. In 1860, the Auditor-general reported that there were still $102,336 outstanding, including re-issues.∥

After 1842 it becomes very difficult to follow the liquidation of the United States Bank. It was dropped and forgotten as soon as possible. There was great dissatisfaction with the proceedings in liquidation, on the part of the residuary interest. The Bank seemed always to get worsted, although it could not be said to be wronged. In January, 1842, a meeting of stockholders tried to revoke the trusts. A fuller meeting, two months later reversed this. This meeting was “large, tumultuous, and disorderly.”¶ Mr. Schwab, of New York, cited the trustees to show cause why they should not give security for the faithful discharge of their trusts. The decision was against him. Two acts were passed, one May 4, 1841, vetoed by the Governor, but passed over the veto; the other, May 5, signed by him, under either of which the trustees might be appointed without the requirement of bond or inventory.

The Bank had bought the Merchants’ Bank of New Orleans for $1,076,500 in order to use it as an agency. In April, 1841, that bank was worth, at the market, $906,000. The best bid which the liquidators could get for it, at which they sold it, was $575,000, from Edward Yorke. In its assets was the sum of $334,427 in specie. Gouge wanted “to know the exact value of all the bank stock in the country estimated on like principles.” The secret was that the Bank of the United States could not use this specie, because the charter required that the Merchants’ Bank must always keep one-third of its capital in its vaults in specie.* This bank was pressed to sale because creditors enjoyed especial facility for attachments in Louisiana.†

In August the Bank of the United States at New York went into voluntary liquidation and redeemed all its notes. In order to secure its position as an independent ally and so avoid collision with the law of New York, it had been established on a relation of contract, and the two gentlemen in control of it had been guaranteed a yearly payment during the continuance of the charter of the Pennsylvania Bank. The latter now wished to wind up the New York institution as if it had been a dependency, but the managers stood on their contract for the remainder of the term for which the charter was to run. Arbitrators gave them $101,613; also $76,948 for the unexpired term of the lease of the banking house which they owned.

In April, 1842, the Legislature undertook an investigation of the proceedings of the United States Bank to influence legislation, in connection with the relief measures of 1840.‡ George Handy, a director of the Bank was summoned to testify, but refused and was imprisoned in the Capitol until he submitted. He surrendered letters from the lobbyists of the Bank, which contained expressions about dealing in “lumber.” His examination was interrupted by his arrest at the order of the Governor, who caused criminal proceedings to be instituted against him, although he had turned State’s evidence under a pledge of immunity. The Legislature, by joint resolution, March 29th, ordered the Attorney-General to enter a nolle in any criminal proceedings against him for conspiracy. According to Gouge’s statement the Court discharged him, declaring that there was no evidence which would justify his being held in arrest, and the same of the lobbyists inculpated with him. The Governor, by his interference, had blocked the legislative investigation, which was developing the evidence, and the Court held that the evidence was not sufficient for a criminal prosecution. “The condition of that State is deplorable in which the people lose confidence in their legislative, judicial and executive authorities; yet such is the present condition of Pennsylvania, if the sentiments of the inhabitants of the rest or the State are to be judged of by those of the citizens of Philadelphia. The general belief here seems to be that the banking interest exercises an improper influence in all the departments of government.”§

The United States levied on assets of the Bank of the United States, at New Orleans, in 1844, to try to recover outstanding claims, including the French bill and $89,606.12, due on the last bond for the stock of the United States in the Bank. The court sustained the assignments, and so cut off this claim.∥

There were nine banks in Philadelphia which did not fail in 1841 or 1842. The Pennsylvania, Mechanics, Manufacturers and Mechanics, Penn Township, and Moyamensing (changed to Bank of Commerce) recovered. From January, 1842, to November, 1845, the fourteen banks reduced their capital from $9.3 millions to $7.6 millions. The circulation went down from $2.3 millions to $2 millions in April, 1842, and then up to $4.1 millions at at the later date. Post-notes were reduced from $915,388 to 0. Specie and specie funds increased from $1.3 millions to $3.9 millions. This was the contraction to which Philadelphia was forced before she escaped from the trials and humiliations of this period. How much did she gain by not taking it as New York did in 1837? The student of finance will seek far for another experiment so exact, comprehensive, and conclusive.*

The Girard Bank was revived in 1845, its capital being reduced from $5 millions to $1.25 millions.

The administration of the trusts of the United States Bank received little public notice. The assignments were sustained in Court.† In Shelby vs. Bacon, the trustees of the third assignment simply answered that they were performing the duties of the trust and making annual reports to the prothonotary.

The stockholders held a meeting June 5, 1848, in order to try to find out the situation of the various trusts and the chances that there might be any surplus for the residuary interest. They obtained some information, but were advised not to publish it, and the meeting ended with the appointment of a committee to guard their interests.

A movement in the stock occurred in December, 1851, with sales at from one dollar to two dollars per share. The cause of this was not known. Perhaps it was correctly ascribed to action of Dutch stockholders who started an attempt to pursue the assets.‡ Any hopes which may have been entertained were overthrown by the decision that the Bank was still liable for the annual bonus.§

In the following year, on account of this decision, the stockholders voted to apply for an act to wind up, and appointed five trustees in liquidation, to whom a general assignment was made. The president and directors had been trying for years to get the foreign bondholders to accept the collateral and divide it amongst themselves in settlement. As the State bonds increased in value, they became more willing to do this, and a distribution was reached in 1853.∥

The act to “close finally the trusts of the late Bank of the United States.” February 3, 1855, provided that the claimants might divide the assets of the third trust under the supervision of, and an appraisement by, auditors. The trustees were then to be discharged and claims cut off. In the following August the final dividend of the third trust was advertised.¶

It appears that the notes and deposits were all paid, whether with interest or not is uncertain. Private inquiries make it seem probable that the other domestic creditors got about eighty per cent. The stockholders got nothing. It has been calculated that the United States made $6 millions out of the Bank of the United States. This result is reached by setting the cost of the government stock and interest paid on the same, until it was converted into cash, against the bonus, the dividends, and the amount received for the stock.*

Nicholas Biddle died February 27, 1844, aged 58. John Quincy Adams said of him in 1840: “N. Biddle has a fair mind, a brilliant genius, a generous temper, an honest heart, waylaid and led astray by prosperity, suffering the penalty of scarcely voluntary error. It is piteous to behold.”† The men who had flattered him and pushed him on to folly, when he appeared to be a leader who could serve their purposes, turned upon him and insulted him when he failed,‡ as of course he was bound to do; but if he had been a man of straightforwardness and rectitude of character, this whole story would have been very different.

Virginia.—In April, 1840, the teller of the Bank of Virginia absconded, being a defaulter for about half a million. He had begun by allowing overdrafts.

The Virginia banks resolved to resume with the Baltimore banks, and did resume about January 15, 1841, but suspended again a little later. The bad and doubtful debt to the Bank of Virginia was then $910,848, including the teller’s deficiency.§

February 10th, the banks were allowed to issue ones and twos under the same conditions as before, until January 1, 1842. The notes of the Merchants and Mechanics’ Bank and of the Northwestern Bank were not to be received by the State unless they would desist from using post-notes for any sum under $500. All penalties, forfeitures, and remedies against banks were further postponed, March 15th, until January 1, 1842. The fifteen per cent. penalty for non-redemption was suspended until June 1, 1842. At the next session there was further postponement until April 1, 1842, and finally the day for the resumption of specie payments was set at November 1, 1842. The Governor, in his message of 1841, said that he could not urge speedy resumption because the State owed the banks $350,000 which it could not pay. The banks resumed September 15, 1842.∥ It was asserted by a well informed writer that the bank directors of Virginia owed to the banks a sum equal to one-quarter of their total capital. The directors generally owned only enough shares to qualify.¶ In May there were reports of outrages in the State to prevent sheriff’s sales and action of the courts against debtors.

The banks were allowed to issue small notes payable in specie to the amount of six per cent. of their capital, until October 1st, by a law of January 26, 1843. March 4, 1846, an act was passed reciting that the Bank of Virginia had lost thirty per cent. of its capital, and wanted the par of its shares reduced to $70, which was allowed.

At the session of Congress, 1839-40, strenuous efforts were made to obtain the passage of a law to revive the District of Columbia banks, but they failed.

North Carolina.—The waves of financial elevation and depression in this State do not seem to have coincided with those in the other States. It had a great inflation in 1829-30 when the others were at their best.* The revulsion of 1837 to 1843 seems to have passed over it with little effect.

The Governor stated, in his message of 1840, that within four years the banks had paid to the State, in dividends and taxes, $253,201; “the most conclusive proof of their value to the State.” This was nearly half its total revenue.

South Carolina.—After the suspension of 1839, the Bank of the State of South Carolina and the Bank of Charleston alone sustained specie payments. The former was called on to redeem $288,000 of its circulation within a year, even the ones and twos being returned.† The Governor, in his message of 1840, said: “The recent suspension of specie payments by most of the banks of our State calls for some decisive action. The legal remedy which the bill-holder has amounts to nothing. In modern times the refusal to redeem a note is a common bank operation, and he must be endowed with more than ordinary firmness who will make the demand, as he is sure to encounter the insulting, contumacious spirit of a chartered gentleman.”

The Legislature passed a resolution, December 19, 1838, that the Bank of the State should take the best measures it could devise to preserve all the bank notes in the State at par. In 1840, the banks of the State were divided into those which were paying specie and those which were not. The Southwestern Railroad Bank, the Bank of Charleston, the Planters and Mechanics’ Bank, and the Bank of the State entered into a voluntary agreement to try to keep the country notes at par of specie.

The banks of this State resumed in June or July, 1840.

It was enacted, December 18, 1840, that if any bank should suspend the payment of its notes in specie, it should pay to the State every month five per cent. of its circulation outstanding at the beginning of that month, until it should resume. Reports and examinations were also provided for, and every bank which had suspended was required to give notice that it accepted these obligations within three months, or legal proceedings were to be instituted to vacate its charter.

The income obtained from the fire loans, in 1840, was not equal to the interest on the fire bonds by more than $50,000, which the Bank of the State was obliged to advance.‡

From 1814 to 1841 the Bank of the State of South Carolina earned on an average more than seven per cent on the capital placed by the State in it. In the latter year the president, in his report to the Legislature, said: “The collection of the debts due to the bank and its branches is becoming every day a more important subject of consideration. The present system is one of great inconvenience and risk. The debtors are scattered over all parts of the State, and when a note or other cause of action is sent to suit, it, in a great measure, is lost sight of, especially if the party defendant lives in a remote district.” In 1843 the same officer declared that the bank and all its branches had not “exhibited for many years a more healthful, vigorous, or sound state of its affairs.” He renewed, however, his expressions of anxiety about the debt to the bank, and desired that a power of attorney to confess judgment might be inserted in the bonds given to it for loans. A proposition was made in the Legislature in the last mentioned year to wind up the bank, or to separate it from the State, or to compel it to call in its notes under $5; but it failed. The president took up the question whether a bank which was a loan office could maintain a circulation. If it was nothing else but a loan office, he doubted if it could; but an institution which was a loan office and a bank of commercial discount and deposit at the same time could do so. The difficulty is to adjust the proportion between the two. He felt warranted in his opinion by the facts of the suspension of 1839. Six of the seven banks in Charleston were purely commercial; five suspended specie payments, while the Bank of the State paid in specie all its notes which were presented, and at the same time paid off more than $1 million of other liabilities.

The voluntary attempt of the leading banks of Charleston to enforce redemption of the country notes did not succeed. The Bank of Charleston, in 1842, received the notes of all the banks in the interior of the State at par. They had previously been subject to a discount of one-half of one per cent. In six months it sent home nearly $1 million for redemption.

As soon as the United States Bank and other banks ceased their management of the foreign exchanges, no further difficulty was experienced with them. They regulated themselves, the business became normal, and we hear no more discussion about it than about the supply of groceries. The Bank of Charleston reported, in 1841, that it had not had a foreign exchange bill returned for a year, and that the interior exchanges with South Carolina, Georgia, and North Carolina had produced no loss and no addition to the suspended debt. In 1843, the Bank of the State of South Carolina and its branches engaged in legitimate exchange dealing on cotton, the result of which was to bring the trade to steadiness and regularity.*

In 1843, the State sued out a scire facias against the Bank of Charleston for suspending in 1837, although it did not suspend in 1839. The act of 1839 about this bank, recognizing its present and future, was held to be a waiver of forfeiture which had been really incurred. The Court also suggested that the matter of suspension having been referred to the Legislature by the Governor, in 1837, and suspension having been acquiesced in, this might perhaps also be regarded as a waiver.*

The financial storm was comparatively mild in South Carolina. The State had not been much affected by any of the prevailing manias. According to the reports of the Bank of the State, 1841 to 1844, it was prosperous in a modest way. Its profits are stated at from $225,000 to $250,000 per annum.

The Bank of Charleston issued, in 1844, checks on New York in denominations of five, ten, twenty, and fifty dollars, payable also in Charleston. They were issued for the convenience of the traveling public.

Georgia.—The capital of the Central Bank, in 1835, was $2,593,912. In 1837 the share of the State in the distribution of the federal surplus was put in it. This sum was kept separate and losses were charged against the former sum which was thus reduced, before November 2, 1840, to $930,589. The State was consuming in appropriations and interest the capital of the bank. At the preceding session the bank had been ordered to distribute $750,000 in loans amongst the counties, for “relief.” “These loans have been eagerly sought by our citizens. By this operation the profits of the bank have been increased by the sum of $45,000, and its notes by the sum of $750,000.” The measure, however, was the death blow of the bank. “The heavy amount of debts due by the people, the low price of property and commodities, and the poor reward of labor have rendered the collection of money due the bank exceedingly difficult. Our receipts have been greatly increased by the moneyed facilities arising from our distribution of $750,000, which is now completed. This distribution has almost entirely been loaned in small sums, and the great amount of indebtedness thus transferred from creditors, who would not wait, to the bank, which will await the annual return of the industry of the planter, has operated as a relief to thousands of our most meritorious citizens. * * * Time has proved the unsoundness of a large amount of claims which have been due to the State for thirty years and upwards. Experience is daily developing difficulties in collecting notes heretofore regarded as secured in the amplest manner.”† A committee of the House on this report was not at all satisfied with it. They insisted that the heavy exchange against the State was due to the depreciation of its currency, and was no reason for not putting the funds in New York to pay the debt there, since the creditor had nothing to do with the internal troubles of the State. “Whenever it can be shown to be honest and sound policy to levy money out of one citizen’s pocket to loan to another, certainly not more and probably much less meritorious, then ought the policy of the Central Bank to be sustained; but not till then.” They proposed a law to require the banks to resume, February 1, 1841, under penalty of forfeiture.

This committee introduced a bill which was passed, December 23, 1840, to repeal the act of December 21, 1839, for absorbing into the Central Bank the stock owned by the State in other banks, and to provide for an issue of bonds of the State to the amount of $1 million in sums not less than $5 each, redeemable in five years or sooner, bearing eight per cent. interest, with which to redeem the notes of the Central Bank, and pay the excess of the appropriations over what the Central Bank could properly pay. These bonds were to be a debt of the Central Bank, to the cancellation of which its assets were to be applied as fast as they could be realized. Any one who held Central Bank notes to the amount of $5 or more might obtain these bonds in exchange for them; but all which were brought in by any one person within a week, up to $500, were to be redeemed in one bond. The stock owned by the State in the Bank of the State and the Bank of Augusta was to be sold not below 90, by the Central Bank, in order, with the proceeds, to pay its debt to the Phœnix Bank of New York.

The appropriation bill of the same day ordered the Central Bank to provide the means to cash the treasury warrants outstanding.

During the summer of 1841 the Central Bank and a number of others failed. The substance had all been eaten out of the Central Bank by the measures which the Legislature had adopted during the last four years; that is to say, by the attempt of the State to live on it. In July Gouge reported: “The Bank of Darien is now ‘broken to all intents and purposes.’ ” The amount of its issues was uncertain and in fact unknown. In the same month it was reported: “The Chattahoochee Railroad Bank of Georgia which has just closed its doors is said by the “Jeffersonian,” published at West Point, Ga., to have been a stupenduous fraud. The whole country is flooded with its issues amounting to millions, and yet it never had ten thousand dollars of specie in its vault. Its nominal capital was $3 millions, but it is averred that three million cents were never paid in. The very first step in obtaining its charter was a fraud on the Legislature, as the making of a road was never in serious contemplation.” Now it is said to have failed. As specie payments were suspended how could it fail? “There is scarcely a man or a woman in that part of the State who has any bills at all but has most of them on this bank.”*

In connection with these difficulties a custom was introduced which became somewhat famous as the “Macon specific.” Prices were set in specie and, if notes were offered, they were taken at their quotation.

The Bank of the State of Georgia avoided with considerable difficulty a suspension in 1841. There was a defalcation in the branch at Macon by two prominent officers, and a falsification of the note issue to the extent of more than $50,000. The bank complained of the oppression of specie-paying banks due to the extensive circulation of the notes of the non-specie-paying banks. In the following year these complaints were renewed. The circulation of this bank had been reduced to $226,993, while it held specie $201,261.

The bank circulation of this State was $8 millions in 1836; $1.7 millions in 1841; $2.4 millions in 1846.

In October, 1841, the State owned $325,000 of the stock of the Bank or Darien. Of the stock formerly owned by individuals, the bank had bought in all but $94,145. Therefore the State owned the wreck, and it was a question if it was not liable for all the debts.*

At the session of 1841-2, the Legislature began by an enactment, December 10, 1841, that if the banks which were liable to forfeiture would resume by January 1st, all proceedings should be arrested. On the same day the charter of the Darien Bank was repealed. The Central Bank was ordered to take its assets and wind it up, extending the loans if necessary or expedient. The Central was also to receive the notes of the Darien Bank in payment of debts to the Darien. Interest on the debt of the State was to be paid at the Central Bank. The act for issuing eight per cent. State bonds to redeem the circulation of the Central Bank was also repealed, and that bank was ordered to make no loan until it could hold its circulation at par with that of specie-paying banks. No note of an insolvent person might be used as banking capital on which a note issue might be based.

November 24th, banks were given the right to recover damages if they could not collect balances from other banks. The free banking act was amended, December 7th, to authorize the Comptroller, if banks did not redeem, to foreclose mortgages in the banking fund and sell land and slaves by the same process by which personal property might be sold. The president and directors of the bank were to indicate which mortgages should be sold. December 8th, the Central Bank was authorized to issue ones and twos to the amount of $300,000, to be issued only in exchange for larger notes. The prohibition of small notes was maintained against the other banks. December 10th, it was directed to sell the stock owned by the State, in the Bank of the State and the Bank of Augusta, and with the proceeds to redeem its own notes.

In the following May, there were reports of outrages in Georgia to prevent sales by the sheriff, and judgments by the court against debtors.

In the report of the Bank of the State of Georgia, April 26, 1842, it was shown that the dividends must be passed, which had occurred only three times before,—namely, in 1823 and 1824, since 1816. Three of the branches were withdrawn, defalcations having taken place in two of them and the parent bank being under a heavy burden to redeem their circulation. The report of this bank for 1843 showed that the circulation was still but slightly in excess of the specie stock.

December 27, 1842, all the solvent specie-paying banks were allowed to issue ones, twos, threes, and fours, for not more than five per cent. of their capital. December 13th, it was enacted that banks which have forfeited their charters shall be wound up by three commissioners appointed by the Governor, suit to be instituted against the stockholders for any deficiency; but this was not to apply to the Central Bank.

All the acts of the last four years which had laid burdens on the Central Bank were repealed December 22, 1843. Payments on account of the State debt and of the appropriations were to be made at the treasury, which thus once more assumed all its own fiscal functions which were taken from the bank. The Central Bank was to do no more business. Any surplus revenue of the State was to be applied to the payment of its notes, which were to be burned. A number of the banks were at this time winding up under assignment. The assignments were approved by the Legislature because nobody could be found who was willing to be a receiver.

December 28, 1843, it was enacted that after February 1, 1844, all payments from the State treasury should be in specie or specie funds. The Governor was authorized to issue bonds at seven per cent., payable in New York, for not more than $150,000, in order to get the fund. An equivalent amount of Central Bank notes was to be withdrawn from the treasury and burned. The charter of the Central Bank was extended in liquidation, from time to time, until 1860. In an act of February 22, 1850, it was recited that the State was liable for claims on account of the Darien Bank, many of which were believed to be illegal and unjust. The directors of the Central Bank were ordered to inquire on what terms they could all be settled. In 1854, there was an arbitration between the State and the creditors of the Darien Bank. The Governor was authorized by law to issue bonds to settle the State’s obligation. A number of suits were begun against the State, in 1855, to test its liability for the debts of the Bank of Darien. It was held that the debt of an insolvent to the State had priority over other debts, which priority the State did not lose by becoming a stockholder; furthermore, that, as the State had redeemed more than half the circulation of the bank, it had no further liability as a stockholder.* In 1856 the assets of the Central Bank were absorbed into the treasury.

Florida.—A stay law was passed in 1842, postponing execution upon the payment of costs and ten per cent. on the debt every sixty days. The Governor, in his message of January, 1843, said that it was good but did not go far enough; and he recommended a redemption law, with liberty to the debtor to recover his property within a specified time by paying to the purchaser the price, with interest.

The Committee on Corporations of 1842 charged the managers of the Union Bank with negligence and every kind of abuse and malfeasance in banking, but declared them all vices incident to the system on which the bank was based, and not the peculiar fault of the managers.

We have seen that the Territorial Council chafed under the attempts of Congress to restrain them when they were engaged in their wild banking legislation.* Now this committee made it an argument for repudiating the Territorial debt that the bonds had “been created by a government not of the people, but placed over them—a mere temporary arrangement by Congress, a police regulation only, a fugacious institute, three removes below even the Legislature of a State, and which, in chartering this bank, [Union Bank of Florida] and issuing these bonds, has attempted to usurp two of the highest attributes of sovereign power. These agents of federal authority in the selection of but part of which to rule over us the citizens of Florida are permitted by Congress to have a voice have, by this charter, sought to make us subject to their unlimited taxation, and render our posterity hereditary bondsmen.”

The Governor, in 1845, charged upon the federal government “an unwise and ruinous legislation * * * worse, if possible than war, pestilence, and famine,—I mean the blighting influence of a corrupt and corrupting paper system, so utterly rotten that I cannot undertake its dissection.”

The renewed Bank of Florida went into operation in 1843. A year later another Governor had to report upon “the evils which have attended the renewal of the Bank of Florida, the last in the series of infatuated experiments.” He quoted sarcastically the passages in the messages of the two previous years, in which the former Governor had introduced this new enterprise with approval, the latter one he says, uttered “but a few weeks before the bank escaped your jurisdiction by flight.”

The debt of the Territory was $500,000 for Indian wars and $3.9 millions for banks.†

In January, 1844, all the banks of Florida were defunct. Speaking of the Union Bank, the Governor said: “The principal cause of the delinquency of the bank may be traced to the elements of its organization. By the provisions of its charter each stockholder had a right to draw from the bank, as a permanent loan, two-thirds of the value of the property mortgaged by them as an indemnity to the Territory. This right has almost invariably been exercised, and thus two-thirds of the whole capital of the bank, raised on the faith and responsibility of the Territory, has passed into the hands of a few individuals, who, with a trivial exception, have been unable or unwilling to pay the interest. There is now due the bank, from the accumulation of interest on these loans, $216,000, and for interest on accommodation paper a greater amount, which has produced a total inability on the part of this institution to pay the interest due semi-annually to the bondholders. The bank has, in many instances, resorted to legal process to compel the delinquent stockholders to comply with their engagements, but, so far as I am advised, it has been hitherto unsuccessful; and the opinion is entertained by many that the stockholders may continue to enjoy the loan until the expiration of the time specified in the mortgages (most of which have yet upwards of twenty years to run), without the payment of any portion of their annual interest, and continue, at the same time, to enjoy the possession and use of the property mortgaged to the bank. This opinion appears to me as absurd in its conception as it is demoralizing in its tendency.”

The Secretary of State of Florida replied to the inquiries of the Secretary of the Treasury, 1847: “The General Assembly of this State, doubting the right of institutions of this character chartered by the Territorial Legislature to exercise corporate privileges in this State, has not acted on their reports or legislated concerning them.” The same officer replied, in 1848, that the authorities of the State had avoided any communication with the banks, lest they should appear to recognize their pretended charters and legal existence. The banks were always referred to in public acts as “alleged” or “pretended.” The notes of the Union Bank were worth 20 cents on $1 and those of the Life and Trust Company less.

Alabama.—An act was passed, February 3, 1840, which was another link in the extension system begun by the act of June 30, 1837, whose consequences we shall soon see. It was made lawful for the Bank of the State and branches to collect twenty per cent., and interest, on all debts to the bank, including the extended debt, until the Legislature otherwise orders, in such a way “as to conform to the safety of the said several banks and to the ability of the debtors to discharge the same;” the debtors giving security. It will be observed that the three years’ extension from 1837 would expire in the following June, when, if the debtors had fulfilled the terms of the extension, all the old accounts should be cleared off. Resumption was postponed until July 1, 1841. The Bank of the State at Tuscaloosa and the branches at Montgomery and Huntsville were “authorized” to issue each $500,000 in twelve months’ post-notes; the Mobile and Decatur branches were “required” to issue the same. The Board of Control was abolished. The Planters and Merchants’ Bank of Mobile and the Bank of Mobile were authorized to issue post-notes, lowest denomination $10, at twelve months, to any amount they think best, not exceeding $500,000 each; but the Legislature reserved the right to change this permission.

The Governor, in his message of 1840, stated that two sets of directors elected by the Legislature, and the members of the Legislature of two successive years, obtained accommodations to a larger amount, and will probably be the cause of greater loss to the banks, than the whole community besides.

The report of the president of the Bank of the State at Tuscaloosa, October 4, 1840, stated that the amount of debts due to that bank and made extendable by the act of February 3, 1840, amounted to $3.9 millions. The amount actually extended up to the time of this report, was $1 million. The bank construed the section of the same act which authorized each of the specie-paying banks to issue $500,000 in post-notes, and each of the suspended banks to issue the same amount in counter notes, as an order to extend the circulation and business of each bank. This bank had acted on that understanding.

A committee of the directors of the same bank said that the books of the bank for 1839, the period they were set to investigate, “seemed to be in great confusion, with errors almost on every page, to correct which it would require, in the opinion of your Committee, the services of at least two competent clerks for twelve months.” They were trying to find how a leaf had been cut out of the check-book and had disappeared.

The Commissioners on the same bank, in their report of November 5, 1840, stated that they had given particular attention to the cotton transactions, which had been persisted in until immediately before. “It will be difficult to imagine any cause that ultimately will be so disastrous to the institution.” They anticipated reclamations to be made on shippers for a deficiency in the realizations compared with the advances, to the amount of $478,747. “In view of the vast amount of reclamations as shown; the great number of bales never delivered, the payment being almost universally resisted (without exception, it is believed, in all large amounts), with the most confident hope of defeating the bank of its just dues; and many of the parties believed to be insolvent, or have taken measures to be so, as regards the bank—taking all these things into consideration, a more ruinous and reckless administration of the affairs of the bank could not well have been devised.” They complain of the negligence and remissness of the officers of the bank in regard to pursuing debtors, and a delinquent attorney of the bank. They had ascertained a certain loss of $540,761, and anticipated losses on cotton to the amount of $700,000. Forced balances had been made in the books to cover errors.

The Commissioners on the Mobile branch, 1840, reported that its surplus or sinking fund of $1 million consisted only of book-keeping entries, showing apparent profit, and discount charges which had not been collected or realized. “We are afraid that its qualities as a sinking fund are altogether imaginary and that a much larger amount will be swallowed up by the hopelessly bad debt.” An illustration of what they meant, and also of the way in which the “relief” actually came to the debtor, is furnished by the following facts: The extension laws enjoined strictly that at every renewal twenty per cent. of the debt must be paid, and interest in advance at eight per cent. “The bank rule has been to compute discount for the whole term at eight per cent., and require notes which at that rate of discount would produce the net amount of the whole debt in cash.” This produced an annual interest rate of about thirteen and two-thirds per cent. The Commissioners showed that the excess of immediate liabilities over immediate means had increased, in 1840, $512,890, “which is about the amount which the Legislature required the bank to issue of its own paper, by the relief act of the 3d of February last, at a period when the utmost prudence was required to give some hope of so reducing its liabilities as to be able to prepare for resumption.” They tried to find out the value of the assets. The amount of paper under protest was $4.6 millions, of which there was in suit $1.9 millions. Of the bills discounted, not under protest, twenty per cent. had been extended, under the relief law of February, 1840. Of the remainder, $1.7 millions, a large part consisted of paper which had been extended under the relief law of 1837, “which will take its place at maturity among protested paper or paper further extended. It follows that of the immense debt due to the bank, hardly ten per cent. exists in a form which justifies any calculation upon its being made available or active within any definite period. * * * The new transactions within the last year or two have been few, and they are generally safe; but it is the load of debt accumulated in former years, under which the bank broke down, in 1837 and 1838, that has, under the State policy of extension, been weakening its resources and eating out the substance of its assets constantly.”

A report of the president of the Mobile branch, at the same time, stated that the errors which had been discovered in the bills discounted amounted to $378,036, and in the bills protested to $52,853. As the notes which had been discounted by that bank since it began amounted to $48 millions, he thought these errors comparatively slight.

The Commissioners on the Decatur branch reported that they found its books “kept in a style of the utmost clerkly accuracy.” “From all the information they have been able to obtain, they have ascertained the amount of bad debts to have swollen to a fearful and an enormous height.” They estimate them at $1 million. The amount of debts in suit was $981,966. The Commissioners are afraid that the plan of demanding security on property for accommodation loans will arouse the animosity of the public against institutions, and they find that, in spite of care, “the property substituted has been at the most inflated rate of valuation.” The president of this branch reported that he had hoped, under the extension law, to recover all the debts “which had the least appearance of being good,” but he regrets to say that “many of undoubted character have been suffered to remain suspended, without any apparent effort being made to comply with the requisitions of the bank.” This is valuable testimony to the only natural and inevitable effect of the extension laws,—namely to induce the honest and solvent debtors not to pay, lest they should, in that way, fail of some indulgence which their negligent comrades would get. If any did pay, there would be a glaring case of that inequality which the advocates of Banks of the State were always trying to avoid.

The president of the Bank of the State, in 1840, said of the independent Bank of Mobile: “It has successfully withstood all the commercial and financial derangements the country has recently suffered, and now deservedly sustains a high character for credit and strength surpassed by none in any section of the country.”

The suspension of the Bank of the State was sanctioned April 27, 1841, until the Legislature should otherwise order. The requirement in the act of June 30, 1837, that this bank and its branches should provide themselves with gold was suspended, but the two chartered banks in Mobile were required to have in their vaults, on July 1st of each year, one-half of their note issue, but not more than one-quarter of their capital, in specie.

In the report of the Bank Commissioners for 1841, a long list of notes which they found in the Montgomery branch of the Bank of the State is given, with notes and comments. These are almost always to the effect that the principal and sureties are not worth a dollar. There are three notes signed by the same three persons in turn, as principal and sureties. One is the father, who is reported as a poor man; the other two are his sons, ten and four years of age. An agent of the bank recommended some notes for discount which he received from two persons whom he did not know. They were discounted and a person whom he did not know called on him with an order for the money, signed he does not say by whom, but he gave him the money and took his receipt, signed “C. Stone.” He can only say that it was not the only “C. Stone” known to him. Later events prove that this agent was a knave and not a fool. It turned out that the notes which he had thus sent in to the bank were forged.

A law was passed December 27, 1841, that any member of the Legislature who nominated a director of the State Bank or branches should state in writing the amount of indebtedness of the candidate to the bank and branches, whether he was under protest, and was solvent and competent. December 31st, the authorities of the State Bank and branches were authorized to settle as well as they could unknown, bad, and doubtful debts to the bank. A joint Investigating Committee was ordered to be raised to investigate frauds on the State Bank and neglect, abuse, and misconduct in the management, with full powers.

The Planters and Merchants’ Bank of Mobile failed October 25, 1842. Its charter was forfeited and receivers were appointed to wind it up by an act of February 13, 1843.

At the session of 1842-3, the affairs of the State Bank become a preponderating subject of interest. December 31st, joint resolutions were adopted in regard to preparations for liquidating the branches at Mobile and Decatur. They are no longer to lend on notes and bills, or to settle with debtors; but may accept payments offered, or may buy in property sold at the suit of the bank.

The Montgomery Branch was put in liquidation January 25, 1843. Its notes were to be received for debts to it and destroyed. Quarterly settlements were to be made with the Bank of the State and its branches. It was provided that whenever the State Bank and the surviving branches should resume, they should redeem the notes of the Montgomery Branch as well as their own. Similar acts were passed in regard to the other branches. February 13th, the right of any plaintiff in a suit against the State Bank and branches to have garnishment against a debtor of the bank was taken away. On the following day it was provided that during suspension by the Bank of the State it should discount no note except for renewal, nor deal in bills of exchange except to pay interest on the State debt. Thirty per cent. damages were laid upon any bill bought by the bank, which should be protested. The number of officers was reduced and the bank was ordered not to pay out any more notes. Small notes might be issued in exchange for notes of $100 or more. All the specie of the branches was to be controlled by the Bank of the State at Tuscaloosa, and the president and directors of that bank were to provide for the interest on the State bonds issued for the branches. The Commissioners under the act of 1833 were directed to examine the bank and branches, especially the expense account from January 1, 1835, with reference to certain illegal expenditures. The Governor was to institute suit, such as the facts might call for, to recover the illegal expenditure. On the same day with these enactments, joint resolutions were adopted against assumption and repudiation.

The Legislature renounced the function of electing the directors of the Bank of the State, December 15, 1843, assigning it to the Governor. A measure was also adopted to extend until 1850 the bonds which would fall due in 1844.

The debt of Alabama, in 1844, was $14.1 millions, of which $9.2 millions was for bonds outstanding, “issued by the State in aid of her late banking operations.” The total included $3 millions bank notes and also the university and school fund, $1.2 millions, which had been used up. The Committee on Ways and Means had come to the conclusion “however reluctantly, that not more than $7 millions of the debts due from individuals, including real estate and all available assets, can ever be realized” from what is due to the banks.

The Commissioners to examine the Mobile Branch in 1844, found errors and discrepancies in the accounts, in regard to which they said: “The general source of the error is the want of system and carelessness of the officers in former years by which confusion and discrepancies were introduced, which no possible amount of labor can now trace and correct.” Having examined the debts due to the bank amounting to $5.7 millions, they valued them at $2.3 millions, fearing that they had put them too high. They valued the real estate owned by the bank at $250,000. It stood on the books at $1.3 millions. Recapitulating all the assets, they found that they were worth $2.6 millions, although standing on the books at $7.4 millions. The total liabililities were $6.1 millions, so that they found a deficiency in this one Branch of $3.4 millions. The clue to the accounts of the bank must have been entirely lost. “In the year 1840, after much trouble and the application of the labor of two clerks to the investigation of these books, the further prosecution of the task was abandoned as hopeless.”

The Governor, in his message of 1845, referring to the losses which the various investigations had discovered, said: “The causes which have brought about these continuous and heavy losses are readily discovered by a recurrence to the history of their management, the whole tenor of which proves, beyond doubt, that less regard has been had to the interests of the bank than to the convenience and accommodation of their debtors.” The outstanding loans of the bank and branches, in 1837, had been $20 millions, of which about $100,000 were considered bad, and $500,000 doubtful. Then came the extension law of June, 1837. In 1840, the bad debts had increased to more than $3.5 millions and the doubtful were $1.5 millions, while a new item was introduced, “unknown debt,” amounting to more than $1.25 millions. Then came the act of February 3, 1840, the effect of which was that in 1844 the good debts were $6.9 millions, the doubtful $484,132, the bad $6.2 millions. “This cursory glance at the history of the legislation and management of our banks must clearly show that the extension laws and the manner of their execution were the principal causes of the immense losses sustained by these institutions.” As the bank and branches were now defunct, he took it for granted that no one would propose to re-issue the notes after they should be paid in in taxes or debts to the bank. “This suicidal policy, I trust, will not be adopted, even as a temporary measure. It involves the same principles which have too long prevailed in the management of our bank,—favoring the bank debtors at the expense of the taxpayers of the State. * * * Bank debtors should understand that the laws are intended to operate equally on all, not to spend their force on one portion who regard them; then to be changed and modified to suit the convenience of other portions who treat them with neglect. * * * In connection with this subject, I submit to your consideration the propriety of causing a rigid scrutiny into the conduct of the officers, attorneys, and agents, under whose management the astounding losses to our banks have accrued, holding them to a strict accountability.”

The Bank of the State at Tuscaloosa was put in liquidation December 31, 1844, the day on which its charter expired by limitation. From this time the old independent Bank of Mobile was the only bank left in the State. November 12, 1844, it had $1.5 millions capital, $1.4 millions loans, $791,459 specie, $486,440 circulation, $465,443 deposits.

The liquidation of the Bank of the State and its branches was regulated by an act of January 25, 1845, in which the consideration of leniency to the debtors still prevailed. All debts to these banks were extended until June 1, 1846, if, before June 1, 1845, the debtor paid one-third of the principal, with interest and costs, and gave additional security. Also all execution on judgments in favor of the bank was postponed one year if one-third of the debt was paid and new security given. All debts were to be put in suit between June 1 and July 1, 1845. Good ones were to be extended; bad ones put in the hands of an agent for collection; the real estate of the banks was to be sold, the plates of bank notes destroyed, and incomplete notes burned.

February 4, 1846, the assets of the banks were vested in three trustees who were to be appointed for a term of two years, to compound and settle “at the earliest day that the same can be done, having regard alone to the interest of the State.” The debts which had been extended to 1846 were now extended to 1847, if one-half was paid before June 1, 1846, provided that the Commissioners were of opinion that the State would not lose. No more notes of the Bank of the State were to be burned unless it was necessary to do so to stop depreciation. A report of the trustees under this act made December 20, 1847, showed that they had accomplished much towards the liquidation of the bank. They had collected $3.4 millions, and they estimated the remainder, which was collectible, at $2.2 millions. They had taken up in their collections, of the circulation of the bank, $1,142,000. The amount still outstanding was $457,177. The notes were at that writing nearly equal to specie.

In 1850 the Legislature began to pass special acts, extending debts to the Bank of the State on behalf of individuals.

The trustee of the Bank of the State was directed, February 4, 1852, to sell the stock owned by the State in the Bank of Mobile, and to pay off the $600,000, five per cent. bonds, which had been issued wherewith to buy it. When this should be done the capital of the bank might be increased from $1.5 millions to $2.5 millions; two-fifths being reserved for the State while the charter runs. Five days later the charter was extended twenty years from the date of expiration, $100,000 bonus was to be paid in installments of not less than $5,000 per annum.

It appears that the earnest hope which had been expressed by the Governor in 1845 that the notes of the Bank of the State would not be re-issued was not fulfilled. On the contrary they seem to have circulated until the civil war. They could only be regarded as pure bills of credit after 1847. An act of February 16, 1854, ordered the trustee to give notes fit for circulation in exchange for the worn notes in the State treasury; the latter to be burned by State officers. The unmutilated notes under $5, which were in the treasury, were to be given out in exchange for large notes to any one who desired them, and the small notes were to be receivable by the State. An act of February 14, 1856, about loans to railroads, shows the notes of the Bank of the State and branches still in circulation. The Governor, in his message of 1857 expressed the opinion that the time had come when the circulation of the old Bank of the State notes should no longer be tolerated. At length, January 22, 1858, a law was passed that all the notes of the Bank of the State and branches in the treasury should be burned, and also all those which should come in thereafter. Laws for the extension of the Bank of the State in liquidation were repeated until the civil war.

Mississippi.—The Legislature of 1840 turned against the banks. Some charters were repealed. February 6th post-notes were forbidden; any bank which issued them was to forfeit its charter; resolutions were adopted, February 13th, in regard to the prevailing distress, the causes, and the remedies. The chief cause was declared to be “excessive banking.” They declared that paper issues stimulate speculation and extravagance; that it was the duty of the United States and the State governments to remedy evils due to “unwise and reckless legislation,” that metallic currency was the only one known to the Constitution of the United States. They pronounced in favor of the independent treasury with the specie clause. February 15th, all unauthorized banking was forbidden. It appears that there was a great deal of it. Notes issued by unauthorized banks were declared void and such banks were forbidden to do a discount and deposit business. No shin plasters were to be allowed to pass after sixty days from the date of this law.

A relief law was adopted February 21st, with the old device of three valuers and two-thirds of the valuation or no sale.

An act requiring the banks to pay specie was passed February 21st; the limit of note issue was set at three times the specie on hand; semi-annual statements were provided for; post-notes forbidden; also dealing in cotton or other commodities as collateral, or merchandise; $5 notes must be paid in specie from April 1, 1840; tens from July 1st, twenties from October 1st, and a general resumption was ordered January 1, 1841. Any bank officer who refused to endorse on a note his own refusal to redeem it might be fined $1,000 and imprisoned three months; no director was to have a loan in his own bank. Voluntary and involuntary liquidation were provided for. On the next day it was provided, by a supplementary act, that if a bank went into liquidation, any railroad charter connected with it should go on. In a case which arose under this law, it was held that it did not impose any new duty on banks or infringe their charters, and was therefore valid.*

In February, the Brandon Bank wanted to close its branch at Paulding. A public meeting was held at that place to remonstrate, at which a committee was appointed, who took possession of the books, papers, and other property belonging to the bank, and held possession of them so as to make removal impossible.†

In March, the banking affairs of the State were reported to be all in confusion. The liabilities of the Union Bank in May would be $4 millions, and its rescources were nearly all suspended. Hence the desire to recall the second $5 millions of State bonds which had been issued to this bank. The correspondent of a Mississippi newspaper said: “The credit of the State has been banked to death. Insolvency is now our name. Never was State in such an awful condition. The cry of ‘relief’ is heard on all sides, but what can a State do that is unable to pay its Legislature and the current expenses of government?” Brandon notes were quoted at nine cents on the dollar; the losses of the Union Bank on cotton were immense. The debt of the State called for a payment of $120,000, for interest, in the year 1840, and an installment on the principal of $125,000 on the 1st of January following. To meet this, the resource was a sinking fund loaned out to one hundred and ninety-five individuals, on which, in the opinion of a committee of the Legislature, not more than $200,000 could be realized in the course of four years.*

May 23d, the “Free Trader” said that there was not a dollar of par funds in the Treasury. The public printer would not print a document until he was paid in good money.†

Under the resumption act of February 21st, the Governor proclaimed, July 10th, that the Union Bank had forfeited its charter by suspending the payment of its notes.‡ Some time in the autumn, that bank made an assignment. The report in December was that lands and negroes had lost one-half their value; that on the expiration of the year of delay, under the appraisement law, the population was leaving the State for Texas. “Banks are in the worst odor possible.”§

The Commercial and Railroad Bank of Vicksburg made an assignment, in 1840, in order to cut off the creditors of the bank, that is, the note-holders, until the railroad should be built. This assignment was overthrown, being a withdrawal of the assets from the rightful claim of the creditors.∥

We can learn scarcely anything about the liquidation of the Union Bank. The State ignored it. There is scarcely a trace of it in legislation or court records. The trustee of the Bank of the State of Alabama, in 1847, speaking of the plan of selling the credits of the bank at auction, objected that that plan, in the case of the Union Bank of Mississippi, had proved to be almost a complete sacrifice of them.

Among the first acts at the session of 1841 was one to repeal the law of May 12, 1837; to guard against the insolvency of banks, and to secure the rights of creditors.

Governor McNutt, in his message, January 5th, stated that the Union Bank had $4,349 in specie on hand; suspended debt in suit, $2.6 millions; ditto not in suit, $1.7 millions; resources chiefly unavailable, $8 millions; immediate liabilities, $3 millions; not more than one-third of the debts could be collected and the whole capital was lost. “The bank has seven thousand bales of cotton in Liverpool unsold, on which it has drawn $267,116.14. An advance of $60 per bale was made to the planters upon that cotton in 1838. They will sustain a clear loss, including interest, of $30 per bale; equal, in the aggregate, to $210,000. The bank has been irretrievably ruined by making advances upon cotton, issuing post-notes, and loaning the principal portion of her capital to insolvent individuals and companies. The situation of the Mississippi Railroad Company and of the Planters’ Bank is equally bad. The former, in the year 1839, issued about a million and a-half of post-notes, and expended them in constructing the railroad and building extensive depots. I certainly would not have approved the transfer act, had I anticipated this improvident course.” The company has failed to pay the interest on the Planters’ Bank bonds. The Bank of the United States has advanced the same, and has presented an account against the State for $124,222.22, and demanded payment thereof in specie. The first installment of the Planters’ Bank bonds, amounting to the sum of $125,000, will be due next July. No provision has been made for its payment. One of the circuit Judges has decided that recoveries cannot be had on the notes belonging to the sinking fund. The fund is especially appropriated to the payment of the two first installments of the Planters’ Bank bonds. The Mississippi Union Bank, hereafter, will be totally unable to pay the interest on the five millions of State bonds issued in the year 1838.

The state of things at this point of time was this: The Planters’ Bank bonds had been sold originally at a premium amounting to $200,000, which sum had been invested as a sinking fund for the same bonds. The bank won ten per cent. per annum during the years of prosperity. This success of the enterprise was the cause of the extravagant degree to which the State committed itself to banking in 1836 and 1837. Then the State ordered the bank to transfer this capital to the Mississippi Railroad Company. The latter never, apparently, used its railroad enterprise for anything else than to get this capital. The bank paid over the capital by scrip which became worthless, but which had nothing to do with the bonds. The Railroad Company had become responsible, as was supposed, for the bonds, just as the bank had been responsible before. It, however, had served its purpose and was defunct. As to the Union Bank bonds, the Governor speaks of three lots of them, two of five millions and one of five and a-half millions, although, under the amended charter, by which the State took five millions of stock, it would appear that there should never have been but ten millions of bonds. The first five millions had been negotiated. He had executed and delivered the second five millions. He reported with pride that, by his proclamation of March 2, 1840, he had made it impossible to negotiate them; likewise that he had refused to execute and deliver the third lot of five millions and a-half.

In answer to the Governor’s recommendation of repudiation, the Legislature resolved that the State was bound for both the Planters and Union Bank bonds, and that the insinuation that she would repudiate them was “a calumny upon the justice, honor, and dignity of the State.”*

Some of the Union Bank bonds were deposited as collateral for the debentures of the Bank of the United States. The interest was defaulted, May 1, 1841, whereupon Hope & Co., of Amsterdam, wrote a letter of remonstrance and inquiry to Governor McNutt. In his reply the Governor complained that if the Union Bank had to bear the loss by the credit sale and the change of currency, her means would be reduced and the risk of the State increased. He gave five reasons why the State would not pay. The bonds were sold on credit; they were made payable in pounds sterling at four shillings and sixpence to the dollar;* the contract of sale was fraudulent; the purchase by the Bank of the United States was in violation of its charter; the bonds were sold at less than par.† He said that he denounced the sale to the Legislature as illegal, in January, 1839. He declared outright “this State never will pay the $5 millions of State bonds issued in June, 1838, or any portion of the interest due or to become due thereon.”

“It was not until July, 1841, that the doctrine of Repudiation was announced to the world—and then by the very last man in the world from whom it should have proceeded, Governor McNutt. We have nowhere seen it advanced that even a minority of the Legislature of 1839 made any movement of repudiation which might at least have served as a notice of intention.”‡ On the contrary, that Legislature was angry with McNutt for his animadversions on the negotiation of the bonds, and passed resolutions of approval of that negotiation.§

Governor McNutt wrote a letter to the “Richmond Enquirer” saying that a demand would probably be made on the government of the United States for payment. “This will raise an exciting and perplexing question. The State has defined her position and will maintain it, be the consequences what they may. I firmly believe four-fifths of the people of the State prefer going to war in lieu of paying the bonds.”

The repudiationists won a great triumph at the November election, 1841. They had two-thirds in each House of the Legislature. The immediate effect was that all State stocks fell. At the opening of the following session of the Legislature, Governor McNutt said that the recent election was a glorious triumph. It had “sustained the sacred truth that the toiling million never should be burdened with taxes to support the idle few.” The State had lost $302,988 by the notes of bankrupt banks which it had taken. He wound up his message: “The banks in this State have sunk about $20 millions in relieving the financiers. They will receive their last relief in the bankrupt act.”

At the session of 1842, the Legislature was trying to undo the work of 1836-7. February 28, 1842, an act was passed to provide that the State should take over the assets of the Mississippi railroad and sell them at auction. Bonds and coupons of the State were to be receivable for them. The act aimed to stop the sale, by the railroad, of scrip of the Planters’ Bank, which had been issued for stock of the State in that bank, and had been transferred to this railroad company in 1839, and also to stop the sale of the same by persons or corporations who held it hypothecated.

February 26th, resolutions were adopted with respect to the Union Bank, which constituted a great step in the history of repudiation. They recited that the Legislature had no authority to raise money, to execute a law deemed by the authors of these resolutions repugnant to the Constitution of the United States and of Mississippi; that the supplementary act to incorporate the Union Bank was “a fundamental change of said original charter, passed contrary to the letter and spirit of the Constitution of the State, and adopted without the assent of her citizens as required thereby;” that the $5 millions bonds [the first lot delivered to the bank] were issued without reference to the people or compliance by the bank with the original conditions of the charter, and “are not binding on her [Mississippi’s] citizens, and cannot be paid by this State while the form of its Constitution remains;” and that the Governor by his proclamation shall forbid the sale or hypothecation of the second $5 millions now in the bank.

The subject of repudiation had now attracted the attention of the whole country and of Congress. There were groups of persons, more or less numerous, in all the indebted States, who were in favor of repudiation. Jacob Thompson of Mississippi made a speech in the House, January 10, 1842, in which he not only defended repudiation, but gloried in it, as a noble and righteous defense of liberty and American principles. The following extract from the report of a committee of the Mississippi Legislature illustrates the tone and the principles on which repudiation was defended. The committee feel that the people of Mississippi have taken a patriotic stand. “They are not controlled by selfish or mercenary motives. The low and grovelling consideration of dollars and cents has nothing to do with the merits of this question. Their honest obligations they will fulfill, should they have to divest themselves of the comforts and necessaries of life to do so. Higher and holier motives than mere pecuniary considerations actuate them. They have determined that they never will submit to an invasion of their Constitution by either foreign or domestic foes. The rights secured to them under that sacred instrument they will maintain at all hazards; and relying on the correctness of their principles and the justness of their cause, they will, with confidence and cheerfulness, submit to the verdict of posterity.”

No doubt the attention of the reader has already been drawn to the marvellously lax way in which everybody treated the bond issues. Other cases of the same thing will follow below. The Governors signed bonds and delivered them to banks or improvement companies or Fund Commissioners, almost without accountability. In this case, McNutt did not take the lowest precautions before issuing the bonds to see that the interests of the State were guarded, that the law was complied with, or that the bank had fulfilled the conditions. Much less did he look to the future for any guarantees that the bank would perform its stipulations. He was once subjected to interrogatories, we are not told by whom: “For what purpose, and under what authority, did you sign and deliver said bonds?” He made irrelevant replies, and cited the example of “Jefferson and the illustrious father of the republican party” to justify himself in signing the act for the Union Bank in spite of his opinion that it was unconstitutional.*

The bonds being thus carelessly signed and executed by the Governor, in any one of the debt-contracting States, were generally thrown into the hands of agents who undertook costly journeys at the expense of the State, exacted and gave extravagant commissions, hypothecated the bonds for a fraction of their value with bankers who failed and involved the collateral in their bankruptcy; or sold them to be paid for in installments, delivering the whole in advance, so that when the bankers failed, as a great many of them did, the bonds had passed out, by sale or as collateral, into the hands of innocent holders, and the States obtained nothing for them. What wonder that the whole system was a carnival of waste, extravagance, and peculation, and that all persons who had a share in it behaved in the loosest and most irresponsible manner with respect to all stipulations, guarantees, and duties which would have been proper under the circumstances?†

In 1843, there was an anti-repudiation reaction.

In accordance with a requirement of the Constitution an act was passed, February 15, 1843, to give any one who had a claim against the State permission to file a bill in chancery against it, and directing issues to be made up to try the facts. An exemplified record of any finding in favor of the complainant was to be filed in the office of the Secretary of State, and thereupon the Governor was to issue his mandate to the Auditor to draw his order on the Treasurer for the amount so decreed to be paid by the State. Governor McNutt declared that this was unconstitutional, because money could be drawn from the treasury only in consequence of an appropriation made by law.

Several of the great Mississippi banks were still indebted to the United States for deposits. Execution against the Planters’ Bank and the Agricultural Bank was stayed, from time to time, until March 4, 1843. During the summer of 1842, the Congressmen from the State were trying to get a longer extension. January 15, 1844, the Legislature asked the District Attorney of the United States to postpone the sale of the property of the Planters’ Bank until the Legislature could take action to discharge the judgment in favor of the United States against that bank.

The State Treasury of Mississippi was in great straits in January, 1844. The Governor said: “I am unable to state accurately the amount of the liabilities of the State, owing in part to the deranged condition of the books in the office of the State Treasurer, caused by the neglect, defalcation, and embezzlement of the late State Treasurer, and to the fact that no account has heretofore been kept at the Treasurer’s office of the State bonds issued on account of the Planters’ Bank, and the interest accruing thereon; such account having been kept by the Planters’ Bank.” The Planters’ Bank had made an assignment. The Governor feared that the State’s interest would be lost if the bank was liquidated in that way. He also was very sure that the Mississippians proved their high nobility by repudiating the Union Bank bonds; but as to the Planters’ Bank bonds, the preservation of a high moral principle called on the State to pay them at every sacrifice, and it would do it.

February 23d, the Planters’ Bank and the Mississippi Railroad were put in liquidation by act of the Legislature. All sums which should be realized, after the circulation and certificates of specie deposit should be paid, were to be applied to pay the State bonds. If the banks did not surrender voluntarily, the Attorney-general was to file a bill in chancery. Proceedings had already been begun against the Planters’ Bank under the law of 1843. That institution refused to submit to the law of 1844, whereupon the proceedings under the act of 1843 were completed and were held valid by the Supreme Court in 1846.* The act for winding up these banks was amended by providing that the creditors of them should get nothing until the seminary fund, the sinking fund, and the literary fund should be restored. Debtors of the banks might redeem their securities from the assignee or holder within two years, by paying twelve and a-half per cent. per annum and costs.

We learn from the Governor’s message of 1848 that the will and purpose to repudiate the Planters’ Bank bonds had then become well-developed, and we learn the ground for it which was then alleged. It was that, in the charter of the old Bank of Mississippi, it had been promised that no other bank should be charted until the charter of that bank should expire.† In violation of this stipulation, the Planters’ Bank had been founded. The Governor said that the Bank of Mississippi had compounded this wrong to itself in 1830. He argued against repudiation, and proposed that the income from State lands should be set aside to pay these bonds. Such a law was passed. At an informal meeting of members of the Legislature a large majority were in favor of paying the Planters’ Bank bonds.‡

In a case which was decided by the Supreme Court in 1852, it was explained that the State never took any stock or issued any bonds under the original charter of the Planters’ Bank. By the supplementary act of December 16, 1830, the Governor was to subscribe for stock and issue bonds for a loan; in 1833, the amount was increased. There was nothing behind these bonds but the pledge of the faith of the State. The sinking fund which was to be formed was pledged by the first charter, but not by the supplementary one, and it might have been appropriated to any purpose. No interest was paid after 1840. The first bonds which bore coupons fell due March 1, 1841; but $500,000 of bonds had been issued earlier, which bore no coupons, only a stipulation of interest on their face. An act was passed March 4, 1848, which appropriated the sinking fund to coupons.*

A payment of interest on Planters’ Bank bonds was made in January, 1859, to the amount of $101,500. It appears that some holders of coupons found out that just that sum was in the sinking fund available under the law, as interpreted in this decision. They applied for it and the Attorney-general advised the Auditor that the claim should be complied with.† The only other payment of the same kind that was ever made was $20, later in the same year.‡

An act was passed March 16, 1852, that at the following presidential election, a vote should be taken, yes or no, on the question: “Will you submit to a direct tax for the payment of the Planters’ Bank bonds issued by this State, on account of the Planters’ Bank of the State of Mississippi?” The law provided that unless a majority of all the votes on this question, at the presidential election, should be “No,” it should be an instruction to the Legislature to provide for the payment of the bonds. The affirmative vote was 12,703; the negative, 24,487; the non-voting, counted as affirmative, 7,234; making the majority against the special tax, 4,550.§

In Campell versus the Union Bank it was held that the supplementary charter of that bank only modified and extended the original one and that it did not essentially alter it. Under the above mentioned law of 1843, suit having been brought on a bond, the Chancellor decided that “the bond sued on was a legal and valid obligation against the State, and had not been issued in violation of the law and Constitution, and he rendered a final decree against the State for the principal and interest of the bond.”∥ On appeal the Supreme Court decided, in 1853,¶ that no provision of the supplementary charter attempted directly to pledge the faith of the State in violation of the State Constitution. The State was not a debtor to the corporation for the bonds which never were delivered to it. The Legislature has power to subscribe to the capital of banks. The requirement of a repeated vote at a second session does not apply to that power; neither did the Constitution ever mean to give an appeal to the people or a right of veto in the people on acts of the Legislature for borrowing money. A double voted law has no extra sanctity. It can be repealed before rights vest under it. “The supplementary charter of the bank did not authorize the issuance of State bonds by which a debt could be imposed upon the State, and no attempt was made by that act to pledge the faith of the State for the payment of a loan or debt; nor did it attempt a renewal of the pledge contained in the original charter of the bank.” The supplementary act was not void for lack of a double vote; it did not change the original charter as to the guarantees against loss which were given to the State. The decision of the directors of the bank that the stock was sufficiently secured by the mortgages which were given for it is binding on the State. The sale of the bonds does not appear to have been below par; that sale was neither illegal nor void. The conversion of dollars into sterling, at four shillings and sixpence, does not avoid the sales.

Thus the Courts of Mississippi overthrew every argument which had ever been put forward in defense and support of repudiation. The allegations of fact were treated as trivial or irrelevant, and the constructions of law as unsound and sophistical.

The income from lands which had been set off in 1848, as a revenue with which to pay the interest on the Planters’ Bank bonds, was expended for railroads.* The Governor urged payment. “The question for your solution is: Are those bonds due and unpaid?”

The subject of those bonds was brought before the Legislature again in 1860. A majority of the Committee to whom it was referred reported that political affairs were so threatening that it was no time to take up that matter. The minority urged payment, and replied to the majority that Mississippi, if she proposed to resume her sovereignty, needed just then most of all to establish her credit.†

A constitutional amendment was adopted in 1875: “Nor shall the State assume, redeem, secure, or pay any indebtedness or pretended indebtedness claimed to be due by the State of Mississippi to any person, association, or corporation whatsoever, claiming the same as owners, holders, or assignees, of any bond or bonds now generally known as Union Bank bonds or Planters’ Bank bonds.”

It is a case of the irony of history that the Mississippians were warned that repudiation would cost their State its credit and make it impossible for them to borrow. This happened, but the only case where the State afterwards tried to borrow was in the carpet-bag days, and its bad credit made it impossible for the carpet-baggers to load it up with debts, as they did the other States.

The Governor of Louisiana, in his message of January, 1842, had reached the point of boldly declaring that the notion was false, that the banks of one city must suspend because those of another did so. He showed that from November 2, 1839, to October 2, 1841, the New Orleans banks reduced their cash assets $300,000, and increased their liabilities $780,000, and he insisted that they would continue in this course so long as the suspension lasted.‡ It was enacted January 24th, that no bank note should be issued which was not payable in specie.

The most remarkable law to regulate banks, which was produced in this period, in any State, was the act of February 5, 1842. It is drawn in remarkably clear and direct language, entirely free from legal verbiage. It leaves the impression of a schoolmaster who, having got tired of confusion, insubordination, and misbehavior, takes in hand the duty of restoring order, and distributes punishments, corrections, and new orders in the most peremptory manner. All charters were revived provided the banks would prepare at once to resume, and would obey the rules here laid down. The loans on capital were to be distinguished and separated from the loans on deposits; the former were to be on mortgage and long; the latter on ninety-day commercial paper. The loans on capital were designated “dead weight;” the loans on deposits were called “movement of banks.” No bank was to increase the dead weight while its whole cash liabilities were not covered by one-third specie and two-thirds ninety-day paper. If any one applied for an extension, his account was to be closed and the other banks were to be informed. Any one whose paper lay protested ten days was to be discredited, and the banks informed, and he to have no bank credit until he should pay in full. The Governor was to appoint annually a Board of Currency of three persons, each to have a salary of $4,000 per annum, to supervise banks, and to get from each a weekly statement in detail. The one on the last Saturday of each month was to be published, in order to inform the stockholders of the real situation of each bank. A full report was to be made annually to the Legislature. Each member of the Board of Currency was to file a bond for $5,000, on which he might be sued for failure to do his duty. All existing debts were to be regarded as dead weight, and payment of fifteen per cent. per annum was to be required with good security at eight per cent., and no bank credit was to be given until full payment was made. Banks might issue post-notes payable September 30, 1842, for twice the specie they possessed, but with State bonds or mortgages for the uncovered half. All such post-notes were to be stamped and recorded by the Board of Currency. All banks in liquidation were freed from the obligation to pay any bonus or to carry out improvements, except the banks in which the State was a stockholder. Banks like the Gas Light Company, which had executed works, might hold them for a set term;—for the Gas Company, forty years. All the banks in liquidation were to report to the Board of Currency, and non-liquidating banks were to take the notes of liquidating banks; this circulation to be distributed amongst the former in proportion to their circulation, which, for this purpose, is assumed to be so much, a list of the banks and their circulation being inserted in the act. The solvent banks were to be secured in taking this currency by the assets of the liquidating banks, with interest at eight per cent. The whole operation was to be regulated by the Board of Currency, and all the currency of the liquidating banks was to be canceled as it was taken in. Every bank was to state, within twenty-five days, whether it accepted this law or not; and any revived bank which did not comply with it was to be put in liquidation by the Board of Currency. A fine of $500 was to be imposed on any bank official who violated the orders of the Board of Currency. After thirty days each bank was to issue its own notes only, and all were to make weekly settlements. The Governor might issue bonds at five per cent. for fifteen years to pay the debt of the State to the banks. The lowest note was to be for $5; no dividends might be paid during suspension; no bank might have less than fifty separate shareholders after September 30; all were declared liable to examination by the Legislature; no bank might buy its own stock or loan over thirty per cent. on that stock when it was below par; banks were forbidden to deal in sugar, cotton, or other commodities. Heavy penalties were provided for a breach of each detail in this act.

Perhaps this law grew out of one which was prepared by a bank committee in 1840,* but it seems to be, in the form in which it was enacted, the product of one mind. It obviously proceeded from very mature study of the principles and practice of banking, and may justly be regarded as one of the most ingenious and intelligent acts in the history of legislation about banking. Probably it could not have been passed except at just such a crisis in banking affairs. It remained unmodified only thirty days; then another act was passed modifying and softening it in many details. The administrative officers also flinched from the execution of it in all its severity, but, even so, it put the banking of Louisiana on a plane far above that of any other State and held it there until the civil war. The separation of the “Dead Weight” and the “Movement” betrays the same view of banking noticed above,† although the bank-note issue was here connected with the active operations and not with the passive investment.

March 11th, the banks protested against vexatious suits, and another law was passed providing for both voluntary and involuntary liquidation. The immediate effect of the law was that five of the worst banks failed at once, and proceedings were commenced against five others. March 14th, proceedings against the Union Bank were suspended, and leave was given to hold a stockholders’ meeting in order to decide whether to accept the act reviving the banks, and time was given for this purpose. The purchaser of the Merchants’ Bank from the Bank of the United States,‡ who was also the president of the Exchange Bank, appears to have brought it to ruin; for both of those banks failed and he absconded as a defaulter.

The New Orleans banks resumed May 18, 1842. There was a great run upon them and almost a riot. By the 2d of June all but three of them had suspended. Only one of these, the Bank of Louisiana, had any notes out. The report was: “The monetary condition of the city is deplorable beyond description.” The city notes were at thirty and thirty-five per cent. discount.§ During the summer, the sacrifices of property were reported as terrible. In September “there was a bank revulsion at New Orleans, the most severe probably that was ever felt. Its effects extended throughout the Union.” Sterling exchange was at twelve and thirteen discount.∥ Probably this great revulsion in September was due to the provision, in the law for reviving the banks, that the post-notes must be retired at that time. The remark was quoted of some participant in these vicissitudes: “We then touched bottom and we staid at the bottom until May, 1843.”

An act to liquidate the property banks, April 5, 1843, provided that any stockholder might clear his liability by paying in the bonds of the State issued to the bank. The assets of the Consolidated Association and the Citizens’ Bank were to be held by the State until they should pay the State bonds issued to them. Future crops of the stockholders might be mortgaged to the banks, property might be surrendered to them on appraisal, and the banks might buy in mortgaged property. The Governor was to appoint managers for each. The Board of Currency reported, in 1845, that the Union Bank had punctually paid its semi-annual interest coupons, and the first of the series of bonds due in November, 1844, amounting to $1,750,000, and that ten banks were in liquidation, including the Citizens’ and the Consolidated Association.

The Union Bank escaped the fate of all the other banks of the same class. Either it was more bank than loan office or its loans were predominantly on city real estate. It continued as one of the leading banks of New Orleans. The Consolidated Association was liquidated and wound up. In 1849, having paid up a part of the State bonds issued for it, it extended the rest, amounting to $1,376,000, giving bonds of the bank payable at different dates down to 1866. The cashier says: “We are now happy to say that the honor of the State has been relieved so far as this bank is concerned.”

The Citizens’ Bank remained in liquidation ten years. It was then resuscitated and will be heard of again below.

Of the bonds issued for banks, there were outstanding, in 1843, half of the $2.4 millions issued in 1824 for the Bank of Louisiana; $2 millions for the Consolidated Association; $7 millions for the Union Bank; $7.1 millions for the Citizens’ Bank.*

In the message of the Governor, 1843, it was stated that the expenditures of the State exceeded the revenue by more than $200,000; “that there is nothing in our exhausted treasury; that the State can no longer borrow a dollar from her own banks; and that the people are taxed as heavily as they can bear.”

The Secretary of State and the State Treasurer were constituted the Board of Currency, April 6, 1843; to have only $1,200 salary each. Various measures were taken, March 10, 1845, to assist in the liquidation, and it was provided that receivers should take charge of all the assets of the two great property banks, in order to provide for the payment of the State bonds issued to them.

In 1846, the Governor was able to say that the State and city were “blessed with a sound constitutional currency, amply adequate to all domestic or commercial purposes.” He had cancelled $3.5 millions bonds which had been liquidated under the act of March 25, 1844, and the Bank of Louisiana and Mechanics and Traders’ Bank had retired part of the bonds issued on their account, and were expected to retire more.

December 20, 1848, it was enacted that the stockholders of the Consolidated Association must pay their dues to it in specie, or by the delivery of State bonds, and that company was allowed to test in the court the liability of the State as a stockholder to share in the losses. In the case which was made up under this provision,* it was held that the State was not liable for the losses of the bank, by virtue of the shares which it possessed, because they were given as a bonus and would not be such if they carried a liability. The counsel for the bank in arguing this case (1850) said that Louisiana had, within a few years, made $1 million from her banks. Shall she evade a loss of one-sixth of that amount in “the only institution which has been unfortunate?”

There is no more eloquent commentary on the banking history of these States than the provisions about banking which they put in their Constitutions at the next subsequent revision. The Constitution of 1845 forbade the Legislature to pledge the credit of the State to anybody, and prohibited the creation of corporations with banking or discounting privileges.

Arkansas.—The Legislature ordered, December 22, 1840, that the banks should resume with those of Louisiana, Tennessee, and Alabama, “and shall not again suspend on any consideration whatever.” At the same time they passed an appraisement law requiring two-thirds of the valuation or a stay of a year. In July, 1841, twenty men in Phillips County kidnapped the Judge before whom many executions were returnable so that he might not do his duty. The Real Estate Bank at Helena and the branch of the State bank at the Post having brought a great number of suits in that Court, the Judge was petitioned not to hold court. He insisted on doing his duty. Armed men took possession of the Court House and threatened to kill the Sheriff if he forced his way in. He desisted and the Judge was kidnapped.†

A Committee which was appointed in 1841 to examine the Bank of the State reported that they found at the Post of Arkansas a banking house which was one of the finest buildings in the State, but that the debts could not be collected, and that the banks could do no business for five years to come, except trying to recover the capital. They reported that at Fayetteville the books had disappeared, “alleged to have been stolen from the bank a few days before our examination commenced.” The books had been found and were still legible, except that the cash book had been mutilated by cutting out all the pages which contained entries. The cashier, when interrogated, declared that he had made a false return of the specie, lest the fact should appear that the bank was in straitened circumstances. He was himself a defaulter.

The Central Board of the Real Estate Bank passed resolutions, April 1, 1842, to assign and liquidate, appointing trustees.* A majority of the directors at Little Rock seized and held the papers and property, refusing to deliver them to the trustees. After some litigation, the Supreme Court maintained the assignment. The assignees were a majority of the Central Board. At first view it seems that the effect of this assignment was to save the wreck of the bank from being sacrificed by politics and jobbery, but the result was that the affairs of the bank were enclosed in secrecy and mystery. The assets at the time of the assignment were put at $2,404,966 and the liabilities, at $2,230,986.

Commenting on this assignment, the Governor said, in 1844: “The history of the bank already presents the most extraordinary picture ever exhibited to a free people. In the first place a public corporation is created by the solemn act of the legislative department of the government, involving the rights and privileges of individuals as well as the State. In the next place the act of incorporation giving existence to the bank is destroyed by an ex-parte operation of a few individuals, by which a deed of assignment was made to a few men, denominated residuary trustees, whereby the assets of the bank, of every description, were transferred into the hands of said residuary trustees and their officers. From that period the operation and management of the bank has been involved in profound mystery.”

The Legislature passed an act for liquidating the bank, January 31, 1843, but it never superseded the assignment. On the same day they put the Bank of the State in liquidation, ordering that the gold and silver which it possessed should be paid out pro rata to the whole circulation, the amount paid on each note being stamped on it in red ink. The par funds, after paying the circulation, were to go to the interest on the State bonds. The arrangement about paying on the notes was repealed February 3d, and it was enacted that other notes should be given for the difference, which should be stamped “re-issued.” The notes at this time were at thirty-three cents on $1.

The State sued out a quo warranto, in order to take into its hands the franchises of the Real Estate Bank.† It was held that the assignment was a forfeiture, and that the “corporate existence of the Real Estate Bank ceased.”

The Legislature ordered, February 1, 1843, that out of any specie in the Bank of the State, $15,000 should be set over to the State as a reimbursement of the federal surplus revenue, and that this sum should be used to pay the members of the Legislature.

The Governor believed, in 1844, that under the management of active and judicious receivers, at least one-half of the debts to the Bank of the State might be collected at some of the branches, and at others even more. He commented on the banking system as follows: “The pursuits of our people and the condition of our country, just emerging from the wilderness, did not then and do not now justify the use of banking facilities, if at all, to the extent provided, and of which we availed ourselves, as it seemed, in a spirit of emulation of the extravagance of other States, rather than in accordance with our real wants and substantial means. * * * Few, I apprehend, have ever been able to realize any profits from their so-called accommodation, while almost every one has a loss to regret.”

At the session of 1844-5, the Legislature ordered that the receiver of the State Bank should pay to the State treasury all the par funds which he then had, or should afterwards receive; and that they should be used first in the payment of the Legislature. All liabilities of the State contracted before October 1st, were to be paid in the old bank notes, which were then at fifty cents on the $1; but they were no longer to be received for taxes, and State obligations incurred after the date mentioned were to be paid with treasury warrants, bearing no interest but receivable by the treasury and the State Bank. It was also enacted that all the funds of the State which had been placed in the bank should be regarded, not as a part of its capital, but as a deposit by the State. “The truth is, the State mainly lived on the means of the bank from its commencement and as long as it had a dollar.”*

At the session of 1848-9, the Committee on Banks reported that the State Bank had lost a large part of its assets for lack of means to defend its interests, and that this was owing chiefly to the action of the Legislature in 1842 and 1844, in taking out its par funds with which to pay themselves. In a great number of suits, the bank was non-suited because it could not give security for the costs.

The act of January 10, 1845, enacted that after March 4th nothing but par funds should be received by the State for dues to itself. There were still, in the following year, $133,862 of notes of the Bank of the State outstanding. This law led to long litigation. It was sustained in the State Court, but not in the Supreme Court of the United States.† A question also arose on the validity of the repeal of the charter, and on the power of the State to take possession of the assets. The State Court sustained the power of the State to dispose of the franchises and assets of the bank to the fullest extent, so that, taken in connection with Briscoe’s case, if the doctrine had been established, it would have enabled the State to act with completely arbitrary power in the creation of paper money banks, without responsibility.‡ The Court said, in fact, that the creditor, in such a case, was left “in a condition in which his rights live but in grace, and his remedies in entreaty only.” Before the case came to the Supreme Court of the United States, the Legislature had further taken specie and par funds from the bank and replaced them by credits subject to appropriation; had vested in the State the title to land taken by the bank for debt; and had required the bank to accept in payment bonds of the State issued to other corporations. The Supreme Court of the United States held that these laws withdrew the assets of the bank from the note-holders, who were entitled to payment by contract. If the charter had been repealed, which it had not, this would make no difference. The State had no right to withdraw the assets. If the construction of the State Court was good, “the bank had no proper capital which was bound by its contracts, and this would render it extremely difficult to maintain the validity of the charter” since its notes would be bills of credit.*

The law of the matter was then summed up to that date as follows: “The cases of Briscoe vs. the Bank of Kentucky and Darrington vs. the Bank of Alabama have settled the question [of the power of the States to make corporations to issue notes] in reference to such banks as were involved in those cases; but the principal ground on which such bills were distinguished from bills of credit emitted by the State was that they do not rest on the credit of the State, but on the credit of the corporation derived from its capital stock.”

When, in 1846, the trustees of the Real Estate Bank were asked why the collections were so tardy, their secretary replied that the loans were first used to pay old debts; that credit was so easy that many were seduced into borrowing imprudently; that many mortgaged their land at such a high valuation that they would now rather surrender it than pay; that some were waiting for a further depreciation of the State securities, forgetting accumulating interest; that many hoped in some way to escape payment. The Governor at that time was alarmed at the repudiation sentiment and at the irritation produced by the collections for the State Bank.

In 1846, an amendment was adopted to the State Constitution: “No bank or banking institution shall be hereafter incorporated or established in this State.” When this amendment was put to vote in the Legislature there was not a vote against it.

The State Auditor, in his report of 1848, called attention to the fact that $154,000 of the bonds of the State had been sent to Washington eight or nine years before, to be sold to the Secretary of War, who refused to receive them. They were still lying in a Washington bank.

J. M. Curran instituted ninety-four suits against the bank, in 1849, for State Bank notes to the total amount of $9,355, and recovered that amount, with $5,314 damages. He won at every step up to the Supreme Court of the United States. With accumulated interest the amount became $20,883. Assets of the bank, which stood on the books at $109,720, were sold under judgment to satisfy this debt.

It appears that the banking houses which were built by the Bank of the State of Arkansas were extravagant and also were such buildings as could not be converted to other uses. The one at Little Rock which cost about $28,000, in 1840, was sold in 1845 for about $200. The others sold at very much the same loss. The one at the Post cost $16,000. It was bought in by the State for $100, but was so situated that it could not be put to use.

As soon as the Bank of the State went into liquidation, it appears that it only fell into the hands of a new set of plunderers. No investigators ever were able to find out how the exchange of bank notes for State bonds was carried out. One receiver, as a committee said, “traded with himself” for bonds in exchange for notes, and no record of the transaction was kept. The receivers also retained bonds which they had bought, and took for themselves the interest, instead of returning the bonds to the treasury for cancellation, as the law required. Indeed they paid little heed to the prescriptions of the statute as to their duties. A committee of 1850 said that “in many cases the great bulk of the loss is attributable to the criminal negligence and dishonesty of the officers of the bank.” They allowed the loans to be lost under the statute of limitations. They neglected to attend to the security of the debts, and allowed their friends who were men of wealth to escape, by taking men of no responsibility in their stead, and neglected to enforce collections. “The history of the bank exhibits the most astounding instance of long-continued mismanagement and open abuse of trust that ever occurred in a country of laws.” The causes were chiefly indifference as to qualifications in selecting officers, and lack of accountability. “In the possession of vast amounts, freed from all restraints, every obligation seems to have been released and every law regulating their duty set at defiance.”

At the session of 1852-3, a proposition was made to enact a free banking law on the New York model. It was at last submitted to a popular vote, when the people refused to call a convention for the necessary amendment to the Constitution.

The Legislature, January 12, 1853, adopted resolutions that the Attorney-General should file a bill in chancery for an accounting by the trustees of the Real Estate Bank, reciting in the preamble: “It is known that the trustees have, in many respects, violated the provisions of said deed, and there is great reason to believe that great losses have been sustained by their neglect and improper conduct.” In the following year, however, the Governor declared that the mystery which surrounded the liquidation of the bank had not been broken. It refused to answer questions, although in answer to a demand from him, it made a return of the bonds which it had received in the course of its operations, and which it held. The Bank of the State had, up to that time, redeemed and canceled two hundred and thirty bonds. No interest had been paid on the outstanding bonds, but the United States had retained land payments which were due to Arkansas towards the interest on the $500,000 in the endowment of the Smithsonian. The amount of this, to 1853, was $46,834.

At the next session, the Legislature made another attempt to bring to light the true condition of affairs in the Real Estate Bank. The Governor was to institute suits and employ counsel. The liability of the State for compound interest on the bonds was affirmed in the Circuit Court of the State, in 1854.* Thereupon, while the suits begun by the Governor were pending, others were begun by creditors. It was feared that they would succeed in getting judgments and would sacrifice the assets. The plaintiffs had filed only copies of the bonds on which they sued. In order to defeat them a law was passed, December 7, 1854, that the original bonds must be produced and filed in the office of the clerk, and could not be withdrawn except upon an order of the Court. If the originals were not filed, the suit must be dismissed. This course was taken in five suits, and upon appeal to the Supreme Court of the United States, the law was sustained.† The doctrine was affirmed that those who deal with a State must rely on its good faith.

In 1856, Arkansas for the first time had a balance in the treasury in gold and silver. It amounted to nearly $150,000, and all the warrants had been retired. Up to that time 607 State bonds had been retired by the liquidation operations of the Bank of the State.

In 1857 the bonds which had lain in Washington had been recovered and were ordered to be burned. All suits relative to the Real Estate Bank were put under the jurisdiction of the Pulaski County Chancery Court. An act was also passed against trespassers and squatters on the lands of the bank.

W. M. Gouge and A. H. Rutherford were appointed accountants under an act of January 15, 1857, to investigate the Bank of the State of Arkansas. Several previous attempts had been made to investigate its accounts, but the investigators had all given it up on account of the confusion of the books and the magnitude of the labor. These two made a report, October 10, 1858, after having done their best to reconstruct the accounts and discover the facts. The fact which stands out most distinctly in this report is that all parties, at the time the banks were founded, regarded the money which was brought into the State by them as a pure bounty. The people never gave themselves a clear account of what they were doing, or what they expected, but they thought of banks as fountains of wealth, and did not really feel that any one would ever have to fulfill any onerous engagements to one of them.

A Committee of the Legislature of that year refused to give weight to an appeal on behalf of the stockholders of the Real Estate Bank. That bank, they said, “was a speculation from its very beginning. If it had been successful the profits would have been theirs; if it has been unsuccessful, others ought not to bear the loss.”

Up to October 1, 1860, there had been paid on the debt of the State, $2,341,996. There was still outstanding a little more than a million for the State Bank and $1.6 millions for the Real Estate Bank. There was also a debt of $267,455 for principal and interest of the negotiation with the North American Trust Company, i. e., for the amount received on the Holford bonds.*

January 16, 1861, an act was passed to enable the State to foreclose lands mortgaged to the Real Estate Bank; all the stock mortgages were to be assessed to make up the deficiency of assets, to pay the principal of the bonds which fell due in that year.

We meet, once more, with an act, March 8, 1867, to appoint an agent to settle the accounts of the Bank of the State. An act of April 6, 1869, provided that all assets of the State Bank and the Real Estate Bank should be held as a sinking fund for the bonds which were then issued to refund the old bonds which had been issued for the banks. A further act of February 5, 1879, provided that the bonds issued to refund the Holford bonds should not be received for debts to the Real Estate Bank. A resolution was also passed, without the Governor’s signature, proposing a constitutional amendment that the Legislature should never have power to lay a tax or make an appropriation to pay the Holford bonds. In 1881, the Auditor and Treasurer were instructed that they were not required to report railroad aid and levee bonds and Holford bonds in the indebtedness of the State. A large section of the revised statutes of 1884 deals with foreclosures of lands mortgaged to the Real Estate Bank, and with a land office system to dispose of them again in the interest of the State.

Tennessee.—The Bank of the State was authorized, January 25, 1842, to issue notes between $1 and $5, so long as the suspension should last.

At the session of 1841-2, apparently in spite of a veto, since no date is given, the Bank of the State was ordered to pay $200,000 to East and West Tennessee, half to each, for improvements, and $200,000 in bonds then printed and lying in the bank for that purpose were to be burned.

All the papers and books of the Circuit Court of McMinn County, Tennessee, were burned in May, 1842, apparently upon a burglarious entry.†

An extra session of the Legislature was called in October. In the Governor’s message it was stated that the Southwestern Railroad was likely to be abandoned. He wanted an investigation of the Bank of the State on general principles, and was anxious by means of its profits to avoid the “oppression of direct taxation.” There was great pecuniary embarrassment, he said, throughout the State, and relief was needed. He charged everything to the federal government and the overthrow of the United States Bank. Money was scarce; the currency of the State had been reduced, since 1836-7, from $5 millions to $1.2 millions. At the extra session a number of measures were adopted for relief. October 29th, all banks were allowed to issue notes down to $1 until January 1, 1845. The redemption law of 1820 was changed so that any one who bought land of one who bought it in execution should hold it subject to redemption for two years, with six per cent. interest, as the first buyer did. The Bank of Tennessee was allowed to discount notes for sums under $50, and to continue reductions on other notes till they were brought down to $50. Loans to bank directors were restricted and security was to be taken for those which they already had. In July, the Attorney-general had sued out a scire facias against the Union Bank and the Planters’ Bank for not paying specie; but these suits were now discontinued because these banks had resumed August 1st.

The Bank of the State and the internal improvement Commissioners of East and West Tennessee could not agree on the construction of the law which required that the bank should pay $100,000 to each section for improvements. The act of November 12, 1842, distributed the money which the bank was called upon to pay.

The Bank of East Tennessee was chartered December 27, 1843, at Knoxville; $800,000 capital; on the model of the Union Bank.

The president of the Bank of Tennessee, in his report of 1843, anticipated a deficit in the following year, because the interest on the internal improvement bonds had been steadily increasing every year, and more bonds were to be issued, so that the profits of the institution could not equal what it would be called upon to pay. He complained also of the burden laid upon the bank to pay the above $200,000 for river improvement, which, he says, will have to come out of the capital. He proposed that expenses should be reduced by discontinuing some of the branches, and that the bank should be relieved from the arbitrary charge placed upon it for the school fund. Of the internal improvement companies in which the State held stock, only one had paid any dividend, the amount being $3,696. The Commissioners appointed to examine one of the branches declared that they could not understand how, if private individuals whose interests were identified with the bank they managed could only make five per cent., it could be expected that a bank owned entirely by the State, and managed by men, however skillful and honest, “whose private interests are in direct opposition to that of the institution which they have been appointed to direct and govern,” can make as much for the State. They proposed to wind up the bank and invest all that could be saved in bonds of the State, which were at an important discount. They gave as another reason for this course that it could not “have escaped the observation of the most casual observer that if this institution is continued, under whatever system of re-organization might be adopted, it would be a bone of contention between two rival political parties, the ins and outs, each of which will be contending for the spoils, like vultures for the carcass, so long as any portion of the capital remains.”

The president of the bank, in 1845, declared that it had afforded the relief which it was founded to give and ought to be wound up.

Kentucky.—A convention of a large number of banks of Kentucky, Indiana, Illinois, and Ohio was held at Louisville, January 25, 1841, to consider resumption. It adjourned without action and without day, but recommended that another convention for the same purpose be held some time.

The capital of the Kentucky banks was very largely held in the East. The president of the Bank of Kentucky stated in 1840 that 25,130 shares of the bank were on the books at New York and Philadelphia, and 4,780 at Louisville. On account of the large amount of shares of the Louisville Bank of Kentucky, which were held in the East, transfer agencies were opened in New York and Philadelphia,—in the latter city at the Schuylkill Bank. The cashier of that bank issued spurious certificates to the amount of 13,000 shares, 447 of which, however, were surrendered by the holder, being held as collateral only. This fraud was discovered in December, 1839. February 22, 1842, the Legislature of Kentucky passed an act under which the Bank of Kentucky set aside all its surplus profits over five per cent., and all which it could recover from the Schuylkill Bank, as a “stock fund” out of which to meet the expenses and losses of the over-issue. The capital was increased $1 million and the spurious stock in the hands of innocent holders was recognized. Satisfactory proof must be given that the holder was an innocent purchaser. An act of March 3d limited the amount which the bank might pay for the spurious stock to $40 per share. In 1849, it reported that it had bought up the fraudulent stock, and had obtained from the Schuylkill Bank perhaps $600,000 worth of assets, under a judgment of the Pennsylvania courts.*

In these days of liquidation, relief laws were once more called for. They now took the form of an extension of exemption laws.

As a further relief measure, March 8, 1843, the bank at Louisville was ordered to set up two branches, within three months, with not less than $100,000 capital in each; but either branch might be withdrawn or removed if it did not earn six per cent. If the bank complies with this order, the term of its charter is to be extended ten years. It may purchase and retire $150,000 of its stock. The banks are all forgiven for suspension if they comply with this act. The bank at Louisville is to loan $100,000 in each congressional district in which it has a branch. Loans are to be called in not more rapidly than ten per cent. in each of the first two periods of 120 days, and not over twenty per cent. in each subsequent period of 120 days, making 720 days for the payment of an entire debt. Not over $1,000 was to be loaned to one person. The Bank of Kentucky and the Bank of Northern Kentucky were to make similar loans in other districts; if the former consents to this, it may surrender $1 million of five per cent. bonds of the State, and reduce its capital $1 million; the Bank of Northern Kentucky in like manner $750,000, and they may issue notes down to $1; the Governor may sell five per cent. bonds to the amount of $1,750,000, and invest the proceeds in stock of the three banks, if he can get that of the Bank of Kentucky at eighty and that of the other two at ninety; this stock to be put in the sinking fund and the dividends to go to it. The loans were to be apportioned in the counties according to the number of voters.

The Committee on Banks, in their report of December, 1843, said: “There never was, perhaps, a set of banks that have done so much business and sustained fewer losses than the Kentucky banks within the last two years.” In the following year the same committee said: “Your Committee do not believe that there has existed, at any former period in the history of the State, a system of banking under its authority more eminently successful in establishing a currency free from fluctuation, and in affording the surest guarantees to the holders of its circulation than the present; or which more fully possess the public confidence.”

A committee was appointed, January 20, 1844, to inquire of the banks what loans they have made under the act of March 8, 1843; whether they mean to call twenty per cent. of the loans, as the law allows; on what terms they will grant renewal and delay; whether they cannot increase their circulation.

The right to issue notes under $5 was extended to the banks for the duration of their charters, January 21, 1846.

In 1850, the charter of the Southern Bank of Kentucky was extended to 1880, provided that no interest should be paid to the bank on the State scrip issued to it, so long as it held the same; and that it should pay the interest on the scrip if it should sell it.

Ohio.—In January, 1842, the irritation against banks, on account of troubles with the circulation, led to a riot in Cincinnati, in which two or three banks had their books, papers, and furniture destroyed. There were runs on these banks, not for specie, but for some paper better than their own. The militia were called out and some persons were wounded, but the militia acted very unwillingly.* The next day there was a similar riot in Louisville.

January 21, 1842, the Legislature passed resolutions exhorting the neighboring States to resume specie payments, and pledging Ohio to do the same. In the first months of 1842, a number of bank charters were repealed or annulled. February 18th, an act was passed that banks not redeeming their notes shall be held to have forfeited their charters; they are prohibited from assigning. The Bank Commissioners are to apply for injunction, or the note-holders may do so, the facts to be found by a jury. Debts are divided into two classes,—those which, according to the contract, are to be paid in depreciated notes, and those not so payable by the contract. In the first case, the bank notes are allowed as a set-off, the jury to decide the facts. In the second case, no bank notes are allowed as a set-off, but payment must be in gold or silver. Notes redeemed by the receivers are to be burned. In case of an appeal by the bank of a suit against it, if the plaintiff gets as much on appeal as before, the bank is to pay twenty-five per cent. damages, over and above all interest and costs. There is to be no stay of execution on a judgment against a bank. At a meeting of the banks by delegates at Columbus, they resolved to act together to sustain each other. Part of the plan was to establish a Suffolk system of central redemption. March 5th, the notes of a bank were made payable to it in all suits by the bank or its assignees.

March 7th, another act to regulate banking was passed. The association was first to be formed and then to apply for a charter. All were to have the same general powers of organization; all capital to be paid in in specie before beginning; Bank Commissioners to inspect the bank and certify that this has been done; no loan to be made to a director for more than half his shares; in a $100,000 bank no one person to owe it more than $8,000, and so on according to a scale; no loan to be made to an officer; debts, exclusive of deposits, not to exceed one and a-half times the capital; the circulation never to exceed the capital, and one-third of it to be held in specie; a State officer to register and countersign the notes, and to guard the limit for each bank as returned to him by the Commissioners; tax to be one-half of one per cent. on the paid up capital, but the Legislature may change it; banks organized under this act to take each others’ notes, exchanging notes as the Commissioners direct, and paying balances; no note to be issued between $5 and $10 or between the other decimal denominations.

On the same day, another act was passed that no State officer, after March 4th of the next year, should pay out any note not redeemable in specie on demand; penalty, to be liable in an action for debt for the difference in value between the note and specie, and to lose his office. Exception was made of notes taken before that date on account of the State.*

On the same day, still another act was passed, which shows that the unauthorized companies were still issuing notes. If any incorporated company, not having banking powers, becomes insolvent, or refuses to pay the evidences of debt which it has put in circulation, or suspends business for a year, or violates its act of incorporation, or puts out circulating notes, it shall be held to have forfeited its charter, and shall be adjudged to be dissolved; the courts to have visitorial powers; all acts of incorporation hereafter to be subject to amendment and repeal; private corporations are subject to individual liability.

The Bank Commissioners in this year laid special emphasis on the abuse that, upon the failure of a bank, its directors and stockholders, who had large loans from it, surrendered their stock in cancellation of the loans, although the stock might have no market value. They thus escaped liability.

There was at this time an appraisement law that the sheriff should, at the demand of the debtor, summon three householders to appraise property taken in execution, and that it should not be sold unless two-thirds of the valuation was bid.

The act for the regulation of banks was amended February 21, 1843. No one was allowed to be a director in two banks; not more than one member of a firm might be a director in the same bank; no loan might be made for more than six months; no dividend might be made when the capital was impaired; the stockholders were to be individually liable, except where the depositors and the bank might otherwise agree as to deposits; it was unlawful for the president or cashier to deal in stocks. In this act five new banks were organized under the law, and five others submitted to it. This act was considered too stringent, and banking associations refused to organize under it, hoping and expecting relaxation. February 15, 1844, three banks which complained of the restrictions of this law and asked extensions of their old charters obtained what they asked for, on condition of consenting to individual liability and keeping one-third of their circulation in specie. Immediately afterwards three others took the same step.

Of the twenty-three banks in Ohio, with a capital of $7 millions, the charters of thirteen expired by limitation January 1, 1843, and of two more, a year later. The remaining eight had a capital of $3.4 millions, of which about half was owned in the State. In December, 1843, the Commissioners said: “There probably never was a time when the banks of the State were in a better condition than the present.”

Speaking of the ending of these thirteen banks, the Governor said, a year later: “Instead of the ruin and disaster predicted from the event, business and enterprise have continued to revive unimpeded in their progress; thus, as the banking system has literally rotted down in the sink of its own folly and corruptions, the prosperity of the country has received new life. Industry and enterprise, relieved from the bondage of banking operations, are recovering their energies with renewed vigor.”

The Senate, in 1844, called upon the Bank Commissioners for an estimate of the loss of the people of that State by banks since 1831. The answer had no value on any point but one,—the loss by the circulation, which was put at $1.4 millions.*

The Bank Commissioners, in 1844, gave a list of forty-seven banks in that State which had failed. The Governor in that year expressed himself strongly opposed to the New York free banking system. One of the most famous of the unauthorized note-issuing companies, the Granville Alexandrian Society, came to the surface once more March 8, 1845, when an act was passed to settle doubts whether the note-holders could enforce payment against it, since it never had a right to issue, and whether it could collect debts due to it for its banking business; both were provided for, in order to liquidate all its affairs. Two more acts are found forbidding unauthorized note issues, the first, March 12, 1845; the second, March 2, 1846, extended the time after which the State Treasurer should not receive or pay out such notes.

In 1845 the nomenclature of the Ohio currency was given as “yellow dog,” “red cat,” “smooth monkey,” “blue pup,” and “sick Indian.”*

Michigan.—The Governor made a contract, June 1, 1838, with the Morris Canal and Banking Company,† by which they became the agents of the State, to sell the $5 millions loan. They sold and accounted for $1,187,000, July 1, 1841, the interest was not paid on these bonds. In February, 1843, an arrangement was made to fund the interest until 1845. As the bank could not sell any more and was urged by the Governor, it proposed that he should deliver all the bonds at once on a sale to the mentioned bank and the Bank of the United States, to be paid for in installments, one-fourth by the former and three-fourths by the latter. He agreed. One million was paid before both banks became bankrupt. In the meantime the bonds had been hypothecated in Europe by the Bank of the United States as security for its borrowings there. Michigan refused to pay more than she had received.

The Bank Commissioners in their report, January 18, 1839, said: “Standing, as Michigan does, upon the ruins of her credit and currency, it behooves her to carefully examine the causes which have precipitated to almost entire destruction the edifice so lately erected, and, by the light of other examples and her own experience, to rear upon a safer and surer foundation that which her present condition calls upon her to establish.”

“On the 15th day of March, 1837, the act popularly entitled the ‘general banking law’ was passed, upon the plausible principle of introducing a free competition into what was considered a profitable branch of business heretofore monopolized by a few favored corporations. In a little more than a year forty-nine banks were organized, with a nominal capital of $3,915,000, and about forty went into actual operation under its provisions. These institutions professed to have an actual and available capital of $1,745,000; thirty per cent. of the nominal capital being presumed to have been paid in according to law, in gold and silver. They were authorized to issue and to put into circulation bank bills to the sum of $4,362,500, being twice and a-half the amount of capital paid in and possessed. The feature of the act which authorized banking under the suspension law (that is to say, giving the sanction of law to the issue of promises to pay, not liable to redemption in gold and silver on demand) gave an irresistible impulse to their career, by opening the door for the debtor to liquidate his liabilities by transferring to the public at large his indebtedness to individuals. The result is well known; and it is believed that it is not too strong language to assert that there are no species of fraud and evasion of law, which the ingenuity of dishonest corporations has ever devised, which have not been practiced under this act.”

“The loan of specie from established corporations became an ordinary traffic, and the same money set in motion a number of institutions. Specie certificates, verified by oath, were everywhere exhibited, although these very certificates had been canceled at the moment of their creation, by a draft for a similar amount; and yet such subterfuges were pertinaciously insisted upon as fair business transactions, sanctioned by custom and precedent. Stock notes were given for subscriptions to stock, and counted as specie; and thus not a cent of real capital actually existed, beyond the small sums paid in by the upright and unsuspecting farmer and mechanic, whose little savings and honest name were necessary to give confidence and credit. The notes of institutions thus constituted were spread abroad upon the community in every manner, and through every possible channel. Property, produce, stock, farming utensils, everything which the people of the country were tempted by advanced prices to dispose of, were purchased and paid for in paper, which was known by the utterers to be absolutely valueless. Large amounts of notes were hypothecated for small advances, or loans of specie, to save appearances. Quantities of paper were drawn out by exchange checks—that is to say, checked out of the banks by individuals who had not a cent in bank—with no security beyond the verbal understanding that notes of other banks should be returned at some future time.”

“The result of the experiment of free banking in Michigan is that, at a low estimate, near a million of dollars of the notes of insolvent banks are due and unavailable in the hands of individuals.”

The Commissioners recommend a repeal of the general banking law and desire “the recommendation by the Executive of a State institution, under the control of the State itself,” subject to rigid scrutiny.

The banks all suspended October 28, 1839. At the following session of the Legislature, a Committee of Investigation was appointed on the Bank of the State. The Committee tried to ascertain the amount of indebtedness on the part of the directors of the bank, but the information was refused; also information on the item of their exhibit, “Due from banks.” “Shuffling, evasion, and concealment are not the companions of honesty.” Their available assets are insufficient “to meet their indebtedness to the State alone, without reference to their other liabilities.” The Commissioners “believe the facts above stated to be sufficient to warrant them in coming to the conclusion that the funds of the State cannot be safe while intrusted to that institution.”

In July, 1841, the Detroit “Daily Advertiser” maintained that not one of the banks of that State had complied with the conditions necessary to entitle it to the benefits of the suspension acts of the previous winter.* The same newspaper said that the Bank of Michigan owed the United States, in 1839, $80,000; it wanted suspension; it got it; raised the circulation from $150,000 to $200,000; bought flour and pork; sold them for enough to pay the debt, and then failed, leaving the circulation in the hands of the people.† At the end of 1841, the people in the country districts of Michigan adopted the “Macon specific,”‡ whereupon specie reappeared.

In January, 1842, the law authorizing suspension was repealed, which forced the Bank of the State of Michigan into liquidation.

Indiana.—A stay and replevin law was adopted February 24, 1840, the delay being four months.

This State became involved in financial dealings with the Morris Canal and Banking Company. By joint resolution of February 24, 1840, the Legislature expressed their dissatisfaction with the security which had been taken by the president of the Bank of the State for $1 million State bonds, which had been delivered to that company. The Fund Commissioners were directed to require additional collateral. The amount of the stock of the State in the Bank of the State, as we learn from an act of February 6, 1841, was $1,304,950. The amount which it had advanced to pay the installments for private stockholders was $224,000. It was ordered that this should be set apart to redeem the bonds issued for the bank. The sinking fund was, at the time, loaned out on mortgages. It was to be recalled and invested in bank stock. The sinking fund was also to pay to the treasury all surplus over its interest and charges. These two grants from the sinking fund were to be loans to the State at six per cent. The Bank of the State might issue for five years not over $1 million in small notes, not less than $1.

An appraisement law was passed February 13, 1841. Rents and profits for seven years must first be offered for sale. The limit of valuation was one-half. February 15th, the college and other funds which had been loaned out were ordered to be recalled and invested in bank stock.

The Bank of the State of Indiana made losses until 1841, $58,000. In December, 1842, the bad and doubtful debts were nearly $200,000, but there was a surplus fund far exceeding this. The bank resumed specie payments June 15, 1842. Within a few months, at that period, the currency of Ohio, Kentucky and Illinois was reduced from $15 millions to $5 millions, and that of this bank from $2.7 millions to $1.7 millions. No convulsion at all was produced. The State had issued treasury notes of which this bank and its branches held $634,710 which they could not circulate. Two of the branches were very much crippled by them; two others were in similar difficulty from large loans to stockholders. The president did not take ground against the stay law, but said that it must be restricted so as not to apply to future contracts, if business was to recommence. He mentioned that within a short time specie had been transported in large amounts from Indiana to New Orleans.

In 1843, the report of the bank was very encouraging. Its capital had been diminished $600,000, which had not weakened it. The debt of the State to it and the suspended debt had been greatly reduced, and the treasury notes raised nearly to par. The stockholders owed less than ever before and the specie had increased. Further remarkable illustrations of the discipline exerted by the Central Board over this bank were presented at this time. The facts show that such discipline was called for, and the comparative success of this bank must be attributed in large measure to the vigor and firmness with which the Central Board exerted their authority. One branch which had been badly managed, and had persisted in spite of admonitions, was suspended, and was not restored until, in the following year, it had been reduced to order and subordination, under the rules of policy which the Central Board had adopted. The prospect for business, the following year, was considered good; but “much more might be done if the collection laws of the State did not enable so many of the bank debtors to violate their engagements with impunity.” The president thought that stay laws might be beneficial both to creditors and debtors in certain conjunctures, but that they ought to be removed when the conjuncture had passed. In 1844 the bank petitioned for and obtained a continuance of the right to issue small notes.

A description of the currency of Indiana, in September, 1843, is as follows: The State Bank paper and the paper of the specie-paying banks of Ohio are the standard; “scrip” is the treasury notes of the State, receivable for dues to the State, but not bearing interest when paid for taxes. “Bank scrip” is a State issue to pay the State Bank for advances to the canal contractors. “White dog” is a State issue to pay for canal repairs, receivable at its face and interest for canal lands east of Tippecanoe. “Blue dog” is a State issue for extending the canal, receivable for canal lands and canal tolls. “Blue pup” is a shinplaster currency issued by the canal contractors and redeemable in “blue dog.” The quotations are, “scrip” 85 to 90; “bank scrip” 85; “white dog” 80 to 90; “blue dog” 40; “blue pup”—!*

Illinois.—The session of 1840-41 was called two weeks earlier than usual, in order to provide for the interest on the public debt, which would fall due January 1, 1841. A party fight arose over the question whether this was a special session, which must adjourn in order that the regular session might commence at the constitutional time. The fate of the banks was supposed to depend upon this, because the suspension of the penalties of suspending specie payments had been extended to the “end of the next session.” The democrats succeeded in adjourning the called session, which they construed as putting an end to the banks. The Bank of the State, for its own purposes, adopted this construction, and, assuming that it was under compulsion to redeem at once, all discount and loan business was immediately suspended, and the bank refused all further advances to the State or redemption of auditor’s warrants. The State was then indebted to the bank $196,000. This debt was increased in the current year because the revenue was not equal to the expenditure. In stating these facts to the Legislature, the president of the bank closed his document with a declaration of the purity of the motives of the bank; but it was the general opinion then, and became the almost universal opinion afterwards, that the bank had intended to coerce the Legislature to authorize it to suspend again. In the February following, the bank presented a memorial to the Legislature, setting forth that it was exposed to danger and harm, finding itself the only bank in the western country which had resumed. From December 5th to February 1st, it had been forced to redeem $455,000 of its circulation. It pleaded for permission to suspend again and asked outright that the forfeiture of the charter as a penalty for suspension might be repealed, as impolitic and useless.

The refusal of the Bank of the State to redeem the auditor’s warrants left the Legislature and the public officers unpaid. “The credit of the State at the same time had sunk so low that the public documents could not be obtained from the post office until the officers themselves became personally responsible for the postage.”*

The minority of the Committee on Banks, reviewing, in 1841, the history of the Bank of the State, thus stated the result: “At the first suspension, in 1837, its circulation was only $1.7 millions, and other liabilities about $1 million more, and its resources were equal to its liabilities. At the second suspension, in 1839, its notes in circulation exceeded $2.5 millions and its liabilities exceeded its means by nearly $400,000. On the 7th of December, 1840, after the last suspension, its bills in circulation exceeded $3.2 millions and its liabilities exceeded the available means by about $1 million.”

In July, the branch of the State Bank at Jacksonville was robbed, but every accommodation note, bill of exchange, and other evidence of debt in the bank was destroyed and the leaves were cut from the books containing all accounts since 1837. It was discovered that the perpetrator was the teller, who had been robbing the bank.†

The Bank of the State suspended again February 10, 1842. February 27th, an act was passed condoning this, but it was enacted that if it should suspend again for a longer time than the law allowed, it should forfeit its charter. At the same time it was given permission to issue ones, twos, and threes, until January 1, 1843. Both banks were required to resume with the other banks of the West and Southwest.

“To add to the general calamity and terror of the people, in February, 1842, the State Bank, with a circulation of $3 millions, finally exploded with a great crash, carrying widespread ruin all over the State, and into the neighboring States and Territories. In June following, the bank at Shawnee-town ‘followed in the footsteps of its illustrious predecessor,’ leaving the people almost entirely without a circulating medium. The paper of these two banks had been at a discount for specie ever since the United States refused to receive it for the public lands, and to make the banks depositories of the public moneys.”

“That which contributed the last spark to the explosion of the State Bank was the course of some of the State directors, who were contractors to finish the northern cross railroad, and who were to be paid in canal bonds, which at the time were unsalable. These interested parties, joining with others in the directory, established it as a principle that the bank could not issue an excess of its paper whilst in a state of suspension. This they did to get loans from the bank to carry on their work on the road; and having obtained money themselves upon this principle, they were obliged to vote loans to all others. But experience soon showed that the principle was false, for no sooner was more paper put into circulation than could be sustained by the business of the country, than the bank exploded. It may be added to this that the State Bank, to obtain favor from the Legislature, was compelled to make loans to the State, and to advance its bills for auditor’s warrants for a large amount to defray the ordinary expenses of government; the revenues being again insufficient, and the Legislature afraid to increase the taxes.”*

In the spring of 1842, the Bank of the State allowed its notes to fall to 50 cents on $1. As half the revenue of 1841 had been collected, the State officers thought that fairness required that the remainder of it should be allowed to be paid in the same currency. Hence this paper became the only medium of payment to public creditors. “Judges and other officers of government were obliged to take it at par for their salaries, and even the interest on the school fund could only be paid in this worthless currency.” The State also had to give its six per cent. auditor’s warrants for these notes, which it could only use again at the rate mentioned. “The Constitution expressly prohibited the Legislature from reducing the salaries of the Judges. The object of this prohibition was to preserve the independence of the judiciary. The bank, however, found no difficulty in reducing their salaries more than one-half, and this too when its own officers were receiving liberal salaries in gold and silver.” The taxpayers now hastened to pay their taxes for 1842 one year in advance, before the Legislature could take any action to prevent taxes from being paid in this depreciated currency. According to the existing system also this revenue must have been paid into the Bank of the State. The Governor, Auditor, and Treasurer, acting under power which had been given by law, published a proclamation, August 15th, forbidding the payment of school, college, and seminary debts, and public revenue, in notes of the Bank of the State. This left such dues payable in auditor’s warrants, of which there were enough outstanding. September 12th, they published another proclamation, warning collectors not to receive depreciated paper at more than its specie value. In reporting their proceedings to the Legislature they add: “It is folly to hope for better times while the channels of trade are choked up with depreciated paper. So long as the banks are continued in existence, so long will the prosperity of our people be retarded. They have almost sucked the life-blood out of the State already. Instead of bringing in foreign capital and disseminating it amongst the people, they have been effective engines in the hands of foreign speculators to drain the State of all its substantial wealth. Since the establishment of these institutions, there have been $10 millions of money borrowed and expended amongst the citizens of Illinois. Wealth has also been obtained from immigration, and the exportation of domestic products, and yet all this has disappeared as if by enchantment, and the State, in 1842, finds itself steeped in poverty and depending for a currency upon depreciated paper.” The implication that the banks were to blame for all this was plainly unjust.

Under a resolution of the Legislature that the State officers should negotiate with the two banks terms for the separation of bank and State, the Bank of the State proposed to yield up to the State the State bonds and State scrip which it held, and to cancel the debt of the State to it, which was nearly $500,000, in exchange for the stock owned by the State. The former amount exceeded the latter by $52,404. The Bank of Illinois agreed likewise to purchase of the State all its stock in that Bank, giving evidences of State debt for it. The State was indebted to this bank $370,000, $200,000 of which was for an advance which this bank had made at the urgent request of the Fund Commissioners and the Governor, that it would advance for a few months the amount which it was expected to borrow in New York. The latter negotiation fell through and the State never repaid the bank. The facts here stated show most distinctly that the banks were by no means the only sinning parties. When the time of catastrophe came, the Legislature and all the civil officers turned upon the banks with ferocity; but the truth stands out in the clearest light that the banks, blameworthy as they were in other respects, had been in a very important degree helped to their ruin by the internal improvement folly for which the civil government of the State was responsible.

Ford says that if the “swindling banks” had swindled only one-quarter as much as they were swindled by the State and by individuals, they would have been perfectly solvent. In regard to confidence, also, he says that “if the banks owed five times as much as they were able to pay, and the people owed to each other and to the banks more than they were able to pay, and yet if the whole people could be persuaded to believe the incredible falsehood that all were able to pay, this was ‘confidence,’ which, if once destroyed, could only be restored by the restoration of a similar general delusion.” His description of the state of things in 1842 is that the people of Illinois were indebted to the merchants. They in turn were indebted to the banks or to foreign merchants. The banks owed everybody. None were able to pay.

In February, 1843, the Governor informed the Legislature that the two banks had surrendered to him the State obligations and that he was ready to burn them in front of the State-house.

The rate of tax for 1843 and the following years was fixed, March 6, 1843, at twenty cents on $100, payable in specie or auditor’s warrants, and nothing else. The interest on the public debt was suspended for 1842 and 1843. The Bank of the State was put in liquidation January 24, 1843. It was ordered to pay out its specie as its debts were called for, pro rata, on a computation of its debts; certificates receivable for debts to the bank to be issued for the residue. The Court might declare the charter forfeited and appoint three receivers, four years being allowed for winding up. Notes to the bank were to be renewed on the payment of one-fifth; the property of the bank was not to be sold for less than two-thirds of the valuation made by three appraisers. The specie in the Bank of the State was exempted from execution. This act provided for separating bank and State. Joint resolutions were passed February 21, 1843: “Whereas, under our former policy, public works were commenced and prosecuted, and vast and extravagant schemes of internal improvements adopted, utterly disproportioned to our resources and means,” and debts have been contracted beyond ability to pay, and the will to pay is doubted, therefore they recognize the obligation to fulfill promises and detest repudiation. “Seduced by an inflated currency and the consequent apparent prosperity,” these debts were contracted; but contraction has crippled resources. Inflation “had its origin and aliment in the over-action of the credit system,” both in England and here. Patience and labor are needed, with time, to pay.

The charter of the Bank of Illinois was repealed and it was put in liquidation March 3, 1843. It was ordered that the last asset to be realized should be the debt of the State to the bank.

The charter of the city and Bank of Cairo, of 1818, was repealed March 4, 1843, and commissioners were appointed to wind it up, paying out its specie pro rata on its debt, and giving certificates for the residue. The commissioners were also to inquire whether the officers had broken any laws in their management.

After the failure of the Bank of Illinois a few of its directors secretly borrowed of it $100,000 in specie with which to purchase bonds, which might be delivered to the State in discharge of the debt to it. The bonds were worth thirty cents on the dollar. Other directors discharged their stock notes with State bonds. The Governor hesitated to receive these bonds, but fearing that, if he refused, the State would get nothing, he made a conditional contract to receive them if the Legislature should approve. The first action of the Legislature in 1844 was that “it would be better to lose the whole amount which the bank owed the State than countenance in the least degree the villainy of its officers;” but it afterwards allowed the bonds to be taken at 48 cents on $1.*

The state of things at the end of 1844 was thus described in the Governor’s message: “A depreciated currency then universally prevalent has been withdrawn, and gold and silver and the paper of solvent banks have been substituted in its place.” He attributed this to the laws which had put the banks in liquidation, and which had “demonstrated the grand truths which have been doubted by many; that banks are wholly unnecessary to supply a local currency; that money will, in the main, exist and circulate in every country in proportion to its exchangeable property; and that local banks, in fact, impede the equalization of the currency and manifestly tend to derange the exchanges.” Banks may be useful in commercial communities, “but if former experience is to be any guide for the future, we must be satisfied that we, in the State of Illinois, are better without them than with them. * * * We ought now to be satisfied that without a greater and more general punctuality in the payment of private debts, it will ever be impossible to administer the affairs of a bank with safety to the people.”

The trustees of the old State Bank of Illinois, in 1862, advertised a final auction of its remaining assets.*

This State also had a loss through its bankers. Bonds were hypothecated to McAlister & Stebbins, which were lost through their bankruptcy. An attempt to make an adjustment having failed, resolutions were adopted, February 27th, 1845, that those bonds should not be receivable for debts to the State, except at the amount which the State had realized from them, 26 cents on $1, with interest from June 17, 1841.

Delafield, a New York banker, contracted to take bonds for $583,000, but paid only $170,000 on them. He refused to return the bonds even if repaid. The State claimed that the sale by its agents had been illegal, in that the bonds had been sold on credit and for less than par. The case further resembled the Mississippi case in that the State won five per cent. by exchange which was alleged to offset the loss of interest in making it run from a date earlier than that on which the cash was paid to the State. The Court held that the agents had exceeded their powers; that the sale was below par, and on credit; that the State was bound in faith and honor to third parties, but that the second party was bound to scrutinize the credentials and commission of the agents.† This decision was made in 1841 and gave great encouragement to the Mississippi repudiationists.

Missouri.—The Bank of the State of Missouri was chartered February 2, 1837, for twenty years; capital, $5 millions, half by the State; the private subscriptions were payable in specie or certificates of the deposit of specie, in deposit banks of the eastern cities; the State subscription to be made by bonds payable to the bank after twenty-five years; the State funds to be invested in the bank; no notes to be issued until seventy per cent. of the private subscription paid up; the Governor to inspect the paid-up capital; one share to have one vote; not more than half the capital to be employed in dealings in bills of exchange; no loans on its own stock; twenty per cent. penalty for suspension; some notes to be made payable at New Orleans and Baltimore, Philadelphia or New York, and they may be made payable at any respectable bank in the United States. The bank may borrow not more than $5 millions, payable in five years, to lend on mortgages in Missouri; this last fund and its accounts to be kept separately; to pay the State annually one-quarter of one per cent. on the private part of its capital in lieu of bonus and taxes; lowest note, $10; to be the fiscal agent of the State; the note issue not to exceed double the capital for the first five years; if it suspends, to forfeit its charter. February 15, 1841, an amendment was proposed to the stockholders to repeal the provision for branches and for the loan to be lent on mortgage.

Governor Boggs, in his message, November 17, 1840, boasted that the Bank of Missouri had resisted the second suspension in 1839, “and in so doing has not only gained honorable distinction, but has shown how easy it is for the banks of any State to resist these suspensions.” He complained, however, of chartered insurance companies in St. Louis, which, although not allowed to issue notes, circulated the notes of foreign banks. He also complained that, although there were heavy penalties for the circulation of notes under $5, “notes of lower denominations have been circulated freely ever since its passage, and has any one been prosecuted under that law? Not in a single instance that I have heard. The law is a dead letter on your statute book, and your courts either cannot or do not enforce it.”

In 1842, the Governor complained earnestly of the issue of small notes by cities, towns, and county courts; also of the issues made by unauthorized companies or companies chartered for other purposes; also of the great amount of depreciated paper from other States, especially from Illinois. After having, in 1839, with the approval of the Legislature, resolved not to do business with the paper of any suspended bank, the Bank of the State changed its policy, in the spring of 1841, and began to use such paper in its transactions.*

Resolutions were adopted by the Legislature in February, 1843, that the Bank of the State ought not to receive the notes of any suspended bank, and also ought so to manage its business as never to suspend.

An issue of State bonds to the amount of $175,000 was ordered, in 1842, in order to pay the debt of the State to the bank, and a committee was raised to investigate the bank. The circulation of notes under $5 was also prohibited after July 1, 1843, and after January 1, 1844, the circulation of those under $10; after July 1, 1843, no note of a suspended bank was to pass or be dealt in. Contracts in such notes were declared void. All banking privileges, except those of the bank of Missouri, were declared unconstitutional and void. All charters of companies which should violate this law were to be annulled. The Bank of Missouri might sell the depreciated paper held by it.

The Bank of the State had in its possession, in 1844, $2,230,000* of the bonds of the State given to it for its capital, which it had not negotiated on account of the depressed condition of the market for such securities. A legislative committee reported that if it should sell these bonds, as it might do, “it would prove most disastrous to the State and be of little or no benefit to the bank;” and that the bank had as much capital as it could use. It then held $225,020 in notes and drafts issued by the Bank of Illinois, of uncertain value, not exceeding 50 cents on $1. The dividends received by the State, and the bonus, when compared with the interest on the bonds of the State, issued for the stock in the bank, showed a deficiency of $32,855. The educational funds which had been invested in the bank stock had secured an uncertain and irregular income. “The history of the bank proves most conclusively that it never can be made a source of revenue to the State.” The bank was denounced as not having served the purposes of its creation, especially because it had used the notes of the suspended banks instead of driving them out.

By a joint resolution of January 30, 1845, the bank was ordered to deliver all unsold State bonds in its possession to the agent appointed to bring them to the Legislature.†

The Governor, in his message, November 18, 1844, was able to say: “The circulating medium of our State has been greatly improved, and indeed it is believed that at no previous time has our currency been in a sounder or better condition than at present. All the worthless and depreciated paper of other States has ceased to circulate among the people, and in its place may now be seen in circulation a fair proportion of silver and gold.”

In 1855, the Bank of the State was continued until 1861.

[* ] 3 Gallatin’s Writings, 390 (1841.)

[* ] See page 133.

[† ] 42 Niles, 315.

[‡ ] Adams’s Report with Documents, 22d Cong., 1st Sess., Reports IV., No. 460, p. 438.

[§ ] In 1816, as Senator from New Hampshire, Mason opposed the charter of the national bank.

[* ] The State Rights Party in South Carolina having declared that the local branch of the Bank had actively interfered against them in the State election of 1830, Biddle wrote to the president of the branch that it was one of the principles of the Bank not to interfere in politics at all, and that, while leaving to all their rights and liberties as citizens, it expected its employees to act in conformity with the policy of the Bank in this respect. He called for information which he could lay before the directors to reassure them that the rules of the Bank were not being broken. This letter was not published until 1832. (41 Niles, 478.)

[* ] See page 25.

[† ] See page 133.

[‡ ] 2 Parton’s Jackson, 596.

[§ ] See page 148.

[∥ ] Memoirs of Bennett, 111.

[* ] 37 Niles, 257.

[* ] The term “bank democrat” at this time is ambiguous. It is often used for those Jackson men who were friendly to the Bank of the United States, but also for those recruits of the Jackson party who were brought in by the local bank interest.

[* ] 8 Adams’s Diary, 445.

[† ] Ingersoll, Second War, 268.

[‡ ] 1 Sargent, 215.

[* ] 1 Benton, 236.

[† ] Bank of the United States vs. Owens; 2 Peters, 527.

[* ] 52 Niles, 106.

[† ] See page 160.

[* ] See page 190.

[* ] Biddle was a government director in 1819, 1820, and 1821. In 1822 he was not a director; from 1823 to 1829 he was government director and president, in 1829 he was also elected stockholders’ director, and held the double qualification in 1830, 1831, and 1832. After that he was not government director.

[* ] See page 181.

[* ] Compare the extract on page 188, where he justifies by equally high sounding argument a policy exactly opposite.

[† ] 3 Writings, 394. (1841.)

[* ] Ingersoll, Second War, 268.

[† ] Ingersoll, 268. Livingston was on the side of the Bank (Hunt’s Livingston, 353.)

[‡ ] Ingersoll, 283.

[§ ] 5 Proceedings of the Mass. Hist. Soc., 279.

[∥ ] 42 Niles, 337.

[* ] See Collier’s Speech in the House, March 13, 1832, and 8 Adams’s Diary, 493.

[* ] 43 Niles, 315.

[† ] 22 Congress, 2 Session, Reports, No. 121.

[* ] 44 Niles, 108.

[† ] 3 Parton’s Jackson, 503.

[* ] 8 Adams’s Diary, 457.

[† ] 3 Parton’s Jackson, 405.

[‡ ] Kendall’s Autobiography, 375, 10 Adams’s Diary, 115.

[* ] Duane, 130.

[† ] 45 Niles, 272.

[‡ ] Report of a Committee of Directors of the Bank on a Paper read in the Cabinet.

[* ] 2 Howard, 711. 5 Howard, 382.

[† ] 44 Niles, 353.

[‡ ] 23 Cong., 1 Sess., Sen Doc., No. 17.

[§ ] 44 Niles, 375.

[∥ ] Hudson’s Journalism, 250.

[* ] Tyler’s Taney, 204.

[† ] New York “Times,” May 13, 1894.

[‡ ] Kendall’s Autobiography, 386.

[§ ] 45 Niles, 65.

[* ] 45 Niles, 130.

[† ] 23 Cong., 1 Sess., 1 Senate, No. 16.

[‡ ] 24 Cong., 2 Sess., 2 Exec., No. 77.

[§ ] See page 69.

[∥ ] See Chap. 13, § 2.

[¶ ] Kendall’s Autobiography, 387.

[* ] Kendall’s Autobiography, 388.

[* ] Kendall’s Autobiography, 389, 23 Cong., 1 Sess., 1 Sen. No. 16, p. 339.

[† ] Quincy’s Adams, 227. He sold his stock February 18, 1834, 23 Cong., 1 Sess., Sen. Doc. 238.

[‡ ] See pages 33, 35, 102.

[* ] 23 Cong., 2 Sess., 1 Sen. Doc. No. 17.

[* ] Raguet; Currency and Banking, 196.

[† ] 2 Hammond, 440.

[‡ ] Appleton; Currency, 27. (1841.)

[§ ] 12 Banker’s Magazine, 410.

[* ] 46 Niles, 188.

[† ] 47 Niles, 20.

[‡ ] Chapter XIII., § 2.

[§ ] 23 Cong., 2 Sess., 2 Sen. Doc. No. 13.

[* ] 45 Niles, 307.

[† ] See page 264.

[‡ ] 49 Niles, 162.

[§ ] Letter to Adams, 1 Raguet’s Register, 404.

[* ] 49 Niles, 434.

[† ] 50 Niles, 111.

[‡ ] Handy’s Testimony. (1842.)

[* ] 49 Niles, 441.

[† ] The commissioners to adjust the accounts of the Bank with the government assumed that $600,000 of its circulation were lost and would never be presented for redemption. It was the estimate, in 1841, that five-dollar notes would be one-fourth of the circulation, and notes under five dollars another fourth. The lost notes were often estimated at ten per cent of those below five dollars. (Treasury Report, February 12, 1841.)

[* ] 42 Niles, 257; 44 Niles, 371.

[† ] 46 Niles, 188.

[* ] Mackeinzie, 70.

[† ] 49 Niles, 298.

[‡ ] It will readily be understood that, in presenting the history of the several States, various considerations of expediency, which it is not necessary to explain, determine the point of time at which the history is taken up or broken off in each case, and also the order in which the States are put in the series.

[* ] Treasury Report, August 10, 1846.

[* ] Whitney, 23.

[† ] Martin, Boston Stock Market, 9.

[* ] 1 Raguet’s Register, 281.

[† ] Treasury Report, January 4, 1837.

[‡ ] 2 Raguet’s Register, 348.

[§ ] 50 Niles, 136.

[* ] Comptroller Fillmore, 1848.

[* ] Report of the Stockholders’ Investigating Committee, 1842.

[† ] 2 Raguet’s Register, 248, 352; 2 Watts & Sargeant, 463; 56 Niles, 36.

[‡ ] Gouge; Journal of Banking, 7.

[§ ] Governor’s Message, 1842.

[* ] Session Laws of 1834-5. Appendix.

[* ] Treasury Report, January 4, 1837, ditto August 10, 1846.

[† ] 2 Raguet’s Register, 271.

[* ] The make-up of the volume of session laws seems to be defective, and the law establishing the branch at Mobile is wanting. It is afterwards referred to as having been established December 4, 1832.

[* ] Johnson’s Report on Assumption.

[† ] 1 Raguet’s Register, 56.

[‡ ] 3 Alabama, 258 (1842.)

[§ ] 13 Howard 12. (1851.)

[* ] The usage came to be that the one chartered in 1818 was called the Louisiana State Bank, and that of 1824, the Bank of Louisiana.

[* ] 12 Louisiana, 229 (1857.)

[* ] Treasury Report, January 8, 1838.

[† ] The citations which follow are from its report.

[* ] 24 Cong., 1 Sess., 6 Sen., 409.

[† ] 1 Raguet’s Register, 366.

[‡ ] Committee on Banks, February 25, 1840.

[* ] 25 Mississippi, 625.

[* ] 5 Smedes and Marshall, 515.

[* ] 21 Wendell, 211. (1839.)

[† ] 6 Howard, Miss., 627.

[* ] Documents Appended to Polk’s Report, 1833, p. 151.

[* ] See page 239.

[† ] See page 187.

[‡ ] Stenhouse; Rock Mountain Saints; Boston “Courier,” February 6, 1837, Ford; Illinois, 259.

[* ] McCulloch; Men and Measures, 114.

[* ] Ford, 190.

[* ] McHenry; The Cotton Trade, 107.

[* ] 1 Raguet’s Register, 66.

[† ] Ford’s Illinois, 196.

[* ] Ford, 181.

[* ] 7 Adams’s Diary, 427.

[† ] Treasury Report, 1835.

[* ] See pages 33, 35, 102.

[† ] Martin, Boston Stock Market, 59.

[‡ ] New York “Evening Post” in 48 Niles, 168.

[* ] 50 Niles, 113.

[† ] 50 Niles, 185, 134.

[‡ ] 2 Hammond, 450.

[* ] Treasury Report, January 8, 1838, page 651.

[† ] Raguet; Currency and Banking, 139.

[* ] Edinburgh Review, 1837; attributed to McCulloch.

[* ] N. Y. “Journal of Commerce,” October 9, 1837.

[* ] See Appleton; Currency, 1841.

[† ] 52 Niles, 81.

[* ] 52 Niles, 97, 100.

[† ] Ibid, 114.

[‡ ] 1 Raguet’s Register, 76.

[§ ] Ibid, 130.

[∥ ] Ibid, 161.

[* ] Ibid, 115.

[† ] Report of the Planters’ Bank of Tennessee, October 8, 1837.

[‡ ] 3 Gallatin’s Writings, 396.

[§ ] 52 Niles, 146.

[* ] 1 Raguet’s Register, 229.

[† ] 52 Niles, 162.

[‡ ] 3 Gallatin’s Writings, 395; Raguet, Currency and Banking, 188.

[* ] 2 Hammond, 470.

[† ] 1 Raguet’s Register, 225.

[‡ ] See page 251.

[§ ] Committee on Corporations, 1842.

[* ] 52 Niles, 193.

[† ] Democratic Review, December, 1838.

[* ] 9 Adams’s Diary, 363.

[† ] 1 Raguet’s Register, 97.

[* ] 52 Niles, 322.

[* ] Gouge; Journal of Banking, 264.

[† ] 1 Raguet’s Register, 191.

[‡ ] 52 Niles, 177.

[* ] 52 Niles, 210.

[† ] 2 Raguet’s Register, 58.

[* ] See page 22.

[* ] 1 Raguet’s Register, 150.

[† ] People’s Bank, Bangor, Me.; Brooklyn Bank, Brooklyn, N. Y. (after it resumed); Planters’ Bank of Georgia; Insurance Bank of Columbus, Georgia; Louisville Savings Institution, Ky.; Bank of the State of Missouri.

[‡ ] See the quotation from Gouge, page 273.

[* ] 1 Raguet’s Register, 235.

[† ] Ibid, 334.

[‡ ] Ibid, 349.

[§ ] N. Y. “Express” in 54 Niles, 161.

[∥ ] 56 Niles, 294.

[¶ ] 1 Raguet’s Register, 205, 207.

[* ] See page 228.

[† ] 2 Ashmead, 170.

[‡ ] 2 Raguet’s Register, 126.

[* ] 54 Niles, 128, 161, 177.

[* ] New York “Express,” in 54 Niles, 161.

[† ] 2 Raguet’s Register, 13.

[‡ ] See page 362.

[§ ] 55 Niles, 306.

[* ] 1 Raguet’s Register, 163, 209.

[† ] Gouge, Journal of Banking, 164.

[* ] 1 Raguet’s Register, 176.

[† ] Ibid, 158.

[‡ ] 1 Raguet’s Register, 192.

[* ] 1 Raguet’s Register, 302.

[† ] Report of the Committee of New York Banks on Resumption, February 28, 1838.

[‡ ] “Journal of Commerce” in 1 Raguet’s Register, 366.

[* ] Appleton, Currency, 16. (1841.)

[† ] Whitney, 31.

[‡ ] 1 Raguet’s Register, 352; 2 ditto, 338.

[* ] 54 Niles, 273. See page 299.

[* ] 54 Niles, 225.

[* ] Elliot’s Funding, 1154.

[* ] 2 Raguet’s Register, 302.

[† ] 54 Niles, 353, 369.

[‡ ] See page 240.

[* ] 2 Raguet’s Register, 140; Corresp. N. Y. “Herald.”

[† ] 54 Niles, 384.

[‡ ] 2 Raguet’s Register, 255.

[* ] 2 Alabama, 451. (1841.)

[† ] Bank Commissioners, 1839.

[‡ ] 2 Raguet’s Register, 29.

[* ] In his letter to Adams, December 10th, Biddle boasted that the Bank had made advances to the amount of many millions to the banks of the southwestern States to help them to resume.

[† ] N. Y. “Evening Post,” August 24, 1839; quoted in McHenry, “The Cotton Trade,” p. 31.

[* ] 2 Raguet’s Register, 379.

[* ] 2 Raguet’s Register, 336.

[† ] 2 Raguet’s Register, 368.

[‡ ] N. Y. “Express” in 55 Niles, 225.

[* ] Second Report of the Committee of 1841. See page 345.

[† ] 55 Niles, 355.

[‡ ] 56 Niles, 96, 114; Raguet, Currency and Banking, 157.

[§ ] 56 Niles, 113, 293.

[* ] 56 Niles, 249, 258.

[† ] 56 Niles, 369.

[‡ ] 56 Niles, 351.

[§ ] Investigating Committee, May 18, 1841.

[∥ ] 56 Niles, 337.

[* ] 57 Niles, 277; 58 Niles, 72.

[† ] Biddle’s first letter to Clayton, 1841.

[‡ ] 56 Niles, 375, 405.

[§ ] 57 Niles, 119, 60 Niles, 121.

[* ] 57 Niles, 97.

[† ] 60 Niles, 121; 3 Gallatin’s Writings, 404.

[* ] N. Y. “American,” October 16, 1839, in 57 Niles, 140.

[† ] 57 Niles, 140.

[* ] 57 Niles, 140, 209.

[† ] 57 Niles, 139.

[‡ ] 57 Niles, 155.

[* ] 58 Niles, 32.

[* ] Boston “Advocate” in 1 Raguet’s Register, 308.

[* ] Whitney, 30.

[* ] 2 Raguet’s Register, 400.

[† ] 2 Hammond, 480.

[* ] Comptroller’s Report, 1840.

[† ] Bank Commissioners, 1841.

[‡ ] 1 Denio, 9.

[§ ] 2 Denio, 380.

[∥ ] 1 Douglas, 351.

[* ] 52 Niles, 164.

[† ] The acts of the extra session have not been accessible.

[* ] 21 Georgia, 297.

[† ] 1 Kelly, 27.

[* ] The Supreme Court of Louisiana affirmed the power of the Territory of Orleans to incorporate a Navigation Company. (11 Martin 309, 1822). See pages 53, 60, 248.

[† ] Treasury Report, March 3, 1841.

[* ] See page 298.

[† ] See page 297.

[‡ ] 2 Raguet’s Register, 252.

[§ ] The Mobile “Register,” in 2 Raguet’s Register, 349. November, 1838.

[* ] 55 Niles, 385.

[† ] See page 298.

[* ] 13 Peters, 519.

[† ] 2 Raguet’s Register, 43. July 1838.

[‡ ] 1 Ditto, 379.

[* ] Treasury Report, April 9, 1840, p. 591.

[† ] Ibid, 605.

[‡ ] Johnson’s Report on Assumption, March 2, 1843.

[* ] 1 Raguet’s Register, 332.

[† ] 1 Raguet’s Register, 270.

[* ] 1 Raguet’s Register, 222.

[† ] Craighead versus the Bank of Tenn. 1 Meigs, 199.

[* ] 1 Raguet’s Register, 379.

[† ] Journal of Banking, 91. (1841.)

[* ] 54 Niles, 224.

[† ] See page 255.

[* ] Committee on Banks, January, 1843.

[* ] 4 Pike, 44. (1842.)

[† ] 64 Niles, 5.

[* ] Comptroller’s Report, 1840.

[* ] 57 Niles, 416.

[† ] 58 Niles, 100.

[‡ ] Raguet; Currency and Banking, 127.

[* ] 60 Niles, 392.

[† ] Bank Commissioners, January 26, 1842.

[‡ ] Gouge; Journal of Banking, 54.

[§ ] Gouge; Journal of Banking, 87.

[∥ ] Gouge; Journal of Banking, 184.

[¶ ] Elliot’s Funding, 1176.

[** ] Journal of Banking, 230. The figures for 1842 were estimated.

[* ] 58 Niles, 32.

[† ] Raguet, Currency and Banking, 307.

[‡ ] See page 355.

[§ ] Democratic Review, March, 1842, no doubt by Gouge.

[∥ ] Appleton, Currency (1841), 17.

[* ] Answer of the Bank of Kentucky to Interrogatories, 26 Cong., 2 Sess., 4 Ex., 111.

[† ] Writing in 1831 Gouge had said that a bank ticket or a money corporation ticket was rarely seen at an election. In 1841 he said that the banks took the field openly. (Journal of Banking, 149.)

[‡ ] Report of the Committee on Bribery and Corruption by the Banks in 1840.

[* ] 6 Wharton, 585: Dist. Ct. Phil.; affirmed, 2 Watts and Sergeant, 443. (1841.)

[* ] 58 Niles, 199; 229.

[† ] Treasury Report, March 3, 1841.

[‡ ] 3 Gallatin’s Writings, 405.

[§ ] 59 Niles, 257.

[∥ ] 59 Niles, 257.

[* ] 5 Proc. Mass Hist. Soc., 290.

[† ] 59 Niles, 405.

[* ] 60 Niles, 71.

[* ] Journal of Banking, 6.

[† ] 3 Gallatin’s Writings, 411. Bollmann proposed a scheme of currency, in 1816, like this relief system. See page 75.

[‡ ] 60 Niles, 192.

[* ] See page 309.

[† ] See page 302.

[* ] See page 206.

[* ] 2 Ashmead, 406.

[† ] Domett, Bank of New York, 87.

[‡ ] 59 Niles, 372; 60 ditto, 22.

[§ ] 60 Niles, 48.

[∥ ] Ibid, 96.

[¶ ] See Chapter 15, on the Liquidation.

[** ] Elliot’s Funding, 1176.

[†† ] 60 Niles, 187, 272.

[‡‡ ] Gouge; Journal of Banking, 26.

[* ] 13 Peters, 519.

[* ] See page 228. At this time $300 were taken from the pocket of Nicholas Biddle as he stood at the post-office window. One newspaper called it “a removal of the deposits,” and said that the robber was a “financier.” Another said that when he found his wallet was gone, he exclaimed, “I am robbed!” and “as cool and as calm as a summer’s morning went to the Bank and drew for $300 more.” The tradition is that Biddle was extremely careless in his personal expenditures, and kept no private cash account.

[† ] 6 Banker’s Magazine, 230.

[* ] Gouge, Journal of Banking, 197, 214.

[† ] Vaux, Recorder’s Decisions, 12.

[‡ ] 5 Harris, 400.

[* ] 9 Adams’s Diary, 546, May, 1838.

[† ] Ford’s Illinois, 299.

[‡ ] Commonwealth versus Farmers and Mechanics’ Bank, 21 Pickering, 542.

[§ ] Bank of Penn. versus Commonwealth, 19 Penn., 144.

[∥ ] 60 Niles, 201.

[¶ ] 61 Niles, 32, 70.

[** ] See page 215.

[†† ] 8 Robinson, Lousiana Reports, 287; where the text of the three assignments is given.

[* ] Gouge; Journal of Banking, 87, 180.

[† ] Ibid, 230.

[‡ ] Bicknell’s Reporter in 61 Niles, 176.

[§ ] Gouge; Journal of Banking, 168.

[* ] 1 Webster’s Works, 135.

[* ] Gouge, Journal of Banking, 211.

[† ] Gouge, Journal of Banking, 247.

[‡ ] Ibid, 248.

[* ] Gouge; Journal of Banking, 311.

[† ] Journal of Banking, 375.

[‡ ] Penn. Bureau of Statistics, 1873-4.

[§ ] Martin; Boston Stock Market, 15.

[* ] Journal of Banking, 276.

[† ] Lee, Letters to the Cotton Manufacturers, quoted in 2 Macgregor; Progress of America, 1117.

[‡ ] 3 Gallatin’s Writings, 384 (1841).

[§ ] Banking and Currency, 1838.

[* ] Treasury Report, August 10, 1846.

[* ] 63 Niles, 128.

[† ] 62 Niles, 208.

[* ] Treasury Report, Aug. 10, 1848.

[† ] Gouge, Journal of Banking, 312.

[‡ ] Quoted 63 Niles, 309.

[§ ] 64 Niles, 233.

[∥ ] 15 Bank. Mag., 663.

[¶ ] 8 Robinson, Louisiana Reports, 298.

[* ] President’s Report, 1843. See page 389.

[† ] 8 Robinson, Louisiana Reports, 287.

[‡ ] See page 339.

[§ ] Gouge; Journal of Banking, 359.

[∥ ] 8 Robinson, Louisiana Reports, 262.

[* ] See page 286.

[† ] United States vs. Bank of the United States. 8 Robinson’s Louisiana Reports, 262. Dana vs. the United States Bank, 5 Watts and Sargeant, 223, Shelby vs. Bacon, 51 United States, 56.

[‡ ] 6 Bank. Mag., 498, 502.

[§ ] 5 Harris, 400.

[∥ ] Answer of the Respondents in Batard vs. Bayard.

[¶ ] 10 Bank. Mag., 153.

[* ] Report of the Comptroller of the Currency, 1876, p. 129.

[† ] 10 Adams’s Diary, 361.

[‡ ] Ingersoll, Second War, 286.

[§ ] Treasury Report, March 3, 1841, and August 10, 1846.

[∥ ] Governor’s Message, 1842.

[¶ ] Gouge, Journal of Banking, 359.

[* ] See page 176.

[† ] Report of the Bank of the State for 1840.

[‡ ] Its Report of 1840.

[* ] Report of the Columbia Branch, 1844.

[* ] 2 McMullen, 439.

[† ] Report of the Central Bank, 1840.

[* ] Gouge; Journal of Banking, 22.

[* ] 18 Georgia, 73. See page 370.

[* ] 18 Georgia, 65.

[* ] See pages 248, 318.

[† ] Johnson’s Report on Assumption.

[* ] 6 Smedes and Marshall, 622.

[† ] 57 Niles 420.

[* ] 58 Niles, 115.

[† ] 58 Niles, 182.

[‡ ] 6 Howard, Miss., 626.

[§ ] 59 Niles, 219.

[∥ ] 9 Smedes and Marshall, 396. (1848).

[* ] 18 Banker’s Magazine, p. 95; where the resolutions are quoted in full. They are not to be found in the Session Laws; perhaps because McNutt did not sign them.

[* ] The bonds issued by Louisiana for the Citizens’ Bank bore on their face an alternative denomination, £100 or $444.44.

[† ] The cashier of the Union Bank published a letter, September 26, 1838, in which he stated that the bonds had been negotiated “for five millions in gold and silver.” (4 Banker’s Magazine, 339.) This was a prevarication of the kind which bank officers in those days uttered without compunction. The Supreme Court of Pennsylvania held that “par” of post-notes meant: with accrued interest. (10 Harris, 479.)

[‡ ] Democratic Review, April, 1842.

[§ ] 8 Banker’s Magazine, 493. The resolutions are not in the Session Laws, perhaps because McNutt did not sign them.

[* ] 25 Miss., 633.

[† ] The president of the Bank of Missouri, in a trip to the East in 1852, discovered in the Bank of America bonds of Missouri fully and duly executed, to the amount of $215,000, which had lain there since 1837, neither the State nor the bank having any record of them. (7 Banker’s Magazine, 334.) There was a discrepancy in the bond account of Indiana which could not be explained until a box of bonds “intended for cancellation” was found, in 1853, in the office of Winslow, Lanier & Co. It had been left there by a former State Treasurer and forgotten. (8 Banker’s Magazine, 436.) The agent of the State of Indiana issued, in 1862, $1.2 millions of State bonds fraudulently. A part of these were recovered, but about $0.5 million remained outstanding. “Previous to March 11, 1859, the State bonds were left in the agent’s hands, signed by the State officers, ready for issuing, and needing nothing but the agent’s signature to make them valid.” The law passed on that date was intended to put a stop to this loose mode of business, but no change in method had taken place in pursuance of it. Hence the opportunity remained for this fraud. (17 Bankers’ Magazine, p. 79.)

[* ] 6 Smedes and Marshall, 628.

[† ] See pages 60-1, 249.

[‡ ] 2 Banker’s Magazine, 568.

[* ] 24 Mississippi, 471. (1852.)

[† ] 13 Banker’s Magazine, 720.

[‡ ] 14 Banker’s Magazine, 509.

[§ ] 7 Banker’s Magazine, 499.

[∥ ] 25 Miss., 637.

[¶ ] Mississippi versus Johnson, 25 Miss., 625.

[* ] Governor’s Message, 1859.

[† ] 14 Banker’s Magazine, 861.

[‡ ] Compare pages 377 and 380.

[* ] Treasury Report, March 3, 1841, p. 644.

[† ] See page 312.

[‡ ] See page 361.

[§ ] 62 Niles, 256, 320.

[∥ ] Treasury Report, August 10, 1846, p. 833.

[* ] Johnson’s Report on Assumption.

[* ] 5 Louisiana, 44.

[† ] Gouge; Journal of Banking, 26.

[* ] 4 Pike, 304. (1842.)

[† ] 5 Pike, 595. (1843.)

[* ] Committee on Banks, 1846.

[† ] 10 Howard, 190, 218. (1850.)

[‡ ] 12 Arkansas, 321. (1851.)

[* ] 15 Howard, 304. (1853.)

[* ] 9 Banker’s Magazine, 488.

[† ] 20 Howard, 527, 530.

[* ] Governor’s Message, 1861.

[† ] Gouge, Journal of Banking, 374.

[* ] 1 Parson’s Equity, 181.

[* ] Gouge; Journal of Banking, 232.

[* ] The text says “March 4th next;” the act was signed March 7th.

[* ] The Governor quoted, without stating his authority, statistics of the losses to the whole country by the revulsion, 1837 to 1843, as follows: bank circulation and deposits, $54 millions; bank capital, $248 millions; company stock, $80 millions; depreciation of State stock, $100 millions; real estate, $300 millions.

[* ] 68 Niles, 272.

[† ] This company was founded in 1836. E. R. Biddle was president. He had no capital, but undertook iron smelting with anthracite coal, having borrowed from the Canal and Banking Company $180,000 on bonds payable in iron. These bonds were transferred to the State of Michigan with other securities to guarantee the unpaid part of the bonds of that State; which contract had been assumed by the United States Bank. (Gouge, Journal of Banking, 137.)

[* ] Gouge; Journal of Banking, 26.

[† ] 61 Niles, 108.

[‡ ] See page 365.

[* ] 65 Niles, 69.

[* ] Auditor’s Report, 1842.

[† ] Gouge, Journal of Banking, 40.

[* ] Ford, 223.

[* ] Ford, 399.

[* ] 17 Banker’s Magazine, p. 476.

[† ] 26 Wendell, 192.

[* ] Governor’s Message, 1842.

[* ] This is the figure given in the Treasury Report of August 10, 1846, but it must be in some way erroneous.

[† ] See page 384, note.