Front Page Titles (by Subject) CHAPTER XIV.: The Financial Revulsion; 1837 to 1842. - A History of Banking in all the Leading Nations, vol. 1 (U.S.A.)
The Online Library of Liberty
A project of Liberty Fund, Inc.
CHAPTER XIV.: The Financial Revulsion; 1837 to 1842. - William Graham Sumner, A History of Banking in all the Leading Nations, vol. 1 (U.S.A.) 
A History of Banking in all the Leading Nations; comprising the United States; Great Britain; Germany; Austro-Hungary; France; Italy; Belgium; Spain; Switzerland; Portugal; Roumania; Russia; Holland; The Scandinavian Nations; Canada; China; Japan; compiled by thirteen authors. Edited by the Editor of the Journal of Commerce and Commercial Bulletin. In Four Volumes. (New York: The Journal of Commerce and Commercial Bulletin, 1896). Vol. 1: A History of Banking in the United States.
About Liberty Fund:
The text is in the public domain.
Fair use statement:
The Financial Revulsion; 1837 to 1842.
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.§
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.”
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.”
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.
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.
[* ] 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.