Front Page Titles (by Subject) § 5.—: 1840 and 1841. The Third Failure and Final Bankruptcy of the United States Bank. The Bank Failures of 1841. The Extra Session of Congress of 1841. The Last Attempts to Charter a National Bank. The Pennsylvania Relief System. - A History of Banking in all the Leading Nations, vol. 1 (U.S.A.)
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§ 5.—: 1840 and 1841. The Third Failure and Final Bankruptcy of the United States Bank. The Bank Failures of 1841. The Extra Session of Congress of 1841. The Last Attempts to Charter a National Bank. The Pennsylvania Relief System. - William Graham Sumner, A History of Banking in all the Leading Nations, vol. 1 (U.S.A.) 
A History of Banking in all the Leading Nations; comprising the United States; Great Britain; Germany; Austro-Hungary; France; Italy; Belgium; Spain; Switzerland; Portugal; Roumania; Russia; Holland; The Scandinavian Nations; Canada; China; Japan; compiled by thirteen authors. Edited by the Editor of the Journal of Commerce and Commercial Bulletin. In Four Volumes. (New York: The Journal of Commerce and Commercial Bulletin, 1896). Vol. 1: A History of Banking in the United States.
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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.
The Liquidation; 1842 to 1845.
MASSACHUSETTS.—The full force of the revulsion of the period whose history we have recounted in the last preceding chapters appears perhaps more distinctly than anywhere else in the following statistical statement about the banks of Massachusetts, which shows it in a comprehensive and yet concise form. The New England States escaped comparatively easily from the troubles of the period, yet the Massachusetts banks, which were the leading ones of the section, had their share in it, and these figures show that they went through the full measure of the liquidation. These figures are also the fairest representation we can find of the fluctuations and vicissitudes of the banking system of the country, where it was not dominated by the big Bank of the State experiments or by the mania for “internal improvements.”
The ratio of specie to the bills in circulation and to the sum of the circulation and deposits in all the banks in Massachusetts for the years given:*
According to a table in the report of the Bank Commissioners of Massachusetts, 1841, the banking capital of that State varied as follows: in 1803, $2.2 millions; from 1803 to 1816, it continually increased to $11.4 millions; from 1816 to 1817 it was reduced to $9.2 millions; from 1817 to 1820 it continually increased to $10.6 millions; from 1820 to 1821 it was reduced to $9.8 millions; from 1821 to 1829 it continually increased to $20.4 millions; from 1829 to 1830 it was reduced to $19.2 millions; from 1830 to 1837 it continually increased to $38.2 millions. We may add that it was then reduced to $30 millions in 1844.
By a law of 1840, no bank was allowed to pay out any but its own notes. The president of the Suffolk Bank informed a country bank president, who wanted help, in 1841, that the bank was making no discounts. “Our discount sheet is entirely closed, and we do not even look at the applications.”
New York.—After a great political struggle, in 1842, the public works of New York were suspended and taxes were imposed to sustain the credit of the State.
A question arose whether the payments out of the safety fund were to be made to redeem the circulation of the banks in the order of their failure, and an injunction was obtained against the Comptroller to force him to take that course. The movement was in the interest of other creditors of an insolvent bank besides the note-holders. Consequently, April 12, 1842, the safety fund system was further modified, so that any part of, or all, the money in the bank fund could be applied at once to the payment of the notes, the banks being taken in the order in which the injunctions were granted. This applied the whole safety fund to the redemption of the note issues. The banks were also allowed, within six months, to commute for the payment of the three per cent. which they would have to pay to the safety fund within the next few years, paying with the notes of any insolvent bank, and receiving interest at seven per cent. on the sum paid until the time when it would become due. A large part of the notes which were a charge on the safety fund were at this time held in masses by banks and brokers who had taken them as collateral for loans. As the redemption of the circulation of the banks was to be taken up in the order of the injunctions, these masses of notes would so absorb the fund that the holders of what was called the legitimate circulation of the banks which failed later would be forced to wait a long time. At the same time the banks which commuted could pay in the notes of any insolvent bank, even of one which failed after the law was passed; but those notes, the redemption of which was delayed, depreciated. Hence the Comptroller, in his report of 1844, said that the law of 1842 had benefited the banks and brokers, but that it had not “secured that relief to the great mass of the bill-holders which was anticipated, and which is promised in the title of the act.” The banks paid in, in 1842, in advance, in the notes of insolvent banks, $477,609.
No bank in New York City would discount any note or bill in October, 1842, which was payable in the interior of any southern or western State.*
The exchanges in May, 1842, at New York, were as follows: England, eight and one-quarter premium; Boston, Philadelphia, and Baltimore, par or one-quarter discount; Virginia, five and one-quarter; Charleston, one and one-quarter; Augusta, two; Savannah, two; Mobile, twenty-five; New Orleans, six; St. Louis, five; Cincinnati, eight; Nashville, fifteen; treasury notes, one-quarter;—discount.†
The Governor in his message, January, 1843, said that the bonds held for the State circulation were worth at par $4.6 millions; that their market value was $1.6 millions; all the mortgages and stocks together were worth less than the circulation by $0.5 million. A year later his statement showed that the securities were a little in excess of the circulation. As to the safety fund, it was in arrears $579,353, for the notes of the insolvent safety fund banks.
In 1843, the office of Bank Commissioner was abolished, and the duties were transferred to the Comptroller. Every chartered bank was required, on July 1, 1843, to deliver all its bank-note plates to that officer, and to make a return to him of all bank notes created by it then in existence. All notes issued before that date were to be countersigned by the Comptroller before July 1, 1844, or to be redeemed and destroyed in his presence. After that he was to cause to be printed, countersigned, and registered such notes as each bank might require, being within its lawful limit. Every bank in the State was to make quarterly reports to him, and he was to appoint an examiner for any bank whenever he thought there was reason to do so. The Comptroller remonstrated against this last provision.
The general banking law was so amended that only bonds of the State of New York could be deposited as security for circulation. The terms were so stringent that bonds of the United States were excluded.
Ninety-three banks were incorporated under the general banking law before 1844. Of these eight failed to organize, twenty-six were closed by the Comptroller, who redeemed of their circulation $1,153,984, at a cost of $881,070, leaving $27,974 outstanding. The stocks on deposit, January 1, 1844, at the average value of the preceding year, just about equaled the circulation which had been issued against them.
The provision of law by which country notes might be redeemed at a discount of one-half of one per cent. led to a new device. The Comptroller, in his report of 1844, mentioned a case of a bank organized under the free banking law in an out-of-the-way place in Orange county. Its nominal president lived in Connecticut and all its business was done in New York City. The arrangement was devised in order that it might make one-half of one per cent. on such of its notes as were presented for redemption in New York City.
All the banks of Delaware, six in West Jersey, and fifteen in the interior of Pennsylvania resumed about March 20, 1842. The report from Delaware, in 1847, was: “Delaware has, up to the present time, never had a broken bank.”*
Pennsylvania.—Philadelphia paper was quoted at par for the first time March 26, 1842.† Of the rural districts it was said that every county in Pennsylvania had its own currency.
In January, 1843, “Bicknell’s Reporter” said of the relief notes: “If any one can devise an immediate plan whereby the people can get rid of about $700,000 of paper trash, he would be entitled to the name of a public benefactor.”‡ A month later, the Legislature orderered the Treasurer to cancel $100,000 per month, but in April they reduced this amount to $50,000 and resolved to make further attempts to sell the public works. The total amount of the relief notes issued was $2,186,550; the amount outstanding in June was $684,521.§ The number of counterfeits was said to be equal to the original.
Mention is made of these notes from time to time, during the following years, in the Governor’s messages and other documents. The statements of the amount outstanding do not show a steady diminution. In 1860, the Auditor-general reported that there were still $102,336 outstanding, including re-issues.∥
After 1842 it becomes very difficult to follow the liquidation of the United States Bank. It was dropped and forgotten as soon as possible. There was great dissatisfaction with the proceedings in liquidation, on the part of the residuary interest. The Bank seemed always to get worsted, although it could not be said to be wronged. In January, 1842, a meeting of stockholders tried to revoke the trusts. A fuller meeting, two months later reversed this. This meeting was “large, tumultuous, and disorderly.”¶ Mr. Schwab, of New York, cited the trustees to show cause why they should not give security for the faithful discharge of their trusts. The decision was against him. Two acts were passed, one May 4, 1841, vetoed by the Governor, but passed over the veto; the other, May 5, signed by him, under either of which the trustees might be appointed without the requirement of bond or inventory.
The Bank had bought the Merchants’ Bank of New Orleans for $1,076,500 in order to use it as an agency. In April, 1841, that bank was worth, at the market, $906,000. The best bid which the liquidators could get for it, at which they sold it, was $575,000, from Edward Yorke. In its assets was the sum of $334,427 in specie. Gouge wanted “to know the exact value of all the bank stock in the country estimated on like principles.” The secret was that the Bank of the United States could not use this specie, because the charter required that the Merchants’ Bank must always keep one-third of its capital in its vaults in specie.* This bank was pressed to sale because creditors enjoyed especial facility for attachments in Louisiana.†
In August the Bank of the United States at New York went into voluntary liquidation and redeemed all its notes. In order to secure its position as an independent ally and so avoid collision with the law of New York, it had been established on a relation of contract, and the two gentlemen in control of it had been guaranteed a yearly payment during the continuance of the charter of the Pennsylvania Bank. The latter now wished to wind up the New York institution as if it had been a dependency, but the managers stood on their contract for the remainder of the term for which the charter was to run. Arbitrators gave them $101,613; also $76,948 for the unexpired term of the lease of the banking house which they owned.
In April, 1842, the Legislature undertook an investigation of the proceedings of the United States Bank to influence legislation, in connection with the relief measures of 1840.‡ George Handy, a director of the Bank was summoned to testify, but refused and was imprisoned in the Capitol until he submitted. He surrendered letters from the lobbyists of the Bank, which contained expressions about dealing in “lumber.” His examination was interrupted by his arrest at the order of the Governor, who caused criminal proceedings to be instituted against him, although he had turned State’s evidence under a pledge of immunity. The Legislature, by joint resolution, March 29th, ordered the Attorney-General to enter a nolle in any criminal proceedings against him for conspiracy. According to Gouge’s statement the Court discharged him, declaring that there was no evidence which would justify his being held in arrest, and the same of the lobbyists inculpated with him. The Governor, by his interference, had blocked the legislative investigation, which was developing the evidence, and the Court held that the evidence was not sufficient for a criminal prosecution. “The condition of that State is deplorable in which the people lose confidence in their legislative, judicial and executive authorities; yet such is the present condition of Pennsylvania, if the sentiments of the inhabitants of the rest or the State are to be judged of by those of the citizens of Philadelphia. The general belief here seems to be that the banking interest exercises an improper influence in all the departments of government.”§
The United States levied on assets of the Bank of the United States, at New Orleans, in 1844, to try to recover outstanding claims, including the French bill and $89,606.12, due on the last bond for the stock of the United States in the Bank. The court sustained the assignments, and so cut off this claim.∥
There were nine banks in Philadelphia which did not fail in 1841 or 1842. The Pennsylvania, Mechanics, Manufacturers and Mechanics, Penn Township, and Moyamensing (changed to Bank of Commerce) recovered. From January, 1842, to November, 1845, the fourteen banks reduced their capital from $9.3 millions to $7.6 millions. The circulation went down from $2.3 millions to $2 millions in April, 1842, and then up to $4.1 millions at at the later date. Post-notes were reduced from $915,388 to 0. Specie and specie funds increased from $1.3 millions to $3.9 millions. This was the contraction to which Philadelphia was forced before she escaped from the trials and humiliations of this period. How much did she gain by not taking it as New York did in 1837? The student of finance will seek far for another experiment so exact, comprehensive, and conclusive.*
The Girard Bank was revived in 1845, its capital being reduced from $5 millions to $1.25 millions.
The administration of the trusts of the United States Bank received little public notice. The assignments were sustained in Court.† In Shelby vs. Bacon, the trustees of the third assignment simply answered that they were performing the duties of the trust and making annual reports to the prothonotary.
The stockholders held a meeting June 5, 1848, in order to try to find out the situation of the various trusts and the chances that there might be any surplus for the residuary interest. They obtained some information, but were advised not to publish it, and the meeting ended with the appointment of a committee to guard their interests.
A movement in the stock occurred in December, 1851, with sales at from one dollar to two dollars per share. The cause of this was not known. Perhaps it was correctly ascribed to action of Dutch stockholders who started an attempt to pursue the assets.‡ Any hopes which may have been entertained were overthrown by the decision that the Bank was still liable for the annual bonus.§
In the following year, on account of this decision, the stockholders voted to apply for an act to wind up, and appointed five trustees in liquidation, to whom a general assignment was made. The president and directors had been trying for years to get the foreign bondholders to accept the collateral and divide it amongst themselves in settlement. As the State bonds increased in value, they became more willing to do this, and a distribution was reached in 1853.∥
The act to “close finally the trusts of the late Bank of the United States.” February 3, 1855, provided that the claimants might divide the assets of the third trust under the supervision of, and an appraisement by, auditors. The trustees were then to be discharged and claims cut off. In the following August the final dividend of the third trust was advertised.¶
It appears that the notes and deposits were all paid, whether with interest or not is uncertain. Private inquiries make it seem probable that the other domestic creditors got about eighty per cent. The stockholders got nothing. It has been calculated that the United States made $6 millions out of the Bank of the United States. This result is reached by setting the cost of the government stock and interest paid on the same, until it was converted into cash, against the bonus, the dividends, and the amount received for the stock.*
Nicholas Biddle died February 27, 1844, aged 58. John Quincy Adams said of him in 1840: “N. Biddle has a fair mind, a brilliant genius, a generous temper, an honest heart, waylaid and led astray by prosperity, suffering the penalty of scarcely voluntary error. It is piteous to behold.”† The men who had flattered him and pushed him on to folly, when he appeared to be a leader who could serve their purposes, turned upon him and insulted him when he failed,‡ as of course he was bound to do; but if he had been a man of straightforwardness and rectitude of character, this whole story would have been very different.
Virginia.—In April, 1840, the teller of the Bank of Virginia absconded, being a defaulter for about half a million. He had begun by allowing overdrafts.
The Virginia banks resolved to resume with the Baltimore banks, and did resume about January 15, 1841, but suspended again a little later. The bad and doubtful debt to the Bank of Virginia was then $910,848, including the teller’s deficiency.§
February 10th, the banks were allowed to issue ones and twos under the same conditions as before, until January 1, 1842. The notes of the Merchants and Mechanics’ Bank and of the Northwestern Bank were not to be received by the State unless they would desist from using post-notes for any sum under $500. All penalties, forfeitures, and remedies against banks were further postponed, March 15th, until January 1, 1842. The fifteen per cent. penalty for non-redemption was suspended until June 1, 1842. At the next session there was further postponement until April 1, 1842, and finally the day for the resumption of specie payments was set at November 1, 1842. The Governor, in his message of 1841, said that he could not urge speedy resumption because the State owed the banks $350,000 which it could not pay. The banks resumed September 15, 1842.∥ It was asserted by a well informed writer that the bank directors of Virginia owed to the banks a sum equal to one-quarter of their total capital. The directors generally owned only enough shares to qualify.¶ In May there were reports of outrages in the State to prevent sheriff’s sales and action of the courts against debtors.
The banks were allowed to issue small notes payable in specie to the amount of six per cent. of their capital, until October 1st, by a law of January 26, 1843. March 4, 1846, an act was passed reciting that the Bank of Virginia had lost thirty per cent. of its capital, and wanted the par of its shares reduced to $70, which was allowed.
At the session of Congress, 1839-40, strenuous efforts were made to obtain the passage of a law to revive the District of Columbia banks, but they failed.
North Carolina.—The waves of financial elevation and depression in this State do not seem to have coincided with those in the other States. It had a great inflation in 1829-30 when the others were at their best.* The revulsion of 1837 to 1843 seems to have passed over it with little effect.
The Governor stated, in his message of 1840, that within four years the banks had paid to the State, in dividends and taxes, $253,201; “the most conclusive proof of their value to the State.” This was nearly half its total revenue.
South Carolina.—After the suspension of 1839, the Bank of the State of South Carolina and the Bank of Charleston alone sustained specie payments. The former was called on to redeem $288,000 of its circulation within a year, even the ones and twos being returned.† The Governor, in his message of 1840, said: “The recent suspension of specie payments by most of the banks of our State calls for some decisive action. The legal remedy which the bill-holder has amounts to nothing. In modern times the refusal to redeem a note is a common bank operation, and he must be endowed with more than ordinary firmness who will make the demand, as he is sure to encounter the insulting, contumacious spirit of a chartered gentleman.”
The Legislature passed a resolution, December 19, 1838, that the Bank of the State should take the best measures it could devise to preserve all the bank notes in the State at par. In 1840, the banks of the State were divided into those which were paying specie and those which were not. The Southwestern Railroad Bank, the Bank of Charleston, the Planters and Mechanics’ Bank, and the Bank of the State entered into a voluntary agreement to try to keep the country notes at par of specie.
The banks of this State resumed in June or July, 1840.
It was enacted, December 18, 1840, that if any bank should suspend the payment of its notes in specie, it should pay to the State every month five per cent. of its circulation outstanding at the beginning of that month, until it should resume. Reports and examinations were also provided for, and every bank which had suspended was required to give notice that it accepted these obligations within three months, or legal proceedings were to be instituted to vacate its charter.
The income obtained from the fire loans, in 1840, was not equal to the interest on the fire bonds by more than $50,000, which the Bank of the State was obliged to advance.‡
From 1814 to 1841 the Bank of the State of South Carolina earned on an average more than seven per cent on the capital placed by the State in it. In the latter year the president, in his report to the Legislature, said: “The collection of the debts due to the bank and its branches is becoming every day a more important subject of consideration. The present system is one of great inconvenience and risk. The debtors are scattered over all parts of the State, and when a note or other cause of action is sent to suit, it, in a great measure, is lost sight of, especially if the party defendant lives in a remote district.” In 1843 the same officer declared that the bank and all its branches had not “exhibited for many years a more healthful, vigorous, or sound state of its affairs.” He renewed, however, his expressions of anxiety about the debt to the bank, and desired that a power of attorney to confess judgment might be inserted in the bonds given to it for loans. A proposition was made in the Legislature in the last mentioned year to wind up the bank, or to separate it from the State, or to compel it to call in its notes under $5; but it failed. The president took up the question whether a bank which was a loan office could maintain a circulation. If it was nothing else but a loan office, he doubted if it could; but an institution which was a loan office and a bank of commercial discount and deposit at the same time could do so. The difficulty is to adjust the proportion between the two. He felt warranted in his opinion by the facts of the suspension of 1839. Six of the seven banks in Charleston were purely commercial; five suspended specie payments, while the Bank of the State paid in specie all its notes which were presented, and at the same time paid off more than $1 million of other liabilities.
The voluntary attempt of the leading banks of Charleston to enforce redemption of the country notes did not succeed. The Bank of Charleston, in 1842, received the notes of all the banks in the interior of the State at par. They had previously been subject to a discount of one-half of one per cent. In six months it sent home nearly $1 million for redemption.
As soon as the United States Bank and other banks ceased their management of the foreign exchanges, no further difficulty was experienced with them. They regulated themselves, the business became normal, and we hear no more discussion about it than about the supply of groceries. The Bank of Charleston reported, in 1841, that it had not had a foreign exchange bill returned for a year, and that the interior exchanges with South Carolina, Georgia, and North Carolina had produced no loss and no addition to the suspended debt. In 1843, the Bank of the State of South Carolina and its branches engaged in legitimate exchange dealing on cotton, the result of which was to bring the trade to steadiness and regularity.*
In 1843, the State sued out a scire facias against the Bank of Charleston for suspending in 1837, although it did not suspend in 1839. The act of 1839 about this bank, recognizing its present and future, was held to be a waiver of forfeiture which had been really incurred. The Court also suggested that the matter of suspension having been referred to the Legislature by the Governor, in 1837, and suspension having been acquiesced in, this might perhaps also be regarded as a waiver.*
The financial storm was comparatively mild in South Carolina. The State had not been much affected by any of the prevailing manias. According to the reports of the Bank of the State, 1841 to 1844, it was prosperous in a modest way. Its profits are stated at from $225,000 to $250,000 per annum.
The Bank of Charleston issued, in 1844, checks on New York in denominations of five, ten, twenty, and fifty dollars, payable also in Charleston. They were issued for the convenience of the traveling public.
Georgia.—The capital of the Central Bank, in 1835, was $2,593,912. In 1837 the share of the State in the distribution of the federal surplus was put in it. This sum was kept separate and losses were charged against the former sum which was thus reduced, before November 2, 1840, to $930,589. The State was consuming in appropriations and interest the capital of the bank. At the preceding session the bank had been ordered to distribute $750,000 in loans amongst the counties, for “relief.” “These loans have been eagerly sought by our citizens. By this operation the profits of the bank have been increased by the sum of $45,000, and its notes by the sum of $750,000.” The measure, however, was the death blow of the bank. “The heavy amount of debts due by the people, the low price of property and commodities, and the poor reward of labor have rendered the collection of money due the bank exceedingly difficult. Our receipts have been greatly increased by the moneyed facilities arising from our distribution of $750,000, which is now completed. This distribution has almost entirely been loaned in small sums, and the great amount of indebtedness thus transferred from creditors, who would not wait, to the bank, which will await the annual return of the industry of the planter, has operated as a relief to thousands of our most meritorious citizens. * * * Time has proved the unsoundness of a large amount of claims which have been due to the State for thirty years and upwards. Experience is daily developing difficulties in collecting notes heretofore regarded as secured in the amplest manner.”† A committee of the House on this report was not at all satisfied with it. They insisted that the heavy exchange against the State was due to the depreciation of its currency, and was no reason for not putting the funds in New York to pay the debt there, since the creditor had nothing to do with the internal troubles of the State. “Whenever it can be shown to be honest and sound policy to levy money out of one citizen’s pocket to loan to another, certainly not more and probably much less meritorious, then ought the policy of the Central Bank to be sustained; but not till then.” They proposed a law to require the banks to resume, February 1, 1841, under penalty of forfeiture.
This committee introduced a bill which was passed, December 23, 1840, to repeal the act of December 21, 1839, for absorbing into the Central Bank the stock owned by the State in other banks, and to provide for an issue of bonds of the State to the amount of $1 million in sums not less than $5 each, redeemable in five years or sooner, bearing eight per cent. interest, with which to redeem the notes of the Central Bank, and pay the excess of the appropriations over what the Central Bank could properly pay. These bonds were to be a debt of the Central Bank, to the cancellation of which its assets were to be applied as fast as they could be realized. Any one who held Central Bank notes to the amount of $5 or more might obtain these bonds in exchange for them; but all which were brought in by any one person within a week, up to $500, were to be redeemed in one bond. The stock owned by the State in the Bank of the State and the Bank of Augusta was to be sold not below 90, by the Central Bank, in order, with the proceeds, to pay its debt to the Phœnix Bank of New York.
The appropriation bill of the same day ordered the Central Bank to provide the means to cash the treasury warrants outstanding.
During the summer of 1841 the Central Bank and a number of others failed. The substance had all been eaten out of the Central Bank by the measures which the Legislature had adopted during the last four years; that is to say, by the attempt of the State to live on it. In July Gouge reported: “The Bank of Darien is now ‘broken to all intents and purposes.’ ” The amount of its issues was uncertain and in fact unknown. In the same month it was reported: “The Chattahoochee Railroad Bank of Georgia which has just closed its doors is said by the “Jeffersonian,” published at West Point, Ga., to have been a stupenduous fraud. The whole country is flooded with its issues amounting to millions, and yet it never had ten thousand dollars of specie in its vault. Its nominal capital was $3 millions, but it is averred that three million cents were never paid in. The very first step in obtaining its charter was a fraud on the Legislature, as the making of a road was never in serious contemplation.” Now it is said to have failed. As specie payments were suspended how could it fail? “There is scarcely a man or a woman in that part of the State who has any bills at all but has most of them on this bank.”*
In connection with these difficulties a custom was introduced which became somewhat famous as the “Macon specific.” Prices were set in specie and, if notes were offered, they were taken at their quotation.
The Bank of the State of Georgia avoided with considerable difficulty a suspension in 1841. There was a defalcation in the branch at Macon by two prominent officers, and a falsification of the note issue to the extent of more than $50,000. The bank complained of the oppression of specie-paying banks due to the extensive circulation of the notes of the non-specie-paying banks. In the following year these complaints were renewed. The circulation of this bank had been reduced to $226,993, while it held specie $201,261.
The bank circulation of this State was $8 millions in 1836; $1.7 millions in 1841; $2.4 millions in 1846.
In October, 1841, the State owned $325,000 of the stock of the Bank or Darien. Of the stock formerly owned by individuals, the bank had bought in all but $94,145. Therefore the State owned the wreck, and it was a question if it was not liable for all the debts.*
At the session of 1841-2, the Legislature began by an enactment, December 10, 1841, that if the banks which were liable to forfeiture would resume by January 1st, all proceedings should be arrested. On the same day the charter of the Darien Bank was repealed. The Central Bank was ordered to take its assets and wind it up, extending the loans if necessary or expedient. The Central was also to receive the notes of the Darien Bank in payment of debts to the Darien. Interest on the debt of the State was to be paid at the Central Bank. The act for issuing eight per cent. State bonds to redeem the circulation of the Central Bank was also repealed, and that bank was ordered to make no loan until it could hold its circulation at par with that of specie-paying banks. No note of an insolvent person might be used as banking capital on which a note issue might be based.
November 24th, banks were given the right to recover damages if they could not collect balances from other banks. The free banking act was amended, December 7th, to authorize the Comptroller, if banks did not redeem, to foreclose mortgages in the banking fund and sell land and slaves by the same process by which personal property might be sold. The president and directors of the bank were to indicate which mortgages should be sold. December 8th, the Central Bank was authorized to issue ones and twos to the amount of $300,000, to be issued only in exchange for larger notes. The prohibition of small notes was maintained against the other banks. December 10th, it was directed to sell the stock owned by the State, in the Bank of the State and the Bank of Augusta, and with the proceeds to redeem its own notes.
In the following May, there were reports of outrages in Georgia to prevent sales by the sheriff, and judgments by the court against debtors.
In the report of the Bank of the State of Georgia, April 26, 1842, it was shown that the dividends must be passed, which had occurred only three times before,—namely, in 1823 and 1824, since 1816. Three of the branches were withdrawn, defalcations having taken place in two of them and the parent bank being under a heavy burden to redeem their circulation. The report of this bank for 1843 showed that the circulation was still but slightly in excess of the specie stock.
December 27, 1842, all the solvent specie-paying banks were allowed to issue ones, twos, threes, and fours, for not more than five per cent. of their capital. December 13th, it was enacted that banks which have forfeited their charters shall be wound up by three commissioners appointed by the Governor, suit to be instituted against the stockholders for any deficiency; but this was not to apply to the Central Bank.
All the acts of the last four years which had laid burdens on the Central Bank were repealed December 22, 1843. Payments on account of the State debt and of the appropriations were to be made at the treasury, which thus once more assumed all its own fiscal functions which were taken from the bank. The Central Bank was to do no more business. Any surplus revenue of the State was to be applied to the payment of its notes, which were to be burned. A number of the banks were at this time winding up under assignment. The assignments were approved by the Legislature because nobody could be found who was willing to be a receiver.
December 28, 1843, it was enacted that after February 1, 1844, all payments from the State treasury should be in specie or specie funds. The Governor was authorized to issue bonds at seven per cent., payable in New York, for not more than $150,000, in order to get the fund. An equivalent amount of Central Bank notes was to be withdrawn from the treasury and burned. The charter of the Central Bank was extended in liquidation, from time to time, until 1860. In an act of February 22, 1850, it was recited that the State was liable for claims on account of the Darien Bank, many of which were believed to be illegal and unjust. The directors of the Central Bank were ordered to inquire on what terms they could all be settled. In 1854, there was an arbitration between the State and the creditors of the Darien Bank. The Governor was authorized by law to issue bonds to settle the State’s obligation. A number of suits were begun against the State, in 1855, to test its liability for the debts of the Bank of Darien. It was held that the debt of an insolvent to the State had priority over other debts, which priority the State did not lose by becoming a stockholder; furthermore, that, as the State had redeemed more than half the circulation of the bank, it had no further liability as a stockholder.* In 1856 the assets of the Central Bank were absorbed into the treasury.
Florida.—A stay law was passed in 1842, postponing execution upon the payment of costs and ten per cent. on the debt every sixty days. The Governor, in his message of January, 1843, said that it was good but did not go far enough; and he recommended a redemption law, with liberty to the debtor to recover his property within a specified time by paying to the purchaser the price, with interest.
The Committee on Corporations of 1842 charged the managers of the Union Bank with negligence and every kind of abuse and malfeasance in banking, but declared them all vices incident to the system on which the bank was based, and not the peculiar fault of the managers.
We have seen that the Territorial Council chafed under the attempts of Congress to restrain them when they were engaged in their wild banking legislation.* Now this committee made it an argument for repudiating the Territorial debt that the bonds had “been created by a government not of the people, but placed over them—a mere temporary arrangement by Congress, a police regulation only, a fugacious institute, three removes below even the Legislature of a State, and which, in chartering this bank, [Union Bank of Florida] and issuing these bonds, has attempted to usurp two of the highest attributes of sovereign power. These agents of federal authority in the selection of but part of which to rule over us the citizens of Florida are permitted by Congress to have a voice have, by this charter, sought to make us subject to their unlimited taxation, and render our posterity hereditary bondsmen.”
The Governor, in 1845, charged upon the federal government “an unwise and ruinous legislation * * * worse, if possible than war, pestilence, and famine,—I mean the blighting influence of a corrupt and corrupting paper system, so utterly rotten that I cannot undertake its dissection.”
The renewed Bank of Florida went into operation in 1843. A year later another Governor had to report upon “the evils which have attended the renewal of the Bank of Florida, the last in the series of infatuated experiments.” He quoted sarcastically the passages in the messages of the two previous years, in which the former Governor had introduced this new enterprise with approval, the latter one he says, uttered “but a few weeks before the bank escaped your jurisdiction by flight.”
The debt of the Territory was $500,000 for Indian wars and $3.9 millions for banks.†
In January, 1844, all the banks of Florida were defunct. Speaking of the Union Bank, the Governor said: “The principal cause of the delinquency of the bank may be traced to the elements of its organization. By the provisions of its charter each stockholder had a right to draw from the bank, as a permanent loan, two-thirds of the value of the property mortgaged by them as an indemnity to the Territory. This right has almost invariably been exercised, and thus two-thirds of the whole capital of the bank, raised on the faith and responsibility of the Territory, has passed into the hands of a few individuals, who, with a trivial exception, have been unable or unwilling to pay the interest. There is now due the bank, from the accumulation of interest on these loans, $216,000, and for interest on accommodation paper a greater amount, which has produced a total inability on the part of this institution to pay the interest due semi-annually to the bondholders. The bank has, in many instances, resorted to legal process to compel the delinquent stockholders to comply with their engagements, but, so far as I am advised, it has been hitherto unsuccessful; and the opinion is entertained by many that the stockholders may continue to enjoy the loan until the expiration of the time specified in the mortgages (most of which have yet upwards of twenty years to run), without the payment of any portion of their annual interest, and continue, at the same time, to enjoy the possession and use of the property mortgaged to the bank. This opinion appears to me as absurd in its conception as it is demoralizing in its tendency.”
The Secretary of State of Florida replied to the inquiries of the Secretary of the Treasury, 1847: “The General Assembly of this State, doubting the right of institutions of this character chartered by the Territorial Legislature to exercise corporate privileges in this State, has not acted on their reports or legislated concerning them.” The same officer replied, in 1848, that the authorities of the State had avoided any communication with the banks, lest they should appear to recognize their pretended charters and legal existence. The banks were always referred to in public acts as “alleged” or “pretended.” The notes of the Union Bank were worth 20 cents on $1 and those of the Life and Trust Company less.
Alabama.—An act was passed, February 3, 1840, which was another link in the extension system begun by the act of June 30, 1837, whose consequences we shall soon see. It was made lawful for the Bank of the State and branches to collect twenty per cent., and interest, on all debts to the bank, including the extended debt, until the Legislature otherwise orders, in such a way “as to conform to the safety of the said several banks and to the ability of the debtors to discharge the same;” the debtors giving security. It will be observed that the three years’ extension from 1837 would expire in the following June, when, if the debtors had fulfilled the terms of the extension, all the old accounts should be cleared off. Resumption was postponed until July 1, 1841. The Bank of the State at Tuscaloosa and the branches at Montgomery and Huntsville were “authorized” to issue each $500,000 in twelve months’ post-notes; the Mobile and Decatur branches were “required” to issue the same. The Board of Control was abolished. The Planters and Merchants’ Bank of Mobile and the Bank of Mobile were authorized to issue post-notes, lowest denomination $10, at twelve months, to any amount they think best, not exceeding $500,000 each; but the Legislature reserved the right to change this permission.
The Governor, in his message of 1840, stated that two sets of directors elected by the Legislature, and the members of the Legislature of two successive years, obtained accommodations to a larger amount, and will probably be the cause of greater loss to the banks, than the whole community besides.
The report of the president of the Bank of the State at Tuscaloosa, October 4, 1840, stated that the amount of debts due to that bank and made extendable by the act of February 3, 1840, amounted to $3.9 millions. The amount actually extended up to the time of this report, was $1 million. The bank construed the section of the same act which authorized each of the specie-paying banks to issue $500,000 in post-notes, and each of the suspended banks to issue the same amount in counter notes, as an order to extend the circulation and business of each bank. This bank had acted on that understanding.
A committee of the directors of the same bank said that the books of the bank for 1839, the period they were set to investigate, “seemed to be in great confusion, with errors almost on every page, to correct which it would require, in the opinion of your Committee, the services of at least two competent clerks for twelve months.” They were trying to find how a leaf had been cut out of the check-book and had disappeared.
The Commissioners on the same bank, in their report of November 5, 1840, stated that they had given particular attention to the cotton transactions, which had been persisted in until immediately before. “It will be difficult to imagine any cause that ultimately will be so disastrous to the institution.” They anticipated reclamations to be made on shippers for a deficiency in the realizations compared with the advances, to the amount of $478,747. “In view of the vast amount of reclamations as shown; the great number of bales never delivered, the payment being almost universally resisted (without exception, it is believed, in all large amounts), with the most confident hope of defeating the bank of its just dues; and many of the parties believed to be insolvent, or have taken measures to be so, as regards the bank—taking all these things into consideration, a more ruinous and reckless administration of the affairs of the bank could not well have been devised.” They complain of the negligence and remissness of the officers of the bank in regard to pursuing debtors, and a delinquent attorney of the bank. They had ascertained a certain loss of $540,761, and anticipated losses on cotton to the amount of $700,000. Forced balances had been made in the books to cover errors.
The Commissioners on the Mobile branch, 1840, reported that its surplus or sinking fund of $1 million consisted only of book-keeping entries, showing apparent profit, and discount charges which had not been collected or realized. “We are afraid that its qualities as a sinking fund are altogether imaginary and that a much larger amount will be swallowed up by the hopelessly bad debt.” An illustration of what they meant, and also of the way in which the “relief” actually came to the debtor, is furnished by the following facts: The extension laws enjoined strictly that at every renewal twenty per cent. of the debt must be paid, and interest in advance at eight per cent. “The bank rule has been to compute discount for the whole term at eight per cent., and require notes which at that rate of discount would produce the net amount of the whole debt in cash.” This produced an annual interest rate of about thirteen and two-thirds per cent. The Commissioners showed that the excess of immediate liabilities over immediate means had increased, in 1840, $512,890, “which is about the amount which the Legislature required the bank to issue of its own paper, by the relief act of the 3d of February last, at a period when the utmost prudence was required to give some hope of so reducing its liabilities as to be able to prepare for resumption.” They tried to find out the value of the assets. The amount of paper under protest was $4.6 millions, of which there was in suit $1.9 millions. Of the bills discounted, not under protest, twenty per cent. had been extended, under the relief law of February, 1840. Of the remainder, $1.7 millions, a large part consisted of paper which had been extended under the relief law of 1837, “which will take its place at maturity among protested paper or paper further extended. It follows that of the immense debt due to the bank, hardly ten per cent. exists in a form which justifies any calculation upon its being made available or active within any definite period. * * * The new transactions within the last year or two have been few, and they are generally safe; but it is the load of debt accumulated in former years, under which the bank broke down, in 1837 and 1838, that has, under the State policy of extension, been weakening its resources and eating out the substance of its assets constantly.”
A report of the president of the Mobile branch, at the same time, stated that the errors which had been discovered in the bills discounted amounted to $378,036, and in the bills protested to $52,853. As the notes which had been discounted by that bank since it began amounted to $48 millions, he thought these errors comparatively slight.
The Commissioners on the Decatur branch reported that they found its books “kept in a style of the utmost clerkly accuracy.” “From all the information they have been able to obtain, they have ascertained the amount of bad debts to have swollen to a fearful and an enormous height.” They estimate them at $1 million. The amount of debts in suit was $981,966. The Commissioners are afraid that the plan of demanding security on property for accommodation loans will arouse the animosity of the public against institutions, and they find that, in spite of care, “the property substituted has been at the most inflated rate of valuation.” The president of this branch reported that he had hoped, under the extension law, to recover all the debts “which had the least appearance of being good,” but he regrets to say that “many of undoubted character have been suffered to remain suspended, without any apparent effort being made to comply with the requisitions of the bank.” This is valuable testimony to the only natural and inevitable effect of the extension laws,—namely to induce the honest and solvent debtors not to pay, lest they should, in that way, fail of some indulgence which their negligent comrades would get. If any did pay, there would be a glaring case of that inequality which the advocates of Banks of the State were always trying to avoid.
The president of the Bank of the State, in 1840, said of the independent Bank of Mobile: “It has successfully withstood all the commercial and financial derangements the country has recently suffered, and now deservedly sustains a high character for credit and strength surpassed by none in any section of the country.”
The suspension of the Bank of the State was sanctioned April 27, 1841, until the Legislature should otherwise order. The requirement in the act of June 30, 1837, that this bank and its branches should provide themselves with gold was suspended, but the two chartered banks in Mobile were required to have in their vaults, on July 1st of each year, one-half of their note issue, but not more than one-quarter of their capital, in specie.
In the report of the Bank Commissioners for 1841, a long list of notes which they found in the Montgomery branch of the Bank of the State is given, with notes and comments. These are almost always to the effect that the principal and sureties are not worth a dollar. There are three notes signed by the same three persons in turn, as principal and sureties. One is the father, who is reported as a poor man; the other two are his sons, ten and four years of age. An agent of the bank recommended some notes for discount which he received from two persons whom he did not know. They were discounted and a person whom he did not know called on him with an order for the money, signed he does not say by whom, but he gave him the money and took his receipt, signed “C. Stone.” He can only say that it was not the only “C. Stone” known to him. Later events prove that this agent was a knave and not a fool. It turned out that the notes which he had thus sent in to the bank were forged.
A law was passed December 27, 1841, that any member of the Legislature who nominated a director of the State Bank or branches should state in writing the amount of indebtedness of the candidate to the bank and branches, whether he was under protest, and was solvent and competent. December 31st, the authorities of the State Bank and branches were authorized to settle as well as they could unknown, bad, and doubtful debts to the bank. A joint Investigating Committee was ordered to be raised to investigate frauds on the State Bank and neglect, abuse, and misconduct in the management, with full powers.
The Planters and Merchants’ Bank of Mobile failed October 25, 1842. Its charter was forfeited and receivers were appointed to wind it up by an act of February 13, 1843.
At the session of 1842-3, the affairs of the State Bank become a preponderating subject of interest. December 31st, joint resolutions were adopted in regard to preparations for liquidating the branches at Mobile and Decatur. They are no longer to lend on notes and bills, or to settle with debtors; but may accept payments offered, or may buy in property sold at the suit of the bank.
The Montgomery Branch was put in liquidation January 25, 1843. Its notes were to be received for debts to it and destroyed. Quarterly settlements were to be made with the Bank of the State and its branches. It was provided that whenever the State Bank and the surviving branches should resume, they should redeem the notes of the Montgomery Branch as well as their own. Similar acts were passed in regard to the other branches. February 13th, the right of any plaintiff in a suit against the State Bank and branches to have garnishment against a debtor of the bank was taken away. On the following day it was provided that during suspension by the Bank of the State it should discount no note except for renewal, nor deal in bills of exchange except to pay interest on the State debt. Thirty per cent. damages were laid upon any bill bought by the bank, which should be protested. The number of officers was reduced and the bank was ordered not to pay out any more notes. Small notes might be issued in exchange for notes of $100 or more. All the specie of the branches was to be controlled by the Bank of the State at Tuscaloosa, and the president and directors of that bank were to provide for the interest on the State bonds issued for the branches. The Commissioners under the act of 1833 were directed to examine the bank and branches, especially the expense account from January 1, 1835, with reference to certain illegal expenditures. The Governor was to institute suit, such as the facts might call for, to recover the illegal expenditure. On the same day with these enactments, joint resolutions were adopted against assumption and repudiation.
The Legislature renounced the function of electing the directors of the Bank of the State, December 15, 1843, assigning it to the Governor. A measure was also adopted to extend until 1850 the bonds which would fall due in 1844.
The debt of Alabama, in 1844, was $14.1 millions, of which $9.2 millions was for bonds outstanding, “issued by the State in aid of her late banking operations.” The total included $3 millions bank notes and also the university and school fund, $1.2 millions, which had been used up. The Committee on Ways and Means had come to the conclusion “however reluctantly, that not more than $7 millions of the debts due from individuals, including real estate and all available assets, can ever be realized” from what is due to the banks.
The Commissioners to examine the Mobile Branch in 1844, found errors and discrepancies in the accounts, in regard to which they said: “The general source of the error is the want of system and carelessness of the officers in former years by which confusion and discrepancies were introduced, which no possible amount of labor can now trace and correct.” Having examined the debts due to the bank amounting to $5.7 millions, they valued them at $2.3 millions, fearing that they had put them too high. They valued the real estate owned by the bank at $250,000. It stood on the books at $1.3 millions. Recapitulating all the assets, they found that they were worth $2.6 millions, although standing on the books at $7.4 millions. The total liabililities were $6.1 millions, so that they found a deficiency in this one Branch of $3.4 millions. The clue to the accounts of the bank must have been entirely lost. “In the year 1840, after much trouble and the application of the labor of two clerks to the investigation of these books, the further prosecution of the task was abandoned as hopeless.”
The Governor, in his message of 1845, referring to the losses which the various investigations had discovered, said: “The causes which have brought about these continuous and heavy losses are readily discovered by a recurrence to the history of their management, the whole tenor of which proves, beyond doubt, that less regard has been had to the interests of the bank than to the convenience and accommodation of their debtors.” The outstanding loans of the bank and branches, in 1837, had been $20 millions, of which about $100,000 were considered bad, and $500,000 doubtful. Then came the extension law of June, 1837. In 1840, the bad debts had increased to more than $3.5 millions and the doubtful were $1.5 millions, while a new item was introduced, “unknown debt,” amounting to more than $1.25 millions. Then came the act of February 3, 1840, the effect of which was that in 1844 the good debts were $6.9 millions, the doubtful $484,132, the bad $6.2 millions. “This cursory glance at the history of the legislation and management of our banks must clearly show that the extension laws and the manner of their execution were the principal causes of the immense losses sustained by these institutions.” As the bank and branches were now defunct, he took it for granted that no one would propose to re-issue the notes after they should be paid in in taxes or debts to the bank. “This suicidal policy, I trust, will not be adopted, even as a temporary measure. It involves the same principles which have too long prevailed in the management of our bank,—favoring the bank debtors at the expense of the taxpayers of the State. * * * Bank debtors should understand that the laws are intended to operate equally on all, not to spend their force on one portion who regard them; then to be changed and modified to suit the convenience of other portions who treat them with neglect. * * * In connection with this subject, I submit to your consideration the propriety of causing a rigid scrutiny into the conduct of the officers, attorneys, and agents, under whose management the astounding losses to our banks have accrued, holding them to a strict accountability.”
The Bank of the State at Tuscaloosa was put in liquidation December 31, 1844, the day on which its charter expired by limitation. From this time the old independent Bank of Mobile was the only bank left in the State. November 12, 1844, it had $1.5 millions capital, $1.4 millions loans, $791,459 specie, $486,440 circulation, $465,443 deposits.
The liquidation of the Bank of the State and its branches was regulated by an act of January 25, 1845, in which the consideration of leniency to the debtors still prevailed. All debts to these banks were extended until June 1, 1846, if, before June 1, 1845, the debtor paid one-third of the principal, with interest and costs, and gave additional security. Also all execution on judgments in favor of the bank was postponed one year if one-third of the debt was paid and new security given. All debts were to be put in suit between June 1 and July 1, 1845. Good ones were to be extended; bad ones put in the hands of an agent for collection; the real estate of the banks was to be sold, the plates of bank notes destroyed, and incomplete notes burned.
February 4, 1846, the assets of the banks were vested in three trustees who were to be appointed for a term of two years, to compound and settle “at the earliest day that the same can be done, having regard alone to the interest of the State.” The debts which had been extended to 1846 were now extended to 1847, if one-half was paid before June 1, 1846, provided that the Commissioners were of opinion that the State would not lose. No more notes of the Bank of the State were to be burned unless it was necessary to do so to stop depreciation. A report of the trustees under this act made December 20, 1847, showed that they had accomplished much towards the liquidation of the bank. They had collected $3.4 millions, and they estimated the remainder, which was collectible, at $2.2 millions. They had taken up in their collections, of the circulation of the bank, $1,142,000. The amount still outstanding was $457,177. The notes were at that writing nearly equal to specie.
In 1850 the Legislature began to pass special acts, extending debts to the Bank of the State on behalf of individuals.
The trustee of the Bank of the State was directed, February 4, 1852, to sell the stock owned by the State in the Bank of Mobile, and to pay off the $600,000, five per cent. bonds, which had been issued wherewith to buy it. When this should be done the capital of the bank might be increased from $1.5 millions to $2.5 millions; two-fifths being reserved for the State while the charter runs. Five days later the charter was extended twenty years from the date of expiration, $100,000 bonus was to be paid in installments of not less than $5,000 per annum.
It appears that the earnest hope which had been expressed by the Governor in 1845 that the notes of the Bank of the State would not be re-issued was not fulfilled. On the contrary they seem to have circulated until the civil war. They could only be regarded as pure bills of credit after 1847. An act of February 16, 1854, ordered the trustee to give notes fit for circulation in exchange for the worn notes in the State treasury; the latter to be burned by State officers. The unmutilated notes under $5, which were in the treasury, were to be given out in exchange for large notes to any one who desired them, and the small notes were to be receivable by the State. An act of February 14, 1856, about loans to railroads, shows the notes of the Bank of the State and branches still in circulation. The Governor, in his message of 1857 expressed the opinion that the time had come when the circulation of the old Bank of the State notes should no longer be tolerated. At length, January 22, 1858, a law was passed that all the notes of the Bank of the State and branches in the treasury should be burned, and also all those which should come in thereafter. Laws for the extension of the Bank of the State in liquidation were repeated until the civil war.
Mississippi.—The Legislature of 1840 turned against the banks. Some charters were repealed. February 6th post-notes were forbidden; any bank which issued them was to forfeit its charter; resolutions were adopted, February 13th, in regard to the prevailing distress, the causes, and the remedies. The chief cause was declared to be “excessive banking.” They declared that paper issues stimulate speculation and extravagance; that it was the duty of the United States and the State governments to remedy evils due to “unwise and reckless legislation,” that metallic currency was the only one known to the Constitution of the United States. They pronounced in favor of the independent treasury with the specie clause. February 15th, all unauthorized banking was forbidden. It appears that there was a great deal of it. Notes issued by unauthorized banks were declared void and such banks were forbidden to do a discount and deposit business. No shin plasters were to be allowed to pass after sixty days from the date of this law.
A relief law was adopted February 21st, with the old device of three valuers and two-thirds of the valuation or no sale.
An act requiring the banks to pay specie was passed February 21st; the limit of note issue was set at three times the specie on hand; semi-annual statements were provided for; post-notes forbidden; also dealing in cotton or other commodities as collateral, or merchandise; $5 notes must be paid in specie from April 1, 1840; tens from July 1st, twenties from October 1st, and a general resumption was ordered January 1, 1841. Any bank officer who refused to endorse on a note his own refusal to redeem it might be fined $1,000 and imprisoned three months; no director was to have a loan in his own bank. Voluntary and involuntary liquidation were provided for. On the next day it was provided, by a supplementary act, that if a bank went into liquidation, any railroad charter connected with it should go on. In a case which arose under this law, it was held that it did not impose any new duty on banks or infringe their charters, and was therefore valid.*
In February, the Brandon Bank wanted to close its branch at Paulding. A public meeting was held at that place to remonstrate, at which a committee was appointed, who took possession of the books, papers, and other property belonging to the bank, and held possession of them so as to make removal impossible.†
In March, the banking affairs of the State were reported to be all in confusion. The liabilities of the Union Bank in May would be $4 millions, and its rescources were nearly all suspended. Hence the desire to recall the second $5 millions of State bonds which had been issued to this bank. The correspondent of a Mississippi newspaper said: “The credit of the State has been banked to death. Insolvency is now our name. Never was State in such an awful condition. The cry of ‘relief’ is heard on all sides, but what can a State do that is unable to pay its Legislature and the current expenses of government?” Brandon notes were quoted at nine cents on the dollar; the losses of the Union Bank on cotton were immense. The debt of the State called for a payment of $120,000, for interest, in the year 1840, and an installment on the principal of $125,000 on the 1st of January following. To meet this, the resource was a sinking fund loaned out to one hundred and ninety-five individuals, on which, in the opinion of a committee of the Legislature, not more than $200,000 could be realized in the course of four years.*
May 23d, the “Free Trader” said that there was not a dollar of par funds in the Treasury. The public printer would not print a document until he was paid in good money.†
Under the resumption act of February 21st, the Governor proclaimed, July 10th, that the Union Bank had forfeited its charter by suspending the payment of its notes.‡ Some time in the autumn, that bank made an assignment. The report in December was that lands and negroes had lost one-half their value; that on the expiration of the year of delay, under the appraisement law, the population was leaving the State for Texas. “Banks are in the worst odor possible.”§
The Commercial and Railroad Bank of Vicksburg made an assignment, in 1840, in order to cut off the creditors of the bank, that is, the note-holders, until the railroad should be built. This assignment was overthrown, being a withdrawal of the assets from the rightful claim of the creditors.∥
We can learn scarcely anything about the liquidation of the Union Bank. The State ignored it. There is scarcely a trace of it in legislation or court records. The trustee of the Bank of the State of Alabama, in 1847, speaking of the plan of selling the credits of the bank at auction, objected that that plan, in the case of the Union Bank of Mississippi, had proved to be almost a complete sacrifice of them.
Among the first acts at the session of 1841 was one to repeal the law of May 12, 1837; to guard against the insolvency of banks, and to secure the rights of creditors.
Governor McNutt, in his message, January 5th, stated that the Union Bank had $4,349 in specie on hand; suspended debt in suit, $2.6 millions; ditto not in suit, $1.7 millions; resources chiefly unavailable, $8 millions; immediate liabilities, $3 millions; not more than one-third of the debts could be collected and the whole capital was lost. “The bank has seven thousand bales of cotton in Liverpool unsold, on which it has drawn $267,116.14. An advance of $60 per bale was made to the planters upon that cotton in 1838. They will sustain a clear loss, including interest, of $30 per bale; equal, in the aggregate, to $210,000. The bank has been irretrievably ruined by making advances upon cotton, issuing post-notes, and loaning the principal portion of her capital to insolvent individuals and companies. The situation of the Mississippi Railroad Company and of the Planters’ Bank is equally bad. The former, in the year 1839, issued about a million and a-half of post-notes, and expended them in constructing the railroad and building extensive depots. I certainly would not have approved the transfer act, had I anticipated this improvident course.” The company has failed to pay the interest on the Planters’ Bank bonds. The Bank of the United States has advanced the same, and has presented an account against the State for $124,222.22, and demanded payment thereof in specie. The first installment of the Planters’ Bank bonds, amounting to the sum of $125,000, will be due next July. No provision has been made for its payment. One of the circuit Judges has decided that recoveries cannot be had on the notes belonging to the sinking fund. The fund is especially appropriated to the payment of the two first installments of the Planters’ Bank bonds. The Mississippi Union Bank, hereafter, will be totally unable to pay the interest on the five millions of State bonds issued in the year 1838.
The state of things at this point of time was this: The Planters’ Bank bonds had been sold originally at a premium amounting to $200,000, which sum had been invested as a sinking fund for the same bonds. The bank won ten per cent. per annum during the years of prosperity. This success of the enterprise was the cause of the extravagant degree to which the State committed itself to banking in 1836 and 1837. Then the State ordered the bank to transfer this capital to the Mississippi Railroad Company. The latter never, apparently, used its railroad enterprise for anything else than to get this capital. The bank paid over the capital by scrip which became worthless, but which had nothing to do with the bonds. The Railroad Company had become responsible, as was supposed, for the bonds, just as the bank had been responsible before. It, however, had served its purpose and was defunct. As to the Union Bank bonds, the Governor speaks of three lots of them, two of five millions and one of five and a-half millions, although, under the amended charter, by which the State took five millions of stock, it would appear that there should never have been but ten millions of bonds. The first five millions had been negotiated. He had executed and delivered the second five millions. He reported with pride that, by his proclamation of March 2, 1840, he had made it impossible to negotiate them; likewise that he had refused to execute and deliver the third lot of five millions and a-half.
In answer to the Governor’s recommendation of repudiation, the Legislature resolved that the State was bound for both the Planters and Union Bank bonds, and that the insinuation that she would repudiate them was “a calumny upon the justice, honor, and dignity of the State.”*
Some of the Union Bank bonds were deposited as collateral for the debentures of the Bank of the United States. The interest was defaulted, May 1, 1841, whereupon Hope & Co., of Amsterdam, wrote a letter of remonstrance and inquiry to Governor McNutt. In his reply the Governor complained that if the Union Bank had to bear the loss by the credit sale and the change of currency, her means would be reduced and the risk of the State increased. He gave five reasons why the State would not pay. The bonds were sold on credit; they were made payable in pounds sterling at four shillings and sixpence to the dollar;* the contract of sale was fraudulent; the purchase by the Bank of the United States was in violation of its charter; the bonds were sold at less than par.† He said that he denounced the sale to the Legislature as illegal, in January, 1839. He declared outright “this State never will pay the $5 millions of State bonds issued in June, 1838, or any portion of the interest due or to become due thereon.”
“It was not until July, 1841, that the doctrine of Repudiation was announced to the world—and then by the very last man in the world from whom it should have proceeded, Governor McNutt. We have nowhere seen it advanced that even a minority of the Legislature of 1839 made any movement of repudiation which might at least have served as a notice of intention.”‡ On the contrary, that Legislature was angry with McNutt for his animadversions on the negotiation of the bonds, and passed resolutions of approval of that negotiation.§
Governor McNutt wrote a letter to the “Richmond Enquirer” saying that a demand would probably be made on the government of the United States for payment. “This will raise an exciting and perplexing question. The State has defined her position and will maintain it, be the consequences what they may. I firmly believe four-fifths of the people of the State prefer going to war in lieu of paying the bonds.”
The repudiationists won a great triumph at the November election, 1841. They had two-thirds in each House of the Legislature. The immediate effect was that all State stocks fell. At the opening of the following session of the Legislature, Governor McNutt said that the recent election was a glorious triumph. It had “sustained the sacred truth that the toiling million never should be burdened with taxes to support the idle few.” The State had lost $302,988 by the notes of bankrupt banks which it had taken. He wound up his message: “The banks in this State have sunk about $20 millions in relieving the financiers. They will receive their last relief in the bankrupt act.”
At the session of 1842, the Legislature was trying to undo the work of 1836-7. February 28, 1842, an act was passed to provide that the State should take over the assets of the Mississippi railroad and sell them at auction. Bonds and coupons of the State were to be receivable for them. The act aimed to stop the sale, by the railroad, of scrip of the Planters’ Bank, which had been issued for stock of the State in that bank, and had been transferred to this railroad company in 1839, and also to stop the sale of the same by persons or corporations who held it hypothecated.
February 26th, resolutions were adopted with respect to the Union Bank, which constituted a great step in the history of repudiation. They recited that the Legislature had no authority to raise money, to execute a law deemed by the authors of these resolutions repugnant to the Constitution of the United States and of Mississippi; that the supplementary act to incorporate the Union Bank was “a fundamental change of said original charter, passed contrary to the letter and spirit of the Constitution of the State, and adopted without the assent of her citizens as required thereby;” that the $5 millions bonds [the first lot delivered to the bank] were issued without reference to the people or compliance by the bank with the original conditions of the charter, and “are not binding on her [Mississippi’s] citizens, and cannot be paid by this State while the form of its Constitution remains;” and that the Governor by his proclamation shall forbid the sale or hypothecation of the second $5 millions now in the bank.
The subject of repudiation had now attracted the attention of the whole country and of Congress. There were groups of persons, more or less numerous, in all the indebted States, who were in favor of repudiation. Jacob Thompson of Mississippi made a speech in the House, January 10, 1842, in which he not only defended repudiation, but gloried in it, as a noble and righteous defense of liberty and American principles. The following extract from the report of a committee of the Mississippi Legislature illustrates the tone and the principles on which repudiation was defended. The committee feel that the people of Mississippi have taken a patriotic stand. “They are not controlled by selfish or mercenary motives. The low and grovelling consideration of dollars and cents has nothing to do with the merits of this question. Their honest obligations they will fulfill, should they have to divest themselves of the comforts and necessaries of life to do so. Higher and holier motives than mere pecuniary considerations actuate them. They have determined that they never will submit to an invasion of their Constitution by either foreign or domestic foes. The rights secured to them under that sacred instrument they will maintain at all hazards; and relying on the correctness of their principles and the justness of their cause, they will, with confidence and cheerfulness, submit to the verdict of posterity.”
No doubt the attention of the reader has already been drawn to the marvellously lax way in which everybody treated the bond issues. Other cases of the same thing will follow below. The Governors signed bonds and delivered them to banks or improvement companies or Fund Commissioners, almost without accountability. In this case, McNutt did not take the lowest precautions before issuing the bonds to see that the interests of the State were guarded, that the law was complied with, or that the bank had fulfilled the conditions. Much less did he look to the future for any guarantees that the bank would perform its stipulations. He was once subjected to interrogatories, we are not told by whom: “For what purpose, and under what authority, did you sign and deliver said bonds?” He made irrelevant replies, and cited the example of “Jefferson and the illustrious father of the republican party” to justify himself in signing the act for the Union Bank in spite of his opinion that it was unconstitutional.*
The bonds being thus carelessly signed and executed by the Governor, in any one of the debt-contracting States, were generally thrown into the hands of agents who undertook costly journeys at the expense of the State, exacted and gave extravagant commissions, hypothecated the bonds for a fraction of their value with bankers who failed and involved the collateral in their bankruptcy; or sold them to be paid for in installments, delivering the whole in advance, so that when the bankers failed, as a great many of them did, the bonds had passed out, by sale or as collateral, into the hands of innocent holders, and the States obtained nothing for them. What wonder that the whole system was a carnival of waste, extravagance, and peculation, and that all persons who had a share in it behaved in the loosest and most irresponsible manner with respect to all stipulations, guarantees, and duties which would have been proper under the circumstances?†
In 1843, there was an anti-repudiation reaction.
In accordance with a requirement of the Constitution an act was passed, February 15, 1843, to give any one who had a claim against the State permission to file a bill in chancery against it, and directing issues to be made up to try the facts. An exemplified record of any finding in favor of the complainant was to be filed in the office of the Secretary of State, and thereupon the Governor was to issue his mandate to the Auditor to draw his order on the Treasurer for the amount so decreed to be paid by the State. Governor McNutt declared that this was unconstitutional, because money could be drawn from the treasury only in consequence of an appropriation made by law.
Several of the great Mississippi banks were still indebted to the United States for deposits. Execution against the Planters’ Bank and the Agricultural Bank was stayed, from time to time, until March 4, 1843. During the summer of 1842, the Congressmen from the State were trying to get a longer extension. January 15, 1844, the Legislature asked the District Attorney of the United States to postpone the sale of the property of the Planters’ Bank until the Legislature could take action to discharge the judgment in favor of the United States against that bank.
The State Treasury of Mississippi was in great straits in January, 1844. The Governor said: “I am unable to state accurately the amount of the liabilities of the State, owing in part to the deranged condition of the books in the office of the State Treasurer, caused by the neglect, defalcation, and embezzlement of the late State Treasurer, and to the fact that no account has heretofore been kept at the Treasurer’s office of the State bonds issued on account of the Planters’ Bank, and the interest accruing thereon; such account having been kept by the Planters’ Bank.” The Planters’ Bank had made an assignment. The Governor feared that the State’s interest would be lost if the bank was liquidated in that way. He also was very sure that the Mississippians proved their high nobility by repudiating the Union Bank bonds; but as to the Planters’ Bank bonds, the preservation of a high moral principle called on the State to pay them at every sacrifice, and it would do it.
February 23d, the Planters’ Bank and the Mississippi Railroad were put in liquidation by act of the Legislature. All sums which should be realized, after the circulation and certificates of specie deposit should be paid, were to be applied to pay the State bonds. If the banks did not surrender voluntarily, the Attorney-general was to file a bill in chancery. Proceedings had already been begun against the Planters’ Bank under the law of 1843. That institution refused to submit to the law of 1844, whereupon the proceedings under the act of 1843 were completed and were held valid by the Supreme Court in 1846.* The act for winding up these banks was amended by providing that the creditors of them should get nothing until the seminary fund, the sinking fund, and the literary fund should be restored. Debtors of the banks might redeem their securities from the assignee or holder within two years, by paying twelve and a-half per cent. per annum and costs.
We learn from the Governor’s message of 1848 that the will and purpose to repudiate the Planters’ Bank bonds had then become well-developed, and we learn the ground for it which was then alleged. It was that, in the charter of the old Bank of Mississippi, it had been promised that no other bank should be charted until the charter of that bank should expire.† In violation of this stipulation, the Planters’ Bank had been founded. The Governor said that the Bank of Mississippi had compounded this wrong to itself in 1830. He argued against repudiation, and proposed that the income from State lands should be set aside to pay these bonds. Such a law was passed. At an informal meeting of members of the Legislature a large majority were in favor of paying the Planters’ Bank bonds.‡
In a case which was decided by the Supreme Court in 1852, it was explained that the State never took any stock or issued any bonds under the original charter of the Planters’ Bank. By the supplementary act of December 16, 1830, the Governor was to subscribe for stock and issue bonds for a loan; in 1833, the amount was increased. There was nothing behind these bonds but the pledge of the faith of the State. The sinking fund which was to be formed was pledged by the first charter, but not by the supplementary one, and it might have been appropriated to any purpose. No interest was paid after 1840. The first bonds which bore coupons fell due March 1, 1841; but $500,000 of bonds had been issued earlier, which bore no coupons, only a stipulation of interest on their face. An act was passed March 4, 1848, which appropriated the sinking fund to coupons.*
A payment of interest on Planters’ Bank bonds was made in January, 1859, to the amount of $101,500. It appears that some holders of coupons found out that just that sum was in the sinking fund available under the law, as interpreted in this decision. They applied for it and the Attorney-general advised the Auditor that the claim should be complied with.† The only other payment of the same kind that was ever made was $20, later in the same year.‡
An act was passed March 16, 1852, that at the following presidential election, a vote should be taken, yes or no, on the question: “Will you submit to a direct tax for the payment of the Planters’ Bank bonds issued by this State, on account of the Planters’ Bank of the State of Mississippi?” The law provided that unless a majority of all the votes on this question, at the presidential election, should be “No,” it should be an instruction to the Legislature to provide for the payment of the bonds. The affirmative vote was 12,703; the negative, 24,487; the non-voting, counted as affirmative, 7,234; making the majority against the special tax, 4,550.§
In Campell versus the Union Bank it was held that the supplementary charter of that bank only modified and extended the original one and that it did not essentially alter it. Under the above mentioned law of 1843, suit having been brought on a bond, the Chancellor decided that “the bond sued on was a legal and valid obligation against the State, and had not been issued in violation of the law and Constitution, and he rendered a final decree against the State for the principal and interest of the bond.”∥ On appeal the Supreme Court decided, in 1853,¶ that no provision of the supplementary charter attempted directly to pledge the faith of the State in violation of the State Constitution. The State was not a debtor to the corporation for the bonds which never were delivered to it. The Legislature has power to subscribe to the capital of banks. The requirement of a repeated vote at a second session does not apply to that power; neither did the Constitution ever mean to give an appeal to the people or a right of veto in the people on acts of the Legislature for borrowing money. A double voted law has no extra sanctity. It can be repealed before rights vest under it. “The supplementary charter of the bank did not authorize the issuance of State bonds by which a debt could be imposed upon the State, and no attempt was made by that act to pledge the faith of the State for the payment of a loan or debt; nor did it attempt a renewal of the pledge contained in the original charter of the bank.” The supplementary act was not void for lack of a double vote; it did not change the original charter as to the guarantees against loss which were given to the State. The decision of the directors of the bank that the stock was sufficiently secured by the mortgages which were given for it is binding on the State. The sale of the bonds does not appear to have been below par; that sale was neither illegal nor void. The conversion of dollars into sterling, at four shillings and sixpence, does not avoid the sales.
Thus the Courts of Mississippi overthrew every argument which had ever been put forward in defense and support of repudiation. The allegations of fact were treated as trivial or irrelevant, and the constructions of law as unsound and sophistical.
The income from lands which had been set off in 1848, as a revenue with which to pay the interest on the Planters’ Bank bonds, was expended for railroads.* The Governor urged payment. “The question for your solution is: Are those bonds due and unpaid?”
The subject of those bonds was brought before the Legislature again in 1860. A majority of the Committee to whom it was referred reported that political affairs were so threatening that it was no time to take up that matter. The minority urged payment, and replied to the majority that Mississippi, if she proposed to resume her sovereignty, needed just then most of all to establish her credit.†
A constitutional amendment was adopted in 1875: “Nor shall the State assume, redeem, secure, or pay any indebtedness or pretended indebtedness claimed to be due by the State of Mississippi to any person, association, or corporation whatsoever, claiming the same as owners, holders, or assignees, of any bond or bonds now generally known as Union Bank bonds or Planters’ Bank bonds.”
It is a case of the irony of history that the Mississippians were warned that repudiation would cost their State its credit and make it impossible for them to borrow. This happened, but the only case where the State afterwards tried to borrow was in the carpet-bag days, and its bad credit made it impossible for the carpet-baggers to load it up with debts, as they did the other States.
The Governor of Louisiana, in his message of January, 1842, had reached the point of boldly declaring that the notion was false, that the banks of one city must suspend because those of another did so. He showed that from November 2, 1839, to October 2, 1841, the New Orleans banks reduced their cash assets $300,000, and increased their liabilities $780,000, and he insisted that they would continue in this course so long as the suspension lasted.‡ It was enacted January 24th, that no bank note should be issued which was not payable in specie.
The most remarkable law to regulate banks, which was produced in this period, in any State, was the act of February 5, 1842. It is drawn in remarkably clear and direct language, entirely free from legal verbiage. It leaves the impression of a schoolmaster who, having got tired of confusion, insubordination, and misbehavior, takes in hand the duty of restoring order, and distributes punishments, corrections, and new orders in the most peremptory manner. All charters were revived provided the banks would prepare at once to resume, and would obey the rules here laid down. The loans on capital were to be distinguished and separated from the loans on deposits; the former were to be on mortgage and long; the latter on ninety-day commercial paper. The loans on capital were designated “dead weight;” the loans on deposits were called “movement of banks.” No bank was to increase the dead weight while its whole cash liabilities were not covered by one-third specie and two-thirds ninety-day paper. If any one applied for an extension, his account was to be closed and the other banks were to be informed. Any one whose paper lay protested ten days was to be discredited, and the banks informed, and he to have no bank credit until he should pay in full. The Governor was to appoint annually a Board of Currency of three persons, each to have a salary of $4,000 per annum, to supervise banks, and to get from each a weekly statement in detail. The one on the last Saturday of each month was to be published, in order to inform the stockholders of the real situation of each bank. A full report was to be made annually to the Legislature. Each member of the Board of Currency was to file a bond for $5,000, on which he might be sued for failure to do his duty. All existing debts were to be regarded as dead weight, and payment of fifteen per cent. per annum was to be required with good security at eight per cent., and no bank credit was to be given until full payment was made. Banks might issue post-notes payable September 30, 1842, for twice the specie they possessed, but with State bonds or mortgages for the uncovered half. All such post-notes were to be stamped and recorded by the Board of Currency. All banks in liquidation were freed from the obligation to pay any bonus or to carry out improvements, except the banks in which the State was a stockholder. Banks like the Gas Light Company, which had executed works, might hold them for a set term;—for the Gas Company, forty years. All the banks in liquidation were to report to the Board of Currency, and non-liquidating banks were to take the notes of liquidating banks; this circulation to be distributed amongst the former in proportion to their circulation, which, for this purpose, is assumed to be so much, a list of the banks and their circulation being inserted in the act. The solvent banks were to be secured in taking this currency by the assets of the liquidating banks, with interest at eight per cent. The whole operation was to be regulated by the Board of Currency, and all the currency of the liquidating banks was to be canceled as it was taken in. Every bank was to state, within twenty-five days, whether it accepted this law or not; and any revived bank which did not comply with it was to be put in liquidation by the Board of Currency. A fine of $500 was to be imposed on any bank official who violated the orders of the Board of Currency. After thirty days each bank was to issue its own notes only, and all were to make weekly settlements. The Governor might issue bonds at five per cent. for fifteen years to pay the debt of the State to the banks. The lowest note was to be for $5; no dividends might be paid during suspension; no bank might have less than fifty separate shareholders after September 30; all were declared liable to examination by the Legislature; no bank might buy its own stock or loan over thirty per cent. on that stock when it was below par; banks were forbidden to deal in sugar, cotton, or other commodities. Heavy penalties were provided for a breach of each detail in this act.
Perhaps this law grew out of one which was prepared by a bank committee in 1840,* but it seems to be, in the form in which it was enacted, the product of one mind. It obviously proceeded from very mature study of the principles and practice of banking, and may justly be regarded as one of the most ingenious and intelligent acts in the history of legislation about banking. Probably it could not have been passed except at just such a crisis in banking affairs. It remained unmodified only thirty days; then another act was passed modifying and softening it in many details. The administrative officers also flinched from the execution of it in all its severity, but, even so, it put the banking of Louisiana on a plane far above that of any other State and held it there until the civil war. The separation of the “Dead Weight” and the “Movement” betrays the same view of banking noticed above,† although the bank-note issue was here connected with the active operations and not with the passive investment.
March 11th, the banks protested against vexatious suits, and another law was passed providing for both voluntary and involuntary liquidation. The immediate effect of the law was that five of the worst banks failed at once, and proceedings were commenced against five others. March 14th, proceedings against the Union Bank were suspended, and leave was given to hold a stockholders’ meeting in order to decide whether to accept the act reviving the banks, and time was given for this purpose. The purchaser of the Merchants’ Bank from the Bank of the United States,‡ who was also the president of the Exchange Bank, appears to have brought it to ruin; for both of those banks failed and he absconded as a defaulter.
The New Orleans banks resumed May 18, 1842. There was a great run upon them and almost a riot. By the 2d of June all but three of them had suspended. Only one of these, the Bank of Louisiana, had any notes out. The report was: “The monetary condition of the city is deplorable beyond description.” The city notes were at thirty and thirty-five per cent. discount.§ During the summer, the sacrifices of property were reported as terrible. In September “there was a bank revulsion at New Orleans, the most severe probably that was ever felt. Its effects extended throughout the Union.” Sterling exchange was at twelve and thirteen discount.∥ Probably this great revulsion in September was due to the provision, in the law for reviving the banks, that the post-notes must be retired at that time. The remark was quoted of some participant in these vicissitudes: “We then touched bottom and we staid at the bottom until May, 1843.”
An act to liquidate the property banks, April 5, 1843, provided that any stockholder might clear his liability by paying in the bonds of the State issued to the bank. The assets of the Consolidated Association and the Citizens’ Bank were to be held by the State until they should pay the State bonds issued to them. Future crops of the stockholders might be mortgaged to the banks, property might be surrendered to them on appraisal, and the banks might buy in mortgaged property. The Governor was to appoint managers for each. The Board of Currency reported, in 1845, that the Union Bank had punctually paid its semi-annual interest coupons, and the first of the series of bonds due in November, 1844, amounting to $1,750,000, and that ten banks were in liquidation, including the Citizens’ and the Consolidated Association.
The Union Bank escaped the fate of all the other banks of the same class. Either it was more bank than loan office or its loans were predominantly on city real estate. It continued as one of the leading banks of New Orleans. The Consolidated Association was liquidated and wound up. In 1849, having paid up a part of the State bonds issued for it, it extended the rest, amounting to $1,376,000, giving bonds of the bank payable at different dates down to 1866. The cashier says: “We are now happy to say that the honor of the State has been relieved so far as this bank is concerned.”
The Citizens’ Bank remained in liquidation ten years. It was then resuscitated and will be heard of again below.
Of the bonds issued for banks, there were outstanding, in 1843, half of the $2.4 millions issued in 1824 for the Bank of Louisiana; $2 millions for the Consolidated Association; $7 millions for the Union Bank; $7.1 millions for the Citizens’ Bank.*
In the message of the Governor, 1843, it was stated that the expenditures of the State exceeded the revenue by more than $200,000; “that there is nothing in our exhausted treasury; that the State can no longer borrow a dollar from her own banks; and that the people are taxed as heavily as they can bear.”
The Secretary of State and the State Treasurer were constituted the Board of Currency, April 6, 1843; to have only $1,200 salary each. Various measures were taken, March 10, 1845, to assist in the liquidation, and it was provided that receivers should take charge of all the assets of the two great property banks, in order to provide for the payment of the State bonds issued to them.
In 1846, the Governor was able to say that the State and city were “blessed with a sound constitutional currency, amply adequate to all domestic or commercial purposes.” He had cancelled $3.5 millions bonds which had been liquidated under the act of March 25, 1844, and the Bank of Louisiana and Mechanics and Traders’ Bank had retired part of the bonds issued on their account, and were expected to retire more.
December 20, 1848, it was enacted that the stockholders of the Consolidated Association must pay their dues to it in specie, or by the delivery of State bonds, and that company was allowed to test in the court the liability of the State as a stockholder to share in the losses. In the case which was made up under this provision,* it was held that the State was not liable for the losses of the bank, by virtue of the shares which it possessed, because they were given as a bonus and would not be such if they carried a liability. The counsel for the bank in arguing this case (1850) said that Louisiana had, within a few years, made $1 million from her banks. Shall she evade a loss of one-sixth of that amount in “the only institution which has been unfortunate?”
There is no more eloquent commentary on the banking history of these States than the provisions about banking which they put in their Constitutions at the next subsequent revision. The Constitution of 1845 forbade the Legislature to pledge the credit of the State to anybody, and prohibited the creation of corporations with banking or discounting privileges.
Arkansas.—The Legislature ordered, December 22, 1840, that the banks should resume with those of Louisiana, Tennessee, and Alabama, “and shall not again suspend on any consideration whatever.” At the same time they passed an appraisement law requiring two-thirds of the valuation or a stay of a year. In July, 1841, twenty men in Phillips County kidnapped the Judge before whom many executions were returnable so that he might not do his duty. The Real Estate Bank at Helena and the branch of the State bank at the Post having brought a great number of suits in that Court, the Judge was petitioned not to hold court. He insisted on doing his duty. Armed men took possession of the Court House and threatened to kill the Sheriff if he forced his way in. He desisted and the Judge was kidnapped.†
A Committee which was appointed in 1841 to examine the Bank of the State reported that they found at the Post of Arkansas a banking house which was one of the finest buildings in the State, but that the debts could not be collected, and that the banks could do no business for five years to come, except trying to recover the capital. They reported that at Fayetteville the books had disappeared, “alleged to have been stolen from the bank a few days before our examination commenced.” The books had been found and were still legible, except that the cash book had been mutilated by cutting out all the pages which contained entries. The cashier, when interrogated, declared that he had made a false return of the specie, lest the fact should appear that the bank was in straitened circumstances. He was himself a defaulter.
The Central Board of the Real Estate Bank passed resolutions, April 1, 1842, to assign and liquidate, appointing trustees.* A majority of the directors at Little Rock seized and held the papers and property, refusing to deliver them to the trustees. After some litigation, the Supreme Court maintained the assignment. The assignees were a majority of the Central Board. At first view it seems that the effect of this assignment was to save the wreck of the bank from being sacrificed by politics and jobbery, but the result was that the affairs of the bank were enclosed in secrecy and mystery. The assets at the time of the assignment were put at $2,404,966 and the liabilities, at $2,230,986.
Commenting on this assignment, the Governor said, in 1844: “The history of the bank already presents the most extraordinary picture ever exhibited to a free people. In the first place a public corporation is created by the solemn act of the legislative department of the government, involving the rights and privileges of individuals as well as the State. In the next place the act of incorporation giving existence to the bank is destroyed by an ex-parte operation of a few individuals, by which a deed of assignment was made to a few men, denominated residuary trustees, whereby the assets of the bank, of every description, were transferred into the hands of said residuary trustees and their officers. From that period the operation and management of the bank has been involved in profound mystery.”
The Legislature passed an act for liquidating the bank, January 31, 1843, but it never superseded the assignment. On the same day they put the Bank of the State in liquidation, ordering that the gold and silver which it possessed should be paid out pro rata to the whole circulation, the amount paid on each note being stamped on it in red ink. The par funds, after paying the circulation, were to go to the interest on the State bonds. The arrangement about paying on the notes was repealed February 3d, and it was enacted that other notes should be given for the difference, which should be stamped “re-issued.” The notes at this time were at thirty-three cents on $1.
The State sued out a quo warranto, in order to take into its hands the franchises of the Real Estate Bank.† It was held that the assignment was a forfeiture, and that the “corporate existence of the Real Estate Bank ceased.”
The Legislature ordered, February 1, 1843, that out of any specie in the Bank of the State, $15,000 should be set over to the State as a reimbursement of the federal surplus revenue, and that this sum should be used to pay the members of the Legislature.
The Governor believed, in 1844, that under the management of active and judicious receivers, at least one-half of the debts to the Bank of the State might be collected at some of the branches, and at others even more. He commented on the banking system as follows: “The pursuits of our people and the condition of our country, just emerging from the wilderness, did not then and do not now justify the use of banking facilities, if at all, to the extent provided, and of which we availed ourselves, as it seemed, in a spirit of emulation of the extravagance of other States, rather than in accordance with our real wants and substantial means. * * * Few, I apprehend, have ever been able to realize any profits from their so-called accommodation, while almost every one has a loss to regret.”
At the session of 1844-5, the Legislature ordered that the receiver of the State Bank should pay to the State treasury all the par funds which he then had, or should afterwards receive; and that they should be used first in the payment of the Legislature. All liabilities of the State contracted before October 1st, were to be paid in the old bank notes, which were then at fifty cents on the $1; but they were no longer to be received for taxes, and State obligations incurred after the date mentioned were to be paid with treasury warrants, bearing no interest but receivable by the treasury and the State Bank. It was also enacted that all the funds of the State which had been placed in the bank should be regarded, not as a part of its capital, but as a deposit by the State. “The truth is, the State mainly lived on the means of the bank from its commencement and as long as it had a dollar.”*
At the session of 1848-9, the Committee on Banks reported that the State Bank had lost a large part of its assets for lack of means to defend its interests, and that this was owing chiefly to the action of the Legislature in 1842 and 1844, in taking out its par funds with which to pay themselves. In a great number of suits, the bank was non-suited because it could not give security for the costs.
The act of January 10, 1845, enacted that after March 4th nothing but par funds should be received by the State for dues to itself. There were still, in the following year, $133,862 of notes of the Bank of the State outstanding. This law led to long litigation. It was sustained in the State Court, but not in the Supreme Court of the United States.† A question also arose on the validity of the repeal of the charter, and on the power of the State to take possession of the assets. The State Court sustained the power of the State to dispose of the franchises and assets of the bank to the fullest extent, so that, taken in connection with Briscoe’s case, if the doctrine had been established, it would have enabled the State to act with completely arbitrary power in the creation of paper money banks, without responsibility.‡ The Court said, in fact, that the creditor, in such a case, was left “in a condition in which his rights live but in grace, and his remedies in entreaty only.” Before the case came to the Supreme Court of the United States, the Legislature had further taken specie and par funds from the bank and replaced them by credits subject to appropriation; had vested in the State the title to land taken by the bank for debt; and had required the bank to accept in payment bonds of the State issued to other corporations. The Supreme Court of the United States held that these laws withdrew the assets of the bank from the note-holders, who were entitled to payment by contract. If the charter had been repealed, which it had not, this would make no difference. The State had no right to withdraw the assets. If the construction of the State Court was good, “the bank had no proper capital which was bound by its contracts, and this would render it extremely difficult to maintain the validity of the charter” since its notes would be bills of credit.*
The law of the matter was then summed up to that date as follows: “The cases of Briscoe vs. the Bank of Kentucky and Darrington vs. the Bank of Alabama have settled the question [of the power of the States to make corporations to issue notes] in reference to such banks as were involved in those cases; but the principal ground on which such bills were distinguished from bills of credit emitted by the State was that they do not rest on the credit of the State, but on the credit of the corporation derived from its capital stock.”
When, in 1846, the trustees of the Real Estate Bank were asked why the collections were so tardy, their secretary replied that the loans were first used to pay old debts; that credit was so easy that many were seduced into borrowing imprudently; that many mortgaged their land at such a high valuation that they would now rather surrender it than pay; that some were waiting for a further depreciation of the State securities, forgetting accumulating interest; that many hoped in some way to escape payment. The Governor at that time was alarmed at the repudiation sentiment and at the irritation produced by the collections for the State Bank.
In 1846, an amendment was adopted to the State Constitution: “No bank or banking institution shall be hereafter incorporated or established in this State.” When this amendment was put to vote in the Legislature there was not a vote against it.
The State Auditor, in his report of 1848, called attention to the fact that $154,000 of the bonds of the State had been sent to Washington eight or nine years before, to be sold to the Secretary of War, who refused to receive them. They were still lying in a Washington bank.
J. M. Curran instituted ninety-four suits against the bank, in 1849, for State Bank notes to the total amount of $9,355, and recovered that amount, with $5,314 damages. He won at every step up to the Supreme Court of the United States. With accumulated interest the amount became $20,883. Assets of the bank, which stood on the books at $109,720, were sold under judgment to satisfy this debt.
It appears that the banking houses which were built by the Bank of the State of Arkansas were extravagant and also were such buildings as could not be converted to other uses. The one at Little Rock which cost about $28,000, in 1840, was sold in 1845 for about $200. The others sold at very much the same loss. The one at the Post cost $16,000. It was bought in by the State for $100, but was so situated that it could not be put to use.
As soon as the Bank of the State went into liquidation, it appears that it only fell into the hands of a new set of plunderers. No investigators ever were able to find out how the exchange of bank notes for State bonds was carried out. One receiver, as a committee said, “traded with himself” for bonds in exchange for notes, and no record of the transaction was kept. The receivers also retained bonds which they had bought, and took for themselves the interest, instead of returning the bonds to the treasury for cancellation, as the law required. Indeed they paid little heed to the prescriptions of the statute as to their duties. A committee of 1850 said that “in many cases the great bulk of the loss is attributable to the criminal negligence and dishonesty of the officers of the bank.” They allowed the loans to be lost under the statute of limitations. They neglected to attend to the security of the debts, and allowed their friends who were men of wealth to escape, by taking men of no responsibility in their stead, and neglected to enforce collections. “The history of the bank exhibits the most astounding instance of long-continued mismanagement and open abuse of trust that ever occurred in a country of laws.” The causes were chiefly indifference as to qualifications in selecting officers, and lack of accountability. “In the possession of vast amounts, freed from all restraints, every obligation seems to have been released and every law regulating their duty set at defiance.”
At the session of 1852-3, a proposition was made to enact a free banking law on the New York model. It was at last submitted to a popular vote, when the people refused to call a convention for the necessary amendment to the Constitution.
The Legislature, January 12, 1853, adopted resolutions that the Attorney-General should file a bill in chancery for an accounting by the trustees of the Real Estate Bank, reciting in the preamble: “It is known that the trustees have, in many respects, violated the provisions of said deed, and there is great reason to believe that great losses have been sustained by their neglect and improper conduct.” In the following year, however, the Governor declared that the mystery which surrounded the liquidation of the bank had not been broken. It refused to answer questions, although in answer to a demand from him, it made a return of the bonds which it had received in the course of its operations, and which it held. The Bank of the State had, up to that time, redeemed and canceled two hundred and thirty bonds. No interest had been paid on the outstanding bonds, but the United States had retained land payments which were due to Arkansas towards the interest on the $500,000 in the endowment of the Smithsonian. The amount of this, to 1853, was $46,834.
At the next session, the Legislature made another attempt to bring to light the true condition of affairs in the Real Estate Bank. The Governor was to institute suits and employ counsel. The liability of the State for compound interest on the bonds was affirmed in the Circuit Court of the State, in 1854.* Thereupon, while the suits begun by the Governor were pending, others were begun by creditors. It was feared that they would succeed in getting judgments and would sacrifice the assets. The plaintiffs had filed only copies of the bonds on which they sued. In order to defeat them a law was passed, December 7, 1854, that the original bonds must be produced and filed in the office of the clerk, and could not be withdrawn except upon an order of the Court. If the originals were not filed, the suit must be dismissed. This course was taken in five suits, and upon appeal to the Supreme Court of the United States, the law was sustained.† The doctrine was affirmed that those who deal with a State must rely on its good faith.
In 1856, Arkansas for the first time had a balance in the treasury in gold and silver. It amounted to nearly $150,000, and all the warrants had been retired. Up to that time 607 State bonds had been retired by the liquidation operations of the Bank of the State.
In 1857 the bonds which had lain in Washington had been recovered and were ordered to be burned. All suits relative to the Real Estate Bank were put under the jurisdiction of the Pulaski County Chancery Court. An act was also passed against trespassers and squatters on the lands of the bank.
W. M. Gouge and A. H. Rutherford were appointed accountants under an act of January 15, 1857, to investigate the Bank of the State of Arkansas. Several previous attempts had been made to investigate its accounts, but the investigators had all given it up on account of the confusion of the books and the magnitude of the labor. These two made a report, October 10, 1858, after having done their best to reconstruct the accounts and discover the facts. The fact which stands out most distinctly in this report is that all parties, at the time the banks were founded, regarded the money which was brought into the State by them as a pure bounty. The people never gave themselves a clear account of what they were doing, or what they expected, but they thought of banks as fountains of wealth, and did not really feel that any one would ever have to fulfill any onerous engagements to one of them.
A Committee of the Legislature of that year refused to give weight to an appeal on behalf of the stockholders of the Real Estate Bank. That bank, they said, “was a speculation from its very beginning. If it had been successful the profits would have been theirs; if it has been unsuccessful, others ought not to bear the loss.”
Up to October 1, 1860, there had been paid on the debt of the State, $2,341,996. There was still outstanding a little more than a million for the State Bank and $1.6 millions for the Real Estate Bank. There was also a debt of $267,455 for principal and interest of the negotiation with the North American Trust Company, i. e., for the amount received on the Holford bonds.*
January 16, 1861, an act was passed to enable the State to foreclose lands mortgaged to the Real Estate Bank; all the stock mortgages were to be assessed to make up the deficiency of assets, to pay the principal of the bonds which fell due in that year.
We meet, once more, with an act, March 8, 1867, to appoint an agent to settle the accounts of the Bank of the State. An act of April 6, 1869, provided that all assets of the State Bank and the Real Estate Bank should be held as a sinking fund for the bonds which were then issued to refund the old bonds which had been issued for the banks. A further act of February 5, 1879, provided that the bonds issued to refund the Holford bonds should not be received for debts to the Real Estate Bank. A resolution was also passed, without the Governor’s signature, proposing a constitutional amendment that the Legislature should never have power to lay a tax or make an appropriation to pay the Holford bonds. In 1881, the Auditor and Treasurer were instructed that they were not required to report railroad aid and levee bonds and Holford bonds in the indebtedness of the State. A large section of the revised statutes of 1884 deals with foreclosures of lands mortgaged to the Real Estate Bank, and with a land office system to dispose of them again in the interest of the State.
Tennessee.—The Bank of the State was authorized, January 25, 1842, to issue notes between $1 and $5, so long as the suspension should last.
At the session of 1841-2, apparently in spite of a veto, since no date is given, the Bank of the State was ordered to pay $200,000 to East and West Tennessee, half to each, for improvements, and $200,000 in bonds then printed and lying in the bank for that purpose were to be burned.
All the papers and books of the Circuit Court of McMinn County, Tennessee, were burned in May, 1842, apparently upon a burglarious entry.†
An extra session of the Legislature was called in October. In the Governor’s message it was stated that the Southwestern Railroad was likely to be abandoned. He wanted an investigation of the Bank of the State on general principles, and was anxious by means of its profits to avoid the “oppression of direct taxation.” There was great pecuniary embarrassment, he said, throughout the State, and relief was needed. He charged everything to the federal government and the overthrow of the United States Bank. Money was scarce; the currency of the State had been reduced, since 1836-7, from $5 millions to $1.2 millions. At the extra session a number of measures were adopted for relief. October 29th, all banks were allowed to issue notes down to $1 until January 1, 1845. The redemption law of 1820 was changed so that any one who bought land of one who bought it in execution should hold it subject to redemption for two years, with six per cent. interest, as the first buyer did. The Bank of Tennessee was allowed to discount notes for sums under $50, and to continue reductions on other notes till they were brought down to $50. Loans to bank directors were restricted and security was to be taken for those which they already had. In July, the Attorney-general had sued out a scire facias against the Union Bank and the Planters’ Bank for not paying specie; but these suits were now discontinued because these banks had resumed August 1st.
The Bank of the State and the internal improvement Commissioners of East and West Tennessee could not agree on the construction of the law which required that the bank should pay $100,000 to each section for improvements. The act of November 12, 1842, distributed the money which the bank was called upon to pay.
The Bank of East Tennessee was chartered December 27, 1843, at Knoxville; $800,000 capital; on the model of the Union Bank.
The president of the Bank of Tennessee, in his report of 1843, anticipated a deficit in the following year, because the interest on the internal improvement bonds had been steadily increasing every year, and more bonds were to be issued, so that the profits of the institution could not equal what it would be called upon to pay. He complained also of the burden laid upon the bank to pay the above $200,000 for river improvement, which, he says, will have to come out of the capital. He proposed that expenses should be reduced by discontinuing some of the branches, and that the bank should be relieved from the arbitrary charge placed upon it for the school fund. Of the internal improvement companies in which the State held stock, only one had paid any dividend, the amount being $3,696. The Commissioners appointed to examine one of the branches declared that they could not understand how, if private individuals whose interests were identified with the bank they managed could only make five per cent., it could be expected that a bank owned entirely by the State, and managed by men, however skillful and honest, “whose private interests are in direct opposition to that of the institution which they have been appointed to direct and govern,” can make as much for the State. They proposed to wind up the bank and invest all that could be saved in bonds of the State, which were at an important discount. They gave as another reason for this course that it could not “have escaped the observation of the most casual observer that if this institution is continued, under whatever system of re-organization might be adopted, it would be a bone of contention between two rival political parties, the ins and outs, each of which will be contending for the spoils, like vultures for the carcass, so long as any portion of the capital remains.”
The president of the bank, in 1845, declared that it had afforded the relief which it was founded to give and ought to be wound up.
Kentucky.—A convention of a large number of banks of Kentucky, Indiana, Illinois, and Ohio was held at Louisville, January 25, 1841, to consider resumption. It adjourned without action and without day, but recommended that another convention for the same purpose be held some time.
The capital of the Kentucky banks was very largely held in the East. The president of the Bank of Kentucky stated in 1840 that 25,130 shares of the bank were on the books at New York and Philadelphia, and 4,780 at Louisville. On account of the large amount of shares of the Louisville Bank of Kentucky, which were held in the East, transfer agencies were opened in New York and Philadelphia,—in the latter city at the Schuylkill Bank. The cashier of that bank issued spurious certificates to the amount of 13,000 shares, 447 of which, however, were surrendered by the holder, being held as collateral only. This fraud was discovered in December, 1839. February 22, 1842, the Legislature of Kentucky passed an act under which the Bank of Kentucky set aside all its surplus profits over five per cent., and all which it could recover from the Schuylkill Bank, as a “stock fund” out of which to meet the expenses and losses of the over-issue. The capital was increased $1 million and the spurious stock in the hands of innocent holders was recognized. Satisfactory proof must be given that the holder was an innocent purchaser. An act of March 3d limited the amount which the bank might pay for the spurious stock to $40 per share. In 1849, it reported that it had bought up the fraudulent stock, and had obtained from the Schuylkill Bank perhaps $600,000 worth of assets, under a judgment of the Pennsylvania courts.*
In these days of liquidation, relief laws were once more called for. They now took the form of an extension of exemption laws.
As a further relief measure, March 8, 1843, the bank at Louisville was ordered to set up two branches, within three months, with not less than $100,000 capital in each; but either branch might be withdrawn or removed if it did not earn six per cent. If the bank complies with this order, the term of its charter is to be extended ten years. It may purchase and retire $150,000 of its stock. The banks are all forgiven for suspension if they comply with this act. The bank at Louisville is to loan $100,000 in each congressional district in which it has a branch. Loans are to be called in not more rapidly than ten per cent. in each of the first two periods of 120 days, and not over twenty per cent. in each subsequent period of 120 days, making 720 days for the payment of an entire debt. Not over $1,000 was to be loaned to one person. The Bank of Kentucky and the Bank of Northern Kentucky were to make similar loans in other districts; if the former consents to this, it may surrender $1 million of five per cent. bonds of the State, and reduce its capital $1 million; the Bank of Northern Kentucky in like manner $750,000, and they may issue notes down to $1; the Governor may sell five per cent. bonds to the amount of $1,750,000, and invest the proceeds in stock of the three banks, if he can get that of the Bank of Kentucky at eighty and that of the other two at ninety; this stock to be put in the sinking fund and the dividends to go to it. The loans were to be apportioned in the counties according to the number of voters.
The Committee on Banks, in their report of December, 1843, said: “There never was, perhaps, a set of banks that have done so much business and sustained fewer losses than the Kentucky banks within the last two years.” In the following year the same committee said: “Your Committee do not believe that there has existed, at any former period in the history of the State, a system of banking under its authority more eminently successful in establishing a currency free from fluctuation, and in affording the surest guarantees to the holders of its circulation than the present; or which more fully possess the public confidence.”
A committee was appointed, January 20, 1844, to inquire of the banks what loans they have made under the act of March 8, 1843; whether they mean to call twenty per cent. of the loans, as the law allows; on what terms they will grant renewal and delay; whether they cannot increase their circulation.
The right to issue notes under $5 was extended to the banks for the duration of their charters, January 21, 1846.
In 1850, the charter of the Southern Bank of Kentucky was extended to 1880, provided that no interest should be paid to the bank on the State scrip issued to it, so long as it held the same; and that it should pay the interest on the scrip if it should sell it.
Ohio.—In January, 1842, the irritation against banks, on account of troubles with the circulation, led to a riot in Cincinnati, in which two or three banks had their books, papers, and furniture destroyed. There were runs on these banks, not for specie, but for some paper better than their own. The militia were called out and some persons were wounded, but the militia acted very unwillingly.* The next day there was a similar riot in Louisville.
January 21, 1842, the Legislature passed resolutions exhorting the neighboring States to resume specie payments, and pledging Ohio to do the same. In the first months of 1842, a number of bank charters were repealed or annulled. February 18th, an act was passed that banks not redeeming their notes shall be held to have forfeited their charters; they are prohibited from assigning. The Bank Commissioners are to apply for injunction, or the note-holders may do so, the facts to be found by a jury. Debts are divided into two classes,—those which, according to the contract, are to be paid in depreciated notes, and those not so payable by the contract. In the first case, the bank notes are allowed as a set-off, the jury to decide the facts. In the second case, no bank notes are allowed as a set-off, but payment must be in gold or silver. Notes redeemed by the receivers are to be burned. In case of an appeal by the bank of a suit against it, if the plaintiff gets as much on appeal as before, the bank is to pay twenty-five per cent. damages, over and above all interest and costs. There is to be no stay of execution on a judgment against a bank. At a meeting of the banks by delegates at Columbus, they resolved to act together to sustain each other. Part of the plan was to establish a Suffolk system of central redemption. March 5th, the notes of a bank were made payable to it in all suits by the bank or its assignees.
March 7th, another act to regulate banking was passed. The association was first to be formed and then to apply for a charter. All were to have the same general powers of organization; all capital to be paid in in specie before beginning; Bank Commissioners to inspect the bank and certify that this has been done; no loan to be made to a director for more than half his shares; in a $100,000 bank no one person to owe it more than $8,000, and so on according to a scale; no loan to be made to an officer; debts, exclusive of deposits, not to exceed one and a-half times the capital; the circulation never to exceed the capital, and one-third of it to be held in specie; a State officer to register and countersign the notes, and to guard the limit for each bank as returned to him by the Commissioners; tax to be one-half of one per cent. on the paid up capital, but the Legislature may change it; banks organized under this act to take each others’ notes, exchanging notes as the Commissioners direct, and paying balances; no note to be issued between $5 and $10 or between the other decimal denominations.
On the same day, another act was passed that no State officer, after March 4th of the next year, should pay out any note not redeemable in specie on demand; penalty, to be liable in an action for debt for the difference in value between the note and specie, and to lose his office. Exception was made of notes taken before that date on account of the State.*
On the same day, still another act was passed, which shows that the unauthorized companies were still issuing notes. If any incorporated company, not having banking powers, becomes insolvent, or refuses to pay the evidences of debt which it has put in circulation, or suspends business for a year, or violates its act of incorporation, or puts out circulating notes, it shall be held to have forfeited its charter, and shall be adjudged to be dissolved; the courts to have visitorial powers; all acts of incorporation hereafter to be subject to amendment and repeal; private corporations are subject to individual liability.
The Bank Commissioners in this year laid special emphasis on the abuse that, upon the failure of a bank, its directors and stockholders, who had large loans from it, surrendered their stock in cancellation of the loans, although the stock might have no market value. They thus escaped liability.
There was at this time an appraisement law that the sheriff should, at the demand of the debtor, summon three householders to appraise property taken in execution, and that it should not be sold unless two-thirds of the valuation was bid.
The act for the regulation of banks was amended February 21, 1843. No one was allowed to be a director in two banks; not more than one member of a firm might be a director in the same bank; no loan might be made for more than six months; no dividend might be made when the capital was impaired; the stockholders were to be individually liable, except where the depositors and the bank might otherwise agree as to deposits; it was unlawful for the president or cashier to deal in stocks. In this act five new banks were organized under the law, and five others submitted to it. This act was considered too stringent, and banking associations refused to organize under it, hoping and expecting relaxation. February 15, 1844, three banks which complained of the restrictions of this law and asked extensions of their old charters obtained what they asked for, on condition of consenting to individual liability and keeping one-third of their circulation in specie. Immediately afterwards three others took the same step.
Of the twenty-three banks in Ohio, with a capital of $7 millions, the charters of thirteen expired by limitation January 1, 1843, and of two more, a year later. The remaining eight had a capital of $3.4 millions, of which about half was owned in the State. In December, 1843, the Commissioners said: “There probably never was a time when the banks of the State were in a better condition than the present.”
Speaking of the ending of these thirteen banks, the Governor said, a year later: “Instead of the ruin and disaster predicted from the event, business and enterprise have continued to revive unimpeded in their progress; thus, as the banking system has literally rotted down in the sink of its own folly and corruptions, the prosperity of the country has received new life. Industry and enterprise, relieved from the bondage of banking operations, are recovering their energies with renewed vigor.”
The Senate, in 1844, called upon the Bank Commissioners for an estimate of the loss of the people of that State by banks since 1831. The answer had no value on any point but one,—the loss by the circulation, which was put at $1.4 millions.*
The Bank Commissioners, in 1844, gave a list of forty-seven banks in that State which had failed. The Governor in that year expressed himself strongly opposed to the New York free banking system. One of the most famous of the unauthorized note-issuing companies, the Granville Alexandrian Society, came to the surface once more March 8, 1845, when an act was passed to settle doubts whether the note-holders could enforce payment against it, since it never had a right to issue, and whether it could collect debts due to it for its banking business; both were provided for, in order to liquidate all its affairs. Two more acts are found forbidding unauthorized note issues, the first, March 12, 1845; the second, March 2, 1846, extended the time after which the State Treasurer should not receive or pay out such notes.
In 1845 the nomenclature of the Ohio currency was given as “yellow dog,” “red cat,” “smooth monkey,” “blue pup,” and “sick Indian.”*
Michigan.—The Governor made a contract, June 1, 1838, with the Morris Canal and Banking Company,† by which they became the agents of the State, to sell the $5 millions loan. They sold and accounted for $1,187,000, July 1, 1841, the interest was not paid on these bonds. In February, 1843, an arrangement was made to fund the interest until 1845. As the bank could not sell any more and was urged by the Governor, it proposed that he should deliver all the bonds at once on a sale to the mentioned bank and the Bank of the United States, to be paid for in installments, one-fourth by the former and three-fourths by the latter. He agreed. One million was paid before both banks became bankrupt. In the meantime the bonds had been hypothecated in Europe by the Bank of the United States as security for its borrowings there. Michigan refused to pay more than she had received.
The Bank Commissioners in their report, January 18, 1839, said: “Standing, as Michigan does, upon the ruins of her credit and currency, it behooves her to carefully examine the causes which have precipitated to almost entire destruction the edifice so lately erected, and, by the light of other examples and her own experience, to rear upon a safer and surer foundation that which her present condition calls upon her to establish.”
“On the 15th day of March, 1837, the act popularly entitled the ‘general banking law’ was passed, upon the plausible principle of introducing a free competition into what was considered a profitable branch of business heretofore monopolized by a few favored corporations. In a little more than a year forty-nine banks were organized, with a nominal capital of $3,915,000, and about forty went into actual operation under its provisions. These institutions professed to have an actual and available capital of $1,745,000; thirty per cent. of the nominal capital being presumed to have been paid in according to law, in gold and silver. They were authorized to issue and to put into circulation bank bills to the sum of $4,362,500, being twice and a-half the amount of capital paid in and possessed. The feature of the act which authorized banking under the suspension law (that is to say, giving the sanction of law to the issue of promises to pay, not liable to redemption in gold and silver on demand) gave an irresistible impulse to their career, by opening the door for the debtor to liquidate his liabilities by transferring to the public at large his indebtedness to individuals. The result is well known; and it is believed that it is not too strong language to assert that there are no species of fraud and evasion of law, which the ingenuity of dishonest corporations has ever devised, which have not been practiced under this act.”
“The loan of specie from established corporations became an ordinary traffic, and the same money set in motion a number of institutions. Specie certificates, verified by oath, were everywhere exhibited, although these very certificates had been canceled at the moment of their creation, by a draft for a similar amount; and yet such subterfuges were pertinaciously insisted upon as fair business transactions, sanctioned by custom and precedent. Stock notes were given for subscriptions to stock, and counted as specie; and thus not a cent of real capital actually existed, beyond the small sums paid in by the upright and unsuspecting farmer and mechanic, whose little savings and honest name were necessary to give confidence and credit. The notes of institutions thus constituted were spread abroad upon the community in every manner, and through every possible channel. Property, produce, stock, farming utensils, everything which the people of the country were tempted by advanced prices to dispose of, were purchased and paid for in paper, which was known by the utterers to be absolutely valueless. Large amounts of notes were hypothecated for small advances, or loans of specie, to save appearances. Quantities of paper were drawn out by exchange checks—that is to say, checked out of the banks by individuals who had not a cent in bank—with no security beyond the verbal understanding that notes of other banks should be returned at some future time.”
“The result of the experiment of free banking in Michigan is that, at a low estimate, near a million of dollars of the notes of insolvent banks are due and unavailable in the hands of individuals.”
The Commissioners recommend a repeal of the general banking law and desire “the recommendation by the Executive of a State institution, under the control of the State itself,” subject to rigid scrutiny.
The banks all suspended October 28, 1839. At the following session of the Legislature, a Committee of Investigation was appointed on the Bank of the State. The Committee tried to ascertain the amount of indebtedness on the part of the directors of the bank, but the information was refused; also information on the item of their exhibit, “Due from banks.” “Shuffling, evasion, and concealment are not the companions of honesty.” Their available assets are insufficient “to meet their indebtedness to the State alone, without reference to their other liabilities.” The Commissioners “believe the facts above stated to be sufficient to warrant them in coming to the conclusion that the funds of the State cannot be safe while intrusted to that institution.”
In July, 1841, the Detroit “Daily Advertiser” maintained that not one of the banks of that State had complied with the conditions necessary to entitle it to the benefits of the suspension acts of the previous winter.* The same newspaper said that the Bank of Michigan owed the United States, in 1839, $80,000; it wanted suspension; it got it; raised the circulation from $150,000 to $200,000; bought flour and pork; sold them for enough to pay the debt, and then failed, leaving the circulation in the hands of the people.† At the end of 1841, the people in the country districts of Michigan adopted the “Macon specific,”‡ whereupon specie reappeared.
In January, 1842, the law authorizing suspension was repealed, which forced the Bank of the State of Michigan into liquidation.
Indiana.—A stay and replevin law was adopted February 24, 1840, the delay being four months.
This State became involved in financial dealings with the Morris Canal and Banking Company. By joint resolution of February 24, 1840, the Legislature expressed their dissatisfaction with the security which had been taken by the president of the Bank of the State for $1 million State bonds, which had been delivered to that company. The Fund Commissioners were directed to require additional collateral. The amount of the stock of the State in the Bank of the State, as we learn from an act of February 6, 1841, was $1,304,950. The amount which it had advanced to pay the installments for private stockholders was $224,000. It was ordered that this should be set apart to redeem the bonds issued for the bank. The sinking fund was, at the time, loaned out on mortgages. It was to be recalled and invested in bank stock. The sinking fund was also to pay to the treasury all surplus over its interest and charges. These two grants from the sinking fund were to be loans to the State at six per cent. The Bank of the State might issue for five years not over $1 million in small notes, not less than $1.
An appraisement law was passed February 13, 1841. Rents and profits for seven years must first be offered for sale. The limit of valuation was one-half. February 15th, the college and other funds which had been loaned out were ordered to be recalled and invested in bank stock.
The Bank of the State of Indiana made losses until 1841, $58,000. In December, 1842, the bad and doubtful debts were nearly $200,000, but there was a surplus fund far exceeding this. The bank resumed specie payments June 15, 1842. Within a few months, at that period, the currency of Ohio, Kentucky and Illinois was reduced from $15 millions to $5 millions, and that of this bank from $2.7 millions to $1.7 millions. No convulsion at all was produced. The State had issued treasury notes of which this bank and its branches held $634,710 which they could not circulate. Two of the branches were very much crippled by them; two others were in similar difficulty from large loans to stockholders. The president did not take ground against the stay law, but said that it must be restricted so as not to apply to future contracts, if business was to recommence. He mentioned that within a short time specie had been transported in large amounts from Indiana to New Orleans.
In 1843, the report of the bank was very encouraging. Its capital had been diminished $600,000, which had not weakened it. The debt of the State to it and the suspended debt had been greatly reduced, and the treasury notes raised nearly to par. The stockholders owed less than ever before and the specie had increased. Further remarkable illustrations of the discipline exerted by the Central Board over this bank were presented at this time. The facts show that such discipline was called for, and the comparative success of this bank must be attributed in large measure to the vigor and firmness with which the Central Board exerted their authority. One branch which had been badly managed, and had persisted in spite of admonitions, was suspended, and was not restored until, in the following year, it had been reduced to order and subordination, under the rules of policy which the Central Board had adopted. The prospect for business, the following year, was considered good; but “much more might be done if the collection laws of the State did not enable so many of the bank debtors to violate their engagements with impunity.” The president thought that stay laws might be beneficial both to creditors and debtors in certain conjunctures, but that they ought to be removed when the conjuncture had passed. In 1844 the bank petitioned for and obtained a continuance of the right to issue small notes.
A description of the currency of Indiana, in September, 1843, is as follows: The State Bank paper and the paper of the specie-paying banks of Ohio are the standard; “scrip” is the treasury notes of the State, receivable for dues to the State, but not bearing interest when paid for taxes. “Bank scrip” is a State issue to pay the State Bank for advances to the canal contractors. “White dog” is a State issue to pay for canal repairs, receivable at its face and interest for canal lands east of Tippecanoe. “Blue dog” is a State issue for extending the canal, receivable for canal lands and canal tolls. “Blue pup” is a shinplaster currency issued by the canal contractors and redeemable in “blue dog.” The quotations are, “scrip” 85 to 90; “bank scrip” 85; “white dog” 80 to 90; “blue dog” 40; “blue pup”—!*
Illinois.—The session of 1840-41 was called two weeks earlier than usual, in order to provide for the interest on the public debt, which would fall due January 1, 1841. A party fight arose over the question whether this was a special session, which must adjourn in order that the regular session might commence at the constitutional time. The fate of the banks was supposed to depend upon this, because the suspension of the penalties of suspending specie payments had been extended to the “end of the next session.” The democrats succeeded in adjourning the called session, which they construed as putting an end to the banks. The Bank of the State, for its own purposes, adopted this construction, and, assuming that it was under compulsion to redeem at once, all discount and loan business was immediately suspended, and the bank refused all further advances to the State or redemption of auditor’s warrants. The State was then indebted to the bank $196,000. This debt was increased in the current year because the revenue was not equal to the expenditure. In stating these facts to the Legislature, the president of the bank closed his document with a declaration of the purity of the motives of the bank; but it was the general opinion then, and became the almost universal opinion afterwards, that the bank had intended to coerce the Legislature to authorize it to suspend again. In the February following, the bank presented a memorial to the Legislature, setting forth that it was exposed to danger and harm, finding itself the only bank in the western country which had resumed. From December 5th to February 1st, it had been forced to redeem $455,000 of its circulation. It pleaded for permission to suspend again and asked outright that the forfeiture of the charter as a penalty for suspension might be repealed, as impolitic and useless.
The refusal of the Bank of the State to redeem the auditor’s warrants left the Legislature and the public officers unpaid. “The credit of the State at the same time had sunk so low that the public documents could not be obtained from the post office until the officers themselves became personally responsible for the postage.”*
The minority of the Committee on Banks, reviewing, in 1841, the history of the Bank of the State, thus stated the result: “At the first suspension, in 1837, its circulation was only $1.7 millions, and other liabilities about $1 million more, and its resources were equal to its liabilities. At the second suspension, in 1839, its notes in circulation exceeded $2.5 millions and its liabilities exceeded its means by nearly $400,000. On the 7th of December, 1840, after the last suspension, its bills in circulation exceeded $3.2 millions and its liabilities exceeded the available means by about $1 million.”
In July, the branch of the State Bank at Jacksonville was robbed, but every accommodation note, bill of exchange, and other evidence of debt in the bank was destroyed and the leaves were cut from the books containing all accounts since 1837. It was discovered that the perpetrator was the teller, who had been robbing the bank.†
The Bank of the State suspended again February 10, 1842. February 27th, an act was passed condoning this, but it was enacted that if it should suspend again for a longer time than the law allowed, it should forfeit its charter. At the same time it was given permission to issue ones, twos, and threes, until January 1, 1843. Both banks were required to resume with the other banks of the West and Southwest.
“To add to the general calamity and terror of the people, in February, 1842, the State Bank, with a circulation of $3 millions, finally exploded with a great crash, carrying widespread ruin all over the State, and into the neighboring States and Territories. In June following, the bank at Shawnee-town ‘followed in the footsteps of its illustrious predecessor,’ leaving the people almost entirely without a circulating medium. The paper of these two banks had been at a discount for specie ever since the United States refused to receive it for the public lands, and to make the banks depositories of the public moneys.”
“That which contributed the last spark to the explosion of the State Bank was the course of some of the State directors, who were contractors to finish the northern cross railroad, and who were to be paid in canal bonds, which at the time were unsalable. These interested parties, joining with others in the directory, established it as a principle that the bank could not issue an excess of its paper whilst in a state of suspension. This they did to get loans from the bank to carry on their work on the road; and having obtained money themselves upon this principle, they were obliged to vote loans to all others. But experience soon showed that the principle was false, for no sooner was more paper put into circulation than could be sustained by the business of the country, than the bank exploded. It may be added to this that the State Bank, to obtain favor from the Legislature, was compelled to make loans to the State, and to advance its bills for auditor’s warrants for a large amount to defray the ordinary expenses of government; the revenues being again insufficient, and the Legislature afraid to increase the taxes.”*
In the spring of 1842, the Bank of the State allowed its notes to fall to 50 cents on $1. As half the revenue of 1841 had been collected, the State officers thought that fairness required that the remainder of it should be allowed to be paid in the same currency. Hence this paper became the only medium of payment to public creditors. “Judges and other officers of government were obliged to take it at par for their salaries, and even the interest on the school fund could only be paid in this worthless currency.” The State also had to give its six per cent. auditor’s warrants for these notes, which it could only use again at the rate mentioned. “The Constitution expressly prohibited the Legislature from reducing the salaries of the Judges. The object of this prohibition was to preserve the independence of the judiciary. The bank, however, found no difficulty in reducing their salaries more than one-half, and this too when its own officers were receiving liberal salaries in gold and silver.” The taxpayers now hastened to pay their taxes for 1842 one year in advance, before the Legislature could take any action to prevent taxes from being paid in this depreciated currency. According to the existing system also this revenue must have been paid into the Bank of the State. The Governor, Auditor, and Treasurer, acting under power which had been given by law, published a proclamation, August 15th, forbidding the payment of school, college, and seminary debts, and public revenue, in notes of the Bank of the State. This left such dues payable in auditor’s warrants, of which there were enough outstanding. September 12th, they published another proclamation, warning collectors not to receive depreciated paper at more than its specie value. In reporting their proceedings to the Legislature they add: “It is folly to hope for better times while the channels of trade are choked up with depreciated paper. So long as the banks are continued in existence, so long will the prosperity of our people be retarded. They have almost sucked the life-blood out of the State already. Instead of bringing in foreign capital and disseminating it amongst the people, they have been effective engines in the hands of foreign speculators to drain the State of all its substantial wealth. Since the establishment of these institutions, there have been $10 millions of money borrowed and expended amongst the citizens of Illinois. Wealth has also been obtained from immigration, and the exportation of domestic products, and yet all this has disappeared as if by enchantment, and the State, in 1842, finds itself steeped in poverty and depending for a currency upon depreciated paper.” The implication that the banks were to blame for all this was plainly unjust.
Under a resolution of the Legislature that the State officers should negotiate with the two banks terms for the separation of bank and State, the Bank of the State proposed to yield up to the State the State bonds and State scrip which it held, and to cancel the debt of the State to it, which was nearly $500,000, in exchange for the stock owned by the State. The former amount exceeded the latter by $52,404. The Bank of Illinois agreed likewise to purchase of the State all its stock in that Bank, giving evidences of State debt for it. The State was indebted to this bank $370,000, $200,000 of which was for an advance which this bank had made at the urgent request of the Fund Commissioners and the Governor, that it would advance for a few months the amount which it was expected to borrow in New York. The latter negotiation fell through and the State never repaid the bank. The facts here stated show most distinctly that the banks were by no means the only sinning parties. When the time of catastrophe came, the Legislature and all the civil officers turned upon the banks with ferocity; but the truth stands out in the clearest light that the banks, blameworthy as they were in other respects, had been in a very important degree helped to their ruin by the internal improvement folly for which the civil government of the State was responsible.
Ford says that if the “swindling banks” had swindled only one-quarter as much as they were swindled by the State and by individuals, they would have been perfectly solvent. In regard to confidence, also, he says that “if the banks owed five times as much as they were able to pay, and the people owed to each other and to the banks more than they were able to pay, and yet if the whole people could be persuaded to believe the incredible falsehood that all were able to pay, this was ‘confidence,’ which, if once destroyed, could only be restored by the restoration of a similar general delusion.” His description of the state of things in 1842 is that the people of Illinois were indebted to the merchants. They in turn were indebted to the banks or to foreign merchants. The banks owed everybody. None were able to pay.
In February, 1843, the Governor informed the Legislature that the two banks had surrendered to him the State obligations and that he was ready to burn them in front of the State-house.
The rate of tax for 1843 and the following years was fixed, March 6, 1843, at twenty cents on $100, payable in specie or auditor’s warrants, and nothing else. The interest on the public debt was suspended for 1842 and 1843. The Bank of the State was put in liquidation January 24, 1843. It was ordered to pay out its specie as its debts were called for, pro rata, on a computation of its debts; certificates receivable for debts to the bank to be issued for the residue. The Court might declare the charter forfeited and appoint three receivers, four years being allowed for winding up. Notes to the bank were to be renewed on the payment of one-fifth; the property of the bank was not to be sold for less than two-thirds of the valuation made by three appraisers. The specie in the Bank of the State was exempted from execution. This act provided for separating bank and State. Joint resolutions were passed February 21, 1843: “Whereas, under our former policy, public works were commenced and prosecuted, and vast and extravagant schemes of internal improvements adopted, utterly disproportioned to our resources and means,” and debts have been contracted beyond ability to pay, and the will to pay is doubted, therefore they recognize the obligation to fulfill promises and detest repudiation. “Seduced by an inflated currency and the consequent apparent prosperity,” these debts were contracted; but contraction has crippled resources. Inflation “had its origin and aliment in the over-action of the credit system,” both in England and here. Patience and labor are needed, with time, to pay.
The charter of the Bank of Illinois was repealed and it was put in liquidation March 3, 1843. It was ordered that the last asset to be realized should be the debt of the State to the bank.
The charter of the city and Bank of Cairo, of 1818, was repealed March 4, 1843, and commissioners were appointed to wind it up, paying out its specie pro rata on its debt, and giving certificates for the residue. The commissioners were also to inquire whether the officers had broken any laws in their management.
After the failure of the Bank of Illinois a few of its directors secretly borrowed of it $100,000 in specie with which to purchase bonds, which might be delivered to the State in discharge of the debt to it. The bonds were worth thirty cents on the dollar. Other directors discharged their stock notes with State bonds. The Governor hesitated to receive these bonds, but fearing that, if he refused, the State would get nothing, he made a conditional contract to receive them if the Legislature should approve. The first action of the Legislature in 1844 was that “it would be better to lose the whole amount which the bank owed the State than countenance in the least degree the villainy of its officers;” but it afterwards allowed the bonds to be taken at 48 cents on $1.*
The state of things at the end of 1844 was thus described in the Governor’s message: “A depreciated currency then universally prevalent has been withdrawn, and gold and silver and the paper of solvent banks have been substituted in its place.” He attributed this to the laws which had put the banks in liquidation, and which had “demonstrated the grand truths which have been doubted by many; that banks are wholly unnecessary to supply a local currency; that money will, in the main, exist and circulate in every country in proportion to its exchangeable property; and that local banks, in fact, impede the equalization of the currency and manifestly tend to derange the exchanges.” Banks may be useful in commercial communities, “but if former experience is to be any guide for the future, we must be satisfied that we, in the State of Illinois, are better without them than with them. * * * We ought now to be satisfied that without a greater and more general punctuality in the payment of private debts, it will ever be impossible to administer the affairs of a bank with safety to the people.”
The trustees of the old State Bank of Illinois, in 1862, advertised a final auction of its remaining assets.*
This State also had a loss through its bankers. Bonds were hypothecated to McAlister & Stebbins, which were lost through their bankruptcy. An attempt to make an adjustment having failed, resolutions were adopted, February 27th, 1845, that those bonds should not be receivable for debts to the State, except at the amount which the State had realized from them, 26 cents on $1, with interest from June 17, 1841.
Delafield, a New York banker, contracted to take bonds for $583,000, but paid only $170,000 on them. He refused to return the bonds even if repaid. The State claimed that the sale by its agents had been illegal, in that the bonds had been sold on credit and for less than par. The case further resembled the Mississippi case in that the State won five per cent. by exchange which was alleged to offset the loss of interest in making it run from a date earlier than that on which the cash was paid to the State. The Court held that the agents had exceeded their powers; that the sale was below par, and on credit; that the State was bound in faith and honor to third parties, but that the second party was bound to scrutinize the credentials and commission of the agents.† This decision was made in 1841 and gave great encouragement to the Mississippi repudiationists.
Missouri.—The Bank of the State of Missouri was chartered February 2, 1837, for twenty years; capital, $5 millions, half by the State; the private subscriptions were payable in specie or certificates of the deposit of specie, in deposit banks of the eastern cities; the State subscription to be made by bonds payable to the bank after twenty-five years; the State funds to be invested in the bank; no notes to be issued until seventy per cent. of the private subscription paid up; the Governor to inspect the paid-up capital; one share to have one vote; not more than half the capital to be employed in dealings in bills of exchange; no loans on its own stock; twenty per cent. penalty for suspension; some notes to be made payable at New Orleans and Baltimore, Philadelphia or New York, and they may be made payable at any respectable bank in the United States. The bank may borrow not more than $5 millions, payable in five years, to lend on mortgages in Missouri; this last fund and its accounts to be kept separately; to pay the State annually one-quarter of one per cent. on the private part of its capital in lieu of bonus and taxes; lowest note, $10; to be the fiscal agent of the State; the note issue not to exceed double the capital for the first five years; if it suspends, to forfeit its charter. February 15, 1841, an amendment was proposed to the stockholders to repeal the provision for branches and for the loan to be lent on mortgage.
Governor Boggs, in his message, November 17, 1840, boasted that the Bank of Missouri had resisted the second suspension in 1839, “and in so doing has not only gained honorable distinction, but has shown how easy it is for the banks of any State to resist these suspensions.” He complained, however, of chartered insurance companies in St. Louis, which, although not allowed to issue notes, circulated the notes of foreign banks. He also complained that, although there were heavy penalties for the circulation of notes under $5, “notes of lower denominations have been circulated freely ever since its passage, and has any one been prosecuted under that law? Not in a single instance that I have heard. The law is a dead letter on your statute book, and your courts either cannot or do not enforce it.”
In 1842, the Governor complained earnestly of the issue of small notes by cities, towns, and county courts; also of the issues made by unauthorized companies or companies chartered for other purposes; also of the great amount of depreciated paper from other States, especially from Illinois. After having, in 1839, with the approval of the Legislature, resolved not to do business with the paper of any suspended bank, the Bank of the State changed its policy, in the spring of 1841, and began to use such paper in its transactions.*
Resolutions were adopted by the Legislature in February, 1843, that the Bank of the State ought not to receive the notes of any suspended bank, and also ought so to manage its business as never to suspend.
An issue of State bonds to the amount of $175,000 was ordered, in 1842, in order to pay the debt of the State to the bank, and a committee was raised to investigate the bank. The circulation of notes under $5 was also prohibited after July 1, 1843, and after January 1, 1844, the circulation of those under $10; after July 1, 1843, no note of a suspended bank was to pass or be dealt in. Contracts in such notes were declared void. All banking privileges, except those of the bank of Missouri, were declared unconstitutional and void. All charters of companies which should violate this law were to be annulled. The Bank of Missouri might sell the depreciated paper held by it.
The Bank of the State had in its possession, in 1844, $2,230,000* of the bonds of the State given to it for its capital, which it had not negotiated on account of the depressed condition of the market for such securities. A legislative committee reported that if it should sell these bonds, as it might do, “it would prove most disastrous to the State and be of little or no benefit to the bank;” and that the bank had as much capital as it could use. It then held $225,020 in notes and drafts issued by the Bank of Illinois, of uncertain value, not exceeding 50 cents on $1. The dividends received by the State, and the bonus, when compared with the interest on the bonds of the State, issued for the stock in the bank, showed a deficiency of $32,855. The educational funds which had been invested in the bank stock had secured an uncertain and irregular income. “The history of the bank proves most conclusively that it never can be made a source of revenue to the State.” The bank was denounced as not having served the purposes of its creation, especially because it had used the notes of the suspended banks instead of driving them out.
By a joint resolution of January 30, 1845, the bank was ordered to deliver all unsold State bonds in its possession to the agent appointed to bring them to the Legislature.†
The Governor, in his message, November 18, 1844, was able to say: “The circulating medium of our State has been greatly improved, and indeed it is believed that at no previous time has our currency been in a sounder or better condition than at present. All the worthless and depreciated paper of other States has ceased to circulate among the people, and in its place may now be seen in circulation a fair proportion of silver and gold.”
In 1855, the Bank of the State was continued until 1861.
PERIOD V.—1843-5 TO 1863.
Under the Independent Treasury System, the Regulation of Banking and Currency is left entirely to the States. The Federal Government Handles only Coin. Banks Organized under General Joint Stock Laws gradually, and to a great extent supersede Chartered Banks. In the Ohio Valley and the Northwest, Banks of the new kind run to great extravagance and abuse. By the development of new Institutions of Finance, Commerce, Transportation, and General Industry, Banks lose Comparative Importance.
The Local Bank System. The Gold Discoveries and Consequent Expansion. The Commercial Crises of 1854 and 1857. The Aid Given by the Banks to the Federal Government at the Beginning of the Civil War.
[* ] Comptroller’s Report, 1840.
[* ] 57 Niles, 416.
[† ] 58 Niles, 100.
[‡ ] Raguet; Currency and Banking, 127.
[* ] 60 Niles, 392.
[† ] Bank Commissioners, January 26, 1842.
[‡ ] Gouge; Journal of Banking, 54.
[§ ] Gouge; Journal of Banking, 87.
[∥ ] Gouge; Journal of Banking, 184.
[¶ ] Elliot’s Funding, 1176.
[** ] Journal of Banking, 230. The figures for 1842 were estimated.
[* ] 58 Niles, 32.
[† ] Raguet, Currency and Banking, 307.
[‡ ] See page 355.
[§ ] Democratic Review, March, 1842, no doubt by Gouge.
[∥ ] Appleton, Currency (1841), 17.
[* ] Answer of the Bank of Kentucky to Interrogatories, 26 Cong., 2 Sess., 4 Ex., 111.
[† ] Writing in 1831 Gouge had said that a bank ticket or a money corporation ticket was rarely seen at an election. In 1841 he said that the banks took the field openly. (Journal of Banking, 149.)
[‡ ] Report of the Committee on Bribery and Corruption by the Banks in 1840.
[* ] 6 Wharton, 585: Dist. Ct. Phil.; affirmed, 2 Watts and Sergeant, 443. (1841.)
[* ] 58 Niles, 199; 229.
[† ] Treasury Report, March 3, 1841.
[‡ ] 3 Gallatin’s Writings, 405.
[§ ] 59 Niles, 257.
[∥ ] 59 Niles, 257.
[* ] 5 Proc. Mass Hist. Soc., 290.
[† ] 59 Niles, 405.
[* ] 60 Niles, 71.
[* ] Journal of Banking, 6.
[† ] 3 Gallatin’s Writings, 411. Bollmann proposed a scheme of currency, in 1816, like this relief system. See page 75.
[‡ ] 60 Niles, 192.
[* ] See page 309.
[† ] See page 302.
[* ] See page 206.
[* ] 2 Ashmead, 406.
[† ] Domett, Bank of New York, 87.
[‡ ] 59 Niles, 372; 60 ditto, 22.
[§ ] 60 Niles, 48.
[∥ ] Ibid, 96.
[¶ ] See Chapter 15, on the Liquidation.
[** ] Elliot’s Funding, 1176.
[†† ] 60 Niles, 187, 272.
[‡‡ ] Gouge; Journal of Banking, 26.
[* ] 13 Peters, 519.
[* ] See page 228. At this time $300 were taken from the pocket of Nicholas Biddle as he stood at the post-office window. One newspaper called it “a removal of the deposits,” and said that the robber was a “financier.” Another said that when he found his wallet was gone, he exclaimed, “I am robbed!” and “as cool and as calm as a summer’s morning went to the Bank and drew for $300 more.” The tradition is that Biddle was extremely careless in his personal expenditures, and kept no private cash account.
[† ] 6 Banker’s Magazine, 230.
[* ] Gouge, Journal of Banking, 197, 214.
[† ] Vaux, Recorder’s Decisions, 12.
[‡ ] 5 Harris, 400.
[* ] 9 Adams’s Diary, 546, May, 1838.
[† ] Ford’s Illinois, 299.
[‡ ] Commonwealth versus Farmers and Mechanics’ Bank, 21 Pickering, 542.
[§ ] Bank of Penn. versus Commonwealth, 19 Penn., 144.
[∥ ] 60 Niles, 201.
[¶ ] 61 Niles, 32, 70.
[** ] See page 215.
[†† ] 8 Robinson, Lousiana Reports, 287; where the text of the three assignments is given.
[* ] Gouge; Journal of Banking, 87, 180.
[† ] Ibid, 230.
[‡ ] Bicknell’s Reporter in 61 Niles, 176.
[§ ] Gouge; Journal of Banking, 168.
[* ] 1 Webster’s Works, 135.
[* ] Gouge, Journal of Banking, 211.
[† ] Gouge, Journal of Banking, 247.
[‡ ] Ibid, 248.
[* ] Gouge; Journal of Banking, 311.
[† ] Journal of Banking, 375.
[‡ ] Penn. Bureau of Statistics, 1873-4.
[§ ] Martin; Boston Stock Market, 15.
[* ] Journal of Banking, 276.
[† ] Lee, Letters to the Cotton Manufacturers, quoted in 2 Macgregor; Progress of America, 1117.
[‡ ] 3 Gallatin’s Writings, 384 (1841).
[§ ] Banking and Currency, 1838.
[* ] Treasury Report, August 10, 1846.
[* ] 63 Niles, 128.
[† ] 62 Niles, 208.
[* ] Treasury Report, Aug. 10, 1848.
[† ] Gouge, Journal of Banking, 312.
[‡ ] Quoted 63 Niles, 309.
[§ ] 64 Niles, 233.
[∥ ] 15 Bank. Mag., 663.
[¶ ] 8 Robinson, Louisiana Reports, 298.
[* ] President’s Report, 1843. See page 389.
[† ] 8 Robinson, Louisiana Reports, 287.
[‡ ] See page 339.
[§ ] Gouge; Journal of Banking, 359.
[∥ ] 8 Robinson, Louisiana Reports, 262.
[* ] See page 286.
[† ] United States vs. Bank of the United States. 8 Robinson’s Louisiana Reports, 262. Dana vs. the United States Bank, 5 Watts and Sargeant, 223, Shelby vs. Bacon, 51 United States, 56.
[‡ ] 6 Bank. Mag., 498, 502.
[§ ] 5 Harris, 400.
[∥ ] Answer of the Respondents in Batard vs. Bayard.
[¶ ] 10 Bank. Mag., 153.
[* ] Report of the Comptroller of the Currency, 1876, p. 129.
[† ] 10 Adams’s Diary, 361.
[‡ ] Ingersoll, Second War, 286.
[§ ] Treasury Report, March 3, 1841, and August 10, 1846.
[∥ ] Governor’s Message, 1842.
[¶ ] Gouge, Journal of Banking, 359.
[* ] See page 176.
[† ] Report of the Bank of the State for 1840.
[‡ ] Its Report of 1840.
[* ] Report of the Columbia Branch, 1844.
[* ] 2 McMullen, 439.
[† ] Report of the Central Bank, 1840.
[* ] Gouge; Journal of Banking, 22.
[* ] 18 Georgia, 73. See page 370.
[* ] 18 Georgia, 65.
[* ] See pages 248, 318.
[† ] Johnson’s Report on Assumption.
[* ] 6 Smedes and Marshall, 622.
[† ] 57 Niles 420.
[* ] 58 Niles, 115.
[† ] 58 Niles, 182.
[‡ ] 6 Howard, Miss., 626.
[§ ] 59 Niles, 219.
[∥ ] 9 Smedes and Marshall, 396. (1848).
[* ] 18 Banker’s Magazine, p. 95; where the resolutions are quoted in full. They are not to be found in the Session Laws; perhaps because McNutt did not sign them.
[* ] The bonds issued by Louisiana for the Citizens’ Bank bore on their face an alternative denomination, £100 or $444.44.
[† ] The cashier of the Union Bank published a letter, September 26, 1838, in which he stated that the bonds had been negotiated “for five millions in gold and silver.” (4 Banker’s Magazine, 339.) This was a prevarication of the kind which bank officers in those days uttered without compunction. The Supreme Court of Pennsylvania held that “par” of post-notes meant: with accrued interest. (10 Harris, 479.)
[‡ ] Democratic Review, April, 1842.
[§ ] 8 Banker’s Magazine, 493. The resolutions are not in the Session Laws, perhaps because McNutt did not sign them.
[* ] 25 Miss., 633.
[† ] The president of the Bank of Missouri, in a trip to the East in 1852, discovered in the Bank of America bonds of Missouri fully and duly executed, to the amount of $215,000, which had lain there since 1837, neither the State nor the bank having any record of them. (7 Banker’s Magazine, 334.) There was a discrepancy in the bond account of Indiana which could not be explained until a box of bonds “intended for cancellation” was found, in 1853, in the office of Winslow, Lanier & Co. It had been left there by a former State Treasurer and forgotten. (8 Banker’s Magazine, 436.) The agent of the State of Indiana issued, in 1862, $1.2 millions of State bonds fraudulently. A part of these were recovered, but about $0.5 million remained outstanding. “Previous to March 11, 1859, the State bonds were left in the agent’s hands, signed by the State officers, ready for issuing, and needing nothing but the agent’s signature to make them valid.” The law passed on that date was intended to put a stop to this loose mode of business, but no change in method had taken place in pursuance of it. Hence the opportunity remained for this fraud. (17 Bankers’ Magazine, p. 79.)
[* ] 6 Smedes and Marshall, 628.
[† ] See pages 60-1, 249.
[‡ ] 2 Banker’s Magazine, 568.
[* ] 24 Mississippi, 471. (1852.)
[† ] 13 Banker’s Magazine, 720.
[‡ ] 14 Banker’s Magazine, 509.
[§ ] 7 Banker’s Magazine, 499.
[∥ ] 25 Miss., 637.
[¶ ] Mississippi versus Johnson, 25 Miss., 625.
[* ] Governor’s Message, 1859.
[† ] 14 Banker’s Magazine, 861.
[‡ ] Compare pages 377 and 380.
[* ] Treasury Report, March 3, 1841, p. 644.
[† ] See page 312.
[‡ ] See page 361.
[§ ] 62 Niles, 256, 320.
[∥ ] Treasury Report, August 10, 1846, p. 833.
[* ] Johnson’s Report on Assumption.
[* ] 5 Louisiana, 44.
[† ] Gouge; Journal of Banking, 26.
[* ] 4 Pike, 304. (1842.)
[† ] 5 Pike, 595. (1843.)
[* ] Committee on Banks, 1846.
[† ] 10 Howard, 190, 218. (1850.)
[‡ ] 12 Arkansas, 321. (1851.)
[* ] 15 Howard, 304. (1853.)
[* ] 9 Banker’s Magazine, 488.
[† ] 20 Howard, 527, 530.
[* ] Governor’s Message, 1861.
[† ] Gouge, Journal of Banking, 374.
[* ] 1 Parson’s Equity, 181.
[* ] Gouge; Journal of Banking, 232.
[* ] The text says “March 4th next;” the act was signed March 7th.
[* ] The Governor quoted, without stating his authority, statistics of the losses to the whole country by the revulsion, 1837 to 1843, as follows: bank circulation and deposits, $54 millions; bank capital, $248 millions; company stock, $80 millions; depreciation of State stock, $100 millions; real estate, $300 millions.
[* ] 68 Niles, 272.
[† ] This company was founded in 1836. E. R. Biddle was president. He had no capital, but undertook iron smelting with anthracite coal, having borrowed from the Canal and Banking Company $180,000 on bonds payable in iron. These bonds were transferred to the State of Michigan with other securities to guarantee the unpaid part of the bonds of that State; which contract had been assumed by the United States Bank. (Gouge, Journal of Banking, 137.)
[* ] Gouge; Journal of Banking, 26.
[† ] 61 Niles, 108.
[‡ ] See page 365.
[* ] 65 Niles, 69.
[* ] Auditor’s Report, 1842.
[† ] Gouge, Journal of Banking, 40.
[* ] Ford, 223.
[* ] Ford, 399.
[* ] 17 Banker’s Magazine, p. 476.
[† ] 26 Wendell, 192.
[* ] Governor’s Message, 1842.
[* ] This is the figure given in the Treasury Report of August 10, 1846, but it must be in some way erroneous.
[† ] See page 384, note.