^■W: 
 
 n 
 
A 
 
 SHORT HISTORY 
 
 OP 
 
 PAPER MONEY AND BANKING 
 
 IN THE 
 
 UNITED STATES, 
 
 INCLUDING AN ACCOUNT OF 
 
 PROVINCIAL AAD CONTINENTAL PAPER MONEY. 
 
 TO WHICn IS PREFIXED 
 
 AN INQUIRY 
 
 INTO THE 
 
 PRINCIPLES OF THE SY8TE1M, 
 
 WITH 
 CONSIDERATIONS OF ITS EFFECTS 
 ON 
 
 MORALS AND HAPPINESS. 
 
 THE WHOLE INTENDED AS 
 
 A PLAIN EXPOSITION OF THE WAY IN WHICH PAPER MONEY 
 AND MONEY CORPORATIONS, AFFECT THE INTE- 
 RESTS OF DIFFERENT PORTIONS 
 OF THE COMMUNITY. 
 
 BY WILLIAM »I. GOUGE. 
 
 PRINTED BY T. W. USTICK. 
 
 AND FOR BALE, BY GRIGG & ELLIOTT, NO. 8 NORTH rOCRTH STREET, VRIAH HT'NT, 
 NO. 19 NORTH THIRD ST., HOGAN & THOMPSON, NO. 139$ MARKET ST. 
 
 1833! 
 

 utTttHAL 
 
 [Entered, according to the Act of Congress, in the year 1833, 
 by William M. Gouge, in the Clerk's Office of the District Court 
 of the Eastern District of Pennsylvania.] 
 
CONTENTS. 
 
 Preface, 
 
 Pages. 
 V 
 
 PART I. 
 
 An Inquiry into the Principles of the American Banking 
 System, with considerations of its Effects on Morals and 
 Happiness. 
 
 Importance of the Subject, - 
 Of Real Money, - - - - 
 Of Barter, Leger Entries, Bills of Ex- 
 change and Promissory Notes, 
 Of Banks of Discount, 
 Of Banks of Circulation, 
 General Effects of this System, - 
 Effects on Credit, ... 
 The same Subject continued, 
 Of Banks as Corporations, 
 Of the Popular Arguments in favor of 
 
 Banking, . . - - 
 Of Restrictions on Banking Corporations, 50 
 Of the Essential Qualities of Bank Notes, 53 
 Of the 'Convertibility' of Bank Medium, 58 
 
 Chapter I. 
 
 (( 
 
 II. 
 
 u 
 
 III. 
 
 (1 
 
 IV. 
 
 (( 
 
 V. 
 
 (1 
 
 VI. 
 
 (1 
 
 VII. 
 
 n 
 
 VIII. 
 
 ^i 
 
 IX. 
 
 n 
 
 X. 
 
 (( 
 
 XL 
 
 ti 
 
 XII. 
 
 a 
 
 XIII. 
 
 u 
 
 XiV. 
 
 (( 
 
 XV. 
 
 (( 
 
 XVI. 
 
 (( 
 
 XVII. 
 
 (1 
 
 XVIII. 
 
 - 1 
 
 .. 7 
 
 - 18 
 
 - 21 
 
 - 23 
 
 - 26 
 
 - 34 
 
 - 37 
 
 - 41 
 
 - 45 
 
 XIX. 
 XX. 
 
 XXL 
 
 XXI L 
 
 XXIIL 
 
 XXIV. 
 
 Of the ' Elasticity' of Bank Medium, - 
 Is Paper Money cheaper than Specie'? - 
 Of the Tax paid by the People to the 
 
 Banks, ------ 
 
 Of the Formation of Bank Capitals, 
 Of Speculations in Bank Stock, and 
 
 of other Stock Jobbing, - - - 
 Of the Ways and Means by which 
 
 Charters are Obtained and Renewed, 
 Summary View of the Advantages 
 
 which the System gives to some 
 
 Men over others, - - - 
 Of the Remote Consequences of the 
 
 System, - . - - 
 
 Effects on Moral Character, 
 Effects on Happiness, - - - 
 Of the Evils that would be Produced 
 
 by a Sudden Dissolution of the 
 
 System, . - - - 
 
 62 
 64 
 
 67 
 70 
 
 73 
 
 - 84 
 
 - 90 
 
 - 94 
 
 - 97 
 
 101 
 
 ^ «^- ^iC 
 
 n.. 
 
IV COXTEiVTS. 
 
 Pages. 
 
 Chapter XXV. Of the Proper Mode of Proceeding, -103 
 " -XXVI. Ofa New Coinage of Gold, - -106 
 " XXVIl. Of the Fiscal Concerns of the Union, -111 
 " XXVIII. Of Banking on Proper Principles, -117 
 " XXIX. Probable Consequences of the Con- 
 tinuance of the Present System, - 123 
 ' " ■ XXX. Probable Effects of the Establishment 
 of a System of Sound Currency 
 and Sound Credit, - - - 128 
 XXXI. Summary, -•.--- 135 
 
 PART II. 
 
 A Short History of Paper Money and Banking in the Uni- 
 ted States. 
 
 Of the Medium of Trade before the 
 
 Introduction of Paper Money, - - 3 
 Of Provincial Paper Money, - - 7 
 Of Continental Aloney, - - - 25 
 Of the Bank of North America, - - 31 
 Of the Old Bank of the United States, 38 
 Of Banking from 1790 to 1810-11, - 43 
 Of Banking from 1810-11 to 1814-15, 55 
 Of Banking from 1814-15 to 1815-16, 64 
 Of Banking from 1815-16 to 1816-17, 73 
 Of Banking from 1816-17 to 1817-18, 85 
 Of Banking from 1817-18 to 1818-19, 93 
 Of Banking from 1818-19 to 1819-20, 101 
 Of Banking from 1819-20 to 1820-21, 121 
 Of Banking in the Western States, - 127 
 Of Banking in the Southwestern States, 133 
 Of Banking in the Southern States, - 139 
 Of Banking in New England, * -151 
 General View of Banking Operations 
 
 from 1814 to 1820-21, - - - 165 
 Of Banking from 1820-21 to 182.5-26. 174 
 Of Banking from 1^^20-27 to 1828-29, 187 
 Additional Particulars in the History 
 
 of Banking from 1824 to 1829, - - 196 
 Of Banking from 1^^29-29 to 1832^3. 2(^2 
 E.\tent of Banking Operations at dif- 
 ferent periods, - - - - 210 
 XXIV. General Reflections, . - - - 227 
 Appendi.x.— Bank of North America, - 237 
 
 Chapter 
 
 I. 
 
 C( 
 
 II. 
 
 <( 
 
 III. 
 
 (( 
 
 IV. 
 
 (( 
 
 V. 
 
 (( 
 
 VI. 
 
 (( 
 
 VII. 
 
 (C 
 
 VIII. 
 
 It 
 
 IX. 
 
 (( 
 
 X. 
 
 (( 
 
 XI. 
 
 (( 
 
 XH. 
 
 (( 
 
 xni. 
 
 « 
 
 XIV. 
 
 i( 
 
 XV. 
 
 (( 
 
 XVI. 
 
 «( 
 
 xvn. 
 
 (( 
 
 xvm. 
 
 t( 
 
 xix. 
 
 n 
 
 XX. 
 
 n 
 
 XXI. 
 
 (( 
 
 XXH. 
 
 11 
 
 XXIII 
 
PREFACE. 
 
 A brief exposition of the principles of Banking, was 
 all that the writer originally intended to give. In the 
 first draft of the work, the historical sketch was part of a 
 chapter. It has been extended to its present length, from 
 a belief that a tolerably full account of incidents in the 
 History of American Banking would be acceptable to the 
 reader. 
 
 If additional illustrations of the nature of the system 
 were wanted, they might be derived from its history in 
 Great Britain. These, our limits will not permit us to 
 introduce. We have, however, room for a sketch of the 
 changes of opinion that have taken place in that country, 
 in regard to paper money. 
 
 Mr. Joplin, in his History of the Currency Question, 
 after collating different passages in the treatise on " The 
 Wealth of Nations," gives the following as a summary of 
 the views of Adam Smith. 
 
 " 1. That he would prefer the circulation between con- 
 sumers or what may be termed the consumptive circula- 
 tion, to be metallic : but that he thought it a greater ad- 
 vantage for the circulation between dealer and dealer, to 
 be paper ; admitting at the same time, 
 
 " 2. That if Bankers were subjected to the obligation of 
 an immediate and unconditional payment of their notes in 
 coin on demand, as soon as presented, their trade might, 
 with safety to the public, be rendered in all other respects 
 perfectly free. 
 
 " 3. That the amount of notes which the country re- 
 quired was an amount equal to the sum of metallic money 
 which would circulate if there were no paper. 
 
 " 4. That this amount could not be exceeded without 
 producing an immediate demand for gold to be sent abroad 
 previous to its passing into general circulation : by which, 
 of course, no derangement of prices, from excess of issues, 
 
 k 
 
Vi PREFACE 
 
 could at any time be produced : the evils of over-issues 
 being confined to the Banks upon which the demand for 
 gold would arise. 
 
 " 5. That besides this, if the Banks confined their loans 
 to real bills of exchange and real transactions, they would 
 not be liable to any excess of issues whatever." 
 
 " With these views of the working of our paper system, 
 nothing," says Mr. Joplin, " could be more reasonable 
 than his (Smith's) conclusions as to its value. It was evi- 
 dently one from which much good might be derived, and 
 no harm." 
 
 What Adam Smith had immediately in view, was the 
 Scotch system of Banking, which is carried on by imin- 
 corporatfd companies, each of the members of which is 
 responsible, in his whole personal and real estate, for the 
 whole amount of debts due by the company : and the 
 English country system, which is carried on by private co- 
 partnerships, the members of which enjoy no special pri- 
 vileges or exemptions. His views afford little or no sup- 
 port to the American Banking System. To a small note 
 circulation he was a decided enemy. His judgment 
 was, that country Banks should issue no notes of a less de- 
 nomination than five pounds sterling, or twenty-four dol- 
 lars Federal money : and that city Banks should issue no 
 notes of a less denomination than ten pounds sterling, or 
 forty-eight dollars Federal money. The whole tenor of 
 his book is in decided opposition to the practice of confer- 
 ring peculiar privileges or exemptions, on any men, or any 
 bodies of men, and is, consequently, in decided opposition 
 to a fundamental principle of the American Banking Sys- 
 tem. 
 
 The principles of Smith were generally received till the 
 year 171)7. The ]Jank of England then suspended specie 
 payments, and pcrnjission was given to it and to the coun- 
 try bankers, to issue notes of as low a denomination as one 
 pound. The country Banks were required to make payment 
 in notes of the Bank of England : while the Bank of Eng- 
 land itself was placed under no restraint whatever but the 
 discretion of its directors. 
 
 This state of things necessarily drew the attention of 
 political economists to the subject; and, as Bank of Eng- 
 land paper did not, for some years, undergo any sensible 
 
PREFACE. Vli 
 
 depreciation, guineas began to be regarded as an unneces- 
 sary incumbrance. So strong a hold did this notion take 
 in the minds of men, that when Bank notes passed in the 
 market at a considerable discount, many writers affirmed 
 that paper had not fallen, but that gold had risen in 
 value. 
 
 Mr. Boyd, Lord King, and other Economists, showed the 
 incorrectness of this opinion, and Mr. Ricardo placed its 
 erroneousness in a strong point of view, in a pamphlet pub- 
 lished in the latter part of the year 1809, entitled, " The 
 high price of Bullion, a proof of the depreciation of Bank 
 notes." This work, Mr. Joplin avers " was the immediate 
 cause, and formed the ground-work of the Report of the 
 Bullion Committee." 
 
 " The principles of this Committee, supported by a host 
 of writers, became now," says the historian, " the received 
 opinions upon the subject, and they were as follows : 
 
 " They entirely agreed with Smith in the general prin- 
 ciple, that if Banks were obliged to pay their notes in spe- 
 cie on demand, the trade might, in all other respects, be 
 left perfectly free. They agreed with him, that the sum 
 of paper in circulation ought not to exceed the sum of me- 
 tallic money that would be in circulation if there were no 
 paper : and they further agreed with him, that, if this 
 amount of paper was not exceeded, no great demand for 
 gold for exportation would ever arise : and that, if it 
 were exceeded, a demand would arise for exportation, ade- 
 quate to the excess. But in every other respect they dif- 
 fered from him, and laid down principles equally new and 
 important. 
 
 " In the first place, they repudiated the principle that 
 Banks could not issue to excess if they confined themselves 
 to advancing money on real bills of exchange. This prin- 
 ciple they proved totally incorrect. 
 
 " In the next, they denied that an excess of issues would 
 be discovered by the merchant previously to the money's 
 entering into consumptive circulation, and be returned upon 
 the Barnes for gold : though they admitted that an excess 
 of issues would produce a demand upon the Banks for 
 gold for exportation. But this, they proved, would take 
 place after the paper had been introduced into circulation, 
 and had depreciated the value both of itself and of the gold 
 
VIU PREFACE. 
 
 in which it was payable ; that gold, by this operation, be- 
 coming less valuable in England than in other countries, 
 would be exported to other countries ; that the excess of 
 paper would be returned upon the Banks in demand for it, 
 to be sent abroad until the excess was withdrawn ; and 
 that the value of both paper and gold would then rise to 
 its previous level, and the exportation of gold cease. This 
 doctrine negatived the idea of Smith, that an excess of is- 
 sues did not find its way into consumptive circulation. It 
 was contended, on the contrary, that prices must be raised 
 above their proper level, before the exportation of gold 
 could be brought about. 
 
 " Thus, two important principles of Smith's which would 
 be very much calculated to affect his views as to the value 
 of a paper currency, were set aside : first, that the Banks 
 had an easy rule by which to guard against excess; 
 and next, that if they did issue to excess, no derangement 
 of prices would be produced by it; that the injury would 
 be felt by themselves, and not by the public. 
 
 "To this derangement of prices, however, which ac- 
 cording to their views must precede an importation of 
 gold, the Committee did not appear to attach much import- 
 ance. 
 
 "In the third place, they contended, that the issues of the 
 Bank of England regulated those of the country Banks. This 
 theory was new, though appearing to be suggested and 
 borne out by experience." 
 
 When Mr. Joplin says that the principles of the Bul- 
 lion Committee became the received opinions, we are to 
 understand thereby that they became the opinions of a 
 large part of the British nation. The Anli-Bullionists were 
 so closely wedded to their favorite theory, that neither facts 
 nor reasonings could separate them from it. Such was 
 their inlluence, and such was the force of circumstances, 
 that, though it had been determined that specie payments 
 should be resumed one year after the close of the war, the 
 Government delayed, for four or five years, to take the ne- 
 cessary measures for effecting this object. • 
 
 In May 1821, ;}ie Bank of England regularly resumed 
 the payment of gold on demand. 
 
 In the twenty-four years in which inconvertible paper 
 was the circulating medium, many hundred millions had 
 
PREFACE. IX 
 
 been added to the national debt, and the amount of private 
 debts had been swelled immensely. The paying in specie 
 of the interest of a national debt contracted in paper, and 
 the discharging of private contracts in a currency of en- 
 hanced value, necessarily produced much embarrassment. 
 No sooner, however, had the difficulties attendant on the 
 resumption of specie payments been surmounted, than the 
 Bank of England began to extend its issues. In 1824, it 
 reduced the rate of discount from 5 to 4 per cent., and as 
 the country Banks at the same time increased their circu- 
 lation, such an appearance of prosperity was produced, as 
 was unexampled in the annals of the kingdom. 
 
 This lasted till September 1825. Then, difficulties be- 
 gan, and in December there was a convulsion which threat- 
 ened all interests with destruction. 
 
 " Such a panic," says Mr. Joplin, "occurring in a pe- 
 riod of profound peace, after a good harvest, and traceable 
 to no other cause but defects in our system of Banking 
 and Currency, rendered it, of course, incumbent on the 
 ministers to bring forward measures to remedy, if possible, 
 the evils which had been produced, and also to prevent 
 the recurrence of such diasters in future." 
 
 One of the principal measures they recommended was, 
 the abolition of one and two pound notes; and, on this 
 occasion, they, according to the British author just quoted, 
 " adopted a mode of speaking of our currency different to 
 any that had hitherto been adopted. When the withdrawal 
 of the small notes was enacted in 1819, all the arguments 
 were in favor of paper payable in gold. The Bullion Com- 
 mittee, whose views had been implicitly adopted, observed, 
 that they fully agreed with Dr. Adam Smith, and all the 
 most able writers and statesmen of this country, in consi- 
 dering a paper circulation constantly convertible into spe- 
 cie as one of the greatest practical improvements which 
 can be made in the political and domestic economy of any 
 State, and that such convertibility was a complete check 
 against over issue. 
 
 " Nor had this doctrine ever been impugned by those 
 who differed from the Bullion Committee in other respects. 
 They, on the contrary, always contended, that paying in 
 cash would not merely prevent over-issues, but would pre- 
 vent enough being issued. It was too great a check upon 
 
X PREFACE. 
 
 issues. But in explaining the principles thus laid down in 
 the letter to the Bank, the Ministers, now, for the first time, 
 gave up this doctrine." 
 
 Mr. Charles Grant stated, that " the great problem with 
 respect to currency, is to discover that check whereby the 
 evil we wish to avoid may be arrested before it takes place. 
 The principle should be preventive rather than corrective. 
 His honorable friend opposite (Mr. Smith) seemed to think, 
 that the convertibility of paper into gold would operate as 
 a sufficient check to arrest its progress ; and in this opinion 
 he was certainly supported by high authorities, amongst 
 whom were some of the wisest men that composed the Bul- 
 lion Committee. They all agreed upon the necessity of 
 the convertibility of paper into gold, in order to establish 
 a sound currency. The science of currency (for it deserved 
 the name of a science) was every day acquiring additional 
 light ; in fact, it was now in a state of experiment. It ap- 
 peared to him that those who supported the Bullion Report 
 were led to rely too exclusively on this check, not merely 
 to correct the evil when it does take place, but to operate 
 as a preventive, by which to guard against the extension of 
 it beyond a certain point. There was no doubt of the 
 check ; but it may be so tardy in its progress as to produce 
 the evil itself: because, it is a check that operates not by 
 necessity, but by the discretion and judgment of those by 
 whom the paper is circulated. 
 
 " It was clear from what had occurred, that the check 
 provided by the convertibility of notes into gold, operated 
 so tardily, as to be inadequate to avert the evil, and it ought 
 to be the leading principle in every sound currency, to pro- 
 vide the means of arresting the evil before it arrives at its 
 height." 
 
 fi^^Lord Liverpool took a similar view of the subject, and 
 the Chancellor of the Exchequer, for the first time, im- 
 pugned the doctrine of the regulating power of the Bank 
 of England. He observed, " that by an investigation into 
 the different issues of diiVcrcnt years, it would be found, 
 that the issues of the IJank of England had no relative con- 
 nection with the issues of the country Banks, it happening 
 in several instances, that, when the Bank of England is- 
 sues had increased, tlic country note issues had diminished, 
 and vice versa." 
 
PREFACE. XI 
 
 This was also maintained by Lord Liverpool, who joined 
 with the Chancellor of the Exchequer and with Mr.Huskis- 
 son, in descanting on the merits of a metallic medium. 
 The latter observed, that, " It was the natural course, that, 
 in such a fluctuating state of our currency, all classes of 
 society must, in their turn, be afflicted by it, and, there- 
 fore, the sooner we get rid of that fluctuation, and return- 
 ed to a sound, and healthy, and permanent, circulating me- 
 dium, the better for the community at large. If they wish- 
 ed to prove the value of a steady and unchangeable cur- 
 rency, they had it in the history of France ; that country 
 had been twice invaded by a foreign army, her capital had 
 been twice taken possession of, and she was obliged to pay 
 large sums to foreign countries; but they had a steady me- 
 tallic currency, and however such visitations might have 
 affected the great — however the extensive contractor might 
 have been injured or ruined, the body of the population re- 
 mained unoppressed. The storm might have crushed the 
 forest tree, but it passed over without injuring the humble 
 reed. This was to be attributed to the permanent footing 
 upon which the currency of tljat country had been esta- 
 blished." 
 
 In conformity with these views, an act was passed to pro- 
 hibit, after the day of 1829, the issue of all notes 
 
 of a less denomination than five pounds sterling. In 1828, 
 a vigorous effort was made to repeal the law, but it was 
 steadfastly and successfully resisted. 
 
 In a debate on the subject on the 3d of July, 1828, the 
 Duke of Wellington said, " The measure of 1826 was not 
 founded on any tlieory, but on experience which the few 
 last years had confirmed. That experience had proved the 
 fallacy of a theory which stated that a paper currency was 
 perfectly safe as long as it was convertible into gold and 
 silver. Experience during the three last years had proved 
 this theory not to be true. It had likewise proved another 
 theory not true — the theory that one pound notes and so- 
 vereigns could circulate together." 
 
 In the same debate Lord King remarked, that " those 
 persons who considered paper money as an excellent thing 
 to be established in a country, he was disposed to view 
 as heretics. He had no hesitation in saying that the su- 
 perstition attached to paper money was idolatrous in the 
 
XU PREFACE. 
 
 highest degree. He looked upon it as the most dangerous 
 heresy of all heresies." 
 
 The opinions of such men as Mr. Huskisson, Mr. Grant, 
 Lord King, Lord Liverpool, and the Duke of Wellington, 
 are, on such a subject as this, entitled to the respectful at- 
 tention of every candid American. In their country, paper 
 money Banking has been known longer than in ours. 
 Every thing that can be said in favor of convertible paper, 
 has been said in the various publications that have issued 
 from the British press. These statesmen were familiar 
 with all the arguments usually adduced in support of the 
 system. They had ample opportunities of observing its 
 practical effects. 
 
 If, however, we are disposed to disregard the result of 
 their experience, let us examine the system for ourselves. 
 
 If paper money Banking requires only new restrictions 
 to prevent its producing evil, the nature and number of 
 those restrictions cannot be known, till we know all the 
 evils it has produced. 
 
 If, as some seem to think, the system is to be perpetual, 
 the effect it has on society, is a rational subject of inquiry. 
 Such an inquiry, if faithfully made, will prevent us from as- 
 cribing to other causes such evils as have their origin in 
 Banking, and thereby prevent us from increasing those evils 
 by applying improper remedies. 
 
 ■I 
 
 . 
 
\. 
 
 AN INQUIRY 
 
 INTO THE PRINCIPLES 
 
 OF THE 
 
 AMERICAN BANKING SYSTEM. 
 
 CHAPTER I. 
 
 Importance of the Subject. 
 
 In an address to the stockholders of the United States 
 Bank, at their meeting in 1S28, Mr. N. Biddle, the Presi- 
 dent of that institution, stated, that, of five hundred and 
 forty-four Banks in the United States, one hundred and 
 forty-four had been openly declared bankrupt, and about 
 fifty more had suspended business. 
 
 Mr. Gallatin, in his "Considerations on the Currency 
 and Banking System," published in 1831, gives a list of 
 329 State Banks then in operation, having nominal capitals 
 of the amount of $108,301,898, which, added to the capi- 
 tal of the United States Bank, made the whole nominal 
 capital of these institutions, upwards of one hundred and 
 forty-three millions of dollars. 
 
 These Banks issue notes which serve as substitutes for 
 coin. 
 
 They grant credits on their books, and transfer the amount 
 of credit from one merchant to another. 
 
 They receive money on deposit. 
 
 They buy and sell bills of exchange. 
 
 They discount mercantile notes. 
 
 They buy and sell public stocks. 
 
 All these are important functions, and if only one of 
 them be ill performed, the community must suffer incon- 
 venience. 
 
 2 
 
2 IMPORTANCE OP THE SUBJECT. 
 
 The Banks are scattered through nearly all the States 
 and Territories which compose our Union ; but tliey may 
 all be embraced in one view, inasmuch as they all substi- 
 tute paper for specie, and credit for cash, and are all 
 endowed with privileges which individuals do not possess. 
 
 By their various operations, immediate and remote, they 
 must affect, for good or for evil, every individual in the 
 country. Banking is not a local, temporary, or occasional 
 cause. It is general and permanent. Like the atmosphere, 
 it presses every where. Its effects are felt alike in the 
 palace and the hovel. 
 
 To the customs of trade which Banking introduces, all 
 are obliged to conform. A man may, indeed, neither bor- 
 row money from the Banks, nor deposit money in their 
 vaults : but if he buys or sells it is with the medium which 
 they furnish, and in all bis contracts he must have refer- 
 ence to the standard of value which they establish. There 
 is no legal disability to carrying on commerce in the old- 
 fashioned safe way : but the customs of Banking have in- 
 troduced a practical disability. It is no longer possible 
 for the merchant to buy and sell for ready money only, or 
 for real money. He must give and take credit, and give 
 and take paper money, or give up business. 
 
 Bank paper is not a legal tender in the discharge of pri- 
 vate debts : but it has become, in point of fact, the only 
 actual tender, and the sudden refusal of creditors to receive 
 it would put it out of the power of debtors to comply with 
 their engagements. 
 
 Credit, the great rival of cash, is completely controlled 
 by the Banks, and distributed by them as suits their dis- 
 cretion. 
 
 These institutions may contribute little to the production 
 of wealth ; but they furnish the means to many for the ac- 
 quisition of wealth ; they appear to be the chief regulating 
 cause of the present distribution of wealth, and as such 
 are entitled to particular attention. 
 
 " In cn|)ying England " says Mr. .Teffcrson "we do not 
 seem to consider that like premises induce like conse- 
 quences. The Bank mania is one of the most threaten- 
 ing of these imitations : it is raising up a monied aristo- 
 cracy in our country which has already set the Government 
 at defiance, and although forced to yield a little on the first 
 
IMPORTANCE OF THE SUBJECT. 3 
 
 essay of their strength, their principles are unyielded and 
 unyielding. They have taken deep root in the hearts of 
 that class from which our legislators are drawn, and the 
 sop to Cerberus, from fable has become history. Their 
 principles take hold of the good, their pelf of the bad, and 
 thus, those whom the Constitution has placed as guards to 
 its portals, are sophisticated or suborned from their duties. 
 That paper money has some advantages must be admitted : 
 but its abuses are also inveterate ; and that it, by breaking 
 up tlie measure of value, makes a lottery of all private 
 property, cannoU be denied. Shall we ever be able to put 
 a constitutional veto upon it V 
 
 " In most disquisitions upon the noxious tendency of 
 Banks," says another writer* " much stress has been laid 
 upon the injuries they have a power to inflict, by excessive 
 loans and consequent bankruptcy, and by creating and 
 circulating a permanent excess of currency. Could these 
 two evils be avoided, many believe that Banks would be 
 innoxious. I regret to differ. I am not of those who 
 imagine that Banks incorporated with a liberal capital, will 
 ever endanger their solvency by extending their loans; nor 
 of those who believe that Banks controlled by specie pay- 
 ment, can circulate a pennanent excess of paper. And 
 yet, I think I can perceive a portentous power that they 
 exercise over commercial enterprize. I am of opinion 
 that they can circulate a temporary excess of paper, which, 
 from time to time, finds a corrective, in a run upon the 
 Banks for specie ; that this temporary excess is succeeded 
 by a temporary deficiency, one extreme invariably tending 
 to another ; that the consequences of this alternate excess 
 and deficiency are, in the former case to impart an undue 
 excitement, and in the latter an undue depression to com- 
 mercial enterprize ; that the effect of the former is to cre- 
 ate an unnatural facility in procuring money, and to en- 
 hance unnaturally the price of commodities ; while that of 
 the latter is to produce an artificial scarcity, and to cheap- 
 en prices artificially ; that the victims of these vibrations 
 are the great body of merchants, whose capital and ave- 
 rage deposits cannot always command discounts ; that the 
 gainers are a few intelligent and shrewd capitalists, the 
 
 * Letter to Mr. Gallatiu, by Publicola, New York. 1815, 
 
4 IMPORTANCE OF THE SUBJECT. 
 
 magnitude of whose deposits commands enormous dis- 
 counts at all times, and who, being behind the curtain, 
 know when to buy and when to sell. I am of opinion that 
 these vibrations inflict evils which close not with mercan- 
 tile speculation ; that they tend to unhinge and disorder 
 the regular routine of commerce, and introduce at one mo- 
 ment a spirit of wild and daring speculation, and at another, 
 a prostration of confidence, and stagnation of business : 
 that these feelings are transferred from the counting-house 
 to the fire-side ; that the visionary profits of one day stimu- 
 late extravagance, and the positive losses of another en- 
 gender spleen, irritation, restlessness, a spirit of gambling 
 and domestic inquietude. 
 
 " I appeal to the commercial history of our country, du- 
 ring the last seven years, and to the aching hearts of many 
 of my fellow-citizens, for the truth of these reflections. 
 
 " I wish not to be misunderstood. Let no one suppose 
 me so weak as to attribute every unfortunate speculation, 
 and every fluctuation in prices, to an undue management 
 or organization of our Banking Institutions. That would 
 be a folly, from the imputation of which I trust the pre- 
 ceding remarks will rescue me. There are commercial 
 fluctuations, and they are wholesome. They invigorate 
 enterprize, and their benefits are directly felt by all. There 
 are Banking fluctuations, and they are highly deleterious. 
 They intoxicate enterprize, only to enfeeble it ; and the 
 benefits are restricted to a few. 
 
 " This evil of Banking fluctuation, ends not with the 
 mercantile community. It extends to every thing that 
 commercial enterprize reaches.^ It injures the farmer and 
 the meclianic, in the precise ratio of the vacillations of 
 public feeling. 
 
 " The injuries which it has inflicted have been as uni- 
 versal as the insinuation of bank paper ; and the peculiar 
 manner of its operation renders it doubly distressing. It 
 does not aficct the wealthy man, because he can always 
 control discounts; but it falls with single and dreadful se- 
 verity upon the industrious poor man, who.se capital is not 
 sufficient to command permanent accommodations; upon the 
 inexperienced, who purchase knowledge by a sacrifice of 
 property, and upon the merchant whose skill and sagacity 
 are superior to his wealth. ****** 
 
IMPORTAXCE OF THE SUBJECT. D 
 
 Against a power so tremendous, what barrier has been 
 erected ? Against a power which, at different periods, has 
 baffled the legislative wisdom of our revolutionary sages, 
 of the Governments of Europe, and of Great Britain ; what 
 check have we imposed? The interest account of 
 EACH Bank. As well might Canute have controlled the 
 waves of the ocean with a breath." 
 
 " Of all aristocracies," said a Committee of the New 
 York Legislature, in 1818, " none more completely enslave 
 a people than that of money ; and in the opinion of your 
 committee, no system was ever better devised so perfectly 
 to enslave a community, as that of the present mode of con- 
 ducting Banking establishments. Like the Syren of the 
 fable, they entice to destroy. They hold the purse strings 
 of society ; and by monopolizing the whole of the circula- 
 ting medium of the country, they form a precarious stand- 
 ard, by which all property in the country, houses, lands, 
 debts and credits, personal and real estate of all descrip- 
 tions, are valued ; thus rendering the whole community de- 
 pendent on them ; proscribing every man who dares to ex- 
 pose their unlawful practices : if he happens to be out of 
 their reach, so as to require no favors from them, his friends 
 are made the victims. So no one dares complain. 
 
 " The committee, on taking a general view of our State, 
 and comparing those parts where Banks have been for some 
 time established, with those that have had none, are asto- 
 nished at the alarming disparity. They see. in the one case, 
 the desolations they have made in societies that were be- 
 fore prosperous and happy ; the ruin they have brought on 
 an immense number of the most wealthy farmers, and 
 they and their fomilies suddenly hurled from wealth and 
 independence into the abyss of ruin and despair. 
 
 " If the facts stated in the foregoing be true, and your 
 committee have no doubt they are, together with others 
 equally reprehensible and to be dreaded, such as that their 
 influence too frequently, nay, often already begins to as- 
 sume a species of dictation altogether alarming, and unless 
 some judicious remedy is provided by legislative wisdom, 
 we shall soon witness attempts to control all selections to 
 offices in our counties, nay the elections to the very Le- 
 gislature. Senators and members of Assembly will be in- 
 debted to the Banks for their seats in this Capitol, and thus 
 2* 
 
6 IMPORTANCE OF THE SUBJECT. 
 
 the wise end of our civil institutions will be prostrated in 
 the dust of corporations of their own raising." 
 
 Not a few of those who have a personal interest in the 
 continuance of the system, acknowledge and deplore the 
 evils it produces. Indeed we have found no men more 
 sensible of those evils, than some of the officers of Banks. 
 They retain their offices on the same principle that they 
 would, if they lived in England, retain offices under a 
 Government they could not approve. To the established 
 system of a country, whether political or commercial, men 
 may deem it expedient, perhaps believe it necessary, to con- 
 form ; but this need not prevent their discovering the ne- 
 cessity for reformation. 
 
 One of these gentlemen, Mr. John "White, the Cashier 
 of the United States Branch Bank at Baltimore, makes the 
 following candid and correct statement, in a letter to the 
 late Secretary of the Treasury, under date of February loth, 
 1830 : 
 
 " Looking back to the peace, a short period, fresh in the 
 memory of every man, the wretched state of the currency 
 for the two' succeeding years, cannot be overlooked; the 
 disasters of 1819, wliich seriously affected the circum- 
 stances, property, and industry of every district in the Uni- 
 ted States, will long be recollected. A sudden and press- 
 ing scarcity of money prevailed in the Spring of 1822 ; nu- 
 merous and very extensive failures took place at New York, 
 Savannah, Charleston, and New Orleans, in 1825; there 
 was a great convulsion among Banks and other raonied in- 
 stitutions in the State of New York in 1826 ; the scarcity 
 of money among traders in that State, and eastward, in the 
 Winter of 1827 and 1828, was distressing and alarming; 
 failures of Banks in Rhode Island and North Carolina, and 
 amongst the manufacturers of New England and this State, 
 characterize the last year; and intelligence is just received 
 of the refusal of some of the principal Banks of Georgia 
 to redeem their notes with specie — a lamentable and rapid 
 succession of evil and untoward events, prejudicial to the 
 progress of productive industry, and causing a baleful ex- 
 tension of embarrassment, insolvency, litigation, and dis- 
 honesty, alike subversive of social happiness and morals. 
 Every intelligent mind must express regret and astonish- 
 ment, at the recurrence of these disasters in tranquil times. 
 
OF REAL MONEY. 7 
 
 and bountiful seasons, amongst an enlightened, industri- 
 ous, and enterprizing people, comparatively free from tax- 
 ation, unrestrained in our pursuits, possessing abundance 
 of fertile lands, and valuable minerals, with capital and 
 capacity to improve, and an ardent disposition to avail our- 
 selves of these great bounties. 
 
 " Calamities of an injurious and demoralizing nature, 
 occurring with singular frequency, amidst a profusion of 
 the elements of wealth, are well calculated to inspire and 
 enforce the conviction that there is something radically er- 
 roneous in our monetary system, were it not that the judg- 
 ment hesitates to yield assent, when grave, enlightened, 
 and patriotic Senators, have deliberately announced to the 
 public, in a recent report, that our system of money is in 
 the main excellent, and that in most of its great principles, 
 no innovation can be made with advantage." 
 
 The " grave, enlightened, and patriotic Senators," to 
 whom Mr. White alludes, are those who, with Mr. Smith, 
 of Maryland, at their head, made a report, in the year 
 1830, in which they represented certain kinds of Bank 
 paper as being as good as gold, and even better. If their 
 opinion is correct, it ought to be confirmed. If it is not 
 correct, its erroneousness ought to be exposed ; for error 
 in such a subject as this, may be productive of incalculable 
 mischief. 
 
 CHAPTER 11. 
 
 Of Real Money. 
 
 Paper money is the foundation of the American Bank- 
 ing System. I3ut, as, without a knowledge of what is genu- 
 ine, it is impossible to have a clear conception of what is 
 spurious, it will be necessary to give a statement of the 
 qualities and functions of real money. 
 
 Money is not, as was asserted by a late Secretary of the 
 Treasury, (Mr; I.) "merely the representative of property." 
 Money of gold and silver is property — is wealth. A hun- 
 dred dollars in silver can no more be considered as the 
 lepresentative of a hundred dollars' worth of flour, than a 
 
8 OF REAL MONEY. 
 
 hundred dollars' worth of flour can be considered as the 
 representative of a hundred dollars' worth of iron. Each 
 is the equivalent of the other ; but each is real wealth — 
 not a mere symbol or representative. , 
 
 But money is not, as is supposed by some others, su- 
 perior in its nature to all other kinds of wealth. The pre- 
 cious metals do not differ essentially from other items of 
 wealth. This is distinctly seen when they are in the form 
 of bullion. Converting them into coin, does not change 
 their nature. It only adapts them to a particular use — fits 
 them for passing from hand to hand, without the trouble of 
 weighing and assaying each piece at each transfer. An in- 
 crease of the stock of gold and silver in our country, is 
 very desirable ; but it is for precisely the same reasons that 
 an increase of other kinds of wealth is desirable.^ 
 
 Some fancy that it is the authority of Goveniment that 
 gives money its value. But the true value of money, as 
 measured by the amount of goods for which it will honestly 
 exchange, cannot be affected by edicts of Princes or acts 
 of Parliament. Monarchs and Ministers may alter the 
 weight of coins, or lessen their purity ; but they cannot 
 make a coin containing an half of an ounce of pure silver, 
 worth as much as a coin containing an ounce. The stamp 
 of the State is a mere certificate of the weight and fine- 
 ness of the piece. 
 
 Others suppose that the precious metals owe their value 
 entirely to their scarcity. But if gold and silver were not 
 useful in the arts, they would have no value in commerce. 
 Their utility is so great, that even if they were not the ma- 
 terial of money, ihcy would exchange for great quantities 
 of corn and other commodites. If they were as plentiful 
 as copper and tin, they would be more valuable than these 
 base metals ; because they are applicable to more various 
 uses. The market value of the precious metals is, as that 
 of all other tlnngs, in the rompound ratio of their utility 
 and of their scarcity. It does not depend on their 
 scarcity alone. 
 
 Money is, simply, that valuable by reference to which the 
 value of other things is estimated, and by the instrumenta- 
 lity of which (lie interchange of other things is effected. 
 There is nothing mystical in its nature; norisit likely that its 
 character would ever have been misunderstood in the United 
 
OF REAL MONEY. 9 
 
 States, if the avoirdupois ounce of silver had been made the 
 unit of reference, and if coins had been struckof the weight 
 of an ounce, and of aliquot parts of the ounce. Men would 
 then have had as clear conceptions of the nature of the 
 transactions into which money enters, as they now have of 
 those in which iron is exchanged for wheat. They would 
 then have seen that there is no essential difference in these 
 transactions — that trade by barter, is exchanging wheat 
 for one metal, and that trade with money, is only exchang- 
 ing wheat for another metal. It has been by taking for the 
 unit of reference a fractional part of the Troy ounce, which 
 is a weight with which the people are not familiar, and by 
 giving to this unit the arbitrary name of "a dollar," that 
 the subject has been rendered obscure to many minds. 
 
 As whatever is extended may be made the standard of 
 length, in like manner, whatever is valuable may be made 
 the standard of value. Instead ofsaymg, this tract of land, 
 or this bale of cloth, is worth so many ounces, or so many 
 pieces of silver, men might say, it is worth so many horses 
 or cows, or so many pounds of lead or of iron. The pi'iii- 
 ciple of valuation would be identical with that which is 
 adhered to in countries where only solid money is used. 
 But he who had a small article to sell, would find it diffi- 
 cult to calculate its exact value in the fractional parts of 
 a horse or a cow, and pounds of lead or of iron w'ould 
 be a very inconvenient circulating medium. 
 
 Corn, cattle, iron, leather, cacoa, tobacco, and other 
 commodities, have all, in point of fact, been used as money, 
 in different ages and different countries; but they have 
 long ceased to be so used, by commercial nations, for rea- 
 sons similar to those which have induced men to choose 
 for their standard of length, some object less liable to vari- 
 ation than the foot of a Chancellor, or the fore arm ofa 
 King. 
 
 "'The high estimation in which the precious metals have 
 -.been held, in nearly all ages and all regions, is evidence that 
 they must possess something more than merely ideal value. 
 It is not from the mere vagaries of fancy, that they are 
 equally prized by the Laplander and the Siamese. It was 
 not from compliance with any preconceived theories of 
 philosophers or statesmen, that they were, for many thou- 
 sand years, in all commercial countries, the exclusive cir- 
 
10 OF REAL MONEY. 
 
 dilating medium. Men chose gold and silver for the ma- 
 terial for money, for reasons similar to those which induced 
 them to choose wool, flax, silk, and cotton, for materials for 
 clothing, and stone, hrick, and timber, for materials for 
 building. They found the precious metals had those spe- 
 cific qualities, which fitted them to be standards and mea- 
 sures of value, and to serve, when in the shape of coin, the 
 purposes of a circulating medium. To this use they are 
 admirably adapted : 
 
 1. Because they are divisible into extremely minute 
 portions, and capable of re-union without any sensible loss 
 of weight or value ; so that the quantity may be easily 
 apportioned to the value of the articles of purchase.* 
 
 2. They have a sameness of quality all over the world. 
 The difference between iron from different parts of our 
 own country and of Europe, is well known to all dealers 
 in that article. The copper of Siberia is superior to that 
 of Germany, while that of Sweden is better than that of 
 Siberia, and that of Sweden is surpassed by that of Japan. 
 But, one grain of pure gold is exactly similar to another, 
 whether it comes from the mines of Europe or of America, 
 or from the sands of Africa. Time, weather, and damp, 
 have no power to alter the quality : the relative weight of 
 any specific portion, therefore, determines its relative quan- 
 tity and value to every other portion ; two grains of gold 
 are worth exactly twice as much as one, 
 
 3. Gold and silver, especially with the mixture of alloy 
 that they admit of, are hard enough to resist very consider- 
 able friction, and are therefore fitted for rapid circulation. 
 
 4. Their rarity and consequent dearncss arc not so great, 
 that the quantity of gold or of silver, equivalent to the 
 generality of goods, is too minute for ordinary perception : 
 nor, on the other hand, are they so abundant and cheap, 
 as to make a large value amount to a great weight. 
 
 5. They are capable of receiving a stump or impression, 
 certifying the weight of the piece, and tlie degree of its 
 purity. 
 
 C. They arc liable to less variation than any other arti- 
 cle, from changes in the relations of supply and demand, 
 including the cost of production among the conditions of 
 supply. 
 
 "See Say, Book, Chap, xxi, Section 2. 
 
OF REAL MONEY. 11 
 
 By the discovery of America, the supply from the mines 
 was increased tenfold, but as there was at the same time 
 an increase of demand, owing to the increase of other 
 kinds of wealth, the rise of prices from 1520 to 1620, was 
 only fourfold. An opinion prevailed about fifty years ago, 
 that the value of silver had been gradually declining from 
 the year 1G20, but Adam Smith, who inquired carefully 
 into the facts, came to the conclusion that the opinion was 
 unfounded, and Jean Baptist Say, the celebrated French 
 economist, is of the belief that there has been hardly any 
 variation in the value of silver in the last two centuries. 
 
 During the eight years preceding 1819, the supply from 
 the mines is supposed to have fallen short one-half, owing 
 to the troubles in South America. Such a diminution in 
 the supply of any other article, would have made a great 
 alteration in its value ; but the annual product of the mines 
 is so small in proportion to the whole quantity of the pre- 
 cious metals in the market of the world, that it requires 
 very nice calculations to show that their value has been 
 affected by this falling short of the supply. 
 
 According to the estimate of Mr. Gallatin, the stock of 
 the precious metals on hand is between four and five thou- 
 sand millions. From 1803 to 1809, when the mines are 
 believed to have been most productive, the annual supply 
 was fifty millions. In the last twenty years, it is said to 
 have been but twenty-seven millions. But when the annu- 
 al supply was most abundant, it was only in the proportion 
 of one and a quarter per cent, to the stock on hand, and 
 when it was lowest it had fallen only to three-fifths of one 
 per cent. The ordinary supply of gold and silver does 
 not exceed one hundredth part of the stock on hand, while 
 the annual supply of agricultural products always exceeds, 
 and that of manufactures often equals, the stock on hand. 
 The demand for the precious metals may be measured 
 by the whole amount of other commodities in the market 
 of the world, and the whole amount of labor. In this, 
 but little variation can take place from year to year, or 
 even in a series of years. There may be a glut of corn, 
 cloth, cotton, or other merchandise. More of these arti- 
 cles may be produced than can be consumed, at a particu- 
 lar time or place : but there is never a glut of gold or of 
 silver. The demand for these metals is universal and 
 
12 OF REAL MONEY. 
 
 incessant. We do, indeed, say that " money is scarce, or 
 money is plenty," but what we mean thereby is, that loan- 
 able capital is scarce or abundant. Witb the great body 
 of men, money, and the material of which it is composed, 
 are always scarce : and must continue scarce, as long as 
 they want those things which money can procure. 
 
 From the durability of silver, and its other physical pro- 
 perties, from the steadiness and universality of the demand 
 for it, and from the small proportion the annual supply 
 bears to the stock on hand, it appears to unite all the quali- 
 ties that can reasonably be desired in a commercial stan- 
 dard of value. 
 
 If it is not, as has been asserted by some, " an abso- 
 lutely perfect and altogether permanent standard of value," 
 it, in this respect, resembles our standard measure of length. 
 Even a platina rod is affected by changes of temperature. 
 All things here below are in a state of mutaton. The 
 very figure of our earth is changing ; and an arc of the meri- 
 dian will not, in the cycles of futurity, be of precisely the 
 same length that it was when measured by the French 
 Academicians. 
 
 It is true, our standard of value is liable to be affected 
 by more causes than our standard of length. But we can 
 calculate the force of these causes, and construct tables 
 showing the effective power of money in exchanges in 
 different ages. Such tables have been published by Sir 
 George Shackford, in the Philosophical Transactions, by 
 the Rev. Arthur Young, in one of his treatises, and by 
 Admiral Rainer, as an accompaniment of his valuable 
 charts of fluctuations in the price of corn. The difficul- 
 ty of showing the etfective power of money in remote peri- 
 ods, is not owing to any inherent defect in the material of 
 which it is composed : but owing to the chroniclers of an- 
 cient times not having recorded a sufficient number of 
 facts for the satisfaction of modern inquirers. 
 
 In solving problems in Political Economy, it is necessa- 
 ry sometimes to use labor as a measure of value, sometimes 
 corn, and son)ctimes other commodities. So, to measure 
 heights, we sometimes use the foot rule, sometimes the 
 barometer, and sometimes the theodolite. But as, what- 
 ever instruments they may use, men find it convenient to 
 express their mensuration of height in feet and inches 
 
OF REAL MONEY. 13 
 
 tl)eir fractional parts and multiples, so, whatever measure 
 of value writers may adopt, they seldom find it convenient 
 to proceed far in their calculation, without reducing their 
 expressions of value into the common money of account. 
 
 In no way can a clear conception of the wealth of a 
 man in a distant time or place, be so easily acquired, as by 
 a comparison of his income in money with the money 
 price of labor and commodities at the same time and place. 
 
 Those who object to silver as an imperfect standard of 
 value, appear to have fixed their minds on our common 
 measures of length, and finding in- them some qualities 
 which silver does not possess, have hastily concluded that, 
 as a standard of value, it is more imperfect than it really 
 is. But, as value and length are essentially different, 
 we must expect to find the standard and measures of the 
 one essentially different from those of the other. The causes 
 of variation must also be different; and the extent of varia- 
 tion must be different. The analogy between the standards 
 and measures of different things, cannot be greater than the 
 analogy between the things themselves. Value and length 
 agree only in this — that each admits of increase and de- 
 crease by homogeneous degrees, whence it is that each is 
 mensurable by like quantities. 
 
 If the reader will not suffer his mind to dwell exclusive- 
 ly on measures of length, but extend his thoughts to mea- 
 sures of duration, of heat, and of atmospheric pressure, 
 he will probably be convinced that the common measures 
 of value are not more defective than the common measures 
 of time, temperature, and gravity. 
 
 To talk of absolute value is as absurd as to talk of ab- 
 solute distance. As the distance of the earth from the 
 sun increases as it passes from its perihelion to its aphelion, 
 the distance from the sun to the earth must increase also. 
 
 As the value of other things falls, that of gold and sil- 
 ver rises. If the mercury in the thermometer did not rise 
 as the heat increases, we should not be able, by that in- 
 strument, to measure degrees of temperature. If the mer- 
 cury in the barometer did not fall, as we ascend moun- 
 tains, we should not be able, by that instrument, to mea- 
 sure heights. 
 
 For an absolute standard of value, we should have to 
 find something, the cost of production of which should 
 3 
 
14 OF REAL MONEY. 
 
 be the same at all times, and in all places, and the demand 
 and supply of which should never vary in the smallest de- 
 gree. It is impossible even to fancy such a thing. It 
 would be as reasonable to wish for a pendulum which 
 should beat seconds in all latitudes, and in all elevations. 
 
 The effective power of money is much greater in some 
 countries, and some ages, than in others. But we do not 
 complain of our common measures of weight as imperfect, 
 because ponderous bodies weigh more when on a level 
 with the sea, than when on the lops of tlie highest mountains. 
 
 To object to the precious metals, on account of their 
 being affected by the costs of production, and by the rela- 
 tions of supply and demand, is to object to them on ac- 
 count of the very things that fit them for standards and 
 measures of value. If the causes of their value were not 
 similar to the causes of the value of other items of wealth, 
 and if they were not liable to be affected by the same 
 causes of variation, they could not serve as a material for 
 money. There must be some homogeneousness in the 
 measure and the thing to be measured. 
 
 An ounce of pure silver is a quantity which never chan- 
 ges. We may make this our standard of value — our unit 
 of reference in estimating other things. It is our own 
 fault, if we afterwards vary this standard. 
 
 In many minds the notions of value and utility appear 
 to be confounded. But the two things are distinct, though 
 frequently conjoined. A fine lady and a merchant of the 
 society of Friends have very different views of the utility 
 of diamonds ; but if the merchant has diamonds for sale, 
 the creed of his church does not induce him to value them 
 at less than the fine lady is able and willing to give. The 
 value of commodities is in proportion to their adaptation to 
 the wants and wishes of mankind, rational or irrational, 
 and to the facility or the dilliculty with which those wants 
 and w'ishes can be gratified. 
 
 With others, value and wealth appear to be synonymous 
 terms. But the various items that constitute wealth are 
 positive in their nature. They arc all those things that 
 conduce to the gratification of human wants and desires, 
 and which may be estimated by reference to a given stan- 
 dard — all those things which may be bought and sold, or 
 estimated at a price. The word value is used to denote 
 certain relations among these items. It always implies 
 
OF REAL MOXEV. 15 
 
 comparison of two or more objects. In its strict sense, it 
 denotes the effective power of things in exchanges ; but it 
 is, without impropriety, sometimes used to designate that 
 property in things which makes them effective in exchan- 
 ges, and sometimes to signify the judgment the mind forms 
 of different things, on a consideration of their effective 
 power in exchanges. All these meanings of the word are 
 closely connected, and grow out of one another. 
 
 Various views may be taken of value ; but in whatever 
 light it may be regarded, we shall find gold and silver 
 money the most convenient instruments of valuation, though 
 certainly not the only ones it is expedient to employ. The 
 political economist, to determine the natural value of 
 things, may compute their cost of production in days' la- 
 bor and capital ; but he will find it very difficult to esti- 
 mate accurately these elements of production, except by 
 the instrumentality of money. If he cannot bring his cal- 
 culations into the common money of account, his labor 
 will be of very little use to the practical man, for the effec- 
 tive power of things in exchanges is always estimated in 
 this way, and it is the relation the natural value bears to 
 the market value, that induces the enterprizing to incur 
 the toil and expense of production. 
 
 In countries in which paper money is unknown, the 
 common standards and measures of value appear to ap- 
 proach as near theoretic perfection, as the common stan- 
 dards of weight, length, or capacity. The standard of 
 reference has no variation, except such as necessarily 
 arises from the nature of value. The measures are com- 
 posed of the same material as the standard. 
 
 The calculations necessary to show the effective power 
 of money in different countries, and different ages, may 
 not unaptly be compared to those which show the length 
 of pendulums to beat seconds in different latitudes ; or to 
 those which show the loss of weight ponderous bodies sus- 
 tain on being carried to different elevations above the sur- 
 face of the sea. 
 
 In all such countries, the people suffer no more practi- 
 cal inconvenience from the want of any theoretic perfec- 
 tion philosophers may discover, or may fancy they disco- 
 ver, in the common measures of value, than from similar 
 imperfections in the common measures of time and weight. 
 
16 OF REAL MONEY. 
 
 Where metallic money is exclusively used, the value of 
 land, of labor, and of all commodities, great and small, 
 can be determined with great accuracy. Jf, in such coun- 
 tries, the trade between different men is not always an in- 
 terchange of equivalents, the fault is not in the instrument 
 of valuation, but in those who use it. 
 
 If the labor of a man, for a day, or for a year, produces 
 more than is necessary for his immediate support, he can, 
 by exchanging the surplus product for gold or silver, secure 
 the means of supplying his wants in future days or years. 
 Time will not corrupt his treasure or lessen its value. If 
 he should not require it all for his personal wants, he may, 
 at the end of fifty years, endow his children with a portion. 
 
 The use of money renders it unnecessary for families to 
 keep on hand a large stock of provisions and other neces- 
 saries, and thus saves them from the risk of loss from 
 provisions spoiling, and from various accidents. Having 
 money, they may procure whatever else they want, in just 
 such proportions, and at just such times, as they want. 
 
 If business or duty calls a man to a distant country, he 
 finds in money the means of procuring comforts similar to 
 those be enjoys at home. The instrument by which he 
 procures all these advantages, is light of carriage, and is 
 tmaftected by any climate into which he may travel. 
 I As the value of silver has undergone hardly any varia- 
 tion in the last two centuries, and probably will not under- 
 go any great variation for a hundred years to come, a man 
 may, in solid money countries, enter into a contract to pay 
 a sum of money, ten, twenty, or thirty years hence, and 
 rest assured that more wealth will not be exacted from him 
 than he intends to give. . In such countries, contracts can 
 be complied with in equity. 
 
 As the standard of value in most countries is the same, 
 the coins differing only in weight, purity, stamp, and de- 
 nomination, the value of ditfercnt articles in different coun- 
 tries at the same time, can be ascertained with sufficient 
 accuracy for each country to determine what articles it is 
 expedient to export and what to import. 
 
 Without money, the division of labor could never be 
 carried to any great extent, and the wealth of society would 
 be small. Money, by promoting commerce, advances civili- 
 zation. 
 
OF REAL MOXEV. 17 
 
 All these advantages are procured at a small cost, for 
 the product of the labor of a commercial nation, for a few 
 weeks, will procure it enough of metallic medium for all the 
 purposes of domestic trade, and this medium will not re- 
 quire renewal for centuries. 
 
 If the sovereign power refrains from unnecessary altera- 
 tion in the coinage, commerce is, in countries where me- 
 tallic money is exclusively used, liable to derangement on- 
 ly from great natural or political causes. If the supply of 
 gold and silver from the mines is greatly increased, it does 
 not produce a great rise of local price, for the metals dif- 
 fuse themselves over the whole commercial world. If any 
 country gets a large portion of these metals, manufactures 
 absorb a part, and the increase of money is only in propor- 
 tion to the increase of trade. If the supply from the mines 
 is diminished, manufactures absorb less. 
 
 To the state of trade in different countries, the supply of 
 gold and silver money naturally adapts itself; and also to 
 the state of trade in each county and town, and to the con- 
 dition of each individual. If any country, any county, any 
 town, or any individual wants money, it is for the same 
 reason that that country, that county, that town, or that 
 individual, wants corn, cloth, coaches, or other commodi- 
 ties. 
 
 If the laws regulating trade introduce a new state of 
 things, the supply of gold and silver soon conforms to the 
 new relations of supply and demand. 
 
 No prohibitions can prevent money's departing from those 
 countries where its amount is beyond what their trade and 
 industry require. No country can be deprived of its just 
 proportion of the precious metals, except by the use of 
 paper, or by such causes as ruin the commerce and indus- 
 try of a nation. No obstacle, except spurious money, can 
 prevent the precious metals from flowing into countries 
 where wealth is increasing. 
 
 No instance is on record of a nation's having arrived at 
 great wealth without the use of gold and silver money. 
 Nor is there, on the other hand, any instance of a nation's 
 endeavoring to supplant this natural money, by the use of 
 paper money, without involving itself in distress and em- 
 barrassment. 
 
 3* 
 
18 OF BARTER, &C. 
 
 CHAPTER III. 
 
 Of Barter, Lcger Entries, Bills of Exchange and Pro- 
 missory Notes. 
 
 It is not necessary for carrying on business honestly, to 
 introduce gold or silver money into every transaction. Af- 
 ter we have measured a scantling by a toot rule, we may 
 use that scantling to measure another, and that again to 
 measure a third. We can, after having measured several 
 scantlings in this way, make a tolerably correct estimate of 
 tiie length of others by the eye. In like manner, after the 
 value of given quantities of corn, cloth, and other commo- 
 dities, has been ascertained by exchanging them for gold 
 or silver, the value of other parcels of the same commo- 
 dities may be determined without the intervention of mo- 
 ney. In commercial countries in which there is no paper 
 money, little trade is carried on by direct barter, not be- 
 cause it is difficult to make a correct barter estimate, but 
 because purchases and sales can be better regulated in re- 
 gard to time and quantity by other modes of business. 
 
 Hence the practice of leger entries, or running accounts. 
 The amount of transactions between two traders may be 
 very great, and yet, if, in all their dealings, they have strict 
 reference to the specie price of goods, the commerce may 
 throughout be an interchange of equivalent, though not an 
 ounce of gold or of silver may have passed from one mer- 
 chant to the other. 
 
 By promissory notes, the use of real money is deferred, 
 and in some cases superseded. If A gives a promissory 
 note to B, and B gives it to C, in exchange for goods, and 
 C passes it to D, the use of money is in two cases super- 
 seded, and in one deferred. 
 
 Bills of exchange have, in some respects, a similar ef- 
 fect. A merchant at Paris sending goods to Alsace, and 
 wishing money for them, would be forced to wait till the 
 goods could be sold, and the money brought from Alsace, 
 if he could not procure a bill of exchange. In like man- 
 ner, a manufacturer at Alsace, sending goods to the capi- 
 tal, would be forced to wait for payment till the money 
 could be brought from Paris. Here would be two sums of 
 
OF BARTER, &C. l9 
 
 money passing in opposite directions. Supposing the whole 
 trade of France carried on in this way, tlie amount of mo- 
 ney continually on the road would be equal to the whole 
 amount of goods in passage. The amount of money to be 
 annually transferred from one country to another would 
 be equal to the whole amount of trade between different 
 'countries, except when the business of importing and ex- 
 porting was carried on by the same merchant. By the use 
 of bills of exchange, the merchant receives the money for 
 which the manufacturer's goods were sold at Paris, and 
 the manufacturer receives the money for which the mer- 
 chant's goods were sold at Alsace. In this way, it becomes 
 necessary to transfer from one part of a country to an- 
 other, or from one country to another, such sums only as 
 are equivalent to the balances of trade. 
 
 Bills of exchange, where the practice is to pass them 
 from hand to hand, may serve as a local commercial medi- 
 um, though not a very convenient one, since it is necessary 
 for the nice adjustment of transactions, to calculate the 
 difference of the interest on each transfer. 
 
 Each of these three kinds of mediums has its specific 
 uses ; and each is, as an auxiliary of gold and silver mo- 
 ney, productive of great benefit. A clear view of their 
 operations is necessary, for the distinction between the re- 
 presentatives of private credit, and of bank credit, is as 
 important as the distinction between genuine money and 
 spurious. 
 
 ''^Leger entries, promissory notes, and bills of exchange, 
 agree with money in being a medium by which valuables 
 are circulated. They differ from it in being evidences of 
 debt owing by one man to another — which money is not. 
 
 In a far more important particular do they differ from 
 money. They are mere commercial medium. They are 
 neither standards nor measures of value. The amounts 
 expressed in them are the estimations made of goods, by 
 reference to the article which law or custom has made the 
 standard of value. They may be conveniently distin- 
 guished as commercial medium, restricting the term circu- 
 lating medium to money. 
 
 An increase of these three kinds of commercial medi- 
 um may have the same effect on prices as an increase of 
 money. Where the spirit of speculation is excited, men. 
 
20 OF BARTER, &C. 
 
 after having exhausted their cash means, strain their cre- 
 dit. Cash and credit are then competitors in the market, 
 and raise prices on one another. In the year 1825, a year 
 of great speculation, the amount of bills of exchange, ne- 
 gotiated in England, was, according to the returns to Par- 
 liament, COO millions sterling. Supposing one-eighth of 
 these in circulation at the same time, this branch of the 
 commercial medium of England amounted in that year to 
 75,000,000 pounds. 
 
 But the rise of prices produced by these occasional mul- 
 tiplications of the representatives of private credit, is al- 
 ways temporary. At the end of a given period the bal- 
 ance of the running account is demanded, and payment of 
 the promissory notes, and of the bills of exchange, is re- 
 quired in money. If they are paid, their effect on prices 
 ceases. The result is the same, if they are dishonored. 
 In 182C, the amount of bills of exchange negotiated in 
 England, was 400 millions. Supposing one-eighth part in 
 circulation at one time, this branch of the commercial me- 
 dium of England amounted, in this year, to 50 millions, 
 and was one-third less than in the year preceding. 
 
 In countries where the money is of a sound character, 
 and the state of credit sound also, leger entries, bills of 
 exchange, and promissory notes, serve rather to keep pri- 
 ces on a level, than to cause them to fluctuate. In some 
 seasons of the year, as when crops are brought to market, 
 or cargoes arrive from foreign ports, there is naturally more 
 trade than in other seasons. By the use of private credit 
 payments are divided among the different months more 
 equally than would otherwise be practicable. 
 
 Thus, in whatever way trade is carried on, whether by 
 barter, running accounts, promissory notes, or bills of ex- 
 change, or money, one principle of valuation is adhered to 
 in countries having a sound money system. The cash 
 sales regulate the credit sales, and the cash prices regulate 
 the credit prices. 
 
 If tlie money of a countiy is paper, whether issued by 
 the government, or by a corporation, the expressions of 
 value in the running accounts, promissory notes, and bills 
 of exchange, arc according to the new standards and 
 measures of value. 
 
 Into the nature of these we shall inquire in other 
 chapters. 
 
OF BANKS OF DISCOUNT. 21 
 
 CHAPTER IV. 
 
 Of BanTcs of Discount. 
 
 Let us suppose that all the Banks in the country were 
 destroyed, and that our circulating medium consisted exclu- 
 sively of gold and silver coin. In such a state of affairs, 
 every merchant would keep about his person, or in his 
 house, his whole stock of money. 
 
 Let us next suppose an Office of Deposit, established in 
 anyone of our large towns. For the sake of security against 
 fire and robbers, xhe wealthy would here deposit whatever 
 money they did not require for immediate uses. All the 
 money employed in the wholesale trade would thus become 
 the deposit of the Bank. It might be drawn out a few 
 times, but as every large dealer would keep an account at 
 the Bank, the absurdity would soon become evident, of 
 drawing out the money by one man, that it might be depo- 
 sited in the same place by his neighbor. The amount 
 would, therefore, be transferred from the credit of one mer- 
 chant to that of another, and the Bank would become an 
 Office of IVansfcr as well as o( Deposit. The only money 
 that would circulate, would be that employed in retail trade. 
 All wholesale transactions would be adjusted by checks on 
 the Bank, and transfers on its books. 
 
 The Bank having issued no paper, the only demand on 
 it would be for specie to send abroad. This demand would 
 be limited, for every merchant would make it a rule to 
 retain enough money in Bank for his domestic trade. It 
 would be only as the trade of the town fluctuated, that the 
 amount of money in the vaults of the Bank would fluctu- 
 ate. We may suppose that it rose as high, sometimes, as 
 six millions, and sunk as low, sometimes, as four millions. 
 In a little time, the Bank would discover the lowest amount 
 to which its permanent deposits would be liable to be re- 
 duced ': and it might lend nearly the whole of this amount 
 without much risk of discovery. The money might, indeed, 
 be sent abroad by him to whom it was lent, but he by 
 whom it had been deposited would still have a credit at 
 the Bank, and as all the wholesale transactions of the town 
 
 I 
 
22 OF BAXKS OF DISCOUNT. 
 
 would be carried on by checks on the Bank, his credit on 
 the books of that institution would serve him the same 
 purposes as money. Retaining the sum of 500,000 dollars 
 to meet contingencies, the Bank mightsafely grant discounts 
 'to the amount of 3,500,000, and thus realize a profit of 
 more than 200,000 dollars per annum, without lending a 
 cent of its own capital, and without issuing any paper. 
 
 It is worthy of note, that tlie Bank of Amsterdam acted 
 on this principle. jNIillions of money, which the merchants 
 had deposited in its vaults, and for the safe-keeping of which, 
 and the transferrincr of which from one account to another, 
 they paid a premium, were lent by the Bank to the India 
 Company, and to the Provinces of Holland and AYest 
 Friesland. The fact was long kept secret ; but was disco- 
 vered when the French entered Amsterdam in 1T94. 
 
 What was regarded as a shameful breach of confidence 
 in the Bank of Amsterdam, is, with our American Banks, 
 an avowed principle of action. They all lend the money 
 deposited with them for safe keeping, and it is in this way 
 that the Banks in the large cities make great part of their 
 profits. All the money required for wholesale transactions 
 is their permanent deposit. It may go out one day, but it 
 returns the next ; and it may be transferred from one Bank 
 to another, but it is never long out of some of the Banks ; 
 and for the same sum of money there are frequently two 
 creditors — one in favor of him by whom the money has 
 been deposited, and another in favor of him to whom it has 
 been lent. 
 
 These Bank credits have a very different effect from the 
 leger entries of private traders. "NVlioever sells on trust, 
 puts on his goods an additional price, equivalent to the in- 
 terest for the time to which payment is deferred. Sellers 
 may persuade purchasers to the contrary, and, in some 
 cases, capital may be so plentiful that the amount of interest 
 on a small sum, for a short period, may be scarcely appre- 
 ciable. In other cases, the increase of price is greater 
 than the amount of interest ; as with fashionable tailors 
 and shoemakers, who are forced to cliarge insurance on 
 each item, and make the honest pay for themselves and 
 the dishonest also. Their business would not otherwise 
 yield the common profits of stock and the common wages 
 of labor. 
 
OF BAXKS OF CIRCULATIOJf. 23 
 
 But Bank credits are in all cases equal to cash. The 
 Bank check goes as far as Bank notes, for Bank notes can 
 be obtained for it on demand. 
 
 Increase of Bank credits has the same effect on prices 
 as increase of Bank notes. lie who has deposited money 
 iu the Bank, and he to whom it has been loaned, appear 
 as competitors in the market, and raise prices by bidding 
 against one another. It is the same sum of money with 
 which they are contending, and the seller of goods can get 
 it from one only. But there are two credits for this money 
 in the Bank, and the credit is equivalent to cash, both to 
 him who has deposited the money, and him to whom it has 
 been lent. 
 
 < Our American Banks of Discount must be distinguished , 
 from Loan Offices, or institutions which lend no more than 
 the amount of their own capital. As some express it, the 
 business of the American Banks is " to lend credit." 
 
 These Banks must also be distinguished from the Bank 
 of Amsterdam, as it once was, and the Bank of Hamburg, 
 as it now is. Into those cities there w'as a great influx of 
 foreign coin, of various denominations, and much of it 
 clipped or worn. To save the trouble of ascertaining the 
 exact value of each parcel, by sorting it on every transac- 
 tion, it was deposited in Bank, and credit granted to each 
 merchant for the amount he deposited, according to mint 
 valuation, a small sum being deducted for warehouse rent, 
 and a small fee charged on each transfer. These Banks 
 were mere offices of deposit and transfer — not of discount. 
 They were very different from our American Banks. 
 
 CHAPTER V. 
 
 Of Banks of Circulation. 
 
 Our American Banks are not contented with the profits 
 derived from lending the money of depositors toother people. 
 
 As soon as the first instalment of the capital is paid in, 
 the Bank commences issuing notes. To those who come 
 to borrow, it lends paper or coin. The paper being ex- 
 
24 OF BANKS OF CIRCULATION. 
 
 changed for coin, serves, at least at the place where it is 
 issued, the same purposes as coin. 
 
 Every man desires money, because he can therewith 
 procure whatever else he desires. If paper can procure 
 for him the object of his desire as readily as gold and silver, 
 paper is as desirable to him as gold and silver. The Bank, 
 therefore, finds borrowers for all the coin it has to lend, 
 and all the paper it deems it safe to issue. This addition 
 of notes to the amount of metallic money previously in 
 circulation, raises first the price of some articles and then 
 of others. The borrower from the Bank having more mo- 
 ney, either paper or coin, at command, can offer an addi- 
 tional price for the object of his desire, or perhaps procure 
 some desirable object that was before unattainable. He 
 from whom the borrower has bought, having made a speedier 
 sale, or perhaps received a higher price than would other- 
 wise have been possible — he also has it in his power to 
 obtain some object of desire that was not before within his 
 reach. A third, a fourth, a fifth, a sixth, each in his turn, 
 derives a like advantage from this increase of circulating 
 medium. The rise of prices is confined for a time to store 
 goods, but it at length reaches real estate, and finally the 
 wages of labor. Industry is stimulated, and enterprize 
 encouraged. Speculation is excited, private credit is strain- 
 ed, and the representatives of private credit are multiplied. 
 Every body is active, and all branches of business appear 
 to be prosperous. 
 
 Nothing could be prettier than this, if prices could be 
 kept continually rising. But it is, unfortunately, only while 
 the amount of Bank issues is actually increasing, or for a 
 short time after they have attained their maximum, that 
 society derives ihis benefit from paper money. So far it 
 has the same effect as an increase of real money — as an 
 increase of real wealth. But in due time it affects all articles 
 in nearly equal proportions : and men then discover that 
 for an object of desire for which they had formerly to give 
 one dollar, they have now to give one dollar twenty-five 
 cents, or one dollar fifty : and that it is not more easy to 
 g3t the one dollar and fifty cents to make the purchase 
 with, than it was formerly to get one dollar. The value of 
 land, labor, and commodities, as compared with one another, 
 is t' c same as it was before. It is only the money price 
 
OF BANKS OF CIRCULATIOIf. 8$ 
 
 that is enhanced. The effect this has on public prosperity, 
 is much the same as that which would be produced by 
 changing accounts from pounds, shillings, and pence, to 
 federal money. The sum total of dollars would exceed 
 tliat of pounds, but the articles of the value of which they 
 would be the exponents, would be unaltered in number and 
 in quality. 
 
 It would be well if the issues of the Banks had no other 
 effect than that of appca-ently increasing the wealth of the 
 community, by raising the money valuation of all kinds of 
 property. But these institutions do not continue their issues 
 lotig, before they raise the price of some commodities above 
 the price they bear in foreign countries, added to the costs 
 of importation. In foreign countries the paper of the Banks 
 will not pass current. The holders of it, therefore, pre- 
 sent it for payment. The Banks finding their paper returned, 
 fear they will be drained of coin, and call upon their debtors 
 to repay what has been advanced to them. In two ways, 
 then, is the quantity of circulating medium diminished : 
 first, by the specie's being exported : secondly, by the pa- 
 per's being withdrawn from circulation. Prices fall as 
 rapidly as they had before risen./ The traders find that the 
 goods in their stores cannot be disposed of, unless at a 
 loss. The different members of society had entered into 
 obligations proportionate to the amount of circulating me- 
 dium in the days of Banking prosperity. The quantity of 
 circulating medium is diminished, and they have not the 
 means of discharging their obligations. The merchan- 
 dise, the fiirms, the houses, for which they contracted debts, 
 may be still in their possession ; but the product of the 
 farms will not bring, perhaps, half as much as will pay the 
 interest of the original purchase money ; the houses will 
 not rent for as much as will pay the interest on the mort- 
 gages ; and the store goods must, if sold at all, be sold be- 
 low prime cost. Bills of exchange are dishonored, and 
 promisory notes protested. One man is unable to pay his 
 debts. His creditor depended on him for the means of 
 paying a third person to whom be is himself indebted. 
 The circle extends through society. Multitudes become 
 bankrupt, and a few successful speculators get possession 
 of the earnings and savings of many of their frugal and 
 industrious neighbors. 
 4 
 
26 GENERAL EFFECTS OF THIS SYSTEM. 
 
 Bv the reduction of the amount of Bank medium, the 
 prices of things are lowered, the importation of some kinds 
 of foreign goods is diminished, and specie is brought 
 back. Then the confidence of the Banks is renewed, and 
 they re-commence their issues of paper. Prices are raised 
 again, and speculation is excited anew. But prices soon 
 undergo another fall, and the temporary and artificial pros- 
 perity is followed by real and severe adversity. 
 
 " Such is the circle which a mixed currency is always 
 describing." 
 
 CHAPTER VI. 
 
 General Effects of this St/slcm. 
 
 The rise of prices that follows an expansion of Bank me" 
 dium, and the fall that follows a contraction, do not affect 
 all descriptions of labor and commodities, at the same time, 
 in an equal degree. The usual effect of an increase of is- 
 sues^ appears to be to raise still higher those articles which 
 are rising from some natural cause : and the effect of a 
 contraction, to sink still lower those which are falling from 
 some natural cause. As Malthus has observed, the ten- 
 dency of paper money is in some instances to sink prices 
 to their lowest point, and raise them in others to their 
 highest. The natural value no longer regulates exchan- 
 ges. We had melancholy proof of this effect of contrac- 
 tion in 1820, when, according to Mr. Tsiles' calculation, 
 the average price of flour throughout the country was only 
 two dollars and fifty cents a barrel. Of rise of prices pro- 
 duced by expansions of Bank issues, we had striking exam- 
 ples in 182.5 and 1831. 
 
 Wages appear to be among the last things that are 
 raised by an increase of Bank medium. The working 
 man finds all the articles he uses in his family ris- 
 ing in price, while the money rate of his own wages re- 
 mains unchanged. In the year 1831, which was a year o{ 
 great expansion, rents rose enormously in many parts of 
 the town, store goods advanced in price, and such fresh 
 provisions as are sold in the market were higher than thej 
 
 I; 
 
C£5£B.AL EfTECTS OF THIS STSTEM. 27 
 
 b&d beeo at any time since tbe reasapCJoa of specie pay* 
 ments ; bat th«; money rate of wages was hardly dfected.* 
 
 If wages are not tbe first to fall on a contraction of i5> 
 saes, it i3 because the effects of tbe contraction £iil oae- 
 qoally on different kinds of labor. " Cootractioos" nerer 
 proceed far, without breaking ap some prodoctire esta- 
 Uisboteots. Some men are thaa deprived of employment : 
 thct enter into competition with tbe workmen in other es- 
 tablishrnenta, and finallv reduce wages in tbe branches 
 of bosinesa not immediately affected by tbe cootractios 
 of Bank issues. 
 
 Hejice the complaint we sometimes bear of " all brancb- 
 C3 of trade being overdone." A great namber of enterpri- 
 zes, andertaken with a cheering prospect of socceas wb« 
 the Banks " make money plenty,' come to an nnlbrtanate 
 conclusion when the Banks '' make mooey scarce." As 
 one man is thrown out of employoient, hia effective de- 
 mi r, I f'.r r^.'; '" ' - '" ighbor'a labor ia diminished, 
 
 an : i.^, p ;r i^-^ competttor of his neighbor, 
 
 instead of bia customer. The merchant ia compelled to 
 offer his services as a clerk. The master mechanic be- 
 comes a jour^ -"^ ' n. If a clerk is thrown out of employ- 
 ment, the ^ :er has one good customer less. If 
 twenty clerks are deprived of employment, the Bhoemaker 
 may find it necessary to dismiss one - *' "" - ---'-"-.-ts. 
 If t"^enty ahoemakera are without emplc .ier 
 may find bis sales of bread materially diminished : and ao 
 of all other trades. 
 
 If the real wants of tbe community, and not their abi- 
 lity to pay, be considered, it will not, perhaps, be iaaad 
 that any one useful trade or profession has too maay imsi 
 
 * Tbia 13 not ihe fim time thij remark has b«ea wade. Iq tbe BHt- 
 iaiiB«Uioaftepart,Bndem '- '^ ^ foUtwriag ■rwui^^u mteuraz •*The 
 wages •f etmmtm fu— fij . : fi^e of wUdk, it 'm well k— w * , 
 
 adapts itadf awre aiowlj ta i^ e*aagefl windb hippea la Ae vaiae af 
 BBoae? . tbaa tbe price of aar aCber ^>edes af bbar ar caoMMditf ." 
 
 H:^.ch:jon. in ki» HUtory'of Maasadiaaetta, voL 2, page 401, Makes 
 a reniark which ^lows that tbe effect of paper Boae7 k, ia tfais reject, 
 the mwc, wbetfaer it b ia^^ b j a GorenMMaC ar bj a B^Uc 
 
 '^ I reeofleet oae adraaCa^ fiaa p^cr ■aagy. Upas ife T 
 tioa frooi tkae ta tiae, «he sages af aeonea, aad the 
 eaaadag veasela aad otkets weie iind, td aoC mamaSateij pee 
 pcopordoa to the riae af iflrer, aad e»gfc— ge wsk f 
 partj of tke vorid.'^ 
 
28 GEPTERAL ETFECTS OF THIS SYSTEM. 
 
 bers. The number of educated physicians, for example, 
 is not too great for the population. But, not a few physi- 
 cians remain without employment, while many persons, 
 from inability to pay for medical advice, suffer all the evils 
 of sickness. It cannot be said that we have too many 
 shoemakers, tailors, or cabinet-makers, while multitudes 
 are but indifferently provided with clothing and furniture. 
 But, in one sense, " all businesses" may be said to be "over- 
 done," since all businesses are by this system rendered un- 
 profitable to some who are engaged in them. 
 
 On the operations of manufacturers, these contractions 
 and expansions are productive of most pernicious conse- 
 quences. Expansions of Bank medium are always incite- 
 ments to them to extend their business. The paper need 
 not be put in circulation by direct loans to the manufac- 
 turers. Lending it to such as will buy their commodities 
 has the same effect. Having, by the increase of Bank me- 
 dium, been enabled to sell his goods at an advanced rate, 
 the manufacturer re-commences operations with new spirit. 
 So facile is production with modern machinery, that a 
 small rise of prices causes a great increase of cotton and 
 woollen goods. The production of the articles for which 
 these fabrics are ultimately to be exchanged, cannot, un- 
 fortunately, be increased with equal facility. Unfortunate- 
 ly, also, the Bank medium is soon contracted. There is 
 then a glut of manufactures, and a scarcity of money. 
 
 On the operations of the agriculturists, these expansions 
 and contractions operate more slowly, but not less perni- 
 ciously. Of this we had a striking example in 182-5, when 
 the speculations in cotton (speculations which can be dis- 
 tinctly traced to an extension of the paper system in Eu- 
 rope and America,) caused much corn to be uprooted that 
 cotton might be phmted in its place. The consequence 
 was, a glut of cotton in the next year, and a scarcity of 
 corn, in some districts of the South. 
 
 But, increase of Bank medium has the most obvious ef- 
 fect on real estate, as that varies most slowly in value from 
 natural causes. Whenever the Banks make money plenty, 
 speculation in real estate is excited, because men are very 
 desirous to possess that which will afford them a permanent 
 revenue. As the custom is to pay only part of the price 
 agreed upon, and give mortgages for the remainder, a 
 
GENERAL EFFECTS OP THIS SYSTEM. 29 
 
 small increase of Bank issues produces a considerable rise 
 in the price of immoveable property. In Philadelphia 
 and some other large towns, it is the practice with many 
 not to give any money in the purchase of building lots, but 
 to contract to pay a specified sum annually by way of 
 ground rent. Thus, when the currency is plentiful, men 
 enter into obligations, binding themselves and their heirs 
 to pay perpetual annuities; which annuities, when the cur- 
 rency becomes scarce, sweep away half or all their pro- 
 perty. 
 
 A four story house on Market street, the erection of 
 which cost $10,000 about the time of the last war, was 
 offered for sale some years afterwards ^ox Jive dollars. No- 
 body would take it at this price, because the rent the house 
 would bring was not equal to the ground rent. A few fur- 
 longs higher up this street, several three story houses were 
 bought for a dollar apiece ; and the purchaser did not get 
 for rent of houses and ground together, as much as he had, 
 a few years previous, bargained to receive for the ground 
 alone. 
 
 In the less commercial parts of the town, many mecha- 
 nics took lots on ground rent, and invested their little sav- 
 ings in houses, which they hoped would be the property of 
 themselves and of their children after them. The Bank 
 issues were contracted, and these hard-working men lost 
 the net proceeds of many years of industry and economy. 
 
 Now, the owners of the ground meditated no injustice 
 towards these mechanics. When they fixed the rent of 
 the lots, they supposed they were asking no more than they 
 were worth in perpetuity; and the mechanics supposed 
 they were agreeing to pay no m,ore than they were worth. 
 Their value was correctly estimated, but in a debased cur- 
 rency. If the landlords had abated part of their demand, 
 when a fall of prices took place through the enhancement 
 of the currency, they would have acted on principles dif- 
 ferent from those which usually govern men of business. 
 
 For more than a century it had been the practice with 
 men of limited means to lease lots on perpetual ground 
 rent, erect houses thereon, and give mortgages for so much 
 of the cost of building as they could not defray without 
 borrowing. There was little risk in entering into these 
 obligations, as both the ground and the buildings rose ia 
 4* 
 
30 GENERAL EFFECTS OF THIS StSTESf, 
 
 value with increase of capital and population. In each 
 succeeding year a portion of the debt was paid off, and the 
 mechanic had, at the end of no long period, the satisfac- 
 tion of calling his house his own. The mechanics whose 
 melancholy fate we have recorded, were acting on a me- 
 thod which had been successfully pursued from the first 
 settlement of the country. Their only misfortune was, be- 
 ing ignorant of the principles of currency, and having 
 rulers as ignorant as themselves. 
 
 In all parts of the Union, except New England, property 
 passed in the same manner from those who had an equita- 
 ble to those who had only a legal claim to it. Farms rose 
 in price from fifty to a hundred per cent., and sunk again 
 as rapidly as they had risen. Thousands were reduced to 
 poverty, and scores rose to wealth on the ruin of their 
 neighbors. 
 
 It may be said that we are only describing the effects of 
 a suspension and a resumption of specie payments. To 
 this it is sufficient to reply, that occasional suspensions of 
 specie payments are -necessary incidents of the Banking 
 system. Those who fancy that the Bank of the United 
 Slates would be able to continue specie payments in time 
 of war, forget the fate of the more powerful Bank of Eng- 
 gland. Twice in the midst of profound peace, has this 
 very Bank of the United States been on the verge of sus- 
 pending specie payments ; and the Bank of England itself 
 Avas, in 1825, saved from bankruptcy, only by the interven- 
 tion of a Sunday, the discovery in the cellar of the Bank- 
 ing-house of 800,000 one pound notes, by putting w'hich in 
 circulation again, the Bank evaded its promises to pay, and 
 by an unexpected supply of gold from the continent. 
 
 Suspensions and resumptions of specie payments only 
 make the effects of contraction and expansion more obvi- 
 vious. The money of the country is paper money now, as 
 it was in 1815 and 181G. Its "convertibility" fixes 
 limits on its expansion ; but frequent contractions are 
 necessary to keep it " convertible," and these expansions 
 and contractions are followed by very pernicious conse- 
 quences. 
 
 As in the case of all public evils, the system bears with 
 the most hardship on the poor. The rate of wages is, as 
 we have seen, the last thing that is affected by an expan- 
 
GENERAL EFFECTS OF THIS SYSTEM. 81 
 
 sion ; and one necessary consequence of a contraction is, 
 to deprive some men of employment. If a rich man can- 
 not sell his merchandise to-day, he can sell it to morrow ; 
 and if he cannot sell it for full price, he can sell it for half- 
 price. But labor is the poor man's only commodity. If he 
 cannot sell it to-day, it is lost to him forever. 
 
 The substantial capitalist is a frequent loser, though 
 sometimes a gainer, by these fluctuations. If his capital 
 is small, and his credit in proportion, it is v\'ith difficulty he 
 escapes from total ruin in times of contraction. 
 
 The reckless speculator, who has no capital of his own, 
 but who operates extensively on the capital of other peo- 
 ple, has much cause to be well pleased with this system. 
 If a loss is sustained by a h\l of prices, the loss falls on 
 his creditors, for he has nothing to lose. If there is a gain, 
 through a rise of prices, the gain is all his own. 
 
 If tiie speculator is a Bank Director, or a favorite with 
 Bank Directors, happy is his lot. Is there a scarcity of 
 money ? It affects not hiin. Money is made more scarce 
 with other men, that it may be plenty in- his pockets. 
 Whatever may be the condition of others, he is enabled to 
 meet his engagements, and to support his credit. He has 
 the means of purchasing the goods and real estate of dis- 
 tressed debtors at reduced prices, and of holding them till 
 prices rise again. A year seldom passes over without an 
 opportunity of this kind occurring, and such opportunities 
 sometimes occur several times in the course of a single 
 year. 
 
 In the facility with which these speculators can obtain 
 loans in troublous times, they have another source of profit. 
 In some seasons, they make more gain by discounting 
 notes out of doors, at 2, 3, and 4 per cent, a month, than 
 the Banks of a city acquire by their regular operations. A 
 " go-between" usually manages these transactions, and the 
 speculator, though generally suspected, cannot be proved 
 to be a usurer : but instances have been known of Direc- 
 tors following unsuccessful applicants for " renewals of ac- 
 commodation" out of the Banking-house, and then dis- 
 counting their notes for an extortionate premium. In times 
 of " expansion," men are invited to receive " accommoda- 
 tions" from the Banks; and in time of" contraction" these 
 *' accommodations" are made the instruments by which 
 they are fleeced of their property. 
 
32 GENERAL EFFECTS OF THIS SYSTEM. 
 
 Much is said against lotteries, and they are certainly 
 great evils. But a lottery, if there is no fraud on the part 
 of the Managers, is perfect fairness when contrasted with 
 some of our commercial operations. Some must gain, and 
 some must lose, in every lottery : but if it is fairly con- 
 ducted, the chances of loss and gain are equal to all ad- 
 venturers. In the present great game of Banking, in 
 which the fortunes of the whole community are the stakes, 
 the very nature of the game gives great advantages to the 
 Managers. 
 
 It is no reply to this to say, that many Bank Directors 
 are too high-minded to make an improper use of their op- 
 portunities for making money. Bank Directors are like 
 other men — some of them good, some of them bad. The 
 great majority of them are worthy of all respect as private 
 citizens : but even they must, if they are candid, admit 
 that the system gives great advantages to some members of 
 the community over others ; and it is of the system that 
 we are treatinor. 
 
 Nor is this view of the subject altered by the fact that all 
 the favorites of Banks do pot become men of great wealth. 
 They have great advantages in the great game of society, 
 but there is a bye-game among themselves, and one spe- 
 culator wins from his fellow speculator what the latter had 
 gained from the people at large. 
 
 Besides this, they are affected, in common with other 
 men, by the various Banking processes which make busi- 
 ness in general so uncertain as frequently to baffle all cal- 
 culation. These affect all classes of society. These place 
 us all astride of the see-saw of fortune. Now we go up, 
 and now we go down. The fate of the frequenters of the 
 Palais Royal is hardly more uncertain. 
 
 These vicissitudes of fortune are most striking in the 
 cases of men of a bold turn of mind, who commence life 
 without capital, and who, not satisfied with the gain ac- 
 quired by a few years of successt''ul speculation, continue 
 their operations till fortune turns against thera. But the 
 regular merchant, the plodding mechanic, and the pains- 
 taking farmer, are not exempted from similar vicissitudes. 
 It is said, that, in one of the most commercial streets of 
 Philadelphia, there were, a few years ago, but three or 
 four mercantile houses of twenty years standing, which 
 
GENERAL EFFECTS OF THIS SYSTEM. 33 
 
 had not broken once or oftener, been compelled to ask for 
 an extension of credit, or been in some way seriously em- 
 barrassed. When we consider that the same causes are 
 now in operation, how many of our present commercial 
 houses may we hope will remain unembarrassed for twenty 
 years to come? No doubt many men will, in that period, 
 retire from business, with handsome estates : but of such 
 as shall continue operations for twenty years, how many 
 will escape the vicissitudes which the present system of 
 things entails on the community 1 
 
 We have become so accustomed to this system of break- 
 ing, that we begin to consider it a part of the system of 
 nature. But it was not so always. Previous to the revo- 
 lutionary war, there were but three bankruptcies among 
 the large dealers in Philadelphia.* A bankruptcy in the 
 olden time, spread as much gloom over a ftimily as a death; 
 and if the bankruptcy w^as the result of misfortune, the 
 family had the sympathy of all their neighbors. 
 
 There is reason to believe, that in some periods of six 
 months, more bankruptcies have been recorded in Phila- 
 delphia and New York, than in Hamburg and Bremen in 
 twice that number of years : and that there are more in- 
 solvencies in the United States in one year, than happen 
 in Holland in a whole century. 
 
 No natural causes exist to make trade more uncertain 
 in the United States than in France, Germany, and Hol- 
 land. The commerce of those countries is, in fact, expos- 
 ed to shocks, from which ours is exempt, from the opera- 
 tions of hostile armies in and near their territories, and 
 from every change that happens in the political world im- 
 mediately affecting their mercantile operations. But the 
 expansions of Bank medium lead our merchants to over- 
 trading, and the contractions force them to make sacrifices 
 of their property : and as these expansions and contrac- 
 tions are as incessant, though not as regular, as the ebbing 
 and flowing of the sea, many kinds of business are with us 
 rendered more uncertain by this one cause, than they are 
 in some other countries by all natural and political causes 
 put together. 
 
 * They were those of Scott and M'Michael, Peter Baynton & Co., 
 and of one other firm, the name of which is not recollected by our in- 
 formant. 
 
34 EFFECTS ON CREDIT. 
 
 CHAPTER VI. 
 
 Effects on Credit. 
 
 In a rising country, sound credit is of equal importance 
 witli sound currency. Through its operation, the advanta- 
 ges of capital are more equally diffused than would other- 
 wise be possible. The man who has more capital than he 
 wishes to employ in his own business, and the aged and 
 infirm wlio possess wealth, lend it to the young and active. 
 By these means, much capital is made productive, which 
 must otherwise have remained unproductive; and many 
 persons find employment who must otherwise have been 
 idle. The wealth of the nation is increased, and lenders 
 and borrowers are mutually benefitted. The former re- 
 ceive their just share of profits, in the shape of interest; 
 and the latter keep another share as a recompense for the 
 trouble of management. 
 
 To have a system of sound credit, nothing more is neces- 
 sary than to have a sound money system, and to enforce 
 the faithful performance of honest contracts. 
 
 Tn the countries forming the present United States, credit 
 has never been perfectly sound. In an early period of our 
 colonial history, arbitrary alterations were made in the legal 
 valuation of the current coin. Then came the paper 
 money of the Provincial Governments, and the Continent- 
 al money of the Revolutionary Congress, together with 
 tender laws, supported by penal enactments. Men of 
 property were careful in making loans, as they knew not 
 but that, between the time of lending and receiving back, 
 such alterations might be made in the currency, that they 
 would be paid in money of much less value than that which 
 they lent. 
 
 Notwithstanding this, as business was much less uncer- 
 tain than it is now, men whose moral character was such 
 as to afford a guarantee that they would not take advantage 
 of unjust laws to injure their creditors, found little diffi- 
 culty in borrowing. But moral character is no longer 
 security for tlic re-payment of loans; for, the sudden vicis- 
 situdes of fortune, which are produced by the Banking sys- 
 tem, make very great changes in the moral feelings of men. 
 
EFFECTS ON CREDIT. 85 
 
 Many a one who has, while his affairs are prosperous, 
 every disposition to fulfil his engagements, becomes very 
 careless about them, vvhen he finds his affairs declining. 
 
 As industry and economy no longer insure success in 
 business, nothing short of real estate is regarded as ade- 
 quate security for the re-payment of a loan. This security 
 many men, in whose hands capital would be very produc- 
 tive, are unable to give. And thus, while the rich are pre- 
 vented from lending their funds in the manner which would 
 be most advantageous to themselves, not a few industrious 
 and enterprizing persons are prevented from exerting their 
 faculties in the way which would be most beneficial both for 
 themselves and for the community. Some, from the im- 
 possibility of obtaining capital to work with, are like me- 
 chanics without tools — useless both to themselves and to 
 the nation. 
 
 This practice of lending on bond, to which Banking has 
 nearly put an end, was, perhaps, more advantageous to the 
 country, than any other kind of lending. Men who have 
 real estate, could find means for employing their faculties 
 to advantage, even if they were not able to borrow on 
 mortgage. They might till their farms, if their real estate 
 consisted of farms ; or if it consisted of houses, they might, 
 by renting their houses, obtain capital enough to engage in 
 some active business. But men having no capital of their 
 own, and unable to borrow, must, unless employment is 
 afforded them by others, remain in absolute idleness. 
 
 It is now, indeed, possible for such men to borrow from 
 the Banks, if their indorsers please the Directors. But the 
 loans of the Banks are for 60 or 90 days, while months, 
 and even years, are required for bringing the enterprizes 
 of the farmer and the mechanic to successful completion. 
 Short loans are useless to them. The Banks may, indeed, 
 renew the accommodation, but this depends on contingen- 
 cies ; and the curtailments in time of pressure are so ruin- 
 ous, that a man acts very unwisely who borrows large sums 
 from the Banks, or who borrows them for a long period. 
 
 When Dr. Franklin arrived in this city, more than a 
 century ago, he was a poor and friendless journeyman 
 printer. The amount of loanable capital held by the Phi- 
 ladelphians was small. Yet, he had been here but a short 
 time, before his neighbors, without solicitation on his part. 
 
§6 EFFECTS ON CREDIT. 
 
 offered to lend him money to establish him in business. A 
 thrifty young mechanic who should now attempt to borrow 
 500 or 1000 dollars, for a term of two or three years, on his 
 personal security, would be regarded with astonishment. 
 Yet this young mechanic has a capital in his faculties 
 which would entitle him to a loan of more than 500 dol- 
 lars, if the state of credit were sound. If his labor yields 
 him six dollars a week, and his expenses of living are four, 
 he will have a surplus of 104 dollars at the end of the year. 
 This would pay the interest on upwards of 1700 dollars. 
 His chance of living, if he is twenty-one years old, is, ac- 
 cording to. the doctrine of life-insurances, at least thirty 
 years. After making every allowance for contingencies, a 
 loan of 500 dollars to such a young man, might be consider- 
 ed quite a prudent act, and such a loan might enable him 
 to double his weekly revenue. But the uncertainty of 
 business, and the instability of moral character which is 
 produced by uncertainty of business, are such, that capi- 
 talists deem the chances of re-payment not sufficient to 
 justify lending to young mechanics: and the embryo Doc- 
 tor Franklins who are among them, are left to contend 
 with adversity, without assistance from their richer neigh- 
 bors. 
 
 As there is no borrowing at present on personal security, 
 except from the Banks, many persons suppose that if there 
 were no Banks, there would be no borrowing at all. But 
 Banks do not increase the amount of loanable capital in the 
 country. The loanable capital of each year, is the wealth 
 which its owners do not choose to employ in their own 
 business. All Banking can do, is, to take this loanable 
 capital out of the hands of its owners, and place it under 
 the control of irresponsible corporations. 
 
 If those who have honestly paid their cent, per cent, for 
 Bank stock, could get their money back, and lend it on 
 bond, it would be more secure than it is at present. Much 
 of that money has been lent by tlie Banks to wild specula- 
 tors. It would be in safer hands, if lent to industrious 
 farmers and mechanics, and plain dealing merchants and 
 storekeepers. We mean, of course, if we had a sound 
 money system, and a sound credit system built thereon, 
 and that sound moral character which proceeds from a 
 sound money and sound credit system. At present, it is 
 
EFFECTS ON CREDIT. 37 
 
 not prudent to lend on any security short of real estate. 
 Such is the precariousness of business, that men who do 
 not like to incur debts which they may be unable to pay, 
 are scrupulous about borrowing on bond, unless their per- 
 sonal estates are so large as to cover all risk. 
 
 CHAPTER VII. 
 The same subject, continued. 
 
 It is a very pernicious kind of credit which Banking 
 substitutes for the kind of credit which would exist, if we 
 could escape the evils of government paper money, and of 
 unnecessary alterations in our coinage. 
 
 The lender and the borrower do not, under the present 
 system, meet each other face to face. The capital is 
 placed in the hands of irresponsible Boards of Directors, 
 who, in managing it, have regard to little but their own 
 personal interest and that of their favorites. Great faci- 
 lities are thereby afforded to many men for borrowing, to 
 whom no man ought to lend. They are led by Bank loans 
 to engage in business for which they are not fitted by either 
 nature or education. The enterprizes fail, and the wealth 
 of the community is diminished in proportion as the amount 
 of capital thus employed is great or small. ^ 
 
 Instances have occurred of men obtaining credit for an \ 
 immense amount, who were not entitled to credit for one \ 
 cent. They vvere' neither skilful, industrious, nor econo- 
 mical. They had no capital in their faculties; and none 
 in the form of real or personal estate; or, if they had, it 
 was previously loaded with debts of equal amount to its .' 
 whole value. On an investigation of the affairs of a petty 
 Bank in Buck's county, it was found that the President 
 was indebted to it, either individually, or as a co-partner 
 with other men, in the sum of $112,000, which was three 
 times the amount of the active capital of the Bank. In 
 the case of a Bank in Connecticut, the loans of which 
 were 1,900,000, no less a sum than 1,500,000 was lent to 
 two commercial firms, consisting of two persons each. In 
 5 
 
38 EFrECTS ON CREDIT. 
 
 another instance, four gentlemen of Baltimore, who had 
 previously borrowed $1,957,700 from a certain Bank in 
 the regular way, borrowed an additional sum of $l,oOO,000 
 from the same Bank, without even asking the consent of 
 the proper officers. From a statement recently published, 
 it appears that, on the 9th of April, 1832, the whole 
 amount of notes and bills discounted at the principal Bank 
 in Philadelphia, was $7,939,079 52; of which sum, more 
 than two-thirds wvs loaned to ninety persons. jMore than 
 83,000,000 were in the hands of seventeen individuals, 
 and nearly one-seventeenth part in the hands of one per- 
 son. Deducting from the total the bills of exchange, 
 the discounts of the Bank on that day, amouiited to 
 §5,964,085 2G; and nearly five millions and a half of this 
 amount were distributed as follows : 
 
 In loans of not less than .$20,000, eacli to 72 persons, $2,404,278 
 
 do. 50,000, do. 19 do. 1,274,^82 
 
 do. 100,000, do. 3 do. 341,729 
 
 do. 200,000, do. 4 do. 995,456 
 
 do. 400.000, do. 1 do. 417,766 
 
 $5,434,100 
 
 Leaving only 8529,974 20, to be divided among the rest 
 of the community. 
 
 A small amount borrowed from a Bank, gives a man 
 great credit with the community. By paying down a 
 few thousand dollars and giving mortgages for the remain- 
 der of the purchase money, he may get real estate in pos- 
 session of the value of fifty thousand dollars. He is then 
 regarded as a rich man by the multitude, who know of his 
 houses and lands, but know nothing of the mortgages. 
 They are willing to let him have any kind and any amount 
 of goods on credit. The second year he may be insolvent; 
 but his credit remains unimpaired, and he satisfies those 
 from whom he bought goods in the first year, by the pro- 
 ceeds of goods purchased on credit in the second year. 
 Every year the amount of debt he owes beyond what he 
 is able to pay, goes on increasing ; but ten or twelve years 
 may elapse before his insolvency becomes apparent. In 
 the mean time he is living in splendor on the property of 
 other men. 
 
 This facility of credit leads many into extravagant modes 
 
EFFECTS ON CREDIT. 39 
 
 of living. "What they have obtained by the sweat of their 
 brow, men know the value of, and are careful of But 
 what they obtain in a less laborious way, they expend more 
 freely. The easiness with which they can run into debt, 
 is to multitudes a great misfortune. 
 
 It is well if extravagant living is the only fault this fa- 
 cility of credit brings with it. When men accustomed to 
 splendor, have the property of others in possession, and 
 can secure an independent fortune by so simple an act as 
 a false oath in an insolvent's court, the temptation may 
 prove too strong to be resisted. When they break, the 
 ruin that follows spreads far and wide : for a system of 
 guaranteeing has grown out of our present mode of doing 
 business, through wiiich every man's success in life is made 
 to depend quite as much on the good conduct of those 
 with whom he is connected, as on his own frugality and 
 industry. The Banks are secured by special assignments 
 in which the endorsers of notes are made " preferred cre- 
 ditors," but all others with whom the bankrupt has had 
 commercial dealings, are injured. As every merchant de- 
 pends in part on what is owing to him by others to pay his 
 own creditors, bankruptcies seldom occur singly. One 
 dishonest, or one simply unfortunate man, may break 
 twenty. 
 
 When credit has caused such a distribution of wealth 
 as renders that capital productive which would otherwise 
 be unproductive, and gives employment to those persons 
 who would otherwise be idle, or less profitably employed, 
 it effectuates all the good that it is in its nature capable of 
 accomplishing. Left to itself, it would regulate itself — 
 would reach this limit, and seldom pass beyond it. Pushed 
 beyond this extent, it becomes pernicious ; and it is push- 
 ed far beyond this extent, byour present system. There 
 is now little buying or selling, except on credit. Even the 
 trade of consumption is on credit. A pass book goes to 
 the crrocer's ; and the tailor and the shoemaker think them- 
 selves happy if their bills are paid at theend of the year. 
 
 The retail storekeeper (if he does not commence busi- 
 ness without any capital of his own,) lends his capital to 
 his customers by selling to them on credit. This forces 
 him to borrow another capital from the wholesale merchant : 
 for, buying goods on credit, is the same as borrowing capi- 
 
40 EFFECTS ON CREDIT. 
 
 tal — it is borrowing in the shape of goods instead of money, 
 and giving a note instead of a bond, and an additional price 
 instead of interest. The wholesale merchant, having lent 
 his capital to the retailer, is forced to borrow another capi- 
 tal from the Bank. The Bank, in its turn, borrows the 
 capital of its depositors, and of those who receive its notes. 
 In this way, the whole community becomes indebted — the 
 private families to the storekeepers, the storekeepers to the 
 merchants, the merchants to the Banks, and the Banks to 
 the community at large. 
 
 Nothing is gained by this forced extension of the credit 
 system. It does, indeed, increase the gambling trade of 
 speculation : and that kind of trade in which sheriffs, con- 
 stables, and assignees, are the active agents. It also in- 
 creases, in particular years, the trade of consumption : but 
 then it draws from the productive capital of the country, 
 and diminishes the trade of consumption in the following 
 years. The amount o{ bona Jide trade for a series of years 
 depends on the amount of goods produced and to be ex- 
 changed. The aggregate of this trade would be much 
 increased through the habits of industry and economy 
 which a cash and sound credit system would introduce. 
 
 On a cash system, men with small capitals could do as 
 much business as they do at present. They would then 
 turn their capital more frequently. By each act of trade, 
 they would get back their own capital. Now, when they 
 turn their capital once, they turn it out of their own hands, 
 and it remains out of their hands for a year or eighteen 
 months. In the interim they must employ themselves in 
 turning other people's capital, or give up business. 
 
 If an account should be rendered of the amount lost by 
 bad debts in the course of a year, some notion might be 
 formed of oiic of the evils of super-extended credit : for, 
 nine bad debts in ten may fairly be laid to the account 
 of this system. The aggregate must be enormous, as from 
 000 to 800 persons annually take the benefit of the insol- 
 vent laws in Philadelphia alone, and numerous compromises 
 are made of which the the courts take no cognizance. 
 
OF BANKS AS CORPORATIONS. 41 
 
 CHAPTER IX. 
 
 Of Banks as Corporations. 
 
 Against corporations of every kind, the objection may 
 be brought, that whatever power is given to them, is so 
 much taken from either the Government or the people. 
 
 As the object of charters is to give to members of com- 
 panies powers which they would not possess in their indi- 
 vidual capacity, the very existence of monied corporations 
 is incompatible with equality of rights. 
 
 Corporations are unfavorable to the progress of national 
 wealth. As the Argus eyesof private interest do not watch 
 over their concerns, their affairs are much more carelessly 
 and much more expensively conducted than those of indi- 
 viduals. What would be the condition of the merchant 
 who should trust every thing to his clerks, or of the farmer 
 who should trust every thing to his laborers ? Corporations 
 are obliged to trust every thing to stipendiaries, who are 
 oftentimes less trustworthy than the clerks of the merchant 
 or the laborers of the farmer. _ 
 
 Such are the inherent defects of corporations, that they 
 never can succeed, except when the laws or circumstances 
 give them a monopoly, or advantages partaking of the na- 
 ture of a monopoly. Sometimes they are protected by 
 direct inhibitions to individuals to engage in the same 
 business. Sometimes they are protected by an exemption 
 from liabilities to which individuals are subjected. Some- 
 times the extent of their capital or of their credit, gives 
 them a control of the market. They cannot, even then, 
 work as cheap as the individual trader, but they can afford 
 to throw away enough money in the contest, to rui?i the in- 
 dividual trader, and then they have the market to themselves. 
 If a poor man suffers aggression from a rich man, the 
 disproportion of power is such, that it may be difficult for 
 him to obtain redress; but if a man is aggrieved by a cor- 
 poration, he may have all its stockholders, all its clerks, 
 and all its proteges for parties against him. Corporations 
 are so powerful, as frequently to bid defiance to Govern- 
 ment. 
 
 If a man is unjust, or an extortioner, society is, sooner 
 5* 
 
42 OF BANKS AS CORPORATIONS. 
 
 or later, relieved from the burden, by his death. But cor- 
 porations never die. 
 
 What is worst of all, (if worse than what has already been 
 stated be possible,) is that want of moral feeling and respon- 
 sibility which characterizes corporations. A celebrated 
 English writer expressed the truth, with some roughness, 
 but with great force, when he declared that "corporations 
 have neither bodies to be kicked, nor souls to be damned." 
 
 All these objections apply to our American Banks. 
 
 They are protected, in most of the States, by direct inhi- 
 bitions on individuals engaging in the same business. 
 
 They are exempted from liabilities to which individuals 
 are subjected. If a poor man cannot pay his debts, his bed 
 is, in some of the States, taken from under him. If that 
 will not satisfy his creditors, his body is imprisoned. The 
 shareholders in a Bank are entitled to all the gain they 
 can make by Banking operations ; but if the undertaking 
 chances to be unsuccessful, the loss falls on those who have 
 trusted them. They are responsible only for the amount 
 of stock they may have subscribed. 
 
 For the old standard of value, they substitute the new 
 standard of Bank credit. Would Government be willing 
 to trust to corporations the fixing of our standards and 
 measures of length, weight, and capacity? Or are our 
 standards and measures of value of less importance than 
 our standards and measures of other things ? 
 
 They coin money out of paper. What has always been 
 considered one of the most important prerogatives of Go- 
 vernment, has been surrendered to the Banks. 
 
 In addition to their own funds, they have the whole of 
 the spare cash of the community to work upon. 
 
 The credit of every business man depends on their nod. 
 They have it in their power to ruin any merchant to whom 
 they may become inimical. 
 
 We have laws against usury : but if it was the intention of 
 the Legislature to encourage usurious dealings, what more 
 efiicient means could be devised than that of establishing 
 incorporated paper money Banks ? 
 
 Government e.\tends the credit of these institutions, by 
 receiving their paper as an equivalent for specie, and ex- 
 erts its whole power to protect and cherish them. Who- 
 ever infringes any of the chartered privileges of the Banks, 
 is visited with the severest penalties. 
 
OF BAXKS AS CORPORATIONS. 43 
 
 Supposing Banking to be a thing good in itself, why 
 sliould Banlvers be exempted from liabilities to which farm- 
 ers, manufacturers, and merchants are subjected ? It will 
 not surely be contended that Banking is more conducive 
 than agriculture, manufactures, and commerce, to the pro- 
 gress of national wealth. 
 
 Supposing the subscribers to Banks to be substantial 
 capitalists, why should artificial power be conferred on them 
 by granting them a charter ? Does not wealth of itself 
 confer sufficient advantages on the rich man 1 Why should 
 the competition among capitalists be diminished, by form- 
 ing them into companies, and uniting their wealth in one 
 mass. 
 
 Supposing the subscribers to Banks to be speculators 
 without capital — what is there so praiseworthy in their de- 
 sign of growing rich without labor, that Government should 
 exert all its powers to favor the undertaking ? 
 
 Why should corporations have greater privileges than 
 simple co-partnerships ? 
 
 On what principle is it, that, in a professedly republican 
 Government, immunities are conferred on individuals in a 
 collective capacity, that are refused to individuals in their 
 separate capacity ? 
 
 To test this question fairly, let us suppose that a propo- 
 sition were made to confer on fourteen individuals in Phila- 
 delphia, and three or four hundred individuals in other parts 
 of the country, the exclusive privileges which three or four 
 hundred incorporated Banks now possess. How many citi- 
 zens would be found who would not regard such a proposition 
 with horror. Yet privileges conferred on corporations are 
 more pernicious, because there is less moral feeling in the 
 management of their concerns. As directors of a compa- 
 ny men will sanction actions of which they would scorn to 
 be guilty in their private capacity. A crime which would 
 press heavily on the conscience of one man, becomes quite 
 endurable when divided among many. 
 
 We take much pride to ourselves for having abolished 
 entails, and justly, in so far as the principle is concerned : 
 but it seems to be lost sight of by many that entails can 
 prove effective only when the land is of limited extent, as 
 in Great Britain ; or where the mass of the population are 
 serfs, as in Russia. In those districts of our country 
 
44 OF BANKS AS CORPORATIONS. 
 
 where negro slavery prevails, entails, aided by laws of 
 primogeniture, would have kept estates in a few hands : 
 but in the Middle and Northern States, a hundred ways 
 would have been contrived for breaking the succession. 
 If direct attempts had proved unsuccessful, the land would 
 have been let on leases of 99 or 999 years, which would 
 have been nearly the same in effect as disposing of them 
 in fee simple. The abundance of land prevents its being 
 monopolized. Supposing the whole extent of country, from 
 the Atlantic to the Pacific, and north of the 39th degree 
 of latitude, parcelled out among a few great Feudatories ; 
 those Feudatories, in order to derive a revenue from their 
 domains, would be forced to lease them in a manner which 
 would give the tenants the whole usufruct of the terrene; 
 for, the quit rent would be only an annual payment, in- 
 stead of a payment of the whole in advance. 
 
 But the floating capital of the country is limited in 
 amount. This, from the condition of things, may be mo- 
 nopolized. A small portion of the community have already, 
 through the agency of Banking operations, got possession 
 of a great part of this floating capital, and are now in a 
 fair way of getting possession of much of the remainder. 
 Fixed and floating capital must be united to produce in- 
 come, but he who has certain possession of one of these 
 elements of revenue, will not long remain without the other. 
 
 The difference between England and the United States, 
 is simply this: in the former country, exclusive privileges 
 are conferred on individuals who are called Lords; in the 
 latter, exclusive privileges are conferred on corporations 
 which are called Banks. The effect on the people of 
 both countries is the same. In both the many live and 
 labor for the benefit of the few. 
 
POPULAR ARGUMENTS. 
 
 45 
 
 CHAPTER X. 
 
 Of the Popular Arguments in favor of Banking. 
 
 'The objections to the American Banks are tripartite. 
 They are, first, such as arise from their substituting paper 
 money for metallic. Secondly, such as arise from their 
 introducing an unsound system of credit. And, thirdly, 
 such as arise from their nature as corporations. ,. If the 
 reader will take a view of all the different operations of the 
 Banks, connecting them together in his mind as they are con- 
 nected in fact, he will require no refutation of the popular 
 arguments in favor of the system. Nevertheless, it may not 
 be amiss, for the satisfaction of some, to consider these argu- 
 ments in the form in which they are commonly presented. 
 
 " Banks make money plenty." 
 
 Nay, they make real money scarce. As Bank notes are 
 circulated, gold and silver are driven away. It is contrary 
 to the laws of nature that two bodies should fill the same 
 space at the same time : and no fact is better established 
 than that, where there are two kinds of currency authorized 
 by law or sanctioned by custom, that which has the least 
 value, will displace the other. If Banks at any time make 
 money more plentiful than it would be if only gold and 
 silver circulated, they diminish its value in increasing its 
 quantity. The valuation, or relative estimation of things 
 is thereby enhanced, but not an atom is added to the 
 wealth of the community. 
 
 " Banks diminish the rate of interest." 
 
 So far is this from being true, that the Banks tend to 
 increase the rate of interest, by collecting capital into large 
 masses, and diminishing the competition among money 
 lenders. They, also, by their various operations, immediate 
 and remote, give rise to a multitude of usurious transactions. 
 
 " Banks do much good hy lending money to individuals." 
 
 But much less good than would be done, by the owners 
 of this money lending it themselves. Banks, as was ob- 
 served in a previous chapter, do not increase the loanable 
 capital of the country, but only take it out of the hands 
 of Its proprietors, and place it under the control of irres- 
 ponsible Bank Directors. 
 
43 POPULAR ARGUMENTS. 
 
 " If there icere no Bank paper, specie must of necessity 
 he frequently transported to and from distant parts of the 
 country, ot great erpense and great risk." 
 
 The trade between different parts of the country does 
 not consist of an interchange of Bank notes or of specie, 
 but of the products of the soil and the industry of the in- 
 habitants. B31 private bills of exchange, the sums due to 
 one trader could be transferred to another ; and it would be 
 necessary only occasionally to discharge balances in specie. 
 This is, in fict, the present custom of trade, Bank notes being 
 to only a limited extent, substitutes for bills of exchange. 
 
 " Banks diminish the rate of exchange between different 
 parts of the country." 
 
 Then they do great evil. The rate of exchange is the 
 natural balance wheel of trade between different parts of 
 the country. Banks cannot interfere with this, without 
 doing harm. When they lessen the rate of exchange, they 
 remove a natural check on overtrading. 
 
 " Banks give greater security than individuals in buy- 
 ing and selling exchange." 
 
 If so, it is because the other operations of Banking have 
 rendered all kinds of business uncertain. In countries 
 where paper money is unknown, no more risk attends 
 dealinofs in exchange than other kinds of dealings. 
 
 " Such are the customs of trade in the United States, 
 that Banking seems necessary." 
 
 But the customs herein referred to have their origin in 
 Banking, and, as they are pernicious, ought to be abo- 
 lished. 
 
 " All commercial countries have some systems of Bank- 
 ing." 
 
 And none have a worse system than the United States. 
 In all commercial countries, there are men who receive 
 money on deposit, lend money, and deal in exchanges; but 
 the system of Banking on paper money, is of modern ori- 
 gin. The cities of Greece, and Rome, and Egypt, and 
 ancient Asia, attained to wealth far greater than we can 
 boast of, without the aid of chartered Banks. In all coun- 
 tries in which pa])er money Banking, or paper money of 
 any kind, has been introduced, it has done much evil. Aus- 
 tria, Russia, Sweden, France, Denmark, Portugal, Bra- 
 zil, and Buenos Ayres, all bear witness to this truth, as well 
 
POPULAR ARGUMENTS. 
 
 47 
 
 as England and the United States. To these countries we 
 may add China, in which paper money was tried before 
 the commencement of our era, and, on experience of its ill 
 effects, abandoned. 
 
 " The various evils that are mentioned as flowing from 
 Banking, proceed, in fact, from abuses of it. Banking on 
 proper principles is productive of great benefits." 
 
 We willingly admit that Banking on proper principles 
 would be productive of great benefits : but we deny that 
 banking with paper money, or by corporations possessing 
 peculiar privileges, is Banking on proper principles. 
 
 " Paper is more convenient than specie in large pay- 
 ments." 
 
 Deduct from the total of large payments, all those that 
 are made on account of accommodations at Bank, and all 
 those made on account of the wild speculations introduced 
 by Banking, and it will be found that so few large pay- 
 ments would remain to be made, that we should be able to 
 get through them all without difficulty. To count out a 
 sum in ten or twenty dollar gold pieces, would be as easy 
 as to count it out in ten or twenty dollar Bank notes. Be- 
 fore the establishment of a Bank in ^Montreal, guineas were 
 done up in rouleaus, and such was the confidence the 
 merchants had in one another, that the paper envelopes of 
 the guineas were seldom broken. We mention this merely 
 to show that the effecting of large payments with metallic 
 money, would not be a work of so much difficulty as some 
 imagine. In cases vvhere great despatch was required, the 
 silver or gold money might be weighed, as was done by the 
 Bank of England in 1825, when the demands for gold was 
 so urgent, that the tellers had not time to count the sove- 
 reigns they paid out. 
 
 If we wish to effect large payments with the least possi- 
 ble inconvenience, we must establish a single Office of De- 
 posit and Transfer in each large town. This would save 
 the time which is now lost in running from Bank to Bank. 
 
 " Paper saves the wear and tear of coin." 
 
 The savincris too insignificant to betaken into a national 
 account, in a subject of so much importance as the sound- 
 ness of the currency. Mr. Gallatin says that " the an- 
 nual amount wanted to repair the loss occasioned by fric- 
 tion in gold and silver coin, cannot exceed, taking the 
 
48 POPULAR ARGUMENTS. 
 
 highest computation, seventy thousand dollars a year in a 
 coinage of forty millions, and is probably much less." This 
 estimate has been formed by Mr. G., " from various opi- 
 nions deduced from actual experiments." 
 
 Dr. Moore, the Director of the United States Mint, in a 
 report made to the President in 1826, computes the loss 
 on gold coins at two per cent, in fifty years, and on silver 
 coins at only one per cent. 
 
 Agreeably to the report made to the Senate by the Com- 
 mittee of which Mr. Sanford was chairman, half-dollars 
 and half-eagles will circulate for one hundred years, and 
 dollars and eagles for two hundred years, without being so 
 much worn or defaced as not to serve the purposes of a 
 circulating medium. 
 
 " Banks affo', d the pvhlic a safe place for depositing 
 their funds." 
 
 Not always. One hundred and sixty of these safe deposi- 
 tories, have broken in the last twenty years, and one hun- 
 dred and sixty more may break in the twenty years next 
 to come. 
 
 Again : all those who deposited money in the Banks in 
 the early part of 1814, received back their deposits in mo- 
 ney of inferior value. What has happened once, may hap- 
 pen again. 
 
 The probability is, that ten times as much has been lost 
 by depositing money in Banks, as would have been lost if 
 people had kept their money in their own houses. 
 
 " Every man ought to be allowed to use his own credit." 
 
 Exactly so : and, therefore, we ought not to have incor- 
 porated Banks, which give credit to some, by taking it 
 from others. These institutions owe their credit to acts of 
 Assembly. If their charters were taken from them, not 
 even their own stockholders would trust them. Every man 
 ouglit to be allowed to use his own credit ; but he ought to 
 get that credit fairly, and use it properly. 
 
 " If there were no Banks, it would be easy to borrow 
 money on bund or mortgage, for long periods, but it would 
 not be possible to obtain discount of 7nerchants' business 
 paper, which has but a few months to run."- 
 
 Not so : If the corporate Banks of Philadelphia were 
 abolished, many private Banks would spring up in their 
 place. The owners of these private Banks would be men 
 
POPULAR ARGUMENTS. 49 
 
 in whom the public could place confidence, for they would 
 
 be responsible in the whole amount of their estates. They 
 
 would be men of great wealth, for it is in lending money I 
 
 that men of large fortunes can employ their capitals with 
 
 most profit and convenience. The competition among I 
 
 them would be such, that business notes would be discount- \ 
 
 ed on more favorable terms than at present. They would 
 
 allow interest on such sums as their customers might leave 
 
 in their hands. For their own convenience, they would 
 
 establish a public Office of Transfer and Deposit, and pay 
 
 the greater part of the expenses of this institution. 
 
 The system of private Banking in England, has done 
 much evil, (though much less evil than the system of cor- 
 porate Banking in the United States,) because the private 
 Banks of England have traded partly on paper money issued 
 by themselves, and partly on that issued by the Bank of 
 England. 
 
 In Scotland, where the regulating power is in the unin- 
 corporated Banks, the system does less evil than in England, 
 although paper money is used in both countries. 
 
 Private Banking in Switzerland, Holland, France, Ham- 
 burg, and Bremen, does much good and no evil. Such a 
 system will we have in the United States, when paper money 
 shall be abolished. In every town in the United States, in 
 which there is trade enough to require it, private Bankers 
 will spring up, who will receive money on deposit, and pay 
 interest for the use of it: Lend money on interest: Buy 
 and sell bills of exchange: Attend to the collection of 
 debts, and in various ways facilitate business. Operating 
 on sufficient capital, these private Bankers will not ruin 
 their customers by violent " contractions." Neither will 
 they incite them to engage in improper enterprizes, by 
 sudden and great "expansions." 
 
 Our corporate Banks do no good to compensate for the 
 evils they occasion, by their continual alterations of the 
 measures of value, by the uncertainty they give to trade, 
 and by the advantages they confer on some men over others. 
 With private Banks, and public Offices of Transfer and 
 Deposit, we should have all that is good in the present sys- 
 tem, without the evil. 
 
 6 
 
RESTRICTIONS ON BANKING CORPORATIONS. 
 
 CHAPTER XI. 
 
 Of Restrictions on Banking Corporations. 
 
 The evils which are produced by paper money Banking, 
 are so great as necessarily to force themselves on the atten- 
 tion of those who are most deeply interested in the con- 
 tinuance of the system. To remedy these evils, they pro- 
 pose various restrictions on Banking corporations, or new 
 modes of conducting their business. 
 
 A common opinion is, that, if the Banks would not dis- 
 count accommodation notes, and if they would confine 
 themselves to business paper of short dates, their operations 
 would not be injurious to the community.* But, a little 
 reflection may convince us, that, by discounting busi- 
 ness paper, as much Bank paper might be set afloat, as 
 by discounting accommodation notes. The same lot of 
 goods might be sold to a dozen persons, and each might 
 give a note, and each of these twelve notes might be dis- 
 counted at Bank. The limit on Bank issues would be the 
 same as at present — that is, the demand for specie for 
 foreign trade. The anxiety of the Banks to extend their 
 issues would be in no way diminished. The inducement, 
 then, would be to buy and sell goods that notes might be 
 discounted at Bank. Now, it is to have notes discounted 
 at Bank, that goods may be bought and sold. The spirit 
 of speculation being excited by any cause, notes would flow 
 in for discount, and the Banks would, as at present, dis- 
 count as many as they might deem prudent. 
 
 The severest legislative enactments could not confine 
 the Banks to discounting business paper of short dates, if 
 this paper did not afford full employment to all their "capi- 
 
 * This opinion was sufficiently refuted by the Bullion Committee, so 
 l()ng ago as 1811 ; and the correctness of their conclusion is confirmed 
 by those who have had the best opportunities for observing the opera- 
 tions of the IJanliing system. " l consider the opinion enteitained by 
 some," says Sir V. IJ., '■ tliat the Bank ought to regulate its issues by 
 the public demand, as dangerous in the extreme; l)ecause I know by 
 experience, that the demand for speculation can only be limited by want 
 of means." The general practice in t'.ngland is to discount only busi- 
 ness paper, but this does not jjrevent the recurrence of evils similar to 
 those we sutler in the United States. 
 
RESTRICTIOXS OX BANKING CORPORATIONS. 
 
 51 
 
 tal" and all their " credit." They would soon find suffi- 
 cient reasons for " renewing" the business notes of some 
 of their customers, and those notes, thus renewed, would 
 become accommodation notes. 
 
 Except in the cases of applications from Directors, and 
 their favorites, the Banks now prefer business notes, because 
 these place their issues more immediately under their con- 
 trol. More than a certain amount they cannot lend on 
 accommodation paper, for they must keep so much capital 
 under command as is necessary to support their credit. 
 Their deposits would otherwise be withdrawn, and the cir- 
 culation of their notes would cease. It does not appear 
 that these accommodation notes have any specially mis- 
 chievous effect on prices. They are permanent in amount, 
 or nearly so. The fluctuation ofprices appears to be occa- 
 sioned by that part of Bank " capital" and of Bank 
 " credit," which is always varying in amount. 
 
 Limiting the amount of issues to double the amount of 
 capital, and the amount of loans to thrice the amount of 
 capital, is a favorite provision with legislators. But, Mr. 
 Gallatin says, " amongst more than three hundred Banks, 
 either now existing, or which have failed, and of which we 
 have returns, we have not found a single one, the loans of 
 which amounted, so long as specie payments were in force, 
 to three times, or the issues to twice, the amount of capital. 
 It is clear, that provisions applicable to such improbable 
 contingences, are purely nominal." 
 
 Compelling the Banks to give an annual statement of 
 their affairs, is also a favorite measure. But it is not easy 
 to compel them to give a/fl/^/i/w/ statement. The accounts 
 of the Banks that break look nearly as well on paper as 
 the accounts of the Banks that continue payments. They 
 who are acquainted with the secrets of Bank management, 
 say, little reliance is to be placed on these accounts. 
 
 Preventing the Banks from issuing notes of a less deno- 
 mination than five dollars, is a measure which is effective 
 so far as it goes. But it still leaves the Banks the power 
 to substitute paper for specie, and to carry on credit deal- 
 ings to an extent which is very pernicious. In England, 
 where the issue of notes of a less denomination than one 
 pound sterling, or about four dollars and eighty cents, has, 
 for many years, been prohibited, the contractions and ex- 
 
 (u: 
 
52 RESTRICTION'S ON BANKING CORPORATIONS. 
 
 pansions of tlie Bank have done so much evil, that it has 
 been found necessary to prohibit the emission of any notes 
 of a less denomination than five pounds sterling, or about 
 twenty-four dollars Federal currency. The Bank of France 
 issues no notesof a less d(M)omination than 500 francs, equal 
 to about ninety-four dollars of our money, yet the Bank of 
 France is at times forced to make such sudden and great 
 curtailments, as inflict much evil on many of those who are 
 within the sphere of its influence. The manufacturers in 
 Alsace had doleful experience of this power of the Bank 
 in France, in 1825. The merchants of Paris, and through- 
 out the kingdom, felt it in 1819. In 1822, also, the contrac- 
 tions which the Bank of France found it necessary to make, 
 produced much commercial embarrassment in many parts 
 of that country. 
 
 In the charter of the Bank of France, there is a provi- 
 sion that all profits above six per cent, shall be converted 
 into a reserved stock, on which reserved stock the Bank 
 may make dividends not exceeding five per cent. Such a 
 provision in the American Bank charters, would remove 
 many inducements to over-banking, and would make specu- 
 lations in their stock less frequent. 
 
 In proportion as the personal responsibility of those con- 
 cerned in Banking is increased, and in proportion as the 
 denomination of the notes they are permitted to issue, is 
 raised in amount, the system becomes less pernicious. But 
 no legislative enactments can afford an adequate remedy 
 for the evils which flow from incorporated paper money 
 Banks. The system is, to use the language of the lawyers, 
 malum per sc — or a thing which is evil in its nature. The 
 very principle of its foundation is wrong. No immuni- 
 ties should, in a Republican Government, be granted to 
 any, save tliose which are common to all. To impart to 
 corporations a moral sense of right and wrong, is impossi- 
 ble. They may be made nominally responsible, but to 
 impose on them an cffrctivc responsibility is impracticable. 
 To a certain extent they obey the laws, and respect pub- 
 lic opinion, but it is only so far as, and so long as, is neces- 
 sary for making their business profitable. The interest 
 account of the Banks is, in point of fact, the only effective 
 check we have on the abuse of those powers which our 
 legislative bodies have conferred on them by charter. 
 
ESSEXTIAL QUALITIES OF BAXK .VOTES. 53 
 
 r^ Such privileges as the Banks possess, ought neither to be / 
 sold nor to be given away, by a republican legislature, to any 
 men or any body of men. A control over the whole of the 
 cash and the credit of the community, is a power as de- 
 spotic in its nature as any possessed by the nobility of 
 Germany. 
 
 . The regulation of the currency is one of the most im- 
 portant prerogatives of sovereignty. This prerogative is 
 now, in point of fact, surrendered to the Banks. They 
 drive away what may be called the natural money of the 
 country, and substitute for it something which differs from 
 this natural money in both the nature of its value, and the 
 causes of its value. A quantity of this money may be put 
 afloat, but, whatever may be the discretion of Directors of 
 Banks, and whatever may be the legal restrictions on cor- 
 porations, it must fluctuate in quantity, and be affected in, 
 value, by all the causes, natural and political, by which 
 credit is affected. It is flexible, vacillating, agitated by 
 every wind that blows. If any man can invent a method 
 by which the hardness and other properties of platina can 
 be imparted to lead, that man may hope to discover the 
 means by which Bank credit may be made as stable as 
 gold and silver medium. 
 
 To prove that the task is hopeless, we shall give an 
 analysis of the standard and measures of value introduced 
 by Banking. 
 
 CHAPTER XII. 
 
 Of the Essential qualities of Bank Notes. 
 
 Bank notes are considered by some as "representatives of 
 specie." But, for every silver dollar they have in their 
 vaults, some of the Banks have two paper dollars in circu- 
 lation, some three, some five, some eight, and some thir- 
 teen. Bank notes cannot represent that which the Banks 
 have not. and which is not in the country. If Bank notes 
 can, in any sense, be considered representatives of specie, 
 the paper dollar of the same Bank sometimes represents 
 fifty cents, and sometimes forty cents : and the paper dol- 
 C* 
 
54 ESSENTIAL QUALITIES OF BANK NOTES. 
 
 lars of different Banks represent at the same time, thirty- 
 three and a third cents, twelve and a half cents, ten cents, 
 and seven cents of the silver dollar. Yet they are all 
 current, and all have the same effective power as silver in 
 exchanges. 
 
 Various other erroneous views are entertained of the na- 
 ture of Bank notes, the consideration of which would be 
 tedious. Examining them one by one, would be merely 
 showing what Bank notes are not. Instead of doing this, it 
 will, it is presumed, be sufficient to show what Bank notes 
 really ai^e. 
 
 Bank notes are simple evidences of debt due by the Banks. 
 This is their true character. 
 
 As mere evidences of debt, they differ not from the pro- 
 missory notes of merchants. They are also, in common 
 with bills of exchange and business notes, a commercial 
 medium ; but in some respects, there is an essential diffe- 
 rence between Bank notes and the notes of merchants.* 
 
 For their promissory notes, the merchants lyay interest. 
 For the promissory notes of the Banks, the Banks receive 
 interest. 
 
 The promises to pay of the merchants are fulfilled, when 
 the notes arrive at maturity. Bank notes are never paid.t 
 
 Payment of them in the aggregate is never demanded, 
 
 • " A bill of exchange drav?n by an individual or individuals who 
 do not issue notes having the character of currency, appears to us to 
 be clearly distinguished from a Banli note, though it is a substitute, and 
 lessens tiie amount of currency which would otiierwise be required. 
 A payment made in Bank notes is a discharge of the debt, the creditor 
 having no further recourse against the person from wiioni he has re- 
 ceived it, unless the Bank had previously failed. The bill of exchange 
 does not discharge the debt, the person who receives it having recourse 
 against the drawer and every preceding endorser, in case the drawer 
 should fail or refuse to pay. But the essential distinction is, that bills 
 of exchange are only promises to pay in currency : and that the failures 
 of the drawers, drawees, and endorsers, docs not in the smallest degree, 
 affect the value of the currency itself, or impair that permanent stan- 
 dard of value by which the pertbriuance of all contracts is regulated." 
 
 iiallalin. 
 
 t " The essential dilTercnce between Banking and other commercial 
 business is that merchants rely for the fulfilment of their engagements 
 on their resources, and not on the foriiearance of their creditors, whilst 
 the Banks always rely, not only on tl.'cir resources, but also on the pro- 
 bability that their creditors will not require payment of their demands." 
 
 Gallalin. 
 
ESSENTIAL QUALITIES OF BANK NOTES. 
 
 55 
 
 because what could be got in payment, would, for most 
 purposes of domestic trade, serve no better purpose than 
 Bank notes themselves. 
 
 Bank notes are thus a kind of paper money. In the 
 countries where they are used, bills of exchange, the pro- 
 missory notes of merchants, and balances of running ac- 
 counts, are paid in Bank notes, as they are paid in other 
 countries with metallic money. 
 
 The sales for prompt payment in Bank notes regulate 
 sales for deferred payment in Bank notes, as, in solid money 
 countries, cash transactions regulate credit transactions. 
 
 Like real money. Bank notes are instruments of valua- 
 tion. The quantities they express are the exponents of the 
 effective power in exchanges of land, labor, and commo- 
 dities. 
 
 An increase or decrease of Bank notes in the United 
 States, has the same effect on prices, that an increase of 
 solid money has on prices in Spain or Switzerland. 
 
 Increase the amount of Bank notes, and, other things 
 being the same, prices will rise. 
 
 Diminish the amount of Bank notes, and, other things 
 being the same, prices will fall. 
 
 In our first chapter, the several qualities of gold and 
 silver were enumerated, all which qualities an article must 
 possess in the same degree, to serve as well as the precious 
 metals the purposes of money. In proportion as the quali- 
 ties of articles recede from those of gold and silver, they 
 are unfitted for these uses. By a comparison of the differ- 
 ent qualities of Bank notes and coin, the reader may 
 acquire a clear conception of the difference between real 
 money and fictitious. 
 
 In susceptibility of receiving an impression, and in 
 comprising a great value (i. e. market value) in a small 
 space, Bank notes agree with coin. But in every thing else 
 they disagree. Of utility in the arts, the very attribute that 
 gives gold and silver their value in commerce. Bank notes 
 are utterly destitute. They are also destitute of the im- 
 portant qualities of unchangeableness of value, and of uni- 
 formity of value. 
 
 We, however, because we have never changed our mo- 
 ney of account, fancy that we have never changed our 
 standard of value. We call a Bank dollar by the some 
 
56 ESSENTIAL QUALITIES OF BANK NOTES. 
 
 name as a silver dollar, and then fancy there is no essen- 
 tial difference between them. 
 
 In our mensuration of other things which admit of in- 
 crease or decrease by homogeneous degrees, we use in- 
 struments possessing the same physical properties as the 
 thing to be measured. The judgment the mind forms of 
 weight or length, is regulated by a material standard. The 
 judgment the mind forms of value, is regulated by an ideal 
 standard ; for Bank credit is something altogether intan- 
 gible. 
 
 In solid money countries, in all sales of goods for cash, 
 the products of labor are exchanged for the products of 
 labor. The product of the miner's labor, is made the in- 
 strument for circulating the products of the farmer's and 
 of the manufacturer's labor. The transactions are remov- 
 ed but one step from simple barter, and do not differ from 
 it in its essential principle. The exchanges on both sides 
 are of articles possessing inherent value — articles in the 
 production of which labor has been bestowed, and articles 
 which possess the physical qualities which adapt them to 
 the satisfaction of human wants and desires. We receive 
 commodities from one another, and give in return some 
 uncertain representatives of credit, and fancy that trade is 
 conducted with us on the same principles as it is in those 
 countries where paper money is unknown. We pass from 
 hand to hand certain promises to pay, and call that ma- 
 king payment. 
 
 The relations in the supply and demand of the precious 
 metals are so slow in changing, that hardly any percepti- 
 ble variation in the value of silver has, according to some 
 able authors, taken place in the last two centuries. But 
 the supply of Bank notes may vary several per cent, in dif- 
 ferent periods of the same year, and twenty or thirty per 
 cent, iu three or four years. Thence come great rises and 
 falls of price : but we have only an imperfect apprehension 
 of the cause, for our intangible standard of value never 
 changes its name, how great soever may be the extent in 
 which it is contracted or expanded. 
 
 It is folly to say that the money of the country is not 
 paper money. In Virginia, Pennsylvania, and Maryland, 
 payments of a less amount than five dollars are made in 
 real money : but in the other States, dollar notes circulate, 
 
ESSENTIAL QUALITIES OF BANK NOTES. 57 
 
 SO that payments in specie are made for only fractional 
 parts of the dollar. In North Carolina, South Carolina, 
 and some other parts of the Union, notes for 25 cents, 12| 
 cents, and even 6| cents, are current. There even small 
 silver change is a rarity.* 
 
 Of large payments, nine hundred and ninety-nine in a 
 thousand are made with paper. Of small payments, nine- 
 ty-nine in a hundred. The currency of the country is, 
 we repeat it, essentially a paper currency. The sprinkling 
 of silver has only the effect of keeping up the reputation 
 of the paper. This paper varies m amount, from day to 
 day, from month to month, and from year to year. Every 
 thing that aifects the spirit of enterprize, affect scorn mer- 
 cial credit, and through that. Bank credit. 
 
 The importance of adjusting measures of value with the 
 greatest exactness, is enforced by all who have written on 
 the subject. An order has recently been issued to re-coin 
 the whole of the silver money of France, amounting to not 
 less than eighty millions of dollars, on account of its hav- 
 ing been discovered that the mode of assay by cupellation, 
 indicates but 1000 grains of pure silver in a mass contain- 
 ing 1004 grains. The difference between the legal and 
 the practical standard, is less than a half of one per cent. ; 
 yet this difference has been deemed important enough to 
 make necessary a re-coinage of the whole of the silver 
 money of the country. Our own statesmen bear a silent 
 testimony to the truth of this doctrine, by their attempts to 
 
 * It is observed by Mr. While, Cashier of the Uuited States Branch 
 Bank at Baltimore, in a letter to the Secretary of the Treasury, under 
 date of Feb. 30lh, 1830 : " Congiess fixed the relative value of gold at 
 15 for 1 of silver; and under the natural presumption that gold and 
 silver coin would compose a portion of the general circulating medium, 
 it has also been enacted, that a tender of either of those metals should 
 be the only legal mode of discharging obligations. In practice, hoicever, 
 and ill fact, our currencij consists altogether of ■paper. In this State, 
 (Maryland,) and in Pennsylvania, Virginia, and perhaps some others, 
 the fractional parts of a dollar circulate in sufficient quantity to purchase 
 with coin, marketing, or other low priced necessaries; but in the Caro- 
 linas, Georgia, and all that great district eastward of Pennsylvania, 
 composing the States most distinguished for commerce and manufac- 
 tures, and for wealth, there is no transfer of the value of the established 
 unit that is not effected by paper. This Bank paper is sustained by 
 public confidence on a specie basis, considered sufficient to liquidate 
 balances accruing among the several States, and to supply the de- 
 mands for foreign commerce." 
 
58 CONVERTIBILITY OF BANK MEDIUM. 
 
 determine the ratio of gold and silver, carrying out their 
 calculations in some tables to the five hundredth thousandth 
 part of a grain. 
 
 Such is the care that Governments (our own among oth- 
 ers) take in fixing metallic standards and measures of value. 
 If by any accident a dollar coined at our mint should con- 
 tain but 369 grains of pure sdver instead of 371^, it would 
 not be put in circulation. The nicest chemical and me- 
 chanical operations are resorted to that the different pieces 
 may have an exact uniformity. But, having done this, our 
 next care is to drive metallic measures of value from the 
 country, and substitute those of the most uncertain nature 
 possible. 
 
 CHAPTER XIII. 
 
 Of the "Convertibility" of Bank Medium. 
 
 Many who are inimical to paper money in every other 
 form, are friendly to the use of Bank paper, because it is, 
 they say, equal to specie, inasmuch as specie can be ob- 
 tained for it at the will of the holder. 
 
 But what does this " convertibility" amount to ? Though 
 we have between three and four hundred Banks, we have 
 not yet one at every man's door ; and, if we had, every 
 man would, in the course of business, be compelled to re- 
 ceive the paper of distant Banks. A man may prefer silver, 
 and yet not choose to walk even half a mile, to have his 
 note changed. 
 
 Those whose money dealings are most extensive, like 
 not to offe-.J the Banks by too frequent calls on them for 
 specie. It might lead to a curtailment of their accommo- 
 dation. They have as deep an interest as the stockholders 
 and the directors in keeping the notes in circulation.* 
 
 " In a debate in Parliament in .Inly lt*28, Lord King said, that "as 
 for payment in gold, Ik- knew there was an esprit dc corps among tlie 
 Bankers, and people who wished to get accommodations from them 
 would find it no easy thing to obtain gold. The Banker would inquire 
 if the individual was in the habit of asking for gold, aud if so, accom- 
 modations would be withheld. Paying in gold was not, therefore, thut 
 check to over-issues which some people imagined." 
 
CONVERTIBILITY OF BANK MEDIUM. 
 
 59 
 
 In addition to this, it must be remembered, that Bank 
 paper is " convertible" into only one of those species which 
 should, according to law and constitution, be the money of 
 the United States. An incorrect valuation of gold at the 
 Mint, and paper money together, have driven this precious 
 metal from the country. Bank paper is " convertible" in- 
 to silver only, which is inconvenient for large payments, 
 and for transportation to distant places in large amounts. 
 
 From this combination of causes, not more than one- 
 twentieth of the paper is actually "convertible" at any 
 one time, and herein consists the safety of the Banks. An 
 attempt to convert but one half of the Bank medium, into 
 specie, would, though several months were allowed for the 
 operation, break all the Banks in the country. 
 
 Now, can such a " convertibility" make Bank notes 
 "equal" to specie? We mean equal to specie as money, 
 in its three functions of a circulating medium, and of a 
 standard and measure of value. We know the two articles 
 are equal in the market, but the question is, if they ought 
 to be so. 
 
 " Convertibility," so far from being an assurance of the 
 soundness of Bank notes as money, is not even an assur- 
 ance, for three days together, of their soundness as bills of 
 credit. This is verified in the case of Banks whose paper 
 is in one week at par, and in the next at a discount of 
 fifty per cent. 
 
 When the contingencies on which convertibility de- 
 pend, are taken into consideration, the risk appears so 
 great as of itself to outweigh all the arguments usually ad- 
 duced in favor of Bank medium. 
 
 The practice of the Banks is to make provision for those 
 demands only which it is probable will be made upon them, 
 which provision is seldom for more than one-fifth of the 
 amount of their actual engagements to pay on demand. It 
 is very easy for the Directors to make a mistake in their 
 estimate of probabilities. Events which they could not fore- 
 see may occur, and circumstances they cannot control. It 
 is not always easy to say where the line of safety should be 
 drawn ; and the Directors are at all times tempted to tran- 
 scend it, from the desire of making large dividends, and 
 raising the price of their stock in the market. Sudden 
 changes in the political and commercial world, may render 
 
CO CONVERTIBILITY OF BANK MEDIUM. 
 
 the best conducted Banks unable to comply with their en- 
 gagements, though they may have in store double the 
 amount of specie, which would, in other times, be neces- 
 sary to support their credit. 
 
 On a certain day in 1819, there were but $80,000 be- 
 tween us and universal bankruptcy. This was the whole 
 amount of specie in the United States Bank at Philadel- 
 phia; and if that had been exhausted, a shock would have 
 been given to Bank credit, which would have caused a 
 general suspension of specie payments. In 1825, the con- 
 dition of both England and the United States was hardly 
 less critical. The failure of two or three of our principal 
 Banks would cause a run upon all the others. They could 
 then comply with but a part of their engagements, and 
 their inability to satisfy the claims of the holders of their 
 notes and of depositors, would render the fulfilment of 
 other money contracts impossible. The credit which 
 Bank notes enjoy, has been called " suspicion lulled to 
 sleep." Events may awaken that suspicion. 
 
 Attempts are sometimes made to show the perfect secu- 
 rity of the Banks, by contrasting the amount due by them 
 for notes in circulation and for deposites, with the amount 
 falling due to them every sixty or ninety days on account 
 of mercantile paper discounted by them. But such calcu- 
 lations, even when they rest on indisputable data, prove 
 only the ultimate solvency of a Bank. The amount due 
 by the Bank, on account of deposites and on account of 
 notes in circulation, may all be legally demanded in one 
 day ; nay, in one hour. A greater amount may be owing 
 to the Bank, but it is payable at different times, and the 
 extremes of the term are sixty or ninety days apart. The 
 individuals who owe this money to the Bank may be rich 
 men : but their ability to pay, within the time agreed upon, 
 depends on the credit of Bank paper being maintained. 
 Let the depositors suddenly withdraw but one-half the 
 amount of specie ordinarily retained by the Banks, and 
 the credit of Bank notes necessarily falls. A portion of 
 the debts due to the Banks may be paid in this depreciated 
 paper; but the Banks will not have the means of satisfy- 
 ing all their creditors. There being little specie in the 
 country, the collection of debts due by individuals to indi- 
 
ESSEPfTIAL QUALITIES OF BANK NOTES. 61 
 
 viduals, would be suspended, (if Bank paper should sud- 
 denly lose its credit.) * * * * * * 
 
 The danger of such an event may not be very immi- 
 nent ; but it is sufficient to show that the stability of Bank 
 medium depends on contingencies which, as they cannot 
 always be foreseen, cannot always be guarded against. 
 What was called " a panic" in England, in 1825, broke 
 up a number of private Bankers who were perfectly sol- 
 vent, and was near proving destructive to the whole sys- 
 tem. If a suspension of specie payments should again 
 occur in this country, we should be left for a time without 
 a sufficient medium of exchanges. Too many men are 
 now aware of the nature of "inconvertible" Bank paper' 
 for it to have general circulation. It would soon run the 
 course of the Continental money, and of the French as- 
 signats. 
 
 So long as Bank paper is " convertible," more than a 
 certain amount cannot be kept in circulation for a long 
 time without undergoing a sensible depreciation. Hence 
 " convertibility" fixes a limit which Bank issues cannot 
 pass. By carefully watching one another, by attending to 
 the course of foreign exchanges, and by guarding against a 
 drain of specie, the Banks may, in ordinary times, main- 
 tain the " convertibility" of their paper ; but the history of 
 Banking, both in England and the United States, since the 
 resumption of specie payments, shows that this " conver- 
 tibility" cannot give to Bank medium that stability which' 
 is essential to a sound money system. 
 
 In the means by which " convertibility" is maintained, 
 we have an abundant source of evils. It is by one Bank 
 pressing on another, and thereby forcing the debtor Bank 
 to press on its customers. When there is a foreign de- 
 mand for specie, the " convertibility" of Bank medium is 
 maintained by a general pressure on the community. 
 
 Lord Liverpool, in a debate in the British House of 
 Peers, in Feb. 1826, placed the doctrine of convertibility 
 in its true light. " The doctrine," he said, " maintained 
 by some noble lords, that nothing was better than a paper 
 circulation convertible into gold, is true to this extent — 
 that if couverlible into coin, the evil would cure itself, 
 whilst one not convertible would lead to nothing but ruin. 
 But how is the cure to be operated ? By the downfall of 
 7 
 
C2 ELASTICITY OF BANK MEDIUM. 
 
 thousands and hundreds of thousands, and the convulsion 
 of all kinds of property. It is true that the evil carries its 
 own cure, but with such terrible consequences that the 
 cure is worse than the evil.'' 
 
 CHAPTER XIV. 
 
 Of the " Elasticity" of Bank Medium. 
 
 " The value of Bank medium," says a writer on this 
 subject, " consists in its elasticity — in its power of alter- 
 nate expansion and contraction to suit the wants of the 
 community. In truth, the merit of a Bank is nearly in 
 proportion to the flexibility of its means."' 
 
 Most unfortunately for this argument, when the demand 
 for money is greatest, the Banks are compelled to contract 
 their issues. When the natural demand is least, they are 
 able to expand most. These " alternate contractions and 
 expansions" do not, therefore, " suit the wants of the com- 
 munity." 
 
 It is not a regard to " the wants of the community" 
 that regulates these " alternate expansions and contrac- 
 tions." It is a simple regard to their own profits that in- 
 duces the Banks to expand their issues. In contractions, 
 the Banks have regard only to their own safety. 
 
 Every thing is not, indeed, left to the arbitrary discre- 
 tion of the Directors. The natural and political causes 
 that affect trade, affect also their operations. 
 
 If wars, or other political operations, cause a flow of 
 pecie to a particular point, the Banks are immediately 
 compelled to reduce their issues of paper. As a demand 
 on tlie Banks for a million of specie usually causes them 
 to reduce their accommodations to the amount of four mil- 
 lions, the pressure on the community is four times as great 
 as it would be if the foreign demand operated singly. 
 
 A rise in the price of our staples in foreign markets en- 
 ables the Banks immediately to expand their issues. The 
 spirit of speculation is then excited, and the Banks supply 
 it with aliment. Hence, immediately after news of a rise 
 in the price of Hour and cotton, in foreign markets, these 
 articles rise so higli at home that they cannot be exported 
 
 s 
 
ELASTICITY OF BANK MEDIUM. 63 
 
 and sold at a profit abroad. The original holders gain 
 something by selling their stock to the speculators. The 
 price is raised on the domestic consumer ; but very little 
 is added to the weahh of the nation, tor the rise of price 
 at home causes little to be exported. 
 
 To enumerate all the causes that affect expansions and 
 contractions of Bank issues, would be to enumerate all the 
 causes, immediate or remote, that affect trade, or affect the 
 confidence man has in man. Any thing that excites the 
 spirit of enterprize, has a tendency to increase the amount 
 of Bank issues. Whatever damps the spirit of enterprize 
 or of speculation, has a tendency to reduce the amount of 
 Bank issues. As the wild spirit of speculation has in most 
 cases its origin, and in all its aliment, in Banking trans- 
 actions, these various causes operate in a circle. The 
 Banks, by expanding their issues, give aliment to the wild 
 spirit of speculation when it begins ; and by their contrac- 
 tions, they aggravate the evils of the natural reaction. 
 
 One of the principal inducements for preferring the 
 precious metals as the material for money, is their icant of 
 this very " elasticity" or " Hexibility" which the writer 
 above quoted, declares is the principal excellence of Bank 
 medium. The mere desire of one man to have money, 
 and of another to gratify that desire that he may make a 
 profit by it himself, will not increase the supply of the pre- 
 cious metals. The spirit of wild speculation, therefore, in 
 solid money countries, wants that aliment which is so rea- 
 dily afforded to it in our own. The production of gold and 
 silver requires an expenditure of labor equal to that which 
 must be expended in the production of those articles which 
 gold and silver can procure. The supply is regulated by 
 natural causes which are as powerful as those which regu- 
 late the demand. 
 
 When an addition is made to the stock of gold and sil- 
 ver in a solid money country, it does not immediately 
 affect prices. It usually comes in the shape of bullion or 
 foreign coin. The importer considers whether a profit may 
 not be acquired by shipping it to some foreign country. If 
 he decides on retaining it, part of it is probably wrought 
 up into plate or jewellery. If he sends it to the mint, some 
 time must elapse before it can be converted into coin. Af- 
 ter it is converted into coin, he may not choose to put it 
 
64 IS PAPER MONEY CHEAPER THAN SPECIE. 
 
 immediately into circulation. He may make it part of his 
 reserved stock, and wait for months, perhaps, for an oppor- 
 tunity for making advantageous purchases. If he can make 
 no advantageous purchases at home, he sends the money 
 abroad. Thus while there are powerful causes in opera- 
 tion throughout the commercial world, which make the 
 demand and supply of silver and gold to vary in only an 
 imperceptible degree, from year to year, there are particu- 
 lar causes operating, which make the supply in all solid 
 money countries, just equal to the effective demand, and 
 thereby truly " to suit the wants of the community." 
 
 In such countries, when the spirit of enterprize is awak- 
 ened by fair prospects of a profitable trade, no sudden 
 plentifulness of money follows to convert the spirit of en- 
 terprize into a spirit of wild speculation. 
 
 If the enterprizes prove unsuccessful, the evil is not 
 aggravated by an artificial scarcity of money. 
 
 If wars, or other political operations, create a demand 
 for specie, the pressure is only equal to the foreign demand 
 — not fourfold, as with us. 
 
 If there is a rise abroad in the prices of the staples of ex- 
 ports of a solid money country, no sudden increase of cur- 
 rency raises prices so high as to make the exportation a los- 
 ing business. 
 
 Such are the advantages of an " injle-xihlc" and '*' non- 
 clastic'^ money. 
 
 CHAPTER XV. 
 
 Is Paper 3Ioncy Cheaper than Specie ? 
 
 The events of the last thirty years, have created a suspi- 
 cion in most men's minds, that there is something not ex- 
 actly right in our Banking system. Indeed, the very head 
 of the system, the President of the United States Bank, 
 seems at times half a sceptic as to its utility. He ac- 
 knowledges that it is attended with great danger ; but then 
 he says, " the substitution of credit for coin, enables the 
 nation to make its exchanges with less coin, and of course 
 saves the expense of that coin." 
 
IS PAPER MONEY CHEAPER THAN SPECIE. G5 
 
 Mr. Gallatin, who is now President of the National Bank 
 at New York, goes still farther. " The substitution of a 
 paper currency for the precious metals, does not," he says, 
 " appear to be attended with any other substantial advantage 
 than cheapness." 
 
 Bank notes, it must be confessed, come very cheap to 
 those who issue them. But to those who receive them, 
 Bank notes come as dear as gold and silver. The farmer 
 must give as much of the product of his labor for a paper 
 dollar, as for a silver dollar. 
 
 It is alleged by some, that " Bank notes increase the 
 aggregate capital of the community, since they cause 
 silver, which produces nothing, to be exchanged abroad for 
 commodities useful in the arts, or for household consump- 
 tion." 
 
 But it is not true that silver money produces nothing. 
 It is as productive as any other labor saving machine. Its 
 uses in commerce, are as great as those of the steam engine 
 in manufactures. 
 
 Neither is it true, that the aggregate capital of the 
 country is increased, when silver coin is displaced by Bank 
 notes. A mere exchange is made of one kind of capitaJ 
 for another. The precious metals are exported, and laces, 
 wines, silks, satins, and ostrich feathers, are received in 
 return. A nation that carries its consumption of foreign 
 luxuries so far, as to leave itself without a suitable medium 
 for domestic exchanges, may be compared to a mechanic 
 who barters the tools of his trade for the enjoyments of the 
 ale house. Money is the tool of all trades. 
 
 But on the supposition most favorable to the friends of 
 the Banking system, what sum is gained by the nation by 
 the substitution of paper for specie ? 
 
 According to the calculation of Mr. Gallatin, the cur- 
 rency of the country consisted, on the 1st of January, 1830, 
 of about ten millions of dollars in specie, in the hands of the 
 people, of .54 millions of Bank notes, and 55 millions of 
 Bank credits ; making a total of 109 millions of Bank me- 
 dium, for the support of which the Banks keep 22 millions 
 of specie dead in their vaults. 
 
 Now, supposing Bank medium to fall into disuse, these 
 22 millions of specie would be set free, and 87 millions 
 more would be required to bring up our currency to its 
 7* 
 
66 IS PAPER MONEY CHEAPER THA!V SPECIE. 
 
 present amount. What is this, when compared with the 
 whole capital of the country, which is estimated by Mr. 
 Lee of Boston, at ten thousand millions of dollars, and by 
 two other able economists, at twelve thousand millions. 
 What is it, even when compared with the aggregate of in- 
 comes, which, according to Mr. Niles and Mr. E. Everett, 
 is one thousand millions a year? 
 
 It should be recollected, that, on the supposition of some- 
 thing being gained by the nation, by the use of paper mo- 
 ney, the saving is once for all, and the annual gain is no 
 more than the interest on the amount of medium. Now, 
 the interest on 87 millions, at six percent., divided among 
 the individuals who constitute our nation, is about 40 cents 
 a piece ! 
 
 Is it wise, for so trifling a gain, to derange all our monied 
 operations ? 
 
 But if the inquiry be pushed further, it will be found 
 that nothing is gained by the nation, (we do not say that no- 
 thincr is gained by certain persons,) even on the supposi- 
 tion most favorable to the Banks. 
 
 For a specie medium, but one mint would be necessary. 
 To maintain a paper medium, we have from 300 to 400 
 paper mints. The expenses of these mints press heavily 
 on the people. The expenses of the Bank of the United 
 States and its offices, are about 500,000 dollars a year. 
 
 According to Adam Smith, three million people, in the 
 countries now forming the United States, were governed, 
 and well governed, before the Revolution, at an expense 
 not exceeding 350,000 dollars a year. 
 
 The labors of the American people for a few weeks 
 would purchase them a sufficiency of metallic medium, 
 which would not require renewal for a hundred years. To 
 support our paper medium, we are frequently obliged to 
 purchase specie abroad, at a disadvantage. As there is no 
 profit on paper money, except by keeping down the amount 
 of specie in the vaults of the Banks, the precious metals 
 are frequently exported and sold at a loss. 
 
 The cheapness or dearness of an instrument, is to be 
 estimated by the annual expense to which it puts us, in 
 addition to its original cost, and by the manner in which it 
 .tcrves the uses intended. Bank medium is a machine 
 which requires continual watching, which is always getting 
 
TAX PAID BY THE PEOPLE TO THE BANKS. 67 
 
 out of order, which requires frequent and expensive re- 
 pairs, and which, after all, performs its work badly. 
 
 Men have passed from one extreme to the other. A hun- 
 dred years ago, the chief feature in the commercial policy 
 of nations, was the amassing of gold and silver, as a kind 
 of wealth ^or excellence. Now, he is the wisest statesman, 
 who is most successful in driving the precious metals from 
 a country. 
 
 In their attempts " to economize specie," as they call 
 their absurd and nefarious policy, they seem to be forgetful 
 of economy in every thing else. Correct measures of 
 value, it must be confessed, cost something. So, likewise, 
 do correct measures of weight and of capacity. A metallic 
 medium cannot be obtained without paying for it; but 
 whatever it may cost, it is well worth its cost. Our roads 
 and our canals, which are, like money, instruments for fa- 
 cilitating exchanges, cost immense sums. So, also, do our 
 ships, and our manufacturing machinery. 
 
 Among labor saving machines, gold and silver coin are 
 entitled to the first place. In no way can a nation invest 
 a portion of its capital more profitably, than in a sound cir- 
 culating medium. It will return its original cost a hun- 
 dred fold. Without such a medium, it is impossible for 
 contracts to be complied with in equity, or for productive 
 industry to exert all its energies. 
 
 CHAPTER XVI. 
 
 Of the Tax paid hy the People to the Banks. 
 
 The thirty-one chartered Banks of Pennsylvania had, in 
 November 1829, according to the statement of Mr. Galla- 
 tin, a nominal capital of $12,032,000. One million three 
 hundred and ten thousand dollars of this amount was 
 invested in real estate, and 4,620,000 in stocks of various 
 descriptions, leaving the Banks 6,102,000 to employ in 
 discounting notes.* From the §5,930,000, invested in 
 
 * Some corrections might be made in Mr. Gallatin's estimates, bnt 
 we take them as we find them, they being accurate enough for the 
 illustration of principles, which is our only object in introducing them. 
 
 \ 
 
68 
 
 TAX PAID BY THE PEOPLE TO THE BANKS. 
 
 Stocks and real estate, it is to be presumed they derive as 
 much advantage as private persons derive from similar in- 
 vestments. With the remaining 6,102,000, they discount 
 notes to the amount of 17,526,000. On this amount they 
 draw interest at 6 4-10 per cent., for the usage of the 
 Banks is to charge 64 days' interest on loans for 63 days. 
 
 The revenue which private capitalists would derive from 
 lending $6,102,000 at the legal rate of six per cent., would 
 be $366,120 per annum. The revenue which the Banks 
 derive from the management of this amount, is 1,121,664 
 dollars. 
 
 If the Banks do not, by the use of a nominal capital of 
 $6,102,000, draw interest from the people on the sum of 
 17,526,000 dollars, their returns to the Legislature are de- 
 ceptive. If they actually draw interest on this amount, 
 they draw from the people $755,544 per annum more than 
 would be drawn by private persons lending bona fide capi- 
 tal of the same amount as the nominal capital of the Banks.* 
 
 Supposing the sums paid in each year, since the passage 
 of the Bank act of 1814, to equal that paid in 1829, the 
 total amount paid by the people in sixteen years, over and 
 above six per cent, on the loanable capital of the Banks, is 
 $12,088,704. A direct tax of half the amount for the sup- 
 port of government, would have produced a rebellion. 
 
 The Bank of the United States had, on the 1st of No- 
 vember, 1829, a nominal capital of $34,996,270. Of this 
 amount, $11,717,071 were invested in public stocks, and 
 $3,876,404 in real estate, leaving it $19,402,795 of nomi- 
 nal capital for its proper business of accommodating bor- 
 
 Algebraic signs would, if they were generally understood, serve the 
 purposes of illustration as well as the most correct estimates. 
 
 * It may, perhaps, be argued, that the "surplus funds" of the 
 Banks ought to be added to their loanable capital. But, as Mr. Galla- 
 tin has said, " it will easily be perceived, that what is called the surplus, 
 and sonietimes the reserved or contingent fund, is nothing more than 
 that which balances the account, or the difference between the debits 
 and credits of the Banks." The surplus funds of the Banks of Penn- 
 sylvania were, in IN'ovember, li^29, according to Mr. G.'s statement, 
 $1,142,000. If it be thought proper to add tiiis amount to the loanable 
 capital, the estimate of the tax paid by the people of Pennsylvania for 
 the support of their local Banks should be reduced from 7.55,544 to 
 087,024 dollars per annum. It is of little moment whicli mode of esti- 
 mation is adopted. Either proves that the tux amounts to hundreds of 
 thousands of dollars in each year. 
 
TAX PAID BY THE PEOPLE TO THE BANKS. 69 
 
 rowers and dealers in bills of exchange. On this amount 
 of bona fide capital lent at six per cent., private persons 
 would draw a revenue of ^1,164,107. But the Bank, with 
 this amount of nominal capital, discounts notes and bills of 
 exchange, to the amount of 40,017,445 dollars, from which 
 it derives an annual revenue of $2,561,114, or $1,396,947 
 more per annum than would be received by private capi- 
 talists. In this estimate, we do not include what is paid 
 to the Bank on the rate of exchange, though this must 
 amount to hundreds of thousands of dollars. 
 
 Of the tax paid by the people for the support of the local 
 Banks in other States than Pennsylvania, it is not so easy 
 to form an estimate. Mr. Gallatin gives a statement of 
 297 institutions having nominal capitals of the amount of 
 97,381,935 dollars, but he does not state what portion of 
 their capital is invested in stocks and real estate. The 
 loans made by certain local Banks, out of Pennsylvania, 
 having capitals of the amount of 81,363,224 dollars, he 
 states to be 108,341,268; but he gives no statement of the 
 loans made on 20,412,711 dollars uf nominal Bank capital. 
 Supposing the loans on this amount to be in the same pro- 
 portion, the total amount loaned by the local Banks out 
 of Pennsylvania, is 135,522,331 dollars, and the annual 
 Bank interest on it 8,673,427 dollars. 
 
 Supposing these Banks to have the same proportion of 
 their capital invested in stock and real estate, as the Banks 
 of Pennsylvania, they have 49,387,015 dollars left for the 
 business of discounting. From such an amount of bona 
 fide capital lent at six per cent., private persons would draw 
 an interest of $2,963,220. But the amount the Banks draw 
 is, 8,673,427 dollars, or 5,710,207 more than would be 
 drawn by private capitalists. 
 
 The sums, then, extracted from the people, over and 
 above six per cent, on so much of the Bank capital as is 
 employed in discounting, or the tax paid by the people for 
 the support of the Banks, would appear to be — 
 
 For the support of the Banks of Pennsylvania, $ 755,544 
 
 do. local Banks of other States, 5,710,207 
 
 do. United States Bank, 1,396,947 
 
 $7,862,698 
 We cannot pretend to be very exact in our estimate. 
 
70 FORMATION OF BANK CAPITALS. 
 
 The local Banks in the other States, may have a greater 
 proportion of their capital invested in stocks and real 
 estate, than the Banks of Pennsylvania, or thej may have 
 a less proportion. The total amount of their loans may be 
 greater or may be less than has been calculated from the 
 data furnished by Mr. Gallatin. It is enough to know that 
 the extra interest is millions per annum. 
 
 The principle on which this tax is levied, cannot be 
 misunderstood. With a loanable capital of 100,000 dol- 
 lars, a Bank can, by the help of its deposits and circula- 
 tion, make loans to the amount of 200,000 or 300,000. 
 Hence, for every hundred thousand of their own capital 
 employed in discounting, the Banks draw twice or thrice 
 as much interest as is drawn from the same amount in the 
 hands of private capitalists. The gain of the Banks from 
 their practice of taking the discount in advance, and charg- 
 ing 04 days interest on notes which have but 63 days to 
 run, is also considerable. 
 
 CHAPTER XVII. 
 
 Oj the Formation of Bank Capitals. 
 
 When the uninitiated hear of Banks having capitals of 
 500,000 or of 1 ,000,000 dollars, they suppose that these in- 
 stitutions had at their commencement, or some time after, 
 real money to this amount. It is a very natural supposi- 
 tion ; but not a true one. The Banks create their own 
 capitals in tlie same manner that they create the money 
 they lend to the people. 
 
 The usual method of proceeding is as follows : 
 
 An act is passed by the Legislature to authorize the 
 establishment of a Bank, and certain persons, called Com- 
 missioners, are appointed to receive subscriptions. It is 
 provided in the act that the amount subscribed shall be 
 paid in instalments of five or ten dollars in specie, or the 
 notes of specie-paying Banks, and that after one or two 
 instalments shall liave been paid in, the Bank shall com- 
 mence operations. 
 
 The first instalment, which we shall suppose to be five 
 
FORMATION OF BANK CAPITALS. 
 
 71 
 
 dollars on a share, enables the Bank to purchase desks 
 and a counter, and to pay for engraving and printing its 
 notes. It has then the necessary apparatus for commen- 
 cing operations, and has, perhaps, a specie fund in reserve 
 of three or four dollars for each share of stock, to meet 
 contingencies. 
 
 It then begins lo discount notes and circulate paper. 
 The spare cash of those who have dealings with it, are 
 deposited in its vaults. This fund enables it to extend its 
 operations. As the Bank notes will serve the purposes of 
 trade in the neighborhood, the specie is sent to distant 
 places to procure commodities. This leaves open a new 
 channel for the circulation of paper : and the Bank in- 
 creases the amount of its issues. Then conies the time 
 for paying the second, third, or fourth instalment. The 
 Bank makes a call on the stockholders. Some of them 
 hypothecate their stock, that is, pledge it to the Bank, and 
 with the means obtained from the Bank itself pay in their 
 proportion. Others have obtained the means by discounts 
 of accommodation notes, without any hypothecation of stock. 
 Some few pay in real money : but they generally pay in 
 the notes of the Bank itself, or of similar institutions. 
 
 It is by this kind of hocus-pocus that Bank capitals are 
 formed. After the first instalment is paid, the Bank by its 
 
 own operations, facilitates the paying of the others. ..-—-- 
 
 The Bank of Pennsylvania and ikat of the United States 
 have more pretensions than most others to solidity of capi- 
 tal. It was provided in their charters, that a portion of 
 their instalments should be paid in Government stock. 
 This is not a convenient form for loanable capital, which, it 
 might be supposed, is what Bank.i should possess. But the 
 peculiar profits of Banks are derived from credit and circu- 
 lation, and they want no more real capital of any kind than 
 is necessary to support their credit. 
 
 It is difficult to say in what the capitals of the other 
 Banks ever consisted, unless it be in what it consists at 
 present — in the promissory notes of individuals. Now, the 
 Banks did not obtain these promissory notes by lending 
 real money of their own, for they had it not to lend. They 
 obtained these promissory notes of the stockholders, by 
 giving in exchange for them the promissory notes of the 
 Bank. Thus Bank capitals are formed by exchanging 
 
 1 
 
72 FORMATION OF BANK CAPITALS. 
 
 one kind of promises to pay for another kind of promises 
 to pay. 
 
 This mode of forming Bank capitals, with the stock 
 notes of the subscribers, is not peculiar to Banks of the 
 second and third order. The Banks of the most approved 
 standing have formed their capitals in the same way. 
 
 The nominal capital of the old Bank of the United 
 Slates, was ten millions of dollars. One-fifth part of this, 
 or two millions of dollars, was subscribed by the National 
 Government ; but the National Government having no 
 money to pay its subscription, professed to borrow from the 
 Bank. And the Bank having no money to lend, passed a 
 credit of two millions in its books to the Government on 
 which it paid six per cent. The Government, in its turn, 
 received the dividends on 5,000 shares of stock of 400 
 dollars each at par value. 
 
 The residue of the capital, or eight millions, was sub- 
 scribed by individuals, and was to be paid, three-fourths in 
 six per cent, stock, and one-fourth in specie, in four six- 
 monthly instalments of five hundred thousand dollars each. 
 " No more," says Dr. Erick Bollman, "or little more than 
 the first instalment, can ever be considered as having been 
 received by the Bank actually in hard money."* 
 
 The capital of the present Bank of the United States 
 was fixed by its charter at thirty-five millions, of which 
 Government subscribed seven ; but Government having, as 
 in the former instance, no money, the Bank granted it a 
 credit to this amount. 
 
 The remaining twenty-eight millions of stock were sub- 
 scribed for by individuals. On each share of the stock, they 
 were, agreeably lo the terms of charter, to pay five dollars in 
 gold or silver coin at the time of subscribing ; at the ex- 
 piration of six months the further sum of ten dollars : and 
 at the expiration of twelve months, the further sum of ten 
 dollars. At each of those three periods, twenty-five dollars 
 more were to be paid, on each share, either in United States 
 stock, or in gold and silver coin, at the option of the sub 
 scribers. 
 
 No more or very little more, than the first instalment of 
 five dollars on cacii share, was paid in gold or silver coin. 
 
 * r.-iragniphs on Banks, I'liiladelphia, 1811. Dr. Bollman was a 
 zealous ailvocato for tlie renewal of the charter of the Bank. 
 
SPECULATIONS IN BANK STOCK. 
 
 73 
 
 The Directors, indeed, proceeded on the principle that no 
 more was necessary. " It is clear," says one of them, 
 " that having commenced business, and put its paper in cir- 
 culation, it (the Bank) could not enforce the specie part of 
 the second and third instalments of the capital, in new 
 acquisitions of specie. * * * * The Directors acted 
 wisely in discounting the notes of the stockholders, paya- 
 ble in specie, sixty days after date, for the payment of the 
 second instalment."* 
 
 It is contended by the founders of these institutions, 
 that this mode of forming Bank stock, is perfectly correct. 
 If it is, stock may be created to almost any amount. The 
 Bank risks nothing, and does not increase its circulation ; for 
 the notes which it pays out at one counter in discounting 
 stock notes, are paid in at another counter in subscriptions. 
 The subscribers pay a certain sum to the Bank as borrow- 
 ers : but they receive back the same amount as stockhol- 
 ders. The whole business, is nothing but a paper transac- 
 tion between the Bank and its stockholders. 
 
 Many of the present owners of stock have paid their 
 hundred dollars' worth of property, or perhaps given an 
 advance of twenty per cent, for the shares they hold : but 
 what they paid, never went to form the capitals of the Banks. 
 They paid it to the original subscribers or to those who 
 bought script from the original subscribers. 
 
 CHAPTER XVIII. 
 
 Of Speculations in Bank Stock, and of other Stock- 
 Jobbing. 
 
 It is well worthy of remark, that, though the Banks de- 
 rive as much profit as private capitalists, from so much of 
 their capital as is invested in real estate and public secu- 
 rities, however they may liave got that capital, and however 
 they may have formed it : and though they deriv^ from 12 
 to 18 per cent, from so much of their capital as is employ- 
 ed in discounting, they do not, on an average, divide more 
 
 * " A Friendly Monitor," Philadelphia, published December 15,1819, 
 aad re-published September 17, 182'^. 
 8 
 
74 SPECaLATIOXS IN BANK STOCK. 
 
 than six per cent. When the proposal was made to form 
 a " safety fund," by a tax on the Banks, tlie proprietors of 
 stock in the city Banks of New York objected to it as a 
 great hardship, alleging that they had not, for a series of 
 years, received more than 5i per cent, per annum. The 
 heavy expenses of these institutions in the payment of Presi- 
 dents, Cashiers, and Clerks, and the heavy losses that are 
 necessarily sustained when corporate interest superintends 
 the business of lending, are the reasons that the stock- 
 holders get much less than the people pay. Such being 
 the fact, the anxiety to establish new Banks might create 
 surprise, if we did not know that the object of the projec- 
 tors of such institutions is not to lend money, but to make 
 moiiey. People who have money, can lend it without the 
 intervention of Boards of Directors. They can lend it 
 more securely, and watch over it more easily. But a new 
 Bank will afford to some favored gentleman a snug birth 
 as President for life, and to another an equally snug birth 
 as Cashier. Poor cousins can be very conveniently pro- 
 vided for by giving them clerkships. To some, the new 
 Bank will afford facilities for borrowing ; to others, it will 
 afford faciHlies for lending — at two or three per cent, a 
 month. To those who are to be Directors, it will impart 
 additional consequence in society, and give great advanta- 
 ges over their neighbors in business. Others hope to make 
 fortunes by speculations in the script. To further all these 
 objects, nothing is necessary but a charter from the Legis- 
 lature, and the means of paying the first instalment. By 
 the convenient contrivance of stock notes, the stock of the 
 Bank can be completed. The circulation and deposits 
 will prove a certain source of revenue. 
 
 When a charter is granted, the speculators evince great 
 anxiety to possess the stock, and thereby create an idea 
 that it is something very valuable. In New York, their 
 practice is to subscribe a much greater amount than the 
 nominal capital, and tiien clamor for a pro rota division. 
 In the case of the Broome County Bank, the capital of 
 which was fixed at 100,000 dollars, the subscriptions 
 amounted to eight millions. In Pennsylvania, where sub- 
 scriptions are not received beyond the amount of nominal 
 capital, draymen and other able-bodied persons are hired 
 by the speculators to get the script for them. They strug- 
 
SPECULATIONS IN BANK STOCK. 
 
 75 
 
 i 
 
 gle at the windows with so much violence, as to give and 
 receive severe personal injury. The most disgraceful ri- 
 ots that occur in Philadelphia, are those which are pro- 
 duced hy the opening of the books of subscription for a 
 new Bank. 
 
 These doings have their effect on simple-minded people; 
 and, from the prospect of large profits, they prefer Bank 
 stock to land and houses. The founders of the Bank 
 kindly spare them some of the script at an advance of five 
 or ten per cent., retaining only enough to keep the control 
 of the institution in their own hands. 
 
 Even those who are not simple-minded, do not hesitate 
 to buy the script at an advance, for they hope to sell it at 
 an additional advance. They know that the price of Bank 
 stock in the market is regulated principally by the rate of 
 dividends, and that few make inquiry into the solidity of 
 these institutions, or have, indeed, the means of ascertain- 
 ing whether, on the winding up of affairs, they can pay 
 fifty cents in a dollar. 
 
 From the peculiar nature of their operations. Banks may 
 sustain their credit, and continue to make high dividends, 
 even when nearly all their capital is gone. In one in- 
 stance, in Philadelphia, a sum equal to the whole capital 
 of a Bank, was actually taken from it by some of its clerks 
 and their coadjutors out of doors, without the Directors 
 knowing any thing about it. The Bank continued its op- 
 erations as before, supported by its deposits and its circu- 
 lation. Its stock sold as high in the market as ever. When 
 the defalcation was discovered, the credit of the Bank re- 
 ceived a shock. But the Directors called in one or two 
 additional instalments, and the Bank recovered its credit. 
 Its stock is now much above par. 
 
 On common gambling principles, speculations in Bank 
 stock are, perhaps, as eligible as speculations in any thing 
 else. But it may be made a question, if executors, guar- 
 dians, and trustees, act with sound judgment, when they, 
 merely for the sake of facility of management, invest the 
 property entrusted to their care in stocks of this descrip- 
 tion. The ability of a Bank to pay any thing to the pur- 
 chasers of its shares, depends on the ability of the original 
 subscribers to pay their stock notes and accommodation 
 notes, and on the ability of borrowers to pay their promis- 
 
76 SPECULATIONS IN BANK STOCK. 
 
 sory notes. This ability depends on various contingen- 
 cies, all which ought to be duly considered by those who 
 contemplate making permanent investments of the funds 
 in their hands. 
 
 In making temporary investments, there is less risk. 
 *' The house is crazy," says the weary traveller to himself, 
 " and must fall ; but not to-night. I may therefore ven- 
 ture to sleep in it." When it has no profits, the Bank may 
 make dividends on its capital, and the fact be concealed 
 from all but the Directors. If its stock should fall in the 
 market, it may be raised again by a few pretended sales, 
 effected through the instrumentality of brokers. 
 
 Sometimes the funds of a Bank are employed in pur- 
 chasing its stock, and then, if the price offered be suffi- 
 ciently high, those who have the management contrive to 
 sell their own shares. In 1826, four thousand eight hun- 
 dred and eighty-three shares of the Franklin Bankof Nev»' 
 York, were bought up with the funds of the Bank, at an 
 advance of 62,850 dollars. When an investigation was 
 made of the affairs of the Bank, in 1828, it was found 
 there was not enough left to pay the remaining stockhold- 
 ers 50 cents in a dollar. 
 
 When a Bank gets into difficulties, it sometimes sustains 
 itself for a period, and affords its agents a considerable 
 chance of profit, by allowing them to have its notes at a 
 discount, on condition of their putting them in circulation 
 in distant places. On an investigation of the affairs of the 
 State Bank at Trenton, in 1825, it was proved that one of 
 its agents had sold bills of the Bank to the amount of 
 18,500 dollars, at an average discount of 37^ per cent. 
 The very day before the Bank stopped payment, its notes 
 were quoted in the Philadelphia Price Current, at only IJ 
 per cent, discount. 
 
 Every now and then the speculators find it convenient 
 to break a Bank. This enables them to purchase up the 
 notes at a discount, and therewith pay what they owe to 
 the Bank. " There are instances," says Mr. Gallatin, "in 
 which the stockholders, l)y paying for their shares in their 
 own notes, and afterwards redeeming their notes with the 
 stock in their name, suffered no loss ; and this fell exclu- 
 sively on the holders of liank notes and depositors." 
 In the New York American, for June 1825, the follow- 
 
SPECULATIONS IN BANK STOCK. 77 
 
 ing account is given of a mode of operation which was 
 adopted by the knowing ones of that city. 
 
 " The mode of proceeding is simple and not expensive, 
 and acquires strength by its own action. We will illustrate 
 it by a case. It is desired to get possession of Insurance 
 Company A, for example. The stock bears a premium in 
 the market, say of five per cent. Enough money is raised 
 among the contributors to pay the premium; and the resi- 
 due is borrowed from other individuals or companies, on a 
 pledge of the stock A, at par. The original advance of the 
 combination is thus small, and they are thence enabled to 
 be operating in the stock of many Companies at once, till, 
 having acquired a control in the several concerns, they 
 turn out all the old administrators, put in their own men, 
 and then go to work again with renewed energy, and means 
 increased by the whole amount of the capitals they have 
 thus acquired the control of By artful management, assi- 
 duous puffing, magnificent predictions, and supplies of 
 stock skilfully curtailed as the demand increases — any one 
 of the stocks thus owned, may be blown up to an absurd 
 rate — and spared as a favor to the public, until the Mana- 
 gers have sold all out, and realized their profits, leaving 
 the new purchasers to come in and assist at the bursting 
 of the bubble." 
 
 The Editor of another New York paper, the Inquirer, 
 said in June, 1826, that certain men had, " by their bonds, 
 rags, and hypothecation of stock, managed to control a 
 nominal capital of \ie?ix\y fow millions of dollars in different 
 institutions, and I do not believe" said he, " the whole 
 confederacy is worth 100,000 dollars." 
 
 The same editor afterwards gave a list of thirty-four 
 Banking, Insurance, and other companies, all which, he 
 asserted, were under the control of a certain gang of stock- 
 jobbers. 
 
 If a Legislature will only grant charters enough, the 
 speculators will have no difficulty in providing a full 
 " assortment" of stocks — Banking, Insurance, and of every 
 other description that may be wanted to suit all the varie- 
 ties of taste to be found in men and women who have mo- 
 ney to part with. If they have one Bank under control, 
 they can use that as a means of putting half a dozen other 
 Corporations into active business. So, the Northern Bank 
 8* 
 
78 CHARTERS OBTAINED AND RENEWED. 
 
 of Pennsylvania was set a going by means of a certificate 
 for tliirty-five thousand dollars said to be deposited in one of 
 the New York Banks: and so, the Sutton Bank of Massachu- 
 setts was put in operation by means of 50,000 dollars in 
 specie, borrowed for one day from the City Bank of Boston. 
 Several of the kind of doings described in this chapter, 
 are regarded with horror by Banks v»-hich have reputations 
 to sustain. But, in a view of the tolwle system, it is necessary 
 to take them into consideration. The aggregate of loss sus- 
 tained by simple-minded people, through such doings, is 
 enormous. 
 
 Another way of making money through the medium ot 
 incorporated paper-money Banks, is by dealing in Govern- 
 ment stocks. Voltaire gives us some insight into this, in 
 one of his letters from Ferney, in Switzerland. 
 
 "Here I am," he says, " living in a way suited to my 
 habits, and caring but little for to-morrow ; for I have a 
 friend, a Director in the Bank of France, who writes to me 
 whenever money is to be made in tha public funds. Some- 
 times he writes to me desiring me to sell, because the Bank 
 is going to withdraw its notes : at other times, he bids me 
 to buy, for we are going to issue a quantity of notes ; and 
 so, through the kindness of my friend, I always make mo- 
 ney, though living two hundred miles from Paris." 
 
 CHAPTER XIX. 
 
 Of the Ways and 3Ieans by tciiich Bank Charters are ob- 
 tained and renewed. 
 
 When a bill was under consideration in the year 1S28, to 
 renew the charter of the New York Stale Bank, General 
 Root, then speaker of the Senate of that Commonwealth, 
 made a speech, from which the following is an extract: 
 
 " This Bank was chartered in 1803. Who were the 
 original applicants, and what were the representations made 
 to the country members, it is not necessary to stale : at all 
 events, it was to be a State Bank, and a democratic one. 
 
CHARTERS OBTAINED AND RENEWED. 79 
 
 I was urged to be a subscriber to the Bank ; it was said 
 the shares were to be scattered over the State, and the 
 members of the Legislature were to have shares. It was 
 one of the most open, palpable, barefaced acts of bribery 
 that can be imagmed. I was induced to subscribe ; but I 
 lost all the shares but a few : they said they had lost the 
 subscription paper, or some such thing. So I told them I 
 would not take any. Afterwards a gentleman who came 
 from Albany to Delaware {i. e. Delaware county, N. Y.) 
 brought me a script for eight shares. I told them I would 
 not have any; so they kept them to themselves, I suppose." 
 In the year 1816, Mr. Hopkinson, of Philadelphia, had 
 the boldness to declare in Congress, that " he considered 
 the litter of Banks lately created in Pennsylvania, as the 
 offspring of private legislation and legislative fraud." 
 
 A fev/ years since, a senator from Philadelphia County, 
 was heard to lament that a number of shares had been re- 
 served for him in a certain Corporation, the bill for esta- 
 blishing which, he had assisted in passing through the 
 Legislature. The'speculation fuming out unfortunate, he 
 had lost, instead of gaining, by his services as a stock- 
 jobbing lawgiver. 
 
 There was great struggling for the script of the Spring 
 Garden Bank. But we know a member of the Legislature 
 who merely intimated his wish to have a certain number of 
 shares in that Institution, and his wish was gratified. 
 
 A distinguished statesman has lately intimated " that 
 there is no law against the Banks subsidizing the public 
 press." With equal truth, it may be said, that there is no 
 law to prevent members of the Legislature from partaking 
 of the advantages of the Corporations they themselves esta- 
 blish. Still it is proper that such facts should be known. 
 
 Another great inducement with members of the Legisla- 
 ture to vote for new Banks, is that they may have the 
 means of rewarding the township and ward politicians, the 
 " delegates" and " conferees," to whom they are indebt- 
 ed for their nominations. In selecting "Commissioners," 
 they have the means of paying a debt of gratitude to some 
 men, and of laying others under personal obligations which 
 they hope will not be forgotten. 
 
 To get a majority to vote for a new Bank, is, in some 
 instances, no ifficult undertaking. In Pennsylvania, there 
 is a mode of running bills through both houses, known 
 
80 CHARTERS OBTAINED AXD REXEWED. 
 
 technically as " log-rolling." The figure of speech is bor- 
 rowed from the practice of the original settlers, who, after 
 cutting down the trees on their tracts of land, used to as- 
 semble together to roll the logs into heaps. What could 
 not be done by one man, the united strength of many made 
 easy. In like manner, the members of the Legislature who 
 are interested in local, personal, or corporation bills, unite 
 their strength, and roll them all through both houses. In 
 this way, it may chance that fifty or a hundred bills are 
 passed in the course of a session, each of which, if suffer- 
 ed to rest on its own merit, would have been rejected. 
 
 Many members of the Legislature are averse to this 
 practice ; but some of them are reluctantly brought into it, 
 by the refusal of the " log-rolling" members to vote for 
 good public l)ills, unless their own private bills are passed 
 at the same time. 
 
 The same system is known in the other States, by other 
 names; and it will readily be believed, that where it pre- 
 vails, special privdeges will be conferred on companies un- 
 der any and every pretext. Such is the effect it has on 
 American Legislation, that a stranger, on inspecting the 
 list of acts annually passed, might suppose our State Go- 
 vernments had been established for the special benefit of 
 stock-jobbers and speculators. In 1826, the Governor of 
 Massachusetts declared that, within the preceding five 
 years, charters had been granted to corporations within 
 that Commonwealth, with authority to hold thirty millions 
 of property. This was exclusive of charters to Banking, 
 Insurance, Canal and Rail Road Companies. The Go- 
 vernor of Delaware stated, in his ofiicial message in 1825, 
 that there were then ciglily corporations in that small State. 
 
 No doubt many legislators think that, in voting for new 
 Banks, they are promoting the welfare of their constitu- 
 ents. . But the prevalence of false views of the money cor- 
 poration system, in legislative bodies, is to be attributed 
 mainly to the exertions of those members who have a per- 
 sonal or political interest in establishing and supporting 
 such institutions. 
 
 If a Bank only preserves a tolerable credit, the rcnacal 
 of its charter follows as a matter of course. At least, we 
 have met with no instance on record, of refusal to renew 
 the charter of a State Bank which had not committed some 
 open act of bankruptcy. How far a Bank may be entitled 
 
CHARTERS OBTAINED AND RENEWED. 81 
 
 to the credit it enjoys, is seldom inquired into. Too many 
 interests are then concerned. Those who have bought 
 stock at second hand, know not, if the Bank were com- 
 pelled to wind up, if its assets would cover its debts. Some 
 of the borrowers from the Bank feel alarmed, for, if called 
 on to pay what they owe, their insolvency may be made 
 apparent, and the means of living in splendor be taken 
 away from them. A. clerkship of 600 dollars per annum, 
 makes a man a firm friend of the Banking system: and 
 he who has had an accommodation note discounted, of the 
 amount of only 500 dollars, feels unpleasant if you hint at 
 the possibility of a charter's not being renewed. Such is 
 the weakness of human nature, that if a man owns only a 
 hundred dollars' worth of stock, it makes him less an ene- 
 my to money corporations than he otherwise might be. 
 
 Whenever the Legislature creates a Bank, it, at the same 
 time, creates an interest sufficient to sustain that Bank, 
 under all circumstances but those of open bankruptcy. 
 And, as if to give these various interests as much power as 
 possible, it has been contrived in Pennsylvania, that the 
 charters of nearly all the Banks shall expire at the same 
 time. 
 
 The extent of Bank influence is not easily appreciated. It 
 is seldom we see a "Bank ticket," or a " money corpora- 
 tion ticket," on the election ground : but when questions 
 are agitated which affect this interest, the Banks have 
 agents at work, whose operations are the more effective 
 because they are unseen. The result usually is, placing 
 the names of friends of paper money on all the tickets. 
 
 Over the periodical press, the Banks have great power. 
 Few journalists can venture to expose the money corpora- 
 tion system, in such plain terms as every body would un- 
 derstand, without risking the means of support for them- 
 selves and families. Newspaper editors have as much in- 
 dependence of principle as other men ; but they are far 
 from being independent in circumstances. The neglect 
 of subscribers to pay up arrears, has brought many of them 
 in debt to the Banks. Others who are not in debt, are 
 supported principally by the patronage of the Banking in- 
 terest.* 
 
 * 111 a speech in Congress in 1816, Mr. Calhoun, referring to the 
 state of the currency, said, " the evil he desired to remedy, was a deep 
 
 I 
 
82 CHARTERS OBTAINED AND RENEWED. 
 
 In England it is possible to assail both the ecclesiastical 
 and the hereditary aristocracy, through the medium of the 
 periodical press. Under all the evils the people of that 
 country suffer, they have the consolation of enjoying free- 
 dom of discussion : but, notwithstanding our boasted li- 
 berty in the United States, free and full expositions of the 
 principal cause of our social evils would not be tolerated.* 
 
 In some respects, the Banks have more power than the 
 Government itself. They hold the purse-strings of the 
 nation. They can buy off enemies, and they have the 
 means, in various ways, of rewarding friends. Their fund 
 for the circulation of pamphlets is not easily exhausted. 
 They require no formal treaties to induce them to act in 
 
 one; ahnost incurable; because connected with public opinion, over 
 which Banks have a great contiol: Tiiey have, in a great measure, a 
 control over the press ; for the proof of which lie referred to the fact, 
 that the present wretched state of the circulating medium, had scarcelj 
 been denounced by a single paper in the United States." 
 
 * "Previous to commencing this pamphlet," says Mr. Carey, in a 
 publication made in 1816, " and during its progress in my hands, pru- 
 dence and discretion have been constantly exerting themselves to re- 
 press my zeal, and to deter me from the undertaking. They have in- 
 cessantly spread before my eyes the risk of otfending those powerful 
 bodies, the Directors of the Banks, who have so many opportunities of 
 making their indignation be felt, and some of whom may not be above 
 the mean and malignant desire of availing themselves of those oppor- 
 tunities. 
 
 " To the soundness of these suggestions, I must freely assent. ' It is 
 plain and practicable. And were 1 to consult my own personal advan- 
 tage or comfort, I should bow down in humble submission to their au- 
 thority. I am well aware of the risk I run. I know if there be at any 
 of the Boards any portion of malice or resentment, (and were there ever 
 twelve men assembled togther without a portion of malice and resent- 
 men ?) it will be roused into action to peisecute the man who has dared 
 to arraign their institutions at the bar of tlie public, and to accuse them 
 of gross errors, whicli have produced a fertile crop of misfortunes and 
 distress to our cili/.eiis. 
 
 "Another consecjuence equally clear, is present to my view. One 
 Bank Director, actuated by malice and resentment, would do me more 
 injury in a day, liian one hundred of those whose cause I undertake to 
 defend, would do me good in seven years. Tlic malice of the one 
 would be strong, lasting, insatiable, and as vigilant as Argus, with his 
 hundred eyes, to gratify lii.s spleen. The friendship, or the gratitude, 
 of the others would be cold, torpid and lifeless." 
 
 Mr. Car(!y then was, and perhaps still is, a supporter of the Banking 
 system. The oljject of his letters was simply to investigate the poliaj 
 of a curtailment of accommodations made by the Banks. 
 
CHARTERS OBTAINED AND RENEWED. 83 
 
 concert. They are ready organized for all occasions. The 
 direct power their charters give them, and the additional 
 power they acquire by their diversified operations, make 
 them all but resistless. 
 
 In the United States, there always have been, and there 
 are now, a great number of men opposed to the money 
 corporation and paper money system ; but their opposition 
 has produced little effect. In the Bank controversy, there 
 is, on the one side, the strong feeling of private interest 
 supported by party discipline; and, on the other side, the 
 comparatively weak feeling of patriotism, without any aid 
 from party organization. The friends of the Banking sys- 
 tem act in concert ; its opponents act singly, if they act at 
 all. Against any kind of action, there are various dis- 
 couragements. If a proposition is made to establish a 
 new Bank, it seems hardly worth while to oppose it, for 
 one Bank more or less can have no great effect. The 
 question immediately occurs on such occasions, why should 
 not these men, as well as others, be permitted to share the 
 profits of Banking? Every new Bank does, indeed, increase 
 the difficulty of reform ; but the prospect of reform seems 
 so remote as to be with many thought hardly worthy of 
 attention. 
 
 Other difficulties arise from the system's having received 
 the sanction of the Federal Government, as well as that 
 of the State Governments. If any one of the States wag 
 disposed to establish a system of sound currency and sound 
 credit, it would find the work impracticable so long as a 
 paper money Bank incorporated by the United States Gov- 
 ernment continues in existence. If a proposition is made 
 to suffer the charter of the United States Bank to expire, 
 we are startled with the horrors of a multitude of State 
 Banks, issuing paper without limits, and failing to redeem 
 their notes with specie. 
 
 It ought to excite no surprise that, under such circum- 
 stances, the paper money system has, notwithstanding the 
 great evils it has produced, been prolonged to the present 
 time, and that it is daily strengthening and extending itself. 
 To get rid of it suddenly is impossible. To remove it 
 would require a regular plan of operations, the carrying of 
 which into effect would employ a series of years. Such a 
 plan of operations could be carried into effect by a party 
 
84 ADVANTAGES TO SOME OVER OTHERS. 
 
 which would be willing to sacrifice all merely personal 
 predilections and antipathies for the grand object of break- 
 ing down the money corporation ar.d paper money sys- 
 tem, and restoring to the great body of the American peo- 
 ple their natural right of acquiring property by industry 
 and economy. 
 
 CHAPTER XX. 
 
 Summari/ Vieio of the Advantages tvJiich the Si/stem gives 
 to some men over others. 
 
 If two individuals should trade with one another, on the 
 same principle that the Banks trade with the community, 
 it would soon be seen on which side the advantage lay. If 
 A should pay interest on all the notes he gave, and finally 
 pay the notes themselves with his own wealth, and if B 
 should receive interest on all the notes he issued, and final- 
 ly pay the notes themselves with yi's wealth, A's loss and 
 B's gain would be in proportion to the amount of transac- 
 tions between them. 
 
 This is the exact principle of American Banking ope- 
 rations ; but, owing to the multitude of persons concerned, 
 the nature of the transaction is not discovered by the pub- 
 lic. Regard the whole Banking interest as one body cor- 
 porate, and the whole of the rest of the community as one 
 body politic, and it will be seen that the body politic pays 
 interest to the body corporate for the whole amount of 
 notes received, while the body corporate finally satisfies the 
 demands of the body politic by transferring the body poli- 
 tic's own property to its credit. 
 
 In private credit, there is a reciprocity of burdens and 
 of benefits. Substantial wealth is given when goods are 
 sold, and substantial wealth is received when payment is 
 made, and an equivalent is allowed for the time during 
 which payment is deferred. If A took a note from B, en- 
 dorsed l)y llic richest man in the country, he would require 
 interest for the time for which payment was postponed. 
 But the Banking system reverses this natural order. The 
 interest which is due to the productive classes that receive 
 the Bank notes, is paid to the Banks that issue them. 
 
ADVANTAGES TO SOME OVER OTHERS. 85 
 
 If the superior credit the Banks enjoy, grew out of the 
 natural order of things, it would not be a subject of com- 
 plaint. But the Banks owe their credit to their charters — 
 to special acts of legislation in their favor, and to their 
 notes being made receivable in payment of dues to Go- 
 vernment. The kind of credit which is created for them 
 by law, being equipollent with cash in the market, enables 
 them to transfer an equal amount of substantial wealth 
 from the productive classes to themselves, giving the pro- 
 ductive classes only representatives of credit, or evidences 
 of debt, in return for the substantial wealth which they 
 part with. 
 
 To test the Banking principle fairly, let us bring down 
 our minds from a country to a county, and, to give defi- 
 niteness to our ideas, let us, in all instances, make round 
 numbers the basis of our calculation. 
 
 Suppose a county to contain a thousand families of ten 
 persons each, and each family to be worth 5,000 dollars. 
 The wealth of the community is, then, 5,000,000 dollars. 
 One-tenth of this wealth, or 500 dollars for each family, we 
 will suppose to be in silver money. The rest is in land, 
 houses, and various commodities. The state of credit in 
 this county is as sound as the state of the currency. The 
 distribution of wealth is left to natural laws. The produc- 
 tion and acquisition of riches are never separated. Every 
 man enjoys what he produces, and what he saves ; and no 
 man enjoys what is produced or what is saved by another. 
 We will suppose the income of this community to be 
 1,000,000, dollars, or 1,000 dollars a year for each family, 
 and that 700,000 dollars of this aggregate income is derived 
 from industry, and the rest from capital, profits being at the 
 rate of six per cent. 
 
 In this county are ten men of a speculative turn of mind, 
 who grow tired of working and saving, and wish to grow 
 rich in some more easy way. They apply to the Legisla- 
 ture for a charter for a Bank,with a nominal capital of 100,000 
 dollars, divided into a thousand shares of 100 dollars 
 each : and their prayer is granted. It is provided in the 
 charter that, as soon as five dollars shall be paid on each 
 share,the Bank shall commenceoperations. The payment of 
 the other instalments is, according to the custom of Penn- 
 sylvania, left to the discretion of the Directors. 
 9 
 
86 ADVANTAGES TO SOME OVER OTHERS. 
 
 The business of Banking is new in this county, and as 
 none clearly understand its operation but the ten specula- 
 tors, they subscribe for the whole of the stock, or for one 
 hundred shares each. Each of them pays down 500 dol- 
 lars, making the whole capital paid in, 5,000 dollars. 
 
 The Bank then commences business, and issues notes 
 to the amount of 25,000 dollars. By the contrivance of 
 " convertibility," and by another contrivance by which 
 they are made receivable in payment of dues to Govern- 
 ment, the notes become current. The notes are borrowed 
 by the speculators. Each speculator has then 2,500 dol- 
 lars at command, instead of 500. It is true, he pays inte- 
 rest to the Bank as a borrower : but he receives the same 
 interest back as a stockholder. It is evident that the equal- 
 ity of wealth is destroyed. The possession of a nionied 
 capital so much greater than that of his neighbors, will 
 give him advantages in trade equal to double the amount 
 of interest. But, estimating his advantages as equal to only 
 six per cent., his annual income is increased from 1000 
 dollars to 1120, his 500 dollars formerly yielding him but 
 30 dollars a year, and now, by their conversion into Bank- 
 stock, yielding him 150 dollars ; for, each metallic dollar is, 
 by this contrivance, made to produce to him as much as 
 five did formerly. 
 
 But this is only the first operation of the Bank. Some 
 of the families in the county deposit their silver in the 
 vaults of the Bank, for safe-keeping. Other families, find- 
 ing that Bank notes serve all the purposes of domestic 
 trade, export their silver. This creates a new demand 
 for Bank notes as a circulating medium. In time, the 
 Bank finds that its permanent deposits of silver are not liable 
 to be reduced beyond a certain amount : and to increase its 
 profits, it lends a great part of the silver to those who ex- 
 port it. 
 
 It may require some years to bring the machine into 
 complete operation. The " prejudices " of some men 
 against i)aper, and in favor of metallic money, are not easily 
 subdued. But even those with whom the "prejudices" 
 remain, are brought at length, through the force of exam- 
 ple, through necessity, or through some other cause, to 
 make deposits in Bank, and to pay and receive Bank 
 paper. Bank medium then becomes the money of the 
 
ADVANTAGES TO SOME OVER OTHERS, 
 
 87 
 
 county : and as soon as this is accomplished, the regular 
 receipts of the Bank may be estimated as follows : 
 
 On 100,000 of Bank notes lent, at 6 40, - 66,400 
 
 On 100,000 of active Bank credit lent, - 6,400 
 
 On 100,000 of silver deposited by some, and 
 
 lent by the Bank to others who export it, - 6,400 
 
 619,200 
 
 On this supposition, 200,000 of metallic money will be 
 left in the county, half of which may be in the vaults of 
 the Bank, and the other half circulate as the medium of 
 retail trade. 
 
 In our haste we passed over the payment of the second, 
 third, and subsequent instalments of the stock. It was 
 not of much moment. The payments were merely nomi- 
 nal. The speculators could easily have paid all the instal- 
 ments, after the first, by the profits derived from the opera- 
 tions of the Bank itself But where would have been the 
 use of this ? The money, if paid in, would have been lent 
 and exported. It would have added something to the 
 income of the Bank. But each speculator can make 
 as much by keeping it in his own hands. The original 
 sum of 5,000 dollars, and so much of the silver of deposi- 
 tors as is retained, are sufficient to support the credit of 
 the Bank. Each of the speculators, therefore, throws in 
 a note for 500 dollars, when the second instalment becomes 
 due. The Bank discounts it : pays out its own paper at 
 one counter, and receives it back at another, or, perhaps, 
 only makes a new cred it entry in its books. It is true, that the 
 speculators are made debtors to the Bank for a certain 
 amount as borrowers : but they are credited with an equal 
 amount as stockholders : and in this way the whole of the 
 remaining itistalments may be arranged. By this contrivance 
 the sum of 95,000 dollars w^ill be added to the debts due 
 to the Bank, but nothing to its circulation or responsibi- 
 lities. 
 
 The time has now come, in which the speculators may 
 sell a part or the whole of the stock. They may with safety 
 dispose of seven hundred and fifty shares, to widows, or- 
 phans, and literary and charitable institutions, for these 
 will never interfere with Bank management. 
 
 We will deduct 9,200 dollars from the gross income of 
 
88 ADVANTAGES TO SOMP OVER OTHERS. 
 
 the Bank, for expenses, losses, and reservations for a con- 
 tingent fund. It will then be able to divide ten per cent, 
 on its nominal capital : and at the rate at which perma- 
 nent annuities are calculated, stock yielding ten per cent, 
 will be estimated as worth in the market 150 dollars a 
 share. Each of our speculators sells seventy-five shares 
 of his stock at this rate, or for 1 1,255 dollars, and invests 
 the proceeds in land, houses, or merchandise. The risk 
 of payment to the Bank of the notes discounted, he trans- 
 fers to the purchaser of the stock. 
 
 Thus we see that our ten speculators have, by the "ju- 
 dicious" use of 5,000 dollars of metalic money, got trans- 
 ferred to them 112,550 dollars' worth of real and personal 
 estate. Retaining two hundred and fifty shares of stock, 
 they keep the control of the institution in their own hands. 
 
 Now, we pretend not to say that the accounts of any one 
 of our American Banks would, if faithfully exhibited, accord 
 in every particular with this supposed case. Their profits do 
 not appear to be usually as great : but extreme cases 
 serve best to illustrate j)riiicijjlcs ; and these are the funda- 
 mental principles of the American Banking System. A 
 small amount of metalic money is paid in : the other in- 
 stalments are arranged by the discounting of stock notes. 
 The Bank extends its operations by discounts on deposits, 
 and by substituting a paper for a metalic medium : and, at 
 a suitable time, the founders of the Bank sell a portion of 
 the stock, and invest the proceeds in lands, houses, and 
 merchandise. 
 
 The Bank of Chester had, on the 3d of November, 1829, 
 a capital of 90,000 dollars, notes in circulation to the 
 amount of 209,004 dollars, and deposits to the amount of 
 166,374 dollars. The specie in its vaults amounted to 
 61,462 dollars, and the investments on which it was draw- 
 ing interest amounted apparently to 451,003 dollars. I'he 
 circulation and deposits of the Bank of Chester, were alto- 
 gether 375,438. Those of the Bank in the case supposed, 
 for the sake of illustrating the principle, were only .300, 
 000 dollars. The investments of the Bank of Chester, 
 yielding interest, amounted to 451,003. Those of the 
 supposed Bank, to only 395,000, including the stock notes 
 of the ten founders of the Bank. 
 
 It may be, that the whole 90,000 of the capital of the 
 
ADVANTAGES OF SOME OVER OTHERS. 89 
 
 Bank of Chester was paid in, without any resort to dis- 
 counting of stock notes, or any similar contrivances. But 
 if it was, there was nothing in the principles of the system 
 to prevent the stock of the Bank of Chester from being 
 filled up in the way which is usual in establishing new 
 Banks in America. The Bank of Chester County hav- 
 ing gone into operation in the year in which specie pay- 
 ments were suspended, the filling up of its stock must have 
 been an easy process, whatever method was adopted. 
 
 As it is public credit that supports the Banks, and not 
 the Banks that support public credit — as the deposits of 
 the Banks are the property of the community generally, 
 and as the profits derived from circulation come from the 
 community generally, they ought to go to the community 
 generally, and be used (if used at all) to lighten the bur- 
 dens of taxation. " If," says Ricardo, " a charter were 
 about to expire, the public might question the policy of 
 permitting a company to enjoy all the advantages which 
 attend the supplying of a great country with paper money. 
 Paper money may be considered as affording a seignorage 
 equal to its ivhole exchangeable value — but seignorage in 
 all countries belongs to the State." 
 
 If, after the manner of the Scotch Banks, the American 
 Banks paid four per cent, interest on deposits, and granted 
 discounts at the rate of five per cent, there would be some- 
 thing like equity in this department of their operations, 
 for one per cent, would not be more than a fair commission. 
 But they allow no interest on deposits, except in Boston, 
 and perhaps in Baltimore, though it is, in point of fact, 
 through the means of the deposits, that they support the 
 credit of the notes they have in circulation. 
 
 But the reader will have a very imperfect idea of the ad- 
 vantages the present Banking system gives to some men, if 
 he extends his view no further than the profits derived from 
 trading on deposits, from substituting a credit medium of 
 commerce for a metallic medium, from the formation of Bank 
 stock secundum artem, and the subsequent exchange of 
 that Bank stock for lands, houses and merchandise. 
 In addition to this, he must take into consideration — 
 What some have gained and others have lost, by the va- 
 rious kinds of stock-jobbing and usury, to which Banking 
 has given rise : 
 9* 
 
90 REMOTE CONSEQUEIVCES OF THE SYSTEM. 
 
 What some have gained and others lost, by that fluctua- 
 tion of prices which is produced by " contractions" and 
 "expansions" of Bank medium, and which has made most 
 kinds of business more uncertain than a lottery : 
 
 What some have gained and others lost, through that 
 super-extended system of commercial credit, which has its 
 origin and support in Banking : 
 
 What some have gained and others lost, by the breaking 
 of upwards of one hundred and sixty Banks between the 
 years 1811 and 1830: 
 
 What some have gained and others lost, through the cir- 
 culation of counterfeit notes : 
 
 What some have gained and others lost, by receiving 
 genuine notes at one rate, and passing them at another : 
 
 Let him add all these accounts together, and he will have 
 a pretty correct idea of what some have gained and others 
 have lost by the direct operations of the system. 
 
 CHAPTER XXI. 
 
 Of the Remote Consequences of the System. 
 
 Ourview of the extent to which paper-money Banking 
 affects our social condition, will be very imperfect, if we 
 confine it to the direct operations of the system. These 
 are, as it were, but the first links of a long extended chain. 
 Each effect becomes in its turn a cause ; and the remote 
 consequences are of more importance than the immediate. 
 To prove this, a few plain truths will suffice. 
 
 If two men start in life at the same time, and the one 
 gets, at the commencement, but a small advantage over the 
 other, and retains the advantage for twenty or thirty years, 
 their fortunes will, at the end of tliat period, be very unequal. 
 
 If a man at the age of twenty-one years, is deprived of 
 one hundred dollars which he had honestly earned, and 
 honestly saved, the injury done to this man must be esti- 
 mated by the advantage he would have derived from the 
 use of his little property during the rest of his life. The 
 want of it may prevent his turning his faculties to the best 
 account. The loss may dispirit his future exertion. 
 
 If a man is, at any period of his lile, deprived of a pro- 
 
REMOTE CONSEQUENCES OF THE SYSTEM 
 
 91 
 
 perty, large or small, accumulated for him by the honest 
 industry and economy of his ancestors, the wrong done to 
 him is of the same character as that which he sustains 
 when he is unjustly deprived of property which was the 
 fruits of his own industry. It is the dictate of nature that 
 parents shall leave their wealth to their children, and the law 
 of the land, in this case, only confirms the dictate of nature. 
 
 It is not easy to set bounds to the effects of a single act 
 of injustice. If you deprive a man of his property, you 
 may thereby deprive him of the means of properly edu- 
 cating his children, and thus affect the moral and intellectu- 
 al character of his descendants for several generations. 
 
 Such being the consequences of single acts, we may 
 learn from them to estimate the effects of those political 
 and commercial institutions which operate unequally. 
 They lay the foundation of an artificial'm equality of wealth : 
 and, whenever this is done, the wealth of the few goes on 
 increasing in the ratio of compound interest, while the re- 
 flux operations of the very causes to which they owe their 
 wealth, keep the rest of the community in poverty. 
 
 /Where the distribution of wealth is left to natural and 
 just laws, and the natural connection of cause and effect 
 is not violated, the tendency of " money to beget money," 
 or rather of wealth to produce wealth, is not an evil. A 
 man has as strong a natural right to the profits which are 
 yielded by the capital which was formed by his labor, as he 
 has to the immediate product of his labor. To deny this, 
 would be to deny him a right to the whole product of his 
 labor. The claims of the honest capitalist and of the 
 honest laborer, are equally sacred, and rest, in fact, on the 
 same foundation. Nor is it the law of nature that the idle 
 and improvident shall suffer temporary inconvenience 
 only. By neglecting to form a capital for themselves, they 
 render their future labor less productive than it otherwise 
 might be : and finally make themselves dependent on others 
 for the means of both subsistence and employment. 
 
 But, unequal political and commercial institutions invert \ 
 the operation of the natural and just causes of wealth and \ 
 poverty — take much of the capital of a country from those [ 
 whose industry produced it, and whose economy saved it, 
 and give it to those who neither work nor save. The 
 natural reward of industry then goes to the idle, and the 
 natural punishment of idleness falls on the industrious. 
 
92 REMOTE COPTSEQUENCES OF THE SYSTEM. 
 
 Inasmuch as personal, political, commercial, and acci- 
 dental causes, operate sometimes in conjunction, and some- 
 times in opposition, it is diffiult to say, in individual cases, 
 in how great degree wealth or poverty is owing to one 
 cause or to another. Harsh judgments of rich and poor, 
 taking them individually, are to be avoided. But it is no- 
 torious, that, as regards ditferent classes in different coun- 
 tries, wealth and poverty are the consequences of the posi- 
 tive institutions of those countries. Peculiar political pri- 
 viliges are commonly the ground of the distinction : but 
 peculiar commercial privileges have the same effect : and 
 when the foundation of the artificial inequality of fortune is 
 once hid, (it matters not whether it be by feudal institu- 
 tions or money corporations,) all the subsequent operations 
 of society tend to increase the difference in the condition 
 of different classes of the community. 
 
 One consequence of unequal institutions is increasing the 
 demand for luxuries, and diminishing the effective demand 
 for necessaries and comforts. Many being qualified to be 
 producers of necessaries, and few to be producers of luxu- 
 ries, the reward of the many is reduced, and that of the 
 few raised to an enormous height. The inventor of some 
 new means of gratification for the rich, is sure to receive 
 his recompense, though thousands of able-bodied men may 
 be starving around him. 
 
 This may be illustrated by a case drawn from England, 
 where the favorite opera-singer receives her thousands per 
 annum, while the able-bodied agricultural laborer is forced 
 to draw on the parish rates for subsistence. 
 
 Something similar to it may be found in our own country, 
 where the second rate singers, dancers, and players of Eu- 
 rope, accumulate fortunes in a few years, while multitudes 
 of humble but useful women in all our large cities, strug- 
 gle hard for the means of a bare subsistence. 
 
 Now, there is no cause of complaint in people's lavishing 
 their thousands on favorite singers and dancers, if those 
 thousands have been honestly earned and fairly got. But 
 if they owe their thousands to political or commercial in- 
 stitutions operating specially to their advantage, those poli- 
 tical and commercial institutions are not of the kind most 
 conducive to social happiness. 
 
 Through all the operations of business, the effects of an 
 
REJrOTE CONSEQUENCES OFJfJHE SYSTEM. 93 
 
 unequal distribution of wealth may be distinctly traced 
 The rich have the means of rewarding most liberally the 
 professional characters whom they employ, and the trades- 
 men with whom they deal. An aristocracy in one depart- 
 ment of society, introduces an aristocracy into all. 
 
 These effects are, it is true, most obvious in countries 
 where the causes of an artificial inequality of wealth are of a 
 permanent character, and connected with political organiza- 
 tion : but they can be discovered in our own country. The 
 inequality of reward our lawyers and physicians receive, is 
 caused but in part by inequality of talent. It is owing in 
 part to the inequality of the means of those who employ 
 them : and to the disposition the many have to prefer the 
 lawyer or the physician who is patronized by the rich and 
 fashionable. They feel that their own education disquali- 
 fies them for forming a proper estimate of professional 
 talent, and take the judgment of those they suppose must, 
 from their superior wealth, have better means of informa- 
 tion. 
 
 It is, however, amoncr the hard-working members of 
 society, that the ultimate effects of such causes are most 
 observable. 
 
 The condition of a multitude of poor w'omen in our large 
 cities, has lately attracted the attention of the benevolent. 
 It appears from the statements that have been published, 
 that they can, by working ten or twelve hours every day, 
 earn no more than from seventy-five cents to a dollar 
 a week. Half of this sum goes for house rent and fuel, 
 leaving them from thirty-seven and a half cents to fifty 
 cents a week for food and clothing for themselves and chil- 
 dren. Some thousands are said to be in this situation in 
 Philadelphia alone. 
 
 Various proposals have been made to better their condi- 
 tion : some futile, others absolutely pernicious. The laws 
 of supply and demand are too pow^erful to yield to ser- 
 mons and essays. The low rate of the wages of these poor 
 women, is the effect of general causes — causes which affect, 
 in one way or another, every branch of business. In the 
 great game we have been playing, much of the wealth of 
 the country has passed into a few hands. Many men dy- 
 ing, have left nothing to their widows and children ; and 
 others who still live, cannot support their families, except 
 
94 EFFECTS ON MORAL CHARACTER. 
 
 by the additional industry of their wives. The work of a 
 seamstress can be done by a woman in her own house, in 
 the intervals she can spare from attention to her children. 
 In this way, the number of seamstresses has been in- 
 creased. 
 
 On the other hand, many families who would gladly em- 
 ploy these poor women, are compelled by their own strait- 
 ened circumstances, to do this kind of work themselves. 
 In this way the demand for seamstresses is diminished. 
 
 Private benevolence may improve the condition of indi- 
 viduals of this class : but the class itself can be benefitted 
 by such causes only as will diminish the number of seam- 
 stresses or increase the demand for their. labor. The cause 
 that will improve the condition of one of the industrious 
 classes of society, will improve the condition of all. When 
 an end shall be put to unfair speculation, then, and not 
 till then, will honest industry have its just rev^ard. 
 
 CHAPTER XXII. 
 Effects on Moral Character. 
 
 The practices of trade seem, in most countries, to fix the 
 standard of commercial honesty. In the Hanse towns and 
 Holland, while they were rising to wealth, this standard 
 was very high. Soldiers were not more careful to preserve 
 their honor without stain, than merchants were to maintain 
 their credit without blemish. 
 
 The practices of trade in the United States, have de- 
 based the standard of commercial honesty. Without 
 clearly distinguishing the causes that have made commerce 
 a game of hap-hazard, men have come to perceive clearly 
 the nature of the effect. They see wealth passing con- 
 tinuallv out of the hands of those whoso labor produced 
 it, or whose economy saved it, into the hands of those who 
 neither work nor save. They do not clearly perceive hoio 
 the transfer takes place : but they arc certain of the fact. 
 In the general scramble they think themselves entitled to 
 some portion of the spoil, and if they cannot obtain it by 
 fair means, they take it by foul. 
 
EFFECTS ON MORAL CHARACTER. 95 
 
 Hence we find men, without scruple, incurring debts 
 which they have no prospect of paying. 
 
 Hence we find them, when on the very verge of bank- 
 ruptcy, embarrassing their friends by prevailing on them to 
 indorse notes and sign custom-house bonds. 
 
 Instances not unfrequently occur of men who have failed 
 once or twice, afterwards accumulating great wealth. How 
 few of these honorably discharge their old debts by paying 
 twenty shillings in the pound ! 
 
 How many evade the just demands of their creditors, by 
 privately transferring their property. . 
 
 It is impossible, in the present condition of society, to 
 pass laws which will punish dishonest insolvents, and not 
 oppress the honest and unfortunate. 
 
 Neither can public opinion distinguish between them, 
 The dishonest share the sympathy which should be given 
 exclusively to their unfortunate neighbors : and the honest 
 are forced to bear a part of the indignation which should 
 fall entirely on the fraudulent. 
 
 The standard of commercial honesty can never be raised 
 very high, while trade is conducted on present principles. 
 " It is hard," says Dr. Franklin, " for an empty bag to 
 stand upright." The straits to which many men are re- 
 duced, cause them to be guilty of actions which they would 
 regard with as much horror as their neighbors, if they were 
 as prosperous as their neighbors. 
 
 We may be very severe in our censure of such men, 
 but what else ought we to expect, when the laws and cir- 
 cumstances give to some men so great advantages in the 
 great game in which the fortunes of the whole community 
 are at issue — what else ought we to expect, but that those to 
 whom the law gives no such advantage, should exert to the 
 utmost such faculties as remain to them in the struggle for 
 riches, and not be very particular whether the means they 
 use are such as the law sanctions or the law condemns. 
 
 Let those who are in possession of property which has 
 been acquired according to the strict letter of the law, be 
 thankful that they have not been led Into such temptations 
 as those on whom the positive institutions of society have 
 had an unfavorable influence. 
 
 But, Banking has a more extensive effect on the moral 
 character of the community, through that distribution of 
 
96 EFFECTS ON MORAL CHARACTER. 
 
 wealth which is the result of its various direct and remote 
 operations. Moralists in all ages, have inveighed against lux- 
 ury. To it they attribute the corruption of morals, and the 
 downfall of nations. The word luxury is equivocal. What is 
 regarded as a luxury in one stage of society, is, in another, 
 considered as a comfort, and in a still more advanced stage 
 as a necessary. The desire of enjoyment is the great stimu- 
 lus to social improvement. If men were content with bare 
 necessaries, no people would, in the arts and sciences, and 
 in whatever else renders life desirable, be in advance of 
 the lowest caste of the Hindoos, or the unhappy peasantry 
 of the most unhappy country of Europe. 
 
 Rut, whatever moralists have said against luxury, is true 
 when applied to that artificial inequality of fortune which 
 is produced by positive institutions of an unjust character. 
 Its necessary effect is to corrupt one part of the communi- 
 ty, and debase the other. 
 
 The bare prospect of inheriting great wealth, damps the 
 energies of a young man. It is well if this is the only evil 
 it produces. " An idle man's brain," says John Bunyan, 
 " is the devil's workshop." Few men can have much lei- 
 sure, and not be injured by it. To get rid of the ennui of 
 existence, young men of wealth resort to the gambling ta- 
 ble, the race ground, and other haunts of dissipation. They 
 cannot have these low means of gratification, without de- 
 basing those less favored by fortune. 
 
 The children of the poor suffer as much in one way, as 
 the children of the rich suffer in another. The whole ener- 
 gies of the father and mother are exhausted in providing 
 bread for tl\emselves and their family. They cannot at- 
 tend properly to the formation of the moral character of 
 their offspring — the most important branch of education. 
 They can ill spare the means to pay for suitable intellec- 
 tual instruction. Their necessities compel them to put 
 their children to employments unsuited to their age and 
 strength. The foundation is thus laid of diseases which 
 shorten and imbitter life. 
 
 Instances occur of men, by the force of their innate 
 powers, overcoming the advantages of excess or defect of 
 wealth ; but il is true, as a general maxim, that, in early 
 life, and in every period of life, too much or too little 
 wealth, is injurious to the character of the individual, and, 
 
EFFECTS ON HAPPINESS. 97 
 
 when it extends through a community, it is injurious to 
 the character of that community. 
 
 In the general intercourse of society, this artificial ine- 
 quality of wealth produces baneful effects. In the United 
 States, the pride of wealth has more force than in any other 
 country, because there is here no other pride to divide the 
 human heart. Some of our good republicans do, indeed, 
 boast of a descent from the European nobility; but when 
 they produce their coats of arms, and their genealogical 
 trees, they are laughed at. The question is propounded, if 
 their noble ancestors left them any money. Genius con- 
 fers on its possessor a very doubtful advantage. Virtue, 
 with us, as in the days of the Roman poet, is viler than 
 sea weed, unless it has a splendid retinue. Talent is esti- 
 mated only as a means of increasing riches. Wealth alone 
 can give permanent distinction, for he who is at the top 
 of the political ladder to-day, may be at the bbttom to- 
 morrow. 
 
 One mischief this state of things produces, is, that men 
 are brought to consider wealth as the only means of hap- 
 piness. Hence they sacrifice honor, conscience, health, 
 friends — every thing, to obtain it. 
 
 The other effects of artificial inequality of wealth, have 
 been treated of at large, by moralists, from Solomon and 
 Socrates downwards. To their works, and to the modern 
 treatises on crime and pauperism, we refer the reader. The 
 last mentioned treatises are, for the most part, only illustra- 
 tions of the ultimate effects of positive institutions, which 
 operate unequally on different members of the commu- 
 nity. 
 
 CHAPTER XXIII. 
 
 Effects on Happiness. 
 
 The inferences the intelligent reader must have drawn 
 from what has already been stated, preclude the necessity 
 of much detail in this part of our inquiry. 
 
 Wealth is, if independently considered, but one among 
 fifty of the causes of happiness : and poverty, viewed i« 
 10 
 
98 EFFECTS ON HAPPINESS. 
 
 the same light, is but one among fifty of the causes of mi- 
 sery. The poorest young man, having health of body and 
 peace of mind, and enjoying tiie play of the social sympa- 
 thies, in the affections of wife, children and friends, is hap- 
 pier than the richest old man, bowed down v\ith sickness, 
 oppressed with anxiety for the future, or by remorse for the 
 past, having nobody to love, and beloved by nobody. 
 
 But though we may, by mental abstraction, consider 
 wealth independently, or poverty independently, neither 
 the one or the other is absolutely independent in its opera- 
 tion. Tiiere is no cause in either the physical or the moral 
 world, but which works in conjunction with other causes. 
 Health of body and peace of mind, with the just play of the 
 social affections, may give happiness, independently of 
 wealth: but in extreme poverty, it is difficult to preserve 
 either health of body or peace of mind, and the play of the 
 social affections becomes then a source of misery. 
 
 Some little wealth, at least enough for daily subsistence, 
 is necessary for the enjoyment of life and the pursuit of 
 happiness: and hence it is, that the right to property is as 
 important as the right to life and tlie right to liberty. " You 
 take my life when you do take the means by which I 
 live." 
 
 The majority of men are of such temperament, that 
 something more than the means of subsistence for the bare 
 twenty-four hours, is necessary for their happiness. They 
 must also have a prospect of enjoying the like means of sub- 
 sistence in future days. But this is a prospect which, with 
 the reflecting part of the poor, is frequently overcast with 
 clouds and gloom. Few journeymen mechanics are able 
 to make adequate provision for sickness and old age. The 
 wages of a laborer will support him and his family while 
 he enjoys health and while employment is steady: but in 
 case of long continued sickness he must look for relief from 
 the hand of public or of private charity. If he casts his eyes 
 on his wife and children, his dying hours arc imbittered 
 with thoughts of tlie misery which may be their portion. 
 Corroding care is the inmate of the poor man's breast. It 
 is so heart-withering, that it may be made a question, if the 
 condition of some slaves in the Southern States is much 
 worse than that of many citizens of tlie other States. The 
 want of liberty is a great drawback on happiness: but the 
 
EFFECTS ON HAPPINESS. 9& 
 
 slave is free from care. He knows that when he grows 
 old, or becomes infirm, his master is bound to provide for 
 his wants. 
 
 There would be less objection to that artificial inequali- 
 ty of wealth which is the result of unjust positive institu- 
 tions, if it increased the happiness of one class of society 
 in the same proportion that it diminishes the happiness of 
 another class. But, increase of wealth beyond what is ne- i 
 cessary to gratify the rational desires of a man, does not 
 increase his happiness. If it gives birth to irrational desires, 
 the gratification of them must produce misery. Even when 
 inordinate wealth does not give birth to irrational desires, 
 it is attended with an increase of care, and this is a foe to 
 happiness. 
 
 With some men, the love of wealth seems to be a blind 
 passion. The magpie, in hiding silver spoons in its nest, 
 appears to act with as much reflection as they do, in piling 
 money-bag on money-bag. They have no object in view 
 beyond accumulation. But, with most men, the desire of 
 great wealth appears subordinate to the love of great power 
 and distinction. This is the end, that the means. They 
 love fine houses, splendid equipages, and large possessions, 
 less for any physical gratification they impart, than for the 
 distinction they confer, and the power they bestow. It is 
 with some, as much an object of ambition to be ranked 
 with the richest men, as it is with others to be ranked with 
 the greatest warriors, poets, or philosophers. 
 
 The love of that kind of distinction which mere wealth 
 confers, is not a feeling to be highly commended : but it 
 is hardly to be reprobated, when it is constitutional, and 
 when it is under the government of proper moral principle. 
 In this case, it is a simple stimulus to vigorous industry and 
 watchful economy. With some men, the love of ease is 
 the ruling passion, with others the love of pleasure, and 
 with others the love of science. If the love of riches was 
 not, with many men, stronger than any of the other 
 loves we have mentioned, there might not be enough wealth 
 accumulated to serve the general purposes of society. They 
 may claim the liberty of gratifying their particular passion 
 in a reasonable way : but it is a passion which derives less 
 gratification from the actual possession of a large store, 
 than from the constant increase of a small one. The 
 
 
100 EFFECTS ON HAPPINESS. 
 
 man whose wealth increases gradually from 100 dollars to 
 1000, thence to 5000, thence to 10,000, and thence to 
 50,000, has more satisfaction in the process than he who 
 suddenly becomes possessed of 100,000 dollars. As to 
 the distinction which mere wealth confers, it would be ob- 
 tained in a state of society in which the distribution of 
 wealth was left to natural laws, as certainly as in a state in 
 which positive institutions operate to the advantage of the 
 few, and to the disadvantage of the many. If the riches 
 of men were made to depend entirely on their industry, eco- 
 nomy, enterprize, and prudence, the possession of 100,000 
 dollars would confer as much distinction as the possession of 
 500,000 dollars confers at present. Those worth "a plum," 
 would then rank among the " first men " on 'change : those 
 who are worth " five plums" can rank no higher now. 
 
 But the system has not a merely negative eifect on the 
 happiness of the rich. Such is the uncertainty of fortune 
 in the United States, that even the most wealthy are not 
 exempt from painful solicitude for the future. Who can be 
 sure that he will be able to navigate his own bark in safety 
 to the end of the voyage, when he sees the shore strewed 
 with wrecks? If a man leaves an estate to his children, 
 he knows not how long they will keep possession of it. If 
 he extends his views to his grand children, the probability 
 will appear strong that some of them will be reduced to ab- 
 ject poverty. 
 
 Such is the present custom of trade, that a man who has 
 a considerable capital of his own, not unfrequently gives 
 credit to four or five times the amount of that capital. He 
 is a rich man, but even if the debts due to him are per- 
 fectly secure, the perplexity which is created by a long 
 train of credit operations, the failure of but one of which 
 may prove his ruin, must leave him little ground for solid sa- 
 tisfaction : and the necessity he is under in times of embar- 
 rassment, of courting the good-will of Bank Directors, goes 
 far towards destroying his personal independence. " The 
 servile dependence on Banks, in which many of our citi- 
 zens pass their lives," was observed by l\!r. Carey as long 
 ago as the year 1811. 
 
 There is one other evil resulting from the super-extend- 
 ed system of credit which has its origin in Banking, and 
 with a few observations on this, we shall close our remarks 
 
EVILS OF A SUDDEN DISSOLTITION Oy ^THE Si'SrEM. 101 
 
 on this head of the subject. We allude to the misery suf- 
 fered by an honest man, who is involved in debts. We 
 have known cases in which none of the common rules of 
 prudence had been transgressed in incurring the debts, in 
 which the creditors were perfectly convinced of the 
 honesty of the debtor, and neither pressed for payment, 
 nor reflected on his disability to comply with his engage- 
 ments : in which the debtor was sensible that his failure 
 would not subject his creditors to any serious inconve- 
 nience; and yet a gloom would overspread the mind of the 
 debtor, and remain there for years. 
 
 CHAPTER XXIV. 
 
 Of the Evils that toould be produced hy a sudden dissolu- 
 tion of the System. 
 
 If every Bank note in the country were consumed by 
 fire to-morrow, the wealth of the nation would be dimi- 
 nished just as much as it would be by the destruction of so 
 much v/aste paper. 
 
 So, if all the title-deeds of estates were destroyed, the 
 loss of positive wealth would be equivalent to the loss of so 
 many skins of parchment. But very great injustice would 
 be done to individuals by the destruction of these skins of 
 parchment ; and not less, probably, by the sudden destruc- 
 tion of Bank notes. 
 
 It is an easy thing to establish a Banking system : but 
 it is not very easy to get rid of it after it has been some 
 years in operation. The sudden abolition of it, would pro- 
 duce an entire destruction of private credit, a universal 
 pressure for the payment of debts, and a general disability 
 to comply with engagements. Business of nearly every 
 kind would be suspended, and the laboring part of the 
 community would be deprived of employment. 
 
 If all the Bank notes in the country should be destroyed 
 to-morrow, the twenty-two millions of specie which are 
 said to be in the vaults of the Banks, would be put in cir- 
 culation, which, added to the ten millions of soecie sup- 
 10* 
 
102 EVir.S OF 4. S.t.!DDEN DISSOLUTION OF THE SYSTEM. 
 
 posed to be at present in circulation, would make a total 
 of thirty-two millions. Supposing Bank credits to be de- 
 stroyed at the same moment, the circulating medium would 
 suddenly be reduced from one hundred and nineteen mil- 
 lions (which is, according to Mr. Gallatin, the present 
 aggregate of specie, notes, and Bank credits) to thirty-two 
 millions. If an end were not put to all transactions except 
 by means of barter, the fall of prices would be at least 
 seventy-five per cent. 
 
 If but half of the Bank notes and Bank credits should 
 be suddenly abolished, the fall of prices would be in 
 greater proportion than the reduction of medium, from the 
 immense quantities of land and of merchandise which 
 would be thrown into the market. 
 
 If the Bank medium should be suddenly reduced only 
 one-fourth, the fall of prices would be at least twenty-five per 
 cent., and universal embarrassment would be the conse- 
 quence. 
 
 Many of those who have acquired capital by the differ- 
 ent operations of Banking, would not, perhaps, desire any 
 thing better than the sudden destruction of the system. 
 Most estates which are now mortgaged for only one-third 
 or fourth of their worth, at the present rate of valuation, 
 would fall into the hands of speculators. The condition of 
 the whole country would be like that of Kentucky when 
 she adopted her " relief laws." The people would clamor 
 for the issue of paper money by the State Governments, 
 and a worse system than the present might be adopted, if a 
 worse be possible. 
 
 Public opinion in the United States, when it once takes 
 root, runs so rapidly to maturity, that this caution is not 
 unnecessary. Some who are now living may see the time 
 when the popular feeling against the Banking system will 
 be stronger than the feeling ever was in its favor. 
 
^ PROPER MODE OF PROCEEDING. 103 
 
 CHAPTER XXV. 
 Of the Proper Mode of Proceeding. 
 
 As paper drives specie out of circulation, so, the with- 
 drawal of paper brings specie Bank again. Wherever there 
 is a vacuum it flows in, unless political regulations counte- 
 ract its tendency to find its own level. 
 
 If we gradually withdraw Bank notes from circulation, 
 no evil will ensue, for specie will immediately supply their 
 place. 
 
 The proper mode of proceeding would be, to begin with 
 the smallest notes, and proceed gradually to those of the 
 highest denomination. 
 
 Mr. White, of New York, in his report to Congress, 
 made in February, 1831, estimates the amount of notes in 
 circulation of a less denomination than five dollars, at not 
 more than seven millions. This does not exceed the 
 amount of gold and silver we sometimes import in one 
 year. But, through the use made of paper, the gold and 
 silver imported in one year are exported in the next. Let 
 small notes fall into disuse, and an equal amount of specie 
 will be retained in the country. 
 
 The amount of five dollar notes in circulation is esti- 
 mated by Mr. White at ten millions. Two years after the 
 act to prohibit the issuing of small notes, it would be per- 
 fectly safe to prohibit the issuing of notes of a less deno- 
 nfrination than ten dollars. 
 
 In two years more, the prohibition might be extended to 
 notes of a less denomination than twenty dollars. Our 
 currency would then be on a par with that of Great Britain. 
 
 In two years more the issue of notes of a less denomina- 
 tion than fifty dollars might be forbidden ; and in two years 
 after that, the issue of notes of a less denomination than 
 100 dollars. 
 
 In this way, in the short period of ten years, and without 
 producing any commercial convulsion, specie might be 
 made to take the place of paper. 
 
 We speak from experience. The principles of the mea- 
 sure have been tried in Virginia, Maryland, and Pennsyl- 
 vania. In the way in which these States have got rid 
 
104 PROPER MODE OF PROCEEDIXG. 
 
 of small notes, the other States may get rid of them. In 
 the way in which small notes have been driven from circu- 
 lation, notes of every denomination may be made to give 
 place to specie. 
 
 In some parts of Pennsylvania, violent opposition was 
 made to the act to prohibit the circulation of small notes, 
 from an opinion that it would "make money scarce." The 
 grand juries of the counties of Beaver and Erie went so far 
 as to present it as a nuisance. But the Legislature remain- 
 ed firm in its purpose, and many of the former opponents 
 of the law are now among its warmest supporters. The 
 effect of the measure was just such as its friends predicted. 
 An immense quantity of trash disappeared from circulation, 
 and its place was supplied with silver. 
 
 The principles of the measure have also been tried in 
 England, where, in 1829, the issue of notes of a less 
 denomination than five pounds sterling was prohibited. 
 The proceeding there was from notes of one pound, 
 or four dollars eighty cents, to notes of five pounds, or 
 twenty-four dollars — a greater jump than would be advisa- 
 ble in America. 
 
 Some of our most distinguished statesmen appear to be 
 of opinion that, if it were possible to substitute a metallic 
 for a paper medium, it would greatly promote the interests 
 of the country. Nothing hinders, but icant of inclination. 
 If either of the great political parties into which our na- 
 tion is divided, would take a decided stand in favor of 
 sound currency and sound credit, the cause of sound cur- 
 rency and sound credit would be triumphant. The indus- 
 trious classes of the nation would array themselves with 
 that party, as soon as they could be made to understand 
 the question, and the speculators and their satellites would 
 be vanquished in the contest. 
 
 If our national debt was of great amount, and if our 
 taxes were heavy, some difficulties might be experienced 
 in passing from a paper to a metallic medium. But our 
 national debt is now merely nominal, and the taxes paya- 
 ble to the United States may, if necessary, be reduced, 
 without diminishing the efficiency of Government. A 
 country and a people possessed of so much elasticity, could 
 bear greater changes than any here proposed. 
 
 Of the perfect feasibility of the measure, we may be 
 
PROPER MODE OF PROCEEDING. 105 
 
 convinced in another way. Our exports of domestic pro- 
 duce amount annually to between fifty and sixty millions 
 of dollars. If we should buy from five to ten millions a 
 year of gold and silver, for ten years, we should still have 
 between forty and fifty millions to expend in the purchase 
 of European manufactures, and East and West India pro- 
 ducts. If, by the withdrawal of paper, a demand for specie 
 to the amount of twenty millions annually should be crea- 
 ted, it could readily be supplied. England, in four years, 
 on the resumption of specie payments, imported twenty 
 millions sterling in gold alone. Our demand could be 
 supplied by both gold and silver. 
 
 Supposing the withdrawal of the Bank notes should 
 cause a diminution of Bank discounts of equal amount, 
 the effect, if we proceeded gradually, would be almost im- 
 perceptible. If two years were allowed for the withdrawal 
 of small notes, the diminution of Bank discounts would, in 
 this period, and on this supposition, be at the rate of 
 3,500,000 dollars a year. In the single city of Philadel- 
 phia, there have been, in periods of less than a year, reduc- 
 tions of Bank discounts to as great an amount as is here 
 proposed for the whole country. 
 
 Accordincr to the estimate of Mr. Gallatin, the whole 
 amount of Bank notes in actual circulation, in 1830, was 
 about 54,000,000. Surely it will not be said, that our 
 whole nation cannot pay olTan amount of Bank debt, equal 
 to the amount of Bank notes in circulation, in the period 
 of ten years. 
 
 But, supposing we should, in tlje course of ten years, 
 choose to pay off an amount of Bank debt, equal to the 
 whole amount of Bank medium, or of both Bank notes and 
 Bank credits, amounting together to 109,000,000, would it 
 be a work of insuperable difliculty ? In the last seven 
 years, the Government has paid off the public debt at the 
 rate of eight or ten millions a year : can we not, all of us 
 together, pay olF between eleven and twelve millions a year 
 of Bank debt? 
 
 In a pamphlet entitled "Remarks on the Annual Trea- 
 sury Report," published in 1828, and said to be written by 
 two practical economists, distinguished for their talents 
 and information, the whole capital of the country is estima- 
 ted at 12,000,000,000 dollars, and its productive industry 
 
106 NEW COINAGE OF GOLD. 
 
 at 600,000,000 annually. Mr. Lee of Boston, seems to sup- 
 pose the national capital is not more than 10,000,000,000, 
 but he increases the national income to 700, or 800 mil- 
 lions. In the Harrisburgh address, drawn up by Mr. Niles, 
 in 1828, our productive industry is estimated at 1,066,- 
 000,000. Mr. E. Everett, in his speech of 1830, rates our 
 national income at 1,000,000,000 dollars. 
 
 Take the lowest of these estimates ; suppose our nation- 
 al capital to be only 10,000,000,000, and our productive 
 industry only 600,000,000 a vear, can we not pay off a 
 Bank debt of 109,000,000 in ten years? 
 
 In every year, the increase of loanable capital in the 
 country, must exceed the amount of Bank debt it would be 
 necessary to pay. Private credit would take the place of 
 Bank credit. If there should be a greater demand for 
 capital on loan than could be supplied out of the savings 
 of our own people, capital would flow in abundantly from 
 Europe. 
 
 If the notes should be withdrawn gradually, in the man- 
 ner here proposed, there is not a solvent Bank, nor a sol- 
 vent individual, in the country, that could not sustain the 
 operation. Such are the energies and the resources of the 
 American people, that it would seem practicable to accom- 
 plish the work in half the time we have mentioned. The 
 sooner it is accomplished, the sooner will we be delivered 
 from the evils of our present condition. If, however, ten 
 years be thought too short a time for the work of reform, 
 let it be extended through twenty years or through thirty 
 years. The longest of these is but a short period in the 
 life time of a nation. 
 
 CHAPTER XXVI. 
 
 Of a New Coinage of Gold. 
 
 The money unit of the United States is the dollar, con- 
 sisting of 416 grains of standard silver, or 371.^ grains of 
 pure silver and 34| grahis of alloy. All our contracts are 
 to pay and receive dollars ; all our accounts are kept in 
 
XEW COINAGE OF GOLD. 107 
 
 dollars. The dollar is thus our money of both account 
 and contract, and its legal value is fixed by our having a 
 coin of the same name, containing the quantity of pure 
 silver and alloy which has just been mentioned. 
 
 Gold is, in the spirit of our laws, a subsidiary currency, 
 its value being computed in silver dollars. At the United 
 States Mint it is rated as fifteen to one — that is to say, one 
 ounce of gold is considered as worth fifteen ounces of sil- 
 ver ; or, what is the same thing, as many grains of pure 
 gold as are equal to the number of grains of pure silver 
 contained in a dollar, are coined into an eagle and a half 
 eagle, and estimated at the mint as u'orth fifteen dollars. 
 
 The market rate of gold to silver, as determined by sales 
 of gold bullion and silver bullion, in a series of years past, 
 is about 15.8 to 1. Consequently, if the mint rate cor- 
 responded with tlie market rate, the quantity of pure gold 
 contained in an eagle and a half eagle, ought to be estimated 
 at the mint at about fifteen dollars and eighty cents. 
 
 The undervaluation of gold at the mint, is not the rea- 
 son that it has disappeared from circulation. Eagles have 
 disappeared for the same reason that dollars have disap- 
 peared. Whenever Bank notes are used, no more specie 
 is retained in a country than is necessary for transactions 
 of a smaller amount than the least denomination of paper, 
 and is necessary for meeting the few stray notes that may 
 be presented to the Banks for payment. It has been found 
 impossible in England to make sovereigns and one pound 
 notes circulate currently ; and we all know that small 
 notes in the United States have not only driven away gold 
 coins, but also such silver coins as are of a higher deno- 
 mination than a half dollar. 
 
 If Bank notes bad never been introduced, eagles, half- 
 eagles, and quarter-eagles would have continued in cir- 
 culation, notwithstanding the undervaluation of gold at the 
 mint. The eagle would not have been current at the rate 
 of ten dollars ; but at the rate of ten dollars and fifty cents, 
 ten dollars and seventy-five cents — or whatever else it 
 would have been worth. The calculation of the fraction 
 would have been productive of some inconvenience ; but 
 the utility of gold coins, in large transactions, would 
 have made them current at a rate probably a little above 
 that w hich they have borne in the bullion market. 
 
108 NEW COINAGE OF GOLD. 
 
 A new gold coinage is desirable ; but the proposition to 
 coin eagles of a less weight than the eagles of former times, 
 is not entirely free from objection. As all our contracts 
 are to pay dollars, and as there is no gold at present in cir- 
 culation, an issue of a new coin, called an eagle, which 
 should be of the exact value of ten dollars, would cause 
 no practical injustice. But the issue of a new coin of dif- 
 ferent weight from the old, and yet bearing the same name, 
 might give countenance to the idea that money is some- 
 thing which owes its value to the authority of Government, 
 and lead, perhaps, at some future time, to an alteration in 
 the dollar — an alteration in our true standard of value. 
 
 The Eagle is the proper name of a coin which contains 
 247J grains of pure gold, or 270 grains of standard gold, 
 of twenty-two carats fineness. A coin which would con- 
 tain but 234.84 grains of pure gold, or 256.20 grains of 
 standard gold, ought to be called by another name, and, 
 to prevent all possibility of mistake, should have a differ- 
 ent device. tVhen the English ceased to coin pieces con- 
 taining 118 58-89 grains of pure gold, and began to coin 
 pieces containing 113 grains of pure gold, they did not 
 call the new pieces by the same name as the old. But if 
 the proposition which was laid before Congress, a year or 
 two since, should be adopted, there will be a greater dif- 
 ference in the weight and value of our new half-eagles and 
 our old half-eagles, than there is in those of English sove- 
 reigns and English guineas. 
 
 To attempt to fix by law what is not fixed by nature, is 
 preposterous. Gold and silver vary in value when com- 
 pared w ith one another, in the same manner as copper and 
 iron vary. The variations in the relative value of the pre- 
 cious metals are, it is true, very small ; but in different 
 epochs of our history, 232, 234, 238, 247, 250, and 252 
 grains of pure gold may be worth ten silver dollars. If we 
 should, through all such changes, pertinaciously insist on 
 coining eagles, adapting the quantity of gold in them to 
 the varyincT state of the bullion market, we should have a 
 dozen different coins, each of a different weight, and yet 
 all bearinjj the same name. 
 
 As there is little use for a gold coin so small as the quar- 
 ter-eagle, and as we have imitated the Spaniards in our sil- 
 ver coinage, perhaps it would be judicious to imitate them 
 
NEW COINAGE OF GOLD. 109 
 
 in our gold coinage also, and issue American doubloons, 
 half-doubloons, and quarter-doubloons, of the respective 
 values of sixteen dollars, eight dollars, and four dollars. 
 But, if pieces containing five and ten dollars' worth of gold 
 be preferred, call the ten dollar piece, " the Republican," 
 " the President," or by any name that may please the fan- 
 cy, except that of " the Eagle." This is a name affixed, 
 by long usage, to a piece containing neither more nor less 
 than 270 grains of standard gold, and calling a piece con- n 
 taining a fewer number of grains by the same name, will \ 
 certainly lead to confusion uf ideas, and perhaps, at some / 
 future period, to practical injustice. 
 
 Whatever kind of new coins may be preferred, it will 
 be proper to stamp on them the number of grains of pure 
 gold and alloy that they may contain. Each new gold piece 
 will then be a primer of political economy, and help in dis- 
 sipating the erroneous ideas entertained respecting money. 
 It will be quite unnecessary to declare by law, that the new 
 gold coins shall be a tender in payment of private debts. 
 People who receive Bank notes at their nominal value, will 
 not refuse gold at its real value. 
 
 To ascertain the quantity of gold it would be proper to 
 put in the new pieces, nothing more is necessary than to 
 strike an average of the price gold bullion has borne as 
 compared with silver bullion, in the principal markets of 
 the world, during the last ten years. The mint regulations 
 of different countries, are of no further account than as 
 they affect the value of gold and silver in the bullion 
 market. 
 
 If, from some error in the data made the basis of the cal- 
 culation, the gold in the new coins should happen to berated 
 a decimal fraction too low, so small an undervaluation 
 will not cause the coins to be exported. Their utility as 
 a circulating medium will keep them in circulation, the 
 issue of five and ten dollar notes being prohibited. 
 
 If the gold should happen to be rated a decimal fraction 
 to high, it will not, as some seem to fear, drive silver out 
 of circulation. The necessity for silver coins in small pay- 
 ments will cause them to be retained in the country. 
 
 Should there be a greater error than a decimal' fraction 
 either too much or too little, in the valuation of gold, the 
 new coin would continue to circulate, but at a small dis- 
 11 
 
110 NEW com AGE OF GOLD. 
 
 count or a small premium, thus correcting the error of the 
 mint valuation. 
 
 .If one metal be made the standard and the legal tender, 
 neither gold nor silver can be driven from circulation, ex- 
 cept by paper, and paper cannot obtain currency except 
 through the sanction or the connivance of government. 
 
 Gold is undervalued at the French mint, as well as at 
 our own : but, according to Mr. Gallatin, " it is only during 
 short and extraordinary periods, that the fluctuations have 
 been so great, as that the gold coins did either fall to the 
 par of silver coins, or rise to the premium of one per cent. 
 During by far the greater period of forty-five years, the pre- 
 mium has fluctuated from one-fifth to one-half per cent. : 
 so that the variations in the relative price of the two me- 
 tals have, with the few exceptions above mentioned, been 
 less than (me-third per cent." From the result of expe- 
 rience in France, there is every reason to believe, with Mr. 
 Gallatin, that " the fluctuation in the relative market price 
 of gold and silver, issued under proper mint regulations, 
 would be so small a quantity that it might be neglected." 
 
 To establish a system of sound currency and sound cre- 
 dit, it is not absolutely necessary to have a new gold coin- 
 age. Only let Bank notes be withdrawn, and eagles, half- 
 eagles, and quarter-eagles, will come into circulation, and 
 pass at their real value. But as four and eight, or five and 
 ten dollar pieces, would be more convenient than pieces of 
 the worth of five dollars and the indeterminate parts of a 
 dollar, or ten dollars and the indeterminate parts of a dol- 
 lar, a new gold coinage is desirable. It would be attend- 
 ed with injustice to no individual. No seignorage being 
 charged at our mint, whatever quantity of gold bullion a 
 man sent there, he would receive back the same amount 
 in gold coin : and this coin he would pass in the market for 
 whatever it might be worth. 
 
FISCAL CONCERNS OF THE UNION. 
 
 lU 
 
 CHAPTER XXVI. 
 
 Of the Fiscal Concerns of the Union. 
 
 In a report to the Senate, by the Committee of Finance, 
 made March 29th, 1830, it is said — 
 
 " The Government receives its revenue from — 
 343 Custom Houses, 
 
 42 Land Offices, 
 8400 Post Offices, 
 134 Receivers of Internal Revenue. 
 37 Marshals, 
 33 Clerks of Courts. 
 
 " These, with other receiving otBcers wliich need not 
 be specified, compose an aggregate of more than 9000 per- 
 sons, dispersed through the whole of the Union, who col- 
 lect the public revenue. From these persons the Govern- 
 ment has, for the ten years preceding the 1st of January, 
 1830, received 8230,068,855 17. This sum has been 
 collected in every section of this widely extended country. 
 It has been disbursed at other points, many thousand miies 
 distant from the places where it was collected ; and yet it 
 has been so collected and distributed, without the loss, as 
 far as the Committee can learn, of a single dollar." 
 
 The most difficult point in the business of finance, is to 
 get possession of money. If this point is attained, the safe- 
 keeping of the money, the transferring of it from one part 
 of the country to another, and the paying it away, are easy 
 undertakings. 
 
 If " not a dollar has been lost," it has not been because 
 the present system contains any extraordinary guards 
 against malversation. The collectors at our custom- 
 houses have the whole amount of money received by them 
 under their entire control, till it is, at stated times, transfer- 
 red to the credit of the Treasury Department. Under a 
 different system, all the public officers at each particular 
 point might be made checks on one another. 
 
 With a sub-treasury office in each State, the safe-keep- 
 ing and disbursing of the public funds could be effected 
 without any difficulty ; and the expense of each sub-trea- 
 
112 FISCAL CONCERNS OF THE UNION. 
 
 sury office need not exceed ten thousand dollars per an- 
 num. 
 
 If it were necessary occasionally to carry silver from one 
 part of the country to another, the Government could do it 
 as easily and cheaply as individuals. The whole amount 
 it would be necessary to transport, would not probably ex- 
 ceed four or five millions a year, nor the cost go beyond 
 one per cent. As the principal part of the United States* 
 revenue is collected in those sections of the country which 
 have usually the rate of exchange in their favor, what the 
 Government would gain by the sale of bills of exchange in 
 the West and South, on Boston, New York, Philadelphia, 
 and Baltimore, would probably exceed what it would be 
 forced to pay for the transportation of specie. 
 
 There is no novelty in this. It is the system of all po- 
 liced nations except our own. In England, the Bank is 
 merely auxiliary to the Exchequer and the Treasury. The 
 revenue collected at Liverpool, is, or was a few years since, 
 remitted to London through the agency of a private 
 Banker. 
 
 To incorporate a Bank with a capital of ten millions or 
 of thirty-five millions, to endow that corporation with pri- 
 vileges which individuals do not possess, and to make its 
 paper receivable in payment of dues to Government, is a 
 measure so wide from the proposed end, that it cannot be 
 considered " as necessary and proper," or, if the phrase be 
 preferred, " as natural and appropriate." It is difficult to 
 believe that it would have been even so much as thought of, 
 if the measure had not in itself been calculated to promote 
 certain private interests. The natural and appropriate way 
 of keeping the public funds, is in the Treasury and in 
 sub-treasury offices. The natural and appropriate way 
 of transferring them from point to point, is by bills of ex- 
 change, and the occasional transportation of specie. 
 
 Neither is the establishment of a United States paper- 
 money incorporated Bank, the " necessary and proper," 
 or " natural and appropriate" way of correcting the evils 
 occasioned by the fState Banks. A National Bank, resting 
 on the same principles as the State Banks, must produce 
 similar evils. It must " contract" and " expand" as well 
 as they. 
 
 If Congress should, from excessive caution, or some less 
 
FISCAL CO>XERyS OF THE UNION. 
 
 113 
 
 I 
 
 commendable motive, delay the passage of the necessary 
 laws for prohibiting the issue of Bank notes, the "neces- 
 sary and proper" or " natural and appropriate" way of 
 regulating the State Banks, would be by declaring that 
 nothing but gold and silver should be received in payment 
 of dues to the Government. The State Banks would then be 
 obliged to provide a sufficient fund of specie to meet the 
 demands of the merchants having payments to make to 
 Government. This wuuld force them to diminish the 
 amount of notes in circulation. The Government receiv- 
 ing and paying nothing but gold and silver, the people 
 generally would begin to distinguish between paper and 
 specie — between cash and credit. Simple as the measure 
 is, it would double the amount of metallic money in the 
 country, and prevent, in a great degree, fluctuations of 
 currency, and oscillations of credit, by taking away one of 
 the chief causes of the instability of Bank medium. 
 
 The establishing of a paper-money incorporated Bank, 
 is not the " necessary and proper" or " natural and appro- 
 priate" way of enabling Government to borrow when bor- 
 rowing is advisable. A Bank may, when instituted, lend to 
 Government its whole capital, or so much, at least, as is 
 not required for supporting its credit and circulation : but 
 it is not often that it can, after it has been sometime in 
 operation, make any great loan to Government, without 
 either curtailing mercantile accommodations, or issuing 
 an excess of paper. Nearly all the great " expansions" 
 and " contractions" that have occurred in both Eiigland 
 and the United States, can be traced to attempts to convert 
 Banks into fiscal machines. If the operations of Govern- 
 ment could be completely separated from those of the Banks, 
 the system would be shorn of half its evils. If Government 
 would neither deposit the public funds in the Banks, nor 
 borrow money from the Banks ; and if it would in no case 
 either receive Bank notes or pay away Bank notes, the 
 Banks would become mere commercial institutions, and 
 their credit and their power be brought nearer to a level 
 with those of private merchants. 
 
 The " necessary and proper" or " natural and appro- 
 priate" way of placing the financial concerns of the coun- 
 try on such a basis as will enable us to provide for all exi- 
 gencies, is to make gold and silver coins the exclusive mo- 
 ll* 
 
114 FISCAL coarcERSS or the ryiosr. 
 
 ncj of the coantrj. We shall then be prepared for either 
 peace or war. 
 
 To depend on the Banks in time of war, after the expe- 
 rience of both England and the United States, would be 
 the height of infatuation. The impression produced on 
 the minds of men bj the suspension of specie payments, is 
 so fre§b, that, on a new declaration of war, it is probable 
 great part of iho ' •? would be withdrawn. If the Banks 
 
 should escape :...^ , J, the landing of a hostile force of 
 but a few thoosand men on anj part of the coast, would 
 create " a run" which would compel most of them to sti- 
 pend payment. If Goremment should, to forward its 
 financial schemes, sanction or connire at a suspension of 
 specie pajments, it would be instrumental in producing 
 sach erils as we bafc su&red in past years. 
 
 A war imposes on Gofemmem the necessity of expend- 
 ing the greater portion of its rerenues m a section of coun- 
 try distant from that in which it collects it. The payment 
 of the war taxes of a single year, would deprire great part 
 of the Union of its specie. The sources of foreign supply 
 would be cut off, and much of the specie which flowed 
 from the interior to the frontiers, would be exported. It 
 would not return in sufficient quantities, or sufficiently early 
 to meet the wants of either the people or the Govemment. 
 
 A rigorous war of bni two years continuance, in which 
 oar foreign commerce would be interrupted, must produce 
 one of two results. It must either compel the Banks to 
 
 = ■: -' '■-. i specie " " md thus produce erils which no 
 
 ■. . 1 adeqa:! .re; or else force them to curtail 
 
 mercantile accommodations, and thus spread ruin through 
 the coraraunity. To sustain t' ' :" Bank medium, it 
 
 would be nec€5.«ary to reduce :: - ...-d or one-fourth of 
 
 its present amount : and as it would be impossible in a 
 state of war, immediately to obtain a sufficient supply of 
 gold and siJrer coin, the Gorernment and the people would 
 suffer ail the evils of an insufficient circulating medium. 
 
 We hare profited in some respects by the experience of 
 the last war. We hare built ships, constructed fortifica- 
 tions, and collected military stores. Bat " money is the 
 sinews of war." .And it roust be real money. Paj>er mo- 
 ney will not then answer. It is not necessary that the real 
 money should be in the coffers of Goremment. It is 
 enough that it is in the pockets of the people. 
 
I 
 
 FISCAL CONCERNS OF THE UNION. 115 
 
 Let Bank notes be withdrawn, and such an accumula- 
 tion of gold and silver coin will be made by individuals, 
 that in no possible exigency will there be a real scarcity of 
 money. This is evident from the condition of certain 
 countries in which paper money is unknown. In Flanders, 
 for example, every farmer has a little purse of gold or sil- 
 ver — small in proportion to his property, but making the 
 aggregate throughout the country very considerable. No- 
 thing is lost by this practice. It is impossible to keep the 
 whole wealth of a country in constant circulation. If a 
 man's whole stock consists of but two suits of clothes, he 
 cannot wear them both at the same time. It is of little 
 moment, as regards individuals, whether their reserved 
 
 JO ' 
 
 stock be in money or in those things which money can pro- 
 cure. In a national point of view nothing is lost by this 
 custom. It ensures the punctual performance of con- 
 tracts. No man has to call twice on a farmer in Flan- 
 ders, for the payment of a debt. Whatever may be the vi- 
 cissitudes of war or of commerce, there is never in that 
 country a scarcity of the tool of all trades. 
 
 We have that amount of metallic money in the United 
 States which is barely sufficient, in the most favorable 
 state of things, for daily exchanges, and which would not 
 answer even in the most favorable state of things, if we 
 had not various modes of barter, and different credit con- 
 trivances. As much time is lost every year, in " dunning 
 for debts," as would, if properly employed, purchase some 
 millions of metallic medium. Let the natural order of 
 things be restored, and a sufficiency of metallic money will 
 be collected, to enable the country to bear transitions from 
 peace to war, and to answer all the demands of commerce, 
 both ordinary and extraordinary. As it is the custom of 
 all prudent families in rural districts, to have on hand a 
 greater quantity of flour and other necessaries, than is 
 required tor the use of the twenty-four liours, so it will be- 
 come the custom for each prudent family to have a little 
 money in reserve. Out of this stock, the war taxes will be 
 paid, and before the original stock is completely exhausted, 
 a portion of it will come back to them in the regular course 
 of trade. 
 
 Few people are more able than those of the United 
 States to contribute what is necessary for the defence of 
 
116 BAXKIXG FROM 1818-19 TO 1819-20. 
 
 " 9. The overflowing. of our prisons with insolvent debt- 
 ors, most of whom are confined for trifling sums, whereby 
 the community loses a portion of its effective labor, and is 
 compelled to support families by charity, who have thus 
 been deprived of their protectors. 
 
 " 10. Numerous law suits upon the dockets of our courts 
 and of our justices of the peace, which lead to extravagant 
 costs and the loss of a great portion of valuable time. 
 
 "11. Vexatious losses arising from the depreciation and 
 fluctuation in the value of Bank notes, the impositions of 
 brokers, and the frauds of counterfeiters. 
 
 " 12. A general inabilitv in the community to meet with 
 punctuality the payment of debts even for family expenses, 
 which is experienced as well by those who are wealthy in 
 property, as by those who have hitherto relied upon their 
 current receipts to discharge their current engagements. 
 
 " With such a mass of evils to oppress them, it cannot 
 be wondered at that the people should be dispirited, and that 
 they should look to their representatives for relief. Their 
 patient endurance of suffering, which can only be imagined 
 by those who have habitually intermingled with them at 
 their homes and by their firesides, merits the commenda- 
 tion of the Legislature, and prefers a powerful claim to 
 their interference. 
 
 " Havmg thus enumerated the most prominent features 
 of the general distress, your committee will proceed to point 
 out the cause which in their opinion has occasioned it. 
 That cause is to be found chiefly in the abuses of the Bank- 
 ing system, which abuses consist, first, in the excessive 
 number of Banks, and, secondly, in their universal bad ad- 
 ministration. For the first of these abuses the people have 
 to reproach themselves, for having urged the Legislature to 
 depart from that truly republican doctrine which influenced 
 the deliberations of our early assemblies, and which taught 
 that the incorporation of the monri/cd interest, cdrccnhj suf- 
 ficiently poiccrful of itself 7vas but the creation of an odious 
 aristocracy, hostile to the spirit of free government, and 
 subversive of the rights and liberties of the people. The 
 second abuse, the mismanagement of Banks, is to be as- 
 cribed to a general ignorance of the true theory of curren- 
 cy and Banking, and to the avarice of speculators, desirous 
 of acquiring the property of others by an artificial rise in 
 
BANKING FROM 1818-19 TO 1819-20. 117 
 
 the moniinal value of stock, and by the sharing of usurious 
 dividends. 
 
 " In order that this subject may be clearly understood, 
 your committee have thought that the following concise his- 
 tory of Banking in Pennsylvania would be acceptable." 
 
 The committee then give a short history of Banking in 
 Pennsylvania, and of the operations of the United States' 
 Bank, up to July, 1818, after which they remark — 
 
 " This unv/ise procedure of replunging the people into 
 the debts from which they had been partially extricated, 
 and of involving others who had hitherto escaped, was con- 
 tinued for a time, but the dreadful day of retribution at 
 length arrived. The Bank, (i. e. the U. S. Bank,) disco- 
 vered almost too late, that its issues had been extended be- 
 yond the limits of safety, and that it was completely in the 
 power of its creditors. It also foresaw that the payment of 
 that portion of the Louisiana debt, redeemable on the 21st 
 of October, 1818, which was held by foreigners, might oc- 
 casion a demand for a considerable amount of coin, that 
 the enhanced prices of China, India, and other goods, occa- 
 sioned hy the depreciation of the currency from the over is- 
 sues of itself and the State BanlxS, would lead to a demand 
 for specie, and that as it was professedly a specie Bank, 
 and liable, under a penalty of twelve per cent, per annum, 
 to pay its notes on demand, the same delicacy and for- 
 bearance would not be exei'cised towards it as to the State 
 Banks. These considerations compelled it to seek its own 
 safety, and from that moment a system of reduction com- 
 menced. This reduction operating upon the State Banks, 
 which had not profited by the opportunity afforded them of 
 contracting their loans whilst the other was extending, 
 obliged them also to diminish their transactions, and a ge- 
 neral curtailment ensued which has not yet had its consum- 
 mation. The severity of the second pressure commenced 
 in the city in October, 1818, and was continued without 
 intermission for a year ; at the expiration of which time it 
 is said that the reductions made there by the National Bank 
 alone have exceeded seven millions of dollars, and those by 
 the other Banks probably two or four more. The reduc- 
 tions of the country Banks during the three last years, 
 may be inferred from the following statement, which ex» 
 
 L 1 
 
118 BANKING ON PROPER PRINCIPLES. 
 
 f country where commerce is extensively carried on, Bankers 
 \^vvill rise up in proportion to the wants of the community, 
 vj-^ In most villages, all the call there is for Bankers could 
 "*'' be answered by the Postmasters. Offices of deposit, of 
 
 transfer, and of loan, are not necessary in villages. The 
 only call there for a dealer in money, is to collect debts 
 due to persons at a distance, and transmit the money to 
 to whom it is due. The publishers of periodicals now 
 collect great part of what is owing to them on account of 
 subscriptions through the medium of the Postmasters. 
 Many of the debts due to merchants might be convenient- 
 ly collected in the same way, if Government were careful 
 to appoint none but solvent and trust-worthy persons to be 
 Postmasters : and if it should make a rule to remove them 
 on proof being given of their having neglected to pay 
 over money which they had collected. 
 
 But it would not be necessary for Government to go even 
 this far, for us to have a good Banking system. The 
 Postmaster, in most small towns, would stand the best 
 chance of becoming collector of debts for persons at a dis- 
 tance, and the commissions he would receive would, in 
 many cases, exceed the amount paid to him as a public 
 officer : but if he was found untrustworthy, or incapable, 
 the business would be transferred to the storekeeper, or 
 some other respectable inhabitant of the village. 
 
 In the larger towns, and even in the small towns which 
 are centres of wealthy districts, the business of dealing in ex- 
 changes, and of acting as an a^ent between lenders and 
 borrowers, would become a distinct profession. 
 
 In each city the number of Bankers would be in pro- 
 portion to the amount of business to be done, and their 
 capital in proportion to the trade of the city. A merchant 
 of Pliiladelpliia who wished a note discounted, would, in- 
 stead of having his choice among a dozen corporations, 
 have his choice among perhaps twice that number of pri- 
 vate Bankers. Instead of being obliged to approach the 
 supercilious Director of some overgrown monied institu-- 
 tion, he would deal with a private trader, to whom it would be 
 of as much importance to lend as it would be to himself to 
 borrow. The extent of business these private Bankers would 
 do, would depend, in a degree, on the disposition they 
 showed to accommodate their customers. The competition 
 
BANKING ON PROPER PRINCIPLES. 119 
 
 amongst them would be so lively, that, after the manner of 
 the Bankers of Europe, they would allow a credit on de- 
 posits. Being responsible in the whole amount of their 
 private fortunes, they would seldom extend their loans so 
 far as to cherish the wild spirit of speculation. Their 
 whole fortunes would be in the business, and their whole 
 faculties exerted for its proper management, and it is in 
 this way only that any business can be well conducted. 
 
 If there should be a necessity for placing any restric- 
 tions on these private Bankers, it would be simply that of 
 restraining them from issuing notes, bills, or checks, which 
 would circulate in the same way as the present Bank notes. 
 Some intelligent men who have turned their attention to 
 the subject, think that even this would not be necessary. 
 They are of opinion that the competition among private 
 Bankers would be so brisk, that they would effectually 
 check one another. 
 
 In opposition to this it may be urged, that much has been 
 lost by the breaking of private Bankers in England ; though 
 it must be admitted, this is not a case exactly in point, 
 since the private Bankers of England are influenced in 
 their operations, though not regulated, by the great corpo- 
 rate institution of that kingdom. 
 
 In Scotland, where the private Banks have the predomi- 
 nance, little has been lost by the breaking of these institu- 
 tions. But, the evils produced by the occasional breaking 
 of a Bank, are far from being the greatest evils of the sys- 
 tem. No instance has occurred of a Bank breaking in 
 Philadelphia, and yet who can adequately describe all that 
 the people of this city have endured from Banking. We 
 have satisfactory evidence that the Scotch Banks, by their 
 " expansions" and " contractions," produce evils, the same 
 in kind, though not in degree, as are felt in Philadelphia. 
 
 But in neither England nor Scotland, can we, perhaps, 
 be said to have a fair example of private Banking, as the 
 Government receives Bank notes in payment of taxes. 
 When the Government receives one kind of paper, the 
 people lose their clear perception of the difference between 
 cash and credit, and where room is made in this way for 
 the circulation of paper, the most worthless kind sometimes 
 obtains circulation as easily as the best. " Numberless in- 
 stances," says the Edinburg Review, " have occurred in 
 
120 BANKING ON PROPER PRINCIPLES. 
 
 the history of British Banking, within the last few years, 
 in which the notes of individuals without any real capital, 
 and who were from the beginning in a state of insolvency, 
 have continued to circulate for a long period in company 
 with the notes of the best established houses, and to enjoy 
 an equal degree of credit." 
 
 The private Bankers on the continent of Europe do not 
 circulate any paper, but it is not in our power to say, whe- 
 ther this is, in all instances, owing to obstacles thrown in 
 their way by Government, or to the indisposition of the peo- 
 ple to receive paper where it is not taken in payment of 
 taxes. 
 
 If notes issued by private Bankers should circulate as 
 the notes of the present corporations, they would become 
 money. As a credit money, they would necessarily fluctu- 
 ate in quantity. It is not desirable that, in addition to 
 changes in the state of credit, proceeding from great natu- 
 ral or political causes, we should have changes in the cur- 
 rency, to add to the uncertainty of trade.* 
 
 If these notes produced no other evil, they would prevent 
 us from accumulating that stock of metallic money, which 
 is required for the varying exigencies of peace and war. 
 After this had been for a time in circulation, the receiving 
 of them would be, as in the case of the present Bank notes, 
 a matter of necessity rather than of choice. 
 
 The evil would, indeed, in time, correct itself; but if 
 we can prevent it, why suffer it at all ?t 
 
 * " Hitherto," snya Tooke, " the Legislature has restricted individu- 
 als, under the severest penalties, from establishing private mints, and 
 uttering metallic money of intrinsic and discreditable value ; yet, with 
 a degree of niconsisiency which strikes us as most extraordinary 
 the more attentively we consider it, our law-makers have permitted 
 individuals to establish private Banks of circulation — and to utter pa- 
 per money, possessed of only a conventional value, which a breath of 
 panic may at any lime destroy. On the same principle that the Govern- 
 ment protects the public against the probable insecurity which might 
 arise from individuals being permitted to utter metallic currency, it 
 should guard against the more probable, nay certain insecurity which is 
 created when individuals utter a pajicr currency. In every civilized 
 country, sujiplying and regulating the criculating medium is a func- 
 tion of the sovereing prerogative. 
 
 t What is here advanced is not at variance with the principles of 
 
 Adam Srnitii, as will l)e seen by tiie following extract from his writings: 
 
 " To restrain private people, it may be said, from receiving in pay- 
 
BANKIXG OX PROPER PRINCIPLES. 
 
 121 
 
 We can certainly carry the credit system far enough, by 
 the agency of leger entries, notesof hand, bills of exchange, 
 and bonds and mortgages. "We do not require the addi- 
 tional aid of credit money, to run us deeper in debt. 
 
 Why should a private Banker, having a capital of his 
 own of five hundred thousand or a million dollars, and de- 
 riving therefrom an income of thirty thousand or of sixty 
 thousand per annum, desire to double his income, by the 
 circulation of paper money? He would make a legitimate 
 use of his credit, in receiving money on deposit, at five per 
 cent., and lending it again at six per cent. More than 
 this he ought not to desire.* 
 
 If the capital of a private Banker is small, he will derive 
 as much profit from his credit as he is justly entitled to, in 
 his commission on bills of exchange, and in the difference 
 between the rate he will pay for money taken by him on 
 deposit, and that at which he will lend this money to others. 
 
 The issue of notes by Bankers, for the convenient dis- 
 charge of their own business, will not be necessary. The 
 private Bankers of London and Lancashire issue no nptes. 
 At the clearins-house in London, in which their accounts 
 
 ment the promissory notes of a Banker for any sum, whether great or 
 small, when they themselves are willing to receive them : or, to restrain 
 a Banker from issuing such notes, when all his neighbors are willing 
 to accept them, is a manifest violation of that natural liberty which it is 
 the proper business of law not to infringe but to support. Such regu- 
 lations may, no doubt, be considered as in some respect a violation of 
 natural liberty. But those exertions of the natural liberty of a few in- 
 dividuals, which might endanger the security of the whole society, are, 
 and ought to be, restrained by the laws of all governments : of the most 
 free, as well as of the most despotical. The obligation of building par- 
 ty walls, in order to prevent the communication of hre, is a violation of 
 natural liberty, exactly of the same kind with the regulations of the 
 banking trade which are here proposed." 
 
 The proposal Adam Smith here supports, is that of prohibiting private 
 Bankers from issuing notes of a less denomination than five pounds ster- 
 ling, nearly ticenty-Jive dollars Federal money. On the principles on 
 which he proposes to prohibit the issue of notes of some denominations, 
 the issue of notes of all denominations may be prohibited. 
 
 * " There is no more reason why a man. or body of men, shonld be 
 permitted to demand of the public, interest for their reputation of being 
 rich, than there would be in permitting a man to demand interest for the 
 reputation of being wise, learned, or brave. If a man is actually rich, 
 it is enough for him to receive interest for his money, and rent for his 
 Mand, without receiving interest for his credit also.'' — Eaymond. 
 
 12 
 
122 BANKING OIV PROPER PRINCIPLES. 
 
 are daily settled by an exchange of checks, transactions to 
 the amount of four or five millions sterling are adjusted 
 with the help of about two hundred thousand pounds in 
 money. 
 
 If arrangements of this kind were not found to answer 
 the desired end, a public Office of Transfer and Deposit 
 might be established in each city, on the model of the 
 Bank of Hamburg, with the exception of buying and sell- 
 ing bullion and dealing in exchange, which ought to bo 
 left to private Bankers. The establishing of such an Of- 
 fice would be attended with a little expense, but if it vvould 
 not be worth paying for, it would not be worth having. If 
 the Bankers objected to paying all the expense, the Govern- 
 ment might, as such an office would be a safe and conve- 
 nient depository of the public funds, share the expense 
 with them. There is nothing in the constitution to pre- 
 vent the establishment of public Banks, which shall be 
 mere Offices of Deposit and Transfer. And as such Banks 
 would be a great public benefit, the defraying of their neces- 
 sary expenses out of the public revenue would not be objec- 
 tionable. 
 
 In this way, we should secure all the advantages the 
 present system affords, and avoid all its disadvantages. 
 
 We should have places of deposit safer than the present; 
 for the money deposited in a public Bank by one man 
 would not be lent to another. 
 
 The business of settling accounts by transfers of credit, 
 would be greatly facilitated. One public Bank would suf- 
 fice for each city, and the time which is now lost in run- 
 nins from Bank to Bank, would be saved. 
 
 The private Banks, paying interest on deposits, would 
 extend throughout the country the advantages of Saving 
 Banks. 
 
 Men who wished to borrow, would deal with a private 
 Banker as an equal, instead of dealing, as at present, with 
 an overgrown corporation, as a superior. 
 
 The business of dealing in exchange, would be better 
 conducted than at present, for it would be left free to in- 
 dividuals, and they would show the same disposition to 
 oblige and to give satisfactio!i, that is now evinced by the 
 dry goods merchant, or the importer of groceries. 
 
 Instead of having to pay the expense of three or four 
 
COXSEQUENCES OF THE PRESENT SYSTEM. 
 
 123 
 
 hundred public Banks, we should have to pay the expense 
 of only twenty or thirty, for this number of oflices of de- 
 posit and transfer would suffice for the whole United States. 
 
 We should escape all the evils that flow from Banks as 
 corporations, from fluctuations of the circulating medium, 
 and from the false system of credit which has its origin in 
 the present banking system. 
 
 And what should we lose? The supporters of the pre- 
 sent system admit that " the only substantial advantage at- 
 tending paper money appears to be its cheapness." Tak- 
 ing their own estimates of the amount of Bank notes and 
 Bank credits, the sum thus gained does not amount to 
 more than forty cents a year for each individual in the na- 
 tion. Is it worth while for so trifling a gain, (admitting it, 
 by way of argument, to be a gain,) to endure all the evils 
 of a bad system, and forego all the advantages of a good? 
 
 CHAPTER XXIX. 
 
 Prohahle Consequences of the Continuance of the Present 
 
 System. 
 
 To infer that because a system produces great evil, it 
 must soon give way, would be to argue in opposition to all 
 experience. If mere suffering could produce reformation, 
 there would be little misery in the world. 
 
 Too many individuals have an interest in incorporated 
 paper money Banks, to suffer the truth in relation to such 
 institutions to have free progress. Too many prejudices 
 remain in the minds of a multitude who have no such 
 interest, to permit the truth to have its proper effect. 
 
 It is, therefore, rational to conclude that the present sys- 
 tem may, at least with modifications, continue to be the 
 system of the country — not forever, as some seem to think, 
 but for a period which cannot be definitely calculated. It 
 is also rational to conclude that the effect it will have on 
 society in time to come, will be similar to the effect it has 
 had in time past. We have, then, in the present state of 
 the country, the means of judging of its future condition. 
 
 No system of policy that can be devised, can prevent 
 
124 CONSEQUENCES OF THE PRESENT SYSTEM. 
 
 the United States from advancing in wealtli and popula- 
 tion. Our national prosperity has its seat in natural causes 
 which cannot be effectually counteracted by any human 
 measures, excepting such as would convert the Govern- 
 ment into a despotism like that of Turkey, or reduce the 
 nation to a state of anarchy resembling that of some coun- 
 tries of South America. 
 
 Our wealth and population will increase till they become 
 equal for each square mile to the wealth and population of 
 the continent of Europe. 
 
 We are now very far from this limit. Under a good 
 system, we cannot reach it in less than one or two hun- 
 dred years. Under a bad system, in not less, perhaps, than 
 three or four hundred. 
 
 If we had a political system as bad as that of Great Bri- 
 tain, with its hereditary aristocracy, its laws of entail and 
 primogeniture, its manufacturing guilds, its incorporated 
 commercial companies, its large standing army, its expen- 
 sive navy, its church establishment, its boroughmongering, 
 its pensions and its sinecures, our advancement would be 
 seriously retarded. But our wealth and population would, 
 notwithstanding, continue to increase, till they should bear 
 the same ratio to the natural resources of the country, that 
 the wealth and population of Great Britain have to the 
 natural resources of that island. 
 
 The progress of opulence in the United States in the 
 next forty or fifty years, will probably be very great. Many 
 of the natural sources of wealth are as yet unappropriated. 
 In no part of the country has their productiveness been 
 fully developed. The people have now sufficient capital to 
 turn their land and labor to more profit than was possible 
 in any previous period of our country's history. 
 
 The daily improvements in productive machinery, and 
 especially in the application of steam power, the discove- 
 ries in science, the introduction of new composts and new 
 courses of crops in agriculture, the extension of roads and 
 canals, have all a tendency to increase the wealth of the 
 country, till the aggregate shall be enormous. 
 
 But tliis increase of wealth will be principally for the 
 benefit of those to whom an increase of riches will bring 
 r.o increase of happiness, for they have already wealth 
 enough or more than enough. Their originally small capi- 
 
L 
 
 CO^SEQUEJCCES OF THE PRESENT SYSTEM. 125 
 
 tals have, in the course of a few years, been doubled, 
 trebled, and, in some instances, quadrupled. They have 
 now large capitals, which will go on increasing in nearly 
 the same ratio. 
 
 As no kind of property is prevented from being the prize 
 of speculation by laws of entail, it is not easy to set bounds 
 to the riches which some of our citizens may acquire. 
 Their incomes may be equal to those of the most wealthy 
 of the European nobility. Think, for a moment, of the 
 immense accession of wealth certain families in the neigh- 
 -borhood of large cities and other improving towns must 
 receive, from the conversion of tracts of many acres into 
 buildingr lots. For ground which cost them but one hun- 
 dred dollars an acre, they may get ten thousand dollars, 
 twenty thousand dollars, or twenty-five thousand dollars. 
 This will be without any labor or expenditure of capital on 
 their part. The land will be increased in value, by the 
 improvements made around it at the expense of other men. 
 
 But this is but one of the ways in which the wealth of 
 the rich will increase. It has heretofore been found that 
 capital invested in lots, even in the neighborhood of the 
 most flourishing towns, doubles itself less rapidly than 
 capital devoted to other purposes of speculation. In what- 
 ever way it may be employed the capital of the rich will, 
 in the aggregate, increase in nearly the ratio of compound 
 interest. 
 
 The vicissitudes of fortune will be, as they have been in 
 past years, many and great, but they will tend to increase 
 the inequality of social condition, by throwing the wealth 
 of several rich men into the hands of one. It is seldom 
 that the vicissitudes of fortune distribute the wealth of a 
 few among the many. 
 
 An increase in the number of Banks must be expected. 
 If the system is to he perpetual, an increase in the number 
 of these insititutions would not, in some respects, be an 
 evil ; for seven hundred Banks could circulate no more 
 paper than three hundred and fifty. But every new Bank 
 is a new centre of speculation ; and one kind of stock-job- 
 bing gives birth to another. We shall have new schemes 
 for growing rich without labor — similar perhaps to the Bri- 
 itsh bubble companies of 182-5 — perhaps to the former 
 speculations in Washington City lots — perhaps to the recent 
 12* 
 
126 CONSEQUENCES OF THE PRESENT SYSTEM. 
 
 speculations in Pennsylvania coal lands. The present rage 
 for rail-road stock shows that part of our population already 
 want something to be crazy about — or rather want some- 
 thing by which to set their neighbors crazy. The old 
 modes of speculation no longer afford full employment for 
 their time and talents. 
 
 Nearly all the secondary operations of society will tend to 
 increase the disparity between the rich and poor as differ- 
 ent classes of the community, and not a small proportion 
 of the rich will, in due time, become as luxurious and as 
 corrupt, as ostentatious and as supercilious, as the " first 
 circles" in the most dissipated capitals of Europe. 
 
 Their early habits of industry and economy cleave to 
 some of the rich men of the present day. Hence they are as 
 useful and as modest members of society as many who are 
 in moderate circumstances. But when their immense 
 wealth passes, as pass it must in a few years, to their heirs, 
 who know not the value of money, because they never 
 knew the want of it, it will be lavished in everyway which 
 corrupt inclination can dictate. 
 
 While some will be enormously rich, there will be a con- 
 siderable number in a state of comfort, as in Great Britain, 
 and very many in a state of disconsolate poverty. Some 
 years must, indeed, elapse, before the number of paupers 
 and criminals, and of persons whose condition borders on 
 pauperism, will bear the same proportion to population in 
 1 Europe and America. In our immense extent of unculti- 
 jvated land, the poor have a place to fly to ; but the spirit 
 ilof speculation will follow them there. We need not wait 
 \\Will the country is fully peopled to experience a measure of 
 ithese evils. While some parts of the Union will have all 
 the simplicity, the rudeness, and the poverty of new settle- 
 ments; others will exhibit all the splendor and licentious- 
 ness, and misery and debasement of the most populous 
 districts of Europe. 
 
 The beginning of this state of things is already observa- 
 ble. According to the estimates of Mr. Niles, the number 
 of paupers in the maratime counties of the United States, 
 was, in 1815, in the proportion of one to every 130 inha- 
 bitants ; and, in 1821, in the proportion of two to every 130. 
 The published accounts do not give the number of per- 
 sons admitted into the almshouses or committed to the pri- 
 
CONSEQUENCES OF THE PRESENT SYSTEM. 127 
 
 sons of Philadelphia, in the course of the year ; but the 
 number of commitments of criminals and vagrants amounts 
 to three or four thousand annually, and the number of 
 admissions into the alms-house is equally considerable. As 
 the same person may be admitted or committed several 
 times, we cannot give the exact number of either paupers 
 or criminals. But at one time last winter, there were up- 
 wards of sixteen hundred poor persons in the Spruce 
 Street Alms-house ; and many more were receiving out- 
 door relief.* 
 
 In some years the public expenditures on account of the 
 poor in Philadelphia, exceed the expenditures on the same 
 account in Liverpool. 
 
 Some of the members of a Commission appointed about 
 twelve years ago to inquire into the causes and exteutof pau- 
 perism in Philadelphia, estimated the cost of relieving the 
 poor at between four hundred and five hundred thousand 
 dollars a year. In this estimate was included what is 
 given in private charity, as well as what is given in public : 
 and an allowance was made for rent of almshouses and 
 hospitals, or for interest on the first cost of land and build- 
 ings set apart for the use of the poor. At that time the 
 population of the city and suburbs did not much exceed 
 one hundred and twenty thousand. 
 
 We may increase the legal provision for the relief of the 
 indigent, and multiply alms-houses and hospitals. But no- 
 thing of this kind can supply the want of just laws and of 
 equal institutions. 
 
 Efforts may be made in various ways to diffuse the bless- 
 ings of education, and to promote moral and religious im- 
 provement. But these efforts will only alleviate our social 
 evils : They cannot cure them. 
 
 In no small degree will the public distress be increased by 
 well-meant but ill-directed attempts to give relief. There 
 is a class of politicians, (and they are unfortunately nu- 
 merous and powerful,) who have for each particular social 
 evil a legal remedy. They are willing to leave nothing / 
 to nature : the law must do every thing. 
 
 This is, most unfortunately, the kind of legislation which 
 
 * Part of this pauperism and criminality must be attributed to Euro- 
 pean institutions, as the character of the subjects was formed before 
 they migrated to America. Another part is of" domestic origin. 
 
128 
 
 EFFECTS OF A SOUND CURRENCY. 
 
 public distress is almost sure to produce. Instead of tra- 
 cing its cause to some positive institution, the removal of 
 which, though it might not immediately relieve distress, 
 ■would prevent its recurrence, men set themselves to heaping 
 law upon law, and institution upon institution. They in 
 this resemble quacks who apply lotions to the skin to cure 
 diseases of the blood, or of the digestive organs, occasioned 
 by intemperate living. 
 
 These projects of relief and efforts at corrective legisla- 
 tion, will be numberless in multitude and diversified in 
 character : but as they will not proceed on the principle of 
 " removing the cause that the effect may cease," they will 
 ultimately increase the evils they are intended lo cure. 
 
 CHAPTER XXX. 
 
 JJ 
 
 Probable Effects of the Establishment of a System of 
 Sound Currency and Sound Credit. 
 
 The laws which govern the moral world are just as cer- 
 tain in their nature as those which govern the physi- 
 cal : but it is not always easy to fortell the effects of a po- 
 litical measure, because it is not easy to foresee the precise 
 combination of causes that will be in operation at any 
 future period. David Hume reasoned with perfect correct- 
 ness from the permises before him, when he predicted 
 that an increase of the national debt beyond a certain 
 amount would make the British Government bankrupt. 
 But he did not foresee the great increase of wealth, and con- 
 sequent increase of ability in the people to bear public 
 burdens, which has been caused by the use of steam and 
 of productive machinery; and the Government has swelled 
 the debt beyond the amount he fi.xed upon, without becom- 
 ing bankrupt. 
 
 As we have neither a large standing army nor an ex- 
 pensive navy, neither King nor titled nobility to support, 
 neither sinecurists nor pensioners to pay, it would seem 
 rational to believe that, on the destruction of the monied 
 corporation system, honest industry in the United States 
 would be secure of its reward. But it is, perhaps, too 
 soon to assert that the ingenuity of those who wish to grow 
 
EFFECTS OF A SOUND CURRENCY. 
 
 129 
 
 rich by the labor of others will then be exhausted. The 
 Banking system destroyed, they may invent some other, 
 equally plausible and equally pernicious. 
 
 There has been at least an apparent improvement in the 
 moral sentiments of men. About three centuries ago, it 
 was customary to insert in the treaties between Christian 
 Kings, a stipulation that the subjects of one King should 
 not plunder the subjects of another, on the high seas, in 
 time of peace — in other words, it was made matter of ex- 
 press covenant that merchants should not be pirates. At 
 a much later period, many Scottish gentlemen thought it 
 quite as honorable and as honest to levy " black mail " on 
 the estates of their neighbors, as to levy rents on their 
 own estates. 
 
 Some intelligent writers seem to be of opinion, that the 
 improvement in moral sentiment is rather apparent than 
 real. There is, they assert, so much less personal risk 
 in certain modern modes of acquiring wealth, that men can 
 lay little claim to merit because they do not carry off their 
 neighbors' cattle by force of arms, or rob ships on the high 
 seas. Lord Byron appears to have been of this way of 
 thinking, for he said that " if the funds failed, Ac meant to 
 take to the high-way, as he considered that the only honora- 
 ble mode of making a living, now left for honest men." 
 
 " For why ? 
 
 The good old rule sufficeth still, 
 
 The simple plan — 
 That they shall take who have the power, 
 
 Aud they shall keep who can." 
 
 " Many ingenious men" says an American author, " have 
 amused themselves and others, in forming theories respect- 
 ing the social compact. Some supposed it to originate in 
 one-way, some in another. Some supposed it to have been 
 formed for one purpose, some for another. It is supposed 
 by some to have been formed for defence — others suppose 
 it to have been formed for aggression. It is true, that every 
 thing on this subject is mere speculation; and one man has 
 as much right to form theories as another, but it is very 
 clear, that aggression must precede defence, and that be- 
 fore communities could have been formed for defence, there 
 must have been others formed for aggression. Had there 
 been no such thing as attack, men would never have thought 
 
 i 
 
130 ErFECTS OF A SOUND CURRENCY. 
 
 of defence. The primary object, therefore, in forming the 
 social compact, must have been plunder; and the first ar- 
 ticle of that compact no doubt was, " ice will plunder our 
 neighbors." The second article probably was, " we ivill 
 not plunder each other." This article was necessary to ena- 
 ble them to carry the first into effect. 
 
 " The first article in the social compact has been faith- 
 fully executed, as far as it was practicable. The second 
 article has been and still is evaded, or forcibly violated, by 
 a large portion of every community. How many people do 
 we see in every community, who, instead of supporting 
 themselves by their own industry, contrive to supply them- 
 selves with the necessaries and comforts of life, from the in- 
 dustry of others? Some do this by fraud and overreaching. 
 Some by direct violence — some by the exercise of their wits 
 in one way, some in another. Some by the permission, or 
 the express provision, of the law — others in violation of it. 
 What a host would there be, if all the people in the United 
 States even, who live by the labor of others, were collected 
 together. 
 
 " The history of mankind, in all ages of the world, shows 
 that they will never labor for subsistence, so long as they 
 can obtain it by plunder — that they will never labor for 
 themselves, so long as they can compel others to labor for 
 them."* 
 
 This is a gloomy view of things: and we cannot say 
 that we assent to its correctness in every particular. We 
 trust there has been, in the last three centuries, some real 
 improvement in the minds of men. Yet history and expe- 
 rience both show that there is a strong principle of evil 
 which shows itself in different forms in different men, and 
 which clianges its appearance in communities with change 
 of circumstances. 
 
 As this principle is found in Americans as well as in 
 Europeans and Asiatics, we may rest assured, that, if the 
 money corporation system shall be abolished, attempts will 
 be made, under the plausible pretext of promoting the pub- 
 lic good, to iiave other laws passed, and other institutions 
 established, which will c've to some members of the com- 
 munity advantages over the rest. The attempts of this 
 
 * Raymond. Elements of Political Economy. Baltimore 1823. 
 
EFFECTS OF A SOUND CURRENCY. 
 
 131 
 
 I 
 
 kind will probably be numerous, for even those who appa- 
 rently pay most regard to the principles of natural justice, 
 think themselves fairly entitled to such advantages as the 
 law gives them, and deem it quite proper to endeavor to 
 advance their private speculations by procuring legislative 
 enactments in their especial favor. If these attempts shall 
 be successfully resisted; we may rationally expect — being de- 
 livered from the curse of paper money and of monied cor- 
 porations — a considerable improvement, in the following 
 particulars. 
 
 1. The demand for most articles of commerce and ma- 
 nufactures will become regular, and the supply will conform 
 itself to the demand, the variations being seldom so sud- 
 den or so great as to prevent men of good common sense 
 from managing their business successfully. At present, 
 men find it difficult to make the operation of the natural 
 causes that affect supply and demand the basis of an es- 
 timate, in engaging in any enterprize, because these causes 
 are confounded with others growing out of the present sys- 
 tem of business. 
 
 2. Bankruptcies will be as rare as they were before the 
 Revolution, and losses by bad debts will be inconsiderable. 
 More or less uncertainty will always attend foreign com- 
 merce. Events which may happen abroad may, from 
 time to time, have an injurious effect on bodies of mer- 
 chants engaged in a trade with particular countries ; but, 
 as is correctly observed by Mr. Gallatin, the effects of com- 
 mercial revulsions in a country having a metallic currency, 
 are generally confined to dealers, extending but indirectly 
 and feebly to the community, and never affecting the cur- 
 rency, the standard of value, or the contracts between per- 
 sons not concerned in the failures. 
 
 3. The value of that which forms] the principal item of 
 wealth in every country, the land and its improvements, is 
 affected slowly by natural causes. It seldom rises or falls, 
 except in particular situations, more than one or two per 
 cent, in the course of a year. Such variations would not 
 be great enough to prevent the majority of men from form- 
 ing correct estimates of the value of real estate: and as 
 there would be a continuous rise in the value of land, with 
 the increase of wealth and population, sellers would be 
 quite secure in receiving one-fourth of the purchase money 
 
132 EFFECTS OF A SOUND CURRENCY, 
 
 and a mortgage for the remainder, and buyers would run 
 little risk of losing, from a fall in the price of property. 
 The special causes which would affect the value of lands in 
 particular localities, might be estimated with some degree 
 of exactness. 
 
 4. The prices of land and commodities being left to the 
 regulation of natural causes, it would, in most instances, 
 be easy to form a judgment of the probable result of differ- 
 ent undertakings. The risk, in the great majority of en- 
 terprizes, would not be greater than that of the farmer 
 when he ploughs and sows his fields. It would be easy to 
 tell what businesses are adapted to the state of the coun- 
 try, and to different parts of the country. The develope- 
 ment of the natural sources of wealth would proceed in 
 natural order, and men would grow rich, not by impo- 
 verishing others, but by the same causes that enrich na- 
 tions. 
 
 5. Credit would be diffused through the community, 
 and each man would get that share to which he would be 
 justly entitled. The thrifty young mechanic, and the in- 
 dustrious farmer, though not possessed of real estate, would 
 be able to borrow on bond, for such periods as might be 
 necessary to bring their little undertakings to a successful 
 issue. 
 
 6. Every increase of capital increasing the fund out of 
 which wages would be paid, would increase the reward of 
 the laborer. Through the new distribution of capital which 
 would be produced by a just apportionment of credit, the 
 number of the competitors of the working-man would be 
 diminished, and the number of his employers increased. 
 He would thus reap a double advantage, from the in- 
 crease of competition on the one side, and its decrease on 
 the other. 
 
 7. The present order of things, by rendering the condi- 
 tion of some members of society almost hopeless, takes 
 away from them almost every inducement to industry and 
 economy. They labor only from the stimulus of necessity ; 
 and if, in particular seasons, they obtain more than is ne- 
 cessary for immediate subsistence, they expend it in pro- 
 curing some sensual gr;itification. But, open to these men 
 a fair prospect of ac{|iiiring a little property and of being 
 secure in its possession, and many who are now indolent 
 
I 
 
 EFFECTS OF A SOUNTD CURRENCY. 133 
 
 will become industrious, and many who are extravagant 
 will become economical. Give them an object worth work- 
 ing and saving for, and but few, even of those who are 
 least gifted with natural prudence, will become a burden 
 to their friends, or to the public. 
 
 8. The moral character of a great part of the nation has 
 been stamped so deeply by causes which have been in 
 operation for half a century, or for nearly a century and a 
 half, if we count from the first issue of paper money by 
 Massachusetts, that many years perhaps, will, elapse, be- 
 fore it can be essentially changed. But one of the first 
 effects of abolishing the money-corporation system, will be 
 that of raising the standard of commercial honesty in a 
 perceptible degree, and the standard of political honor will, 
 in a few years, be sensibly elevated. 
 
 9. In a state of things in which industry was sure of its 
 reward, few persons would be destitute of the pecuniary 
 means for obtaining instruction. The intellectual powers of 
 the great body of the people would then be fully developed, 
 and this could not fail to promote the correct management 
 of public and private affairs. 
 
 10. The causes of evil are as numerous as the varieties 
 of evil. The Banking system must be regarded as the 
 principal cause of social evil in the United States ; but it 
 
 is by no means the onli/ one. There are other positive in- 
 stitutions in our land which are very pernicious. Remove 
 the Banking system, and the extent in which most other 
 evil institutions operate, will become evident. The appli- 
 cation of the proper remedies will then be an easy task. 
 
 In the best social system that can be imagined, that is, 
 in one in which there should be no laws or institutions of 
 any kind except such as are absolutely necessary, and in 
 which the few laws and institutions which are really 
 necessary should be perfectly just in principle and equal 
 in operation, there would necessarily be an inequality in 
 the condition of men. It would proceed in part from dif- 
 ferences in mental and bodily strength, in skill, in industry, 
 in economy, in prudence, and in enterprize. In part, it 
 would proceed from causes beyond human control. But 
 this would be a natural inequality, and it would not be an 
 evil. The sight of one man enjoying the reward of his 
 good conduct, would induce others to imitate his example. 
 13 
 
134 EFFECTS OF A SOUND CURREXCY. 
 
 We have evidence in the condition of Switzerland and 
 Holland, of what patient industry can accomplish. One 
 of these countries is mountainous and rugged ; the other 
 is a marsh, great portion of which has been reclaimed from 
 the sea. Yet they are, in proportion to the number of 
 square miles they contain, among the richest countries in 
 the world. 
 
 In Switzerland there are, or were till lately, many ab- 
 surd restrictions on the liberty of the people. The national 
 debt of Holland is very great, and tiie taxes are conse- 
 quently heavy. Switzerland is an inland country, and has 
 intercourse with distant nations, through the permission of 
 the neighboring kingdoms. It owes its independence to 
 the sufferance of its powerful neighbors. Holland is fre- 
 quently devastated by hostile armies. It is not free from 
 commercial monopolies. In both Holland and Switzerland 
 there is an inequality of political rights quite incompatible 
 with our American ideas of natural justice. Yet, under 
 all these disadvantages^ natural and political, Holland and 
 Switzerland have arrived at a degree of improvement whcih 
 excites the admiration of every candid observer. 
 
 Now, if the Union of the States can be preserved, to 
 what may we not rise, under our free political institutions, 
 with the immense extent of our natural resources, with all 
 our advantages for foreign and domestic trade, and exempt- 
 ed as we are by our situation from a participation in the 
 wars of Europe. 
 
 It would really appear that, if we could only get rid of a 
 few laws and institutions which give advantages to some 
 men over others, we might arrive at a state of improvement 
 which would surpass that of any country of which mention 
 is made in history. We have more means of happi- 
 ness within our reach, than any other people. If we turn 
 them not to a good account, the fault will be our own, and 
 we must patiently bear the consequences. 
 
SUMMARY. 
 
 135 
 
 CHAPTER XXXI. 
 
 I 
 
 Summary. 
 
 To place the subject fairly before the reader, we shall 
 bring together the principal propositions that have been 
 supported in this essay, and leave the decision to his can- 
 did judgment. 
 
 We have maintained : 
 
 1. That real money is that valuable by reference to which 
 the' value of other articles is estimated, and by the instru- 
 mentality of which they are circulated. It is a commodity, 
 done up in a particular form to serve a particular use, and 
 does not differ essentially from other items of wealth. 
 
 2. That silver, owing to its different physical properties, 
 the universal and incessant demand for it, and the small 
 proportion the annual supply bears to the stock on hand, 
 is as good a practical standard of value as can reasonably 
 be desired. It has no variations except such as necessarily 
 arise from the nature of value. 
 
 3. That real money diffuses itself through different coun- 
 tries, and through different parts of a country, in propor- 
 tion to the demands of commerce. No prohibitions can 
 prevent its departing from countries where wealth and 
 trade are declining; and no obstacle, except spurious mo- 
 ney, can prevent its flowing into countries where wealth 
 and trade are increasing. 
 
 4. That money is the tool of all trades, and is, as such, one 
 of the most useful of productive instruments, and one of 
 the most valuable of labor saving machines. 
 
 5. That bills of exchange and promissory notes are a 
 mere commercial medium, and are, as auxiliaries of gold 
 silver money, very useful : but they differ from metallic 
 money in having no inherent value, and in being evidences 
 of debt. The expressions of value in bills of exchange and 
 promissory notes, are according to the article which law or 
 custom has made the standard ; and the failure to pay bills 
 of exchange and promissory notes, does not affect the 
 value of the currency, or the standard by which all con- 
 tracts are regulated. 
 
 6. That Bank notes are inere evidences of debt due by 
 
136 SUMMARY. 
 
 the Banks, and in this respect differ not from the promis- 
 sory notes of the merchants ; but, being received in full of 
 all demands, they become to all intents and purposes the 
 money of the country. 
 
 7. That Banks owe their credit to their charters ; for, if 
 these were taken away, not even their ow-n stockholders 
 would trust them. 
 
 8. That the circulating quality of Bank notes is in part 
 owing to their being receivable in payment of dues to go- 
 vernment ; in part to the interest which the debtors to 
 Banks and Bank stockholders have in keeping them in 
 circulation ; and in part to the difficulty, when the system 
 is firmly established, of obtaining metallic money. 
 
 9. That so long as specie payments are maintained, there 
 is a limit on Bank issues ; but this is not sufficient to pre- 
 vent successive " expansions" and " contractions," which 
 produce ruinous fluctuations of prices ; while the means 
 by which Bank medium is kept " convertible" inflict great 
 evils on the community. 
 
 10. That no restriction which can be imposed on Banks, 
 and no discretion on the part of the Directors, can prevent 
 these fluctuations; for. Bank credit, as a branch of com- 
 mercial credit, is affected by all the causes, natural and 
 political, that affect trade, or that affect the confidence man 
 has in man. 
 
 11. That the " flexibility" or " elasticity" of Bank me- 
 dium is not an excellence, but a defect, and that " expan- 
 sions" and " contractions" are not made to suit the wants 
 of the community, but from a simple regard to the profits 
 and safety of the Banks. 
 
 12. That the uncertainty of trade produced by these 
 successive " expansions" and " contractions," is but one 
 of the evils of the present system. That the Banks cause 
 credit dealings to be carried to an extent that is highly 
 pernicious — that they cause credit to be given to men who 
 are not entitled to it, and deprive others of credit to whom 
 it would be useful. 
 
 13. That the granting of exclusive privileges to compa- 
 nies, or the exempting of companies from liabliticsto which 
 individuals are subject, is repugnant to the fundamental 
 principles of American Government ; and that the Banks, 
 inasmuch as they have exclusive privileges and exemp- 
 
SUMMARY. 137 
 
 tions, and have the entire control of credit and currencj', 
 are the most pernicious of money corporations. 
 
 14. That a nominal responsibility may be imposed on 
 such corporations, but that it is impossible to impose on 
 them an effective responsibility. They respect the laws 
 and public opinion so far only as is necessary to promote 
 their own interest. 
 
 15. That on the supposition most favorable to the friends 
 of the Banking system, the whole amount gained by the 
 substitution of Bank medium for gold and silver coin, is 
 equal only to about 40 cents per annum for each individual 
 in the country ; but that it will be found that nothing is in 
 reality gained bv the nation, if due allowance be made for 
 the expense of supporting three or four hundred Banks, 
 and for the fact that Bank medium is a machine which per- 
 forms its work badly. 
 
 16. That some hundreds of thousands of dollars are an- 
 nually extracted from the people of Pennsylvania, and 
 some millions from the people of the United States, for the 
 support of the Banks, insomuch as through Banking the 
 natural order of things is reversed, and interest paid to 
 the Banks on evidences of debt due by them, instead of in- 
 terest being paid to those who part with commodities in 
 exchange for Bank notes. 
 
 17. That into the formation of the Bank capital of the 
 country very little substantial wealth has ever entered, that 
 capital having been formed principally out of the promis- 
 sory notes of the original subscribers, or by other means 
 which the operations of the Banks themselves have facili- 
 tated. They who have bought the script of the Banks at 
 second hand, may have honestly paid cent, per cent, for it; 
 but what they have paid has gone to those from whom they 
 bought the script, and does not form any part of the capi- 
 tal of the Banks. 
 
 18. That if it was the wish of the Legislature to promote 
 usurious dealings, it could not well devise more efficient 
 means than incorporating paper money Banks. That these 
 Banks, moreover, give rise to many kinds of stock-jobbing, 
 by which the simple-minded are injured and the crafty be- 
 nefitted. 
 
 19. That many legislators have, in voting for Banks, sup- 
 posed that they were promoting the welfare of their consti- 
 
138 SUMMARY. 
 
 tuents ; but the prevalence of false views in legislative bo- 
 dies in respect to money corporations and paper money, is 
 to be attributed chiefly to the desire certain members have 
 to make money for themselves, or to afford their political 
 partisans and personal friends opportunities for speculation. 
 
 20. That the banking interest has a pernicious influence 
 on the periodical press, on public elections, and the gene- 
 ral course of legislation. This interest is so powerful, that 
 the establishment of a system of sound currency and sound 
 credit is impracticable, except one or other of the political 
 parties into which the nation is divided, makes such an ob- 
 ject its primary principle of action. 
 
 21. That through the various advantages which the 
 system of incorporated paper money Banking has given to 
 some men over others, the foundation has been laid of an 
 artificial inequality of wealth, which kind of inequality is, 
 when once laid, increased by all the subsequent operations 
 of society. 
 
 22. That this artificial inequality of wealth, adds nothing 
 to the substantial happiness of the rich, and detracts much 
 from the happiness of the rest of the community. That 
 its tendency is to corrupt one portion of society, and de- 
 base another. 
 
 23. That the sudden dissolution of the Banking system, 
 without suitable preparation, would put an end to the col- 
 lection of debts, destroy private credit, break up many pro- 
 ductive establishments, throw most of the property of the in- 
 dustrious into the hands of speculators, and deprive labor- 
 ing people of employment. 
 
 24. That the system can be got rid of, without difficul- 
 ty, by prohibiting, after a certain day, the issue of small 
 notes, and proceeding gradually to those of the highest de- 
 nomination. 
 
 25. That the feasibility of getting rid of the system, is 
 further proved by the fact, that the whole amount of Bank 
 notes and Bank credits, is, according to Mr. Gallatin's cal- 
 culation, only about one hundred and nine million dollars. 
 By paying ten or eleven millions a year, the whole- can be 
 liquidated in the term of ten years. If, however, twenty 
 or thirty years should be required for the operation, the 
 longest of these is but a short period in the life time of a 
 nation. 
 
SUMMARY. 139 
 
 26. That it has not been through the undervaluation of 
 gold at the mint, that eagles and half-eagles have disap- 
 peared ; but from the free use of Bank notes. Neverthe- 
 less, a new coinage of pieces containing four and eight, or 
 five and ten dollars worth of gold is desirable, to save the 
 trouble of calculating fractions. The dollar being the mo- 
 ney of contract and account, no possible confusion or in- 
 justice can be produced by an adjustment of the gold coin- 
 age to the silver standard. 
 
 27. That incorporating a paper money Bank is not the 
 " necessary and proper," or " natural and appropriate" way 
 of managing the fiscal concerns of the Union ; but that the 
 " necessary and proper," or " natural and appropriate" way, 
 is by sub-treasury offices. 
 
 28. That incorporating a paper m.oney Bank is not " the 
 necessary and proper," or " natural and appropriate" way 
 of correcting the evils occasioned by the State Banks, 
 inasmuch as a National Bank, resting on the same princi- 
 ples as the State Banks, must produce similar evils. 
 
 29. That " convertible" paper prevents the accumula- 
 tion of such a stock of the precious metals as will enable 
 the country to bear transitions from peace to war, and 
 insure the punctual payment of war taxes, and that the 
 " necessary and proper," or " natural and appropriate" way 
 of providing for all public exigencies, is, by making the Go- 
 vernment a solid Money Government, as was intended by the 
 framers of the Constitution. 
 
 30. That if Congress should, from excessive caution, or 
 some less commendable motive, decline passing the acta 
 necessary to insure tlie gradual witlidrawal of Bank notes, 
 they may greatly diminish the evils of the system, by de- 
 claring that nothing but gold and silver shall be received 
 in payment of duties, and by making the operations of the 
 Governinent entirely distinct from those of the Banks. 
 
 31. That, on the abolition of incorporated paper money 
 Banks, private Bankers will rise up, who will receive money 
 on deposit, and allow interest on the same, discount pro- 
 missory notes, and buy and sell bills of exchange. Ope- 
 rating on sufficient funds, and being responsible for their 
 engagements in the whole amount of their estates, these 
 private Bankers will not by sudden and great " expan- 
 sions" and " curtailments" derange the whole train of mer- 
 
140 SUMMARY. 
 
 cantile operations. In each large city, an office of deposit 
 and transfer, similar to the Bank of Hamburgh, will be 
 established, and we shall thus secure all the good of the 
 present Banking system, and avoid all its evils. 
 
 32. That, if the present system of Banking and paper ^ 
 money shall continue, the wealth and population of the 
 country will increase from natural causes, till they shall be 
 equal for each square mile to the wealth and population of 
 Europe. But, with every year, the state of society in the 
 United States will more nearly approximate to the state of 
 society in Great Britain. Crime and pauperism will in- 
 crease. A few men will be inordinately rich, some com- 
 fortable, and a multitude in poverty. This condition of 
 things will naturally lead to the adoption of that policy 
 which proceeds on the principle that a legal remedy is to 
 be found for each social evil, and nothing left for the ope- 
 rations of nature. This kind of legislation will increase the 
 evils it is intended to cure. 
 
 33. That there is reason to hope that, on the down- 
 fall of monied corporations, and the substitution of gold and 
 silver for Bank medium, sound credit will take the place 
 of unsound, and legitimate enterprize the place of wild 
 speculation. That the moral and intellectual character of 
 the people will be sensibly though gradually raised, and the 
 causes laid open of a variety of evils under which society 
 is now suffering. That the sources of legislation will, to a 
 certain extent, be purified, by taking from members of 
 legislative bodies inducements to pass laws for the special 
 benefit of themselves, their personal friends and political 
 partisans. That the operation of the natural and just 
 causes of wealth and poverty, will no longer be inverted, 
 but that each cause will operate in its natural and just 
 order, and produce its natural and just effect — wealth be- 
 coming the reward of industry, frugality, skill, prudence, 
 and enterprize, and poverty the punishment of few except 
 the indolent and prodigal. 
 
^ 
 
 C ■ »■ 
 
 PART II. 
 
 SHORT HISTORY 
 
 OP 
 
 PAPER MONEY AND BANKING 
 
 IN THE 
 
 UNITED STATES. 
 
k 
 k 
 
UK' 
 
 
 A 
 
 SHORT HISTORY 
 
 OF 
 
 PAPER MONEY AND BANKING. 
 
 CHAPTER I. 
 
 Of the Medium of Trade, before the Introduction of 
 Paper Money. 
 
 The first settlers of a country may be greatly in want of 
 capital, but they do not need a great sum of money as a 
 medium of domestic trade. A iev; exchanges of products 
 for gold and silver coin, will regulate barter transactions 
 with sufficient accuracy for general dealings. A great 
 portion of the stock of money which the original emigrants 
 brought with them, was, therefore, soon exchanged for the 
 comforts and conveniences which Europe could supply, 
 and trade by barter became the custom of the country. 
 
 If the Government had not interfered, all would have 
 been well. But, as early as 1618, as is stated by Holme'lf 
 in his American Annals, Governor Argall of Virginia, order* 
 ed " that all goods should be sold at an advance of 25 per 
 cent., and tobacco taken in payment at three shillings per 
 pound, and not more or less, on the penalty of three years 
 servitude to the colony."* 
 
 * Mr. Bulk says, in the appendix to the first volume of the History 
 of Virginia — 
 
 "I find in the proclamations of the Virginia Governors and Councils, 
 the rates of some commodities and something like a scale of exchange 
 between specie and tobacco. During the administration of Captain 
 Argall, tobacco was fixed at three shillings the pound. In 1623, Ca- 
 nary, Malaga, Alicant, Tent, Mnskadel, and Bastard wines, were rated 
 at SIX shillings in specie, and nine shillings the gallon payable in 
 tobacco. Sherry, Sack, and Aquavitae, at four shillings, or four shil- 
 lings and six pence tobacco. Wine vmegar at three shillings, or four 
 
4 ORlGIAtAL MEDIUM OF TRADE. 
 
 In 1G41, as we learn from the same authority, the Gene- 
 ral Court of Msssachusetts " made orders about payment 
 of debts, setting corn at the usual price, and making it 
 payable for all debts which should arise after a time pre- 
 fixed." In 1643, the same General Court ordered "that 
 Wampompeag should pass current in the payment of debts 
 to the amount of forty shillings, the white at eight a penny, 
 the black at four a penny, except for county rates." 
 
 Wampompeag being an article of traffic with the Indians, 
 had a value in domestic trade, but an attempt to fix its 
 value by law was an absurdity, and making it a legal ten- 
 der was something worse than absurdity. The measure 
 was, however, in perfect accordance with the orders given 
 by the General Court in 1033, declaring, "that artificers, 
 such as carpenters and masons, should not receive more 
 than two shillings a day, and proportionably, and that mer- 
 chants should not advance more than four pence in the shil- 
 ling above what their goods cost in England." 
 
 shillings and six pence tobacco. Cider and beer vinegar at two shil- 
 lings, or three shillings in tobacco. Loaf sugar one shilling and eight 
 pence per pound, or two shillings and six pence in tobacco ; butter and 
 cheese eight pence per pound, or one shilling in tobacco. Newfound- 
 land fish per cwt. fifteen shillings, or one pound four shillings in to- 
 bacco. Canada iish, two pounds, or three pounds ten shillings in 
 tobacco. English meal sold at ten shillings the bushel, and Indian corn 
 at eight. After a careful inspection of the old records, I cannot find any 
 rates of labor specified, although they too are mentioned, as forming a 
 part of the subject of proclamations." 
 
 Holmes, in his Annals, supplies one deficiency in Burk's price cur- 
 rent, namely, the price of a passage from Europe. 
 
 " The enterprizing colonists being generally destitute of families, Sir 
 Edward Sandys, the treasurer, proposed to the Virginia Company to 
 send over a freight of young women to become wives for the planters. 
 The proposal was applauded ; and ninety girls, " young and uncor- 
 rupt," were sent over in the ships, that arrived this year, (J620; and, 
 the vearlbllowing, sixty more, haiulsoine and well recommended to the 
 company for their virtuous education and demeanor. The price of a 
 wife, at the first, was one hundred younds of tobacco : but, as the num- 
 ber became scarce, the price was increased to one hundred and fifty 
 pounds, the value of which, in money, was three shilling.^ per pound. 
 This debt for wives, it was ordered, should have the precedency of all 
 Other debts, and be first recoverable." 
 
 The Rev. Mr. Weems, a Virginia writer, intimates that it would 
 have done a man's heart good, to .see the gallant, young Virginians, 
 hastening to the waterside, when a ship arrived from London, each car- 
 rying a bundle of the bes^t tobacco under his arm, and each taking back 
 with him a beautiful and virtuous young wife. 
 
ORIGINAL MEDIUM OF TRADE. 5 
 
 In Pennsylvania, as well as in the other colonies, a con- 
 siderable traffic was carried on by barter : and we recollect 
 having read in the Minutes of Assembly, that, about the 
 year 1700, a proposition was made to make domestic pro- 
 ducts a legal tender, at their current rates. The propo- 
 sition was rejected. But Holmes states that, in Maryland, 
 as late as the year 1732, an act was passed " making to- 
 bacco a legal tender at one penny a pound, and Indian corn 
 at twenty pence a bushel." 
 
 The colonists had hardly become numerous enough to 
 require more than two or three hundred thousand dollars 
 of medium for domestic uses, before specie began to flow 
 in abundantly. Their trade with the West Indies and a 
 clandestine commerce with the Spanish Maine, made sil- 
 ver so plentiful, that, as early as 1652, a mint was esta- 
 blished in New England for coining shillings, sixpences 
 and three penny pieces.* 
 
 Gabriel Thomas, in his account of Pennsylvania, pub- 
 lished about the year 1698, says silver was more plentiful 
 in that province than in England. 
 
 Plentiful, however, as it was, there was not enough to 
 satisfy the wishes of every body. Attempts were, therefore, 
 made to keep the precious metals in the country, by rais- 
 ing the official value of the coin. Virginia, in 1645, pro- 
 hibited dealings by barter, and established the Spanish 
 piece of eight at six shillings, as the standard currency of 
 
 * " The law enacted that " Massachusetts" and a tree in the centre, 
 be on the one side : and New England, and the year of our Lord, and 
 the figure XII, VI, III, according to the value of each piece, be on the 
 other side." — Massachusetts Laws. Theseveral coins had N. E. on one 
 side, and the number denoting the number of pence, with the year 1652, 
 on the other. The date was never altered, though more coin was 
 stamped annually for thirty years." — Holmes. 
 
 In 1662, the Assembly of Maryland besought the proprietary "to take 
 orders for setting up a mint," and a law was passed for that purpose. 
 " The great hindrance to the colony in trade for the want of money" is 
 assigned as the reason for the measure. It was enacted, that the mo- 
 ney coined shall be of as good silver as English sterling; that every 
 shilling, and so in proportion for other pieces, shall weigh above nine 
 pence in such silver; and that the proprietary shall accept of it in pay- 
 ment of his rents and other debts. This coin bemg afterwards circu- 
 lated, the jjresent law of ]\Iaryland was confirmed in 1676. This is 
 the only law for coining money, which occurs in colonial history, pre- 
 vious to the American Revolution, e.\cepting the ordinance of Massa- 
 chusetts ia 1652." — Clmliners, 1. 248. 
 B 
 
6 ORIGINAL MEDIUM OF TRADE. 
 
 that colony. The other colonies affixed various denomina- 
 tions to tiie dollar, and the country exhibited a singular 
 spectacle. Its money of account was the same nominally 
 as that of England. Its coin was chiefly Spanish and 
 Portuguese. But, what was a shilling in Pennsylvania, 
 was more than a shilling in New York, and less than a 
 shilling in Virginia. 
 
 In the third year of Q,ueen Anne, an attempt was made 
 to put an end to this confusion, by a Royal Proclamation 
 and act of Parliament, fixing the plantation pound at two 
 ounces sixteen pennyweights sixteen grains of silver, of 
 the fineness of common pieces of eight, at six shillings and 
 ten pence half-penny per ounce ; but, from various causes, 
 the act proved effective in Barbadoes only. In South Ca- 
 rolina, the dollar was estimated at 4s. 8d , in Virginia and 
 New England at 6s., in Pennsylvania, New Jersey, and 
 Maryland at 7s. Gd., and in New York and North Caro- 
 lina at 8s. 
 
 These are to be understood as the rates at which the 
 currencies of the different colonies were finally settled. 
 They were varied from time to time to suit the varying 
 views of the lawgivers.* Confusion in dealing was there- 
 by introduced, and some injustice was done to individuals : 
 but the chief object of these changes, namely, that of keep- 
 ing a great stock of the precious metals in the country, 
 was not effected. In proportion as the denominations of 
 the coin were raised, the merchants raised the price of 
 their goods. The laws of nature counteracted the laws of 
 the land. The people exchanged their surplus gold and 
 silver for such things as they wanted still more than gold 
 and silver — leaving just as much money in the country as 
 its domestic trade required, and not one shilling more. 
 
 * Dr. FianUlin, in his Historical Account of Pennsylvania, says, 
 " During tliis wesk practice, silver got up by degrees to eigiil shillings 
 and nine pence per ounce, and English crowns were sis, seven, and 
 eight shillings a piece."' 
 
PROVINCIAL PAPER MOXEY. 7 
 
 CHAPTER II. 
 
 Of Provincial Paper Mojicy. 
 
 Paper money was first issued by Massachusetts in 1090. 
 The object was not to supply any supposed want of a me- 
 dium for trade, but to satisfy the demands of some clamor- 
 ous soldiers. Other issues were subsequently made, part- 
 ly with the view of defraying the expenses of Government, 
 and partly with the view of making money plenty in every 
 man's pocket. But, as the quantity increased, the value 
 diminished, as will be seen on inspectino- tlie followinw 
 table.* 
 
 \oz. Silver. 
 
 
 Exch. icith 
 
 loz 
 
 
 London. 
 
 
 1702 
 
 - 133 - 
 
 6. 
 
 170.5 
 
 - 135 - 
 
 7 
 
 1713 
 
 - 150 . 
 
 8 
 
 1716 
 
 - 175 . 
 
 9 
 
 1717 
 
 - 225 - 
 
 12 
 
 1722 
 
 - 270 - 
 
 14 
 
 Erdi. icith 
 
 
 \oz. Silver. 
 
 London. 
 
 
 
 1728 - 
 
 340 
 
 - 185. 
 
 1730 - 
 
 380 
 
 - 20 
 
 1737 - 
 
 500 
 
 - 26 
 
 1741 - 
 
 550 
 
 - 28 
 
 1749 - 
 
 1100 
 
 - GO 
 
 The ill-judged expedition of the Carolinians against St. 
 Augustine, in 1702, entailed a debt of 6000 pounds on that 
 colony, for the discharge of which a bill was passed by the 
 Provincial Assembly for stamping bills of credit, which were 
 to be sunk in three years by a duty laid upon liquors, skins 
 and furs. For five or si.x years after the emission, the pa- 
 per passed in the country at the same value and rate as the 
 sterling money of England.! 
 
 To defray the expenses of an expedition against the Tus- 
 caroras, and to accommodate domestic trade, the Legisla- 
 ture of South Carolina established a public Bank in 1712, 
 and issued 48,000 pounds in bills of credit, called Bank 
 bills, to be lent out on interest on landed and personal secu- 
 rity, and to be sunk gradually at the rate of 4000 pounds a 
 jear. Soon after the emission of these Bank bills, the rate 
 of exchange and the price of produce rose, advancing in 
 the first year to 1.30, and in the second to 200 per cent. j 
 
 * Holmes. Vol. II, p. ]79. t lb. Vol. II, p. 53. X lb. Vol. II, 
 
 D. S-2. 
 
8 PROVINCIAL PAPER MONEY. 
 
 By the year 1731, the rate of exchange rose to 700, at 
 which, says Holmes, " it continued with little variation up- 
 wards of forty years." 
 
 In the year 1723, " the province of Pennsylvania made 
 its first experiment of a paper currency. It issued, in 
 March, 15,000 pounds, on such terms as appeared likely to 
 be effectual to keep up the credit of the bills. It made no 
 loans, but on land security, or plate deposited in the loan 
 office : obliged the borrowers to pay five per cent, for the 
 sums they took up; made its bills a tender in all payments, 
 on pain of confiscating the debt, or forfeiting the commo- 
 dity ; imposed sufficient penalties on all persons, who pre- 
 sumed to make any bargain or sale on cheaper terms in 
 case of being paid in gold or silver ; and provided for the 
 gradual reduction of the bills, by enacting that one-eighth 
 of the principal, as well as the whole interest, should be an- 
 nually paid."* 
 
 Governor Pownall, in his work on the Administration of 
 the Colonies, bestows high praise on the paper system of 
 Pennsylvania, " I will venture to say" he declares, " that 
 there never was a wiser or a better measure, never one 
 better calculated to serve the interests of an increasing 
 country that there never was a measure more steadily pur- 
 sued, or more faithfully executed, for forty years together, 
 than the loan office in Pennsylvania, founded and admi- 
 nistered by the Assembly of that province." Dr. Frank- 
 lin, also, bestowed high commendation on the system. And 
 Adam Smith, apparently guided by Governor Pownall and 
 Dr. Franklin, says " Pennsylvania was always more mode- 
 rate in its emission of paper money than any of our other 
 colonies. Its paper currency accordingly is said never to 
 have sunk below the value of the gold and silver which 
 was current in the colony before the first emission of its 
 paper money." 
 
 All things go by comparison. The credit bills of Penn- 
 sylvania were so much better than those of the other Go- 
 vernments, that there was a demand for them throughout 
 the country as bills of exchange: but it was not a fact that 
 they never sunk below the value of the gold and silver 
 which was current in the colony before the first emission 
 
 * Holmes. Vol. II, p. 110. 
 
5 
 
 10 
 
 
 
 5 
 
 10 
 
 
 
 6 
 
 6 
 
 C 
 
 6 
 
 3 
 
 9 
 
 6 
 
 9 
 
 3 
 
 9.' 
 
 .2d. 
 
 6 
 
 m 
 
 7 
 
 5 
 
 8 
 
 3 
 
 8 
 
 1 
 
 8 
 
 9 
 
 PROVINCIAL PAPER MONEY. 9 
 
 of its paper. The following table taken from an official 
 document to be found in Proud's History of Pennsylvania 
 shows that the paper was never at a less discount than ele- 
 ven per cent, if gold be taken as the standard, or seven per 
 cent, if silver be the standard. 
 
 Irold. Silver. 
 
 1700 to 1709 - - ^5 10s. Od. 
 
 1709 to 1720 - - 
 
 1720 to 1723 - - 
 
 1723 to 1726 - - 
 
 1726 to 1730 - - 
 
 1730 to 1738 - - 
 
 We have no account of the bullion market in provincial 
 Pennsylvania, subsequent to the year 1738, but this table 
 shows that those who represented to Adam Smith that the 
 paper of the colony suffered no depreciation, were misled 
 by making neither gold nor silver the standard, but by 
 making the paper the standard of itself As the Pennsyl- 
 vania pound current never changed its name, they thought 
 it never changed its value.* 
 
 The following table shows the rate of exchange of the 
 
 * It is curious to observe the .similarity of the reasoning of the sup- 
 porters of this paper money with that of the anti-bullionists of a subse- 
 quent period. A merchant of Boston writing to his friend in England 
 in 1740, uses the following language. 
 
 " Upon the continuance of a favorable turn in the trading circum- 
 stances of the province of New England, the Government might stop 
 at any rate whicli silver should fall to, and make that rate the fixed 
 silver pound, and make it a lawful tender; and common consent or ac- 
 ceptance of the people would complete the scheme of silver money. 
 And thus the pound sterling is fixed in England at three ounces seven- 
 teen penny weights and two grains of silver, of a certain fineness, or 
 silver at five shillings and two pence per ounce. 
 
 " But if that kingdom were under our unhappy circumstances, as 
 not having a sufficiency in value in silver and all other exports to dis- 
 charge the whole demand of their imports : it would then be next to 
 a miracle if silver did not rise to above five shillings and two pence 
 per ounce in the market, in proportion to the balance of debt against 
 them ; and their trading circumstances continue to decline, as ours 
 have ; their silver would be brought to twenty seven shillings per ounce, 
 as ours is, and the current money of Great Britain be at the rate of 
 twenty shillings per ounce, whatever the lawful money might be." 
 
 Anderson, vol. iii. p. 498. 
 
 Here we have the doctrine clearly stated that when paper is at a dis- 
 count, it is not paper that has fallen, but silver that has risen ; and the 
 English Anti-BuUionists are thus deprived of all claim to originality in 
 ub 
 
10 PROVINCIAL PAPER MOXEY. 
 
 currencies of the different colonies 
 
 , for .£100 sterling, at 
 
 two different periods 
 
 * 
 
 
 
 
 
 1,740 
 
 1,748 
 
 New England, 
 
 - 
 
 525 
 
 1,100 
 
 New York, 
 
 . 
 
 160 
 
 190 
 
 New Jersey, - 
 
 - 
 
 160 
 
 180 and 190 
 
 Pennsylvania, 
 
 - 
 
 170 
 
 180 
 
 Maryland, 
 
 - 
 
 200 
 
 200 
 
 North Carolina, 
 
 - 
 
 1,400 
 
 1,000 
 
 South Carolina, 
 
 . 
 
 800 
 
 750 
 
 Virginia, 
 
 - 
 
 
 120 a 125. 
 
 The Government of Virginia appears not to have issued 
 any paper money previous to the Revolutionary War. 
 
 In respect to the paper money of the colonies generally, 
 we may say, in the language of Adam Smith, " allowing 
 the colony security to be perfectly good, a hundred pounds 
 payable fifteen years hence, in a country where interest is 
 at six per cent., is worth little more than forty pounds ready 
 money. To oblige a creditor, therefore, to accept of this 
 as a full payment for a debt of a hundred pounds actually 
 paid down in ready money, was an act of such violent in- 
 justice as has scarce, perhaps, been attempted by the Go- 
 vernment of any other country which pretended to be free. 
 It bears the evident marks of having originally been, what 
 the honest and downright Dr. Douglass assures us it was, 
 a scheme of fraudulent debtors to cheat their creditors. 
 The Government of Pennsylvania, indeed, pretended, upon 
 their first emission of paper money, to render their paper 
 of equal value with gold and silver, by enacting penalties 
 against all those who made any difference in the price of 
 their goods when they sold them for colony paper, and 
 when they sold them for gold and silver : a regulation 
 equally tyrannical, but much less effectual than that which it 
 was meant to support. A positive law n)ay render a shilling 
 a legal tender for a guinea, because it may direct the courts 
 of justice to discharge the debtor who has made that ten- 
 der. But no positive law can oblige a person who sells 
 
 error. All the arguments they used dining the suspension of specie 
 payments were mere plagiarisms from the Boston merchant." 
 
 * The items in the first column are from Anderson: those iu the 
 second from Dr. Douglass. 
 
PROVIXCIAL PAPER MOXEY. 
 
 11 
 
 goods, and who is at liberty to sell or not to sell as he 
 pleases, to accept of a shilling as equivalent to a guinea 
 in the price of them." 
 
 Dr. Williamson, the historian of North Carolina, says : 
 " Of all the varieties of fraud which have been practised 
 by men who call themselves honest, and wish to preserve a 
 decent appearance, none have been more frequent in legisla- 
 tive bodies than the attempt to pass money for more than its 
 proper value. There are men who conceive that crimes 
 lose their stain, when the offenders are numerous : that in 
 the character of legislators they cannot be rogues : " de- 
 fendit numerus." There are men who would be ashamed 
 to acquire five shillings by stealing, picking a pocket, or 
 robbing on the high-way ; but they would freely and with- 
 out blushing assist in passing a law to defraud their credi- 
 tors of their just demands. There are instances of men 
 being banished fj^^^orth Carolina for stealing a hog not 
 worth five dolIa^^^Bie the men v.ho banished them would 
 contend for paj^^^wdebt of seven pounds with the value 
 of twenty shilling^rthe moral sense is depraved by tender 
 laws, or laws that enable the debtor to defraud his creditor, 
 by offering him a fictitious payment. By such laws the 
 mind is alienated from the love of justice, and is prepared 
 for any species of chicane and fraud." 
 
 Hutchinson, the historian of Massachusetts, has preserv- 
 ed many curious particulars of the introduction of paper 
 money into this country, and of its operation on society. 
 After relating the unsuccessful expedition of the Massa- 
 chusetts troops against Quebec in 1G90, he says : 
 
 " The Government was utterly unprepared for the return 
 of the forces. They seem to have presumed, not only 
 upon success, but upon the enemy's treasure to bear the 
 charge of the expedition. The soldiers were upon the 
 point of mutiny for want of their wages. It was utterly 
 impracticable to raise in a few days such a sum as would 
 be necessary. An act was passed for levying the sum, 
 but the men would not stay until it should be brought 
 into the treasury. The extreme difficulty to which the 
 Government was thus reduced, was the occasion of the 
 first bills of credit ever issued in the colonies, as a substi- 
 tute in the place of money. The debt was paid by paper 
 notes from two shillings to ten pounds denomination, which 
 
12 PROVIXCIAL PAPER MONEY. 
 
 notes were to be received for payment of the tax which 
 was to be levied, and all other payments in the treasury. 
 This was a new expedient. They had better credit than 
 King James' leather money in Ireland, about the same 
 time. But the notes would not command money, nor 
 any commodities at money price. Sir William Phipps, it 
 is said, exchanged a large sum at par in order to give 
 them credit. The soldiers in general were great sufferers, 
 and could get no more than twelve or fourteen shillings in 
 the pound. As the time of payment of the tax approach- 
 ed, the credit of the notes was raised, and the Government 
 allowing five per cent, to those who paid their taxes in 
 notes, they became better than money. This was gain to 
 the possessor, but it did not restore to the poor soldier 
 what he had lost by the discount. 
 
 " The Government, encouraged by the restoration of 
 credit to their bills, afterwards issued^iJ^s for charges of 
 Government. They obtained good ci^^^^he time of their 
 being issued. The charges of GovB^^Ht were paid in 
 this manner from year to year. Whilsone sum was small 
 silver continued the measure, and bills continued their value. 
 When the charges of Government increased, after the second 
 expedition to Canada in 1711, the bills likewise increased, 
 and in the same or greater proportion, the silver and gold 
 were sent out of the country. There being a cryof scarcity of 
 money in 1714, the Government caused c£oO,000 to be 
 issued, and in 1716,^100,000, and lent to the inhabitants, 
 to be paid in at a certain period, and in the mean time to 
 pass as money. Lands were mortgaged for security. As 
 soon as the silver and gold were gone and the bills were 
 the sole instrument of commerce, pounds, shillings, and 
 pence were altogether ideal, for no possible reason could 
 be assigned why a bill of twenty shillings should bear a 
 certain proportion to any one quantity of silver more than 
 another. Sums in bills were drawing into the treasury 
 from time to time, by the taxes or payment of the loans : 
 but then other sums were continually issuing out, and all 
 the bills were paid and received without any distinction, 
 either in public or private payments, so that, for near forty 
 years togetlier, the currency was in much the same state 
 as if an hundred thousand pounds sterling had been stamp- 
 ed on pieces of leather, or paper of various denominations, 
 
PROVINCIAL PAPER MONEY. 13 
 
 and declared to be the money of the Government, without 
 any other sanction than this, that, when there should be 
 taxes to pay, the treasury would receive this sort of money, 
 and that every creditor should be obliged to receive it 
 from his debtor. Can it be supposed that such a medium 
 could retain its value ? In 1702, 6s. 8d. was equal to an 
 ounce of silver. In 1749, 50s. was judged equal to an 
 ounce of silver. I saw a five shilling bill which had been 
 issued in 1690, and was remaining in 1749, and was then 
 equal to eight pence only in the lavvful money, and so re- 
 tained but one-eighth of its original value. Such was the 
 delusion, that not only the bills of the Massachsetts Govern- 
 ment passed as money, but they received the bills of the 
 Governments of Connecticut, New Hampshire, and Rhode 
 Island also as a currency. The Massachusetts bills passed 
 also in those Governments.* 
 
 By the year l^^L " silver and gold were entirely ban- 
 ished. Of two^^Kuments, one in use in a particular 
 State only, the (^Hpith the whole commercial world, it is 
 easy to determine which must leave the particular State 
 and which remain. The currency of silver and gold en- 
 tirely ceasing, the price of every thing bought or sold was 
 no longer compared therewith, but with paper bills, or 
 rather with mere ideal pounds, shillings, and pence. The 
 rise of exchange with England and all other countries was 
 not attributed to the true cause, the want of a fixed staple 
 medium, but to the general bad state of the trade. Three 
 parties were formed, one very small, which was for draw- 
 ing in the paper bills and depending upon a silver and gold 
 currency. Mr. Hutchinson, one of the members for Bos- 
 ton, was among the most active of this party. He was an 
 enemy all his life, to a depreciating currency, upon a prin- 
 ciple very ancient, but too seldom practised upon, nil 
 utile qiiod non lionestum, [nothing which is not honest is 
 useful.] 
 
 " Another party was very numerous. These had pro- 
 jected a private Bank, or rather had taken up a project 
 published in London in the year 1684 : but this not being 
 generally known in America, a merchant in Boston was 
 the reputed father of it. There was nothing more in it 
 
 * Hutchinsons' History of ftlassachusetts, vol 1, p. 402-3. London 
 edition, 1765. 
 
t 
 
 14 PROVINCIAL PAPER MOXEY. 
 
 that issuing bills of credit, which all the members of the 
 company promised to receive as money, but at no certain 
 value compared with silver and gold : and real estates, to a 
 sufficient value, were to be bound as a security that the 
 company should perform their engagements. They were 
 soliciting the sanction of the general court and an act of 
 Government to incorporate them. This party, generally, 
 consisted of persons in difficult or involved circumstances 
 in trade, or such as were possessed of real estates, but had 
 little or no ready money at command, or men of no sub- 
 stance at all : and we may well enough suppose the party 
 to be very numerous. Some, no doubt, joined them from 
 mistaken principles, and an apprehension that it was a 
 scheme beneficial to the public, and some for party sake 
 and popular applause. 
 
 " A third party, though very opposite to the private 
 Bank, yet were no enemies to bills ^^h|dit. They were 
 in favor of a loan of bills from the Gc^^^Knt to any of the 
 inhabitants who would mortgage then^BRtes as a security 
 for the re-payment of the bills, with interest, in a term of 
 years, the interest to be paid annually, and applied to the 
 support of Government. This was an easy way of paying 
 public charges, which no doubt, they wondered that in so 
 many ages the wisdom of other Governments had never 
 discovered. 
 
 "The controversy had a universal spread, and divided 
 towns, parishes, and particular families. At length, after 
 a long struggle, the party for the public Bank prevailed in 
 the General Court for a loan of fifty thousand pounds in 
 bills of credit, which were put in the hands of trustees, 
 and lent for five years only, to any of the inhabitants at 
 five per cent, interest, one-fifth part of the principal to be 
 paid annually. This lessened the number of the party for 
 ihe private Bank, but it increased the zeal and raised a 
 strong resentment in those that remained."* 
 
 Under this system the trade of the province declined, 
 and in the year 1720, there was a general cry for want of 
 money. " The bills of credit, which were the only money, 
 were daily depreciating. The depreciation was grievous 
 to all creditors, but particularly distressing to the clergy 
 
 " Hutchinson, vol. I. pp. 206, 7, 8 & 9. Boston edition of 1765. 
 
PRO\^^'CIAL PAPER MO.VEY. 15 
 
 and other salary men, to widows and orphans whose estates 
 consisted of money at interest, perhaps just enough to sup- 
 port them, and being reduced to one-half the former value, 
 they found themselves on a sudden in a state of poverty 
 and want. Executors and administrators, and all who were 
 possessed of the effects of others in trust, had a strono- 
 temptation to retain them. The influence a bad currency 
 has upon the morals of the people, is greater than is gene- 
 rally imagined. Numbers of shemes, for private and pub- 
 lic emissions of bills, were proposed as remedies, the only 
 effectual one, the utter abolition of the bills, was omitted."* 
 In 1721, the Governor recommended measures for pre- 
 venting the depreciation of the currency : and the Assem- 
 bly gave him for answer, that they " had passed a bill for 
 issuing one hundred thousand pounds more in bills of cre- 
 ^ dit." This alone, as Hutchinson justly observes, had a 
 indirect tendency t^j||crease the mischief: but they added 
 that " to preven^^Br depreciation, they had prohibited 
 the buying, selliii^rod bartering silver, at any higher rates 
 than set by acts of Parliament." This certainly could 
 have no tendency to lessen it. Such an act can no more 
 be executed than an act to stop the ebbing and flow of the 
 sea."t 
 f1 •' In 1733 there was a general complaint throughout the 
 four Governments of New England of the unusual scarcity 
 of money. There was as large a sum current in bills of 
 credit as ever, but the bills having depreciated, they an- 
 swered the purposes of money so much less in proportion. 
 The Massachusetts and New Hampshire Governments 
 were clogged with royal instructions. It was owing to 
 to them that those Governments had not issued bills to as 
 great an amount as Rhode Island. Connecticut, although 
 under no restraint, yet consisting of more husbandmen and 
 fewer traders than the rest, did not so much feel the 
 want of money. The Massachusetts people were dissatiis- 
 fied that Rhode Island should send their bills among them 
 and take away their substance and employ it in trade, and 
 many persons wished to see the bills of each Government 
 current within the limits of such Government only. In the 
 midst of this discontent, Rhode Island passed an act for 
 
 * Hutchinson, pp. 231, 2. t lb. pp. 245, 6. 
 
16 PROVINCIAL PAPER MONEY. 
 
 issuing .£100,000 upon loan, for, I think, twenty years, to 
 their own inhabitants, who would immediately have it in 
 their power to add .£100,000 to their trading stock, from 
 the horses, sheep, lumber, fish, &lc., of the Massachusetts 
 inhabitants. The merchants of Boston, therefore, confede- 
 rated and mutually promised and engaged not to receive 
 any bills of this new emission, but, to provide a currency, 
 a large number formed themselves into a company, en- 
 tered into covenants, chose directors, &c., and issued 
 h .£100,000, redeemable in ten years; in silver at 19s. per oz. 
 the then current rate, or gold in proportion, a tenth part 
 annually. About the same time the Massachusetts trea- 
 sury, which had been long shut, was opened, and the 
 debts of two or three years were all paid at one time in 
 bills of credit : to this was added the ordinary emission of 
 bills from New Hampshire and Connecticut; and some of 
 the Boston merchants, tempted by aii^jj^tunity of selling 
 their English goods, having broke ^H|h their engage- 
 ments and received Rhode Island bins, all the rest soon 
 followed the example. All these emissions made a flood of 
 money, silver rose from 19^. to 27.^. the oz. and exchange 
 with all other countries consequently rose also, and every 
 creditor was defrauded of about one-third of his just dues. 
 As soon as silver rose to275., the notes issued by the mer- 
 chants at 19^-., were hoarded up and no longer answered 
 the purposes of money. Although the currency vvas less- 
 ened by taking away the notes, yet what remained never 
 increased in value, silver continuing several years about 
 the same rate, until it took another large jump. Thus very 
 great injustice was caused by this wretched paper currency, 
 and no relief of any sort obtained ; for, by this sinking in 
 value, though the nominal sum was higher than it had 
 ever been before, yet the currency would produce no more 
 sterling money that it would have done before the late 
 emissions were made.* 
 
 Towards the close of the year 1738, a great clamor arose 
 against the Governor for adhering to his instructions about 
 paper money, and an agent was appointed at the expense 
 of the colony, to procure, if possible, a relaxation of the in- 
 structions. A petition was presented by him from the 
 House to his Majesty in Council, but it had no efl'ect. 
 
 ' Hutchinson, p. 3S0, 1. 
 
PROVINCIAL PAPER MONEY. 17 
 
 " A general dread of drawing in all the paper money 
 without the substitution of any other instrument of trade 
 in the place of it, disposed a great part of the province to 
 favor the Land Bank or manufactory scheme, which was 
 begun or rather revived in this year, 1739, and produced 
 such great and lasting mischiefs, that a particular relation 
 of the rise, progress, and overthrow of it, may be of use to 
 prevent any attempts of the like nature in future ages. By 
 a strange conduct in the General Court they had been issu- 
 ing bills of credit for eight or ten years annually, for 
 charges of Government, and being willing to ease each 
 present year, they had put off' the redemption of the bills as 
 far as they could, but the Governor being restrained by his 
 instructions from going beyond the year 1740, that year 
 was unreasonably loaded with thirty or forty thousand 
 pounds sterling taxes, which, according to the general opi- 
 nions of the peopl^it was impossible to levy. Royal in- 
 structions were ifl^ar to the proceedings of private per- 
 sons. The project of a Bank in the year 1714 was revived. 
 The projector of that Bank now put himself at the head of 
 seven or eight hundred persons, some few of rank and good 
 estate^lKit generally of low condition among the plebians, 
 and of small estate, and many of them perhaps insolvent. 
 This notable company were to give credit to <£l 50,000, 
 lawful money, to be issued in bills, each person being to 
 mortgage a real estate in proportion to the sum he sub- 
 scribed and took out, or to give bond with two sureties, but 
 personal security was not to be taken for more than =£100 
 from any one person. Ten directors and a treasurer were 
 to be chosen by the company. Every subscriber or part- 
 ner was to pay three per cent, interest for the sum taken 
 out, and five per cent, of the principal, and he that did not 
 pay bills might pay the produce and manufactures of the 
 province at such rates as the directors from time to time 
 should set, and they should commonly pass in lawful mo- 
 ney. The pretence was, that by thus furnishing a medium 
 and instrument of trade, not only the inhabitants in gene- 
 ral would be better able to procure the province bills of 
 credit, but trade, foreign and inland, would revive and 
 flourish. The fate of the project was thought to depend 
 on the opinion the General Court should form of it. It was 
 necessary therefore to have a House of Representatives 
 c 
 
18 PROVINCIAL PAPER MONEY. 
 
 well disposed. Besides the eight hundred persons, sub- 
 scribers, the needy part of the province, in general, favor- 
 ed the scheme. One of their votes will go as far in popu- 
 lar elections as one of the most opulent. The former are 
 most numerous, and it appeared that by far the majority of 
 representatives for 1740 were subscribers to or favorers of 
 the scheme, and they have ever since been distinguished 
 by the name of the Land Bank House. 
 
 " Men of estates and the principal merchants in the pro- 
 vince abhorred the project and refused to receive the bills, 
 but great numbers of shopkeepers who had lived for a long 
 time before upon the fraud (jf a depreciating currency, and 
 many small traders, gave credit to the bills. The directors, 
 it was said, by a vote of the company became traders, and 
 issued just what bills they thought proper without any fund 
 or security for their ever being redeemed. They pur- 
 chased every sort of commodity, eve r §a much a drug, for 
 the sake of pushing off their bills, 4PPby one means or 
 other a large sum, say perhaps fifty or sixty thousand 
 pounds, was abroad. To lessen the temptation to receive 
 the bills, a company of merchants agreed to issue their 
 notes or bills redeemable !)y silver and gold at distant pe- 
 riods, much like the scheme in 1733, and attended with no 
 better effect. The Governor exerted himself to blast this 
 fraudulent undertaking, the Land Bank. Notonly such civil 
 and military officers as were directors or partners, but all 
 who received and paid any of the bills, were displaced. The 
 Governor negatived the person chosen Speaker of the House 
 being a director of the Bank, and afterwards negatived 13 
 of the new elected counsellors who were directors or part- 
 ners in, or reputed favorers of, the scheme. But all was 
 insufficient to suppress it. Perhaps the major part, in num- 
 ber, of the inhabitants of the province openly or secretly 
 were well-wishers to it. One of the directors afterwards 
 acknowledged to me that although he entered into the 
 company with a view to the public interest, yet when he 
 found what power and influence they had in all public 
 concerns, he was convinced it was more than belonged to 
 them, more than they could make a good use of, and there- 
 fore unwarrantable. Many of the most sensible, discreet 
 persons in the province saw a general confusion at hand. 
 Application was therefore made to Parliament for an act to 
 
PROVINCIAL PAPER MOXEY. 
 
 19 
 
 ^suppress the company, which, notwithstanding the opposi- 
 tion of the agent, was ver}' easily obtained, and thereon it 
 was declared that the act of the Glh of King George the 
 First, chapter eighteenth, [the Bubble Act] did, does, and 
 shall extend to the colonies and plantations in America. 
 Had not the Parliament interposed, the province would 
 have been in the utmost confusion, and the authority of 
 Government entirely in the Land Bank Company."* 
 
 Every scheme for fixing the value of the provincial bills 
 of credit having failed, " a new project was, in 1741, report- 
 ed by a committee of the House and accepted, and after- 
 wards concurred in by the council and consented to by the 
 Governor. This was a scheme to establish an ideal mea- 
 sure, in all trade and dealings, let the instrument be what 
 it would. The act which passed the Court declared that 
 all contracts should be understood payable in silver at 65. 
 8cL the ounce, or^ld in proportion. Bills of a new form 
 were issued, 205.4j|which expressed in the face of the bill 
 three ounces of silver, and they were to be received ac- 
 cordingly in all public and private payments, with this sav- 
 ing, tirat, if they should depreciate in their value, an ad- 
 dition should be made to all debts as much as the depre- 
 ciation from the time of contract to the time of payment. 
 How to ascertain the depreciation from time to time was 
 the great difficulty in framing the act. To leave it to a 
 common jury would never do. There were some doubts 
 whether a House of Representatives would be wholly unbi- 
 assed. At length it was agreed that the eldest counsellor 
 in each county should meet once a year to ascertain the 
 depreciation. 
 
 " This at best must have been a very partial cure. It 
 did not prevent the loss from the depreciation of the bills 
 in those persons' hands through Vt'hich they were continu- 
 ally passing. All debts which were contracted and paid 
 between the periods when the value of the bills was fi.xed 
 annually, could not be aflfected by such fixing, and unless 
 in debts of long standing which the debtor would not pay 
 without an action at law, demand was not ordinarily made 
 for depreciation, and what rendered it of little effect in all 
 other cases, the counsellors appointed to estimate the de- 
 
 * Hutchinson, pp. 392, 3, 4, 5 and 6. 
 
20 PROVINCIAL PAPER MOXEY. 
 
 preciation never had firmness enough in any instance to 
 make the full allowance, but when silver and exchange had 
 risen 20 oer cent, or more, an addition was made of four or 
 five only. The popular cry was against it, and one year 
 when Nathaniel Hubbard, Esq. the eldest counsellor for the 
 county of Bristol, a gentleman of amiable character, and 
 who filled the several posts he sustained with applause, en- 
 deavored to approach nearer to a just allowance than had 
 been made in former years, he felt the resentment of the 
 House, >vho left him out of the council the next election. 
 In short, the act neither prevented the depreciation of the 
 bills nor afforded relief in case of it, and was of no other 
 service than to serve as a warning, when an act passed for 
 establishing the currency a few years after, to leave nothing 
 to be done by any person or bodies of men, or even future 
 legislatures, to give the act its designed effect, but in the 
 act itself to make full provision for it^^xecution in every 
 part."* 4P 
 
 " By the expedition to Lewisburgh, the preparations for 
 the reduction of Canada, and the several supplies of men 
 for Nova Scotia, the province had," by the year 1T47, " is- 
 sued an immense sum in bills of credit, between two and 
 three millions, according to their denomination in the cur- 
 rency. The greater part of this sum had been issued 
 when between five and six hundred pounds was equal to 
 one hundred pounds sterling, and perhaps the real consi- 
 deration the Government received from the inhabitants who 
 gave credit to them, was near four hundred thousand pounds 
 sterling : but by thus multiplying the bills they had so 
 much depreciated that, at the end of the war, eleven or 
 twelve hundred pounds was not equal to more than a hun- 
 dred pounds sterling, and the whole debt of the province 
 did not much exceed two hundred thousand pounds ster- 
 ling. Thus the people had paid two hundred thousand 
 pounds sterling in two or three years, besides a large sum 
 raised by taxes each year, as much as it was supposed the 
 people were able to pay ; but to pay by the depreciation 
 of the bills, although infinitely unequal, yet, as they 
 were shifting hands every day, it was almost insensible, a 
 possessor of a large sum for a few days not perceiving the 
 
 * Hutchinson, pp. 402, 3, 4. 
 
PROVIXCIAL PAPER MONEY. 
 
 21 
 
 difference in their value between the time wlien he re- 
 ceived them and the time when he parted with them. The 
 apprehension of their depreciation tended to increase it, 
 and occasioned a quick circulation ; and for some time, 
 even for English goods, which ordinarily sell for the long- 
 est credit, no body pretended to ask credit. They were 
 constantly, however, dying in somebody's hands, though no- 
 body kept them long by them. Business was brisk, men 
 in trade increased their figures, but were sinking the real 
 value of their stock, and, what is worse, by endeavors to 
 shift the loss attending such a pernicious currency from 
 one to another, fraudulent dispositions and habits are 
 acquired, and the morals of the people depreciate v/ith the 
 currency. 
 
 " The Government was solicting for the reimbursement 
 of the charges in taking and securing Cape Breton, and by 
 the address, assiduity, and fidelity of William Bollan, Esq. ; 
 who was one of t^agents of the province for that purpose, 
 there was a hopeful prospect that the full sum, about 
 ■£180,000 sterling, would be obtained. 
 
 " Mr. Hutchinson, who was then Speaker of the House 
 of Representatives, imagined this to be a most favorable 
 opportunity for abolishing the bills of credit, the source of 
 so much iniquity, and for establishing a stable currency of 
 gold and silver for the future. About two millions two 
 hundred thousand pounds w-ould be outstanding in bills 
 in the year 1749. One hundred and eighty thousand 
 pounds sterling at eleven for one — which was the lowest 
 rate of exchange with London for a year or two before, and 
 perhaps the difference was really twelve to one — would re- 
 deem nineteen hundred and eighty thousand pounds, 
 which would leave but two hundred and twenty thousand 
 pounds outstanding: it was therefore proposed that the 
 sum granted by Parliament should be shipped to the pro- 
 vince in Spanish milled dollars and applied for the redemp- 
 tion of the bills as far as would serve for that purpose, and 
 that the remainder of the bills should be drawn in by a tax 
 on the year 1749. This would finish the bills. For the 
 future, silver of sterling alloy at 65. Sd. the ounce, if pay- 
 ment should be made in bullion, or otherwise milled dol- 
 lars at 65. each, should be the lawful money of the province, 
 and no person should receive or pay within the province, 
 c c 
 
22 PROVINCIAL PAPER MONEY. 
 
 bills of credit of any of the other Governments of New 
 England. This proposal being made to the Governor, he 
 approved of it, as founded in justice and tending to promote 
 the real interest of the province, but he knew the attach- 
 ment of the people to paper money, and supposed it imprac- 
 ticable. The Speaker, however, laid the proposal before 
 the House, when it was received with a smile, and gene- 
 rally thought to be a Utopian project ; and, rather out of 
 deference to the Speaker than from an apprehension of any 
 effect, the House appointed a committee to consider of it. 
 The committee treated it in the same manner, but report- 
 ed that the Speaker should be desired to bring in a bill for 
 the consideration of the House. When this came to be 
 known abroad, exceptions were taken and a clamor was 
 raised from every quarter. The major part of the people 
 in number, were no sufferers by a depreciating currency ; 
 the number of debtors is always more than the number of 
 creditors, and although debts on specicJj^es had allowance 
 made in judgments of courts for depreciation of the bills, 
 yet on simple contracts, of which there were ten to one 
 speciality, no allowance was made. Those who were for 
 a fixed currency were divided. Some supposed the bills 
 might be reduced to so small a quantity as to be fixed and 
 stable, and, therefore, were for redeeming as many by bills 
 of exchange as should be thought superfluous; others were 
 for putting an end to the bills, but in a gradual way, other- 
 wise it was said a fatal shock would be given to trade. 
 This last was the objection of many men of good sense. 
 Douglass, who had wrote well upon the paper currency and 
 been the oracle of the anti-paper party, was among them, 
 and, as his manner was with all who differed from him, 
 discovered as much rancor against the author and promo- 
 ter of this new project as he had done against the iraudu- 
 Icnt contrivers of pajier money emissions."* 
 
 After many weeks spent in debating and settling the se- 
 veral parts of the bill, it was rejected : but, afterwards, on 
 motion, reconsidered, passed by the House and Council, 
 and approved by the Governor. 
 
 " The provision made by this act for the exchange of the 
 bills and lor establishing a silver currency, was altogether 
 
 * HiUcliinsoii, pp. 433, C, 7. 
 
PROVINCIAL PAPER MONEY. 
 
 23 
 
 conditional, and depended upon a grantof Parliament for re- 
 imbursement of the charge of the Cape Breton expedition. 
 This being at a distance and not absolutely certain, the act 
 had no sudden effect upon the mindsof the people, but when 
 the news of the grant arrived, the discontent appeared more 
 visible, and upon the arrival of the money there were some 
 beginnings of tumults, and the authors and promoters of 
 the measure were threatened. The Government passed an 
 act with a severe penalty against riots, and appeared deter- 
 mined to carry the other act for exchanging the bills into 
 execution. The apprehensions of a sJiock to trade proved 
 groundless : the bills being dispersed through every part 
 of the province, the silver took place instead of them, a 
 good currency was insensibly substituted in the room of a 
 bad one, and every branch of business was carried on to 
 greater advantage than before. The other Governments, 
 especially Connecticut and Rhode Island, who refused, 
 upon being invite^ to conform their currency to the Mas- 
 sacl^setts, felt a Wiock in their trade from which they have 
 not yet recovered. The latter had been the importers for 
 Massachusetts, of West India goods for many years, which 
 ceased at once."* 
 
 From this account of the operation of the provincial pa- 
 per money of Massachusetts, the reader may judge of its 
 operation in the other colonies; and thereby learn to esti- 
 mate properly that provision of the United States' Constitu- 
 tion, which forbids any State " to emit bills of credit, pass 
 any law violating the obligation of contracts, or make any 
 thing but gold and silver a legal tender in the payment of 
 debts." 
 
 The successful issue of the experiment in Massachusetts 
 did not induce the other Governments to take the necessary 
 measures for substituting a metallic for a paper medium. 
 But, as the British merchants trading to the colonies were 
 sufferers by the monetary system of the day, an act of 
 Parliament was passed in 1763, " to prevent paper bills of 
 credit, hereafter to be issued in any of his Majesty's colo- 
 nies or plantations in America, from being declared to be a 
 legal tender in payment of money, and to prevent the legal 
 tender of such bills as are now subsisting from being pro- 
 
 * Hutchinson, p. 440. 
 
24 PROVIIVCIAL PAPER MONEY, 
 
 longed beyond the periods for calling in and sinking the 
 same." 
 
 The preamble to the act declared, with great truth, that, 
 by means of paper bills of credit, " debts have been dis- 
 charged with a much less value than was contracted for, to 
 the great discouragement and prejudice of trade and com- 
 merce of his Majesty's subjects, by occasioning confusion 
 in dealings and lessening credit in the said colonies or 
 plantations." The body of the act made void all acts 
 of Assembly thereafter passed to establish or keep up such 
 tender; and inflicted a fine of 1000 pounds (with imme- 
 diate dismissal and future incapacity to fill any public of- 
 fice or place of trust,) on any Governor who should give 
 his assent to such act of legal tender. 
 
 This measure caused much murmuring, for the specu- 
 lating classes of society, who are always the most noisy, 
 liked not to be deprived of so many opportunities of profit 
 as a vacillating currency afforded thei^ They appeared 
 to have had influence enough to prevent the act from being 
 effective in some of the colonies; for we find that ten years 
 after, another act with the same title was passed by the Bri- 
 tish Parliament. 
 
 The two acts together seem to have reduced the paper 
 bills of credit to a very small amount; for Pelatiah Web- 
 ster, a respectable merchant of Philadelphia, estimates the 
 whole circulating cash of the thirteen States, just before the 
 war, at twelve million dollars, or perhaps, not more than 
 ten million hard dollars in value. "Not more than half, 
 or at most three-fifths of the circulating cash in this State 
 (Pennsylvania,) was paper; and I am well convinced that 
 that proportion was not exceeded in the other States where 
 paper money was circulated." 
 
 This provincial paper may be regarded as a species of 
 Government script which by an act of tyranny was made 
 a legal tender. It fluctuated in value, according to the 
 changes in the credit of the Government by which it was 
 issued, and the amount thrown into the market. Being 
 more liable to great depreciation, it was inferior to Bank 
 paper as money : but its character was better understood by 
 the people. 'IMiey knew the authority of the Government, 
 and the resources of the Government. When they were 
 injured, they knew by whom they were injured, if not to 
 what extent. 
 
CONTINENTAL MONEY. 25 
 
 In one respect the provincial paper money system had 
 an effect directly opposite to that of the present Banking 
 system. Through the present Banking system, dealings on 
 credit are carried to an extent beyond that in which they 
 are useful, and in wliich they become highly pernicious. 
 Through the old paper money system, confidence was de- 
 stroyed, and credit prevented from spreading to its natural 
 extent. 
 
 The profits gained by the Governments by the issues of 
 paper money, enabled them to diminish the regular taxes ; 
 but this gain was insignificant, and the evils produced by 
 the system were incalculably great. All that honest men 
 lost by highwaymen, house-breakers, foot-pads, and horse- 
 thieves, was trifling in amount when compared with that 
 which they lost through the instrumentality of the paper 
 money of the different colonies. 
 
 ^^ CHAPTER III. 
 
 Of Continental Money. 
 
 According to an estimate by the Register of the Treasury, 
 in 1790, the issues of continental money were as follows, 
 viz : 
 
 In 
 
 
 Old Emission. 
 
 New Emission. 
 
 
 Dolls. 90ths. 
 
 Dolls. 90ths. 
 
 1776 - 
 
 20,064.464 66 
 
 
 1777 - 
 
 26,426,333 1 
 
 
 1778 - 
 
 66,96.5,269 34 
 
 
 1779 - 
 
 - 149,703,656 77 
 
 
 1780 - 
 
 82,908,320 47 
 
 - 891,236 80 
 
 1781 - 
 
 11,408,09.5 00 
 
 - 1,179,249 00 
 
 $357,476,541 45 $2,070,485 80* 
 
 The first emission was dated May 10 1775, but the 
 notes were not actually in circulation till the August fol- 
 lowing. i 
 
 * See tlie American Almanac for 1830. 
 
 t Most of the facts in tliis chapter have been derived from a series of 
 essays by Pelatiah Webster, a merchant of Philadelphia, and an nncle of 
 Noah Webster, the grammarian. They were published at different 
 intervals, from 1776 to J780, in pamphlet form, and collected into a 
 volume, with notes, in 1790. 
 
26 
 
 CONTINENTAL MONEY. 
 
 Till the issues exceeded nine millions, the bills, accord- 
 ing to the concurrent testimony of Mr. Jetferson and Mr. 
 Paine, passed at their nominal value. The depreciation 
 afterwards was very great. The rate of exchange for hard 
 money at Philadelphia, from January 1777 to May 1781, 
 was as follows, according to a table take from the mer- 
 chants' books and published by Mr. Pelatiah Webster. 
 
 1777. January, 
 
 - Id 
 
 1779. April, 12i, 
 
 14, 16, 22 
 
 February, 
 
 - U 
 
 May, 
 
 - 22,24 
 
 March, 
 
 2 
 
 June, 
 
 22, 20, 18 
 
 April, 
 
 - 2h 
 
 July, 
 
 18, 19, 20 
 
 May, 
 
 - 2.i 
 
 August, - 
 
 20 
 
 June, 
 
 - 2i 
 
 September, 
 
 - 20,28 
 
 July, 
 
 3 
 
 October, - 
 
 30 
 
 August, 
 
 3 
 
 November, 
 
 - 32,45 
 
 September, 
 
 3 
 
 December, 
 
 - 45,38 
 
 October, - 
 
 3 
 
 1780. January, - 
 
 - 40,45 
 
 November, 
 
 3 
 
 February, 
 
 - 45, 55 
 
 December, 
 
 4 
 
 March, 
 
 - 60, 65 
 
 1778. January, 
 
 4 
 
 April, 
 
 60 
 
 February, 
 
 5 
 
 May, 
 
 60 
 
 March, " - 
 
 5 
 
 June, 
 
 60 
 
 April, 
 
 6 
 
 July, 
 
 - 60,65 
 
 May, 
 
 5 
 
 August, - 
 
 - 65,75 
 
 June, 
 
 4 
 
 September 
 
 75 
 
 July, 
 
 4 
 
 October, - 
 
 - 75,80 
 
 August, 
 
 5 
 
 November, 
 
 - 80, 100 
 
 September, 
 
 5 
 
 December, 
 
 100 
 
 October, - 
 
 5 
 
 1781. January, - 
 
 100 
 
 November, 
 
 6 
 
 February, 
 
 100, 120 
 
 December, 
 
 6 
 
 March, 
 
 120, 135 
 
 1779. January 
 
 7,8,9 
 
 April, 
 
 135, 200 
 
 February, 
 
 10 
 
 May, 
 
 200, 500 
 
 March, 
 
 10,11 
 
 
 
 On the 31st of May, 1781, the continental bills ceased 
 to circulate as money, but they were afterwards bought on 
 speculation at various prices, from 400 for 1, up to 1000 
 fot 1. 
 
 The value of continental paper was not the same in dif- 
 ferent parts of the country. The exchange was, for exam- 
 ple, December 25th 1770, at ;io for 1 in New England, 
 New York, the Carolinas, and Georgia, and at 40 for 1 in 
 Pennsylvania, New Jersey, Delaware, Maryland and Vir- 
 ginia. 
 
CONTINENTAL MONEY. 
 
 27 
 
 An account taken from the books of merchants in Vir- 
 ginia shows that the depreciation there regularly followed 
 that in Philadelphia, though, towards the close, it some- 
 times lagged a month or more behind. Thus, when ex- 
 change was at Philadelphia at 100 for 1, in January, 1781, 
 it was in Virginia at 75 for 1 : and in April, when exchange 
 in Philadelphia was at 135 for 1, it was in Virginia at 
 100 for 1. 
 
 As late as May, 1781, speculations were entered into at 
 Philadelphia, to purchase continental money at 225 for 1, 
 and sell it at Boston at 75 for 1. 
 
 It is worthy of remark " that the depreciation of conti- 
 nental money never stopped the circulation of it. As long 
 as it retained any value at all, it passed quick enough : and 
 would purchase hard money or any thing else, as readily 
 as ever, when the exchange was 200 for l,and when every 
 hope, or even idea, of its being ultimately redeemed at 
 nominal value had entirely vanished."* 
 
 The facility of raising ways and means, in the early part 
 of the war, by issues of paper, led to much extravagance 
 in the commissary department, and prevented the establish- 
 ment of a sound system of finance. It is said that when 
 a proposition was before Congress to establish a regular 
 revenue system, one member exclaimed, "Do you think, 
 gentlemen, that I will consent to load my constituents with 
 taxes, when we can send to our printer, and get a waggon 
 load of money, one quire of which will pay for the whole !"t 
 
 Our ancestors w-ere lavish of their blood, in defence of 
 their rights. If it was through a wish to save their 
 treasure, that they resorted to paper money, they did not 
 succeed in their object. As a mode of raising revenue, it 
 might be compared to a tax, the expenses of collecting 
 which were many times as great as the sum brought into 
 the treasury. The benefit the Government derived from 
 it, was in no way commensurate with the burden it im- 
 posed on the people. Most of the loss fell on the Whigs 
 as it was in their hands the paper depreciated. The Tories, 
 who had from the beginning no confidence in it, made it 
 a rule to part with it as soon as possible. 
 
 This continental money was, in its true character, a sim- 
 
 - P. W. 
 
 tib. 
 
28 CONTINENTAL MONEY. 
 
 pie evidence of debt due by the Government : and may, as 
 such, in the first stage of its operation, be compared to the 
 forced loans which the potentates of Europe have at times 
 extracted from their subjects. As a forced currency, it 
 may be compared to the base coin which the same poten- 
 tates have issued in other seasons of difficulty. The resort 
 to it can be justified (if it can be justified at all,) only on 
 the plea of stale necessity — a plea so easily made that it 
 oucrht never to be admitted without close examination. 
 
 It is difficult to believe that a people so devoted to liberty 
 as were the Americans of that day, would have been back- 
 ward in their contributions for the necessary expenses of 
 war, if they had not been taught by some of their leading 
 men that taxation was quite unnecessary, and that paper 
 money would supply every financial want. " What a shame 
 it is" said a patriotic old lady, " that Congress should let 
 the poor soldiers suffer, when they have power to make 
 just as much money as they choose." 
 
 The best, if not the only excuse, for the policy which 
 was adopted is, perhaps, to be found in tlie opinion then 
 prevalent, that money was something which derived its va- 
 lue from the authority of Government. In no other way 
 can we apologize for the acts which imposed severe penal- 
 ties on those who refused to exchancre their merchandise 
 for paper, and which in some instances even outlawed the 
 supposed offijnder. 
 
 When the continental money was first issued, an expres- 
 sion of doubt as to its value, involved suspicion of disaf- 
 fection to the cause of the country. As the issues increased, 
 the prices of goods necessarily rose; but this was attributed 
 to combinations of the merchants to raise the price of their 
 merchandise, and to sink the value of continental money. 
 They were called Tories, speculators, and many other hard 
 names; and their stores were forcibly broken open, and 
 their goods sold at limited prices by committees of the 
 neighbors.* 
 
 " The fatal error" says Mr. Webster, " that the credit 
 and currency of continental money could be kept up and 
 supported by acts of compulsion, entered so deep into the 
 minds of Congress, and all departments of administration 
 
 * P. W, Note to Essay of July, 1779. 
 
CONTINENTAL MONEY. 29 
 
 through the States, that no considerations of justice, reli- 
 gion, or policy, or even experience of its utter inefficiency, 
 could eradicate it : it seemed to be a kind of obstinate deli- 
 rium, totally deaf to every argument drawn from justice and 
 right, fr jm its natural tendency and mischief, from common 
 justice, and even from common sense. 
 
 "Congress began, as early as Jan. 11th, 1776, to hold- 
 up and recommend this maxim of maniaism, when conimen 
 tal money was but five months old. Congress then resolved 
 that 'whoever should refuse to receive in payment conti- 
 nental bills, should be declared and treated as an enemy of 
 his country, and be precluded from intercourse with its in- 
 habitants,' i. e. should be outlmoed : which is the severest 
 penalty (except of life and limb,) known to our laws. 
 
 " This ruinous principle was continued in practice for 
 five successive years, and appeared in all shapes and forms, 
 i. e. in tender acts, in limitation of prices, in cmful and 
 threatening declarations, in penal laics, with dreadful and 
 ruinous punishments, and in every other way that could be 
 devised, and all executed with a relentless severity by the 
 highest authorities then in being, viz. by Congress, by As- 
 semblies and Conventions of the States, and hy cotnmittees 
 of inspection (whose powers in those days were nearly so- 
 vereign,) and even by military force : and though men of 
 all descriptions stood trembling before this monster of force, 
 without daring to lift a hand against it during all this period, 
 yet its unrestrained energy always proved ineffectual to its 
 purposes, but in every case increased the evils it was de- 
 signed to remedy, and destroyed the benefits it was intend- 
 ed to promote : at best its utmost effect was like that of 
 water sprinkled on a blacksmith's forge, which, indeed, 
 deadens the flame for a moment, but never fails to increase 
 the heat and flame of the internal fire. MdiUy thousand fa- 
 milies of full and easy fortune, were ruined by these fatal 
 measures, and lie in ruins to this day (1790) without the 
 least benefit to the country, or to the great and noble cause 
 in which we were then engaged." 
 
 After this account of the nature of the system, the rea» 
 der will readily believe Mr. Webster, when he says, in an 
 essay published in March, 1780, " Frauds, cheats, and 
 gross dishonesty are introduced, and a thousand idle ways 
 of living are attempted in the room of honest industry, 
 
 D 
 
30 COJTTINENTAL MONEY. 
 
 economy and diligence which have heretofore enriched and 
 blessed this country.'' 
 
 In various parts of his essays, he adverts to the suffer- 
 ings of the people from the necessary incidents of the war. 
 The price of foreign commodities was increased many per 
 cent. There was " an extreme scarcity and want of some 
 necessary articles ; for example, much meat was spoiled and 
 lost for want of salt to preserve it : and many trades and 
 manufactures were either wholly stopped or greatly dimi- 
 nished for want of materials. Another hardship very sen- 
 sibly felt was the force which was used with all descrip- 
 tions of men in seizing their goods, wagons, stock, grain, 
 cattle, timber, and every thing else which was wanted for 
 the public service. To these may be added the captures, 
 the ravages, and depredations, the burnings and plunders 
 of the enemy, which were very terrible and expensive. 
 They had possession, first or last, in the course of the war, 
 of eleven of the capitals of the thirteen States, pervaded the 
 country in every part, and left dreadful tracks of their 
 marches behind : burning, in cool blood, a great number 
 not only of houses, barns, mills, &lc., but also of most ca- 
 pital towns and villages." Yet these evils were not as great 
 in the judgment of Mr. Webster, (and he was an eye wit- 
 ness and a participator of these sufferings,) as those which 
 were caused by continental money and the consequent ir- 
 regularities of the financial system. " We have suffered 
 more from this cause" he says, " than from crery other 
 cause of calamity : it has killed more men, pervaded and 
 corrupted the choicest interests of our country more, and 
 done more injustice than even the arms and artifices of our 
 enemies."* 
 
 " While we rejoice in the riches and strength of our 
 country, we have reason to lament with tears of the deepest 
 regret, the most pernicious shifts of property which the ir- 
 regularities of our finances introduced, and the many thou- 
 sands of fortunes which were ruined by it; the generous, 
 patriotic spirits suffered the injury: the idle and avaricious 
 derived benefit from said confusion."! 
 
 Certain compulsory measures of the Executive Council 
 of Pennsylvania, designed to support the credit of conti- 
 
 * P. W. Essay of Jan. 8th 1780. t Note to Essay of Feb. 20th 1780. 
 
BANK OF NORTH AMERICA. 31 
 
 nental money and of the State bills, gave the fatal blow to 
 the system, m May 1781.' Mr. Webster gives a minute ac- 
 count of the proceedings ; but we deem it unnecessary to 
 transcribe them, for, as he justly observes, " they will ap- 
 pear to a stranger as intricate and as hard to understand 
 as the prices of stocks in Change Alley." We doubt not, 
 however, " that they were perfectly understood by people of 
 all ranks at that time, inasmuch as every variation of the 
 exchange altered the value of all their cash on hand." 
 
 " Thus," he exclaims, after having narrated the proceed- 
 ings of the Executive Council, and their important effects, 
 " thus fell, ended, and died, the continental currency, aged 
 six years. Bubbles of another sort, such as the Mississipi 
 scheme in France, and the South Sea in England, lasted 
 but a few months, and then burst into nothing: but this 
 held out much longer, and seemed to retain a vigorous con- 
 stitution to its last : for its circulation was never more brisk 
 x^^an when its exchange was 500 to one ; and yet it expired 
 without a orroan or strucro-le : and I believe of all thinss 
 which ever suffered dissolution since life was first given to 
 the creation, this mighty monster died the least lamented. 
 
 " If it saved the State, it has also polluted the equity of 
 our laws ; turned them into engines of oppression and 
 wrong : corrupted the justice of our public administration : 
 destroyed the fortunes of thousands of those who had the 
 most confidence in it ; enervated the trade, husbandry and 
 manufactures of our country, and gone far to destroy the 
 morality of our people." 
 
 Many who are yet living can attest the truth of this state- 
 ment. 
 
 CHAPTER IV. 
 Of the Bank of North America. 
 
 It is a common opinion that the Bank of North America 
 rendered essential service during our revolutionary struggle 
 — that, without it, the achievement of independence would 
 have been difficult, if not impossible. Assertions to this 
 effect have been made with so much confidence that we 
 once believed them to be well-founded ; but on examina- 
 tion we find — 
 
32 BANK OF NORTH AMERICA. 
 
 First. That the capture of Cornwallis, which is described 
 by historians as the closing scene of the Revolutionary 
 War, took place on the 9th of October, 1781, and that the 
 Bank did not go into operation till January 7th, 1782. 
 
 Secondly. That the whole amount of expenditures of the 
 U. S. Government in the year 1782, was only three million 
 six hundred thousand dollars, and in 1783 only three mil- 
 lion two hundred thousand dollars. Large loans were ne- 
 gotiated in Europe in these years ; " and such a conviction 
 of the necessities of public supplies generally took place 
 through the States, that considerable sums were obtained 
 by a tax on polls and real estates."* 
 
 Thirdly. The whole amount subscribed by individuals 
 to the Bank did not, as appears from the concurrent testi- 
 mony of Mr. Robert Morris and Mr. Gouverneur Morris, 
 exceed 70,000 dollars. 
 
 Fourthly. From statements made by Mr. Robert Morris, 
 in public debate in the Legislature of Pennsylvania, in the 
 year 1786, it appears that the advances made by the Bank 
 to the Government, above the amount of silver money ac- 
 tuallv paid in by the Government, never did exceed 165,000 
 dollars, and for a part of the time did not amount to 50,000 
 dollars.! 
 
 The reader, on duly considering these facts, will proba- 
 bly be convinced that the services rendered by the Bank of 
 North America, during our revolutionary struggle, have 
 been grossly exaggerated. 
 
 From the beginning of the year 1780, till the close of 
 the war, hard money was very plenty. This " was occa- 
 
 * P. W. 
 
 t From the slalements of Mr. Robert Morris, the accounts of the Go- 
 vernment with the Bank were as follows: 
 
 r. 
 
 47,082 
 
 - 147.082 
 
 - 146,606 
 46,006 
 46,606 
 
 - 129.800 
 
 - 164,781 
 January 1st. 1784, the debt was discharged. 
 
 The last column sliows the amount in which the Government was in 
 debt to the Bank, at the dillerent periods mentioned. 
 
 
 
 Cr. 
 
 Dr. 
 
 Apiil 2d, 
 
 - 1782 
 
 - 252,918 
 
 300,000 
 
 July 
 
 - 1782 
 
 - 252.918 
 
 400.000 
 
 October 
 
 - 1782 
 
 - 253,394 
 
 4011.000 
 
 January 
 
 - 1783 
 
 - 53,394 
 
 100.000 
 
 April 
 
 - 1783 
 
 - 53,394 
 
 J on. 000 
 
 July 
 
 - 1783 
 
 . 
 
 129,800 
 
 October 
 
 . 1783 
 
 - 
 
 164,781 
 
.^'^^ 
 
 BANK OF NORTH AMERICA. 
 
 33 
 
 sioned by large sums, by various means, coming from the 
 English army at New York, and spreading through the 
 States ; also by large sums remitted by France to their army 
 and navy here ; also by large importations of hard money 
 from the Havanna and other places abroad ; so that hard 
 money was never more plenty nor more easily collected 
 than at that time." In a note to an essay of later date, 
 Mr. Webster says, " the States were really overrun with 
 abundance of cash : the French and English armies, our 
 foreign loans, Havanna trade &c., had filled the country 
 with money." 
 
 " It has been asked," says Lord Sheffield, " what has 
 become of the money which we have sent during the war 
 to America? Some is come back — a considerable part is 
 the circulating cash within our lines. Many British sub- 
 jects in New York have very large sums in their posses- 
 sion. The Dutch and Germans, whose number is not in- 
 N.vr-eonsiderable, have hoarded up — and it is believed consi- 
 derable sums are concealed. 
 
 " France sent (not included in the debt) above 600,000 
 pounds sterling in specie to America, being obliged to send 
 cash."* 
 
 The operations of the war caused such a drain of specie 
 from Europe, that the Bank of England was brought into 
 jeopardy, and the Caisse d' Escompte at Paris actually 
 suspended payment in 1783 : and such a flux of specie into 
 the United States, that, as Mr. Webster observes, " hard 
 money was never more plenty or more easily collected." 
 
 Such being the state of the money market, it is difficult 
 to believe that the Government micrht not, if the Bank had 
 not been established, have obtained a loan of 50,000 to 
 165,000 dollars from some other source. It does not ap- 
 pear that the Bank ever made advances to the Government, 
 except on the best security. For at least 80,000 dollars of 
 the amount, the]State of Pennsylvania was guarantee. For 
 the residue of the amount, the Government might have 
 pledged the proceeds of the taxes, or bills on Europe : and 
 on the same security, it is probable, individuals would have 
 made the advances, especially as money was so abundant, 
 and the news of peace confidently expected. 
 
 * Observatious on the Commerce of the American States. June 21st 
 1783. 
 
 Dd 
 
34 BANK OF NORTH AMERICA. 
 
 The truth is, that the project of establishing a Bank in 
 Philadelphia had been conceived by Mr. Robert Morris, 
 before the commencement of the war, as appears from his 
 own declaration :* and he had entered into negociations in 
 Europe with a view to effect this object. But a project 
 for a Bank about the year 1763, had been vigorously op- 
 posed on the ground that it would give a few men a 
 monopoly of trade : and it is probable that Mr. Robert 
 Morris's project would have encountered severe opposition, 
 if it had not been brought forward as ?i fiscal measure, and 
 at a time when neither the Legislature nor the people could 
 give it that consideration it deserved. 
 
 He submitted his plan to Congress in May, 1780, and 
 on the 26th of the same month it was approved by that 
 body. " Yet," he says, " until the month of September or 
 October following, there were not more subscriptions in 
 the whole, than amounted to about 70,000 dollars. During 
 the time, one of his most Christian Majesty's frigates ar- 
 rived at Boston, and brought a remittance in specie of 
 about 470,000 dollars. The sum was brought to Pliiladel- 
 phia and deposited in the vaults of the Bank. I deter- 
 mined from the moment of its arrival, to subscribe on be- 
 half of the United States, for those shares in the Bank 
 which remained vacant: but such was the amount of the 
 public expenditures, that notwithstanding the utmost care 
 and caution to keep this money, nearly one-half of the sum 
 was e.xhausted before the institution could be organized. 
 In November, 1781, the president and directors of the 
 Bank were elected : they obtained a charter of incorpora- 
 tion from Congress — and opened the Bank for transacting 
 business in January, 1782. I subscribed the sum then 
 remaining in the treasury, being about 254,000 dollars, 
 into the Bank stock, per account of the United States, 
 which became thereby the principal stockholder."! 
 
 As is remarked by Mr. Gouverncur Morris, the sum sub- 
 gcribed by Government may be said to have been paid in 
 
 • See Carey's "Debates and Proceedings of the General Assembly 
 •of Peniisylvuiiia, on the memorials prajing a repeal or suspension of 
 the law annulling llie charter of the Bank." Phil. 1786. 
 
 t It may be made a question, whether the whole of the original capital 
 of the IJank was not advanced by (jlovernment. Thomas Paine says, 
 in one of his tracts, it in well known " that the Bank originated in 
 another Bank called the Bank of Pennsylvania, which was formed iu 
 
J- 
 
 BANK OF NORTH AMERICA. 35 
 
 with one hand, and borrowed with the other, leaving the 
 Bank but 70,000 dollars at most for its proper operations. 
 On this amount it undertook to make advances to the Go- 
 vernment and to individuals; but as the experience of the 
 evils of continental money \Vas frssh in the minds of the 
 people, some difficulty was encountered in giving currency 
 to the notes of the Bank. To remove tiiis " prejudice" the 
 gentlemen who were interested in the institution, were, as 
 we have learned from undoubted private authority, in the 
 practice of requesting people from the country and laboring 
 men about town, to go to the Bank and get silver in exchange 
 for notes. When they went on this errand of neighborly 
 kindness, as they thought it, they found a display of silver 
 on the counter, and men employed in raising boxes con- 
 taining silver, or supposed to contain silver, from the cel- 
 lar into the Banking room, or lowering them from the 
 Banking room into the cellar. By contrivances like these, 
 ' the Bank obtained the reputation of possessing immense 
 wealth ; but its hollowness was several times nearly made 
 apparent, especially on one occasion, when one of the co- 
 partners withdrew a deposit of some five or six thousand 
 dollars, when the whole specie stock of the Bank did not 
 probably exceed twenty thousand. 
 
 By these means, and by the assistance of the United 
 States Government, the notes of the Bank became current ; 
 
 the spring of 1780. On the 17th of June, it was resolved to open a 
 security subscription to the amount of 300,000 pounds Pennsylvania 
 currency, in real money, the subscribers to execute bunds for the amount 
 of their subscription, and to form a Bank for supplying the army." 
 He afterwards speaks of some oi these subscriptions being transferred to 
 the Bank of North America. 
 
 From the journals of Congress, it appears that the Board of Treasury 
 was directed to deposite in this Pennsylvania Bond-Bank, "bills of ex- 
 change, in favor of the directors thereof, on the Ministers of the United 
 States in Europe, or any of them, and in such sums as shall be thought 
 convenient, but not to exceed in the whole £150,000 sterling." 
 
 Were the 70,000 dollars which were subscribed by individuals to the 
 Bank of North America, paid in bonds or in money? Was a part of the 
 470,000 dollars received by the French frigate, used in redeeming some 
 of these bonds ; and was it in this way subscriptions were transferred 
 from the old Bond Bank to the Bank of North America : or were the 
 70,000 dollars paid in by individuals without any trafficking with Govern- 
 ment? These questions are, perhaps, rather curious than useful: but 
 our knowledge of the contrivances for forming Bank stock in our own 
 day, makes us desire to see an explanation of the 70,000 dollars sub. 
 gcription by individuals, 
 
36 BANK OF NORTH AMERICA. 
 
 and so profitable was the business that the early dividends 
 were at the rate of from 12 to 16 per cent, per annum. 
 This naturally created a desire in others to share in so very 
 lucrative a trade. A project was therefrom formed for 
 establishing a second Bank, to be called the Bank of Penn- 
 sylvania. This, they who were interested in the Bank of 
 North America strenuously opposed, fearing the effect of 
 a rival institution in Philadelphia. To prevent its being 
 established, they opened their books for additional sub- 
 scriptions ; but not without murmuring loudly at the hard- 
 ship of receiving new partners.* 
 
 In the year 1784, the Bank did a very extensive busi- 
 nsss ; and by the beginning of 1785, the effects of its ope- 
 rations began to be very apparent. They are such as 
 
 " The following is an extract from a pamphlet, published in 17S5, 
 entitled an " Address to the General Assembly of Pennsylvania, on tlie 
 abolition of the Bank Charter." 
 
 " After the peace, when the advantages of the Bank had been felt, 
 and the property of the stock had become secure, an opposition was 
 raised by some of the same persons who are now the opposers, but on 
 grounds somewhat different. For then, instead of considering the Bank 
 as pernicious, it was considered to be so highly beneficial that they must 
 needs have two. They did indeed complain of the old Bank. But for 
 what? Not because the capital was so large as to threaten general ruin : 
 but because the directors would not open a subscription to make it larger. 
 And what was the modest request of that day? Why, truly, such an 
 extension of the capital as might enable those who had waited for events 
 in perfect ease and safety, to enjoy the same advantages with those who 
 had borne the burden, and run the risk of the contest. It was, in- 
 deed, a hard case that many worthy gentlemen who would not have 
 given a shilling to save the State, should be obliged to pay either $500 
 for a share in Bank which had cost but four, or to lend their money on 
 bond and mortgage to the farmers of Pennsylvania. A very hard case; 
 And so loudly did tiiey complain of it, that at last many sensible mem- 
 bers of Assembly were prevailed on to believe it would be a good thing 
 to have two Banks. Two shops to go to, for that was the fashionable 
 phrase. And they were the more easily led into this opinion, because 
 it was laid down by some in high stations, for whose sentiments they 
 had acquired a habitual respect. 
 
 " Tiie consequence of the noise made at the time, must be well re- 
 membered. The Assembly were plagued with long arguments on both 
 sides which might have been spared, and then, all at once, the thing 
 was hushed up and accommodated. Because, sucliof the promoters of 
 the new Bank as had mouey, found out their new friends had none. 
 Because they all found out the scheme did not promise so much either 
 of security or profit, as was imagined. And because they had not too 
 much confidence in each other, being (like Nebucliadnczat's image) 
 composed of discordant materials. They agreed, therefore, to abandon 
 their project, on certain conditions acceded to by the old Bank, one of 
 which was to extend tlie subscription, and this it is which has convert- 
 
BANK OF NORTH AMERICA. 37 
 
 Banking has always produced — a temporary plentifulness 
 of money, followed by great scarcity, usury, ruin to the 
 many, riches to the few. These effects were ably set forth 
 in petitions to the Assembly, from the inhabitants of Phila- 
 delphia, and those of the counties of Chester and Bucks, 
 presented on the 21st and •23d of March, praying for a 
 repeal of the charter of the Bank. Those petitions were 
 referred to a committee, who, in a report of the 25th of the 
 same month, fully sustained the allegations of the petition- 
 ers, and recommended a repeal of the charter. This recom- 
 mendation was carried into effect, at the ensuing session, 
 on the 13th of September, 1785. 
 
 Thus we find that the first Bank established in this 
 country produced so much evil, that its charter was taken 
 from it in less than four years after it had commenced 
 X>perations. 
 
 The Bank, however, claiming the right of prosecuting its 
 business under the act of Congress, continued its opera- 
 tions, though on a more moderate scale. In 1786, an at- 
 tempt was made by its friends to obtain a renewal of the 
 charter from the State of Pennsylvania, but it was success- 
 fully opposed by Wm. Findlay of Westmoreland, Mr. Smilie 
 of the same county, and other leading democrats. It is 
 difficult, however, for the people long to withstand the 
 efforts of a powerful monied interest : and it being pleaded, 
 with some show of reason, that the forms of the Constitution 
 had not been properly regarded in taking away the charter, 
 and many persons fearing a return of the old paper money 
 system, the Bank wasre-incorporated on the 17th of March, 
 1787, with limited powers, and for fourteen years. By 
 successive acts of the Legislature, it has been continued 
 in existence to the present day.* 
 
 ed all the surplus money of the State into Bank stock. For otherwise, 
 let the price of a share have risen ever so high, nay, had it gone to 
 4000 instead of 400 dollars, not one penny would have been added to 
 the Bank capital. But in proportion as stock rose, the dividends would 
 have been less valuable. 
 
 " It is notorious that if the Directors had not been under compulsion, 
 they would not have extended the subscriptions beyond the first 400,000 
 dollars. It is notorious that any addition to the number of shares lessens 
 the value of each." 
 
 * For further particulars respecting the early history of the Bank of 
 North America, see Appendix. 
 
• {M oi.i) l!ANK 0(.' THf.; iiNfTED STATES. 
 
 (;ifAi"n;i.' v. 
 
 iff Ihr Old liiud: of Ihr. IJmUd Stales. 
 
 " r,»;( I Ik: Arri(;ricans,"«airl Wfn. Pitt, " adopt tlioirfund- 
 itijr !',yM|rari, find pn into tlnir F'iitd<irit^ iriHfiliilions, ;uid 
 lli«^ir lio.iitcd indc|»<iM]cnc,(; will In: ;i mere |)li;in!oni." 
 
 No iiiii^iil niiiiili<i <>\ A nicrif.iin-! were of ;i fiiniilnr opi- 
 nion : lull il, w»H r.otilcndcd \>y otliorw, lliat if llx; rovolu- 
 tion.iry dclil wa.". not, InndiMl, irijiiMtiof! wfudd Ix; done to 
 tin; pnlilic, crcditorH. ( )nt of tliiw fiiiidiri;/ systorn Hpriing 
 tlin old I'ankfd' llio Mnitfid States, for tlirfin-fourthH of its 
 ca[>ital conni-itcd lA' pnMic hUx-Mh. The IJaiik, its friends 
 av<;rr(;d, was ucr.cHHury {<> support tlin piihlic credit, and 
 aid till! fiHcal operations of the federal (lovcmmcnt. Its 
 OI»|»onenl", e.ontended llial it waM anti-repniilican in its ten- 
 dency, and tliat the (lofiHtilntion gave Congrc.s.s no pow- 
 er to ostaldiflli Huoli an institution. 
 
 The pf-riod iruinedia,tely Kuc,c,(;eding tlio n.ovf)liitionary 
 War, waH, in a p(;r,nliar scinsr;, an age of specidation. 
 'I'ra (licking in soldier's (•(^rtificates, in the pnhlic lanrJH, and 
 in the various evidences of the puhlic dtdit, was the hiisi- 
 noHM (d' tnany who had rnf>ney_ and of many who had not. 
 I'erliapM the lorlnnes sonte therehy a('(|iiire(|, may have CX- 
 cited envy, ami llnis incr(;ased tlie o|)po.alion to tlio system 
 whic.il had its (»riiMn with Hoin(; in political, and with others, 
 in moral ri;asonM. I'l; this as it may, the ISank of the I'nited 
 (States was regardfid as the cap-stone of a policy which 
 was viewed as very ohjectionahle : and (he democratic 
 jonrnal,4 of the ilay ahoiinded in what one of our most rc- 
 spectahle authors oall.4 " ahtise of the iJanking and fund- 
 ing Hys((!rn." 
 
 Mr. .led'ersrui's op|)OHi(Ion to l»ank.': wa.-^ of tlif; most de- 
 rided character. In liin |>refiic(: to Destntt Tracy's Politi- 
 cal I'lconomy, he deiiouncus tliom as parisiticul institutions: 
 and he lieldom let nlip an opportunity of exprcissing lii.H ah- 
 liorrence »d (iieir wlnde Hclieme of operations. IliH rd)jec- 
 tions (o the Hank of the (/nited States on coiiKtitutional 
 grounds were; eipially strong. " I considcir," lie says, " (Ik; 
 i'otimlatioii (d' the ( 'OiiHtiliitioii as laid on this ground, that 
 •' all power,'! n(»( delegated to the United States hy the Con- 
 
OLD BANK CF THE UNITED STATES. 39 
 
 stitution, nor prohibited by it to the States, are reserved 
 to the States or the people." To take a single step bevond 
 the boundaries thus specially drawn around the power of 
 Coniiress, is to take possession ot' a boundless tield of 
 power, no longer susceptible of definition. Tiie incorpo- 
 ration of a Bank, and other powers assumed by this bill, 
 have not, in my opinion, been delegated to the United States 
 by the Constitution." After showing that the powers were 
 not among those specially enumerated, nor in any of the 
 general phrases, he says *' It is known that the very power 
 now proposed as a means was rejected as an end by the 
 Convention which formed the Constitution : a proposition 
 was made to tliem to authorize Congress to open canals, 
 and an emendatory one to empower them to incorporate ; 
 but the whole was rejected, and one of the reasons urged 
 'in the debate was, that thou they would have power to 
 create a Bank, which would rentier the great cities, where 
 there were projudicies or jealousies on this subject, adverse 
 to the reception of the Constitution." 
 
 The Bank was not established by a strict party vote, 
 for eleven out of thirty-nine who voted for it were demo- 
 crats, and six out of twenty, who opposed it, were fede- 
 ralists; but it afterwards became, as Mr. Niles says, one of 
 the landmarks of party, am!, in the second Congress, a 
 resolution declaring the Bank charter unconstitutional, was 
 within one vote of passing the House. 
 
 The hostility of the democratic party to the Bank, was 
 but little abated for many years ; but, as the time approach- 
 ed for the expiration of the charter, enmity to the insti- 
 tution gave way, in a great degree, to fear of the distress 
 which the winding up of its atlairs would produce. The 
 pens of numerous scribes were employed in portraying the 
 manifold evils which must come upon the country, and 
 deputations of merchants and mechanics were sent from 
 riiiladelphia to Washington, to beg Congress to avert the 
 impending danger.* 
 
 * Sec tlio jniblic papers of the da}'. 
 
 Of tlie feeling wiili wliieli a portion of tlie community regarded the 
 prospect of a non-renewal of the Hank cliarter. an opinion may bo 
 ibrmed fiom liie followinii extract tVoni a pamphlet, by Mr. Carey, en- 
 titled "Desultory Kellections upon the Uninous ronse()nences of a 
 Non-Kenewal of the Cliarter of the Bank of the United States." pub- 
 lished in iMay, l^tO. 
 
40 OLD HANK OF THE UMTED STATES. 
 
 The predictions that were so confidently made of the 
 ruin that would overspread the land, if the charter were not 
 renewed, had their intended effect on some of the demo- 
 cratic members. But, after a full discussion, the bill was 
 indefinitely postponed on the 24th of January, 1811, in the 
 House of Representatives, by a vote of 65 to 64. The Na- 
 tional Intelligencer said, on recording the vote, that if the 
 question had not been on the indefinite postponement, but 
 
 " III the historj' of nations, as well as of individuals, there are to be 
 found occasional moments of frenzy, in which every movement baffles 
 the calculations of tiie politician, the moralist and the philosopher. To 
 the distractions and derangementsof our affairs with the European world 
 we are, with almost incredible folly, preparing, by allowing the charter 
 of the Bank of the United States to expire, to add an awful scene of 
 internal disorder and confusion, of private and public bankruptcy. I 
 have gone over my calculations anew ; sifted the facts on which my 
 opinions are founded: turned them in every possible point of view, to 
 discover errors if any there were. But the result of every examination 
 has been an invariable conviction of the leality of the danger, the mo- 
 mentary frenzy of too many of my fellow-citizens, and the awful con- 
 sequences of tlie prevailing apathy, if it should continue." 
 
 By the next session of Congress, Mr. Carey's fears were in no degree 
 abated, as will be seen by the following extract from another pamphlet, 
 published December 15th, 1810, and entitled " Nine Letters to Dr. 
 Adam Seybert, Representative in Congress for the City of Phila- 
 delphia." 
 
 " Nevei have I addressed my fellow-citizens with more solicitude 
 than I feel at present. The question at issue, respecting the renewal 
 of the charter of the Bank of the United States, in its consequences 
 upon the character of the country, and upon the prosperity and happi- 
 ness of a large portion of its most valuable citizens, I conceive to be of 
 more importance than any one that has been agitated for twenty years." 
 He then intimates to members of Congress from parts of the country 
 remote from the operations of Banking, "that they are liable to be be- 
 wildered and led astray ; to be in.stru mental in dashing the Bank of pub- 
 lic credit upon rocks and quicksands, and producing «n airfid seme of 
 destruction, the couscquewcs or terminations of which elude the power of 
 calculation. At sucli a crisis, it behoves every man vyhose experience 
 in any degree qualifies him to shed light upon the subject, to step bold- 
 ly forward, and use his endeavors to preserve so many vital interests as 
 are at slake from the destruction which menaces them. In such a 
 cause, indifference and guilt would perhaps be synonymous. Influenc- 
 ed by these motives, and unalterably convinced of the reality of the 
 impending ruin, I resolved, at the risk of the abuse, the calumny, the 
 malignity, and the persecution, to which every man is liable, who, on 
 such occasions, t;d<es an active part, to raise my feeble voice in defence 
 of a good causo. I fiillv riisolvcd that, come the calamity when it 
 migl\t, I should be able to wash my hands from any participation in the 
 guilt, even by neutrality." 
 
OLD BANK OF THE UNITED STATES. 41 
 
 on the passage of the bill, the majority would have been 
 much greater. 
 
 Another bill was brought before the Senate ; but, on the 
 20th of February, the first section was struck out by the 
 casting vote of the Vice President, George Clinton. 
 
 The Senate gave this vote, which was equivalent to a 
 rejection of the bill, only eleven days before the charter ex- 
 pired. The Bank made application in this interval for such 
 an extension of its charter as would enable it to wind up 
 its concerns. But the Committee of the House to whom 
 the memorial was referred, reported, through their Chair- 
 man, Mr. Henry Clay, " that, holding the opinion, (as a 
 majority of the Committee do,) that the Constitution did 
 not authorize Congress originally to grant the charter, it 
 follows as a necessary consequence of that opinion, than an 
 / extension of it, even under the restrictions contemplated 
 by the stockholders, is equally repugnant to the Constitu- 
 tion."* 
 
 Trustees were then appointed, and they proceeded so 
 rapidly in winding up the concerns of the Bank, that on 
 the 1st of June, 1812, they paid over to the stockholders 
 70 per cent, of the capital stock, and 18 per cent, more on 
 the 1st of October. t 
 
 This was a rapid collection of the debts due to the insti- 
 tution, inasmuch as it enabled the trustees to pay 88 per 
 cent, of the capital stock, in about a year and a half; but 
 it did not produce the universal ruin with which the coun- 
 try had been threatened. " Many persons" said Dr. Sey- 
 bert, writing in 1816, " viewed a dissolution of the late 
 Bank of the United States as a national calamity ; it was 
 asserted that a general bankruptcy must follow that event. 
 The fact was otherwise : every branch of industry con- 
 tinued uninterrupted — no failures in the mercantile com- 
 munity were attributable to that occurrence. "| 
 
 * Legislative History of the Bank of the United States. 
 
 t Another iustalment, amounting to 7 per cent., was paid on the 1st 
 of April, 1613. An additional payment of 5 per cent, was made in April, 
 1815, and another of 5 percent, in December, 1817. Two or three 
 small payments, of the exact amount of which we are not informed, 
 were subsetjuently made. Some years before the expiration of the 
 charter, the stock sold at 156. 
 
 X Statistics, pp. 522. 
 £ 
 
42 BANKING FROM 1780 TO 1810-11. 
 
 CHAPTER VI. 
 
 Of Banking from 1790 to 1810-11. 
 
 In Vol. Ill of the American edition of the Edmburgh 
 Cyclopedia, published in 1813, the following table is given, 
 " to exhibit in one view the names of the Banks most de- 
 serving of notice, the time of their institution, and the 
 amount of their capital." The table is not complete, but 
 it shows the time in which the Banking system was intro- 
 duced into the different States. 
 
 Names. 
 Bank of North America, Pa. 
 « Massachusetts Bank at Boston, Mass. 
 fBank of New York, N. Y. 
 Bank of Marylaud, Md. 
 Providence Bank, R. I. 
 y Bank of Albany, N. Y. 
 
 * Bank of South Caroliua, S. C. 
 +« Union Bank of Boston, Mass. 
 
 New Hampshire Bank, N. H. 
 Bank of Alexandria, Va. 
 Hartford Bank, Conn. 
 Union Bank, New London, Conn. 
 New Haven Bank, Conn. 
 » Bank of Columbia, N. Y. 
 Bank of Columbia, D. C. 
 Bank of Pennsylvania, Pa. 
 
 * Bank of Nantucket, Mass. 
 Bank of Delaware, Del. 
 Bank of Baltimore, Md. 
 Middletown Bank, Conn. 
 Bank of Rhode Island, R. I. 
 Norwich Bank, Conn. 
 
 V Manhattan Bank, N. Y. 
 Portland Bank, Me. 
 Essex Bank, Salem, Mass. 
 Washington Bank, Westerly, R. I. 
 Bank of Bristol, R. I. 
 Exchange Bank, Providence, R. I. 
 ^ Farmers' Bank, Lansinburgh, N. Y. 
 State Bank of South Carolina, S. C. 
 Maine Bank, Portland, Me. 
 New Hampshire Union Bank, N. II. 
 
 Instituted. 
 
 Capital. 
 
 1781-2 
 
 $ 2,000,000 
 
 1784 
 
 1,600.000 
 
 1784 
 
 950.000 
 
 1790 
 
 300.000 
 
 1791 
 
 400,000 
 
 1792 
 
 260,000 
 
 1702 
 
 640,000 
 
 1792 
 
 1,200,000 
 
 1792 
 
 100,000 
 
 1792 
 
 500,000 
 
 1792 
 
 900,000 
 
 1792 
 
 500,000 
 
 1792 
 
 400,000 
 
 1793 
 
 160,000 
 
 1793 
 
 500,000 
 
 1793 
 
 3,000,000 
 
 1795 
 
 100,000 
 
 1795 
 
 110,000 
 
 1795 
 
 1,200,000 
 
 1795 
 
 400,000 
 
 1795 
 
 100,000 
 
 1796 
 
 200.000 
 
 1799 
 
 2,000,000 
 
 1799 
 
 300,000 
 
 1799 
 
 300,000 
 
 1800 
 
 50,000 
 
 1800 
 
 120.000 
 
 1801 
 
 400,000 
 
 1801 
 
 75,000 
 
 1801 
 
 800,000 
 
 1802 
 
 300.000 
 
 1802 
 
 200,000 
 
BARTKUVG FROM 1790 TO 1810-11. 
 
 43 
 
 Names. 
 Lin and Ken Bank, Wiscasset, Me. 
 Kentucky Insurance Company, Ky. 
 *31erchantsBank, N. Y. 
 
 Bedford Bank, at N. B., Mass. 
 ^ New York State Bank, N. Y. 
 
 Newburyport Bank, Mass. 
 \ Saco Bank, Mass. 
 
 •Albany Mercantile Comp., N. Y- 
 ^ Plymouth Bank, Mass. 
 \ Boston Bank, Mass. 
 ^ Stafford Bank, at Dover, Mass. 
 •Philadelphia Bank, Pa. 
 Miami Exporting Comp., Cinn. O. 
 ^ 'Salem Bank, Mass. 
 
 •Roger Williams' Bank, R. I. 
 ^Newport Bank, R. I. 
 ^ Warren Bank, R. I. 
 'Exeter Bank, N. H. 
 Union Bank of Maryland, Md. 
 Bank af Cape Fear, N. C. 
 •Bank of Newbern, N. C. 
 Newark Banking and Ins., Co. N.J. 
 Trenton Bank, N. J. 
 Hallowell and Augusta Bank, Me. 
 ^Worcester Bank, Mass. 
 ^Nantucket Pacific Bank, Mass. 
 V Marblehead Bank, Mass. 
 Rhode Island Union Bank, R. I. 
 Smithfield Union Bank, R. I. 
 Narragaosett Bank, R. I. 
 Rhode Island Central Bank, R. I. 
 Bank of Virginia, Va. 
 Mechanics' Bank, Baltimore, Md. 
 Bank of Chilicothe, Ohio 
 Bridgeport Bank, Conn. 
 Derby Bank, Conn. 
 Bank of Kentucky, Ky. 
 Bank, of Nashville, Ten. 
 Bank of Marietta, Ohio 
 Farmers Bk. of the State of Del., D. 
 » New Bunswick Bank, N. J. 
 
 Farmers and Mechanics Bank, Pa. 
 Hagerstown Bank, Md. 
 > Mohawk Bank, N. Y. 
 
 New London Bank, Conn. 
 ^ Hudson Bank, N. Y. 
 
 nstitutod. 
 
 Capital. 
 
 1802 
 
 $ 200,000 
 
 1802 
 
 150,000 
 
 180.3 
 
 1,250,000 
 
 1803 
 
 150,000 
 
 1803 
 
 460,000 
 
 1803 
 
 550,000 
 
 1803 
 
 100,000 
 
 1803 
 
 25,000 
 
 1803 
 
 100,000 
 
 1803 
 
 1,800,000 
 
 1803 
 
 150,000 
 
 1803 
 
 2,000,000 
 
 1803 
 
 200,000 
 
 1803 
 
 200,000 
 
 1803 
 
 150,000 
 
 1803 
 
 120,000 
 
 1803 
 
 68,000 
 
 
 200,000 
 
 1804 
 
 3,000,000 
 
 1804 
 
 350,000 
 
 1804 
 
 300,000 
 
 1804 
 
 225,000 
 
 1804 
 
 300,000 
 
 1804 
 
 200,000 
 
 1804 
 
 150,000 
 
 1804 
 
 100,000 
 
 1804 
 
 100,000 
 
 1804 
 
 150,000 
 
 1805 
 
 50,000 
 
 1805 
 
 60,000 
 
 1805 
 
 60,000 
 
 1805 
 
 1,500,000 
 
 1806 
 
 1,000,000 
 
 1806 
 
 100,000 
 
 1806 
 
 200,000 
 
 1806 
 
 200,000 
 
 1807 
 
 1,000,000 
 
 1807 
 
 500,000 
 
 1807 
 
 100,000 
 
 1807 
 
 500,000 
 
 1807 
 
 150,000 
 
 1807 
 
 1,250,000 
 
 1807 
 
 250,000 
 
 1807 
 
 200,000 
 
 1807 
 
 200,000 
 
 1808 
 
 300,000 
 
44 BANKIPTG FROM 1790 TO 1810-11. 
 
 Names. Instituted. Capital. 
 
 Bank of Steubenville, Ohio 1809 $ 100,000 
 
 Chambersbur^h Bank, Pa. 1809 250,000 
 
 Commercial Bauk, R. 1. 1809 50,000 * 
 
 State Baok of North Carolina, N.C. 1810 1,600,000 
 
 Commer. & Farm. Bk. of Bait, Mel. 1810 1,000,000 . 
 
 Farm. & Merch. Bk. of Bait., Md. 1810 500,000 
 
 Franklin Bank, Do. 1810 600,000 ' 
 
 Marine Bank, Do. 1810 600,000* 
 
 Elkton Bank, Md. 1810 300,000 
 
 Farmers' Bank of Lancaster, Pa. 1810 300,000 
 
 Mechanics' Bank, N. Y. 1810 2,000,000 
 
 Bank of Troy, N. Y. 1811 500,000* 
 
 Mechanics' & Farmers' Bank, N.Y. 1811 600,000 
 
 State Bank at Boston, Mass. 1811 3,000,000* 
 
 Merchants' Bank at Salem, Mass. 1811 200,000* 
 
 Cumberland Bank of Alleghany, Md. 1811 200,000, 
 
 Bank of Newburgh, N. Y. 1811 400,000 , 
 
 Farmers' Bank of Wor. &Som.Md. 1811 200,000* 
 
 Middle District Bank, N. Y. 1811 500,000 
 
 Bank of New Orleans, L. 1811 500,000 
 
 Union Bank, N. Y. 181 1 1,800,000 * 
 
 Eagle Bank, Conn. 1811 750,000 
 
 Bank of America, N. Y. 1812 6,000,000 
 
 City Bank, N. Y. 1812 2,000,000 
 
 Farm. andMechan. Bk. ofCinn., O. 1812 500,000 
 
 Bank of Muskingum, Zanesville. O. 1812 100,000. 
 
 Monongahela Bank, O. 1812 250.000 
 
 New York Manufacturing Co., N.Y. 1812 1,200,000 
 
 Camden State Bank, N. J. 1812 800,000 
 
 Trenton Do. Do. 1812 300,000 
 
 New Brunswick State Bank, N. J. 1812 400,000 
 
 Newark Do. Do. 1812 400,000 
 
 Elizabeth Do. Do. 1812 200,000 
 
 Morris Do. Do. 1812 200,000 
 
 Utica Bank, N. Y. 1812 1,000,000 
 
 Pittsburg Manufacturing Co., Pa. 1812 1,000,000 
 
 City Bank of Baltimore, Md. 1812 1.500,000 
 
 B.of Wil'gton aqd Brandywine,Dei: 1812 120,000 
 
 Farm. & Median. Bank of Del., D. 1812 75,000 
 
 Commercial Bank of Del., D. 1812 200,000 
 
 Farm. & INIechan. Bk. of Va.,V. 1812 1,500,000 
 
 Savannah Bank, Geo. 1,000,000 
 
 Union Bauk, S. C. 1,000,000 
 
 Planters' and Mechanics' Bank, S.C. 1,000,000 
 
 Total. §77,258.000 
 
BANKING FROM 1790 TO lSlO-11. 45 
 
 The operations of Banks in those times, were much like 
 their operations in our own days. Thus, Mr. Burwell, of 
 Virginia, in a speech delivered in 1811, said, " In Baltimore, 
 where the Bank capital has always exceeded the demand 
 by solvent customers, and where, to give full employment 
 to their funds, the Banks have been accustomed to accom- 
 modate mere speculators, failures have happened to the 
 amount of a million, without property to pay the creditors 
 twenty cents in the dollar. (A gentleman from INIaryland 
 corrected Mr. Burwell, by stating that the failures had in 
 the aggregate exceeded the sum he had mentioned, but in 
 no smgle instance had the loss to creditors exceeded 
 600,000 dollars.) I stand corrected only 000,000 dollars."* 
 
 It was in New England, however, that Banking opera- 
 tions were carried furthest. The author of a pamphlet, 
 entitled " Remarks on Money," published at Philadelphia 
 in 1814, says, some of the institutions in that quarter issued 
 bills for so small a sum as twenty-five cents, whereby " it 
 was rendered so difficult in some of the Eastern States, to 
 get a dollar changed, that it became necessary to purchase 
 change of the money dealers in towns for current travel- 
 ling expenses in the country." 
 
 Of the principles of operation of some of these institu- 
 tions, we have a curious memorial in a report made on the 
 20th of March, 1809, by a committee of the Legislature 
 of Rhode Island, appointed to inquire into the situation of 
 the Farmers' Exchange Bank of Gloucester. The Committee 
 state, " that the said Bank was incorporated, February , A. D. 
 1804. That by the charter, its capital stock was to consist of 
 two thousand shares of fifty dollars each, payable in seven in- 
 stalments, in gold or silver. It appears to the Committee 
 that the capital stock was not paid in according to the pro- 
 visions of the charter. Some of the stockholders paid the 
 whole amount of the shares by them subscribed ; others 
 paid a part and gave their notes for the residue. The 
 directors did not pay any money whatever, for although, 
 in common with the other stockholders, the directors lodged 
 the amount of their first instalment in specie, yet, in a 
 very few days afterwards, all the directors received out of 
 the Bank the amount of said instalments in bills of said 
 
 * Legislative History of Uuited States Bank. 
 E e 
 
46 BANKIXG FROM 1790 TO 1810-11. 
 
 Bank, for which no security whatever was given, and they 
 gave five notes, without indorsers, for the five first instal- 
 ments, payable on demand with interest : for the two hist 
 instahnents, no payment was made or security given. The 
 said notes remained in the Bank until the directors trans- 
 ferred their stock, when they were delivered up in the 
 manner hereinafter mentioned. The directors were the 
 holders of one hundred and three shares each, and in this 
 manner did the Farmers' Exchange Bank, which by the 
 charter was to consist of two thousand shares, commence 
 its operations with only six hundred and sixty-one shares, 
 on which any payments had been made in gold and silver, 
 agreeably to the express provisions of the charter : and the 
 whole money paid into the Bank at any one period whatever, 
 on the said six hundred and sixty-one shares, amounted to 
 nineteen thousand one hundred and forty-one dollars and 
 eighty-six cents. 
 
 " Prior to the twenty-ninth of March 1808, sundry stock- 
 holders, holding four hundred and fifty shares, transferred 
 them to the directors of said Bank. No money or other con- 
 sideration whatever was paid by the directors with their 
 own property to any of the stockholders who so transferred 
 their shares, but they were uniformily paid for with the 
 property of the corporation. Most of the said stockhold- 
 ers were indebted to the Bank in notes, and to them their 
 notes were given up, and if their shares exceeded the sum 
 due from them to the Bank, the balance was paid out of 
 the Bank with the property of the corporation : and none 
 of the said directors, or any person whatever, was debited 
 for the said sums so paid, or for the notes surrendered. 
 
 " On the third day of June, 1805, the Board of Direc- 
 tors passed a vote permitting each director to take out of 
 the Bank 200 dollars for the purpose of exchanging the 
 the same. The said directors have never paid or account- 
 ed for said money to the Bank. 
 
 " When the Bank first commenced its operations, the 
 capital paid in, including the money paid by the directors, 
 and which was soon after repaid to them, as is herein be- 
 fore stated, amounted to the sum of eleven thousand eight 
 hundred and six dollars and sixty one cents : when the 
 directors had, as before stated, taken back in bills the 
 amount they had paid in specie for their first instalment, 
 
BANKING FROM 1790 TO 1810-11. 
 
 47 
 
 the capital stock really paid in, amounted to only the sum 
 of three thousand and eighty-one dollars and eleven cents. 
 "The directors never declared any certain dividend of the 
 profits of the Bank, but once a year paid to the stockholders 
 interest generally at the rate of eight per cent, per annum 
 on the sums they had respectively paid in, and the residue, 
 amounting in some years to one hundred and thirty dollars 
 each, the directors divided among themselves. 
 
 " According to the books containing the weekly state of 
 the Bank, there were several periods when the amount of 
 bills in circulation far exceeded the amount of notes due 
 the Bank ; for instance, on the twenty-fifth day of March, 
 1805, the amount of bills* in circulation was seventy-two 
 thousand two hundred and eleven dollars, and the amount 
 of debts due the Bank was fifty-three thousand two hun- 
 dred and seventy-five dollars : at some periods, anterior to 
 the 29th day of IMarch, 1808, the Bank had in circulation 
 from sixty to seventy thousand dollars. On the 28th day 
 of March 1808, there was in said Bank, in specie and 
 bills of other Banks, three hundred and eighty dollars and 
 fifty cents, and the Bank had twenty-two thousand five 
 hundred and twenty-four dollars of their own bills in cir- 
 culation." 
 
 Under this system, the Bank continued in operation about 
 four years : and then eleven of the directors transferred their 
 interest in the institution to the agent of Andrew Dexter, 
 jun., of Boston. Each of the directors received thirteen 
 hundred dollars in consideration of his transferring his 
 shares ; and each of them received back the notes he had 
 given for instalments, the whole principal and interest 
 whereof were then due to the Bank. " The thirteen hun- 
 dred dollars were paid to some of the directors by notes 
 signed by Simon Smith and John Harris, as principals, 
 and Andrew Dexter, jun., as surety : to others by surren- 
 dering them notes given by the Bank for money borrowed, 
 and to others by giving them the notes of individuals which 
 were the property of the Bank. It appears that all the money 
 paid to the said directors, was paid out of the Bank icith the 
 property of said corporation, except that there is charged 
 to said Dexter, three thousand seven hundred and eighty- 
 five dollars and ninety-five cents paid on that account." 
 
 Dexter thus got control of the institution, and having a 
 Board of Directors disposed to favor his views, he got from 
 
48 BANKING FROM 1790 TO 1810-11. 
 
 the Bank, at divers times in the course of the year, its bills 
 to the amount of seven hundred and sixty thousand two 
 hundred and sixtrj-Jive dollars, dind there was paid to sundry 
 persons for his use three thousand seven hundred and eigh- 
 ty-five dollars and ninety-five cents." 
 
 " From the first connexion of Dexter with the Bank, he 
 appears, by himself and his agents, to have had the entire 
 control and management thereof: all his schemes and 
 plans, however wild and extravagant, were adopted and 
 carried into execution without reserve : those of the direc- 
 tors who still pretended to superintend the concerns of the 
 Bank took no care whatever to guard the interest of the 
 stockholders or the public. 
 
 " Dexter was furnished with as much money as he thought 
 proper to demand, and prescribed his own terms as to the 
 security he gave, the rate of interest, and the time and man- 
 ner of payment. The greatest secrecy was used respect- 
 ing his negotiations at the Bank to prevent the public from 
 being alarmed at the immense sum of money which was 
 so suddenly put in circulation; and at the request of Dex- 
 ter, the Cashier signed the bills secretly and chiefly in the 
 night. Dexter never gave any security whatever, except 
 his own name, for any money received by him from the 
 Bank. For the first sums delivered Dexter gave his re- 
 ceipts : for other sums he gave receipts to the following 
 purpose, that he would employ the money as their agent for 
 their benefit, paying them six per cent, interest therefor, and 
 redeeming the bills by paying specie for tliem as often as 
 they returned to the Bank, the cost of redemption to be paid 
 by the Bank. After tiiese receipts had been standing for 
 some time they were taken up by Dexter, and a note given 
 by him for the whole amount, of the tenor and effect fol- 
 lowing . " I, Andrew Dexter, jun., do promise the Presi- 
 dent, Directors and Company of the Farmers' Exchange 
 
 Bank, to pay them, on order, dollars, in two years from 
 
 the date, with interest, at two per cent, per annum : it be- 
 ing however understood, that said Dexter shall not be call- 
 ed upon to make payment until he thinks proper, he being 
 the principal stockholder, and best knowing when it will 
 be proper to pay the same." The said note was after- 
 wards given to Dexter, and a note given by him iox Jive 
 hundred and seven thousand seven hundred and seventy-one 
 dollars, bearing date on the 30th of November, 1808 : all 
 
BANKIXG FROM 1790 TO 1810-11. 49 
 
 the money received by Dexter after that time was deliver- 
 ed to him by order of Harris and Fairbanks, the last of 
 which was delivered on the 9th of February, 1809, for which 
 Dexter gave his notes, which are now remaining in the 
 Bank : one bearing date on the 4th of November, 1808, 
 for three hundred thousand dollars : one bearing date on 
 the 30th of the same month for thirty-two thousand dollars, 
 and one bearing date on the 12th day of December, 1808, 
 for six thousand dollars : all which notes amount to the 
 sum oi eight hundred and fifty-jive thousand seven hundred 
 and seventy-one dollars, payable in eight years from their 
 respective dates, bearing interest at and after the rate of 
 two per cent, per annum. 
 
 " Out of the amount above stated, as due from the said 
 Andrew Dexter, jun. to the Bank, ought to be deducted cer- 
 tain drafts or orders drawn on said Dexter by the Cashier, 
 to take up the bills at different times returned to the Bank, 
 so far as the said drafts or orders have been paid by said 
 Dexter. The amount of said drafts or orders, according 
 to the books of the Bank, still outstanding and unsettled, is 
 two hundred and four thousand and five dollars, but of 
 this sum the Committee have no means of ascertaining what 
 part has been paid by the said Dexter. 
 
 " In December, 1808, the credit of the Bank had be- 
 come very low, and the bills were selling at a large dis- 
 count : but the said Andrew Dexter, jun., and the other per- 
 sons who managed the affairs of the Bank, instead of putting 
 a stop to the emission of their bills, and making some pro- 
 vision for the payment of those in circulation, redoubled 
 their efforts to circulate sums to a large amount, when at 
 the same time they refused the payment of the smallest 
 sums at the Bank. 
 
 " The President and Cashier were incessantly employed 
 in signing bills :" and " Dexter was continually urging them 
 to sign bills as fast as possible," telling them that every thing 
 depended on his having them vrry speedily : that if they 
 were not soon finished, he should not be able to dispose of 
 them, and that at that time he should be able to sell some 
 of them very well. The bills were made with so much 
 precipitation, and the officers of the Bank were so much 
 pressed for time, that said bills were in some instances sent 
 - to Boston without being dated or numbered. 
 
50 BANKING FROM 1790 TO 1810-11. 
 
 " There is now in said Bank, eiglity-six dollars and forty- 
 six cents of specie. On the 9th of February, 1809, there 
 had been emitted by said Bank, six hundred and forty- 
 eight thousand and forty-three dollars of their bills, accord- 
 ing to their books. Owing to the extreme confusion in 
 which their mode of keeping their accounts has involved all 
 their transactions, it is impossible to ascertain with preci- 
 sion the amount of their bills now in circulation : but from 
 the inquiries and examinations made by the Committee, they 
 are of opinion that the bills of said Bank now in circula- 
 tion, amount to the enormous sum of five hundred and 
 eighty thousand dollars." 
 
 From the testimony of the Cashier, which is appended 
 to the report, it appears that the emission of six hundred 
 and forty-eight thousand eight hundred and forty-three dol- 
 lars in Bank bills, spoken of by the Committee, took place 
 between the 29th of March, 1808, and the 9th of Febuary, 
 1809, and that previous to the first mentioned date, the 
 Bank had bills in circulation to the amount of forty-five 
 thousand eight hundred and twenty-one dollars. 
 
 This history of the Farmers' Bank of Gloucester shows 
 what cunning men can do, when they have a legislative 
 charter to work with. 
 
 When the explosion took place, other New England 
 Banks exhibited proof that they had been trading on the 
 same principles, though none, we believe, to the same ex- 
 tent. In a speech in Congress, in February, 1811, Mr. 
 Desha, of Kentucky, said, "The Berkshire and North- 
 ampton Banks, both of Massachusetts, when their vaults 
 were examined, one had perhaps thirty or forty dollars in 
 it, the other, I believe, was entirely empty : the Coos Bank, 
 (I believe it was called,) of New Hampshire, was nearly in 
 the same situation, and thousands of their bills in circula- 
 tion at the same time." 
 
 Mr. BurwcU, of Virginia, said, " The State of Massachu- 
 setts found, upon examining the vaults of the Banks, the 
 whole of them did not contain specie equal to the paper is- 
 sued by a single one." 
 
 We have no list of the New England Banks that stopped 
 payment previous to the war : but it is evident from all tes- 
 timony, that the Banking institutions in that quarter had 
 extended their operations so fiir, that the necessary reaction 
 produced very disastrous consequences. 
 
BANKING FROM 1790 TO 1810-11. 
 
 51 
 
 South of New England, the Banking system was, in some 
 respects, less pernicious than it has been at any period since 
 the war. The notes of the Banks were then " converti- 
 ble" into either gold or silver. The old Bank of the United 
 States issued no notes of a less denomination than ten dol- 
 lars : whereby it was enabled to exercise a more salutary 
 control over the local Banks, than the present Bank has 
 ever found possible. 
 
 As Ibng as a state of war existed between Spain and 
 Great Britain, the citizens of this country were the carriers 
 and commercial agents of Spain, and nearly all the metal 
 lie treasure of Mexico passed through our hands. From 
 the Peace of Amiens, in 1801, this influx of silver abated : 
 but it was still considerable. It could hardly be regarded 
 as part of the currency of the country, being received by 
 us in payment for European goods, and afterwards trans- 
 mitted to those from whom we had obtained those goods ; 
 yet, temporary deposits of it were made in the Banks, where- 
 by these institutions were sometimes prevented from feel- 
 ing the effects their expansions must otherwise have pro- 
 duced. The specie constantly ui transitu from South Ame- 
 rica through the United States to other parts of the world, 
 was so great in amount, that a retention of the quarterly 
 or semi-quarterly supply for only a month or two was suffi- 
 cient to relieve the Banks from the difficulties into which 
 they were occasionally brought by extending their opera- 
 tions too far. 
 
 The Bank of England having suspended specie payments 
 in 1797, and paper money being in extensive use on the 
 continent of Europe, the demand for the precious metals 
 as a material for money was, in a degree, abated. This 
 rendered the pressure on the American Banks less severe 
 than it is at present.* 
 
 *■ The competitiou among the Banks being less than it is now, these 
 institutions made very high dividends. In 1792, the Bank of North 
 America divided 15 per cent. ; in 1793, 13.^ per cent. ; f.om 1794 to 
 1799, inclusive, 12 per cent, per annum ; from 1800 to 1802, 10 per 
 cent. ; in 1803, 9.^ per cent. ; from ]804 to 1810, 9 per cent. The divi- 
 dends of the old Bank of the United States were from 7 5-8 per cent, 
 to 10 per cent. Fiom 1792 to 1808, the Bank of Pennsylvania never 
 divided less than 8 per cent., and sometimes its annual dividends were 
 as high as 10 per cent. Dr. Bollman, writing in 1810, says, " none of 
 the Banks divided less than 8 per cent., and some of them much more." 
 
52 BANKING FROM 1790 TO 1810-11. 
 
 High dividends were not the only profit those who 
 had the control of the Banks derived from their situation:, 
 Banking was a closer monopoly than it now is, and circum- 
 stances were such as to render that monopoly very lucra- 
 tive. Money being at this period worth more than Bank 
 interest to mercantile men, facility of borrowing gave to 
 such as possessed it great advantages. Our commerce was 
 exposed to frequent interruptions by the belligerents. These 
 sometimes made the necessity of borrowing very'urgent, 
 which necessities the agents of the Bank directors used to 
 meet by lending money at two or three per cent, a month. 
 
 The Banks expanded and contracted their issues then, 
 as the Banks do now, and as credit Banks from the neces- 
 sity of their nature always will do, and the occasional plen- 
 ty of money produced by Banking operations, and the sub- 
 sequent scarcity, had the same effects that they have in our 
 own times. As a close veil was then thrown over Bank- 
 ing proceedings, it was not always easy to trace these ef- 
 fects to their causes: but even in those days it was not pos- 
 sible completely to conceal the connection of causes and 
 consequences from the eyes of observers. The periodical 
 demand for specie for the China and East India trade al- 
 ways caused a pressure in the money market. The specie 
 at the Branch Bank at New York was, it is said, reduced 
 on one occasion to 10,000 dollars.* Notwithstanding all 
 the advantages the Banks tlien enjoyed, they were probably 
 many times brought near the necessity of suspending spe- 
 cie payments, for they had the same inducements then that 
 they have now for extending their operations as far as pos- 
 sible. 
 
 The effects of these operations were less severely felt, the 
 further a county or a town was removed from the sphere of 
 Bank inlhicnce. In many of the agricultural districts, the 
 state of credit was sound, or nearly so. The " vulgar pre- 
 judices of the country people in favor of gold and silver 
 money, were not then entirely subdued." The spirit of 
 wild speculation did not often infect them. Industry and 
 economy wore considered as tlie true roads to wealth : and 
 men of reputation found little difficulty in borrowing as 
 
 * Vide " A Peep into the Bank," New York, 1828. 
 
BANKIiVG FROM 1790 TO 1810-11. 53 
 
 much money as was wanted. The country capitalists did 
 not then purchase Bank stock with their surplus funds, but 
 lent them to their industrious neighbors for long periods. 
 Little risk attended this mode of lending, and it was mu- 
 tually beneficial to the parties concerned. 
 
 " Before the establishment of Banks in the interior," say 
 a committee of the Senate of Pennsylvania,* " the farmer 
 who possessed credit and character, experienced little diffi- 
 culty in borrowing on his simple bond, for one or more 
 years, any sum which it was thought could be prudently 
 loaned to him. Embarrassments and failures, in those 
 days, were scarcely known among our husbandmen, and 
 society moved on by a regular, sure, and happy march. 
 In our cities, on the contrary, where loans have been 
 chiefly made by incorporated Banks, vve have seen a con- 
 tinued succession of bankruptcies, and had it not been for 
 the practice so universally prevalent amongst merchants of 
 securing the Banks for the sake of indorscrs, Banking long 
 since would have been abandoned as an unprofitable trade." 
 
 " From the adoption of the Federal Constitution in 1788, 
 down to 1804," says a writer in the Richmond Enquirer, 
 " Banks were unknown in Virginia, with the exception of 
 a branch of the old U. S. Bank in Norfolk, about 1799 or 
 1800. The paper of this Bank scarcely found its way into 
 the interior of the country : and it may be truly said, the 
 currency of the country was metallic. Until tlie year 179S, 
 no people enjoyed more happiness or prosperity than the peo- 
 ple of the United States — nor did any country ever flourish 
 more within the space of time. The desk of every agri- 
 culturist in Virginia had some gold or silver to spare, if he 
 was a prudent, industrious man ; or he had something like 
 money to spare in the hands of his merchant, who, in the 
 days of which I am speaking, acted as a banker to his 
 prospering customers. Nor was any interest paid upon 
 such moneys as might be deposited in the hands of the 
 merchant : because both planter and merchant considered 
 themselves accommodated by the arrangement : the planter 
 in having his money safely kept tor him, until he wanted 
 to use it, and the merchant in having the use of the money 
 
 * Report on the renewal of Bank charters, Jan. 15th, 1821. Condy 
 Raguet, Chairman. 
 
 F 
 
54 BANKING FROM 1790 TO 1810-11. 
 
 until it was called for. Under such circumstances, none 
 will doubt the happy condition of both planter and mer- 
 chant, and if the view be somewhat extended, it will be 
 found that this state of prosperity was not confined to one 
 or two classes of society, but extended to all. The man 
 embarrassed might readily sell something, and to advan- 
 tage, to pay his debts. The currency of the country being 
 specie, was widely scattered through the land, and in di- 
 versified hands, so that its concentration at any particular 
 point was impossible, and consequently its removal from 
 the country could not happen to any great extent. 
 
 "I know there are many, who, in order to effect present 
 objects, insist that commerce could not be carried on with- 
 out the aid of Banks. To this I answer, how was com- 
 merce carried on before we had Banks? Will any body 
 deny there was any commerce in this country at that time ] 
 None will be found hardy enough to take this ground, for 
 every intelligent man of forty years, knows that, before 
 there were any Banks in Virginia, the foreign commerce 
 of the country was greater than it has ever been since, and 
 the country far more prosperous. Nor was there the least 
 inconvenience in transmitting money from one point to ano- 
 ther through the merchants, whose credit then, was as good 
 as the credit of the Banks now, if not better. Banks have 
 destroyed the credit and confidence which men had in one 
 another. 
 
 " No people had more cause to rejoice than the people of 
 Virginia; but alas, the Banks came, and all things became 
 changed. Like the Upas tree, they have withered and de- 
 stroyed the healthful condition of the country, and intlict- 
 ed on the people political and pecuniary diseases of the 
 most deadly character." 
 
BANKING FROM 1810-11 TO 1814-15. 55 
 
 CHAPTER VII. 
 
 Of Banking from. 1810-11 to 1814-15. 
 
 After the unsuccessful attempt to obtain from Congress 
 a renewal of the charter of the United States Bank, over- 
 tures were made to the Legislature of Pennsylvania. The 
 petitioners offered a bonus of five hundred thousand dol- 
 lars, and a loan of five hundred thousand dollars more, for 
 an act of incorporation under the title of the " American 
 Bank," with a capital of five million dollars.* The offer 
 was, in a fiscal point of view, very advantageous, but it was 
 not accepted, less perhaps from any remains of the old de- 
 mocratic enmity to the system, than from a desire of indi- 
 viduals to get charters for the particular benefit of them- 
 selves and their friends. 
 
 " The anxiety displayed by the stockholders of the Uni- 
 ted States Bank to continue their business," say a commit- 
 tee of the Senate of Pennsylvania,! " and the successful 
 appearance of their dividends, added to the locating of 
 branches of the Pennsylvania Bankj in the country, very 
 naturally excited the attention of the public, and particu- 
 larly of the inhabitants of some of the interior counties of 
 the State, who fancied that much of the prosperity of cities 
 was to be traced to the establishment of Banks, and that 
 if that were the case, there was no reason why the country 
 should not participate in their advantages. t Such consi- 
 derations as these, urged on by the desire of accumulating 
 wealth without the dull exercise of labor, engendered a spi- 
 
 * " Concise Observations on the Propriety of Incorporating Newr 
 Banks," Philadelphia, 1812. 
 
 t Report on the Causes and Extent of the Present General Distress 
 Read January 29lh, 1820. Condy ilagnet, Chairman. 
 
 X If they had supposed that the prosperity of some of the inhabitants 
 of cities was owing to the establishment of Banks, they would not have 
 been far wrong. Nor were they in error in supposing that Bank notes 
 are money to those who issue them, if others are so simple as to receive 
 them; nor that a universal rise in the price of land and commodities 
 brings ari increase of wealth to those who are fortunate enough to make 
 sales while prices are high. Their error was in supposing that a sys- 
 tem which is profitable to any, only because but t'ew participate in it, 
 might be extended so far as to be profitable to all who might wish to 
 share in its advantages. 
 
56 BAXKmO FROM 1810-11 TO 1814-15. 
 
 rit of speculation. It was supposed that the mere establish- 
 ment of Banks would of itself create capital, that a hare 
 promise to pay money, was money itself, and that a nomi- 
 nal rise of the price of land and commodities, ever attend- 
 ant upon a plenty of money, was a real increase of sub- 
 stantial wealth. ) The theory was plausible, and too well 
 succeeded. The Farmers' Bank, with a capital of three 
 hundred thousand dollars, was established in the county 
 of Lancaster, in the beginning of the year 1810, and was 
 accompanied by several others in the city, as well as in 
 other parts of the State. 
 
 " These early symptoms of a mania for Banking, induced 
 the Legislature, on the 19th of March, 1810, to enact a 
 law prohibiting unincorporated institutions from issuing 
 notes, or pursuing any of the operations of Banks ; but in 
 defiance of its provisions, the system was persevered in, 
 and even companies incorporated for the purpose of con- 
 structing bridges, departed from the spirit of their charters, 
 converted themselves into Banks, and emitted notes for cir- 
 culation. 
 
 " The war, as might naturally be expected, put a tempo- 
 rary stop to the exportation of specie, and thereby removed 
 the only check against inordinate issues of paper, which 
 can possibly exist. This cessation of the returning of notes 
 for payment, had the effect of inviting the Banks to enlarge 
 their issues. Loans were made to Government to an im- 
 mense amount, and to individuals vastly beyond what the 
 absence of foreign commerce justified, and a gradual de- 
 preciation of the currency was tlie result. The increase 
 of dividends and the facility with which they appeared to 
 be made, extended throughout the whole Commonwealth 
 the spirit of speculation, already introduced into some coun- 
 ties. The apparent success of the Farmers' Bank of Lan- 
 caster, which from the enormous extent of its issues was 
 enabled to divide upwards of twelve per cent, per annum, 
 and to accommodate its stockholders jrith loans to double 
 the amount of their stock, had a ])owcrful influence on the 
 public mind. A Bank by many was no longer regarded as 
 an instrument by which the surplus wealth of capitalists 
 could be conveniently loaned to their industrious fellow-ci- 
 tizens, but as a mint in which money could be coined at plea- 
 sure, for those who did not possess it before. Under these 
 
BANKIiVG FROM 1810-11 TO 1814-15. 57 
 
 delusive impressions, associations of individuals sprang up 
 in every quarter, holding out inducements to the farmer, 
 the merchant, the manufacturer, and mechanic, to aban- 
 don the dull pursuits of a laborious life, for the golden 
 dreams of an artificial fortune. 
 
 " The liability, however, to individual ruin, attendant 
 upon unchartered copartnerships, restrained in a degree 
 the Banking mania, and impelled the projectors to apply 
 for a legislative sanction. During the session of 1812-13, 
 a bill to incorporate twenty-five institutions, the capitals of 
 which amounted to nine million five hundred and twenty- 
 five thousand dollars, was passed by both houses of the 
 Legislature, by a bare majority of one vote in each. The 
 bill was returned by the Governor with his objections, 
 which were sensible and cogent, and on a reconsideration 
 the votes were 38 to 40. At the following session the sub- 
 ject was renewed with increased ardor, and a bill authoriz- 
 ing the incorporation of forty-one Banking institutions with 
 capitals amounting to seventeen million dollars, was passed 
 by a large majority. This bill was also returned by the Go- 
 vernor with additional objections, but two-thirds of each 
 House, (many memberS'bf which were pledged to their con- 
 stituents to that effect,) agreeing on its passage, it became 
 a law on the 21st of March, 1814, and thus was inflicted 
 upon the Commonwealth an evil of a more disastrous na- 
 ture than has ever been experienced by its citizens. Un- 
 der this law thirty-seven Banks, four of which were esta- 
 blished in Philadelphia, actually went into operation. 
 
 " The immediate commencement of a number of these 
 Banks, with scarcely a bona fide capital equal to the first 
 instalment, ybr the convenient mode of discounting stock 
 notes to meet the subsequent payments, teas soon discovered, 
 increased the mass of paper credits already too redundant, 
 and depreciated the whole circulating medium so far below 
 specie value, as to excite a want of confidence in its con- 
 vertibility. In the absence of a foreign demand for specie 
 a domestic one arose. The laws of the New England 
 States had been so rigorous upon the subject of Banks, 
 which were liable to a penalty of 12 per cent, per annum 
 for the non-payment of their notes, that no depreciation of 
 their currency took place. The consequence thereof was, 
 that the difference between the New England prices of 
 
 Ff 
 
58 BANKING FROM 1810-11 TO 1814-15. 
 
 commodities, stocks and foreign bills of exchange, and 
 those of Pennsylvania, was equal to the extent of the de- 
 preciation of the currency of the latter, and as our Bank 
 notes were redeemable on demand, the most profitable re- 
 mittance which could be made to New Engrland, in ex- 
 change for her commodities, was specie, and this demand 
 cj-eated a run upon the Banks which they were not able to 
 withstand. The situation of the southern and western 
 Banks was precisely similar to that of our own. All had 
 over issued, and a general depreciation had ensued. The 
 same causes produced the same effects, and a general stop- 
 page of all the Banks in the United States except those of 
 New England, took place in August and September 1814.* 
 The New England demand, it is true, was increased by 
 two causes, viz : first, by facilities in foreign trade through 
 neutral vessels, which were afforded them by an exemption 
 from the blockade of the enemy, and secondly, by a well- 
 grounded apprehension that the southern Banks, from their 
 extensive emissions, would necessarily become embarrass- 
 ed. Certain it is, however, that all these causes combined 
 could not have produced a general suspension of payment, 
 had our Banks observed the same caution in their issues as 
 that which characterized the Banks of the Eastern States." 
 
 From this account it appears, that, one year before the 
 expiration of the charter of the United States Bank, and 
 two vears before the commencement of the war with Great 
 Britain, the Bank mania raged in Pennsylvania with so 
 much violence as to require legislative interposition. In 
 a year or two after, the mania infected the Legislature. It 
 had received a check in New England, and was now, ac- 
 cording to the natural course of things, spreading south 
 and west. 
 
 The infatuation of the high authorities of the United 
 States Government, was as strong as that of the people 
 and of the local Legislatures. War was declared against 
 
 * It fippc^ai's from otiier documents, that, when tiie British made an 
 inroad into the State of Maine, some of the Banks in tliat quarter of the 
 country suspended payment; that tlie Banks of Ohio and Kentucky 
 maintained specie payments till the latter part of Decemher, or the be- 
 ginning of January ; and that tiio Bank of IS'ashville, (one of tlie two 
 Banics then in operation in Tennessee,) did not stop payment till 
 August, 181.3. Tlio Bunks of Louisiana suspended payment in April, 
 1814, four months sooner than the Banks of Pennsylvania. 
 
BANKIIfG FROM 1810-11 TO 1814-15. 59 
 
 Great Britain in June 1812, and Bank notes and Bank 
 credits were seized on to defray the expenses of fleets and 
 armies. " The Bank capital has been stated at seventy- 
 five millions," said the Committee of Ways and Means of 
 1813-14, of which INIr. Eppes was chairman. " On this 
 capital we may calculate with safety on a circulation in 
 notes and discounts of one hundred millions. From this 
 sum deduct 47,569,120, the maximum of what is deemed 
 necessary for circulation, and the sum remaining, viz. 
 52,430,880, constitutes the ability of the monied capitalists 
 to loan. Of this sum we propose to borrow thirty millions." 
 
 In conformity with these principles, about six millions 
 were borrowed in 1812, from the Banks, and about four 
 millions more from individuals, who had obtained from the 
 Banks the means of lending. These loans were obtained 
 at par. In the next year tlie Government borrowed about 
 twenty millions, for every hundred dollars of which it is- 
 sued a certificate of stock for 113 dollars. In the follow- 
 ing year it borrowed about fifteen millions, for twelve mil- 
 lions of W'hich stock was issued at the rate of 125 dollars 
 for 100 dollars paid in. Then, as Mr. Ingham said in 
 Congress, " it seemed impossible to borrow on any terms." 
 
 The policy of carrying on the war by means of loans, 
 cannot be said to have been an unwise one ; but what 
 ought to have been an essential point in this policy, name- 
 ly, drawing on the real resources of the country to an ex- 
 tent sufficient to support the credit of Government, was 
 neglected. It was known before-hand, that the operations 
 of the enemy would, by cutting up our commerce, dimin- 
 ish the revenue from the customs : yet, the first steps to- 
 wards raising a revenue by internal taxation, were not taken 
 till July and August, 1813 : and the acts which were then 
 passed, did not take effect until the 1st of January 1814. 
 
 The consequence was, that the revenue for the three 
 years, 1812, 1813, and 1814, amounted to only thirty-six 
 millions, or about twelve millions a year. The charges on 
 Government in time of peace, amounted to eight millions 
 a year, and with the remaining four millions we were en- 
 deavoring to carry on a war with the most powerful nation 
 on the globe ! 
 
 As an auxiliary means of supplying financial wants, 
 emissions were made of treasury notes, bearing an interest 
 
60 BANKIXG FROM 1810-11 TO 1814-15. 
 
 of five and two-fifths per cent, per annum, reimbursable 
 one year after they were issued, and receivable in payment 
 for duties, taxes, and public lands. Of these notes, nearly 
 three millions were issued in 1813, about six millions in 
 1813, and upwards of eicrht millions in 1814. As great 
 part of the revenue of twelve millions a year was received 
 in treasury notes, the reader can judge of the condition of 
 Government. 
 
 The mania which raged among the people,- and which 
 infected the Legislatures of the different States, would have 
 produced great evils if we had remained at peace. But 
 this fiananciering of the United States Government hasten- 
 ed the crisis and exacerbated all the symptons of the dis- 
 ease. The country was flooded with paper, which might, 
 without impropriety, be regarded as a new emission of con- 
 tinental money, differing from the old only in having the 
 Banks for indorsers. Gladly did these institutions avail 
 themselves of the excuse for stopping payments, which was 
 afforded by the inroad of the enemy into Maryland. 
 
 For some time after the suspension of specie payments 
 by the Bank of England, its notes remained on a par with 
 specie, and after they depreciated the paper of all the otlier 
 Banks, inasmuch as they were convertible into Bank of 
 England notes, experienced an equal degree of deprecia- 
 tion. The currency was at times depreciated as much as 
 twenty per cent., but the scale of depreciation was the 
 same throughout England and Wales. 
 
 The suspension of specie payments in the United States, 
 differed from that of England in two important particulars. 
 It did not take place throughout the country, and, as each 
 Bank was independent, there was a different scale of de- 
 preciation for each county and each town. 
 
 The paper, however, still served as a medium of com- 
 merce. The merchant of Pittsburg put an additional 
 price on his goods, equivalent to the depreciation of the 
 currency in that quarter : and as he had obtained ten or 
 twenty per cent, more on his sales, he was enabled to pay 
 ten or twenty per cent, more on his purchases. A loss was 
 sustained by individuals when the paper underwent an addi- 
 tional depreciation while remaining in their hands, but 
 their indignation, instead of falling on the Banks, was vent- 
 ed on the innocent and useful exchange merchants. 
 
BANKING FROM 1810-11 TO 1814-15. 61 
 
 On the 19th of November, or eighty days after the sus- 
 pension of specie payments, the paper of the best Banks of 
 Philadelphia was at fourteen per cent, discount : yet but 
 little murmuring was heard, except at the refusal of the 
 Banks to receive southern and western paper on deposit. 
 Prices were rising, business was brisk, and if any man 
 experienced difficulties, he attributed them to the war. 
 
 Such was the state of things, when, on the 14th of 
 October, 1814, or forty-four days after the suspension , 
 of specie payments, Mr. A. J. Dallas, Secretary of the 
 Treasury, recommended the establishment of a National 
 Bank, with a capital of fifty millions, of which twenty 
 millions should be subscribed by Government, and paid 
 in six per cent, stock. The residue of the capital was to 
 be subscribed by individuals, and was to be paid, six mil- 
 lions in gold and silver coin, in three different instalments, 
 six millions in treasury notes, and eighteen millions in six 
 per cent, stock. The Bank was to be bound to lend thirty 
 millions to Government, and was to be authorized to sus- 
 pend specie payments, if the President of the United States 
 should deem such a suspension advisable. 
 
 So desperate was the state of credit, that this desperate ex- 
 pedient was regarded with favor by many members of Con- 
 gress. Mr. Ingham, who was one of its advocates, said, 
 " should any unexpected difficulties menace the Bank, there 
 will be a resort to the power of suspending specie payments. 
 * * * I do not apprehend any serious consequences will re- 
 sult from the temporary suspension of specie payments. The 
 experiment was tried many years ago in England, and has 
 been continued up to this time, without injury to the com- 
 mercial interests, and with essential benefit to the nation 
 at large. It has also been tried here, and, though Bank 
 paper is somewhat depreciated thereby, it is solely be- 
 cause it will not answer the purpose of paying balances 
 between people of different States, for which specie had 
 usually been employed. For example, the Bank paper of 
 the District will not enable you to trade east of Baltimore : 
 yet every article to be purchased with it here, is as cheap 
 as it was twelve months ago. It may, therefore, be fairly 
 inferred, that a paper which was receivable all over the 
 United States in taxes, and might be exchanged for notes 
 of smaller or greater denomination, or treasury notes in 
 each of the States, would, from its general convenience 
 
62 BAXKIXG FROM 1810-11 TO 1S14-15, 
 
 continue to circulate without depreciation, even though 
 a temporary suspension of soecie payments should take 
 place."* 
 
 Mr. Gaston, of North Carolina, compared this proposi- 
 tion to relieve the evil arising from too much paper by 
 throwing more into circulation, to the remedy which Burke 
 had described the French Convention as prescribing for 
 every evil, viz : issuing 7)iore assignats. 
 
 The clauses in the bill to authorize the Bank to suspend 
 specie payments, and to compel it to lend thirty millions to 
 Government were struck out : and the bill was further mo- 
 dified, by a provision that the whole of the stock should 
 be subscribed by individuals, and paid, with the exception 
 of the six millions in specie, in treasury notes to be here- 
 after issued. In this form it received the approbation of a 
 large majority of the House : but a select committee to 
 whom it was referred, in one of its stages, received a let- 
 ter from the Secretary of the Treasury, stating that the 
 bill ais amended would not answer the purposes of Govern- 
 ment. It would, he said, give to the holders of the public 
 stock cause for complaint ; and it would be very difficult, 
 if not impracticable, to get into circulation, either with or 
 without depreciation, the forty-four millions of treasury 
 notes, which were afterwards to be subscribed as the capi- 
 tal of the Bank. After being made acquainted with the 
 views of the Cabinet, the House rejected the bill, by a vote 
 of 49 to 101. 
 
 A bill drawn up in accordance with the views of the 
 Treasury Department, was then brought before the Senate. 
 It proposed the establishment of a Bank, with a capital of 
 fifty millions, whereof five millions were to be paid in gold 
 and silver, twenty-seven millions in six per cent, stock, 
 eight millions in treasury notes, and ten millions to be sub- 
 scribed by Government. The Bank was to be bound to 
 lend thirty millions to Government, and was to be author- 
 ized to suspend specie pavments. In this form, the bill 
 passed the Senate on the Dth of December, by a vote of 
 17 to 14. 
 
 In the House it was opposed with great ability by Mr. 
 Webster and others, and rejected on the 2d of January, 
 1815, by the casting vote of Mr. Cheves, the Speaker. 
 
 * Legislative History of the United States Bank. 
 
BANKING FROM 1810-11 TO 1814-15. 
 
 63 
 
 The next day this vote was reconsidered, and the bill 
 was recommitted to a select committee, who, on the Cth of 
 January, reported it \Aith sundry amendments, reducing 
 the capital of the Bank to thirty millions, of which fifteen 
 were to consist of treasury notes, and ten of public stocks ; 
 and striking out the clauses to compel the Bank to lend 
 thirty millions to Government, and to authorize it to sus- 
 pend specie payments. The bill thus amended, was passed 
 by the House on the 7th of January, by a vote of 120 
 to 37. 
 
 When the bill was in this form returned to the Senate, 
 that body increased the capital of the Bank to thirty-five 
 millions, and restored the clause authorizing the Bank to 
 suspend specie payments. In this, the House refused to 
 concur, and the Senate finally receded from its amend- 
 ments. 
 
 The bill having thus passed both Houses, was sent to 
 President Madison, but he put his veto on it. His objec- 
 tions vvere : " The amount of stock to be subscribed will 
 not, it is believed, be sufficient to produce in favor of the 
 public credit, any considerable or lasting elevation of the 
 market price. Nor will any adequate advantage arise to 
 the public credit from the subscription of treasury notes. 
 The actual issues of these notes nearly equal, and will soon 
 exceed, the amount to be subscribed to the Bank. The 
 Bank will be free from all obligations to co-operate with 
 public measures." [The meaning of this is, the Bank will 
 not be couipelled to lend thirty millions to Government.] 
 Lastly : " The proposed Bank will commence and conduct 
 its operations under an obligation to pay its notes in specie, 
 or be subject to the loss of its charter. Without such an 
 obligation, the notes of the Bank, though not exchangeable 
 for specie, yet resting on good pledges, and performing the 
 uses of specie in the payment of taxes and other public 
 transactions, would, as experience has ascertained, qualify 
 the Bank to supply at once a circulating medium, and 
 pecuniary aid to Goveraraent. Under the fetters imposed 
 by the bill, it is manifest that during the actual state of 
 things, and probably during the war, the period particu- 
 larly requiring such a medium and such a source for loans 
 and advances to Government, notes for which the Bank 
 would be compellable to give specie in exchange, could 
 not be kept in circulation." 
 
64 BANKING FROM 1814-15 TO 1815-16. 
 
 Another bill was then got up in the Senate to establish 
 a Bank with a capital of tifty millions, of which five were 
 to be paid in gold and silver coin, fifteen in six per cent, 
 stock, twenty in treasury notes, and ten to be subscribed 
 by Government. In one paragraph, it was declared "the 
 said corporation shall be bound to lend to the Government 
 of the United States, reimburseable at their pleasure, thirty 
 millions of dollars, in such sums and at such periods as 
 may be convenient to the Government of the United 
 States." And in another paragraph, it was expressly pro- 
 vided, that " until the first Monday in April, 1816, it shall 
 not be obligatory on said corporation to pay its notes in 
 specie." Authority was also given to Congress to author- 
 ize, in certain contingencies, " the suspension of specie 
 payments, for such time or times as they may deem 
 proper." 
 
 This bill, which was framed in accordance with the 
 views of Mr. Madison and of his Cabinet, was passed by 
 the Senate on the 13lh of February, by a vote of 18 to 16. 
 
 It was then sent to the House, where, after some debate, 
 it was, on the 17th of February, indefinitely postponed, by 
 a vote of 74 to 73.* 
 
 The news of peace was received on the 13th of Fe- 
 bruary, and to the timely arrival of this intelligence, we 
 must attribute the delivery of the country from the curse 
 of a national paper currency. If Mr. Madison and the 
 gentlemen of his Cabinet had been allowed to take their 
 own way, we should have had a National Bank with a 
 paper capital of fifty millions, issuing notes redeemable in 
 paper. 
 
 ^^ 
 
 CHAPTER VIII. 
 
 Of Banking from 1814-15 to 1815-16. 
 
 " At the time of the suspension of our city Banks, a 
 public meeting of merchants and others was held, who 
 publicly sanctioned the measure, under a pledge given by 
 the Bunks, that as soon as the war was terminated, specie 
 
 * Legislative History of U. S. Bank. 
 
BANKING FROM 1814-15 TO 1815-16. 65 
 
 payments would be resumed. That this measure was in- 
 tended, is evident, from the curtailment of Joans immedi- 
 ately consequent upon the suspension.* 
 
 •' But, unhappily, the redemption of the pledge was not 
 demanded by the public at the stipulated time, and the 
 Banks, urged on by cupidity, and losing sight of moral obli- 
 gations in their lust for profit, launched out into an extent 
 of issues unexampled in the annals of folly. The fulfilling 
 of a promise to pay money, by tendering another promise 
 equally false , sanctioned by the public acquiescence, led to 
 the organization of additional Banks, under the act of 
 March, 1814, which had not till then been attempted to be 
 formed, and a scene of indiscretion in the loaning of Bank 
 credits was every where exhibited, which realized the an- 
 ticipations of those who had foretold the ruinous effects of 
 the paper system. Money lost its value. The notes of the 
 city Banks depreciated twenty per cent., and those of the 
 country Banks from twenty to fifty, and specie so entirely 
 disappeared from circulation, that even the fractional parts 
 of a dollar were substituted by small notes and tickets, 
 issued by Banks, corporations and individuals. The de- 
 preciation of money enhancing the prices of every species 
 of property and commodity, appeared like a real rise in 
 value, and led to all the consequences which are ever 
 attendant upon a gradual advance of prices. The false 
 delusions of artificial wealth increased the demand of the 
 farmer for foreign productions, and led him to consume in 
 anticipation of his crops. The country trader, seduced by 
 a demand for more than his ordinary supply of merchan- 
 dise, was tempted to the extension of his credit, and filled 
 his stores, at the most extravagant prices, with goods vastly 
 
 * This meeting was composed principally, if not exciasiveiy, of own- 
 ers of Bank stock, and of debtors to the Banks ; and the great body of the 
 public, knowing little of the nature of Banking operations, acquiesced 
 in the measure. 
 
 Peace was restored in less than six months after the Banks of the Mid- 
 dle States had suspended payment. 
 
 So confident were some of the public that these institutions would 
 then redeem the solemn pledge they had given, that " the chests and 
 secure places were unlocked, and hard money was again in the mar- 
 ket, at three or four per cent, above par." Even in May the discount 
 on Philadelphia notes was only 5 per cent. ; but the Banks, under one 
 pretext or another, refused to open their vaults, and the paper sunk, by 
 June, to 9, and by November, to IG per cent, below par. 
 G 
 
6G BANKING FROM 1814-15 TO 1815-16. 
 
 beyond what the actual resources of his customers could 
 pay for, whilst the importing merchant, having no guide 
 to ascertain the real wants of the community but the eager- 
 ness of retailers to purchase his commodities, sent orders 
 abroad for a supply of manufactures wholly disproportioned 
 to the effective demand of the country. Individuals of every 
 profession were tempted to embark in speculation, and the 
 whole community was literally plunged in debt. The 
 plenty of money, as it was called, was so profuse, that the 
 managers of the Banks vvere fearful they could not find a 
 demand for all they could flvbricate, and it was no unfre- 
 quent occurrence to hear solicitations urged to individuals 
 to become borrowers, under promises as to indulgences 
 the most tempting. Such continued to be the state of 
 things until towards the close of the year 1815." 
 
 The Secretary of the Treasury negotiated with the 
 Banks as independent sovereignties. His first effort was 
 "to associate them with a view of furnishing a uniform 
 national currency."* It is almost needless to say that this 
 effort did not succeed. 
 
 His next attempt was, " by their agency in circulating 
 treasury notes, to overcome the inequalities of exchange." 
 This, he says, was but " partially successful." 
 
 He then proposed a plan, " with the design to curtail 
 the issues of Bank notes, to fix the public confidence, and 
 to o-ive each Bank a legitimate share in the circulation." 
 What the particulars of this plan were, he has not stated, 
 but it is evident from the context that it was through the 
 free-will of the Banks he sought to carry it into execution. 
 He soon found that a plan which was not fitted to promote 
 their particular interests, was " not likely to receive their 
 general sanction. The truth is," he adds, "the charter 
 restrictions of some of the Banks, the mutual relation and 
 dependence of the Banks of the same State, and even of the 
 Banks of the different States, and the duty which the di- 
 rectors of each Bank conceive they owe to their immediate 
 constituents upon points of security or emolument, inter- 
 pose an insuperable obstacle to any voluntary arrangement, 
 upon national considerations alone, for the establishment 
 
 * Proposition relathig to the National Circulating Medium, Decem- 
 ber 6th, ldl5. 
 
BACKING FROM 1814-15 TO 1815-16. 67 
 
 of a national medium, through the agency of the State 
 Banks." The plain English of this is, that the flirectors 
 of the Banks esteemed it a " duty" to make as much profit 
 as they could, and Government did not see fit to interfere 
 with them in the discharge of this sacred '* duty." 
 
 In the effort " to overcome the inequalities of exchange, 
 by the circulating of treasury notes, through the agency of 
 the Banks," Government did indeed make some exertion 
 of its power. The Secretary issued an order, declaring 
 that, after the first of August, nothing should be received 
 in payment of duties but specie, treasury bills and the notes 
 of such Banks as would receive treasury bills in deposit at 
 par. " The effect of this plan," says a contemporary 
 writer,* " was clearly foreseen by all who fairly understood 
 the subject. What was the result ? In places where trea- 
 sury bills were in the market, at or above par, the Banks 
 agreed to receive them : whereas, where they were below 
 par, the proposition was rejected." 
 
 But this measure had not simply a negative effect. It 
 increased the mass of Bank paper in circidation, and there- 
 by still further vitiated the currency. This is abundantly 
 proved in a pamphlet entitled " An Appeal to the Public," 
 published at New York, in December, 1815. 
 
 In this pamphlet, Mr. Isaac Bronson, the author, states 
 the active capital of the Banks of the city of New York to 
 be 13,515,000 dollars, and computes the amount on which 
 they were drawing interest to be twenty-two or twenty- 
 three millions. "Admitting it to be twenty-two millions, 
 it follows that the Banks make dividends on a sum which 
 exceeds their active capital about eight millions and a half, 
 yielding the stockholders about half a million in dividends. 
 This profit is derived from their mere credit, without any 
 cost or consideration whatever. Of the eight and a half 
 millions excess beyond their capitals, five millions have been 
 issued in the purchase of, and in exchange for. Govern- 
 ment securities of various sorts, bearing interest. 
 
 " We have been speaking hitherto of ' the Banks,' as if no 
 distinctions were to be made between them. It is now time 
 to make the proper discrimination. Among each other the 
 
 * Inquiry into the causes of the present state of the Circulating Me- 
 dium. Philadelphia, August, 1815. 
 
68 BANKING FROM 1814-15 TO 1815-16. 
 
 directors have already, in their conversation, fallen into the 
 familiar distinctions of the ' debtor Banks,' and the ' credi- 
 tor' Banks. By the former, are meant those whose paper 
 has accumulated in the latter, to an amount which cannot 
 be taken up. The debtor Banks, the Banks who are in- 
 debted to the others, have become so indebted, because 
 they hold large amounts of public securities, bearing in- 
 terest, for which they have issued their Bank notes to 
 Government, and which notes have found their way into 
 the other Banks. To keep the creditor Banks quiet, how- 
 ever, and as much as possible in good humor, it has been 
 stipulated that they shall charge interest on these accumu- 
 lations. The practical effect therefore is, that the debtor 
 Banks make their profit by trusting Government ; and the 
 creditor Banks make theirs by trusting the debtor Banks. 
 The debtor Banks give out their notes in exchange for 
 treasury notes bearing interest; and the creditor Banks 
 charge interest on the notes they receive of the debtor 
 Banks. But if these notes accumulate in the hands of in- 
 dividuals, no interest is allowed them, unless they compel 
 its payment by law. And thus the Banks have established 
 a rule of justice towards each other, in itself very correct, 
 but which they refuse, however, to extend to the rest of 
 the community. 
 
 " It is important to our subject that the reader should 
 clearly understand the course of the Banks in relation to 
 treasury notes. We hope, therefore, to be pardoned for 
 what to some may appear unnecessarily minute. 
 
 " Some months since, the Secretary of the Treasury pro- 
 posed, to all the Banks in the United States, that they 
 should receive treasury notes when offered them, and give 
 their own notes in exchange for them : accompanying this 
 proposition at the same time by a threat, that the treasury 
 should not receive the paper of those Banks which did not 
 receive treasury notes ! At a meeting of a select committee 
 of our Banks, appointed to consider these propositions, it 
 was resolved not to agree to them. Three of the Banks, 
 and of course they arc the three who have been called, be- 
 cause they have become, the debtor I}ank:<, did afterwards, 
 however, by a private and separate arrangement, made by 
 agents sent to Philadelphia on purpose, agree to these pro- 
 positions, without the consent or knowledge of the five 
 
BAXKING FROM 1814-15 TO 1815 16. 69 
 
 Other Banks ; so that these Banks now receive treasury 
 notes from any one vvho presents them, and issue their bills 
 in exchange for them when required. And here, we sub- 
 mit to the reader, whether it does not necessarily and in- 
 evitably follow, that these Banks have parted with all pov/er 
 of control over their issues? That department of the Bank 
 has been abandoned to the Secretary of the Treasury ; for 
 it is very clear, that he may to-morrow, if he pleases, cause 
 these Banks to add twenty millions to that excess of paper, 
 which is the true cause of depreciation. That this excess 
 is continually increasing, is most notorious : to what extent, 
 is one of those Bank secrets which all their caution has 
 not prevented us from penetrating. 
 
 " Among others, this singular and ludicrous consequence 
 has followed : The United States take only the bills of 
 those Banks which cannot keep their accounts even with 
 the other Banks ; and refuse to receive the bills of those 
 Banks which are immense creditors of the Banks whose 
 bills are received. 
 
 " And the practical result will be, that so long as the 
 notes of these Banks continue to be worth more than trea- 
 sury notes, so long will treasury notes continue to be pre- 
 sented and Bank notes issued in exchange for them. When 
 the Bank notes, from the quantity afloat, become degraded 
 below treasury notes, this practice will cease. But the 
 affairs of the Banks will be, by that time, utterly irretrieva- 
 ble, and they will follow the fate of all the Banks which 
 have been mere machines of Government. 
 
 " It appears from the reply to the Connecticut Banks, 
 that in July, the commercial loans had been reduced nearly 
 three millions below what their amount was when pay- 
 ments were suspended. But it is at the same time acknow- 
 ledged, that the whole amount of loans had been increas- 
 ed three per cent, on the capitals of the Banks : and this 
 before the system of receiving treasury notes was adopted. 
 The effect of that system, as we have been recently enabled 
 to ascertain, has been to produce in the creditor Banks an 
 accumulation of the notes of the debtor Banks of between 
 two and three millions: although the balances, when pay- 
 ments were suspended, were less than three hundred thou- 
 sand." 
 
 The plentifulness of " money," whether caused by the 
 
70 BAXKING FROM 1814-15 TO 1815-16. 
 
 Banks trafficking with the Government, or by discounts 
 to private persons, was very acceptable to the great mass 
 of the people. The Banks of Pennsylvania added ten 
 millions to the amount of their loans in the course of the 
 year, and the Banks of some of the other States were 
 equally liberal, if not more so. Never before had the 
 country exhibited such an appearance of prosperity. The 
 unequal value of the Bank notes of different districts, was 
 productive of some inconvenience, but this was not suffi- 
 cient to counterbalance the advantage of a general rise of 
 prices, and the briskness of nearly every kind of business. 
 " We cannot," says one writer, " see, with some honest 
 calculators, how the continuance of the present state of 
 things can affect the interests of the country. If specie 
 has been withdrawn from circulation, it is because it has 
 been occupied abroad in a more profitable employment 
 than it was engaged in at home. Its exportation has added 
 to the stock and wealth of the nation, by the purchase of 
 merchandise abroad, worth more than the specie itself. 
 To be sure, wc are subject to some inconveniences in our 
 transactions at market, and in petty dealings ; but as we 
 become accustomed to the use of paper money, the disadvan- 
 tage imll vanish. All large mercantile negotiations are 
 conducted as they have heretofore been, by Bank notes, 
 or checks upon Banks. As to the agios of exchange, 
 where balances are due, they must of necessity continue : 
 but before long they will be so completely understood, as 
 to occasion no embarrassment. The merchant who sells 
 his goods for foreign notes, will add to the price of his 
 goods the amount of the loss he sustains upon the notes, 
 and the purchaser will eventually discover, that the differ- 
 ence which he must pay for his goods, at a place where 
 his Bank notes are at a discount, and at a place w here they 
 are at par, is at least equal to the agio on his notes. As 
 to the solidity of the Banks, the suspension of specie pay- 
 ments has produced no alteration. Although the Banks 
 do not pay specie for any of their notes, yet the time never 
 has been when they could pay specie for them all : for a 
 Bank that keeps on hand a sufficiency of specie to meet 
 all its debts, can never divide six per cent, interest. The 
 very principle upon which it is founded, requires that it 
 * Inquiry, &.C., Pliiladelphia, August, 1815. 
 
BANKING FROM 1814-15 TO 1815-16. 
 
 71 
 
 should trade beyond its capital. But the Banks have the 
 same means of discharging all their notes as they ever had, 
 viz : claims upon individuals who have borrowed their 
 money, and who are now as able to pay as ever they were, 
 if not in specie, in merchandise and property of equal 
 value." 
 
 In March, 1816, IMr. Carey addressed a series of letters 
 to the directors of the Philadelphia Bank, some extracts 
 from which will elucidate the state of affairs, and the state 
 of feelinor. 
 
 " Blessed peace at length arrived. * * * * 
 About the middle of May, 1815, the first vessel from 
 Great Britain entered the port of Philadelphia. She was 
 quickly followed by others. They were all full freighted 
 with the most costly productions and manufactures of that 
 country. The news was rapidly conveyed into the interior. 
 The country storekeepers thronged to the city in crowds. 
 Never, probably, were there so many here before at one 
 time. The number has been calculated, and I believe 
 correctly, at two thousand. 
 
 " They weie all eager to purchase — apparently fearful 
 of not being able to procure adequate supplies — and each 
 providing himself as largely as if he were to have the mo- 
 nopoly of the trade of his neighborhood. 
 
 " Thus, although the importations were uncommonly 
 great, they were sold off rapidly. The advances on the 
 invoices were universally high. And some of the importers 
 made independent fortunes on single cargoes. 
 
 " This was the golden age of Philadelphia. The rapid 
 circulation of property — the immensity of business done — 
 and the profits made on that business, produced a degree 
 of prosperity which she had, perhaps, never before wit- 
 nessed. Almost every man in every kind of business, was 
 employed advantageously for himself and for the commu- 
 nity. And so high were the prices of imported articles 
 generally, that domestic manufactures appeared likely to 
 stand the shock of competition. 
 
 " Of the immense quantity of business done in this city 
 during the last year, some idea may be conceived from the 
 astonishing fact, that the real bona fide auction sales on 
 vfhich duties were paid, amounted in about eight months 
 
72 BANKING FROM 1814-15 TO 1815-16. 
 
 to near ten millions of dollars. As this kind of business 
 was principally carried on upon credit, it may readily be 
 conceived tiiat it must have created an inordinate quantity 
 of promissory notes. During the first epoch, (the months 
 of May, June, July and August,) which I have styled, and 
 I think justly, the golden age of Philadelphia, there were 
 few of these notes offered at the Banks which were not dis- 
 counted. The Banks were in a most liberal mood. Few 
 men of fair character experienced refusals. Instances oc- 
 curred of notes being discounted at the different Banks 
 for thirty, forty, fifty, sixty and seventy thousand dollars. 
 Cases of this kind were not, I believe, very numerous. 
 But enough of them did occur, to establish the fact of the 
 extreme liberality that prevailed on the subject of dis- 
 counts. 
 
 *' The Banks have been censured, and very severely, for 
 the extension of their discounts at this period. They have 
 been charged with taking advantage of the suspension of 
 specie payments, with over-trading and over-issuing of 
 notes. 
 
 " Superficial reasoners have carried these allegations to 
 a great extent — and have not scrupled to brand this con- 
 duct as fraudulent. These charges are highly unjust, ex- 
 cept, perhaps, so far as respects those immoderate notes 
 above mentioned. These I do not undertake to defend." 
 
 Mr. Carey then attempts to refute the opinion of those 
 "superficial reasoners" who maintained that the Banks 
 had over-traded. " Never" in his opiuion, " was a coun- 
 try in a more enviable state." The only cause of com- 
 plaint he had against the Banks, was, that in the month 
 of September they began to curtail mercantile accommo- 
 dations, whereby, in the months of October and November, 
 there was a considerable fall in the price of British goods. 
 The necessity for this curtailment, Mr. Carey shows to 
 have arisen from the extensive dealiusrs of the Banks in 
 Government securities, thereby confirming the statements 
 of Mr. Bronson. The published accounts show that seven 
 of the Banks of Philadelphia, having nominal capitals of 
 the amount of $7,700,000, had invested about 83,500,000 
 in Government stock. 
 
BAjVKING from 1815-16 TO 1816-17. 73 
 
 CHAPTER IX. 
 Of Banking from 1815-16 to 1816-17. 
 
 The bona fide revenue of Government for the year end- 
 ing December 31st, 1815, was only fifteen million seven 
 hundred thousand dollars, and the charges on Government 
 in the same period amounted to upwards of thirty-nine mil- 
 lion dollars : but with so much skill did the high officers 
 of State exert those powers of financial metamorphosis 
 which the funding and treasury note system gave them, 
 that there was, at the end of the year, a balance in the trea- 
 sury of upwards of thirteen millions of dollars. 
 
 The grand secret by which this balance was produced, 
 was that of exchanging treasury notes, many of which bore 
 interest, for inconvertible Bank notes which bore no inte- 
 rest. The officers of the treasury seemed highly pleased 
 with the result of their operations : yet they found a diffi- 
 culty in applying the balance where it was most wanted. 
 But little of the money with which the treasury overflowed 
 would pass current thirty miles from the seat of the Banks 
 that had issued it, and paying the discount was a clear loss 
 to Government or the creditors of Government. As was 
 observed in a former chapter, the disadvantages arising 
 from the various values of Bank notes, were not, in the 
 case of individuals, sufficient to counterbalance the advan- 
 tages arising from the advancing price of real estate, and 
 the universal briskness of business. The time for general 
 suffering, through the necessary reaction of the system, 
 had not yet arrived. 
 
 The want of uniformity appears to have been the only 
 evil the officers of Government discovered in the state of 
 the currency. If the depreciation had been uniform, as it 
 was in England, there is no reason to believe they would 
 have complained. 
 
 In his message to Congress, on the 5th of December, 
 1815, President Madison said, " It is true, that the im- 
 proved condition of the public revenue will not only afford 
 the means of maintaining the faith of the Government with 
 its creditors inviolate, and of prosecuting successfully the 
 
74 BANKING FROM 1315-16 TO 1816-17. 
 
 measures of the most liberal policy, but will also justify au 
 immediate alleviation of the burdens imposed by the neces- 
 sities of the war. It is, however, essential to every modi- 
 fication of the finances, that the benefits of an rmiform na- 
 tional currency should be restored to the community. The 
 absence of the precious metals will, it is believed, be a tem- 
 porary evil : but, until they can be rendered again the gene- 
 ral medium of exchange, it devolves on the wisdom of Con- 
 gress to provide a substitute, which shall equally engage the 
 confidence, and accommodate the wants, of the citizens 
 throughout the Union. If the operation of the State Banks 
 cannot produce this result, the probable operation of a Na- 
 tional Bank will merit consideration : and if neither of 
 these expedients be deemed effectual, it may become ne- 
 cessary to ascertain the terms upon which the notes of the 
 Government (no longer required as an instrument of cre- 
 dit,) shall be issued, upon motives of general policy, as a 
 common medium of circulation." 
 
 The Secretary of the Treasury, in his report on the 7th 
 of December, entered at large upon the subject. " It is 
 not intended," he said, " upon this occasion, to condemn 
 generally the suspension of specie payments : for appear- 
 ances indicated an approaching firisis, which would proba- 
 bly have imposed it as a measure of necessity, if it had not 
 been adopted as a measure of precaution. But the danger 
 which originally induced, and perhaps justified, the conduct 
 of the Banks, has passed away, and the continuance of the 
 suspension of specie payments must be ascribed to a new 
 cause." The Secretary admitted the practicability of sup- 
 planting the paper currency by s])ecie, and did not regard 
 it as a very difficult operation : " But is it," he asked " with- 
 in the scope of a wise policy, to create additional demands 
 for coin, and in that way to multiply the inducements to 
 retain and import the precious metals of which it is com- 
 posed ? * * * * Even, however, if it were practicable, it 
 has sometimes been questioned whether it would be politic, 
 again to employ gold and silver for the purposes of a na- 
 tional currency. It was long and universally supposed, 
 that, to maintain a paper medium without depreciation, the 
 certainty of being able to convert it into coin was indis- 
 pensable : nor can the experiment ivhich has given rise to 
 the contrary doctrine be deemed complete or conclusive. But, 
 
BANKING FROM 1815-16 TO 1816-17. 75 
 
 whatever may be the issue of that experiment elsewhere, 
 a difference in the structure of the Government, in the 
 physical as well as the political situation of the country, 
 and in the various departments of industry, seems to de- 
 prive it of any important influence as a precedent for the 
 imitation of the United States." 
 
 Lord Stanhope had laid it down as a principle, " that a 
 pound sterling being the abstract value, by which the com- 
 puted value of any object of consumption is measured, that 
 value ought to be independent of the variable quantities of 
 gold and silver, the representative signs of which may be 
 found in circulation." In conformity to this doctrine by 
 which an abstract idea was made the standard of value, 
 the British Government had imposed a penalty on all who 
 should presume to pay more than twenty-one shillings in 
 Bank paper for a guinea: and so very profound and inge- 
 nious a doctrine could not fail to make proselytes on this 
 side of the Atlantic. 
 
 It was the delusion of the day. A host of British mi- 
 nisterial writers had taken much pains to prove that Bank 
 of England paper was as good as gold, and even better: 
 and they had numerous copyists in America. Mr. Dallas, 
 in admitting that inconvertible paper was not, whatever 
 might be its abstract excellence, adapted to the situation of 
 our country, was in advance of many of his cotempora- 
 ries. 
 
 After the Secretary had made his report, Dr. Bollman is- 
 sued a pamphlet,* in which he declared : " The paper of 
 the Bank of England preserves a value, as steady perhaps 
 as any attainable, whilst the precious metals, like other com- 
 modities, fluctuate around this standard : and the system 
 now in f .rce, after an experience of eighteen years, is found 
 so perfectly satisfactory, that the greater number of the 
 most zealous bullionists, convinced of their former error, 
 begin to doubt whether the resumption of specie payments 
 would be at all expedient, should even no difficulty what- 
 ever stand in the way of this measure." The Doctor pro- 
 posed the establishment of a National Bank, the notes of 
 which should be redeemable in United States six per cent, 
 stock. His plan was to be completed by making the notes 
 
 * Plan of an Improved System of the Money Concerns of the Union. 
 Philadelphia, Jan. 16, 1816. 
 
76 BAXKIXG FROM 1815-16 TO 1816-17. 
 
 of the State Banks payable, not in specie, but in the paper 
 of the Xational Bank. 
 
 Mr. Carey pronounced the plan of Dr. Bollman a " mag- 
 nijicent" one, and said it " would be a sovereign remedy 
 for all the financial difficulties of the country."* 
 
 Another of the literati of Philadelphia published some 
 essays in the National Intelligencer, in which he endea- 
 vored to refute, what he conceived to be, "the very fallacious 
 and mischievous doctrines which some of the federal ora- 
 tors in Congress had recently uttered on the subject of a 
 paper currency in general. Such, for instance, as the fol- 
 lowing : ' That paper not convertible can never have the 
 quality of money. That the ability of a Bank to redeem, 
 i. e. to pay specie, is the true criterion of excessive issues. 
 That a paper currency is depreciated when it ceases to be 
 of equal value with gold and silver. That the suspension 
 of specie payments by the Bank of England in 1797, led 
 to a depreciation of its paper. That the rise of specie, and 
 p. general increase of prices, are the certain indications of 
 depreciation,' «Soc. — " All which propositions," said our 
 American anti-bullionist, " derived from the report of the 
 English bullion committee, were most triumphantly refuted, 
 in the discussions to which that report gave birth, in and 
 out of Parliament, and are now in England considered as 
 absolutely exploded." 
 
 Mr. Carey, and the author of the essays published under 
 the signature of " Anti-BuUionist," appear to have after- 
 wards changed their views of the nature of inconvertible 
 paper : but Dr. Bollman was, if we may judge by his latest 
 publications, indexible in error. 
 
 A new light was now, however, breaking on the people. 
 To borrow the language of the committee of the Senate of 
 Pennsylvania, " Towards the close of the year 1815, the 
 doctrine so generally taught, and so generally received by 
 the great mass of the community, that the paper currency 
 was not depreciated, but that specie had risen in value, be- 
 gan to be abandoned. The intelligent part of the people 
 became convinced that, although the nominal prices of 
 property and commodities had been advanced, the sub- 
 stantial wealth of society had absolutely diminished." 
 
 * Letters to the Directors of the Banks, March 27th, 1816. 
 
BANKING FROM 1815-16 TO 181G-17. 77 
 
 In Congress there were kw, if any, open advocates of 
 inconvertible currency. 
 
 On the eighth of January 1816, a bill was reported to 
 establish a Bank of the United States. The bill was, word 
 for word, nearly the same as that which had been brought 
 before the House in 1814, excepting that it made the capital 
 thirty-five millions instead of fifty, contained no provision 
 to compel the Bank to lend to Government, and did not 
 directly sanction a suspension of specie payments. 
 
 On the 26th of February, the House proceeded to con- 
 sider the bill in committee of the whole, and Mr. Calhoun 
 addressed them at length in support of the measure. 
 
 " There had been," he said, " an extraordinary revolu- 
 tion in the currency of the country. By a sort of under 
 current, the power of Congress to regulate the money of 
 the country had caved in, and upon its ruin had sprung up 
 those institutions which now exercised the right of making 
 money in and for the United States : for gold and silver 
 are not the only money, but whatever is the medium of 
 purchase and sale, in which Bank paper alone was now 
 employed, and had therefore become the money of the 
 country. A change, great and wonderful, has taken place, 
 which divests you of your rights, and turns you back to 
 the condition of the Revolutionary War, in which every 
 State issued bills of credit, which were made a legal tender, 
 and were of various values. We have in lieu of gold and 
 silver, a paper medium, unequally but generally depreciated, 
 which affects the trade and industry of the nation : which 
 paralyzes the national arm : which sullies the faith both 
 public and private of the United States. According to es- 
 timation there were in circulation, within the United States, 
 two hundred millions of dollars of Bank notes, credits and 
 Bank paper, in one shape or other. Supposing thirty mil- 
 lions of these to be in possession of the Banks themselves, 
 there were, perhaps, one hundred and seventy millions ac- 
 tually in circulation, or on which they draw interest, while 
 there were not, according to estimation, in the vaults of 
 all the Banks, more than fifteen million in specie. The 
 Banks had undertook to make loans to Government, not as 
 brokers, but as stockholders — a practice wholly inconsistent 
 with the system of specie payments. Of public stock the 
 Banks held on, the thirtieth day of September last, about 
 
 H 
 
78 BANKING FROM 1815-16 TO 1816-17. 
 
 eighteen millions and a half, and a nearly equal amount of 
 treasury notes, besides stock for long loans made to the 
 State Governments, amounting altogether to within a small 
 amount of forty millions. If the Banks would regularly 
 and consentaneously begin to dispose of their stock, to call 
 in their notes for the treasury notes they have, and mode- 
 rately curtail their private discounts : if they would act in 
 concert in this manner, they might resume specie pay- 
 ments. A National Bank, paying specie itself, would have 
 a tendency to make specie payments general, as well by its 
 influence as its example." 
 
 Mr. Ward, of Massachusetts, " acknowledged the cor- 
 rectness of the representation of the existing evil, for which 
 he appeared to think the remedy was near at hand, and 
 more simple in its application than the establishment of a 
 National Bank, viz., by refusing to receive the notes of 
 those Banks which do not pay specie, in dues to Govern- 
 ment. But for an alliance which he considered disgrace- 
 ful to the country, and unjust to individuals, between the 
 Secretary of the Treasury and the Banks which refused to 
 pay specie, the evil never would have existed." 
 
 Mr. Smith, of jMaryland, " thought that, as far as he had 
 information, the Banks had not issued more notes than, 
 from the amount of their capital, they had a right to do," 
 He was friendly to the proposal to establish a National 
 Bank, but " he did not think it would do any harm, if the 
 Bank were to commence its operations without specie, but 
 with an assurance in its charter, of payment of specie at a 
 particular day. Such an assurance would make the Bank 
 notes equally good, in his eyes at least, as gold and silver." 
 The National Intelligencer said that, " with these views 
 Mr. S. concluded his p?-<7<:^/r«/ speech." 
 
 Mr. Sergeant proposed to reduce the amount of the capi- 
 tal of the Bank, from thirty-five to twenty millions. " With 
 regard to the present time, he said, he should be glad to 
 know why the Treasury of the United States had not now 
 the command of specie payments, and the rate of exchange 
 in its own hands." 
 
 Mr. Ward thought that, " in the progressive state of the 
 country, it was not very important whether the capital was 
 thirty-five or twenty millions : the latter amount could be 
 used with nearly as much effect for any mischievous pur- 
 
BAMCING mOM 1815-16 TO 1816-17. 79 
 
 poses as the former — that sum would be quite sufficient to 
 influence the destinies of the nation." 
 
 INIr. Tucker, of Virginia, was of opinion, that a capital 
 of thirty-five millions would not be too large. " In New 
 York, as I have understood, it is contemplated to put into 
 activity an additional Bank capital of fourteen millions. 
 In the State which I have the honor to represent, efforts 
 have lately been made to establish fifteen new Banks, with 
 a capital, I presume, of about seven millions. Do not these 
 things prove that there is a fair prospect of profit?" 
 
 Mr. Webster said, " It was a mistaken idea that we 
 were about to reform the national currency. No nation 
 had a better currency than tb.e United States — there was 
 no nation which had guarded its currency with more care; 
 for the framers of the Constitution, and those who enacted 
 the early statutes on this subject, wexQ hard-monty men ; 
 they had felt, and therefore duly appreciated, the evils of a 
 paper medium; they therefore sedulously guarded the cur- 
 rency of the United States from debasement. The legal 
 currency of the United States was gold and silver coin ; 
 this was a subject in regard to which Congress had run 
 into no folly. 
 
 " As to the conduct of the Banks, he would not examine 
 whether the great advances they had made to the Govern- 
 ment, during the war, were right or wrong in them, or 
 whether it was right or wrong in the Government to accept 
 them ; but, since the peace, he contended, their conduct 
 had been wholly unjustifiable, as also had that of the Trea- 
 sury in relation to them. It had been supposed that the 
 Banks would have immediately sold out the stocks, with 
 which they had no business, and fulfilled their engage- 
 ments ; but public opinion had, in this respect, been disap- 
 pointed. When this happened, the Government ought, 
 by the use of the means in its power, to have compelled 
 the Banks to return to their specie payments. 
 
 " The establishment of a National Bank not being, in 
 his opinion, the proper remedy, he proceeded to examine 
 what was. The solvency of the Banks was not questioned; 
 there could be no doubt, he said, if the Banks would unite 
 in the object, they might in three weeks resume the pay- 
 ment of specie, and render the adoption of any measure by 
 this House wholly unnecessary. The Banks, he said, 
 
80 BANKING FROM 1815-16 TO 1816-17. 
 
 were making extravagant profits out of the present state of 
 things, which ought to be curtailed. He referred, for illus- 
 tration of this point, to the state of the Banks of Pennsyl- 
 vania, as exhibited in the return to the Legislature of that 
 State, which, with a capital of 2,500,000 dollars, had done 
 a discount business of 4,133,000 at the same time that it 
 held 1,811,000 dollars of the United States' stock — so that, 
 without taking into account a mass of treasury notes, real 
 estate, &c., that Bank was receiving interest on six and 
 a half millions, nearly three times the amount of its capital. 
 That Bank had been pronounced by the Legislature to be 
 in " a flourishing state ;" it was so to the stockholders in 
 the Bank, he doubted not. 
 
 " The Banks not emanating from Congress, what engine 
 were Congress to use for remedying the existing evil? Their 
 only legitimate power, he said, was to interdict the paper of 
 such Banks as do not pay specie, from being received at 
 the Custom Houses. With a receipt of forty millions a 
 year, if the Government was faithful to itself and to the in- 
 terests of the people, they could control the evil, and it was 
 their duty to make the effort. They should have made it 
 long ago, and they ought now to make it." 
 
 After some members who were friendly to the proposal 
 to establish a National Bank had spoken — 
 
 Mr. Randolph expressed his fears " lest gentlemen had 
 got some of their ideas on this subject from the wretched 
 pamphlets, under which the British and American presses 
 had groaned, on the subject of a circulating medium. The 
 proposal to establish this great Bank, he described as a 
 crutch, and, as far as he understood it, it was a broken one : 
 it would tend, instead of remedying the evil, to aggravate 
 it. Tiie evil of the times was a spirit engendered in this 
 Republic fatal to republican principles — fatal to republi- 
 can virtue: a spirit to live by any means but those of 
 honest industry : a spirit of profusion ; in other words, 
 the spirit of Cataline himself — alicni avidus sui profusus — 
 a spirit of expediency, not only in public, but in private 
 life: the system of Diddler in the farce — living any way 
 and well; wearing an expensive coat, and drinking the 
 finest wines at any body's expense. If we wish to transmit 
 our institutions, unimpaired, to posterity, we must put 
 
BANKING FROM 1815-16 TO 1316-17. 81 
 
 bounds to the spirit which seeks wealth by every path but 
 the plain and regular path of honest industry and honest 
 fame. 
 
 " It was unpleasant, he said, to put one's self in array 
 against a great leading interest in the community, be they 
 a knot of land-speculators, paper-jobbers, or what not : but, 
 every man you meet, in this House or out of it, with some 
 rare exceptions, which served only to prove the general 
 rule, was either a stockholder, president, cashier, clerk, or 
 door-keeper, runner, engraver, paper-maker, or mechanic, 
 in some way or other to a Bank. The gentleman from 
 Pennsylvania, might dismiss his fears for the State Banks, 
 with their one hundred and seventy millions of paper on 
 eighty-two millions of capital. However great the evil of 
 their conduct might be, who was to bell the cat? w'ho was 
 to take the bull by the horns? You might as well attack 
 Gibraltar with a pocket-pistol, as to attempt to punish 
 them. There were very few who dared to speak truth of 
 this mammoth: the Banks were so linked together with 
 the business of the world, that there were very few men 
 exempt from their influence. The true secret is, the Banks 
 are creditors as well as debtors ; and if we were merely 
 creditors to them for the paper in our pockets, they would 
 soon, like Morris and Nicholson, go to jail (figuratively 
 speaking) for having issued more paper than they were 
 able to pay when presented to them. A man has their 
 note for fifty dollars, perhaps, in his pocket, for which he 
 wants fifty Spanish milled dollars: and they have his note 
 for five thousand in their possession and laugh at his de- 
 mand. We are tied hand and foot, and bound to con- 
 ciliate this grand mammoth, which is set up to worship in 
 this Christian land: we are bound to propitiate it. Thus, 
 whilst our Government denounces hierarchy ; will permit 
 no privileged order for conducting the service of the true 
 God; whilst it denounces nobility, ifcc, has a privileged 
 order of new men grown up, the pressure of whose foot he, 
 at this moment, felt on his neck. But, he said, a man 
 might as well go to Constantinople to preach Christianity, 
 as to get up here and preach against Banks." 
 
 The bill was read a third time on the 14th of March, 
 and passed the House by a vote of 80 to 71. 
 
 Hh 
 
82 BANKING FROM 1815-16 TO 1816-17. 
 
 When it came before the Senate, Mr. Mann, of N. H., 
 moved so to amend it that the whole amount of specie to 
 be paid in at the time of subscription should be two million 
 eight hundred thousand dollars, instead of one million lour 
 hundred thousand. " The United States' stock subscribable 
 and payable at the same time, to the amount of seven mil 
 lions, would be no more aid to the Bank in discounting, 
 with a view to redeeming its notes in specie, than so many 
 Bank bills. The amount of one million four hundred thou- 
 .sand dollars in specie, divided among the different branches, 
 which he presumed would be immediately established, 
 would, he argued, be insufficient for any operation what- 
 ever. Let the Bank issue paper to produce any effect, and 
 the specie in its vaults would be instantly withdrawn from 
 them; twenty-five days would be sufficient for that pur- 
 pose. It might be said the Banks would commence ope- 
 rations slowly and with caution ; but any man acquainted 
 with the institution of Banks knows that the sumjirst paid 
 in is nearly all that the stockholders ever pay. The Bank 
 would continue in operation forever, without taking from 
 the stockholders any considerable sum more than the first 
 instalment : for, as far as the Bank discounted, the second 
 instalment would be paid into the Bank with the specie of 
 the first instalment, &c. This was a position so fully sup- 
 ported by all experience, that he presumed it would not be 
 denied." 
 
 Mr. King, of New York, supported this motion. " The 
 gentleman from New Hampshire had conclusively shown, 
 that one and a half millions was the greatest extent to which, 
 as it now stood, the Bank could safely issue on a specie 
 system. Illustrating his view of the subject by a detailed 
 statement of the process, he said, that the first discounts of 
 the Bank being necessarily to those most pressed by the 
 State Banks, the proceeds of the discounts would immedi- 
 ately find their way to the State Banks. Under this view, 
 a million and a half would be a sum entirely too small to 
 enter into a competition with the existing Banks." 
 
 Mr. Bibb, of Georgia, and Mr. Barbour of Virginia, op- 
 posed the motion. In reply to some remarks by those gen- 
 tlemen, Mr. Mann said, " he knew of no law of the United 
 States which authorized any officer of the Government to 
 receive any part of the spurious money, which the gentle- 
 
BANKING FROM 1815-16 TO 1816-17. 83 
 
 man said was in circulation. The laws were already per- 
 fect on this subject. If the executive officers had received 
 other moneys in payment than those authorized by law, they 
 had acted without law, without right. The remedy now 
 proposed, was, Mr. M. thought, something like Sangrado's 
 practice : more Bank paper of the same sort — more hot 
 water for the same evil." 
 
 Mr. Mann's motion to amend was rejected. 
 
 Mr. Wells opposed the bill on constitutional grounds, and 
 because he did not believe it would have the effect intend- 
 ed. " This bill," he said, " came out of the hands of the 
 Administration ostensibly for the purpose of curtailing the 
 over issue of Bank paper : and yet it came prepared to in- 
 flict upon us the same evil, being itself nothing more than 
 simply a paper making machine ; and constituting, in this 
 respect, a scheme of policy about as wise, in point of pre- 
 caution, as the contrivance of one of Rabelais' heroes, who 
 hid himself in the water for fear of the rain. The disease, 
 it is said, under which the people labor, is the Banking fe- 
 ver of the States ; and this is to be cured by giving them 
 the Banking fever of the United States." 
 
 So little effect have the strongest arguments on men 
 whose minds are made up, that the bill was passed by the 
 Senate on the 3d of April, by a vote of 22 to 12 : and 
 returned to the House for concurrence in certain amend- 
 ments, not important enough to deserve special notice. 
 
 When the question on concurrence with the amendments 
 of the Senate was stated, Mr. Randolph declared himself 
 the holder of no stock whatever, except live stock, and had 
 determined never to own any : but, if this bill passed, he 
 would not only be a stockholder to the utmost of his power, 
 but would advise every man, over whom he had any in- 
 fluence to do the same, because it was the creation of a 
 great privileged order of the most hateful kind to his feel- 
 ings, and because he would rather be the master than the 
 slave. If he must have a master, let him be one with epau- 
 lettes — something that he could fear and respect, something 
 that he could look up to — but not a master with a quill be- 
 hind his ear." 
 
 Mr. Webster " animadverted on what he called a com- 
 promise of principle, on a great moneyed institution,, and 
 the desertion, not only of principles, but of friends, which 
 had characterized the proceedings of this bilK" 
 
84 BANKING FROM 1815-16 TO 1816-17. 
 
 A motion to postpone the bill indefinitely, was decided 
 in the negative on the 4th of April, by a vote of G7 to 91. 
 The amendments made by the Senate were concurred in 
 by the House; and on the 10th of April the bill was ap- 
 proved by James Madison, the President. 
 
 x\t the same session of Congress, a resolution was passed 
 declaring that, after the 20th of February, 1817, nothing 
 but gold and silver, treasury notes, and the notes of specie 
 paying Banks, ought to be received in payment of dues to 
 the United States. 
 
 An incident which occurred in the beginning of this year, 
 deserves mention, as an example of the power the Banks 
 had over the community. A Mr. Fisher, a gentleman of 
 Richmond, wished to enforce the payment often notes for 
 100 dollars each, which had been issued by a Bank .in 
 Virginia. It had been his wish to bring a suit against the 
 Bank in 1815, but he could not find any gentleman of the 
 bar at Richmond, who was willing to undertake the busi- 
 ness. He at length succeeded in engaging a lawyer, and, 
 in January, 1816, regular proceedings were instituted : but 
 the President of the Bank refused to obey the summons. 
 The sheriff called to his aid a posse comitatus, and the 
 President was forcibly taken before the court. The Bank 
 still refusing to pay the amount of its notes, its doors were 
 closed by the sheriff. It then brought suit against Mr. 
 Fisher, laying its damages at 10,000 dollars, and also took 
 measures for instituting legal proceedings against the she- 
 riff! The doors of the Bank were surreptiously opened, and 
 the Bank continued its operations, thus gaining a new tri- 
 umph over the laws.* 
 
 The Banks of other parts of the country, evinced an 
 equal indisposition to obey- the laws of the land. Notwitli- 
 standing that the resolution of Congress designated the 
 20th of February, 1817, as the day after which the notes 
 of non-specie paying Banks ought not to be received in 
 payment of dues to Government, " the principal Banks in 
 the Middle States explicitly stated" to the Treasury Depart- 
 ment, in the montli of August, " their determination not to 
 resume specie payments before the 1st of July, 1817. "f 
 Mr, Dallas had, however, become weary of treating with 
 
 * Niles. t Letter of Mr. Dallas, Nov. 29lh, 18J6. 
 
BANKING FROM 1816-17 TO 1817-18. 85 
 
 the Banks as with independent sovereignties. He gave pub- 
 lic notice, on the r2th of September, that the resolution of 
 Congress would be enforced. But the delegates of the 
 Banks of New York, Philadelphia, Baltimore, and the Dis- 
 trict of Columbia, assembled at New York on the IGth of 
 September, bid him defiance, by resolutions which they 
 published, fixing on the 1st of July for the resumption of 
 specie payments. 
 
 The resolution of Congress was, however, of such a na- 
 ture that it could not easily be evaded ; and it was not a lit- 
 tle strengthened, by an act of the Legislature of New York, 
 imposing a penalty of twelve per cent, on any Bank within 
 that commonwealth, which should not pay its notes on de- 
 mand. An act of this kind had been brought before the 
 Legislature in April, 1815, but tha fair promises of the 
 Banks, and the exertions of their agents, prevented its 
 being adopted in that year. Tired out by the subterfuges 
 of the moneyed corporations, the Legislature at last adopt- 
 ed this salutary measure. 
 
 
 CHAPTER X. 
 
 Of Banking from 1816-17 to 1817-18. 
 
 During the year ending December 31st, 1816, the re 
 venue of the United States' Government amounted to the 
 enormous sum of forty-seven millions of dollars, or to 
 two millions more than the total of the national debt on 
 the first of January, 1812. The appearance of increasing 
 riches, and the general rise of prices produced by the free 
 use of paper money, had caused a consumption of foreign 
 commodities, the effect of which was felt by Government 
 in the great increase of its revenue. 
 
 But, with all this income, our fiscal affairs were not 
 free from embarrassment. " The public treasury exhibit- 
 ed a phenomenon in finance. Many millions of surplus 
 revenue, with as many different values as there were offi- 
 ces of collection, constantly accumulating at those ports of 
 entry where it was least valuable, and applicable only where 
 it was collected, while the great mass of public debt and 
 
86 BAJTKIA'G FROM 1816-17 TO 1817-16. 
 
 expenditures was at those places where the public moneys 
 were least available : even the quarterly interest on the 
 public debt, due where the currency was most valuable, 
 could not be discharged but by the evidence of a new 
 debt, in the form of seven per cent, treasury notes. Thus 
 creating an invidious distinction as well between the debt- 
 ors as the creditors of the public, in many cases exceeding 
 twenty per cent, on the amount of their respective claims. 
 The market value of the currency paid to the Government, 
 was made to fluctuate according to the arbitrary decisions 
 of Banks, and intrigues of brokers. 
 
 " In this situation, the State Banks which had been 
 employed as depositories of the public money, withheld 
 the indispensable facilities of exchange, for the payment 
 of the public creditors, and finally refused to pay the ba- 
 lances due by them, but in the ordinary course of public 
 expenditure; at their respective places of location claim- 
 ing, under various groundless pretexts, the indulgence of 
 Government, while the immense sums received by them 
 on account of the United States in the paper of the Banks 
 which did not participate in the public deposits, enabled 
 them to control those Banks and protract their efforts to 
 resume specie payments."* 
 
 Such was the state of affairs, that, though there was a 
 balance of twf.ntii-tico millions in the treasury, the Govern- 
 ment was compelled to borrow five hundred thousand dol- 
 lars from the United States Bank, in anticipation of its 
 regular operations, to pay the interest due on the public 
 debt at Boston on the first of January, 1817. 
 
 The Bank of the United States opened its doors at Phil- 
 adelphia on the 1st of January, 1817. Its capital then 
 consisted of one million four hundred thousand dollars in 
 specie, and fourteen millions in public stocks. About this 
 time a second instalment in specie, of the amount of two 
 millions eight hundred tliousand dollars, was due : " but it is 
 clear," says a Friendly Monitor, " that the Bank having 
 commenced operations, and put its paper in circulation, 
 could not enforce tiie payment of the specie part of the 
 second and third instalments of the capital in nao acquisi- 
 
 * " A Friendly Monitor." Philadelphia, December, 1819. Rep., 
 September, 1H22. Mr. Gallatin says " it is well known that this pamiililet 
 came from an authentic source." We have been told it was written 
 by W. Jones, the first President of the United States Bank. 
 
BAXKkVG FROM lSlG-17 TO 1817-18. 87 
 
 tions of specie. They would be paid either in the notes 
 of the Bank, or in the specie vvhich they would draw out 
 of the Bank, or with checks drawn on the credit of the 
 discounts, or not at all : for if the Bank had ceased to fur- 
 nish facilities in the vain expectation of coercing payment, 
 no dividend could have accrued * * * * The direc- 
 tors therefore acted wisely in discounting the notes of the 
 stockholders payable in specie sixty days after date." 
 
 From the documents laid before Congress in 1819, it ap- 
 pears that the directors did not wait till the second instalment 
 was due : but passed a resolution in December, before any 
 notes of the Bank were in circulation, authorizing discounts 
 on a pledge of stock. Such " facilities" enabled the stock- 
 holders either to comply with, or to evade, the requisitions of 
 the law, as the reader is disposed to interpret its terms. A 
 large part of the second instalment was not paid till months 
 after it was due, and instead of two millions eight hundred 
 thousand dollars, only three hundred and twenty-four thou- 
 sand can, according to the report of a committee of Con- 
 gress, be fairly presumed to have been paid in coin. 
 
 A third instalment, of two millions eight hundred thou- 
 sand in coin, and of seven millions in Government stock, 
 was due after the 1st of July. But the committee of Con- 
 gress say that, " of the two million eight hundred thousand 
 dollars which was to have been paid at the third instalment, 
 it is believed that a very trifling amount was paid in coin, 
 and as little of the funded debt, but that nearly the whole 
 were paid by the proceeds of notes discounted on stock."* 
 To be brief, the capital of the United States Bank, 
 when all paid in, consisted of about two millions in specie, 
 instead of seven millions, and of about tv,enly-one millions 
 in funded debt, instead of twenty-eight millions, and of 
 about twelve millions in the stock notes of the original 
 stockholders. Mr. Mann had predicted that the stock 
 would be completed in this way, and it being the way in 
 which Bank stock is usually completed, the result ought 
 to occasion no surprise. 
 
 The manner in which the discounts on pledges of stock 
 of the Bank were conducted, was very beneficial to some of 
 the original shareholders. " The directors did not confine 
 themselves to the amount prescribed in the resolution of De- 
 
 * Report to Congress, January, 1819. 
 
88 BA\KIi\G FROM 1816-17 TO 1817-18. 
 
 cember 27th, that is, to the proportion of the coined part of 
 the second instalment, but discounted to the full par value 
 of the stock which was paid for by the proceeds of the 
 same discounts; and the discounts, the payment of the 
 second instalment, the payment of the price to the owner, 
 the transfer, and the pledge of the stock, were, as it is 
 termed, simultaneous operations. All the discounts on 
 stock after the 20th of February, 1817, were made at the 
 par value of the shares, which enabled the discounter not 
 only to pay the whole of the instalments, including the 
 specie part, and the funded debt part, but also to draw out 
 of the Bank the amount which might have been paid in on 
 his shares. * * * The effect of these discounts was, very 
 obviously, to enable those who had made large purchases, 
 to retain their stock without paying for it, and to derive a 
 benefit from its probable advancement in price. Had the 
 Bank rigidly required the payment of the instalments, the 
 large stockholders must have sold that portion of their 
 shares which their real means did not enable them to hold. 
 Or, if the Bank had not exacted the instalments, and had 
 not afforded the means of substituting credit for payment, 
 the stock would not have advanced materially in price, and 
 thelartre holdersof itwould have had no inducementto retain 
 it. In either event, a more equal dilTusion of shares would 
 have been the consecjuence, and it would have reached the 
 hands of solid capitalists, who would have held only what 
 they could pay for."* 
 
 In August a resolutior. was adopted to grant discounts 
 on Bank stock, at the rate of 125 for 100 paid, with an 
 indorser for the excess. " And in order to insure the 
 greatest amount of such loans, and at the same time afford 
 facilities to the prompt purchase and sale of stock," the 
 President and Cashier were authorized, " to discount all 
 stock notes that should be offered between discount days, 
 to a certain amount. Stock-jobbing to an immense extent, 
 and wagers on the price of shares, were the inevitable con- 
 sequences of this system. It gave equal f;icilities to the 
 bankrupt, who had not credit enough to obtain an indorser, 
 and to the capitalist. Stock could be, and was, purchased 
 without the advance of a cent by the purcha.'^er, who had 
 only to apply to tlic directors, or to the President and 
 '' llepoil to Congress, Jan. 1819. 
 
BAVKI9G FROM 1S1&-17 TO H17-li 89 
 
 Cashier between diacoont dava, for a loan on the shares 
 about to be bought, and. by what is termed a «iroaltaneoas 
 operation, he obtained the discount, and with it paid fijr 
 his stock. A rise in the market wonld enable him to sell his 
 shares, pocket the difference, and commence operations 
 anew. The loans actually made were most of them un- 
 reasonable, and excesaJTe in their amoant : they were not 
 made to the merchant and trader, bat to a few per^ns 
 consisting of directors, brokers, and speculators: and have 
 been renewed and continued almost invariably at the option 
 of the borrower. 
 
 " One of the arts obviously intended to give the Bank 
 stock a high price in the European market, was the es- 
 tablishment of an agency there to pay the dividends. On 
 the 28th of November, 1816, a resolution was passed by 
 the casting vote of the President, and against the report of 
 a committee who had been appointed to consider the sub- 
 ject, authorizing John Sergeant, Es<j., to make arrange- 
 ments in Europe, for the payment of the Bank dividends at 
 the par of exchange, and at the risk and expense of the 
 Bank, When the committee find among the eleven who 
 voted in the affirmative, the names of some directors who 
 have been constantly and largely engaged in the porchase 
 and sale of stock ; and that of the ten who roted in the 
 negative, not one has been ascertained to have dealt in 
 those transactions, they are almost irresistibly impelled to 
 the conclusion, that the measure was adopted more with a 
 view to enhance the price of shares, than for the permanent 
 benefit of the institution. 
 
 " The root and source of all these instances of miscon- 
 duct, was the illegal and reprehensible division of the 
 stock. By the first fundamental article of the charter, no 
 person, co-partnership, or body politic, shall be entitled to 
 more than thirty votes : and yet, in violation of this prori- 
 sion, it was a common and general practice, well known 
 to the judges of the election and to the directors, to divide 
 shares into small parcels, varying from one to twenty shares 
 to a name, held in the names of persons who bad no in- 
 terest in them, and to vote upon the shares thos held as 
 the attorneys of the pretended proprieties. By some of the 
 witnesses it is avowed that their object was to influence the 
 election. Mr. Leiper, one of the judges of the first elec^ 
 I 
 
90 BANKING FROM 1S16-17 TO l817 18. 
 
 tion, states that he did so himself. The effect was, that 
 Bahimoi'e, which had about one-seventh of the shares 
 owned by individuals, gave more tlian one-fourth of ail the 
 votes that could be given. In that place there were 117'2 
 shares taken in 1172 names, by George Williams, as at- 
 torney, the whole of which, it appears from his examination, 
 he owned. At Philadelphia nearly one-third of the shares 
 was owned, and the votes given at that place were about 
 two-ninths of the whole authorized. The same persons 
 who thus held the power of appointing directors, are found 
 to have the greatest loans on stock."* 
 
 It is time now to turn our attention to other operations of 
 the Bank. 
 
 In January, a convention of delegates from the Banks 
 of New York, Philadelphia, Baltimore, Richmond, and 
 Norfolk, met in Philadelphia, and resolved to resume specie 
 payments on the 20th of February, on certain conditions, 
 one of which was, tliat the payment of the balances which 
 might accumulate against these Banks, should not be de- 
 manded by the Bank of the United States, until the said 
 ]?ank and branches should have discounted for individuals 
 (other than those having duties to pay) 2,000,000 in New 
 York, 2,000,000 in Philadelphia, 1,500,000 in Baltimore, 
 and 500,000 in Virginia. 
 
 The Bank of the United States acceded to this arrange- 
 ment, and thus engaged to extend its credit dealings as 
 the other Banks contracted theirs. 
 
 A favorite object was " the equalization of exchange 
 between different parts of the Union." This was unfor- 
 tunately sought to be effected, not by compelling the 
 local Banks to redeem their extra issues, and thus bring 
 the currency in every part of the country to a level with 
 specie ; but by issuing notes payable at all the offices, and 
 by a system of drawing and re-drawing carried on by the 
 mother Bank and its branches. Tlie directors of the 
 branches at the South and West, especially those at Bal- 
 timore, had their own speculations to promote, and issued 
 
 * The eflpct of tliese difierciit proceedings was, that on the Inst of 
 Deceinl)er, 181G, Bunk of the United States stock was at 41 7-8, for 30 
 paid, in April at H] lor 6'^ paid, in May at DS, on the 2Uth of August at 
 1-14 for 100 p:iiil, on the liOth of August at IdG.^, al which price it re- 
 mained for some days, and tinn hc^ran to decline. 
 
 Keport to Congress, Jan. IGtli, lbl9. 
 
BANKIXG FROM 1816-17 TO 1817-18. 9l 
 
 their notes and drafts in so great quantity, as to cause no 
 little embarrassment to the Bank at Philadelphia, and the 
 branches to the North. 
 
 The Secretary of the Treasury increased the induce- 
 ments of the Bank to multiply its discounts, by redeeming 
 with a portion of the public deposits, eleven millions of 
 the funded debt which formed part of the capital stock of 
 the Bank. 
 
 The effect of these various operations was, that the 
 discounts of the Bank, which were less than 3 millions on 
 the 2Tth of February, were increased to 20 millions by the 
 30th of April, to 25 millions by the 29th of July, and to 
 33 millions by the 31st of October. At the close of the 
 year, the amount of unsound credit dealings was, taking 
 the country throughout, greater than it was at the begin- 
 ing : for the " contraction " made by all the local Banks, did 
 not equal the "expansion" made by the United States' Bank. 
 
 The Committee of the Senate of Pennsylvania,* describe 
 it as only a nominal resumption of specie payments that was 
 effected in this year. " Had the United States Bank," 
 they say, " been conducted with the discretion and wisdom 
 which were essential to so powerful a machine, its influence 
 might have been productive of the most happy conse- 
 quences. The public was aware that the currency of the 
 State Banks was still depreciated from excess, and that 
 nothing but a further reduction of their issues could re- 
 move its unsoundness ; and yet, with this fact evident to 
 the most limited capacity, the directors of the new Bank 
 fancied, that if they could only persuade the city Banks 
 to call that a sound currency which was in reality an un- 
 sound one, the evil of depreciation would be cured ; and 
 they accordingly proposed to them to enter into an arrange- 
 ment to resume specie payment on the 2 1st of February 
 following. The city Banks, sensible that their power over 
 the community was so great that few individuals would 
 have the boldness to make large demands on them for 
 coin, and relying upon the forbearance that had hitherto 
 been extended to them by an injured public, who had been 
 for two years and a half paying them six per cent, per 
 annum for their dishonored bills, consented to the arrange- 
 ment, and specie payments w-ere nominally resumed on 
 
 * Report on the Public Distress, January 29lh, 1820. 
 
92 BANKING FROM 1816-17 TO 1817-18. 
 
 the appointed day. We say nominally, because, in point of 
 fact, a bona fide resumption did not take place, as is evi- 
 dent from the well-known circumstance, that, for a long time 
 after that period, American as well as foreign coins would 
 command on the spot a price in city Bank notes above 
 their nominal value. Depreciation can as well result from 
 the forbearance of the public to demand their rights, as 
 from the refusal of the Banks to pay their engagements ; 
 and the arrangement alluded to, was not any real resump- 
 tion of cash payments, but a mere change of one species of 
 inconvertibility for another. No sooner, however, had the 
 directors of the National Bank succeeded in the desirable 
 object of rendering depreciated paper an equivalent for their 
 own convertible notes, than, instead of reflecting, from an 
 acquaintance with general principles and from the experi- 
 ence of the past, that the channels of circulation could 
 contain only, without depreciation, but a limited amount 
 of paper credits, and that that amount was already in these 
 channels, they began to add to the mass already redun- 
 dant, by emissions of their own notes : and in the course of 
 a few months, added to the mass of Bank loans an amount 
 greatly beyond the reductions which had been made. By 
 these means the currency, although nominally convertible, 
 was depreciated below its former low state, and was thrown 
 back instead of being advanced on the road to restoration : 
 and thus was rendered nugatory, all the pain and embar- 
 rassment which the public had suffered from the former 
 curtailments of the State Banks." 
 
 In the Southern and Western States, the operations of 
 the United States' Bank caused the local Banks to extend 
 their issues. The Bank, say the committee of Congress, 
 " improvidently afforded a tem])tation to the western Banks 
 particularly, to extend tlicir circulation of notes, by insist- 
 ing on its branches paying out their own notes in prefer- 
 ence to those of the State Banks, and on their delivering 
 drafts on the eastern cities', whenever it could be done, 
 to prevent the remittance of their own notes. The branch 
 notes and the drafts issued in consequence of these in- 
 structions, were swept away by the facility of remittance 
 thus unwarily given, as well as by the ordinary balance of 
 trade. A vacuum in the circulation was thus |)roduced, 
 which could be supplied only by the local notes, which were 
 
BANKING FROM 1317-18 TO 1818-19. 93 
 
 readily received by the offices of the Bank of the United 
 States, and were retained by them as a fund upon which 
 interest was paid by the State Banks. The committee are 
 of opinion, that instead of conducting with the alleged 
 rigor towards the State Banks, the Bank of the United 
 States is liable to the more serious charge of having in- 
 creased the amount of notes in circulation, by its accep- 
 tance of them in those places where it was known they 
 would not be redeemed in specie, and by making them, in 
 the manner before mentioned, the only circulating medium 
 in that part of the country. So long as the notes of each 
 office were payable at all the others,. and the office issuing 
 was not exclusively liable for their redemption, the discounts 
 at those places against which there was a balance of trade, 
 became larger in proportion to their indemnity against de- 
 mands. As the notes of the offices were rapidly carried 
 off, the payment of those discounts was necessarily made 
 in the notes of the local institutions. And thus it was one 
 of the inevitable effects of the old system, to increase the 
 debts of the State Banks to the offices of the United States 
 Bank at those places." 
 
 CHAPTER XI. 
 
 Of Banking from 1817-18 to 1818-19. 
 
 In the first part of the next year, the Bank of the United 
 States conducted operations on the same principles that had 
 governed it in 1817. In January and February, 1818, the 
 amount of its discounts and exchange dealings was swelled 
 to forty-two millions, and in March and April to upwards 
 of forty-three millions. 
 
 During all this time the Bank had not succeeded in get- 
 ting notes to the amount of ten million dollars in circula- 
 tion, but this appears to have been owing not to any disin- 
 clination of the directors to issue paper in abundance, but 
 to a physical inability on the part of the President and 
 Cashier to sign as many notes as were wanted. To get over 
 this difficulty, application was made to Congress to grant 
 authority to the President and Cashiers of the Branches to 
 sign notes. One of the objects in establishing the United 
 I i 
 
94 BANKING FROM 1817-18 TO 1818-19. 
 
 States' Bank, was to substitute a uniform paper currency 
 for that variety of notes which made it difficult for many 
 persons to distinguish between the genuine and the coun- 
 terfeit. An objection was therefore made to granting the 
 officers of the branches power to sign notes, as the variety 
 of signatures would increase one of the evils the Bank was 
 intended to remedy : but a bill was passed by the Senate 
 to authorize the appointment of a Vice President and As- 
 sistant Cashier, whose special duty it should be to sign 
 notes for the mother Bank and all its branches. When the 
 bill came before the House on the 18th of April, much 
 praise was bestowed on the Bank for the excellent manner 
 in which it had been conducted, and the propriety of taking 
 measures to enable it to circulate more paper was warmly 
 Urged. Mr. Smith, of Maryland, said, " one great object 
 of the Bank was to afford an adequate circulating medium, 
 that would be uniform throughout the Union. To effect 
 this, it is necessary to have a sufficient number of notes 
 signed to enable the Bank to put twenty millions of dol- 
 lars in circulation. The President and Cashier cannot, 
 (having their other business to attend to,) sign more than 
 1500 notes each day. At that rate it would require more 
 than four years to sign the number and kind necessary for 
 circulation." The bill was negatived by the House, chiefly 
 from a fear, as would appear from the debates, that it v.'ould 
 give the United States' Bank too much power over the local 
 Banks. 
 
 In its charter, in the preference given to its notes by the 
 Government, and in its being made the depository of the 
 public revenue, the United States' Bank had great power. 
 It was thus it was enabled to make discounts in little more 
 than a year to an amount exceeding forty-three millions, 
 including eleven or twelve millions on pledges of stock, 
 though the specie part of its capital was hardly two mil- 
 lions. 
 
 To sustain its operations, the Bank exchanged part of its 
 funded debt for specie in Europe, and purchased a large 
 amount of coin in the West Indies and other places. Be- 
 tween July, 1817, and July, 1818, upwards of seven mil- 
 lions of specie were imported by the Bank, at a cost of five 
 hundred thousand dollars. But the original cause of the 
 specie's leaving the country, viz : the excess of paper issues. 
 
BANKING FROM 1817-18 TO 1818-19. 95 
 
 still continuing to operate, the money was exported by in- 
 dividuals faster than it was imported by the Bank. "I 
 myself have seen," says a Friendly Monitor," a detailed 
 statement of five millions dollars, exported in twelve months 
 from the ports of Boston and Salem alone, and from this 
 data the aggregate amount exported in twelve months from 
 the United States, could not have been, during the same 
 period, short of twelve million of dollars." This estimate 
 is probably below the real amount, and the result would 
 have been the same, if the Bank had imported seventy 
 millions instead of seven millions. If we had mines as rich 
 as those of Potosi, and paper should be issued in excess, we 
 should not be able to retain in the country even that small 
 amount of silver which is necessary to keep Bank notes con- 
 vertible. 
 
 Notwithstanding the importation of specie made by the 
 Bank, the amount at any one time in its vaults did not rise 
 to three millions — an amount which, divided among the 
 mother Bank and eighteen branches, was quite insufficient 
 to sustain its operations. 
 
 In July the Board of Directors found it absolutely neces- 
 sary to change their policy. A sudden reduction of dis- 
 counts to the amount of two millions at the Bank in Phila- 
 delphia, two millions at Baltimore, seven hundred thousand 
 at Richmond, and five hundred thousand in Norfolk, was 
 then ordered to be made before the 1st of November, and 
 it was resolved to require the payment of the balances due 
 by the Banks of Cincinnati and of the District of Columbia. 
 
 By the 30th of October, the reduction of discounts at 
 Philadelphia had exceeded the prescribed amount in the 
 sum of five hundred thousand dollars. In Baltimore, Rich- 
 mond, and Norfolk, the deficiency was one million seventy- 
 seven thousand five hundred. The total reduction in the 
 four cities was nearly four million five hundred thousand : 
 yet an additional reduction to the amount of one million, 
 was deemed necessary in Philadelphia ; and a committee of 
 investigation was constrained to urge a steady perseve- 
 rence in the curtailments of the discounts of the Bank and 
 its offices, wherever it might be practical and useful. One 
 of the reasons for this course of procedure, was " the pre- 
 mium paid at this time for specie, which is said to be ten 
 per cent, on Spanish dollars, and a considerable though 
 less premium for other coins." 
 
96 BANKING FROM 1817-18 TO 1818-19. 
 
 " When, in July last," says the Committee of Congress, 
 "the Board directed a curtailment of discounts, it fell in 
 almost all cases on the business paper, while the immense 
 amounts loaned on stock pledges were but little affected, ex- 
 cepting at the offices at Richmond and Washington, where 
 the curtailment appears to have fallen equally on all the 
 notes. But tlie discounts at these places on stock were 
 very small, particularly when compared with Baltimore, 
 where the loans were such, and so long continued, as to re- 
 ceive the animadversions of the parent Board." 
 
 A reduction of discounts to the amount of four million 
 five hundred thousand dollars in four cities, in the short 
 space of three months and ten days, had a very disastrous 
 effect on the merchants, and through them, on the rest of 
 the community. Their sufferings were increased by the or- 
 der not to receive on deposit at Philadelphia any notes except 
 those of the mother Bank, or at any one of the branches, 
 any notes except those of that one branch. Heretofore the 
 mother Bank and its branches had paid and received in- 
 discriminately, all their notes, without regard to the place 
 of issue. By the new arrangement, paper which was re- 
 ceived from the Bank on one day was on the next no longer 
 available in paying debts to the Bank. In other words, the 
 merchants were called on to pay four or five millions, and 
 were not allowed the privilege of paying debts due to the 
 Bank itself in the paper of the Bank. 
 
 The local Banks, when a sudden demand was made on 
 them for balances due to the United States' Bank, had no 
 way of meeting those demands but by pressing on their own 
 customers. The pressure thus became general throughout 
 the country. 
 
 The Committee of Congress say, that the demands of 
 the United States' Bank against the local Banks, " were 
 suffered to accumulate improperly, instead of being gra- 
 dually reduced as specie was required at other offices, and 
 in small quantities that would not have been felt. Their 
 reduction was not insisted upon sufficiently early ; and 
 when the Bank began to call for specie, its demands were 
 so considerable as not only to expose the local Banks, but 
 the citizens in their vicinity, generally, to very severe 
 pressure." 
 
 The situation of the community was very alarming. Mr. 
 
BANKING FROM 1817-18 TO 1818-19. 97 
 
 Niles, in his Register of October 3d, intimates that " a 
 grand scheme was maturing 'for keeping the paper-mill 
 a going.' The first part of the scheme is to i)rcpare the 
 members of Congress to vote as directed at the ensuing 
 session of Congress. Of what is designed to be done, 
 when a sufficient number of members are secured, we are 
 almost wholly in the dark at present : but we believe one of 
 the things proposed is, the substitution of a paper currency 
 as a LEGAL TENDER, instead of coin, which is frequently 
 hinted at in certain newspapers, as if to feel the public 
 pulse." In his Register, of November 7th, he says, " We 
 have several times darkly hinted at a great intrigue which 
 was going on to relieve the Banking system, generally, and 
 especially to subserve the grand views of the Bank of the 
 United States. I am just now informed of what this in- 
 trigue is : but private honor will not permit me to mention 
 it, at present. The object is, hij hits of paper to prevent 
 the Banlcsfrom being compelled to pay their debts. This 
 is the long and the short of the whole affair. Aye, and the 
 pretence is most specious, the appearance most seducing : 
 but the instantaneous effect will be to banish money, and 
 bring about those happy times when lordly Banks issued 
 notes for ,six and a quarter cents, and a copper coin was a 
 rarity. To effect this arrangement, many of the local 
 Banks will co-operate — to seal their own ruin ; for the bits 
 of paper above alluded to, will immediately centre in the 
 Bank of the United States. Perhaps, as the people are alarm- 
 ed on this subject, the project may not be pressed ; though 
 we have reason to believe that much exertion has been 
 made to convince certain members of Congress of the pro- 
 priety of it : and we were astonished to learn that a distin- 
 guished gentlemen, of whom, indeed, we expected a differ- 
 ent conduct, had boldly predicted the triumph of the United 
 States' Bank over the local institutions. Upon my con- 
 science, I would rather agree to have a hereditary Presi- 
 dent and a Senate for life, than that this thing should hap- 
 pen. In the latter case, our President and Senators rnight 
 be influenced to good actions by a sense of individual 
 shame, or a love of true glory, and the choice of representa- 
 tives would be left free to us : but in the other, an unknown 
 and irresistible aristocracy would be raised up, secret as 
 the " council often" and remorseless as the " holy inqui- 
 
98 BANKI\G FROM 1817-18 TO 1S18-19. 
 
 sition." Give me to live under any despotism but that 
 which springs from the command of money : for it is the 
 most base and unprincipled of all. 
 
 " Bat Congress will not, cannot, dare not, pass the law, 
 proposed to pamper speculation. They may prohibit the 
 exportation of coin, if they please ; still they cannot sub- 
 stitute a paper medium for it, and compel me to take it in 
 payment of debts justly due me. And this it is which is 
 fondly designed to be attempted — for the benefit of the 
 rag-barons." 
 
 It is certain that letters were received at Washington 
 from Philadelphia, in the early part of December, urging 
 an emission of treasury notes ; and that, on the 7th of De- 
 cember, a meeting was held in Philadelphia, Mr. Mattliew 
 Carey in the chair, by which a committee was appointed 
 to draft a memorial to Congress to prohibit the exportation 
 of specie. Some of the members appointed on the com- 
 mittee declined acting, and no memorial appears to have 
 been prepared ; but a member of the Senate actually 
 brought before that body a resolution to prohibit the ex- 
 portion of the precious metals ! What despotic Spain could 
 never accomplish, was attempted in free America. 
 
 Towards the close of this year, public opinion became so 
 adverse to the Banks as to call forth strong denunciations 
 of them from some of the high olficers of State. De Witt 
 Clinton, the Governor of New York, in his ^Message to the 
 Legislature, reprobated the system in strong terms. " The 
 embarrassments," he said, " arising from the disordered 
 state of our currency, have increased instead of diminishing, 
 since I had the honor to address the Legislature on the 
 subject. And unless efticient preventives are adopted, and 
 suitable remedies applied, the evil will be in a state of pro- 
 gressive augmentation. A proposition to invest Banks 
 with a power of coining money, would have no advocates, 
 and yet it might not be so pernicious as the authority 
 already granted of emitting Bank notes. Having uniformly 
 opposed the multiplication of Banks, I now only express 
 opinions formed for many years, after mature deliberation, 
 and which are every day sanctioned by the progress of 
 time and the voice of experience." 
 
 Governor Worthiiigton, of Ohio, said, "The disordered 
 state of the currency will claim your attention. The good 
 
BANKIXG FROM 1817-13 TO 1818-19. 99 
 
 people of the State look to you, gentlemen, for such reme- 
 dy as may be within your power. The obstacles you have 
 to encounter in effecting an object of so much importance 
 cannot be disguised : indeed, 1 fear it may be found im- 
 practicable, under existing circumstances, to answer public 
 expectation." 
 
 Gabriel Slaughter, the Governor of Kentucky, was very 
 emphatic in his denunciation of the system. " I am in- 
 deed," he said, " ready to confess before my countrymen, 
 that my sentiments, or perhaps prejudices, ever have been, 
 and still are, strongly against the Banking system. Time 
 and experience, instead of conquering these prejudices, 
 have tended to confirm them. I have ever viewed these 
 moneyed corporations with jealousy. I consider the corpo- 
 rate powers and privileges conferred on them, as so much 
 taken from the power of the people, and a contrivance to 
 rear up in the country a moneyed aristocracy. Money is 
 power, in whatever hands it is placed : but it is less dan- 
 gerous when divided among individuals, than when com- 
 bined and organized in the form of Banks. In vain did 
 the American people, during their struggles for liberty and 
 independence, destroy the landed aristocracy, then existing 
 under the law authorizing estates to be entailed, if a mo- 
 neyed aristocracy is to be substituted. Instead of having 
 our National and State Legislatures filled with men repre- 
 senting the feelings and interests of the great agricultural 
 class of the community, 1 fear we shall see these Banking 
 aristocracies greatly preponderate on the legislative floor. 
 I must ever be opposed to any system of policy, which, in- 
 dependent of its pernicious and corrupting influence in 
 other respests, tends to diminish, if not destroy, the weight 
 and influence of the farming interest, ujx)n whose virtue 
 and independence the duration of our free institutions so 
 essentially depends. 
 
 " While this system exists in other States, Kentucky can 
 do little to rescue the country from the evil and anti-repub- 
 lican tendencies of these moneyed corporations. Let us 
 therefore invite a co-operation in some plan, co-exten- 
 sive with the Union, -to redeem this young and rising Re- 
 public from the mischief and dangers of this paper system, 
 before it is too late. If permitted to progress and inter- 
 weave itself with all the interests and concerns of society, 
 
100 BANKING FROM 1817-18 TO 1818-19. 
 
 it may, in a more advanced and dense state of our popula- 
 tion, explode in a convulsion of the Government. The 
 disease, it is true, has taken deep root, but the American 
 Republic is young, and by a vigorous and determined 
 effort, may, in a few years, exterminate it. Some time 
 may be necessary to enable these institutions to wind up. 
 To effect so desirable an object, I would recommend to 
 the Legislature, to propose an amendment to the Federal 
 Constitution, providing, that, after a certain period, no in- 
 corporated Bank should exist in the United States, or, if 
 this should be thought going too far, and Banks in any 
 shape, or to any extent, are useful and necessary, let the 
 Banking powers be limited, and the system so regulated 
 and restricted, as to secure the community against the 
 wide spread ruin and mischief with which we are threat- 
 ened." 
 
 These views appear to have been adopted by some mem- 
 bers of the Legislature, for on the 4th of January, 1819, 
 Mr. Bledsoe submitted the following resolutions: — 
 
 1. Resolved, by the General Assembly of the Common- 
 wealth of Kentucky , that the establishment of a moneyed 
 monopoly is hostile to republican liberty. 
 
 2. Resolved, That Banks are such a monopoly, and do 
 not depend for their profits upon the correct employment 
 of the products of industry. 
 
 3. Resolved, That as the products of the labor of a na- 
 tion are the only genuine sources of national wealth, any 
 corporation or institution which tends to substitute specu- 
 lation instead of the proper and valuable fruits of this 
 labor, must be pernicious, and ought to be abolished. 
 
 4. Resolved, That any corporation not promotive of, or 
 essential to, public good, ought not to exist. 
 
 5. Resolved, That all Banks wherein individuals are in- 
 terested, are moneyed monopolies, tending to make profit to 
 those who do not labor, out of tiie means of those who do : 
 not tending to increase the means of industry, but to profit 
 of those means unjustly : tending to tax the many for the 
 benefit of the few : tendnig to create a privileged order, 
 unuseful and pernicious to society: tending to destroy 
 liberty, and create a power unfriendly to human happiness: 
 tending inevitably to an unfeeling moneyed aristocracy, more 
 to be deprecated than moiuucliy itself: tending to the de- 
 struction of the best hopes of man here and hereafter. 
 
BANKING FROM 1818-19 TO 1819-20. 101 
 
 6. Resolved, That it becomes the duty of the General 
 Government, and of every individual State composing it, 
 (gradually if necessary, but ultimately and certainly,) to 
 abolish all Banks and moneyed monopolies, and if a paper 
 medium is necessary, to substitute the impartial and dis- 
 interested medium of the credit of the nation or of the 
 States." 
 
 We know not if these resolutions were adopted. 
 
 CHAPTER XII. 
 
 Of Banldngfrom 1818-19 to 1819-20. 
 
 A committee of Congress, which had been appointed on 
 the 30th of November, 1818, to investigate the affairs of the 
 United States' Bank, arrived in Philadelphia on the 6th of 
 December, and left it on the 2Gth. • Some investigations 
 were subsequently made of the state of the branches at 
 Richmond and Washington ; and on the ICth of January, 
 1819, the committee made a report, giving an account of 
 the operations of the Bank, and concluding with a declara- 
 tion that it had violated its charter, in four particulars, viz : 
 in purchasing two millions of public debt ; in not requiring 
 the stockholders to pay the second and third instalments of 
 the stock in coin and funded debt; in paying dividends to 
 stockholders who had not completed their instalments: and 
 in suffering certain individuals, under pretext of their being 
 attorneys for others, to give more votes for directors than 
 the charter allowed. 
 
 Mr. Spencer, the chairman of the committee, offered a 
 resolution to cause a scire facias to be sued out, to call on 
 the corporation of the United States' Bank, to show cause 
 why its charter should not be forfeited, unless the Bank 
 would consent to certain alterations in the act of incorpora- 
 tion. Mr. Trimble offered a resolution to cause a scire 
 facias to be issued immediately. Mr. Johnson offered a 
 resolution to repeal the charter of the Bank. 
 
 After debate, IMr. Trimble's resolution was rejected on 
 the 24th of February, 39 members voting in its favor, and 
 
 K 
 
103 BANKING FROM 1818-19 TO 1819-20. 
 
 116 against it. Mr. Johnson's resolution was supported by 
 30 members, and opposed by 121 ; and Mr. Spencer, dis- 
 covering by these votes the disposition of the House, with- 
 drew his resolution. 
 
 " We learn," says Mr. Niles, " that about forty mem- 
 bers are stockholders — some of them heavily so : icc hope 
 that nunc of them voted in their oum case. The great dan- 
 ger of incorporations is, that the chief members of them are 
 our governors, judges, and legislators ; and thus their in- 
 dividual interests may be placed between the people and 
 the justice that they claim."* 
 
 The Bank was in more danger from its own operations, 
 than from any proceedings of Congress. On the receipt 
 in Philadelphia of the report of the committee, the stock 
 fell to 93, and Mr. William Jones, the President, soon after 
 fled in affright ft-oni the institution. Mr. Cheves, of South 
 Carolina, was invited to take his place, and Mr. James C. 
 Fisher, of Philadelphia, served as President pro tempore. 
 
 Three years afterwards Mr. Cheves gave the stock- 
 holders an exposition of the state of the Bank, from which 
 exposition we shall make a copious extract. 
 
 " The institution commenced active Banking operations 
 about 1st of January, 1817, and in the course of the year esta- 
 blished eighteen branches. The report of the committee of 
 Congress made in December, 1818, has made you so fully 
 acquainted with many of the details of the previous man- 
 agement, that I mean to do little more in relation to the 
 period which proceeded 1819, than present the results, as 
 they will be exhibited in the state of the Bank when I 
 came into it. 
 
 " The Bank immediately on its commencement did a 
 very extensive business, imported vast sums of specie, 
 paid its notes and those of the offices, without reference 
 to the places where they were payable, at tlie Bank, and 
 all the principal offices north of the Potomac, while they 
 were, under the charter, necessarily received every where 
 in payments of debts to the Government of the United 
 State : and drafts were given without limit, on the parent 
 Bank and northern offices, by the western offices, at par 
 or at a premium merely nominal. As soon as the notes of 
 
 * Weekly Register, Feb. 27, 1819. 
 
BANKING FROM 1818-19 TO 1819-20. 103 
 
 the southern and western offices were paid or received 
 by the Bank and northern offices, they were returned 
 to them and re-issued in perpetual succession. An ac- 
 companying exhibit will show the enormous amount of the 
 notes of the southern and western offices, which became 
 chargeable on the Bank, directly and indirectly, through 
 the northern offices.* The result was that the Bank, and the 
 great northern offices were drained of their capital, and 
 on the 20th of July, 1818, only eighteen months after the 
 the institution began its operations, it was obliged to com- 
 mence a rapid and heavy curtailment of the business of 
 the Bank and its offices. During all this time, it had the 
 advantage of immense Government deposits. At the mo- 
 ment that curtailments were ordered, the Government de- 
 posits in the Bank and its branches, including the de- 
 posits of public officers, amounted to eight millions of 
 dollars, and they had been larger at preceeding periods. 
 Curtailments were ordered from time to time, at the south- 
 ern and western offices, to the amount of seven millions of 
 dollars, and at the parent Bank to the amount of two mil- 
 lions, though at the latter they were made to the amount of 
 3,600,000, and upwards, between the 30th of July, 1818, 
 and the 1st of April, 1819. No curtailments were ordered 
 at the offices of New York and Boston, because there was 
 no room for them, yet necessity obliged them to reduce their 
 business very much. The curtailments at all points within 
 the above mentioned dates, being eight months, were 
 6,530,159 dollars 49 cents. Yet after these immense and 
 rapid curtailments, the most sensible and vital points (Phi- 
 ladelphia, New York, and Boston) were infinitely in worse 
 condition than when the remedy was devised. 
 
 " An accompanying exhibit will show the distribution of 
 the capital at the close of this important period.! At that 
 moment the discount line of the important office at Boston, 
 was only 94,584 dollars 37 cents. And when in this 
 
 * The total was $14,893,661, or $20,422,642,95, if we include 
 5,528,981,96 of post notes which were issued by the parent Bank, and 
 destroyed because they were used in the Southern and Western States, 
 in lieu of Bank notes. 
 
 t The office at New York had a capital of 24.'),00n dollars : that at 
 Richmond, 1,760,.502, Baltimore, 5,646,000, Cincinnati, 2,400,000, 
 Louisville, 1,129,000, Lexington, 1,500,000, &c. 
 
104 BANKING TROM 1818-19 TO 1818-20. 
 
 wretched state, the southern and western circulation was 
 pouring in upon these weak points, and the Govern- 
 ment at liberty, according to the practice of the time, to 
 draw on either office or the Bank for the gross amount of 
 its deposits, throughout the whole establishment, whether 
 North, South, East or West. The southern and western 
 offices were not restrained from issuing their notes, which 
 they did most profusely. The curtailments, in many in- 
 stances, resulted merely in a change of debts bearing in- 
 terest, for debts due by local Banks, or the notes of local 
 Banks, on neither of which was interest received. The 
 western offices curtailed their discounted paper, but they 
 purchased what were called race liorse bills, to a greater 
 amount than their curtailments. The Bank itself continued, 
 during the whole period, to purchase and collect drafts on 
 the southern and even western offices, though almost the 
 whole of the active capital already lay in those quarters of 
 the Union, and though the jjreat obiectof the curtailments 
 was to draw funds from these points. The debt due in 
 Kentucky and Ohio, instead of being reduced, was within 
 this period actually increased upwards of half a million of 
 dollars. An accompanying exhibit will show, that, instead 
 of getting relief from the southern and western offices 
 generally, where curtailments had been ordered, the Bank 
 was still further exhausted by the intervening operations. 
 " At the commencement of this period, (a period com- 
 mencing with the order for curtailments, and ending 
 March, 1819,) the Bank was indebted to Baring, Brothers 
 & Co., Reed, Irving & Co., Adams, Robertson & Co., 
 and Thomas Wilson & Co., the sum of 1,580,345 dollars 
 47 cents, growing principally, if not entirely, out of its 
 specie operations. Of this sum the greater part was paid 
 during this period. It had, however, contracted new debts 
 with Baring, Brothers & Co., and Thomas Wilson & Co., 
 of which there remained due, including any balance which 
 may have been due on the former accounts, the sum of 
 876,048 dollars : and within the same period it had dis- 
 posed of 2,270,920 dollars 05 cents of its funded debt, 
 furnishing, by these compound operations, ways and means, 
 in addition to its curtailments, to the amount of 1,501,220 
 dollars 113 cents, and making, with these curtailments, a 
 reduction in the productive capital of the Bank, within 
 
BAXKIXG FROM 1818-19 TO 1819-20. 105 
 
 the period of eight months, of eight millions of dollars 
 and upwards. 
 
 " At the close of this period, the discounts on personal 
 security at Philadelphia, had been so long the subject of 
 curtailment, that but a small portion of them admitted of 
 further reduction, and, after great efforts, a rule had been 
 •stablished to reduce the discounts which had been grant- 
 ed on the stock of the Bank, at the rate of five per cent, 
 every 60 days. The latter constituted the bulk of the 
 discounted paper, and so small a reduction afforded no 
 relief against a crreat and immediate demand. Even this 
 small reduction W'as the subject of loud, angry, and con- 
 stant remonstances among the borrowers, who claimed 
 the privileges and the favors which they contended were due 
 to stockholders, and sometimes succeeded in communica- 
 ting their sympathies to the Board. All the funded debt 
 which was valuable had been disposed of, and the proceeds 
 exhausted. The specie in the vaults at the close of the 
 day, on the 1st of April, 1S19, was only 126,745 dollars 
 28 cents, and the Bank owed to the city Banks, deducting 
 balances due to it, an aggregate balance of 79,125 dollars 
 99 cents. 
 
 " It is true there were in the Mint 267,978 dollars 9 
 cents, and iji transitu from Kentucky and Ohio overland 
 250,000 dollars: but the Treasury dividends were payable 
 on that day to the amount of near 500,000 dollars, and 
 there remained at the close of the day more than one half 
 of the sum subject to draft, and the greater part of the sum 
 which had been drawn during the day, remained a charge 
 upon the Bank in the shape of temporary deposits which 
 were almost immediately withdrawn. Accordingly, on the 
 i2th of the same month, the Bank had in its vaults but 
 71,522 dollars 47 cents, and owed to the city Banks a 
 balance of 196,418 dollars 47 cents; exceeding the specie 
 in its vaults 124,895 dollars 19 cents. It must again be 
 remarked, that it had yet the sum before mentioned in the 
 Mint, as well as the sum i)i transitu from Ohio and Ken- 
 tucky — this last sum (250,000 dollars) arrived very season- 
 ably on the next day, or a day or two thereafter. The 
 Bank in this situation, the office at New York was little 
 better, and the office at Boston a great deal worse. At the 
 same time the Bank owed to Baring, Brothers & Co. and 
 
106 BANKING FROM 1818-19 TO 1819-20. 
 
 Thomas Wilson & Co., nearly 900,000 dollars, which it 
 was bound to pay immediately, and which was equivalent 
 to a charge upon its vaults to that amount. It had, in- 
 cluding the notes of the offices, a circulation of six million 
 dollars to meet, to which were to be added the demands of 
 depositors, public and private, at a time, too, when the 
 scarcity of money called forth every disposable dollar, and 
 therefore created demands upon the Bank for an unusual 
 portion of the ordinary deposits and circulation. 
 
 " The sums which were collected daily on account of 
 the revenue, in branch paper, were demandable the next 
 day in Philadelphia, and, at tlie same time, at every office 
 of the establishment, at the discretion of the officers of 
 Government. The revenue was principally paid in branch 
 paper, as well at Boston and New York as at Philadelphia, 
 and while the duties were thus paid at one counter, in 
 branch paper, the debentures, which amounted to one mil- 
 lion of dollars every three months, were demanded and paid 
 at the other, in specie or its equivalent — money of the 
 place. Many additional details, increasing the difficulties 
 of the moment, might be added. The southern offices 
 were remitting tardily, and the western not at all. All 
 the resources of the Bank would not have sustained it in 
 this course and mode of business another month!! Such 
 w^as the prostrate state of the Bank of the nation, which 
 had, only twenty-seven months before, commenced business 
 with an untrammelled active capital of twenty-eight millions 
 of dollars. 
 
 " But it would have been fortunate for the Institution if 
 its danger had ceased here. There still remained in some 
 of the trusts of the Bank, some of the men who had con- 
 tributed most to involve it in this state of things. As I 
 must be brief, and the subject is very extensive, I will ad- 
 vert only to the principal instance of the misfortune and 
 profligacy to which I allude. 
 
 " In the office at Baltimore of which James A. Buchanan 
 was President, and J. W. JM'Culloh was Cashier, tliere 
 were near three millions of dollars discounted or appro- 
 priated, without any authority, and without the knowledge 
 of the Board of the office, or that of the parent Bank ! S. 
 Smith and Buchanan, of which firm J. A. Buchanan was 
 a member, James W. M'Culloh and George Williams (the 
 
BAPTKING FROM 1818-19 TO 1819-20. 107 
 
 latter a member of the parent Board by the appointment 
 of Government,) had obtained of the parent Bank dis- 
 counts, in the regular and accustomed manner, to the 
 amount of 1,957,700 dollars, on a pledge of 18,290 shares 
 of stock of the Bank. These men, without the knowledge 
 of either Board, and contrary to the resolves and orders of 
 the parent Bank, took out of the ofSce at Baltimore, under 
 the pretence of securing it by pledging the surplus value 
 of the stock, already pledged at the parent Bank for its par 
 value and more, and other like surpluses over which the 
 Bank had no control, the sum of 1,540,000 dollars : this 
 formed a part of the sum before stated to have been dis- 
 counted by the President and Cashier of the office, without 
 authority. When this stupendous fraud was discovered, 
 attempts were immediately made to obtain security ; and it 
 was obtained nominally to the amount of 900,000 dollars. 
 It was probably really worth 500,000 dollars. 
 
 " The losses sustained at the office at Baltimore alone, 
 the great mass of which grew out of this fraud and others 
 closely connected with it, have been estimated at the im- 
 mense sum of 1,671,221 dollars 87 cents. The aggregate 
 of the losses of the Institution, growing out of the opera- 
 tions which preceded the Gth of March, 1819, exceeded 
 considerably 3,500,000 dollars. The dividends during the 
 same time amounted to 4,410,000. Of this sum, 1,348,553 
 dollars 98 cents were received as the interest on the public 
 debt held by the Bank, which leaves, as the entire profits 
 on all the operations of Banking, the sum of 3,061,441 
 dollars 2 cents, which is less by at least half a million of 
 dollars, than the losses sustained on the same business ! ! 
 
 " When I was invited, and consented to fill the station 
 I now hold, I was alike ignorant and inapprehensive of the 
 situation in which I have just described the Bank, (truly, I 
 believe,) to have been. I was at the moment remotely si- 
 tuated from the scenes of its active business, and its import- 
 ant transactions. I had held, it is true, shortly before, to 
 oblige my friends, a place in the board of the office at 
 Charleston, at which I occasionally attended, and from 
 what I saw there, as well as from the public facts concern- 
 ing the transactions of the Bank, I was satisfied that there 
 was a great want of financial talent in the management of 
 it. But 1 had not the faintest idea that its power had been 
 
108 BANKING PROM 1818-19 TO 1819-20. 
 
 SO completely prostrated, or that it had been thus unfortu- 
 nately managed or grossly defrauded. I never imagined 
 that when it had, at so much expense and loss, imported so 
 many millions of specie, they had been entirely exhausted, 
 and were not yet paid for : nor that the Bank was on the 
 point of stopping payment. It was not until the moment 
 I was about to commence my journey to Philadelphia, that 
 I was apprized by a letter from a friend, who had been a 
 member of the preceding Board, that he feared, in a few 
 months, the Bank would be obliged to stop payment. 
 
 *' This was, indeed, appalling news. When I reached 
 Washington, I received hourly proofs of the probability of 
 this event. In Philadelphia it was generally expected. My 
 memory deceives me if I found any one in or out of the 
 Bank, who entertained a sanguine belief of its being able 
 to sustain its payments much longer. On the contrary, 
 there was, (£ think it cannot be forgotten,) a public and 
 general expectation that the nation was about to suffer the 
 calamity of a currency composed entirely of irredeemable 
 paper. The evil which thus threatened the country, is not 
 at all to be compared with a suspension of sound currency 
 in times of war and great national emergencies. The for- 
 mer can only be conceived by a people who have suffered 
 under a paper currency in profound peace. What a train 
 of evils does it produce? Tlie destruction of public and 
 private credit, the national torpor, the individual ruin, the 
 disgraceful legislation, and the prostration of the morals of 
 the people, of which you may discover within your own ter- 
 ritories some examples, will give you some, but a faint idea 
 of the calamity which was about to fall on the country. 
 
 " Thus stood the Bank at the organization of the pre- 
 sent administration. I was elected and look my seat as 
 President of the Board on the 6th of March, 1819. But 
 some time, of course, was necessary to look into the state 
 of the Bank before measures of relief could be projected. 
 Its danger, however, was too manifest and too pressing to 
 allow much time for this purpose. The principal errors 
 which j)roduccd the danger were fortunately of easy dis- 
 covery, and to them the proper remedy was immediately 
 applied. The southern and western offices were immedi- 
 ately directed not to is^ue their notes, and the Bank ceased 
 to purciiasc and collect exchanges on the South and West. 
 
BANKIIVG FROM 1818-19 TO 1819-20. 109 
 
 A special meeting of the Board was called, which the non- 
 resident directors were summoned to attend, for the 9th 
 of April, (the next month,) and a correspondence with the 
 Secretary of the Treasury was commenced, entreating his 
 forbearance and his aid. To this officer I should be un- 
 grateful and unjust, if I were not publicly to acknowledge 
 my obligations, and those of the Bank, for the countenance 
 and support he afforded to both in this struggle. 
 
 " At a meeting of the directors on the 9th of April, 
 which was very full, the state of the Bank was submitted 
 to them, a select committee appointed, to whom the sub- 
 ject of its difficulties was referred, and after very mature de- 
 liberation that committee made a report, which was unani- 
 mously agreed to. The principal means of relief proposed 
 and ageed to were : 
 
 " 1. To continue the curtailments previously ordered. 
 2. To forbid the offices, at the South and West, to issue 
 their notes when the exchanges were against them. 3. 
 To collect the balances due by local Banks to the offices. 
 4. To claim of the Government the time necessary to 
 transfer funds from the offices where money was collected to 
 those where it was to be disbursed, as well as like time 
 (until the difficulties of the Bank were removed,) to trans- 
 fer funds to meet the notes of offices paid in the Bank or 
 other offices than those where they were payable accord- 
 ing to their tenor. 5. To pay debentures in the same mo- 
 ney in which the duties on which the debentures were 
 secured, had been paid. 6. To obtain a loan in Europe 
 for a sum not exceeding 2,500,000 dollars, for a period not 
 exceeding three years. 
 
 " These measures, simple and obvious as they are, and 
 some of them so strangely overlooked so long, lifted the 
 Bank in the short space of seventy days, (from the Gth of 
 March to 17th of May,) from the extreme prostration 
 which has been described, to a state of safety, and even in 
 some degree of power, enabled it to cease its curtailments, 
 except at points where it had an excess of capital, to defy 
 all attacks upon it, and to sustain other institutions which 
 wanted aid, and were ascertained to be solvent: above all, 
 to establish the soundness of the currency, which had just 
 before been deemed hopeless ; and in a single season of 
 business (the first) to give to every office as much capital 
 as it could advantageously employ." 
 
110 BANKIXG FROM 1818-19 TO 1819-20. 
 
 The Bank was saved, and the people were ruined. For 
 a time, the question in Market street, Philadelpliia, was, 
 every morning, not who iiad broken the^ previous day, 
 but who yet stood. In many parts of the country, the dis- 
 stress was as great as it was in Philadelphia, and in others 
 it was still more deplorable. 
 
 " Froui all parts of our country" says Mr. Niles,* " we 
 hear of a severe pressure on men in business, a general 
 stagnation of trade, a large reduction in the price of staple 
 articles. Real property is rapidly depreciating in its 
 nominal value, and its rents or profits are e.xceedingly 
 diminishing. Manv highly respectable traders have be- 
 come bankrupts, and it is agreed that many others must 
 "go" : the Banks are refusing their customary accomoda- 
 tions: contidence among merchants is shaken, and three 
 per cent, per montli is otfered for the discount of promis- 
 sory notPS, which a little while ago were considered as 
 good as " old gold," and whose makers have not since suf- 
 fered any losses to render their notes less valuable than 
 heretofore." 
 
 Four months afterwards, he says,t " It is estimated that 
 there are "20,000 persons daihi seeking work in Philadel- 
 phia ; in New York, iO,0(U1 able-bodied mm are said to be 
 wandering about the streets looking for it, and if we add 
 to them the women who desire something to do, the 
 amount cannot be less than 20,000: in Baltimore there 
 may be about 10,000 persons in unsteady employment, or 
 actually suftering because they cannot get into business. 
 We know several decent men, lately " good livers," who 
 now subsist on such victuals as two years ago they would 
 not have given to their servants in the kitchen." 
 
 A Committee appointed by a meeting of the citizens of 
 Philadelphia, on the '2ist of August, to inquire into the 
 situation of the manufacturers of the city and its vicinity, 
 reported, on the 2d of October, that in thirty mechanical 
 and manufacturing branches of trade, which they enume- 
 rated, which gave employment to 9188 persons in 1814, 
 and to 907*2, in 18 IG, there were but 2137 persons em- 
 ployed in 1819. 
 
 ♦ Weekly Register, April 10, 1819. t lb. August 7ih, 1819. 
 
BANKING FROM 181S-19 TO 1819-20. 
 
 Ill 
 
 A Committee of the citizens of Pittsburg, who made 
 report on the 24th of December, stated that certain manu- 
 facturing and mechanical trades in their city and its 
 vicinity, which employed 19C0 persons in 1815, employed 
 only 67-2, in 1819.* 
 
 '' Never," said the Frankford (Ky.) Argus.t " within 
 the recollection of our oldest citizens, has the aspect of the 
 times, as it respects property and money, been so alarming. 
 Already has property been sacrificed in considerable 
 quantities, in this and the neighboring counties, for less 
 than half its value. We have but little money in circula- 
 tion, and that little is daily diminishing by the universal 
 calls of the Banks. Neither lands, negroes, or any other 
 article, can be sold for half their value in cash, while exe- 
 cutions to the amount of many hundreds of thousands of 
 dollars, are hanging over the heads of our citizens. AVhat 
 can be done ? In a few months no debt can be paid, no 
 money will be in circulation to answer the ordinary pur- 
 poses of human life. Warrants, suits, and executions, will 
 be more abundant than Bank notes ; and the country will 
 present a scene of scuffling for the poor remnants of indi- 
 vidual fortunes, which the world has not witnessed." 
 
 A Kentuckian, writing in the Edwardsville (111.) Specta- 
 tor, confirmed this gloomy account.t " It has always," 
 he said, " been my opinion, that of all evils which can be 
 inflicted on a free State, Banking establishments are the 
 most alarming. They are the vultures that prey upon the 
 vitals of the Constitution, and rob the body politic of its 
 life-blood. Look now at Kentucky! What a spectacle 
 does she present! Nothing is to be seen but a boundless 
 expanse of desolation ! Wealth impoverished, enterprize 
 checked, commerce at a stand, the currency depreciated, 
 all that was promotive of individual wealth, and all that 
 wasindicativeof State prosperity and advancement, plunged 
 into the great vortex of irremediable involvement. What 
 incentive, now, has the farmer to industry and exertion? 
 How fruitless would be the effort of the merchants, to raise 
 from their torpidity the fallen energies of the State !" 
 
 * See the documents appended to the Report of the Senate of Penn- 
 sylvania. 
 
 t See Weekly Register, June 7th. 
 t See Niles, Sept.^Uth, 1619. 
 
112 BANKING FROM 1818-19 TO 1819-20. 
 
 A writer in the Kentucky Gazette, quoted by Niles on 
 the 9th of October, observed : " Slaves which sold some 
 time ago, and could command the most ready money, have 
 fallen to an inadequate value. A slave which hires for 80 or 
 100 dollars per annum, may be purchased for 300 or 400. 
 A house and lot on Limestone street, for which §15,000 
 had been offered some time past, sold under the officer's 
 hammer for $1,800. A house and lot which, I am inform- 
 ed, was bought for $10,000, after C,000 had been paid by 
 the purchaser, was sold under a mortgage for $1,500, leav- 
 ing the original purchaser (besides his advances) 63,500 
 in debt. A number of sales, which excited at the same 
 time astonishment and pity, have occurred in this town. 
 Comparison of local sufferings should not be indulged in, 
 but I am told that Lexington is less afflicted than almost 
 any other part of the State." 
 
 Bankruptcies for large amounts were of frequent occur- 
 Tence. Mention is made, among others, of the bankruptcy 
 of a merchant-tailor in the little town of York, Pennsylva- 
 nia, who failed for the sum of eighty-four thousand dollars.* 
 
 This was, indeed, an important affair in a town contain- 
 ing but 3,000 or 4,000 inhabitants; but it sunk into insig- 
 nificance when compared with some of the failures in the 
 large cities. " So extensive were these among the mer- 
 chants of the cities east of Baltimore, that it seemed to be 
 disreputable to stop payment for less than 100,000 dollars : 
 the fashionable amount was from 2 to 300,000 dollars ; and 
 the tip-top quality, the support of whose families had cost 
 them from 8 to 12,000 dollars a year, were honored with 
 an amount of debt exceeding 500,000 dollars, and nearly 
 as much as a million of dollars. The prodigality and waste 
 of some of these were almost beyond belief: we have heard 
 that the furniture of a single parlor possessed (we cannot 
 say brlongini^) to one of them, cost 40,000 dollars. So it 
 was in all the great cities — dash, dash, dash — venders of 
 tape and bobbins transformed into itcrsons of high blond, 
 and the .sons of respectable citizens converted into knaves 
 of /•««/>■ — through speculation, and the facilities of the abomi- 
 nable paper system. "t 
 
 " I am told that one merchant, who lately failed to the 
 
 * Weekly Register, November 9th. t Jb, June 5th. 
 
BANKING FROM 1818-19 TO 1819-20. Il3 
 
 eastward, yet lives in a house for which, and its furniture, 
 he was offered 200,000 dollars in real money and refus- 
 ed it." 
 
 " Scenes of speculation are revealed and revealing that 
 sober people had no idea of. Their effect penetrates 
 through all classes of society. The day -laborer feels it, and 
 suffers, because 3Ir. Highflyer co\x\d sign his name prettily, 
 and thereby cause his paper to pass through some of the 
 Banks. The farmer who improved his plantation by build- 
 ino" a cosily dwelling on credit, is compelled to sell both 
 farm alid dwelling to pay the debts incurred in erecting the 
 house ! — a pipe of wine, or a Cashmere shawl, compels 
 some merchants to stop payment! I have heard of one man 
 who failed for more than 8500,000, whose private wine 
 vault, as it stood at the time of his bankruptcy, was estimat- 
 ed to have cost him -ST, 000. This is said to have hap- 
 pened in the sober city of Philadelphia.* 
 
 " Twenty or thirty years ago, if a man failed for 100,000 
 dollars, the people talked as fearfully about it as about that 
 time the old women did of the fulfilment of Love's prophe- 
 cies,' who had determined that the world should come to 
 an end before the close of the last century. But now, through 
 the blessings of the ' paper system,' the facilities which it 
 afforded, and the speculations it nourished, it is not decent 
 for a man to break for less than 100,000 ; and if a person 
 would be thought a respectable bankrupt, he ought to owe 
 two or three hundred thousand or more. If with this ex- 
 tent of credit it should appear that he had not been worth 
 one cent for twenty years, and was not entitled to be trust- 
 ed for a pair of shoes, so much the better ! — it is evidence 
 of his qualities as a financier. And if, out of other peo- 
 ples' money, he has given his wife 50,000 or 00,000 dollars, 
 it shows \\\s prudence in ' providing for his family. 'f 
 
 " Tiie Federal Gazette of the 18th instant, contains six 
 solid, formidable columns of advertisements, by order of 
 the commissioners for conferring the benefit of the ' insol- 
 vent laws' of Maryland — in all about sixty — which gives the 
 names, perhaps, of nearly one-third of the persons who are 
 ' going through our mill' just at this time ; several of whom 
 are those that lately counted their affairs by hundreds of 
 
 * Weekly Register, June 12th. t August ]4th. 
 L 
 
Ii4 BANKING FROM 1818-19 TO 1819-20. 
 
 thousands, or by millions of dollars ; who erected palaces, 
 and furnished them with a degree of magnificence superior 
 to that which many German princes aspired to — who still 
 live in splendid ajflunice, and indulge tltonselvcs in the most 
 luxurious viands — their wives and children, or some kind 
 relative, having been made rich through their swindlings 
 of the people."* 
 
 On the yth of December, a committee of the Senate of 
 Pennsylvania was appointed to inquire into the causes and 
 extent of tiie public distress, and on the 29th of January, 
 1820, the committee made a report, through Mr. Raguet, 
 their chairman, in which they said — 
 
 " In the performance of a duty of such high importance 
 as that wliich has been intrusted to your committee, they 
 have felt it incumbent on them to enter at large into the in- 
 vestigation of the subject contemplated by their appoint- 
 ment, in order that the people of the present day may be 
 correc ly informed as to the extent and causes of the evil 
 by which they are oppressed, and that the records of tlie 
 House may be furnished with a document, wliich may af- 
 ford evidence at a future day of the miseries which it is 
 possible to inflict upon a people by errors in legislation, and 
 by the bad administration of incorporated institutions. 
 
 " In ascertaining the extent of the public distress, your 
 committee has had no difficulties to encounter. Members 
 of the Legislature from various quarters of the State, have 
 been consulted in relation to this subject, and their written 
 testimony in answer to interrogatories submitted to them 
 by the committee, has agreed, with scarcely a single ex- 
 ception, on all material points. With such a respectable 
 weight of evidence, added to that which has been derived 
 from the prothonotaries, recorders and sheriffs of the dif- 
 ferent counties, from an intercourse with numerous pri- 
 vate citizens residing in different parts of the Slate, as well 
 as from the various petitions presented to the Legislature, 
 your committee can safely assert, that a distress unexam- 
 pled in our country since tlie period of its independence, 
 prevails throughout the connnonwcalth. This distress ex- 
 hibits itself under the varied forms of — 
 
 *' 1. Ruinous sacrifices of landed property at sheriff's 
 
 * Weekly Register, October '^3d. 
 
BANKIXG FROM 1818-19 TO 1819-20. 
 
 115 
 
 Siiles, whereby, in many cases, lands and houses have been 
 sold at less than a half, a third, or a fourth of their former 
 value, thereby depriving of their liomes, and of the fruits 
 of laborious years, a vast number of our industrious far- 
 mers, some of whom have been driven to seek, in the un- 
 cultivated forests of the West, that shelter of which they 
 have been deprived in their native State. 
 
 " 2. Forced sales of merchandise, houseliold goods, farm- 
 ing stock, and utensils, at prices far below the cost of pro- 
 duction, by wliich many families have been deprived of the 
 common necessaries of life, and of the implements of their 
 trade. 
 
 '' 3. Numerous bankruptcies and pecuniary embarrass- 
 ments of every description, as well among the agricultural 
 and manufacturincr, as the mercantile classes. 
 
 " 4. A general scarcity of money throughout the country ^ 
 which renders it almost impossible for the husbandman or 
 other owner of real estate to borrow at a usurious interest, 
 and where landed security of the most indubitable character 
 is offered as a pledge. A similar difficulty of procuring 
 on loan had existed in the metropolis previous to October 
 last, but has since then been partially removed. 
 
 " 5. A general suspension of labor, the only legitimate 
 source of wealth, in our cities and towns, by which thou- 
 sands of our most useful citizens are rendered destitute of 
 the means of support, and are reduced to the extremity of 
 poverty and despair. 
 
 " 6. An almost entire cessation of the usual circulation 
 of commodities, and a consequent stagnation of business, 
 which is limited to the mere purchase and sale of the ne- 
 cessaries of life, and of such articles of consumption as are 
 absolutely required by the season. 
 
 " 7. A universal suspension of all large manufacturing 
 operations, by which, in addition to the dismissal of the 
 numerous productive laborers heretofore engaged therein, 
 who can find no other employment, the public loses the re- 
 venue of the capital invested in machinery and buildings. 
 " 8. Usurious extortions, whereby corporations instituted 
 for Banking, Insurance, and other purposes, in violation of 
 law, possess themselves of the products of industry without 
 granting an equivalent. 
 
116 BANKING FROM 1818-19 TO 1819-20. 
 
 " 9. The overflowing .of our prisons with insolvent debt- 
 ors, most of whom are confined for trifling sums, whereby 
 the community loses a portion of its effective labor, and is 
 compelled to support families by charity, who have thus 
 been deprived of their protectors. 
 
 " 10. Numerous law suits upon the dockets of our courts 
 and of our justices of the peace, which lead to extravagant 
 costs and the loss of a great portion of valuable time. 
 
 "11. Vexatious losses arising from the depreciation and 
 fluctuation in the value of Bank notes, the impositions of 
 brokers, and the frauds of counterfeiters. 
 
 " 12. A general inability in the community to meet with 
 punctuality the payment of debts even for family expenses, 
 which is experienced as well by those who are wealthy in 
 property, as by those who have hitherto relied upon their 
 current receipts to discliarge their current engagements. 
 
 " With such a mass of evils to oppress them, it cannot 
 be wondered at that the people should be dispirited, and that 
 they should look to their representatives for relief. Their 
 patient endurance of suflering, which can only be imagined 
 by those who have habitually intermingled with them at 
 their homes and by their firesides, merits the commenda- 
 tion of the Legislature, and prefers a powerful claim to 
 their interference. 
 
 " Havmg thus enumerated the most prominent features 
 of the general distress, your committee will proceed to point 
 out the cause which in their opinion has occasioned it. 
 That cause is to be found chiefly in the abuses of the Bank- 
 ing system, which abuses consist, first, in the excessive 
 number of Banks, and, sccondli/, in their universal bad ad- 
 ministration. For the first of these abuses the people have 
 to reproach themselves, for having urged the Legislature to 
 depart from that truly republican doctrine which influenced 
 the deliberations of our early assemblies, and which taught 
 that the incorporation of the moneyed interest, already suf- 
 ficiently powerful of itself , was hut the creation of an odious 
 aristocracy , hostile to the spirit of free government, and 
 subversive of the rights and liberties of the people. The 
 second abuse, the mismanagement of Banks, is to be as- 
 cribed to a general ignorance of the true theory of curren- 
 cy and Banking, and to the avarice of speculators, desirous 
 of acquiring the property of others by an artificial rise in 
 
BANKING FROM lSlS-19 TO 1819-20. 117 
 
 the mominal value of stock, and bv the sharing of usurious 
 dividends. 
 
 " In order that this subject may be clearly understood, 
 your committee have thought that the following concise his- 
 tory of Banking in Pennsylvania would be acceptable." 
 
 The committee then give a short history of Banking in 
 Pennsylvania, and of the operations of the United States' 
 Bank, up to July, 1818, aftor which they remark — 
 
 " This unwise procedure of replunging the people into 
 the debts from which they had been partially extricated, 
 and of involving others v.ho had hitherto escaped, was con- 
 tinued for a time, but the dreadful day of retribution at 
 length arrived. The Bank, (i. e. the U. S. Bank,) disco- 
 vered almost too late, that its issues had been extended be- 
 yond the limits of safety, and that it was completely in the 
 power of its creditors. It also foresaw that the payment of 
 that portion of the Louisiana debt, redeemable on the 21st 
 of October, 1818, which was held by foreigners, might oc- 
 casion a demand for a considerable amount of coin, that 
 the enhanced prices of China, India, and other goods, occU' 
 sioned hy the depreciation of the currency from the over is- 
 sues of itself and the State Banks, would lead to a demand 
 for specie, and that as it was professedly a specie Bank, 
 and liable, under a penalty of twelve per cent, per annum, 
 to pay its notes on demand, the same delicacy and for- 
 bearance would not be exercised towards it as to the State 
 Banks. These considerations compelled it to seek its own 
 safety, and from that moment a system of reduction com- 
 menced. This reduction operating upon the State Banks, 
 which had not profited by the opportunity afforded them of 
 contractincr their loans whilst the other was extending, 
 obliged them also to diminish their transactions, and a ge- 
 neral curtailment ensued which has not yet had its consum- 
 mation. The severity of the second pressure commenced 
 in the city in October, 1818, and was continued without 
 intermission for a year ; at the expiration of which time it 
 is said that the reductions made there by the National Bank 
 alone have exceeded seven millions of dollars, and those by 
 the other Banks probably two or four more. The reduc- 
 tions of the country Banks during the three last years, 
 may be inferred from the following statement, which ex» 
 l1 
 
118 BANKING FROM 1818-19 TO 1819-20- 
 
 hibits the amount of their notes in circulation at four dif- 
 ferent periods. 
 
 November 1st, 1816 $4,756,460 
 
 Do. 1817 3,783,760 
 
 Do. 1818 3,011,153 
 
 Do. 1819 1,318,976 
 
 " From the foregoing history it will be seen, what in- 
 fluence has been produced upon the affairs of the commu- 
 nity by the operation of the Banking system. Real pro- 
 perty has been raised in nominal value, and thousands of 
 individuals have been led into speculation, who without 
 the facility of Bank loans would never have been thus 
 seduced. The gradual nominal rise in the price of land, 
 has produced an artificial appearance of increasing v/ealth, 
 which has led to the indulging of extravagance and luxury, 
 and to the neglect of productive industry. Foreign im- 
 portations and domestic consumptions have thus been car- 
 ried to an extent far beyond what the actual resources of 
 the country and people would justify, and in pursuing a 
 shadow, the community has lost sight of the substance." 
 
 A similar Committee of Investigation, appointed by the 
 House of Representatives, on the 13th of December, 1819, 
 made report through their chairman, Mr. Wm. J. Duane, 
 on the 28th of January, 1820, that, 
 
 " As to the extent of the distress, it might be answered, 
 in the language of the resolutions under which your Com- 
 mittee act, that it is general : it extends, indeed, to the 
 pursuits and habitations of the former capitalist, as well 
 as to those of the more humble farmer and mechanic : 
 there is no part of the commonwealth into which calamity 
 has not penetrated, or in which numerous victims have not 
 been found. But with regard to the extent of the loss 
 which the State has suffered from the destruction of capi- 
 tal, the emigration of our citizens to the wilderness, the 
 stagnation of business, the deterioration of landed property, 
 and the prostration of manufactories, and above all, in the 
 change of the moral ciiaracter of many of our citizens 
 by the presence of distress, your committee are utterly una- 
 ble to decide : tlie extent of the mischief, they believe, 
 defies scrutiny and surpasses the power of calculation. 
 
 " From the numerous petitions which have been pre- 
 sented at the present session, your committee quote the 
 
BANKING FROM 1818-19 TO 1819-20. 119 
 
 following extracts, which describe scenes of distress such 
 as have been seldom, if ever, before beheld on this side of 
 the Atlantic : 
 
 Sundry citizens of Northumberland county declare — 
 " The currency is so diminished as scarcely to suffice 
 for the transaction of the most ordinary business : the pro- 
 duce of the country has met with an unprecedented reduc- 
 tion : the greater part of the citizens of this once flourish- 
 ing commonwealth, even with the utmost economy and 
 industry, are scarcely able to obtain sufficient articles to 
 sustain life: real and personal property are daily sacrificed, 
 and become the prey of speculators : debts are unpaid, 
 creditors are dissatisfied, and the prisons are crowded with 
 honest but unfortunate persons, whose wives and children 
 must be a burden on the township, or suffer for want of the 
 mere necessaries of life." 
 
 Sundry citizens of Wayne county represent — 
 " From the fall of every kind of produce, the scarcity of 
 the circulating medium, and other causes, the general dis- 
 tress in our part of the State hath become so great and 
 alarming, as to call for the attention and wisdom of the 
 Legislature. Our most industrious citizens are no longer 
 able to meet their engagements, but their hard-earned pro- 
 perty is daily sacrificed at a nominal value, and falling into 
 the hands of a few speculators." 
 
 Sundry inhabitants of Pike county assert — 
 " At no time, since the Revolution, has greater distress 
 been felt than at the present moment. We consider the 
 Banking system to have been the principal cause : instead 
 of becoming, as was predicted, blessings to the people. 
 Banks have become like the scorpions among the children 
 of Israel, perfect beasts of prey. The property of the great 
 portion of our industrious people is brought to sale at one- 
 fourth of its value, and struck off to speculators, leaving 
 honest creditors unpaid, and families reduced to beggary " 
 Sundry inhabitants of Huntingdon county represent — 
 " That the mass of the people are utterly unable, at once, 
 to pay their debts : that their property is selling at such rates, 
 that even the fees of law-officers are not realized : that the 
 industrious are impoverished, whilst the speculating part 
 of the community are daily growing more wealthy : that 
 the evil is only beginning, and demands legislative inter- 
 position." 
 
120 BAXKIXG FROM 1818-19 TO 1819-20. 
 
 A memorial from sundry citizens of the western parts of 
 the State, asserts — 
 
 " That embarrassment is universal : that the sordid and 
 avaricious are acquiring the sacrificed property of the 
 liberal and industrious : that so much property is exposed 
 to sale under execution, that buyers cannot be had to pay 
 more for it than the fees of offices : that those mischiefs, 
 instead of diminishing, are daily increasing, and that over- 
 trading and the facility of getting credit have produced 
 these effects." 
 
 The petition of the inhabitants of Fayette county repre- 
 sents — 
 
 " That the fictitious capital and boundless credit extend- 
 ed by Banking, the almost universal spirit of speculation, 
 the prostration of manufactures by the mistaken policy of 
 the National Government, the introduction of luxuries and 
 extravagancies, and a reduction of exports, have produced 
 a long train of calamities : that industry is paralized — that 
 the precious metals hav3 vanished — that the Banks are 
 tottering — that litigation is unprecedented in extent, and 
 ruinous in its effects — that many merciless creditors, not 
 content with plunging unfortunate debtors into the most 
 abject poverty, frequently take from them the whole of that 
 property to themselves, which in better times would pay 
 the sums due to all, leaving the unfortunate debtor in jail, 
 and his family in misery. 
 
 " These are but a few of the extracts, which might be 
 presented to the House and placed upon the journal : but 
 these are deemed sufficient, accompanied by the remark, 
 that these representations are not only supported by all the 
 other petitions presented at this session, but by the testi- 
 mony of the members of the Legislature, coming them- 
 selves from all quarters of the Slate." 
 
 The committee then give a short sketch of the commer- 
 cial history of the country, after which, they say — 
 
 " In defiance of all experience, and in contempt of 
 warnings almost prophetic, which were given to them at 
 the time, the people of Pennsylvania, during an expensive 
 war, and in the midst of great embarrassments, established 
 forty-one new Banks, with a capital of seventeen and a half 
 millions dollars, and authority to issue Bank notes to dou- 
 ble that amount! In consequence of this most destructive 
 
BANKING FROM 1819-20 TO 1820-21. 121 
 
 measure, the inclination of a large part of the people, cre- 
 ated by past prosperity, to live by speculation and not by 
 labor, was greatly increased : a spirit in all respects akin 
 to gambling, prevailed ; a fictitious value was given to all 
 descriptions of property : specie was driven from circula- 
 tion, as if by common consent, and all efforts to restore 
 society to its natural condition were treated with undis- 
 guised contempt." 
 
 These remarks are followed by a short view of operations 
 subsequent to the war, after which, the Committee de- 
 clare — " A new measure, however, remained to be adopted, 
 that was really to close the last scene in the drama of error : 
 the currency had already nearly vanished, but was tempo- 
 rarily restored on the seaboard. The enormity of fictitious 
 credit began to be felt : the abusive extent of paper issues 
 was about to effect its own remedy in the State, when Con- 
 gress created a corporation, with authority to circulate up- 
 wards of one hundred milUons of a new paper medium — a 
 corporation spreading its branches over the Union with the 
 baneful influence of the fabled Upas. 
 
 " Awakened by the quick succession of events so disas- 
 trous, from the dream of perpetual prosperity under which 
 they had so long been entranced, the people now find 
 themselves involved in distresses, against which no provi- 
 sion had been made, and from which, they allege, they can 
 find no refuse but in legislative interference." 
 
 CHAPTER Xlir. 
 Of Banking from 1819-20 to 1820-21. 
 
 Appended to the report of the committee of the Senate 
 of Pennsylvania, are a number of questions which were 
 propounded to members of the Legislature, together with 
 the answers which were given. From these answers we 
 have formed the following table of the price of the best im- 
 proved land in Pennsylvania, at three different periods. 
 The second column gives the price the land bore in the 
 height of the speculation, which was in different coun- 
 

 1809 
 
 Bedford, 
 
 $30 to 40 
 
 Lebanon, 
 
 40 to 60 
 
 Bradford and ^ 
 Tiot>;a, ^ 
 
 G to 14 
 
 
 Somerset and ) 
 
 
 Cambria," ^ 
 
 
 Cumberland, 
 
 40 to GO 
 
 Daupliin, 
 
 IG to 24 
 
 Adams, 
 
 30 to 50 
 
 Lane-aster, 
 
 75 to 100 
 
 Delaware, 
 
 75 to 1-20 
 
 Northumberland, 
 
 40 to 50 
 
 Berks and i 
 Schuylkill, ] 
 
 80 to 100 
 
 Northampton 
 
 . 80 to 100 
 
 Wayne & Pike, 
 
 > 
 
 Bucks, 
 
 50 to GO 
 
 Huntington, 
 
 20 to 30 
 
 122 BANKING FROM 1819-20 TO 1820-21. 
 
 ties in different years, as the Banks extended their opera- 
 tions into them. 
 
 1819 
 80 to 100 (1815) 20 to 30 
 130 to 150 (1816-17) 50 to 70 
 
 10 to 20 (1814) 3 to 10 
 
 15 to 50 (1814) 5 to 20 
 
 150 to 200 (1813-14) 25 to 40 
 
 35 to 45 (1815-lG) 12 to 15 
 
 GO to 100 (1814) no price 
 
 250 to 300 (1813-14) 50 to 70 
 
 100 to 150 40 to 75 
 
 80 to 90(1815) 30 to 40 
 
 150 to 200 80 to 100 
 
 100 to 140(1815-16) 15 to 20 
 
 100 to 110 (1814-15) 55 to 65 
 40 to 60 (1815) 20 to 30 
 
 The official valuation of real and personal property in 
 the State of New York, exhibits an equally striking fall. 
 It was, in 
 
 1818, #314, 013, 695, 
 
 1819, 281, 862, 793, 
 
 1820, 256, 603, 300.* 
 
 The depression of prices continued throughout the year 
 1820, and, though money was abundant with retired capi- 
 talists, the pressure on the great body of industrious peo- 
 ple was very severe. " Our difficulties in commerce," said 
 a director of the United States' Bank, writing to a friend 
 in England, "continue without abatement. Men in busi- 
 ness are like patients in the last stage of consumption, 
 hoping for a favorable change, but growing worse every 
 day till they expire. Dismal as are the prospects on your 
 side of the water, they are worse here. You have some 
 rearular and profitable trade — wc have none. It is ail scam- 
 per and hap-hazard." The director then states that in 
 former times he would, without hesitation, have trusted 
 some men among his customers with goods to the amount 
 of 100,000 pounds sterling ; but he adds, " now I do not 
 
 * Niles, December 24th, 1821. 
 
BANKING FROM 1819-20 TO 1820-21. 123 
 
 know the persons doing business ; and there is not one 
 among them whose order I would take for 1,000 pounds. 
 "What a difference! A long continuance of distresses in 
 the commercial world has had a bad effect on the morality 
 of the country. The vast number of failures takes away the 
 odium. Men fail in parties for convenience; and the bar- 
 riers of honesty are broken down by a perpetual legislation 
 suited to the condition of insolvent debtors. We have now 
 no imprisonment for debt. Credit is become very rare, as 
 you may well imagine, for we have nothing to depend upon 
 but a man's honesty. Besides our commercial distresses, 
 we are suffering great alarm in this city (Philadelphia) from 
 incendiaries, who have succeeded in setting fire to a great 
 number of buildings. On Sunday evening our theatre was 
 entirely destroyed. 
 
 " Houses which rented for 1,290 dollars, now rent for 
 450 dollars. Fuel which cost 12 dollars, now costs 5J dol' 
 lars : flour which was 10 and 11 dollars, is now 4^; beef 
 25 cents, now 8 cents : other things in proportion. It is 
 thus true we now pay less for these necessaries, but we can 
 make no money. The farmer is become as poor as a rat: 
 the labor of the farm costs him more than the produce is 
 worth. He cannot pay the storekeeper, and the storekeep- 
 er cannot pay the merchant. 
 
 ". iMail robberies and piracies are quite the order of the 
 day. Two men were huno- at Baltimore a few months ago 
 for robbiiig the mail : two more will experience the same 
 fate, in a few days, at the same place, for the same crime. 
 Two men are to be hung there a week hence for piracy, 
 and five others are under sentence of death.'* 
 
 " Money is plenty," says Mr. Niles, on the 4th of March. 
 " The six per cent, stocks are at 103 to 104 ; but there is 
 little use for money in the hands of those who do not owe 
 it. Hence it has a sluggish currency, and those who have 
 it do not know what to do with it for themselves, and are 
 afraid to trust it to others." 
 
 On tlie 15th of April, the same writer says — " It has be- 
 come a serious affair to the laboring man to purchase him- 
 self a new garment — his wages, on an average, do not pur- 
 
 * See Niles, vol. 18, p. 3-87. The letter appeared ia the London 
 Courier, on the 11th of May, 1820. 
 
124 BACKING FROM 1819-20 TO 1820-21. 
 
 chase him half as much as they did, and he is continually 
 uncertain as to obtaining even that. Many of the mecha- 
 nical professions have equally declined : as an instance, 
 though our population is one-half greater than it was ten 
 years ago, it is certainly a fact that the printing of books is 
 not now half so extensive as it was then. The desire to 
 read is not lessened, but the means of purchasing are de- 
 nied — the most common school books are a drug. Hatters, 
 shoemakers, and tailors, and even blacksmiths, whose work 
 seemed to be indispensable, have lost, in general, much of 
 their former businesses — from a fourth to one-half. This 
 is the result of necessity, and those who might purchase, 
 abstain, in looking to a fearful future." 
 
 On the IGih of September, he says — " Five years ago all 
 the large stores in Market street, &c., Baltimore, were cut 
 into two, and then there was not enough of them ; and a 
 dwelling house could hardly be had — if a man talked of 
 moving, fifty were applying for the property. The stores 
 have resumed their old shapes, and dwelling houses are 
 abundant. I believe we have 10,000 less inhabitants than 
 we had in 1815; and, by calculation,! have concluded 
 that the property on Market street at this time, if all on 
 rent, would produce a sum less by $250,000 a year, than it 
 would have produced as rent in that year. 
 
 " Desire no longer presses on enjoyment with the la- 
 boring classes, but necessity presses on necessity; and, one 
 by one, tliey give up their enjoyments which they hitherto 
 delighted to indulge themselves in. This is evident to every 
 person who will look at society. The laboring people can- 
 not get much money, and therefore cannot spend much. 
 The average price oi' wheat is hardly more than fifty cents 
 a bushel, and the farmer cannot buy many luxuries at that 
 rate: a mechanic is hardly half his time employed, or at 
 reduced wages, and must therefore limit his expenditure." 
 It was natural that, in this condition of things, the pub- 
 lic mind should be employed on projects for alleviating dis- 
 tress, if not for preventing its recurrence. 
 
 One measure that was suggested, was the requiring of 
 cash payment of duties. This would have been beneficial, 
 insomuch as it would have lopped off" one of the branches 
 of the super-extended credit system, but it would have af- 
 forded no immediate relief An cftbrt was made in Con- 
 
BANKIXG FROM 1819-20 TO 1820-21. 125 
 
 gress to carry through a measure of this kind, but it was 
 not successful. 
 
 Another effort, which was attended with no better suc- 
 cess, was to restrict sales by auction. There is no cause 
 to regret that this effort did not succeed. The only way in 
 which the value of many kinds of property could be real- 
 ized in this season of distress, was by sales by auctions, 
 and restrictions on this business would have increased the 
 sufferings of the public. 
 
 A large portion of society were very anxious that a bank- 
 rupt law should be passed, and it may be doubted if the 
 mercantile part of any community ever stood more in need 
 of relief But the bill which Was reported to Congress 
 was modelled on the English system, and not adapted to 
 the state of things in America. It might, if it had been 
 adopted, have afforded relief to many worthy men ; but in 
 it55 general operation it would probably have been produc- 
 tive of great evils. It was rejected by a decided majority. 
 
 The measure from which most was hoped, and which 
 was pushed with most vigor and most perseverance, was an 
 increase of the duty on imports. The dullness of business, 
 the lowness of prices, and the want of employment, which 
 were produced by the re-action of the Banking system, 
 were all urged as reasons why Congress should afford ade- 
 quate " protection to domestic industry." 
 
 It is no part of our plan to discuss the tariff policy. But it 
 belongs to the history of Banking, to state that the raismg of 
 the duties on imports, to a height which now threatens to con- 
 vulse if not to rend our Union, was one of the consequences 
 of the great re-action of 1819. As the effects of the re-ac- 
 tion were felt for several years, the advocates of the restric- 
 tive system had full leisure for applying all the arguments 
 in support of their favorite policy, which they could derive 
 from the continued lowness of prices, dullness of business, 
 and want of employment. 
 
 The evils produced by the system of paper money and 
 moneyed corporations, are of such a nature that they can- 
 not be remedied by acts of legislation. When they come 
 they must be endured. If we icill have the system, we 
 viust bear its consequences. But there was one measure 
 which, as it might have alleviated the distress, we have 
 sometimes wondered was not adopted : We have wonder- 
 
 M 
 
12G BANKING FROM 1819-20 TO 1820-21. 
 
 ed it was not adopted, because it is a measure which has 
 been adopted in other countries, and in our own country 
 at other times. We mean an equitable adjustment of the 
 affairs of debtor and creditor. When the South Sea bub- 
 ble bursted, the British Parliament saw that to require a 
 literal fulfilment of the obligations which were affected by 
 that stock-jobbing concern, would be to give the getters up 
 of that scheme all the property of their miserable dupes. 
 It therefore, in some cases, reduced the amount of money 
 to be paid, as much as nine-tenths. During the Revolution- 
 ary War, " scales of the depreciation" of continental money 
 were from time to time published by the Legislature, by 
 which the courts were governed in enforcing such con- 
 tracts as were submitted to adjudication. 
 
 The great Banking bubble of America was the same in 
 principle as the South Sea bubble, but of longer continu- 
 ance, and involved in it the fortunes of the whole commu- 
 nity. But nothing like an equitable adjustment of the af- 
 fairs of debtor and creditor was attempted. An obligation 
 to pay 10,000 dollars entered into in 18 IG or 1818, when 
 the current dollar was in some parts of the country worth 
 perhaps but 50 cents in silver, was enforced according to the 
 strictness of the letter, in 1819 and 1820, when the cur- 
 rent dollar was of equal value with the legal dollar, and 
 worth one hundred cents in silver. 
 
 It is an awful thing to change the money standard of a 
 country: but it is equally awful to refuse to recognize such 
 a change, after it has actually been made. Effecting an 
 equitable adjustment of the affairs of debtor and creditor, 
 by a legislative or a judicial recognition of the practical 
 changes which had been made in the standard of A'alue, 
 would not have " impaired the obligation of contracts." 
 Both debtor and creditor, when they entered into the con- 
 tract, had the " current" dollar in view. The disorder was, 
 however, so general, that an equitable adjustment of con- 
 tracts would liave been a work of great ditliculty, if not of 
 impossibility. Perhaps the courts, looking forward to the 
 operations of future years, acted wisely in regarding the 
 dollar as a fixed quantity, though it was, in fact, during 
 these years, a quantity that was always changing. 
 
BANKIXG IN THE WE5TERIV STATES- 127 
 
 CHAPTER XIV. 
 Of Banking in the Western States. 
 
 The first paper issuing institution west of the Alleghany 
 mountains, was the Lexington Insurance Company, which 
 was incorporated in 1802, with a capital of 150,000 dol- 
 lars, and for which Humphrey Marshall, the historian of 
 Kentucky, says, Banking privileges were surreptitiously ob- 
 tained. The business being found to be lucrative to those 
 who were engaged in it, the Kentucky Bank was insti- 
 tuted in 1807, with a nominal capital of one million of 
 dollars. 
 
 The Miami Exporting Company was instituted at Cin- 
 cinnati, Ohio, in 1803, with a capital of 200,000 dollars. As 
 its title indicates that it was established ostensibly for com- 
 mercial purposes of another nature, perhaps Banking pri- 
 vileges were obtained for it surreptitiously, as in the case, in 
 the previous year, of the Lexington Insurance Company. 
 Be this as it may, the Miami Exporting Company did 
 Banking business ; and in the nine years subsequent to its 
 institution, five other Banks were established in different 
 parts of the State, making in all six Banks in Ohio in 
 1812, with a nominal capital of 1,200,000 dollars. 
 
 These Banks maintained specie payments till within a 
 month or two of the close of the war. This is a fact not 
 generally known, but it is placed beyond doubt by a state- 
 ment made by Mr. Hawkins in Congress, on the 17th of 
 January, 1815, that " even the Banks of Kentucky and 
 Ohio, where specie abounded, had at length been com- 
 pelled in self-defence to stop payment of specie." 
 
 It must be evident from this, that if the United States' 
 Government had immediately compelled the Banks of the 
 great Atlantic cities to redeem the pledge they had given 
 in the preceding August, the western country might have 
 suffered but little from the suspension of specie payments. 
 But, when the United States' Government connived at the 
 suspension of specie payments, sanctioned the use of in- 
 convertible paper, and by its fiscal manceuvering encouraged 
 the issue of additional amounts of such paper, it was im- 
 possible that the mania which had reached Pennsylvania, 
 
128 BANKING IN THE WESTERN STATES. 
 
 from New England, through New York and New Jersey, 
 should not extend into Ohio and Kentucky. 
 
 Kentucky was, however, at first comparatively moderate. 
 All she did at the close of the war, was to authorize the 
 Bank of Kentucky to increase its capital to three millions, 
 and to establish thirteen branches. Seven of these branches 
 were in operation in 1816. Ohio, apparently, went further 
 into the system ; for, we have seen a list of twenty-one 
 chartered institutions which were in operation in that State 
 in 1816, and allusion is made to others which were carrying 
 on the Banking business without charters. 
 
 Still, the issues of paper in the Western States were 
 moderate when compared with those in the Middle States. 
 Mr. William Jones, the first President of the United States' 
 Bank, stated, in the documents laid before Congress in 
 1819, that, " at the time of the subscription to the stock of 
 the Bank, specie was at six per cent, at the westward, and 
 at fourteen per cent, in Philadelphia, New York, and Bal- 
 timore." In the table appended to Mr. McDuffie's report, 
 the rate of exchange at Lexington on Boston, in July 1816, 
 is stated to have been two per cent. — a sure proof that the 
 currency of Kentucky was not at that time much, if it 
 was any, depreciated. 
 
 The issues of the western Banks were probably increased 
 considerably in the last six months of 181C : and in this 
 or the following year, the system was extended into Indiana, 
 Illinois and Missouri. 
 
 It was about this time, that branches of the United 
 States' Bank were established in the West, and they sought 
 to make a profit, less by circulating their own paper, than 
 by giving drafts on the eastern cities, receiving in exchange 
 notes of the local Banks, and requiring interest to be paid 
 on the same. This was rather a round-about way of in- 
 ducing the local Banks to extend their issues, but it 
 was the most effective that could be adopted. Western 
 Bank paper being exchangeable for United States' branch 
 drafts, and United States' branch drafts being exchangea- 
 ble for European products in the Atlantic cities, the efl^ect 
 was similar to that which would have been produced by 
 making western Bank notes current in New York and 
 Philadelphia. 
 
 The full elfects of this system were felt in the year 1818, 
 
BANKIXG I-\ THE WESTERN STATES. 129 
 
 or in the second year of active operations of the United 
 States' Bank. 3Ir. Niles, then, speaking of " new Banks 
 establishing or about to be established," says, " Behold for- 
 ty-three new Banks authorized in Kentucky — half a score 
 in Tennessee — eight in Ohio," &c. Of those authorized 
 in Kentucky, at least tJdrtii-Jive, since known as the Inde- 
 pendent Banks of Kentucky, went into operation. Their 
 nominal capital was between seven and eight millions of 
 dollars, but their real capital must have been small : for, 
 the American Quarterly Review says, the same specie 
 was used for different Banks, and only remained long 
 enough in each for the law to be complied with. 
 
 If the months of May, June, July, and August, 1815, 
 were " the golden age of Philadelphia," the first months of 
 the year 1818, were the golden age of the western coun- 
 try. Silver could hardly have been more plentiful at 
 Jerusalem in the days of Solomon, than paper money 
 was in Ohio, Kentucky, and the adjoining regions. But, 
 when the United States' Bank found it necessary to curtail, 
 money became as scarce in the West as silver is in Jeru- 
 salem under the Turkish despotism. 
 
 The Bank of the United States was very sudden in its 
 demands, for its necessities were such as to admit of no 
 delay. An Ohio paper says that the branch at Cincinnati 
 called on the local Banks of that town for a balance of 
 700,000 dollars, in requisitions of twenty per cent, every 
 thirty days. This compelled the Bank of Cincinnati to 
 stop payment about the middle of November, 1818, and in 
 two days afterwards the Bank of Kentucky unexpectedly 
 followed its example. A strong expression of public opi- 
 nion compelled the Bank of Kentucky to resume specie 
 payments in less than a week, and it continued to pay specie 
 till the early part of 1820. 
 
 It is stated that in the twelve months preceding June 
 26th, 1819, 800,000 dollars in specie were drawn from 
 Ohio. If this be true, the wonder is not that only six or 
 seven Banks in that State paid specie in August, 1819, 
 but that they were not all bankrupt. This was the fate of 
 the Independent Banks of Kentucky. Some of them main- 
 tained a show of specie payments till August, and after- 
 wards paid out notes which were lent them by the Bank of 
 M m 
 
130 BANKING IN THE WESTERN STATES. 
 
 Kentucky, redeemable in 365 days after date : but, towards 
 the close of the year few of them paid any thing. 
 
 The Bank of Vincennes (Indiana) had recourse to a 
 very ingenious expedient. It issued notes payable at its 
 branch at Vevay, nine months after date, printing the 
 words "nine months after date" in very small letters. 
 All this, however, availed nothing. It went with the 
 others.* 
 
 The effect which the sudden withdrawal of specie and 
 discrediting of Bank paper, had on prices in the western 
 country was very distressing. " It is said '' remarked Mr. 
 Niles on the 2d of September, 1820, " but we know not 
 how to believe it, that corn is selling at 10, and wheat at 
 20 cents per bushel, specie, in some parts of Kentucky. 
 At this rate how are debts to be paid V Mr. Niles ap- 
 pears afterwards to have had other evidence sufficient to 
 overcome his incredulity, for he remarked on the loth of 
 September, 1821 : " A gentleman in Western Virginia 
 directs the Register to be stopped, because he used to pay 
 for it annually with one barrel of flour, but that three 
 will not do it now. Another, a miller in Ohio, on paying 
 his advance to my agent, observed, that he had sold four 
 barrels of Jlour to obtain the note of five dollars which 
 was remitted." 
 
 In other publications we have evidence of the lowness 
 of prices. For example : In the United States Gazette of 
 May 23d, 1821, corn is said to have been sold at Cincin- 
 nati at 10 cents a bushel : and the same periodical of 1st 
 of June, has a notice of a letter from a practical farmer 
 in Harrison County, Ohio, stating that wheat had fallen to 
 25 cents a bushel, and in some instances to 12 J cents. A 
 letter from Greenfield, Ohio, dated May 3d, 1821, and 
 quoted in the Gazette of June 23d, states tliat wheat was 
 sold at 12J cents a bushel, and that whiskey was dull at 
 15 cents a gallon. f The Weekly Register of May 19th, 
 
 ■* Tlie Banks in the cr/rtme West did not all stop payment till a year 
 or two ulter tlie tailnre of the Banks in Kentucky. The Shawneetown 
 and Edwardsville Banks, in Illinois, paid specie inAugust, 18'-21. One, 
 at least, of the Banks in Missouri, continued to pay specie until the 
 latter part of 1821 ; and several of the Ohio Banks appear to have paid 
 specie in the midst of all the confusion. 
 
 t Towards the close of the year 1831| flour rose at Cincinnati to 
 $3 50 a barrel. 
 
BANKING IN THE WESTERN STATES. 131 
 
 gives the following quotation from " a late Pittsburg Mer- 
 cury." " Flour, a barrel, $1 : whiskey 15 cents a gallon : 
 good merchantable pine boards, 20 cents a hundred feet : 
 sheep and calves $1 a head. Foreign goods at the old 
 prices. One bushel and a half of wheat will buy a pound 
 of coffee : a barrel of flour will buy a pound of tea ; 
 twelve and a half barrels will buy one yard of superfine 
 broadcloth.'' 
 
 While the staples of the western country were at this 
 low price, the people were deeply in debt to the United 
 States Government, to the merchants of the Atlantic cities, 
 to the United States' Bank, to the local Banks, and to one 
 another. The plentiful issues of paper had led to great 
 speculations in the public lands. The wild lands of the 
 West had been sold, in some instances, as high as forty or 
 fifty dollars an acre. The sum due to Government on ac- 
 count of these purchases, exceeded twenty-two million dol- 
 lars in the latter part of 1820. The sum due to one of the 
 branches of the United States' Bank, that at Cincinnati, 
 exceeded two million dollars. The sums which were due by 
 the western people to one another, to the local Banks, and 
 to the merchants of the Atlantic cities could not easily be 
 calculated. 
 
 To relieve the public distress, the Legislature of Ohio 
 passed a law to prevent property from being sold unless it 
 would bring a certain amount, to be fixed by appraisers. 
 This law operated very unequally. Another law of the 
 same State, to prohibit buying and selling the notes of char- 
 tered Banks, would have increased the mischief, if it had 
 not, happily, been such a law as, from the nature of things, 
 could not be enforced. 
 
 Kentucky adopted what has been called the " relief sys- 
 tem," in all its extent. Stop laws, stays of executions, and 
 replevin acts, followed one another in quick succession. 
 And Commonwealth's Banks, or State Loan Oflices, were 
 established in Kentucky, Indiana, Illinois, and Missouri, 
 with power to issue millions of paper money. The credi- 
 tor had no alternative but to receive this paper or wait for 
 payment till better times should arrive. 
 
 Governor Adair, in his message to the Legislature, in 
 October, 1821, said, that " the paramount law of necessi- 
 ty" had compelled Kentucky to resort to a policy against 
 
132 BAXKIXG IN THE WESTERN STATES. 
 
 which Strong objections might be brought: but, he added, 
 " let it never be forgotten, that the measures adopted have 
 completely realized the proposed end : that an agitated and 
 endangered population of half a million of souls, has been 
 tranquillized and secured, without the infliction of legal jus- 
 tice, or the example of violated morality." 
 
 All the people of Kentucky did not think so highly of 
 the system, and the Judges of the Court of Appeals were 
 among the dissidents. They resolutely refused to acknow- 
 ledo-e the constitutionality of the " relief laws :" and the 
 Legislature established a new Court of Appeals, the judges 
 composing which were friendly to the relief system. 
 
 The people divided into two parties, and the contest was 
 conducted with great violence. The party friendly to the 
 new Court of Appeals had the ascendancy for several years. 
 In 1824, they numbered sixty members of the Legislature, 
 while their opponents numbered but forty. In the session 
 of 1S25-2G, they appear to have been less powerful, for we 
 find that preparations were made to defend the records of 
 the new Court of Appeals with powder and ball.* In the 
 fall of 1826, the friends of the Old Court elected a majo- 
 rity of members of the Legislature. A change of only 
 ninety-one votes at the polls, would have given their oppo- 
 nents the majority of members. The Old Court party has, 
 however, ever since retained its ascendancy ; and the re- 
 lief system is at an end. 
 
 All parties now are willing to admit that this " relief sys- 
 tem" did great evil. It did not effect an equitable adjust- 
 ment of the affairs of debtor and creditor. That could 
 have been effected only by a legislative or judicial recogni- 
 tion of the changes which had been made in the standard 
 of value, and a separate adjudication in each case. It was 
 only by accident if a man received payment in paper of the 
 same value as that which was current when the debt was 
 contracted. 
 
 The Bank of Kentucky commenced discounting on the 
 27th of April, 1821. Its notes were sold almost immedi- 
 ately at 70 cents in the dollar ; and continued to depreciate 
 till April or jNIay in the ensuing year, when the exchange 
 was 210 paper dollars for 100 silver dollars. On the 28th 
 of July, 1821, which was ten days after it commenced its 
 
 * See Philadelphia Gazette of January 1st, 1826. 
 
BANKiyO IX THE SOUTHWESTERN STATES. 133 
 
 issues, the notes of the State Bank of Illinois were 50 per 
 cent, below par. In addition to the loss which each cre- 
 ditor sustained by being paid in money of this description, 
 he was liable to further loss from the paper depreciating 
 while it remained in his hands. 
 
 The other branches of the relief system, the stop laws, 
 the appraisement laws, the stays of execution, and the re- 
 plevin acts, tended to destroy the confidence of men in one 
 another and in the Government. 
 
 The relief system is at an end ; but its evil effects will 
 be felt in the West for twenty years. What, then, ought 
 we to think of the Banking system, in which the relief sys- 
 tem originated ? 
 
 CHAPTER XV. 
 
 Of Banlcing in the Southcestern States. 
 
 From Mr. Gallatin's and Mr. Crawford's tables, there 
 appear to have been three Banks in operation in Louisiana, 
 in 1814, with a capital of $1,432,300; two in Tennessee, 
 with a capital of ,$212,962 ; and one in Mississippi, with a 
 capital of $100,000. 
 
 The Banks of New Orleans suspended specie payments 
 in the latter part of April, 1814,* about four months sooner 
 than the Banks of Philadelphia. The pretext was, that a 
 contraband trade was drawing away all the specie. The 
 fact mav have been as stated : but if the Banks of New 
 Orleans had not issued to excess, no contraband trade, or 
 any other kind of trade, could have deprived Louisiana of 
 its metallic money. The excuse was, however, quite as 
 good as that made by the Banks of the Middle States, viz. 
 " That dealings in British Government bills of exchange, 
 and importations of foreign goods through the Eastern 
 States, were drawing off all the silver." 
 
 The Bank of Nashville, Tennessee, did not stop specie 
 payments till July or August, 1815, nearly a year after the 
 Banks of Philadelphia.t 
 
 * See Niles' Weekly Register for May or June, 1814. 
 
 t lb. August, 1815. 
 
134 BANKING IN THE SOUTHWESTERN STATES. 
 
 The Banks in Tennessee in 1817, were the Fayetteville 
 Bank of Tennessee, with a capital of 200,000 dollars ; the 
 Nashville Bank, with a capital of 400,000 dollars ; and the 
 State Bank, with a capital of 400,000 dollars. In Novem- 
 ber 1817, tlie capital of the State Bank was increased to 
 800,000 dollars, and authority was given to it to accept a 
 batch of Banks as branches, which thereby swelled its 
 capital to 1,600,000 dollars. A similar union was effected 
 between the Nashville Bank and a number of others, by 
 which the capital of the Nashville Bank was augmented to 
 1,031,705 dollars.* 
 
 Between the years 1817 and 1820, the capital of the 
 Bank of Mississippi was increased from 100,000 to 900,000 
 dollars: and the number of Banks in Louisiana was in- 
 creased from three to four, and their capital from 1,432,300 
 to 2,597,420 dollars. About the same time, the system was 
 introduced into Alabama, by the establishment of the 
 Planters' Bank at Huntsville. 
 
 The same causes that led to the extension of Banking 
 operations in Ohio and Kentucky, were what led to an ex- 
 tension of Banking operations in the Southwestern States ; 
 and they all felt the reaction of the system about the same 
 time. 
 
 In July, 1819, the Banks of Tennessee stopped pay- 
 ment : and, soon alter, a law was passed forbidding the 
 issuing of executions on judgments, for two years, unless 
 the plaintiff would consent to receive " current notes" in 
 payment. 
 
 As the ''current notes," {i. e., the notes of the non- 
 specie-paying Banks of the State,) were many per cent, 
 below par, this was making a considerable abatement of 
 the demands of creditors. It gave them cause for complaint, 
 but did not effectually relieve debtors; and, as the public 
 distress increased, a special meeting of the Legislature 
 was held in June, 1820, to consider the state of affairs, 
 The Governor told them, in his message, " lie was fully per- 
 suaded much good would result to the country, generally, 
 by extending the time in which payments can by the pre- 
 sent laws be forced, unless the creditor should, by his own 
 voluntary act, make terms of accommodation, and, instead 
 
 * American Quarterly Review. 
 
BANKING IN THE SOUTHWESTERN STATES. 135 
 
 of cash payments, take tVom the debtor such valuable 
 estate, either real or personal, as it may be in his power to 
 give, and at such abatement under its estimated value as 
 you may direct." The Legislature, in acting on this sub- 
 ject, not only adopted the proposition of the Governor, but 
 established a relief Bank, with a capital of 1,000,000 dol- 
 lars, to make loans to debtors only. As a fund for the re- 
 demption of the notes of this Bank of the State of Tennes- 
 see, as it was called, the proceeds of certain public lands 
 were appropriated. At the same time, an act was passed 
 authorizing defendants to redeem in two years all lands 
 and negroes sold under execution, on paying to the pur- 
 chaser ten per cent, on the money he might have advanced. 
 
 Gen. Jackson, Col. Edward Ward, and other citizens, 
 remonstrated against these proceedings, pronouncing them 
 inexpedient, injurious in their tendency, and in violation of 
 the Constitution. Gen. Jackson, in particular, was very 
 energetic in his opposition ; and a number of the most 
 respectable citizens of the State united with him in senti- 
 ment. Their combined efforts could not prevent the Legis- 
 lature from adopting the system : but it would hardly be 
 correct to say, that their opposition had no effect. The 
 issues of the Bank of the State of Tennessee were mode- 
 rate, when compared with those of the Bank of the Com- 
 monwealth of Kentucky : and Tennessee appears not to 
 have suffered as much as her sister State, by the relief 
 system. 
 
 In March, 1821, the notes of specie-paying Banks were 
 at an advance, at Nashville, of 13 to 17 per cent., when 
 estimated in notes of the Bank of the State of Tennessee, 
 and the currency does not appear to have undergone any 
 sensible improvement for several years ; for, we nnd Ten- 
 nessee paper quoted in tlie Philadelphia papers, of August, 
 1824, at 25 per cent, discount. 
 
 In July, 1826, the Bank of Nashville gave notice of its 
 intention again to resume specie payments. It commenced 
 them accordingly, in September; but 260,000 dollars in 
 specie were drawn from it in seventy days, and it could 
 bear no further drafts. The only Bank then remaining, 
 (except the private Bank of Yeatman, Woods &- Co.,) was 
 the Bank of the State, the notes of which are quoted in 
 
136 BANKING IN THE SOUTHWESTERN STATES. 
 
 the Philadelphia papers of 1829 and 1830 at ten per cent, 
 discount. 
 
 The notes of the Banks of Mississippi and Louisiana 
 appear, from the Philadelphia price currents, to have been 
 subject to little, if any, more vacillation than those of the 
 Banks of the Middle States : but the currency of Alabama 
 has been very bad. 
 
 In 1831, the notes of the local Banks being discredited, 
 no way w^as found of paying public expenses in Alabama, 
 but by issuing comptroller's warrants. These would not 
 circulate, as some thought, because they were on bad 
 paper and not handsomely printed ; whereupon, it was pro- 
 posed to send to Philadelphia for blank warrants, hand- 
 somely engraved, and printed on silk paper. 
 
 In 1824, Huntsville notes were at 30 per cent, discount 
 at Philadelphia. 
 
 In the next year, the Bank of the State of Alabama was 
 brought into operation. All the spare funds of the State 
 were devoted to its establishment, and its capital has been 
 augmented from year to year, as the means of the State 
 Government have increased. Its loans are distributed 
 among the different counties in proportion to their popula- 
 tion. Its notes do not appear ever to have been at par in 
 the Philadelphia market. 
 
 In 1828, there was no local Bank in operation in Ken- 
 tucky, none in Indiana, none in Illinois, none in Missouri, 
 but one in Tennessee, one in Mississippi, and one in Ala- 
 bama. 
 
 Branches of the United States' Bank were, however, 
 doing an extensive business in the West : and Judse 
 Catron, of Nashville, in an address which he published in 
 June 1829, pronounced the crisis a dangerous one. " Mil- 
 lions" he said, " have been loaned by a single Bank — the 
 crush of 1819 must overtake us." 
 
 Directing his remarks " to the cultivators of the soil and 
 the laboring people of Tennessee," he said — " The great 
 pressure upon the people of this State for money, growing 
 out of tlie excessive loans of the Branch Bank of tlie United 
 States' at this place, and the yet more excessive usury 
 (from 5 to 10 per cent, a month,) every where prevailing, 
 has induced me to address you this note upon a subject 
 maturely considered of, during the last ten years ; of the 
 
BAXKIJTG IN THE SOUTHWESTERX STATES. 137 
 
 necessity of which, my convictions have been confirmed by 
 experience and observation. 
 
 " I propose that the Legislature of Tennessee, at their 
 next session, pass a law declaring — " That no one shall be 
 bound for the debt or default of another, by writing or 
 otherwise : Provided, that the act shall not extend to secu- 
 rityships entered into in the courts of justice. In other 
 words, that no one shall be bound as security for another, 
 in any case, by word, bond, note or indorsement, for an 
 ordinary contract between man and man." 
 
 " Should such a law be passed, no man will be trusted, 
 except upon the faith of his property, unless he has indus- 
 try and honesty ; debts will be small and few, cash pay- 
 ments generally required, and the necessaries of life cheap- 
 er to the consumer. 
 
 " Wives and daughters, I ask your powerful influence 
 and aid, to procure the passage of a law, cutting off the 
 powers of your husbands and fathers, to inflict ruin upon 
 you, by standing the security of worthless adventurers. 
 The writer begs your indulgence to his feelings, when he 
 speaks of you in connection with ruined securities. He 
 has seen you turned out from your happy homes upon the 
 streets and highways in search of bread, the derision of 
 those who had been the cause of your destruction. 
 
 " For the sake of your families, fellow-citizens, let me 
 intreat you to refuse your names, should the Banks and 
 usurers outvote us, and the law not be passed. If you go 
 security, what right have you to hope that your house will 
 be your own to cover the heads of your wife and children ; 
 you whose labor furnishes us all with bread, I ask — is not 
 the speculator, the idle and worthless coxcomb, who bold- 
 ly solicits credit and obtains it, more encouraged in socie- 
 ty than the most honest and industrious of you, who by 
 hard and daily labor earns his bread ? I appeal to you 
 who till the earth, whom I hail as especial friends ; I ap- 
 peal to the mechanic, with the sweat and dust of labor up- 
 on him, are you not ridden down by unprincipled adven- 
 turers, in cloth and ruffles, who, but the other day, through 
 sheer worthlessness, deserted the plough, the plane, or the 
 trowel, now turned merchants, or mock gentlemen in some 
 form, upon the credit of those from whose side they so 
 lately deserted ? Bankrupts in purse, and knaves in prin- 
 
 N 
 
138 BANKING IN THE SOUTHWESTERN STATES. 
 
 ciple, with nothing to recommend them save impudence, 
 and the fine clothes bought with the money you have paid, 
 or will be forced to pay, as their securities. Will you long- 
 er be imposed upon 1 I hear you vociferate the energetic 
 no: you are mistaken, my worthy friends, I know your in- 
 dulgent natures ; a hundred times have you determined, 
 and been ready to take a solemn oath you would never 
 again go security, and as often wanted firmness to resist 
 the succeeding impudent request. Thousands have I known 
 ruined, calling heaven to witness every time they lent their 
 names, that they had gone security the last time. You 
 cannot help it, citizens : it is a weakness of your nature. 
 Step forward boldly and confess that you cannot conquer 
 it, and instruct your representatives to pass a law to pro- 
 tect your frailty, and guard you against those mistaken 
 friends, or designing knaves, threatening your destruction." 
 Judge Catron may spare himself further labor. The pre- 
 sent rage in the West and Southwest, is for State Banks of 
 various forms. Political power and money power are to 
 be henceforth in the same hands. Our present contests are 
 less for the honors than for the emoluments of office. Their 
 violence is to be increased by making the capital and the 
 credit of the different State Governments the prizes of the 
 successful party. In the regulations which may be made 
 for the distribution of loans, there may be great apparent 
 fairness ; but the practical operation of the system must be 
 for the advantage of a small part of the community, and 
 the disadvantage of all the rest. A new kind of aristocra- 
 cy, a kind of half-political, half-moneyed aristocracy, will 
 spring up in the land. 
 
 The State Governments have no constitutional power to 
 establish State Banks, or any other kind of paper-money 
 issuing institutions. They are expressly prohibited to 
 " emit bills of credit." Qui facit per alios, facit per se. 
 He who does a thing by others, does it himself State 
 Banks and incorporated paper-money Banks are palpable 
 violations of the Coustitution, and would be acknowledged 
 to be so by every body, if interest did not blind men's eyes 
 to the truth. 
 
 The business of lending money is no part of the duty of 
 any Government, eitlicr State or Federal. If a Govern- 
 ment has more funds than are required for public purposes, 
 
BANKING IN THE SOUTHERN STATES. 139 
 
 its duty is to remit part of the public taxes. Banking and 
 brokerage are the proper businesses of such private citi- 
 zens as choose to engage in them, protected by the same 
 laws that protect men engaged in other businesses. 
 
 CHAPTER XVI. 
 
 Of Banking in the Southern States. 
 
 The Banks of the South found it convenient to suspend 
 specie payments, soon after this measure was resolved on 
 by the Banks of Philadelphia; and an extension of Bank- 
 ing operations in that quarter was the necessary conse- 
 quence. Without resorting to other evidence, the follow- 
 ing tabular view of the amount of Bank capital in the four 
 Southern States, in two different periods, will be sufficient.* 
 
 1814 1816 
 
 Georgia, 623,580 1,. 502,600 
 
 South Carolina, 3,730,900 3,832,758 
 
 North Carolina, 1,576,600 2,770,000 
 
 Virginia, 3,592,000 5,521,415 
 
 9,523,080 13,632,773 
 
 According to Mr. Gallatin's tables, there were fourteen 
 Banks in these States on the first of January, 1815, and 
 twenty-three on the first of January, 1816. Two of the 
 Banks of Virginia had, in this interval, increased their cir- 
 culation from 4,616,240, to 6,031,446 dollars. Of the cir- 
 culation of the other Banks in the South, we have no re- 
 turns. The aggregate increase was, no doubt, very con- 
 siderable, but it was not sufficient to bring down the cur- 
 rency to a level with that of jMaryland and Pennsylvania. 
 In the tables appended to Mr. McDuffie's report, it is stated 
 that, on the 1st of July, 1816, when subscriptions were 
 made to the stock of the United States' Bank, specie was, 
 at Philadelphia, at 17 per cent, advance, and at Washing- 
 ton, at 20 per cent., while it was only 9 a 10 at Norfolk, 
 and 6 a 8 at Charleston. The price of specie in North 
 Carolina and Georgia is not mentioned, but North Caroli- 
 
 * See Mr. Crawford's Report in 1620. 
 
140 BANKING IN THE SOUTHERN STATES. 
 
 na notes bore a premium of four per cent, at Philadelphia 
 on that day, and New York notes were at a discount of 5 
 a 9 per cent, at Savannah. 
 
 The comparative moderation of the southern Banks is 
 to be ascribed to the fact, that, as but a small portion of 
 the revenue from the customs is collected in the South, 
 they did not get many of the treasury notes which were 
 issued in the year after the war. 
 
 When the United States' Bank began operations, it did 
 not include the offices at Charleston and Savannah, in the 
 plan for the " equalization of exchanges." It however gave 
 these offices authority to do an extensive business. By 
 the 29th of July, 1817, the branch at Charleston had made 
 discounts to the amount of 850,000, and that at Savannah 
 to the amount of about 300,000 dollars. On the 23d of 
 June, 1818, the total of discounts at Charleston, including 
 bills of exchange and stock notes, was about §2,700,000 at 
 Savannah $1,000,000, at FayettviUe $500,000, at Norfolk 
 $1,400,000, and at Richmond 83,000,000. 
 
 This increase of credit dealings in the South did not 
 improve the stale of the currency : and the attempts that 
 were made to support excessive issues of paper, by import- 
 ing specie, proved utterly unavailing. The directors of 
 the Bank of the State of South Carolina say, that " in 
 the first six months of 1818, it is probable that upwards 
 of 8800,000 in specie were thrown into general circula- 
 tion in the city of Charleston. It is probable that by the 
 the first of November in that year, not 50,000 dollars of 
 the whole sum remained in the State ; we are confident 
 that not $10,000 could have been found in Charleston." 
 
 The Bank of the United States was, to promote its own 
 views, very indulgent to the Banks of the South, at the 
 commencement of its operations. Witiiout being so, it 
 could not, as its specie capital was inconsiderable, and 
 as the deposits of public money were small in that quar- 
 ter, have done much business at Savannah and Charles- 
 ton. It freely received the notes of the local Banks, and 
 as it did not press for immediate payirient, it encouraged 
 them to make additional issues. The Bank of the United 
 States could not, however, defer its demands forever, and 
 when it called for payment, a conflict commenced between 
 it and the local Banks, which was not fairly terminated for 
 several years. 
 
BANKIN'G I\ THE SOUTHERN STATES. 141 
 
 As some movements in the Legislatures of Georgia and 
 South Carolina had, at an early period, indicated a dispo- 
 sition to embarrass its operations, the United States' Bank 
 did not deem it prudent to use the most rigorous measures 
 with the Banks of Charleston and Savannah. Fully aware of 
 this fact, the Banks south of Virginia began, in the crisis 
 of 1819, boldly to evade specie payments, if they did not 
 make a full and formal suspension. 
 
 The Bank of Darien, Georgia, for example,, adopted the 
 following course of procedure, as is described by an eye wit- 
 ness: "Persons makincr demands on the Bank of Darien must 
 
 a 
 
 swear before a justice of the peace, in Bank, to each and 
 every bill presented that it is his own : that he is not agent 
 for any other person ; and that oath must be made in the 
 presence of at least five directors and the cashier: it alsf) 
 makes the person so demanding specie subject to a charge 
 of 81 37^^ on each bill, which must be paid on the spot, 
 and unless you find five directors and the casliier together,. 
 you cannot make a demand."* 
 
 As the United States' Bank could not easily get pay- 
 ment from the local Banks, and as specie was almost im- 
 mediately demanded for such of its own notes as it issued 
 in the South, it found it politic, if not necessary, to receive 
 what was due on account of the imposts in North and 
 South Carolina, and Georgia, in notes of the Banks of 
 those States. So far as it traded, it traded on these notes, 
 issuincr none of its own. This arrangement ijave the southern 
 Banks a monopoly of the profits deriveable from the circu- 
 lation of paper : but they were not satisfied, because they 
 had not also the profits deriveable from the use of the pub- 
 lic deposits. When the United States' Bank, in the spring 
 of 1820, made a demand on the Banks of Savannah, for 
 payment of a considerable amount of notes, which had 
 been received principally in payment of duties, those 
 Banks refused either to make payment in specie, or to 
 allow interest on the sum which was unliquidated. The 
 United States' Bank then protested a large amount of their 
 notes : and soon afterwards, five hundred dollars in notes 
 of the State Bank of Georgia were advertised to be sold 
 by auction, for specie, in lots to suit purchasers, in front 
 of the Exchange at Savannah. 
 
 * Nile's Weekly Register, Aagust 14th, 1819. 
 
 N n 
 
142 BAN'KIXG IX THE SOUTHERN STATES. 
 
 Ill August the Banks of Savannah had again the re- 
 putation of specie paying Banks : but they refused to give 
 money to individuals for their paper, unless those applying 
 for it would agree to take half the amount in bills of the 
 Darien Bank. It cannot, however, be said that they re- 
 fused all kinds of accomodation to the public, for while 
 they would not pay cash for their notes, they would oblige 
 a holder of them by giving him a draft on New York at 
 three per cent, advance.* 
 
 In this contest the local Banks enlisted the feelings of 
 the Legislature of Georgia in their favor : and an act was 
 passed in the beginning of 1821, to repeal the law allow- 
 ing twenty-five per cent, damages on non-payment of notes, 
 so far as it might operate in favor of the United States' 
 Bank. Such a disposition in the Legislature, was an 
 encouragement to the Banks to evade payment to indivi- 
 duals : and we read, without feelings of surprise, that on a 
 demand being made in April on the Planters' Bank of 
 Georgia for 30,000 dollars in specie, the cashier replied 
 that he would pay in cents only : and that, when a gentle- 
 man of Augusta made a demand for specie in June, cents 
 were tendered to him and counted out at the rate of sixty 
 dollars a day.f 
 
 From that time to this, the people of Georgia have suf- 
 fered the evils of irregular Banking, sometimes in one 
 form and sometimes in another. The paper of their Banks 
 is usually at a discount in tlie Philadelphia market, ex- 
 ceeding the natural rate of exchange, that is, the cost of 
 transporting specie. In 1824, complaints were made that 
 "change" bills, issued by individuals and corporations, 
 were in circulation. In the same year we find the Governor 
 declaring " that all the Banks should resume specie pay- 
 ments without delay." If they all resumed them, they 
 could no* ail maintain them, for Mr. White, of Baltimore, 
 in a letter to the Secretary of the Treasury in 1830, speaks 
 of " intelligence having just been received of the failure 
 of some of the principal Banks of Georgia to redeem 
 their notes with specie." Complaints of sufferings by tlie 
 people of the State have been frequent. In 1824 and 
 1828 these complaints were very loud. When the Legis- 
 
 * Niles, August, 2(;th, lS-20. 
 
 t United States Gazette of April 30th, and June 22d, 1821. 
 
BANKING IN THE SOUTHERN STATES. 143 
 
 lalure attempted to relieve the planters, by establishing a 
 Bank on the funds of the State, called the " Central 
 Bank," and opened that Bank for business at Milledgville 
 in 1829, " the rush for money was tremendous." 
 
 In South Carolina a disposition was evinced by a part of 
 the population, to make the suspension of specie payments 
 perpetual. Full proof of this is to be found in a long and 
 elaborate report by the directors of the Bank of the State, 
 dated October 1st, 1819, in which all the arguments of the 
 English Anti-Bullionists are placed in prominent relief. 
 The prosperity of the country from 1815 to 1817, is de- 
 picted in glowing colors. The effects produced by the re- 
 sumption of specie payments are deplored as unnecessary 
 evils. " It becomes necessary to inquire," say the direc- 
 tors, " whether, in the present state of the world, a metal- 
 lic currency, sufficient for the wants of our country, is at- 
 tainable, and whether, if it be obtained, it will be worth the 
 necessary cost : whether, in fact, a currency equally good, 
 perhaps better, may not be established, without any of those 
 sacrifices which our country has already been obliged to 
 make, and which it must for a long time make, to secure 
 this fugitive and evanescent object. * * * Jn Great 
 Britain, where alone, in modern days,'gold and silver have 
 for a short time been left freely to find their value in an 
 unshackled market ; they have been known to fluctuate in 
 value nearly 50 per cent, in the course of a few months: 
 a fluctuation which no paper currency has ever undergone, 
 excepting such as has been issued by the mandates of ar- 
 bitrary and necessitous governments, where no value is re- 
 ceived for it on its emission, no pledge given or secured 
 for its redemption." 
 
 The Bank of the State of South Carolina did not j)ay 
 specie regularly till the year 1823, and the United States' 
 Bank at Charleston, as it is stated in Degrand's Weekly 
 Report, " fostered the irregularity by aiding the circulation 
 of State Bank paper which was not convertible." Since 
 that time. Banking does not appear to have been less " re- 
 gular" in South Carolina than in Pennsylvania : but as 
 " regular" Banking by corporations and with paper money 
 may produce great evils, it might be worthy of inquiry if 
 jiart of the sufferings of the people of that State have not 
 their origin in this cause. The excitement, however, at 
 
144 BANKING IN THE SOUTHERN STATES. 
 
 this moment, appears too great to permit such an inquiry 
 to be made. 
 
 Virginia has the honor of being the first State that took 
 effectual measures towards reforming the currency. This 
 she did in 1820, when she passed an act to prohibit the cir- 
 culation of notes of a less denomination than five dollars. 
 Her Banking operations have never been less regular than 
 those of the Middle States : and she will probably be one 
 of the first to establish a perfectly sound system of credit 
 and currency. 
 
 Of the condition of affairs in North Carolina, the reader 
 may judge, by the following extract from a report made to 
 the Legislature, at the session of 1828-29. 
 
 " The Legislature having laid down, in the charters of the 
 several Banks, certain fundamental articles for the govern- 
 ment thereof, the committee assumed these articles as the 
 basis of their investigations, and proceeded accordingly to 
 inquire, in the first place, whether the stock of the several 
 Banks had been raised in the manner required by their 
 charters? — The evidence received by the committee on this 
 point, shows that the charters of the Banks were disregard- 
 ed and violated in the very creation of their capital. 
 
 " The charter of the Bank of Cape Fear, enacted in 
 1804, authorized that corporation to raise a capital stock of 
 $250,000; and the charter of the Newbern Bank, enact- 
 ed in the same year, authorized that Bank to raise a ca- 
 pital stock of $200,000; both charters directing the ca- 
 pital to be paid by the stockholders in gold or silver. The 
 undersigned have received no evidence as to the mode in 
 which these Banks got into operation. It would seem, 
 however, that tliey contemplated, at the outset, an evasion 
 of the provisions of their charters. It is in evidence to the 
 undersigned, that soon after they went into operation, they 
 contrived to get possession of nearly all the paper money 
 which had been issued on the faith of the State, which, 
 being at the time a legal tender, enabled them to evade de- 
 mands for specie, which they did, by thrusting this ragged 
 paper at those wlio presented their notes for specie. In 
 1807, $2"), 000 was added to the capital stock of each of 
 these Banks; in 1814, their charters were extended, and 
 they were authorized to increase their respective capitals to 
 $800,000 each, viz. the Newbern Bank was authorized to 
 
BANKING IN THE SOUTHERN STATES. 145 
 
 raise an addition to its stock of $575,000, and the Bank of 
 Cape Fear, an addition of $525,000. It is in evidence to the 
 undersigned, that the whole of this additional stock was 
 manufactured by the Banks themselves, and that, in many 
 instances, favored individuals were permitted to acquire 
 stock by subscribing their names, and putting their notes 
 into Bank, without advancing a single dollar of actual ca- 
 pital. It follows, that the whole amount of the interest drawn 
 from the people, on the loans made on this fictitious capital, 
 was a foul and illegal extortion. The effect of the trans- 
 action was the same as if the pretended stockholders had 
 individually executed their notes of hand, without interest, 
 to the amount of the notes which they issued from the Bank, 
 and exchanged them with the people for their notes, bear- 
 ing interest, and renewable every ninety days. Taking the 
 issues made on this fabricated capital to be in proportion 
 with those made on the former capital, they must have put 
 into circulation, on the faith of the assumed stock, between 
 3 and 4,000,000 of notes ; and thus, a parcel of individuals, 
 under the name of stockholders, but who, in fact, held no 
 stock, contrived to exchange their notes, without interest, 
 to the amount of 3 or 4,000,000, for the notes of the peo- 
 ple, bearing an interest of more than 6 per cent.; and 
 while the property of the people was pledged for the pay- 
 ment of the notes they had given to the stockholders, there 
 was not a dollar or an atom of property pleged to them for 
 the payment of the notes they had received ^ro??* the stock- 
 holders ; so that for the use of their notes, which, intrinsi- 
 cally, were of no value at all, the stockholders of these two 
 Banks have drawn from the people, by way of interest, 
 something like 8200,000 annually. - H'C«-^- 
 
 " The charter of the State Bank, enacted in 1810, au- 
 thorized that corporation to raise a capital stock of 81,600, 
 000, and directed books to be opened to receive subscrip- 
 tions for that sum, requiring, at the same time, that indi- 
 viduals subscribing for stock, should pay three-fourths of 
 the amount subscribed in gold or silver, and the other fourth 
 in the paper currency issued on the faith of the State. 
 Books were accordingly opened, and the sum subscribed, 
 including the subscription of 8250,000 for the State, 
 amounted to 81,175,600. Of this sum, only 8500,000, or 
 thereabouts, was paid into Bank, as required by the char- 
 
146 BANKING IN THE SOUTHERN STATES. 
 
 ter, in gold or silver. The balance was paid in Bank notes. 
 Upon the capital thus constituted, the Bank went on to ope- 
 rate till November, 1818; at which time, the proportion 
 between the notes in circulation and the specie on hand, 
 was nearly 12 to 1. In other words, the Bank had largely 
 upwards of 11 and nearly 12 dollars of their notes in cir- 
 culation, for every dollar of specie in their vaults. The 
 directors then ordered books to be opened to receive sub- 
 scriptions for the §424,000 which remained unsubscribed 
 when the books were first opened ; and it forms a part of 
 the order by which this additional subscription was au- 
 thorized, that the subscribers inight pay it in the notes of 
 the Bank. The reason assigned for this operation of the 
 directors, is, that they were desirous of applying the sponge 
 to a part of their outstanding debt, and by way of calling 
 in $224,000 of their notes, they authorized individuals 
 who held them to subscribe for stock in the Bank to that 
 amount, and pay for it in their notes. Thus, at a time 
 when they had in circulation nearly 12 dollars in notes for 
 every dollar of specie in their vaults, and when most ob- 
 viously they were unable to redeem their notes with specie, 
 they purchased them from the holders by the sale of stock 
 which they themselves created by the mere act of subscrip- 
 tion. This the undersigned conceive to have been a 
 most flagrant and fradulent violation of their charter. 
 The charter only authorized the Bank to operate on a 
 real and intrinsic capital, and directed that the capital 
 should be paid into the Bank by the stockholders. In 
 the transaction alluded tO; the Bank itself, by a scribbling 
 process of its own, created the capital, and paid off a 
 portion of its debt, by the very act by wiiich it also in- 
 creased its capital. A circumstance, too, which greatly 
 adds to the enormity of the transaction, is, that before all 
 the instalments became payable, the State Bank, the Bank 
 of Newbcrn and Bunk of Cape Fear entered into a formal 
 resolution, through tlieir delegates assembled at Fayetteviile, 
 in June, 1819, not to pay specie : and their notes imme- 
 diately fell to to 15 per cent, below par. Then conmienced 
 the system of usury and extortion, which has since been 
 carried on with such unparalleled audacity, under the 
 name of cxrhaimc Up to this time, viz., 1819, the high 
 tide of commercial prosperity enjoyed by the country, ena- 
 
BANKING IN THE SOUTHERN STATES. 147 
 
 bled the Banks to keep afloat, notwithstanding the artificial 
 character of their capital, without resorting to this daring 
 and dishonest expedient. They had kept pace in their 
 operations with the increasing resources of the country, 
 so as to absorb, by way of interest on discounts, nearly all 
 the profits on the immense business then doing ; and hav- 
 ing raised against the people a debt equal to the vast re- 
 sources which, from 1815 to that time, they had derived 
 from their foreign commerce, as soon as the alteration oc- 
 curred in our foreign relations and those resources were 
 cut off, the business of the country, unable any longer to 
 employ the immense circulating medium which had been 
 created by the Banks, and their notes returning upon them 
 for redemption, they determined to extort from the people 
 additional premiums on loans in order to enable them to 
 meet the demands of their creditors. A scene of extortion 
 and usury ensued, which has no parallel in the annals of 
 avarice — the strange spectacle of moneyed institutions ex- 
 acting specie in exchange for their notes, which they 
 themselves refused to redeem with specie. To show the 
 gross character of the usury thus carried on, the under- 
 signed will suppose a case : An individual applies to the 
 Bank for a loan of 1000 dollars, and offers his note to be 
 discounted for the amount. He is told by the Bank that 
 his note cannot be discounted, unless he will exchange 
 with them 1000 dollars of specie funds, for 1000 dollars of 
 their notes. Taking their notes to be 5 per cent, below par, 
 1000 dollars of their notes would in fact he no more than 
 950 dollars. So that the substance of such a proposition 
 would be, that the borrower should give the Bank ffty 
 dollars as a premium for the loan of 1000 dollars : which, 
 added to the legal interest received in advance, would 
 amount to something more than 11 per cent. In some 
 instances, the usury has been still more rank. Quantities 
 of their notes have been loaned to individuals on condition 
 that the whole amount should be returned in ninety days 
 in specie funds. At the rate of depreciation before stated, 
 such a transaction would be equivalent to the exaction of 
 26 per cent. The evidence received by the committee, 
 shows that the State Bank and Bank of Newbern have 
 been guilty of such practices since the summer of 1819. 
 There is no evidence that the Bank of Cape Fear has. It 
 
148 BANKIiVG IN THE SOUTHERN STATES. 
 
 appears in aggravation of the guilt of these practices, that, 
 in the case of the State Bank, the specie funds thus ex- 
 torted from the people in exchange for their depreciated 
 notes, have heen employed by the Bank in purchasing 
 back those notes at a discount : That they have, at times, 
 employed agents in New York and Petersburg, to buy up 
 their notes : and that about twelve months since, a parcel 
 of their notes was bought up by their agent at Petersburg 
 at 8 per cent, discount. It is stated by the President of 
 the Bank of Cape Fear, for whose testimony too much 
 respect cannot be expressed, that the notes of that Bank 
 have, at different times, been bought up at a discount by 
 the Bank. That a quantity of its notes were so purchased 
 in anticipation of the late call of the stockholders ; and 
 that during the panic occasioned by that call, something 
 like 500 dollars of their notes were bought up by the Bank 
 at a discount of 5 per cent. The depreciation of the notes 
 of all the Banks, occasioned by the refusal of the Banks to 
 make good their notes with specie, has been productive of 
 incalculable mischief to the community ; and it is no in- 
 considerable aggravation of the mischief to know that, in 
 the case of the State Bank, large quantities of their notes 
 have occasionally been thrown into circulation by themselves 
 in the purchase of cotton. It is in evidence to the under- 
 signed, that they laid out at one time 30,000 dollars of 
 their notes in the purchase of cotton, on which they made 
 a profit of more than 8,000 dollars. Another remarkable 
 fact in the history of the State Bank, which the under- 
 signed will notice in passing, is, that to protect themselves 
 from demands for specie, they determined at one time to 
 administer an oath to an individual, presenting their notes 
 for specie, in which he was compelled to state that he was 
 not a broker. It further appears to the undersigned, that 
 all the Banks have bought up United States' Bank notes, 
 for which they exchanged their own notes at a discount ; 
 and the State Bank and Bank of Cape Fear, in direct vio- 
 lation of their charters, have purchased stock to a consi- 
 derable amount in the United States' Bank. The State 
 Bank appears to have made a most convenient use of this 
 arrangement. It appears from the evidence of the late 
 President of that Bank, that they have been in the habit of 
 rendering false statements to the Legislature ; and that in 
 
BANKING IN THE SOUTHERN STATES. 149 
 
 May last, when they stated in their exhibit that they had 
 on hand 214,000 dollars in specie, 140,000 dollars of it 
 consisted of stock in the United States' Bank. So that, in- 
 stead of keeping the specie in their vaults to take up their 
 paper, they have vested it in the stock of another Bank, 
 and were deriving interest from it. It further appears, 
 from the evidence of the same person, that the amount of 
 actual specie now in the State Bank at Raleigh, is not 
 more than 300 to 400 dollars : at any rate, not exceeding 
 1000 dollars. 
 
 " The undersigned have now gone through the details of 
 the evidence, and stated all the essential facts collected in 
 the course of their examination. Having thus embodied 
 a simple statement of the facts, they would here close their 
 •report, and leave the conclusions and arguments to the 
 Legislature ; but they feel themselves impelled, by asolema 
 sense of the duty which they owe to the Legislature and 
 the country, to take a brief view of the present relation 
 between the Banks and the people, and the consequence 
 which must ensue if the Banks are permitted to continue 
 their operations ; and, in doing so, to advert to the report 
 of the committee of the stockholders of the State Bank at 
 their late general meeting. It appears that the people of 
 North Carolina, having already paid to the Banks, since 
 they went into operation, a profit of about 4,000,000 dol- 
 lars on their stock — stock, too, three-fourths of which was 
 manufactured by the Banks themselves in a fictitious and 
 fraudulent manner — that having paid this immense sum, 
 exceeding four times the amount of the actual capital stock 
 ever paid into Bank according to law, they still hold the 
 notes of the people for more than 5,000,000 dollars, about 
 four times the amount of the whole circulating medium of 
 the State. Thus it is in the power of the Banks absolutely 
 to extinguish, the currency of the country, and when they 
 have taken every dollar out of circulation, still to have a 
 debt against the people to the amount of about 4,000,000 
 dollars. We say it is in their power to do it ; and they in- 
 timate pretty plainly that they icill do it. The communi- 
 cation from the stockholders of the State Bank, now be- 
 fore the committee, expresses the opinion that it is for the 
 interest of the stockholders to withdraw their money from 
 the Bank, and take it under their own management ; and 
 o 
 
150 BANKING IN THE SOUTHERN STATES. 
 
 contains a resolution by which they have proclaimed their 
 resolution to assemble in June next, in order to determine 
 whether they will proceed to wind i/p their affairs ; and, 
 consequently, the affairs of the people of North Carolina. 
 Thus having for years contrived, by illegal and fraudulent 
 practices, to draw from the people all the prof ts of their 
 labor, and having by these practices placed the people in 
 an impoverished condition, where they can no longer pay 
 them large profits, they are now preparing, by one fell' 
 swoop, to extort from them the aetiial means of subsistence. 
 But the question occurs, will you permit it? Will you per- 
 mit a parcel of men, who have long set the laws of the 
 country at defiance, to go on and complete the ruin they 
 have already so nearly accomplished ? Will you not bring 
 them to the observance of the law 1 Will you not at length 
 cause them to feel the rod of that law they have so long 
 despised and violated ? These questions, your committee 
 conceive, answer themselves. When the Legislature is 
 called upon to determine whether their constituents shall 
 live under a government of laws, or a government of cor- 
 porations, it cannot be difficult to decide. The under- 
 signed, therefore, recommend to the Legislature the adop- 
 tion of the followintT resolution : — 
 
 " Wliereas it appcurs to the Legislature that the State 
 Bank of Newbern, and the Bank of Cape Fear, have vio- 
 lated their charters and committed great frauds on the peo- 
 ple of North Carolina, wliereby said Banks have forfeited 
 the powers and privileges granted in their charters : There- 
 fore, 
 
 " Be it Resolved by the General Assembly of the State 
 of North Carolina, That the Attorney General be, and he 
 is hereby, directed forthwith to institute a judicial inquiry 
 into the conduct of the said Banks : and that he prosecute 
 such inquiry by writ of Quo Warranto, or other legal pro- 
 cess." 
 
 No such judicial inquiry appears to have been instituted. 
 The practical sovereignty remains with the Banks of North 
 Carolina: and they respect the laws and public opinion, 
 just so far as they believe to be conducive to their own 
 interest. 
 
BANKirJG IN NEW ENGLAND. 151 
 
 CHAPTER XV]f '^IZL / "7 
 
 Of Banking in Ncxo England. 
 
 We have searched the public libraries of Philadelphia 
 for particulars respecting the New England Banks that 
 broke previous to the war, but have been able to find no 
 document of any importance, except the report of the com- 
 mittee of the Legislature of Rhode Island in relation to 
 the affairs of the Farmers' Bank of Gloucester. Many wri- 
 ters allude to the great distress that the operations of the 
 moneyed corporations produced in New England about the 
 years 1808 and 1809, but they do not even give a list of 
 the Banks that then stopped payment. 
 
 That the distress was great, we have incidental proof in 
 the rigidity of the laws afterwards adopted to enforce specie 
 payments. All experience shows that till the evils produced 
 by moneyed corporations become absolutely unendurable, 
 the proper remedy is not applied. 
 
 After the commencement of hostilities with Great Bri- 
 tain, the New England Banks were obliged, in order to 
 maintain specie payments, to wind up nearly all their credit 
 dealings. This operation necessarily produced much dis- 
 tress, and greatly increased the dissatisfaction with which 
 the people of. that section of the Union regarded the war- 
 like policy of Government. 
 
 This distress does not appear to have terminated with 
 the war. For, a Philadelphian, writing in August, 18] 5, 
 says, after mentioning the curtailments made by the New 
 England Banks, " Real estate would not command prices 
 niffh its former value ; merchandise fell wreatlv below its 
 usual rate ; whilst money in the market was worth two per 
 cent, a month. This is the existing state of things in Bos- 
 ton. * * * * It is manifest that the operation of the 
 rigid laws of Massachusetts is highly injurious to the com- 
 merce of their towns, and we do not see that the boasted ca- 
 pacity of their Banks to pay -dfew notes in specie, renders 
 their situation more enviable than our own."* 
 
 The natural anxiety of the New Englandmen to get pay- 
 ment of what was due to them by the people of the Middle 
 
 * H 
 
 Inquiry," &c. 
 
152 BANKING IN NEW ENGLAND. 
 
 States, was altributedjo ill-feeling. " Circumstances," said 
 a New York writer, '* have excited a spirit of envy at our 
 prosperity, which has superadded a restless malignity of 
 effort to increase artificially and aggravate the evils of an 
 unfavorable balance. Whoever has attended to the uniform 
 language of eastern men and eastern writers, cannot have 
 failed to discover this spirit — they will not believe that I 
 speak of its authors with undue severity."* 
 
 The apparent prosperity of the Middle States was such 
 as might well excite envy; but it was a wholesome adver- 
 sity New England was experiencing. Her currency could 
 not, indeed, be called perfectly sound, for, as appears from 
 Mr. Crawford's Report, many of the inconvertible notes of 
 the other States found their way into her territory. But, 
 as the people had got them for less than their nominal va- 
 lue, they sustained no other loss except that which arose 
 from the notes undergoing an additional depreciation while 
 they remained in their hands. The standard of value by 
 which contracts were regulated in New England was not 
 affected ; and the Banks being prevented from suspending 
 specie payments, were prevented from exciting a wild spirit 
 of speculation in the people. 
 
 The natural consequence of the suspension of specie pay- 
 ments in the other States, was an influx of specie into New 
 England. That this was very great, may be inferred from 
 the fact that the Massachusetts Banks which had $1,560,004 
 in specie in 1811, had, in 1814, specie in their vaults of the 
 amount of 80,393,718. It was useless to keep such an 
 amount of specie lying dead. The abundant issues of trea- 
 sury notes by the Government afforded easy means of pay- 
 ing duties. There was enough, either of specie or of notes 
 of different kinds in circulation, to supply all the wants of 
 domestic trade. The specie was, therefore, exported with 
 so much rapidity, that the amount in the Boston Banks, 
 which had been $5,400,759 in .Tune, 1814, was, by June, 
 1815, or about five months after the return of peace, reduced 
 to $2,125,070 ; or, if the amount in the Worcester Bank be 
 included, to about $2,800,000. The exportation of specie 
 did not stop till there was no more left than was just suffi- 
 
 * " Statius," in tlie New York Columbian ; republished by Mr.Carey, 
 with cooiuiendations, as an appendix to liis " Letter to Mr. Calhoun," 
 1816. 
 
BANKING IN NEW ENGLAND. 153 
 
 cient to support the credit of the notes in circulation : so 
 that, when the United States' Bank commenced operations, 
 the other States could derive no important supplies of me- 
 tallic money from New England. 
 
 From a combination of causes, the operations of the 
 United States' Bank were of limited extent in New Eng- 
 land. The channels of circulation there were fully occu- 
 pied by local Bank notes which had never been discre- 
 dited. The new institution had so little metallic capi- 
 tal, that it could not enter into competition with the local 
 Banks ; and all the funds it acquired as receiver of tlie 
 public moneys at Boston, were wanted to support its opera- 
 tions in the South and West. 
 
 Kence, the reaction of 1819 was less sensibly felt in 
 New England than in other parts of the Union. 
 
 The ordinary operations of Banking in New England, 
 are, however, such as to make men lament tl;at the system 
 was ever invented. Expansions and contractions have, as 
 we have before had occasion to remark, a more striking 
 effect on the operations of manufacturers than on those of 
 agriculturists. So facile is production with modern ma- 
 chinery, that a small rise of prices causes a great increase 
 of manufactured articles. !n a short time, the Banks are 
 forced to contract. Then there is a scarcity of money and 
 a glut of manufactures. Then the manufacturers petition 
 for new additions to the duties on imports. The tariff is 
 raised accordingly. Enterprize is again awakened. There 
 
 is a demand for capital : and the Banks supply credit. 
 
 There is, however, no more solid ground for an extension 
 of credit after the passage of a new tariff act than there 
 was before. Not more than a year or two elapses before 
 the necessary reaction commences. The manufacturers, 
 again startled with the prospect of ruin, apply for additional 
 " protection," It may be granted ; but it is doubtful if any 
 tariff that can be established, will, while this system of 
 money dealings continues, be able to protect multitudes 
 from ruin. We know some very zealous and very intelli- 
 gent friends of the " American System," who are decid- 
 edly of opinion, that if there were no moneyed corporations 
 and no paper money in the country, the manufacturers 
 would require no protecting tariff. If the excitement in 
 relation to protecting duties were less violent than it is at 
 o o 
 
154 BANKING IN NEW ENGLAND. 
 
 this moment, we might invite particular inquiry into the 
 effect paper Banking has on manufactures. We might 
 illustrate our argument, by showing the effects expansions 
 and contractions of Bank medium have had on manufac- 
 turing operations in "England. 
 
 The multitude of Banks in New England, makes it 
 necessary for those concerned in them to resort to a 
 variety of expedients to sustain them in their operations. 
 Of these expedients none but the concerned could give a 
 full account : but some idea of their nature may be formed 
 from the disclosures which are occasionally made. 
 
 Mr. Niles, in his Weekly Register for September 8th, 
 1821 , for example, gives the following quotations from the 
 New York Journal : — 
 
 " We observe by a notice in the " Dutchess Observer," 
 that the farmers of Dutchess County have been shorn of all 
 their wool by a most singular operation — or, in other words, 
 that nearly all the wool in that county had been sold to J. 
 Butler, cashier of the Litchfield Bank, who had recently 
 failed, and assigned his factory, wool, &c. to the Bank, as 
 security for his debts, leaving the farmers to suffer. 
 
 " The story, as told by one of the shorn, is briefly this : 
 — The "Wolcotville Factory, formerly belonged to Mr. 
 Wolcott, who failed, being largely indebted to the Bank. 
 As the Bank is prohibited from buying and selling pro- 
 perty, their Cashier, Butler, became nominally the pro- 
 prietor. The belief that James Butler acted in behalf of 
 the Bank, was so universal, that he obtained an unlimited 
 credit. The agents for the factory have recently made 
 large purchases of wool, in the usual manner, upon the 
 notes of James Butler. A great proportion of the wool 
 raised this year in Dutchess County has thus been pur- 
 chased and carried over to Litchfield, and as soon as the 
 same is well packed away, James Butler, the Cashier, is 
 discovered to be a defaulter to the Bank for some 16,000 
 dollars, and he assigns his factory, and the stock thus fairly 
 and recently acquired, to the Litchfield Bank. The Bank 
 is paid — the farmer has a Litchjiehl shearing — and James 
 Butler, the cashier, is an insolvent." 
 
 The art of forming Bank capitals by discounting the 
 stock notes of subscribers, appears to be as well understood 
 in New England as in Pennsylvania. The Keunebeck 
 
BANKING IN NEW ENGLAND. 155 
 
 Bank, in Maine, had a nominal capital of 100,000 dollars; 
 but an official investigation, in the year 1826, showed that 
 89,370 dollars of the whole amount consisted of stock 
 notes: that the directors held nine-tenths of the stock, and 
 that they were in debt to the Bank not only for the amount 
 of their stock notes, but in an additional sum of 34,400 
 dollars. For two years, this Bank divided 12 per cent, per 
 annum. 
 
 The expose of the Bath Bank in the same State, was 
 very similar to that of the Kennebeck Bank. Nearly three- 
 fourths of the capital were represented by stock notes, and 
 nine-tenths of the stock were owned by the directors. 
 More than three-fourths of ail the discounts, in addition to 
 those on stock notes, were made to the same directors. 
 
 The capital of the Bank of Vassalborough consisted of 
 300 shares, of which 283 " belonged either personally or 
 representatively to a partnership at Hallowell, A. & J. Leo- 
 nard, the former of whom is President. The whole amount 
 oi money which the Bank had on hand on the 21st of June, 
 1826, was 840,000; 836,000 of which was in the hands of 
 the firm above mentioned, and 4,000 in the hands of the 
 Cashier. The Bank had no record or charge to exhibit 
 against the Leonards, who had about the whole property of 
 the institution, and the Cashier had taken up his bond. 
 The Commissioners were requested to postpone their re- 
 port, till the Bank concerns could be put into some form 
 and comeliness, but the disorders of the body politic appear- 
 ed too incurable to be thus tampered with." 
 
 On an investigation of the aftairs of the Burrillville Bank 
 of Rhode Island, it was found that only 6000 dollars of the 
 capital had been paid even in stock notes. 
 
 Bank capitals being thus easily formed, and legislative 
 charters conferring great privileges, we cannot wonder at 
 the multiplication of Banks in New England. Rhode Is- 
 land, which had thirty-four Banks in 1820, increased the 
 number to fifty by the year 1830 : and Massachusetts, in 
 the same period, made an addition of forty to the number 
 of her Banking institutions. 
 
 In some of their recent acts, the Legislature of Massa- 
 chusetts have endeavored to guard against the formation of 
 Bank capitals out of stock notes, but that it is possible for 
 the getters up of Banks to evade, if so disposed, even the 
 
156 BANKING IN NEW ENGLAND. 
 
 Strongest legal enactments, may be learned from the follow- 
 ing extract from a report made to the Senate of the State, 
 on the 25th of January, 1830. 
 
 " The Sutton Bank was incorporated the 11th of March, 
 1828. The act of incorporation provides — " That the ca- 
 pital stock of said corporation shall consist of one hundred 
 thousand dollars in gold and silver, to be divided into shares 
 of one hundred dollars each, which shall be paid in the 
 manner following, viz. one-half part thereof on or before 
 the first day of October (then) next, and the remaining 
 part thereof on or before the first day of March, in the 
 year of our Lord one thousand eight hundred and twenty- 
 nine." And it further provides, that no moneys shall be 
 loaned or discounts made, nor shall any bills or promissory 
 notes be made or issued from the said Bank, until the ca- 
 pital subscribed and actually paid in, and existing in gold 
 and silver in said vaults, shall amount to fifty thousand dol- 
 lars, nor until the said capital stock, actually in said vaults, 
 shall have been inspected and examined by three Commis- 
 sioners, to be appointed by the Governor for that purpose, 
 whose duty it shall be, at the expense of the said corpora- 
 tion, to examine the money actually existing in said vaults, 
 and to ascertain, by the oaths of the directors of said Bank, 
 or a majority of them, that the said capital stock hath been 
 bona fide paid in by the stockholders of said Bank, and to- 
 wards the payment of their respective shares, and not in- 
 tended for any other purpose, and that it is intended there 
 to remain as part of said capital." 
 
 " On the 26th day of September, 1828, the Governor, 
 in compliance with an application for that purpose, made 
 by a committee of the subscribers for stock in said Sutton 
 Bank, appointed Commissioners to examine the moneys ac- 
 tually existing in vaults of said Bank, as is provided in the 
 second section of their act of incorporation. On the 2Tth 
 day of Sei)tember, 1828, the Sutton Bank borrowed, on a 
 deposit of fi fly-one thousand dollars in the bills of the City 
 Bank, the sum of fifty thousand dollars in specie, for one 
 day only ; this same specie was examined by the Commis- 
 sioners, and the following certificates made out, viz. — 
 
 " We, the subscribers, Commissioners appointed for that 
 purpose, have this day been shown, and have examined, fif- 
 ty thousand dollars in specie in the vaults of the Sutton 
 
BANKING IN NEW ENGLAND. 157 
 
 Bank, which was paid in by the stockholders at their first 
 instalment, agreeably to their Act of Incorporation, passed 
 the eleventh day of March, 1828. 
 
 Jonathan Leland. 
 
 Amasa Roberts. 
 
 Samuel Wood. 
 Septe7nher, ^Ith, 1828. Commissioner!^." 
 
 Boston, Sept. 27th, 1828. 
 " Suffolk, ss. 
 
 " Then personally appeared Hezekiah Howe, Jonas 
 L. Sibley, Joshua W. Leland, and Thomas Harback, being 
 a majority of directors of Sutton Bank, and made oath 
 that fifty thousand dollars in specie by them shown in their 
 vaults, was the first instalment paid by the stockholders of 
 their Bank, towards the payment of their respective shares, 
 and not for any other purpose, and that it is intended there- 
 in to remain, a part of said capital. 
 " Before me. 
 
 " Eliphalet Williams, Just. Peace. 
 
 " The bills and specie were then re-exchanged : this whole 
 business, accomplished within an hour, and cdl of it done 
 within the wcdls of the City Banlc, in the city of Boston. 
 
 " It appears from the books of the company, that the se- 
 veral payments for the first instalment were made on the 
 first and sixth days of October, 1828, and on the same days, 
 almost all the stockholders are charged with notes for the 
 same amount as their respective instalments: in two in- 
 stances, notes were taken from individuals equal to their 
 own subscription and the sums due from their minor chil- 
 dren, in whose names stock had been subscribed : in two 
 instances only, and those for a small amount, it appears any 
 payment was made in money. 
 
 " On a petition to the Legislature, praying that they 
 might be allowed further time to pay in the remaining moie- 
 ty of their capital, " An act in addition to an act to incor- 
 porate the President, Directors, and Company of the Sut- 
 ton Bank,' was passed on the 20th of February, 1829, 
 which provides, * that the said fifty thousand dollars shall 
 be paid in gold and silver, in the manner following : — twen- 
 ty-five thousand dollars on or before the first day of June 
 next, and the remaining twenty-five thousand dollars on or 
 
158 BANKING IN NEW ENGLAND. 
 
 before the first day of October next.' The payment in 
 June was made in the same manner as the first payment, 
 as was also the last, with the exception of some shares on 
 which the instalment was not settled, either by note or 
 otherwise. The object of the Corporation in requesting 
 an extension of the time of making payment for their stock 
 in the mode adopted by them, is not apparent, as it may be 
 supposed that it would be as convenient for them to make 
 their notes in March last, as in the months of June and 
 October following." 
 
 The case of the Eagle Bank at New Haven is deserv- 
 ing of notice. This Bank had a capital of 600,000 dollars, 
 and was accounted one of the safest Banks in New Eng- 
 land. It failed in September, 18:25 : and from a report by 
 a committee of the Legislature, we give the following ex- 
 tract. 
 
 " George Bradly, Esq., the President of the Institution, 
 was employed as Cashier of said Bank from its commence- 
 ment, until the year 1817, when on the resignation of 
 the Hon. Simon Baldwin, he was elected President. From 
 that period, the President was permitted to be the sole 
 manager of the institution. Its funds were placed entire- 
 ly under his control and disposal. No rules were prescrib- 
 ed by the Board of Directors regulating the mode of trasact- 
 ing the business of the institution, or requiring its officers 
 to bring their doings under the review of the Board during 
 the aforesaid time. The President had not only in his 
 hands the entire control of the concern of the Bank, but 
 had, by accumulation of proxies, the power of appointing 
 the directors. In the successive changes of the Board, 
 no examination was made into the state and condition of 
 the Bank. The funds of the institution were employed in 
 speculations, and adventures unknown to the directors and 
 stockholders, and entirely unconnected with, and remote 
 from, the business of Banking. Loans were made in various 
 forms, and to a great extent, which were not communicated 
 to the directors, and in some instances by arrangement 
 not to be communicated. In this course of management 
 individuals obtained, without the form of security, and for 
 various puri)oses, funds of the Bank, exceeding the capi- 
 tal, and to supply the exigencies created thereby, agents 
 were employed in whose hands the bills of tlie Bank were 
 placed to give them a forced and distant circulation, and 
 
BAXKIXG IN NEW ENGLAND. 159 
 
 by that means to sustain the operations of tlie Bank. Those 
 operations were not recorded in the regular books of the 
 Bank, but vested in loose papers in the custody of the 
 President, and in a book, in which the initial letters of the 
 names of the agents were entered, and the figures contain- 
 ing the amount by them received. The statements annu- 
 ally rendered to the Legislature, have been calculated to 
 mislead, rather than to afford any information on which 
 the public could safely rely in relation to the true state and 
 condiiion of the Bank. In one instance 220,000 dollars, 
 issued upon the checks of the President, Normand Dex- 
 ter, Henry C. Rossiter, the Messrs. Hinsdales, and other 
 memorandums of indebtedness not entered upon the books 
 of the Bank, were not included in the reported amount of 
 circulation, making an error in the statement of the afore- 
 said sum of two hundred and twenty thousand dollars. In 
 the course of the last spring, other and further expedients 
 were adopted by the President to assist his operations. With- 
 out the order or consultation with the Board of Directors, 
 a new post note was procured, and notes in that form 
 payable on different times, were placed in the hands of an 
 individual to an alarming amount, and without, the precau- 
 tions of security, to obtain by negotiations, the funds ne- 
 cessary to relieve the increasing pressures on the Bank. 
 Those notes were not entered regularly into the books of 
 the Bank, and not known otherwise than casually to the 
 Board. The consequences of sucli expedients were in a 
 few months developed. The inability of the institution to 
 redeem its notes, brought to an end its operations as a 
 Bank in September last, and the distress in which the cre- 
 ditors were involved, and the great body of the stockhold- 
 ers, who cannot be supposed to have any agency in the 
 management, is too deep and too extensive to require to be 
 stated by the committee." 
 
 In May, 1827, a report was made to the Legislature, that 
 the amount of Bank notes and post notes of the Eagle 
 Bank in circulation, was 815,478 dollars. In May, 1828, 
 another report was made, in which it was stated that 
 1,451,507 dollars were owing to the Bank from four indi- 
 viduals, viz: from J. & D. Hinsdale, 530,460 50: from 
 W. C. Holly, 236,779 47 : and from N. Dexter, and W. 
 C. Holly, conjointly, 568,801 98. The amount of debts, 
 
160 BANKING IN NEW ENGLAND. 
 
 good, bad, and doubtful, due from all other persons to the 
 Bank, was then less than 200,000 dollars. 
 
 Governor Wolcott, in an address to the Legislature of 
 Connecticut, in May 182G, said, " Except in limited dis- 
 tricts of the United States, the condition of our circulat- 
 inw medium is not very dissimilar to that which has been 
 established by arbitrary Kings in the North of Europe, and 
 especially by the Autocrat of the Russian Empire. There, 
 a Bank has been created, and its notes constitute a circu- 
 latino- currency throughout his vast dominions. The credit 
 which these notes obtain, is derived from revenues which 
 are established by his sole authority. These revenues are 
 not indeed paid in Bank notes, but the demand for silver 
 coin which the revenue establishes, imparts a forced, though 
 precarious, value to the notes, which value is maintained 
 and regulated by the reciprocating influences which are 
 created between the supply and demand for paper and 
 silver currencies. The effect is, that all property is sub- 
 ject to his will. 
 
 " With us the currency which is required by the daily 
 exchange between all the people, and by which the transac- 
 tions between farmers, mechanics, laborers, manufacturers, 
 and traders is regulated, is almost exclusively in Bank 
 notes, which are issued by a great number of independent 
 corporations, which possess an exclusive privilege of creat- 
 ing notes for their own benefit. 
 
 " This monopoly is here so exercised, that neither the 
 amount of currency which is issued, nor the amount of 
 that which is suddenly suspended, withdrawn, or annihi- 
 lated, is subject to any practical limitation, other than 
 what must arise from the state of foreign and domestic 
 exchanges, the speculations of individuals, political events, 
 and the necessities or caprices of the numerous monopo- 
 lizing incorporations, who entirely control the circulation 
 of the country. 
 
 " These last observations require no other confirmation 
 than a reference to the notorious facts, that no coins circu- 
 late among the people, except small sums of copper, and 
 the fractional parts of a dollar in silver, which is our sil- 
 ver unit. Our unit of gold is a coin of ten dollars, which, 
 with its fractional parts, in coins of five dollars, and two 
 and one half dollars, have wholly vanished from circu- 
 lation. 
 
BANKING IN NEW ENGLAND. 161 
 
 " The effects produced upon the people are, that no man 
 can travel fifty miles, in any direction, without receiving 
 paper notes of which he possesses no means of ascertain- 
 ing the value, or even the authenticity, and this difficulty in- 
 creases in proportion to the distance of an individual from 
 some one of these Banks. From these causes, the whole 
 country is subject to complex evils, arising from either a 
 redundant or too restricted circulation of the only currency 
 which can be obtained, and hence, sudden variations in 
 the prices of all exchangeable commodities, far exceeding 
 the customary profits of regular industry and commerce, 
 thereby converting all transactions of business, especi- 
 ally at a distance from the seats of foreign commerce, 
 into mere lotteries. 
 
 " It is amidst explosions of credit, principally occasion- 
 ed by the conduct of Banks, that every class of industri- 
 ous citizens, and all our enterprizing young men, are ex- 
 posed to repeated losses, against which no vigilance can 
 guard, and no prudence exempt them. 
 
 These distresses are inflicted upon the community, with- 
 out any advantage being derived either to the State, to the 
 stockholders, to the depositors of funds, or to the honest 
 debtors to the Banks. They are so frequent, so extensive, 
 and embrace so many personal interests and connexions, 
 that it seems impossible to impute them, in many instances, 
 to voluntary depravity. The inference must be, that our 
 system of Bank administration is essentially defective, and 
 that to correct it, all interests ought to contribute their 
 best councils and united efforts. 
 
 " There are fewer inducements at this time, why we 
 should submit to the evils of a paper currency, than exist 
 among any other people on the globe. We are prosecuting 
 an active commerce with states and nations where gold 
 and silver are abundant, and are, indeed, staple articles of 
 trade. With these countries, the intercourse of the people 
 on both sides is founded on friendly and constant relations, 
 both personal and political. Our fabrics of iron, wool, 
 leather, wood, cotton, paper, and most other productions 
 of our arts and industry, are as necessary to these coun- 
 tries, as a fair relative proportion of their metallic wealth 
 has become essential to us. 
 
 " It is very consolatory to know, that the abuses of 
 
162 BANKING IN NEW ENGLAND. 
 
 credit which are so prevalent, did not commence in this 
 State, and tiiat although we have yielded to temptations 
 which we oii^ht to have averted, our neighbors ought to 
 correct their own conduct before they censure us. 
 
 " In my opinion, we ought to manifest our sincerity by 
 immediately retracing the folds of the web in which we, 
 in common with our neighbors, have become entangled. 
 We can perceive that the issues of notes from the Banks 
 in this State have been annoying to the Banks in Boston 
 and New York, while theirs, founded on no superior secu- 
 rity, have been equally injurious to us. Both parties ought 
 voluntarily to concur, in permitting specie to circulate 
 throughont the country, thereby rendering the capitals and 
 credit which exist conducive to mutual advantage. 
 
 " The objections to the measure which I deem it my 
 duty to recommend, will most probably be, that paper is a 
 cheaper instrument of circulation than metallic money: and 
 tliat the proposed restriction would diminish the dividend 
 of Banks, in which the State, the school fund, ecclesiastical 
 societies, the colleges and academies, other incorporations, 
 stockholders, and numerous individuals, are interested. 
 
 " But if all these objections were true in point of fact, 
 they would form very inadequate reasons for inflicting 
 great, i/icrcrising, and remediless injuries upon all the peo- 
 ph and the wkole nation. These evils have not proceeded 
 from the incorporations as such, but merely because they 
 have issued bills of credit, as substitutes for the general 
 currency of gold and silver. 
 
 " If any principles are demonstrable by reason and ex- 
 perience, they are, that paper money is an interruption to 
 productive industry : that industry is the main source of 
 wealth, and that whatever diminishes production is injuri- 
 ous to the lenders of capital. 
 
 " The stockholders of Banks are only interested in hav- 
 incr their cajiitals safely invested, in such a manner as to 
 secure the payment of a regular interest equal to the use of 
 the sums so advanced. It cannot promote their interests, 
 that all the capitals of this country, whether invested in 
 stocks or other transferable property, or in exchangeable 
 commodities, should be constantly exposed to the hazards 
 of rapid revohitiniis. 
 
 "In my opinion, Banks which deal in circulating notes, 
 
BANKIXG iN NEW ENGLAND. 163 
 
 and which are safely conducted, require a much more 
 elaborate and expensive organization and system of detail, 
 than such as deal wholly or principally in gold and silver. 
 Honest men assume frightful responsibilities under the 
 forms by which many of these institutions are now con- 
 ducted, and their hazards increase in proportion to the 
 number and variety of the notes which are received. Many 
 counterfeited and altered notes are so skilfully prepared, 
 as to defy the scrutiny of adepts : and no safeguards are 
 provided to protect those who receive them from the most 
 offensive accusations. 
 
 " The case is far different, in respect to transactions in 
 gold and silver : for by hydrostatic and other balances 
 which are cheap instruments, which have been known and 
 used since the time of Archimides, the purity and value of 
 coins can at once be ascertained w'ith unerring certainty." 
 
 The struggles of the New England Banks with one an- 
 other, to decide which shall have the greatest share of "the 
 circulation," inflict great evils on the community, in ad- 
 dition to those which are inflicted by general contractions 
 and expansions of Bank currency. Sometimes a number 
 of country Banks form a coalition to extend their opera- 
 tions, and the city Banks form alliances to resist them. 
 Sometimes some of the city Banks enter into arrangements 
 to aid the designs of the country Banks, and sometimes 
 these latter find efficient auxiliaries in the city brokers. 
 When a coalition succeeds in extending its issues of paper, 
 certain districts or certain classes of society experience all 
 the advantages, real or apparent, deriveable from an in- 
 crease of circulating medium. This continues till the 
 counter-coalition succeeds in reducing the circulation of 
 its rivals : and then follows a reaction, with " scarcity of 
 of money," and its usual concomitants of bankruptcies and 
 public distress. A detail of the different measures of these 
 combinations and counter-combinations, and an account of 
 their effects on the community at large, would be interest- 
 ing, but would exceed our limits. 
 
 A writer in the Massachusetts Journal endeavored, in 
 the fall of 1830, to show that the Banking system of that 
 commonwealth is the worst which could be devised ; and 
 recommended as a substitute for it, a State Bank and 
 branches. His prominent objections to the present system 
 
164 BANKING IN NEW ENGLAND. 
 
 are " that it renders necessary about seventy Banking in- 
 stitutions : that this number must every year be increased, 
 as the Legislature cannot properly withhold charters from 
 any who may apply for them : that the competition for 
 business between these numerous establishments, gives to 
 individuals a dangerous facility in obtaining loans, and 
 creates a system of fictitious credits, which, having no base 
 on real capital, must, at every pinch in the money market, 
 explode, and bring ruin upon the Banks and their debtors. 
 Other objections are, that the expenses of these various 
 Banks in salaries, rent, 6lc., amount to a very large sum, 
 (in Boston alone to 120,000 dollars,) which expenses are 
 a tax upon stock :" that the country Banks are put to a 
 great expense in redeeming their bills in Boston ; " and 
 that, after all, the iiotes of these Banks form a currency, of 
 different and fluctuating value, instead of that steady and 
 uniform currency which public convenience requires." 
 
 From accounts recently published, it appears that the 
 number of Banks in Massachusetts, in Augrust, 1833. w^as 
 eighty-three, having nominal capitals of the amount of 
 824,520,000, notes in circulation of the amount of 87,122,- 
 856, and specie on hand of the amount of §902,205 75. 
 Of these Banks, twenty-two were in the city of Boston. 
 The greatest amount of specie in any one of the city Banks 
 was $127,131 43 ; the smallest was 82,415 41. The great- 
 est amount of specie in any one of the sixty-three country 
 Banks, was 822,906 90 ; the smallest was 81,022 97. 
 
 Massachusetts was first in adopting the paper money 
 system ; and she will probably be among the last to aban- 
 don it. Its ramifications there are so numerous, that near- 
 ly all the members of the community are compelled to give 
 it either a willing or an unwilling support. 
 
BANKING OPERATIONS FROM 1814-15 TO 1820-21. 165 
 
 CHAPTER XVIII. 
 
 General Vieio of Banking Operations from 1814-15 to 
 
 1820-21. 
 
 In the tables appended to Mr. Secretary Ingham's Report 
 on the Gold Coinage, the following is stated to have been the 
 price of specie, at the dates and places below mentioned. 
 
 1814. 
 
 September - - . 
 
 October . . _ 
 
 November - - . 
 
 December . _ - 
 
 1815. 
 
 January . . - 
 
 February . - - 
 
 March - - - - 
 
 April . . - . 
 
 May » . - . 
 
 June - - - - 
 
 July ... - 
 
 August - - - - 
 
 September ... 
 
 October - - - - 
 
 November ... 
 
 December - - _ 
 
 1816. 
 
 January ... 
 
 February _ - . 
 
 March - - - - 
 
 April _ - - - 
 
 May - - - - 
 
 June - . - . 
 
 July - . - - 
 
 August ... 
 September 
 
 October - . . 
 November 
 
 December ... 
 
 1817. 
 
 January - - _ 
 
 February - - - 
 
 From the rates of exchange on London, in New York 
 and Philadelphia, in the months in which there are blanks 
 pp 
 
 Baltimore. 
 
 Philad. 
 
 N. York. 
 
 20 pr.ct 
 
 .adv. 
 
 
 15 
 
 
 
 10 
 
 
 
 14 
 
 
 
 20 
 
 
 15 
 
 5 
 
 
 2 
 
 5 
 
 
 5 
 
 10 
 
 
 H 
 
 14 
 
 5 
 
 5' 
 
 16 
 
 9 
 
 11 
 
 20 
 
 11 
 
 14 
 
 19 
 
 11 
 
 12* 
 
 20 
 
 15 
 
 13 
 
 2U 
 
 15 
 
 16 
 
 15 
 
 16 
 
 12 
 
 18 
 
 14 
 
 l^ 
 
 15 
 
 14 
 
 12^ 
 
 13 
 
 14 
 
 9 
 
 18 
 
 12.i 
 
 12i 
 
 23 
 
 \\h 
 
 lOi 
 
 20 
 
 14 
 
 ]2i 
 
 20 
 
 16 
 
 12i 
 
 15 
 
 15 
 
 6 
 
 12 
 
 10 
 
 5 
 
 10 
 
 7h 
 
 3 
 
 8 
 
 9i 
 
 2 
 
 9 
 
 7 
 
 H 
 
 9 
 
 7 
 
 4 
 
 3 
 
 4i 
 
 2d 
 
 2i 
 
 4 
 
 2| 
 
166 BANKING OPERATIONS FROM 1814-15 TO 1820-21. 
 
 in the table, the price of specie appears then to have been 
 a few per cent, less in Philadelphia than in Baltimore ; and 
 a few per cent, less in New York than in Philadelphia. 
 
 In the Appendix to the Report of the Committee of the 
 Senate of Pennsylvania, the following table is given to 
 show the discount on the notes of the country Banks — 
 not as estimated in specie, but as estimated in Philadelphia 
 paper. 
 
 BANKS. 
 
 1816 
 
 1817 
 
 1818 
 
 1819 
 
 1820 
 
 » 
 
 -^ 
 
 lO CO 
 
 •* 
 
 n 
 
 CO 
 
 I— ( 
 
 
 !>. 
 
 > 
 
 >. > 
 
 >• 
 
 > 
 
 > 
 
 > 
 
 CO 
 
 
 C3 
 
 o 
 
 'Ti 1 o 
 
 a 
 
 o 
 
 nS 
 
 o 
 
 »-< 
 
 
 10 
 
 2; 
 9 
 
 63 
 
 4 
 
 3 
 
 3^ 
 
 4 
 
 C3 
 
 >-> 
 3 
 
 Bank of Gettysburgh, 
 
 Harrisburg Bank, 
 
 pr 
 
 pr 
 
 65 
 
 4 
 
 pr 
 
 pr 
 
 h 
 
 li 
 
 Carlisle Bank, 
 
 io 
 
 9 
 
 45 
 
 2| 
 
 3 
 
 3^ 
 
 4 
 
 3 
 
 Bank of Chambersburg, 
 
 10 
 
 9 
 
 43 
 
 2i 
 
 3 
 
 3i 
 
 4 
 
 3 
 
 Westmoreland Bank, 
 
 10 
 
 9 
 
 6 
 
 5 
 
 2i 
 
 10 
 
 15 
 
 15 
 
 12d 
 
 Lancaster Trading Company, 
 
 10 
 
 9 
 
 2 
 
 5 
 
 24 
 
 3 
 
 3 
 
 2 
 
 24 
 
 Marietta, 
 
 10 
 
 9 
 
 6 
 
 5 
 
 4 
 
 30 
 
 35 
 
 45 
 
 33 
 
 Centre Bank, 
 
 10 
 
 9 
 
 6 
 
 5 
 
 4 
 
 10 
 
 15 
 
 30 
 
 25 
 
 Farmers' Bank of Reading, 
 
 10 
 
 9 
 
 6,5 
 
 li 
 
 2i 
 
 ^ 
 
 15 
 
 8 
 
 Alleghany Bank, 
 
 10 
 
 9 
 
 65 
 
 4 
 
 10 
 
 15 
 
 50 
 
 50 
 
 Germantown, 
 
 10 
 
 9 
 
 65 
 
 4 
 
 pr 
 
 pr 
 
 pr 
 
 par 
 
 York, 
 
 9 
 
 10 
 
 63 
 
 2^ 
 
 3 
 
 3.^ 
 
 4 
 
 3 
 
 Farmers' Bank of Lancaster, 
 
 10 
 
 9 
 
 65 
 
 4 
 
 pr 
 
 pr 
 
 pr 
 
 par 
 
 jSwetara, 
 
 10 
 
 9 
 
 6312^ 
 
 3 
 
 4 
 
 4 
 
 3 
 
 Easton Bank, 
 
 pr 
 
 pr 
 
 pr 5 4 
 
 pr 
 
 pr 
 
 pr 
 
 pai 
 
 Pennsjdvania Agri. and Man. Bank, 
 
 10 
 
 9 
 
 63J,2A 
 
 10 
 
 4 
 
 
 40 
 
 Bank of Washington, 
 
 10 
 
 9 
 
 6 
 
 5 i4 
 
 10 
 
 15 
 
 50 
 
 45 
 
 Northampton Bank, 
 
 10 
 
 9 
 
 pr 
 
 5 
 
 4 
 
 10 
 
 P"- 
 
 2.^ 
 
 2h 
 
 Juniata Bank, 
 
 10 
 
 9 
 
 6 
 
 5 
 
 4 
 
 10 
 
 15 
 
 50 
 
 40 
 
 Delaware Bank, 
 
 p*" 
 
 pr 
 
 6|5 
 
 4 
 
 pr 
 
 pr 
 
 pr 
 
 par 
 
 Chester County Bank, 
 
 pr 
 
 pr 
 
 65 
 
 4 
 
 Pi" 
 
 pr 
 
 pr 
 
 jiar 
 
 Bank of Beaver, 
 
 10 
 
 9 
 
 65 
 
 4 
 
 10 
 
 15 
 
 60 
 
 50 
 
 Bank of Pittsburgh, 
 
 10 
 
 9 
 
 6,5 
 
 3 
 
 6 
 
 pr 
 
 5 
 
 4 
 
 Huntingdon Bank, 
 
 10 
 
 9 
 
 65 
 
 4 
 
 10 
 
 15 
 
 30 
 
 25 
 
 Monongahela, 
 
 10 
 
 9 
 
 65 
 
 4 
 
 10 
 
 15 
 
 15 
 
 12i 
 
 North Western Banlj, 
 
 10 
 
 9 
 
 65 
 
 4 
 
 10 
 
 15 
 
 50 
 
 35 
 
 Union Bank, 
 
 10 
 
 9 
 
 65 
 
 4 
 
 50 
 
 60 
 
 50 
 
 50 
 
 Northumberland, Union &Columbia 
 
 10 
 
 9 
 
 65 
 
 4 
 
 21 
 
 5 
 
 30 
 
 20 
 
 Bucks County Bank, 
 
 10 
 
 9 
 
 65 
 
 4 
 
 
 pr 
 
 pr 
 
 par 
 
 Farm's. &. Mech's. Bank of Pittsburg 
 
 10 
 
 9 
 
 63^;4 
 
 10 
 
 
 50 
 
 40 
 
 Far. & Mec. Bank of Greencastle, 
 
 10 
 
 9 
 
 65 
 
 2^ 
 
 15 
 
 30 
 
 50 
 
 35 
 
 Montgomery Bank, 
 
 pr 
 
 pr'pr 5 
 
 4 
 
 
 pr 
 
 pr 
 
 par 
 
 Silver Lake Bank, 
 
 10 
 
 9 62^ 
 
 2im 
 
 2^150 
 
 40 
 
BAXKING OPERATIONS FROM 1814-15 TO 1820-21. 167 
 
 In his speech of Jan. 2d, 1815, Mr. Webster said, " the 
 depreciation of the notes of all the Banks in any place is, 
 as far as I can learn, general, uniform and equal." In look- 
 ing through Grotjan's Price Current, we have found the quo- 
 tations of Pennsylvania and Ohio notes to be, for months 
 together, from five to six, and afterwards ten, per cent, dis- 
 count, and those of Virginia and North Carolina two to 
 three per cent. So general seemed to be the rate of de- 
 preciation for each part of the country, that the names of 
 particular Banks were not given in the Price Current, for 
 more than a year after the suspension of specie payments. 
 While Philadelphia paper, the standard in which they were 
 estimated, was always varying in value, as compared with 
 silver, the notes of most of the country Banks had, as com- 
 pared with one another, a singular equality of deprecia- 
 tion. 
 
 This equality lasted for some time after it became the 
 custom to give regular quotations of the price of Bank pa- 
 per. It will be seen, by inspecting the table, that in May, 
 1816, the notes of twenty-seven out of thirty-five country 
 Banks of Pennsylvania, were at a discount often per cent. 
 It will also be seen that the discount was diminished with 
 a regularity approximating to uniformity, up to May, 1818. 
 In the succeeding July, the United States' Bank com- 
 menced its curtailment : and then the great confusion in 
 exchanges begun. 
 
 In other States the confusion was as great as it was in 
 Pennsylvania. This may be seen by the following table. 
 
 PRICES OF BANK NOTES. 
 
 
 At Neio York, 
 
 At Baltimore, 
 
 
 April Ith, 
 
 1819. 
 
 August 7th, 1819. 
 
 New England notes, 
 
 par to 2 
 
 per ct. 
 
 dis. I to 6 discount. 
 
 Philadelphia, 
 
 par 
 
 
 
 Pennsylvania, 
 
 
 
 1 to 60 
 
 Delaware, 
 
 4 to \2h 
 
 
 1 to Sand to 50 
 
 Baltimore, 
 
 U 
 
 
 
 Maryland, 
 
 2 to 20 
 
 
 I to 40 
 
 District of Columbia, 
 
 
 
 1 to 60 
 
 Virgiuia, 
 
 2 
 
 
 lito25 
 
 North Carolina, 
 
 2 to 3i 
 
 
 20 to 25 
 
 South Carolina, 
 
 n 
 
 
 8 to 10 
 
 Georgia, 
 
 2 to 3 
 
 
 7 to 8 
 
 Tennessee, 
 
 7 
 
 
 
 Kentucky, 
 
 
 
 15 to 25 
 
168 BANKING OPERATIONS FROM 1814-15 TO 1820-21. 
 
 Bank of Kentucky, 
 Ohio Banks, 
 Unchartered Bank ? 
 of Ohio, ^ 
 
 At New York, 
 April 7th, 1819. 
 5 
 6 to 15 
 
 25 to 75 
 
 At Baltimore, 
 August 7th, 1819 
 
 10 to 50 
 
 Louisiana, 
 
 6 
 
 
 
 Indiana, Illinois, > 
 and Missouri, ^ 
 
 
 
 15 to 60 
 
 Mr. Niles, from whom we have taken the items which 
 form this table, says the prices of Bank notes varied seve- 
 ral per cent, in the course of a week. The notes which 
 were at par in one part of the country, were in other 
 parts at a heavy discount. At the same time that exchange 
 at New Orleans on New York was at from seven to ten 
 per cent, discount, exchange at New York or New Orleans 
 was at six per cent, discount. A Bank's paying specie did not 
 prevent its notes depreciating : for nobody knew how long 
 any distant Bank would continue to pay specie. All the 
 Banks whose notes v/ere at a discount at New York of 
 less than o per cent., and some of the others, were under- 
 stood to pay specie on demand. 
 
 Of the increase and decrease of the local currency of 
 Pennsylvania, the reader may form an idea from the follow- 
 
 ing table. 
 
 
 
 
 
 NOTES IN CIRCULATION.* 
 
 
 
 City Banks. 
 
 Country. 
 
 Total. 
 
 Nov. 1814, 
 
 3,363,802 
 
 1.942,479 
 
 5,306,281 
 
 181.5, 
 
 4,810,507 
 
 5,349,247 
 
 10,159,754 
 
 1816, 
 
 3,410,248 
 
 4,787,722 
 
 8,203,970 
 
 1817, 
 
 2,355,694 
 
 3,853,866 
 
 6,209,560 
 
 18J8, 
 
 1,987,945 
 
 3,093,966 
 
 5,081,911 
 
 1819, 
 
 1,645,000 
 
 1,384,325 
 
 3,029,325 
 
 It will be seen that the great increase in circulation 
 took place in the year after the war. Great as it was we 
 ought not to wonder at it. The Government's receiving in- 
 convertible paper in payment of duties, was quite as effi- 
 cient a sanction of the continued suspension of specie pay- 
 ments as could have been afforded by an act of Congress 
 passed with that express intent. What Government is 
 
 * The returns of the Farmers and Mechanics' Bank, in 1814, were for 
 August 2(1 : tiiose of tliB Pennsylvania Bank for August '^0, and those 
 of the PliiUulelphia Bank for September 1st. The returns of the other 
 Banks were for November. No return was 'made in any of these 
 years of the circulation of the Bank of North America. 
 
BAXKING OPERATIONS FROM 1814-15 TO 1820-21. 169 
 
 willing to receive, individuals having payments to make to 
 Government will not refuse. Institutions which are found- 
 ed for private profit, must always be expected to take ad- 
 vantage of so many opportunities of acquiring gain as the 
 policy of Government will allow, or its necessities compel 
 it to afford. 
 
 In the year 1815, ten months and a half of which were 
 months of peace, the Government issued twenty millions 
 in treasury notes. As such of these as were of a less de- 
 nomination than one hundred dollars bore no interest, 
 they directly increased the amount of paper medium. The 
 others, as has been shown in another chapter, indirectly 
 increased the circulation of the Banks, as those institutions 
 gave their own inconvertible notes in exchange for trea- 
 sury notes. 
 
 In 1816 there was a reduction of about twenty-five per 
 cent, in the circulation of the Banks of Pennsylvania, and 
 a very great reduction in the circulation of the Banks of 
 the adjoining States. Of the manner in which this was 
 effected, we will let the Secretary of the Treasury speak. 
 
 " At a moment when excessive importations of foreign 
 merchandise had involved the mercantile and manufactur- 
 ing interests in the greatest distress, and menaced them with 
 impending bankruptcy, reason, humanity, and sound policy, 
 all united against the curtailment of Bank discounts. Yet, 
 so far as the knowledge of the Secretary of the Treasury 
 extends, the reduction of the circulating paper has in no 
 instance been attempted by the sale of the public debt 
 held by the Banks. Curtailment of discounts has been 
 the only process resorted to by them, where any efforts 
 have been made to prepare for the resumption of specie 
 payments. The disregard to individual suffering mani- 
 fested by this procedure in the State Banks has been the 
 result of a conviction, that when the national currency 
 shall be restored by the efforts of the Government and 
 the Bank of the United States, the public debt will be in- 
 creased in value."* 
 
 This is true. But when we establish institutions to 
 
 which it is impossible to impart moral responsibility, we 
 
 ought not to expect them to pay much regard to " reason 
 
 and humanity." The Banks acted with sound " policy " 
 
 * Letter of Mr. Dallas, November 1816. 
 
170 BANKING OPERATIONS FROM 1314-15 TO 1820-21. 
 
 in regard to their own interest, in pressing on the commu- 
 nity and in holding on to the public stocks. 
 
 In 1817, there was a further reduction in the circula- 
 tion of the Pennsylvania Banks, but the deficiency was sup- 
 plied by the issues made by the United States' Bank. The 
 returns of the Pennsylvania Banks, for 1818, were made 
 some months at'ter the Bank of the United States had be- 
 gun its grand curtailment. 
 
 The local Bank mania may be said to have raged with 
 more violence in Pennsylvania in the year 1815, than at 
 any other period : but, if we take the Union throughout, 
 the mania did not reach its height till the spring of 1818, 
 or three years after the close of the war. It was in this 
 year that Vermont, which had been without Banks since 
 the grand New England explosion of 1808-9, began to 
 revive the system : and the passion for multiplying paper 
 issuing institutions became so great, that Mr. Niles was 
 forced to exclaim — " We see every where new Banks esta- 
 blishing or attempting to be established. Behold forty-three 
 new Banks authorized in Kentucky — half a score in Ten- 
 nessee—eight in Ohio — a mob in little Rhode Island — some 
 in Virginia, Massachusetts, tSic. — sixteen petitioned for in 
 New York — and some wanted in Pennsylvania — half a dozen 
 new ones in Maryland — and from fifty to a hundred more 
 proposed in various parts of the United States."* 
 
 Only three months after Mr. Niles had indited this pa- 
 ragraph, the United States' Bank was compelled to com- 
 mence that course of measures, the effects of which have 
 been narrated in our previous chapters. 
 
 The author of the pamphlet signed " A Friendly Moni- 
 tor," says, " Every inquiry I have made has entirely con- 
 vinced me, that every formidable ditiiculty with which the 
 Bank has had to contend, has been produced by its agency 
 for the Government, and particularly by the too rapid re- 
 duction of more than eighteen millions of the public debt, 
 between the months of June 1817, and November 1818, 
 and the utter impracticability of converting in due time 
 any reasonable portion of the specific pul)lic deposits into 
 such funds as the public creditors were entitled to demand, 
 without hazarding the prostration of many respectable in- 
 
 stitutions." 
 
 " Weekly Register, April 11th, 1818. 
 
BANKING OPERATIOXS FROM 1814~lo TO 1820--21. 171 
 
 As Banks are the creatures of Government, all the evils 
 thev produce must be ascribed to the Government. It is 
 to afford opportunities for speculation to themselves, their 
 personal friends and their political partisans, that our law- 
 givers establish Banks. It was through the attempt to carry 
 on the war by means of Bank notes and Bank credits, that the 
 suspension of specie payments was produced. It was through 
 the connivance of the Government, that the suspension of 
 specie payments was so long continued. It was through the 
 issue of treasury notes, that the amount of Bank notes in cir- 
 culation was immediately increased. It was that a large 
 am.ount of public stock might be absorbed, that a Bank was 
 instituted with a capital of thirty-five millions, when there 
 was not room for a credit Bank with a ca|iital of thirty-five 
 thousands. No doubt, also, the disinclination of the Govern- 
 ment to suffer the Bank to retain the eighteen millions of 
 public .moneys, mentioned by " A Friendly Monitor," had 
 its effect. H the Government had been content to con- 
 tinue to pay the interest on a corresponding amount of 
 public debt, and to let the Bank keep eighteen millions of 
 the public money for its own uses, the crisis might have 
 been — we will not say averted, but it might have been de- 
 layed- If it had been delayed, the evil would have been 
 increased. The notion of the early administrators of the 
 Bank of the United Stales, appears to have been, that the 
 Bank should do a business bearing the same proportion to 
 its great capital, that the business of the local Banks bore 
 to their small capitals. If the payment of any portion of 
 the national debt had been deferred to suit their conve- 
 nience, they would have made a corresponding increase 
 in their business. Even as it was, we have found them com- 
 plaining, in the spring of 1818, that they could not sign 
 notes fast enough : and the report of the committee of 
 Congress shows, that all the energies of the directors 
 were exerted to increase the circulation, extend the gene- 
 ral dealings of the Bank, and raise the price of the stock 
 in the market. 
 
 Other men in their situation would probably have acted as 
 they did. It is of very little moment whether it is Mr. Wig- 
 gins or Mr. Spriggixs that is president of a Bank, or whe- 
 ther the JoxEs' or the Giles' are directors. The fault is 
 in the system. Give the management of it to the wisest and 
 best men in the country, and still it will produce evil. No 
 
172 BANKING OPERATIONS FROM 1814-15 TO 1820-21. 
 
 new principles of action were introduced by the early ad- 
 ministration of the United States' Bank. If the members 
 of Congress who granted the charter did not know that the 
 usual way of paying all instalments after the first is by dis- 
 counting stock notes, they had not much acquaintance 
 with either the theory or the history of Banking. As little 
 credit must be given them for intelligence in respect to 
 money corporations, if they did not know that the practice 
 of those who wish to get the control of such institutions is, 
 to divide their shares, as was done by certain gentlemen in 
 Baltimore and others in Philadelphia. It was not, surely, 
 to be expected, that men who associated with the professed 
 design of making profit for themselves, and who admitted 
 the Government as a partner, should trammel themselves 
 with restrictions which the Legislature had, either throuo;h 
 design or oversight, failed to impose. If the courts of law 
 have not absolutely decided that whatever is not expressly 
 forbidden is granted in a charter, the Banks find it very 
 convenient to act on such an assumption. 
 
 The history of the country from 1814 to 1818, exhibits 
 nothing more than the natural results of Banking by cor- 
 porations, and with paper money, while the Government, 
 embarrassed in its fiscal concerns, wanted the inclination 
 or perhaps the ability to apply an adequate remedy. The 
 reaction of 1818-19 was only the natural result of the dif- 
 ferent operations of the preceding years. The irregular 
 Banking in the South and West in subsequent years, is 
 only a link a little lower down in the same chain of conse- 
 quences. 
 
 It would appear as if the suspension and resumption of 
 specie payments might have been productive of little em- 
 barrassment, comparatively speaking, if the Government 
 had, immediately on the close of the war, refused to receive 
 inconvertible notes in payment of duties. The few Banks 
 which then existed hi Ohio and Kentucky had suspended 
 payment only a month or two. The Bank of Nashville actu- 
 ally maintained specie payments. The dealings of the 
 Banks in the Southern States were of moderate extent. 
 The new Banks of Pennsylvania were not yet in full ope- 
 ration. The principal part of the over-issue was by the 
 Banks of the great cities of the Middle States, and these 
 Banks might, by a sale of the public stocks they held, have 
 obtained the means of redeeming their excess of paper. 
 
BANKING OPERATIONS FROM 1814-15 TO 1820-21. 173 
 
 If this had been done we should have escaped the parti- 
 cular evils recorded in the foregoing chapters, but we should 
 probably have experienced evils proceeding from the same 
 source in another form. It was four or five years before 
 the war, that Banking in New England produced conse- 
 quences similar to those felt in the other States four or five 
 years after the war. As the mania spread through New 
 York, into Pennsylvania, and thence South and West, 
 Banks were established without those restrictions which 
 experience in New England had proved to be necessary. 
 
 To impose such restrictions would, in fact, have been 
 hardly in accordance with the philosophy of the day. A 
 ruling principle in this was, as may be seen by the quota- 
 tions we have given from the writings of various eminent 
 men, that inconvertible Bank notes, if they were not quite 
 as good as gold and silver, were very little inferior to them 
 as a circulating medium. Many of our readers may smile 
 at such notions now ; but perhaps if they had lived in 
 those days, they would have thought as their neighbors 
 thought. Perhaps the present popular notions on the sub- 
 ject of Banks, will, some twenty years hence, be regarded 
 in the same light as those notions of the anti-buUionists 
 are at the present period. 
 
 That " love of money which is the root of all evil," and 
 which, operating through the medium of incorporations and 
 paper bills, is productive of so much evil, would have 
 brought on the nation great calamities, if we had remained 
 at peace. The war, and the measures consequent thereon, 
 gave that evil its particular form and feature. It is that 
 same " love of money" which now gives plausibility to the 
 sophistry by which the present Banking system is support- 
 ed, as well in the minds of those who suffer as in the minds 
 of those who are benefitted by the system. Hence it is that 
 the former are so easily persuaded that what is gained by 
 the use of paper money is so much gained by the nation, 
 and not so much gained by one part of the nation from ano- 
 ther part. It is so hard for any man, be he merchant, or 
 be he drayman, to be content with his earnings — we are 
 all so anxious to become rich in a hurry, that we readily 
 become the dupes of one another, and sometimes in our 
 haste we dupe ourselves. 
 
174 BANKING FROM 1820-21 TO 1825--26. 
 
 CHAPTER XIX. 
 Of Banking from 1820-21 to 1825-26. 
 
 To tell of all the expansions and contractions that have 
 occurred since the first grand curtailment was made by the 
 United States' Bank, would require a large volume. Our 
 country is so extensive, and the causes that affect Bank 
 medium are so various, that, while one part of the Union 
 is suffering all the evils of scarcity of money, another may 
 be in the height of that apparent prosperity which is pro- 
 duced by an increasing paper currency. It is by no means 
 unusual for a contraction to begin on the sea-board, before 
 the full effects of the previous expansion have been felt in 
 the interior ; or for expansions to recommence on the sea- 
 board, soon after the inland Banks find the necessity of re- 
 stricting their issues. 
 
 Each Bank has its own sphere of operation, within 
 which there may be contractions and expansions not sensi- 
 bly affecting any but those within that sphere. But, from 
 desire to increase their profits, the different Banks not un- 
 frequently encroach on each other's spheres, by which 
 more extensive disorders are produced. The action of the 
 Banks among themselves has been compared to that of so 
 many drunken men passing along the street together, occa- 
 sionally supporting one another, and occasionally knocking 
 one another down. Their motion is vacillating, totter- 
 ing. It is seldom in a straight line. 
 
 An attempt to enumerate all the vibrations of Bank 
 medium, would therefore be idle. But, from a careful in- 
 spection of files of the United States Gazette for 1821 and 
 1822, and of the Philadelphia Gazette for subsecjuent 
 years, we are able to give the following view of varia- 
 tions of the money market, embracing all the most import- 
 ant expansions and contractions. 
 
 1821. Business dull in the beginning of the year. The 
 effects of an expansion apparently commenced in 
 the Spring, begin to be felt in June or July, and 
 by October the spirit of speculation is tolerably ac- 
 tive. 
 
BAXKIXG FROM 1820-21 TO 1825-26. 175 
 
 1822. A reaction commences in May, the eflfects of which 
 
 are felt through the rest of the year. 
 
 1823. The Bank of the United States receives the notes 
 of all its branches, and begins to extend its opera- 
 tions. 
 
 1824. The Banks increase their issues, and the spirit of 
 
 speculation becomes excited. 
 
 1825. The consequences of the great reaction of 1818-19 
 are not over in the interior : but on the seaboard 
 the effects of the expansion, begun in 1823 and con- 
 tinued through 1824, are felt in the rise of property 
 and general briskness of business. In July or 
 August a violent reaction commences. 
 
 1826. The effects of the reaction are felt through the 
 greater part of the year. 
 
 1827. Money plenty. The United States' Bank com- 
 
 mencQs issuing Branch drafts for small amounts. 
 
 1828. Sudden and alarming scarcity of money in May, and 
 
 again in September. 
 
 1829. Money is scarce till July. It afterwards becomes 
 
 plenty. 
 
 1830. Money plenty. 
 
 1831. Money very plenty till October. Then a reactiou 
 
 begins. 
 
 1832. Money scarce. Towards the close of the year, the 
 pressure abates in Philadelphia : but it is not appa- 
 rently diminished in some other parts of the coun- 
 try. 
 
 In the Middle States are placed the United States' 
 Bank, and some of its most important branches, and here 
 are collected and disbursed the greater part of the public 
 revenues. The heart of the Banking system is here, and 
 while it is affected, in a greater or less degree, by whatever 
 affects the extremities, it, in its turn, has a powerful opera- 
 tion on the remote parts of the Union. 
 
 In the years 1820 and 1821, the Banks of the Middle 
 States settled down into what Mr. Niles calls a state of 
 regularity. The notes of many of them became mere 
 broker's merchandise, and the discount on those which 
 remained current, did not exceed the cost of transporting 
 specie from the place where they were issued to the place 
 where they were circulated. 
 
176 BAN KING FROM 1820-21 TO 1825-26. 
 
 A fair field was then first opened for the credit opera- 
 tions of the Bank of the United States. But by this time 
 confidence was destroyed, and the spirit of enterprize was 
 chilled. " There is now," says Mr. Niles, on the 3d of 
 February, 1821, " little demand for money, except to an- 
 swer the current purposes of life, and pay old debts, for 
 either of which it is difficult enough to get, though appa- 
 rently abundant enough." The capitalists of New York 
 made great complaints in March of the difficulty they 
 found in investing their funds : though at this very time, 
 the country papeis were teeming with advertisements by 
 the sheriff; and three hundred and fifty persons in Balti- 
 more made application, in the month of May, for the bene- 
 fit of the insolvent laws of Maryland. A tradesman in 
 Philadelphia advertised for a shop boy, and fifty applica- 
 tions were made for the place in three days.* The build- 
 ing of a new ship excited quite a sensation, as something 
 out of the common order of things. The fear of moneyed 
 men to embark in new enterprizes, left many laboring peo- 
 ple without employment. Solvent men had little disposi- 
 tion to borrow, fur they could not tell if prices had yet 
 reached their lowest limit, or form a satisfactory conclusion 
 as to the state of affairs in coming years. 
 
 In the interior of Pennsylvania, the people were clamor- 
 ous for the establishment of a State Loan Office. Nor is 
 this to be wondered at. In the month of June, the Sheriff 
 of Bedford filled two newspaper columns and a half with 
 his advertisements : and the Sheriff of Berks offered for 
 sale 3000 acres of land, besides town lots. In August, 
 fifty-seven farms were advertised for sale by the Sheriff of 
 Westmoreland, sixty-three pieces of property by the Sheriff 
 of Northampton, and thirty-seven by the Slieriff of Mifflin. 
 In October, the Sheriff of Cumberland advertised for sale 
 2,380 acres of land, besides twelve town lots with hand- 
 some improvements : and in Deccml)cr, the Sheriff of 
 Berks offered f ^r sale the property of forty persons. From 
 the state of things in six of the fifty-two counties of Penn- 
 sylvania, the reader may form some idea of the condition of 
 affairs generally. 
 
 In April or May, 1821, as nearly as can be ascertained, 
 
 * See United States Gazette of June 20tli. 
 
BANKING FROM 1820-21 TO 1825-26. 177 
 
 the city Banks began to expand, and the effects of this ex- 
 pansion were sensibly feh in August, and still more sensi- 
 bly in October. Tired of a protracted state of inactivity, 
 many men began to employ their capitals and their credit, 
 at a risk rather than on calculation. For some months 
 things wore a pleasing aspect : but in April and May, 
 182"2, the prospect was again clouded over. Some kinds 
 of imported goods fell 15 per cent, in Philadelphia ; and 
 United States' Bank stock, which had been held at 115 in 
 in February, was sold in New York on the first of May at 
 102, and fell before night to 98^. 
 
 Other kinds of public securities experienced a deprecia- 
 tion, but the fall in United States' Bank stock beinw greatest, 
 naturally attracted most attention. It was attributed by 
 some to the machinations of brokers, and by others to a 
 loan of five millions made by the Bank to the Government, 
 and to the quantity of stock hypothecated to the different 
 Banks and insurance offices in New York and other 
 places. 
 
 It is certain that the evils produced by paper money 
 Banks, are greatly increased by the dealings of these insti- 
 tutions with Government. The transactions are so large 
 as usually to derange the regular train of mercantile opera- 
 tions. The heavy d'eposits of Government enable the 
 Banks, at times, to extend their discounts further than is 
 proper. Their payment of these deposits, and the making 
 of heavy loans to Government, usually compel them to 
 curtail their accommodations to men of business. 
 
 But it is of less moment for us to know what particular 
 operations of the Banks caused the sufferings of 1822, than 
 to know that these sufferings were the consequences of 
 over-trading produced by over-banking. That there was 
 an excess of paper issues in part of 1821 and 1822, is evi- 
 dent from the fact that, according to the official returns, 
 the exports of specie in the year ending September 30th, 
 1822, amounted to 10,781,933 dollars, and those of bullion 
 to 28,248, while the imports of specie for the same period 
 amounted to only 2,958,402 dollars, and those of bullion to 
 411,444. A Boston paper says that from the 1st of Janu- 
 ary to the 1st of June, 1822, the imports of specie into that 
 port amounted to only 70,000 dollars, while the exports, in 
 the same period, to the East Indies, Brazil, England, and 
 Qq 
 
178 BANKING FROM 1820-21 TO 1825-26. 
 
 Cuba, amounted to one million two hundred and five thou- 
 sand five hundred and six dollars. At one time in 1821, 
 there were 2,434,000 dollars in specie in the vaults of the 
 Boston Banks, and by June, 1822, this amount was reduced 
 to 430,000. In the same period, the specie in the vaults 
 of the United States' Bank and its branches was reduced 
 from 7,643,140 to 3,334,452 dollars. 
 
 On the 29th of June, Mr. Niles remarked that forty-two 
 merchants of Boston had stopped payment within the pe- 
 riod of a month ; and on the 3d of August, he made a 
 quotation to the following effect from a Salem paper : " We 
 regret to learn that failures continue to take place almost 
 daily at Boston, some of them of persons extensively on- 
 gaged in commerce. We are informed that within the last 
 two months, there have been more than eighty failures in 
 that city. The embarrassment, distress, and alarm, which 
 such a state of things must necessarily produce, are indeed 
 a serious calamity." The amount of these failures, for the 
 last two months, adds Mr. Niles, is said to be more than 
 three millions of dollars. 
 
 There were also failures in New York, and many of the 
 operative manufacturers of Philadelphia were deprived of 
 employment. 
 
 Throughout the year business was very vacillating. In 
 the latter part of it, there appears to have been another sud- 
 den shock given to trade ; for it is mentioned in the United 
 States Gazette of December 13th, that some species of cot- 
 ton and woollen goods had fallen fifty per cent, in the course 
 of a few weeks. 
 
 Bills on London, which were at IIUV a 112.J, in Febru- 
 ary, 1822, were quoted in the Philadelphia Gazette of May 
 14th, 1823, at 104^. The true par being, according to 
 Mr. Gallatin, seven per cent, above the nominal par, the 
 foreign exchanges were decidedly in favor of the country. 
 A coml)ination of causes compelled the Banks to be cau- 
 tious this year in their operations. The condition of things 
 in the Southern and Western parts of the Union, prevent- 
 ed the United States' Bank from extending its dealings as 
 far as it desired. The Pennsylvania Banks felt the uncer- 
 tainty of their fate. The charters of many of them were 
 about expiring, and applications for a renewal of them, made 
 to the Legislature in the sessions of 1821-22, and 1822-23, 
 
BAXKING FROM 1820--21 TO 1825-26. 179 
 
 had been defeated. The city of New York was flooded 
 with the notes of a number of small institutions in the 
 country parts of that State, and of other States. These 
 notes, though they were not on a par with specie, consti- 
 tuted the principal medium of retail trade. 
 
 The Bank interest was very powerful in the Pennsylva- 
 nia Legislature in the session of 1822-23 ; but the domi- 
 nant party feared to pass a bill to extend the charters of the 
 Banks of 1814, as it might have an unfavorable effect on 
 the election for Governor in October. When the election 
 was over, the chief obstacle to the operations of the Bank- 
 ing interest was removed, and a bill was passed in March, 
 1824, for re-incorporating every one of the Banks of 1814 
 which had applied for a renewal of its charter.* About 
 the same time, the Bank mania broke out afresh in some 
 of the other States, and it seemed, in the latter part of 
 1824, and the beginning of 1825, as if the days of 1815 
 and 1816 were about returning in America, and those of 
 the South Sea bubble in England. 
 
 The infatuation, if we may be permitted to call it by so 
 mild a name, was most violent in New York. The specu- 
 lators of that city, not content with such privileges as their 
 own Legislature could bestow, prevailed, by means of bo- 
 nuses, on the Legislature of New Jersey to establish a 
 string of small moneyed corporations along the shore of the 
 North River; and, in defiance of the statutes of Pennsyl- 
 vania, took possession of coal lands within her limits, un- 
 der the color of charters granted by another State. Their 
 own Legislature they besieged in every possible form. Dar- 
 ing the session which commenced in January, 1825, appli- 
 cation was made for charters for new Banking, Insurance, 
 and other companies, with nominal capitals of the amount 
 of ffty-tico iiiilUon dollars. 
 
 Money was never more abundant, if a judgment could 
 be formed fronj subscriptions to the stock of such compa- 
 nies as succeeded in their applications for charters. Three 
 million dollars were subscribed in one day, in January, to 
 the stock of the New Jersey Lombard and Protection Com- 
 pany, though its capital, as fixed by law, was only three 
 
 * The Silver Lake Bank is perhaps aii exception. Its charter was 
 renewed, but we are not certain whether it was at this or at a succeed- 
 ing sei^sion. 
 
180 BANKING FROM 1820-21 TO 1825-26. 
 
 hundred thousand dollars. Nine million dollars were sub- 
 scribed in April to the New York Water Works Company, 
 and by some contrivance its script was raised in the market 
 to thirty per cent, above par. Tiiirteen millions were sub- 
 scribed in May to the stock of the Delaware and Raritan 
 Canal Company. Between the 5th and the 16th of Feb- 
 ruary, the stock of the New York Gas Company advanced 
 28 per cent., and was sold at 178. 
 
 It was not alone in dealings in the stocks of chartered 
 companies that great activity prevailed. More commercial 
 business was said to have been done in Philadelphia, in the 
 month of February, than in any one month of the prece- 
 ding ten years. The Bunks were liberal in their discounts, 
 and the spirit of speculation showed itself in various forms. 
 
 While the public mind was in this state, seven expresses 
 arrived at Philadelphia from New York in one day (April 
 9th) with news of a great rise of prices in the markets of 
 Liverpool and London. The effect was electric. Twenty- 
 seven cents were offered for Upland cotton, and refused, 
 though the holders would, a week before, have been happy 
 to obtain twenty cents. Cotton yarn. No. 15, rose from 35 
 to 45 cents. Muscovado sugars advanced a dollar a hundred. 
 St. Domingo coffee rose from 17i to 21 cents a pound. 
 Quercitron bark rose from 27 dollars a ton to 35 dollars. 
 The rise in the prices of tobacco, drugs, and spices, was 
 very considerable. 
 
 Every body was in haste to grow rich : and the cotton 
 dealers were regarded with special envy. It was currently 
 rumored that such a man bad made 20,000 dollars in one 
 day ; such another, 30,000 ; such another, 40,000, and such 
 another 50,000. Some firms, if reports were to be believed, 
 had realized 100,000 ; while the computed or prospective 
 gains of others were swelled to nearly half a million. 
 
 In New York, the speculations were carried to a much 
 greater extent than in Phihidelpliia ; and despatches sent 
 to the South spread the infection through all that region. 
 The Charleston Patriot, to show the state of feelinsr, men- 
 tioned that " the same parcel of cotton had changed own- 
 ers six or seven times within a week, without leaving the 
 hands of the factor." It was in this year, that the grow- 
 ing crop of corn was rooted up in some parts of the South- 
 ern States, to make room for new plantations of cotton. 
 
BANKIiVG FROM 1820-21 TO 1825-26. 181 
 
 The cotton mania continued to rage, with more or less 
 violence, through the months of May and June. But in 
 July news was received of a decline of 3d. a pound in the 
 price of cotton at Liverpool, and a pressure for money was 
 soon felt in New York. In the next month, the pressure 
 increased, and between August and December, there were 
 fifiy failures in New York, and thirty in the Southern cities. 
 Towards the close of the year, the pressure for money in 
 Boston was very alarming. Exchange on England, which 
 was at five per cent, in the spring, rose to ten per cent, in 
 September. New Orleans notes, which were at two or 
 three per cent, discount at Philadelphia in the spring, fell 
 on the 21stof September to fifteen per cent., and were quoted 
 on the 28th of the same month, at fifty-six per cent, below 
 par. On the 4th of December, the same notes were quoted at 
 only four per cent, discount, exhibiting a remarkable ex- 
 ample of rise and fall in the space of a few months. 
 
 Many of the Banks were in great difficulties. Several 
 of them broke. And such were the straits of the United 
 States' Bank, that one of the directors talked publicly on 
 the Exchange at Philadelphia of the expediency of sus- 
 pending specie payments. 
 
 Mr. "Biddle, the President of the United States' Bank, 
 says, " The fall of 1825 was probably the most disastrous 
 period in the financial history of England. It was then 
 that the wild speculations in the American mines, and the 
 still wilder speculations in American cottons, recoiled 
 upon England, and spread over it extensive ruin. In the 
 midst of this suffering, it required little to produce a panic, 
 and accordingly there ensued a state of dismay, which, 
 for a time, threatened to involve all interests in confusion. 
 There was, probably, at no period of English history, so 
 intense and general a distress as tnere was in Decem- 
 ber 1825. 
 
 " Now, the very same storm which thus broke on Eng- 
 land, passed over this country a few weeks before : it was 
 on the eve of producing precisely the same results ; and 
 certainly I have never felt any uneasiness about the Banks 
 of this country except on that occasion. Just as the diffi- 
 culties were commencing, the Government paid off", on the 
 the 1st of October, a loan of seven millions, of which 
 $3,366,761 64 were payable in Philadelphia. The pay- 
 
182 BANKING FROM 1820--21 TO 1825--26. 
 
 ment of this sum by the Bank, of course diminished its 
 means for active business, and brought it largely in debt to 
 the State Banks both of Philadelphia and New York. It 
 became, therefore, an object of extreme solicitude to pre- 
 pare for the relief of the community, and provide for the 
 danger which was obviously approaching. 
 
 " The first object of the Bank was to relieve itself from 
 the debt which the payment of the seven millions tlirew 
 upon it. Accordingly, it began by making sales of its 
 funded debt and Bank stock at New York, and Boston, 
 and Philadelphia, amounting, in the month of October, to 
 $1,828,210 19 in funded debt alone, and by husbanding 
 all its means till it could place itself in a state of perfect 
 security. 
 
 " By the first of November, the Bank was extricated 
 from debt, and continued daily to strengthen itself. In the 
 midst of the difficulties of the community, two circum- 
 stances contributed to increase them : the one was a heavy 
 demand for specie for the use of the British army in Cana- 
 da; the other was a similar demand for specie, to pay the 
 instalments of a new Bank then recently established at 
 New Orleans. This want was to be supplied before any 
 ease could be extended to the community, and it was press- 
 ing with extreme urgency. The effect of it was to inspire 
 a general distrust and alarm, and, by the middle of Novem- 
 ber, all the indications, which it was impossible to mistake, 
 denoted an approaching panic, which would have been fa- 
 tal to the country. If the strength and wealth of England 
 could not withstand such an alarm, its effects on this coun- 
 try would have been incalculable. That moment seemed 
 to me to be the very crisis of the country, to be met only 
 by some decided and resolute step, to rally the confidence 
 of the community. In such a situation I did not hesitate 
 on the course which my duty prescribed. 1 went imme- 
 diately to New York, where I sought the gentleman who was 
 preparing to draw specie from the Banks of Philadelphia, 
 in order to send it to New Orleans, and ffave him drafts on 
 that city. These drafts were not given to protect the Bank 
 itself, which was then a creditor of the Piiiladelphia Banks 
 for more than the amount of them, but they were employed 
 to arrest from these city Banks a drain which could not 
 fail to embarrass them. 1 then endeavored to ascertain 
 
BANKIxVG FROM 1820-21 TO 1825-26. 183 
 
 the real state of things by separating the danger from the 
 alarm, and having done so, on the 22d of November, the 
 letter annexed was addressed to the Branch at New York, 
 suggesting the propriety of increasing its loans. 
 
 " From this moment confidence revived, and the danger 
 passed. I then thought, and still think, that this measure, 
 the increase of the loans of the Banks, in the face of an 
 approacliing panic, could alone have averted the same con- 
 sequences, which, in a few days afterwards, were operating 
 with such fatal effect upon England. I have never 
 doubted that the delay of a week would have been of infi- 
 nite injury, and the prompt interposition of the Bank was 
 the occasion of protecting the country from a general 
 calamity." 
 
 It is very possible that the means taken by Mr. Biddle 
 were the only ones by which a panic could be prevented ; 
 but, what ought we think of a system by which the pecu- 
 niary salvation of the country is made to depend on one 
 man's hurrying by night from Philadelphia to New York, 
 to prevail on another man to accept drafts on New Orleans 
 in place of specie ? The establishment of a new Bank is, 
 in the United States, an event of every day occurrence : 
 and the business is so well understood, that the amount 
 of specie required for such a purpose is very trifling. 
 What sum was wanted for the use of the British army in 
 Canada, is not mentioned ; but as the British Government 
 must have given an equivalent for it. it diminished, in the 
 same amount, the demand for remittances to England. If 
 there had not been the two particular demands mentioned 
 by Mr. Biddle, there would have been demands for some- 
 thing else. 
 
 There is what Mr. John Quincy Adams calls, " a gal- 
 vanic sympathy" between the paper money Banks of dif- 
 ferent countries : and it is certainly no small objection to 
 our present system that it makes us liable to be affected 
 injuriously by every derangement in the currency, com- 
 mercial concerns, or financial affairs of Great Britain. So 
 intimate and so manifold are the connections of the two 
 countries, that an expansion or contraction never takes 
 place in England, without being accompanied or followed 
 by an expansion or contraction in the United States. We 
 have, also, expansions and contractions independent of 
 
184 BANKIxVG FROM 1820-21 TO 1825-26. 
 
 those of Great Britain : but when the causes of the varia- 
 tions of Bank medium operate sirnuhaneously in both 
 countries, the effects are very striking. 
 
 The state of confidence between man and man, and the 
 state of the currency in some parts of the Union, were not 
 such as to admit of as great an increase of Bank medium 
 in the United States as took place in England in 1824 and 
 1825. The effects of the great reaction of 1818-19 were 
 not yet over. In Kentucky, society was in a state border- 
 ing on anarchy. In Alabama and Tennessee, the paper 
 of the local Banks was much below par. Ohio, Indiana, 
 Illinois, and Missouri had not recovered from the effects of 
 the relief system. The currencies of Georgia and North 
 Carolina were very vacillating. The city Banks of New 
 York had for two years, beginning with the summer of 
 1823, been endeavoring to restrict the petty Banks of 
 their neighborhood, and in so doing had limited their own 
 circulation. In New England there was a war between 
 the allied Banks of Boston and the country Banks, which 
 caused a great pressure for money in the Eastern States, 
 in the month of xMay, or at the very time when there was 
 so much commercial activity in the southern cities. In 
 the interior of Pennsylvania, the sheriffs had not yet got 
 through the duty of selling the estates of those who had 
 been made bankrupt by the operations of the years 1818 
 and 1819.* 
 
 ^^ hile the country was in this condition, it was impossi- 
 ble for Banks maintaining specie payments to make any 
 great addition to their issues. In point of fact, the actual 
 increase of Bank currency in 1824 and 1825, appears not 
 to have been very great : but the state of affairs was not 
 such as to admit of any increase of credit dealings, without 
 
 * The SherifT of Adams County advertised thirty-three estates for 
 sale in the month of AJay. The Juniata Gazette, on' one day of July, 
 contained thirty-two advertisements by the Sheriff". The Sheriff of 
 Fayette, in tiie month of June, otiered'for sale 118 tracts of land, con- 
 taining 4.5,000 acres, or one-eleventh part of the county. Most of this 
 was the property of one person. In the same month the Sheriff of 
 Bedford offered for sale twenty-three estates, and the Sheriff of A\'est- 
 moreland, twenty-six. In December, 48 estates, containing together 
 3342 acres of land, with farm houses, barns, grist mills, and other im- 
 provements, belonging to thirty -one dillerent persons, were offered for 
 sale by the Sheriff of Berks. 
 
BANKING FROM 1820-21 TO 1825-26. 185 
 
 jeoparding a great variety of interests. It was owing to 
 this, that, though the expansion was such as might under 
 other circumstances have been regarded as inconsiderable, 
 the effects of the necessary reaction were felt through the 
 greater part of the year 1826, in a general dullness of busi- 
 ness. In the Southern States, the consequences were 
 most trying, as the high price of cotton had led to an over- 
 extension of the culture of that article, and as the planters, 
 encouraged by the demand for their staple, had plunged 
 themselves in debt to support their style of living. The 
 manufacturers of cotton were, also, great sufferers. Cot- 
 ton cloth which it cost 18 cents a yard to import in 1825, 
 was imported in the spring of 1826, at 13 cents. It was 
 said that of four thousand weavers employed in Philadel- 
 phia in 1825, not more than one thousand had employment 
 in May 1826. 
 
 It must be admitted, however, that the reaction was at- 
 tended with one good effect, and that was in checking the 
 operations of the New York speculators. Unaffected by 
 all the disasters which the community were suffering, they 
 made application to the Legislature, at the session com- 
 mencing in January 1826, for charters for twcnti/seven 
 new Banks in the city of New York, with nominal capi- 
 tals of 22,500,000 dollars, for thirty-seven new Banks in 
 the other parts of the State, with nominal capitals of 
 13,250,000 dollars, for ticentu-six other joint stockcompa- 
 nies in the city of New York, with capitals of 14,350,000 
 dollars, and for thirty-tkrec in other parts of the State, with 
 capitals of 5,437,000 dollars, making in all 123 Banking 
 and other joint stock companies, with nominal capitals of 
 the amount of 55,537,000 dollars. The Legislature hav- 
 ing at its previous session incorporated twenty-tioo Banks 
 and loan offices, and twenty-six insurance companies, pru- 
 dently refused to extend the system any further for the 
 present. 
 
 The wisdom of this course soon became manifest. In. 
 April 1826, the Marble Manufacturing Company, a newly 
 instituted, bond-issuing concern, became bankrupt. This 
 was followed in July by the bankruptcy of the Dundaff and 
 New Hope Banks of Pennsylvania, the Jersey City Bank 
 and Patterson Bank of New Jersey, the Green County 
 Bank of New York, the United States' Lombard, the 
 
 R 
 
186 BANKING FROM 1820-21 TO 7825-26. 
 
 Franklin Manufacturing Company, the Hudson Insurance 
 Company, and the New York Life Insurance Company ; 
 these were again followed, in August and September, by 
 the bankruptcies of the New York Mount Hope Loan, the 
 Sun Fire Insurance, the Greenwich Insurance, and the 
 Protection Fire Insurance Company. 
 
 When an injunction was issued in the case of the 
 Tradesman's Bank, a run commenced on all the Banks of 
 the city of New York. It is probable that if they had 
 been exposed to such a run twelve months sooner, very 
 disastrous consequences would have ensued. But by this 
 time the foreign demand for specie had abated. The ex- 
 ports of gold and silver from the port of Philadelphia in 
 the months of June and July were only 500,501 dollars, 
 against 2,136,151 in the corresponding months of 1825. 
 Credit dealings having been diminished, and the amount 
 of specie in the country having been increased, the New 
 York City Banks were enabled to save themselves, and 
 thereby to save all the Banks from Maine to Louisiana ; 
 for a stoppage of payment by them, would have produced 
 a run on all the Banks in the Union. 
 
 The bankruptcy of some of the New York moneyed cor- 
 porations, revealed secrets to the public which led to a 
 legal investigation, and as it is always the practice of the 
 world to punish unsuccessful villainy, some of the concern- 
 ed were severely dealt with. Previous to passing sentence 
 on them, Judge Edwards made following observations: 
 " During the trials which have taken place at the present 
 term of this court^ we have witnessed displays of depravity 
 on the part of the agents of moneyed institutions of the 
 most appalling nature. As common as crimes are in all great 
 cities, yet this community was not prepared to expect from 
 the class of society to which the perpetrators of the crimes 
 belonged, a burst of such iniquity. Tiieir offences have 
 been characterized by breaches of official and personal 
 confidence ; by a course of misrepresentation and decep- 
 tion systematically pursued, and by injurious and crafty 
 devices which no ordinary prudence could guard against. 
 Nor was this all. Among the actors in those scenes were 
 some of ihe jjrincipal agents in the management of money- 
 ed institutions, and they have been found actually combin- 
 ing and conspiring together for the accomplishment of 
 their nefarious purposes. 
 
BA\KI\G FROM 1826-27 to 182.?-2!). 187 
 
 "From combinations of men of so much talent, availing 
 themselves of their high standing, it is not surprisino- that 
 they should have swept society with the besom of destruc- 
 tion. When crimes of such character, attended with such 
 destructive consequences abound, it behooves the tribunals 
 of justice to gather themselves up to meet the occasion, 
 and to extend, as far as in them lies, the protecting arm of 
 the law/' 
 
 The court sentenced two of the persons who were con- 
 victed to imprisonment for two years, and two others for 
 one year. 
 
 A writer in a New Hampshire paper, says, after briefly 
 relating these facts — " In some of the other States, jus- 
 tice has too long slumbered. The guilty have escaped 
 with impunity, but the innocent and unsuspecting have 
 been plundered without redress." 
 
 CHAPTER XX. 
 
 Of Banking from 1826-27 to 1828-29. 
 
 Mr. John F. Watson, the Cashier of the* Bank of Ger- 
 mantown, in his " Annals of Philadelphia," gives the fol- 
 lowing testimony of an ancient lady, respecting the man- 
 ner in whicli commercial atfairs were conducted previous 
 to the Revolutionary War. " If a citizen failed in busi- 
 ness, it was a cause of general and deep regret. Every 
 man who met his neighbor, spoke of his chagrin. It was 
 a rare occurrence, because honesty and temperance in 
 trade were then universal." 
 
 In another part of his book, Mr. Watson speaks of the 
 changes which have in this respect taken place, within 
 his own short period of observation. " When I was a boy, 
 as none got suddenly rich by monopolies, they went through 
 whole lives gradually but surely augmenting their estates, 
 without the least fear of misfortune or bankruptcy. When 
 it did rarely occur, such was the surprise and general sym- 
 pathy of the public, that citizens saluted each other with 
 sad faces, and made their regrets and condolence a matter of 
 common concern. An aged person has told me, that, when 
 
188 BANKING FROM 1826--27 TO 1828--29. 
 
 the proprietor of that large house, formerly the Post Office 
 (now the National Hotel) at the corner of Chesnut street 
 and Carpenter's Court, suddenly failed in business, the 
 whole house was closely shut up for one week, as an em- 
 blem of the deepest family mourning, and all who passed 
 the house instinctively stopped, and mingled the expressions 
 of their liveliest regret. Now how are changed matters in 
 those particulars." 
 
 They are so changed, that a certain number of bank- 
 ruptcies and insolvencies in the course of a year, are re- 
 garded as being as much within the order of nature as a 
 certain number of deaths. Periodical redundancies and 
 scarcities of money are looked for as naturally as cold in 
 winter or heat in summer. If a great storm occurs, or a 
 pestilence sweeps over the land, the .journalists record it : 
 and so they record great pressures for money, but they 
 think no more of noting the effects of ordinary " expansions" 
 and " contractions " than of noting the ordinary variations 
 of the weather. 
 
 A gentleman who resided for twenty-five years in the 
 town of Barcelona, a town which does most of the import 
 and export business of the fertile and industrious province 
 of Catalonia, has told us that during the whole period of 
 his residence there, but one bankruptcy occurred. It may 
 be difficult for many Americans of the present day to con- 
 ceive such a state of things to be possible. But it is possi- 
 ble ; and a faithful relation of the pecuniary vicissitudes of 
 one of our ordinary years, might be received as incredu- 
 lously by many plain Swiss and Hollanders, as some Ameri- 
 cans receive accounts of countries and cities where bank- 
 ruptcies and insolvencies are events of rare occurrence. 
 
 But, to return to our narrative. By September, 1826, 
 the violence of the reaction which followed the expansion 
 of 1824-25, had subsided : and through the year 1827, 
 things went on smoothly. The two first months of 1828 
 also passed over without any convulsion : but in the begin- 
 ning of INFarch, a sudden and unexpected scarcity of money 
 was felt in Philadelphia. 
 
 If we were engaged in frequent wars, or if the state of 
 the world at largo was such as it was in the twenty years 
 which followed the French Revolution, ingenuity might be 
 able to give a plausible view of the causes of the frequent 
 
BANKING FROM 1826-27 TO 1828-29. 189 
 
 scarcities of money, independent of the operations of Bank- 
 ing institutions. But we have enjoyed peace for seven- 
 teen years in succession. Most other commercial coun- 
 tries have been in the enjoyment of peace. It has, there- 
 fore, become impossible to conceal from observers, the ef- 
 fects which paper money Banking institutions have on com- 
 mercial affairs. That the scarcity of money in 1828 was 
 owing to their operations, was so evident, that no body 
 doubted, nobody disputed it. No other cause could be as- 
 signed for it. And Mr. Biddle, the President of the United 
 States' Bank, published an essay in the National Gazette, 
 on the 10th of April, in which lie gave the following ele- 
 gant and lucid exposition of one of the causes of the evils 
 the community was then suffering. 
 
 " The question is, what is the cause and the nature of 
 the present scarcity of money? 
 " The answer is easy. 
 
 " The currency of the United States consists of coin, and 
 of Bank notes promising to pay coin. As long as the 
 Banks can always pay the coin they promise they are use- 
 ful, because, in a country where the moneyed capital is dis- 
 proportioned to the means of employing capital, the sub- 
 stitution of credits for coins enables the nation to make its 
 exchanges with less coin, and of course, saves the expense 
 of that coin. But this advantage has by its side a great 
 danger. Banks are often directed by needy persons, who 
 borrow too much, or by sanguine persons, anxious only to 
 increase the profits, without much pecuniary interest or 
 personal responsibility in the administration. The constant 
 tendency of Banks is, therefore, to lend too much, and to 
 put too many notes in circulation. Now, the addition of 
 many notes, even while they are as good as coin by being 
 always exchangeable for coin, may be injurious, because 
 the increase of the mixed mass of money generally occa- 
 sions a rise in the price of all commodities. The conse- 
 quence is, that the high price of foreign productions tempts 
 foreigners to send a large amount of their commodities, 
 while the high price of domestic productions prevents these 
 foreigners from taking in exchange a large amount of our 
 commodities. When, therefore, you buy from foreigners 
 more than they buy from you, as they cannot take the paper 
 part of your currency, they must take the coin part. If 
 B r 
 
190 BAyKiNG FROM 1826--27 TO 18-28-29. 
 
 this is done to a considerable extent, the danger is that the 
 Banks will be obliged to pay so much of their coin for their 
 notes as not to leave them a suflicient quantity to answer the 
 demand for it, in which case the Banks fail, and the com- 
 munity is defrauded. To prevent this, a prudent Bank, the 
 moment it perceives an unusual demand for its notes, and 
 has reason to fear a drain on its vaults, should immediate- 
 ly diminish the amount of its notes, and call in part of its 
 debts. So, on a large scale, when the Banks of a country 
 perceive such a demand for coin for exportation as dimi- 
 nishes too much the stock of coin necessary for their Bank- 
 ing purposes, they should stop the exportation. This they 
 can always do if their affairs have been well managed : and 
 here lies the test of Bank management. 
 
 " The law of a mixed currency of coin and paper is, 
 that when, from superabundance of the mixed mass, too 
 much of the coin part leaves the country, the remainder 
 must be preserved by diminishing the paper part, so as 
 to make the mixed mass more valuable in proportion. It 
 is this capacity of diminishing the paper which protects it. 
 Its value consists in its elasticity — its power of alternate 
 expansion and contraction, to suit the state of tlie commu- 
 nity ; and when it loses its flexibility, it no longer contains 
 within itself the means of its own defence, and is full of 
 hazard. In truth, the merit of a Bank is nearly in propor- 
 tion to the degree of this flexibility of its means. If a 
 Bank lends its money on mortgages, on stocks — for long 
 terms, and to persons careless of protests, it incurs this 
 great risk, that, on the one hand, its notes are payable on 
 demand, while, on the other, its debts cannot be called in 
 without great delay — a delay fatal to its credit and charac- 
 ter. This is the general error of Banks, who do not al- 
 ways discriminate between two things essentially distinct in 
 Banking, a debt ultimately secure, and a debt certainly 
 payable. But a well-managed Bank has its funds mainly 
 in short loans to persons in business — the result of business 
 transactions — payable on a day named, which the parties 
 are able to pay and will pay at any sacrifice, in order to es- 
 cape mercantile dishonor. Such a Bank has its funds, 
 therefore, constantly repaid into it, and is able to say whe- 
 ther it will or will not, lend them out again. 
 
 " A Bank so managed, if it finds too much demand for 
 
BANKING FROM 1826-27 TO 1828--29. 191 
 
 its coin to go abroad, begins by not lending more than it 
 receives every day, and tiien goes farther, by not lending as 
 much as its income, declining to renew the notes of its debt- 
 ors, and obliging them to pay a part or the whole : making it 
 a rule to keep its discounts within its income. The opera- 
 tion proceeds thus : by issuing no new notes, but requiring 
 something from your debtors, you oblige them to return to 
 you the Bank notes you lent them, or their equivalents. 
 This makes the Bank notes scarcer — this makes them more 
 valuable — this makes the goods for which they are -gener- 
 ally exchanged less valuable — the debtor, in his anxiety to 
 get your notes, being willing to sell his goods at a sacri- 
 fice — this brings down the prices of goods, and makes 
 every thing cheaper. Then the remedy begins. The for- 
 eigner, finding that his goods must be sold so low, sends 
 no more. The American importer, finding that he cannot 
 make money by importing them, imports no more. The 
 remainder of the coin, of course, is not sent out after new 
 importations, but stays at home, where it finds better em- 
 ployment in purchasing these cheap articles; and when the 
 foreigner hears of this state of things, he sends back the 
 coin he took away. He took it away merely because .your 
 own domestic productions were so high that he could not 
 make any profit in his country by taking them. But when 
 the news reaches him that his productions are very cheap 
 in our country, he will also learn that our productions are 
 cheap too, and he sends back the coin to buy these cheap 
 productions of ours. We, therefore, get back our coin by 
 diminishing our paper, and it will stay until drawn away 
 by another superabundance of paper. Such is the circle 
 which a mixed currency is always describing. Like the 
 power of steam, it is eminently useful in prudent hands, 
 but of tremendous hazard when not controlled ; and the 
 practical wisdom in managing it lies in seizing the proper 
 moment to expand and contract it — taking care, in work- 
 ing with such explosive. materials, whenever there is doubt, 
 to incline to the side of safety. 
 
 " These simple elements explain the present situation of 
 the country. Its disorder is over-trading, brought on by 
 over-banking. The remedy is to bank less, and to trade 
 less. 
 
 " During the last year, money was very abundant — that 
 
192 BANKIPfG FROM 1826-27 TO 1823-29. 
 
 is, the demand for coin being small in proportion, the Banks 
 distributed freely their discounts and notes. This plenty 
 concurred with other causes, especially the expectation of 
 a new tariff, to induce an increased importation of foreign 
 goods, and, at the same time, furnish great facility for pro- 
 curing them on credit. For instance, in the difficulty of 
 procuring profitable investments, there were found capi- 
 talists who exported the coin of the country, and sold their 
 bills for it on credit — thus obtaining a small profit on the 
 shipment, and a greater on the discount of the notes taken 
 for their bills. This fraction of a per centage on the ship- 
 ment of coin, seems to be a trifling gain for the great in- 
 convenience to which it often subjects the community ; but 
 the profit, though small, is lawful, and no odium should at- 
 tach to the agents, for the operation is often a wholesome 
 corrective of excessive issues of paper. The effect was, 
 that by the month of February, the exportations of specie 
 to France and England had become unusually large, amount- 
 ing, probably, in the preceding twelve months, to between 
 four and five million dollars ; and great importations were 
 constantly arriving, and wh.ich, when sold, would require 
 remittances to Europe. Hitherto, at this season, the de- 
 mand for exchange had been supplied by the bills drawn 
 on the produce of the South, when shipped to Europe ; but 
 this year the crop, and with it the bills produced by it, has 
 come tardily into the market, so that the demands of ex- 
 change for the proceeds of the arriving shipments were di- 
 rected immediately to the exhausted vaults of the Banks. 
 Such an effect was to be averted without loss of time. The 
 directors of the Bank of the United States, as was their 
 natural duty, were the first to perceive the danger, and the 
 Bank was immediately placed in a situation of great strength 
 and repose. The State Banks followed its example. They 
 began by restraining their loans within their income, and 
 gradually and quietly decreasing the amount of them, and 
 more especially directing their retrenchments on those 
 whose operations were particularly connected with the ex- 
 portations they desired to prevent. The course of business 
 has been this : A merchant borrows from the Banks and 
 sends abroad $!100,000 in coin, or he buys bills from one 
 who has shipped the coin. With these he imports a cargo 
 of goods — obtaining a long credit for the duties — sends 
 
BANKING FROM 1826-27 TO 1828-29. 193 
 
 them to auction, where they are sold, and .the auctioneer's 
 notes given for thera. These notes are discounted by the 
 Banks, and the merchant is then put in possession of an- 
 other $* 100,000, which he again ships, and thus he proceeds 
 in an endless circle, as long as the Banks, by discounting 
 his notes, enable him to send the coin, and tempt him to do 
 so, by keeping up prices here by their excessive issues. 
 The Banks, therefore, begin by diminishing or withdraw- 
 ing these artificial facilities, leaving the persons directly 
 concerned in this trade to act as they please with their 
 own funds, but not with the funds of the Banks. The im- 
 mediate consequence is, that the auctioneers can no long- 
 er advance the money for entire cargoes — that they no 
 longer sell for credit, but for cash — that the price of goods 
 falls — that instead of being sold in large masses, they are 
 sold slowly and in small parcels, so that the importer is not 
 able to remit the proceeds in large amounts. This dimi- 
 nishes the demand for bills and for specie to send abroad. 
 In the meantime, the importer, finding the prices of his 
 goods fall, imports no more ; and the shipper of coin, find- 
 ing less demand for exchange, and that he can make more 
 of his money by using it at home than by exporting it, ab- 
 stains from sending it abroad. Time is thus gained till the 
 arrival of the Southern exchange, which will supply the 
 demand without the aid of the coin, and then every thing 
 resumes its accustomed course. 
 
 " This is the point to which the present measures of the 
 Banks are tending. The purpose must be accomplished, 
 in a longer or shorter time, with a greater or less degree of 
 pressure, but the effect must and will be produced." 
 
 This account, mutatis mutandis, will serve for a history 
 of Banking in almost any year. " Such is the circle a 
 mixed currency is always describing." The only differ- 
 ence is, that the circle is sometimes wider and sometimes 
 narrower. 
 
 " The constant tendency of Banks is to lend too much, 
 and to put too many notes in circulation." Sometimes it 
 is a demand for specie to establish a new institution at 
 New Orleans, that compels them to diminish their issues ; 
 sometimes it is a demand for specie for the use of the Bri- 
 tish army in Canada, sometimes the crop of cotton comes 
 in tardily — sometimes it is something else : but a year 
 
194 BAXKING FROM 1826--27 TO 1828-29. 
 
 seldom passes without some cause of tliis kind occurring, 
 and it is impossible in the nature of things that such 
 causes should not occur. 
 
 It would seem from Mr. Biddle's statements in another 
 part of this essay, that, though every thing appeared very 
 smooth on the surface in 1827, great danger lurked be- 
 neath. Speaking of the State Banks, he says, " vvhat in- 
 terest has the community in propping up many of these 
 institutions? Let any sedate man look at the returns made 
 this winter of the state of the Banks in various parts of the 
 United States, and then answer whether they need further 
 exemptions from the necessity of accommodating their bu- 
 siness to their means. * * * * * * 
 In the present and immediate example, no man can fail to 
 perceive that, but for the warning restriction imposed by 
 the Bank of the United States and the leading State 
 Banks, the events of the last six weeks would have brought 
 many of them to the verge of insolvency, whence they 
 could only escape by some sudden shock to the com- 
 munity." 
 
 In 1825, the immediate danger was to the Banks, and 
 through them to the community. In 1826, the United 
 States' Bank and the leading State Banks placed them- 
 selves '' in a situation of great strength and repose," but 
 the sufferings of the community were not the less severe on 
 that account. It was, in fact, by producing sufferings in the 
 community, that the Banks placed themselves in that situa- 
 tion from which they regarded what was going on around 
 them with so much complacency. The people implored 
 them for relief, but the President of the United States' 
 Bank replied, " It is in the order of nature, that if men or 
 nations live extravagantly, they must suffer till they repair 
 their losses by prudence, and that neither men nor Banks 
 should impose on the community by promises to pay what 
 they cannot pay. The laws of trade have their own remedy 
 for such disorders, as infallible as the law of animal life, 
 which enables the human system to relieve itself from its 
 own excesses. Both must have their course. But the 
 Bank of the United States is invoked to assume that which, 
 whoever attempts, deserves the ruin he will suffer. It is 
 requested to erect itself into a special providence to 
 modify the laws of nature, and to declare that the ordinary 
 
BAXKIXG FROM 1826 27 TO 1828 29. 195 
 
 fate of the heedless and improvident shall not be applied 
 to the United Stales. Our countrymen are to be indulged 
 without restraint in the utmost extravagance of the luxu- 
 ries of Europe, on credit from the Banks ; and when the 
 day of payment arrives, the debtor shall not be called upon 
 for payment — the Banks shall not be incommoded to pay 
 their own notes, for the moment any inconvenience is felt, 
 the Bank of the United States will certainly interpose and 
 pay the debt. But if the Bank of the United States blends 
 any sense with its tenderness, it will do nothing of all 
 this." 
 
 This reply, though not very consoling, would have been 
 unanswerable, if it had not been that " the disorder of the 
 country was over-trading, brought on by over-banking." 
 
 The Banks continued to diminish mercantile facilities, 
 in the month of May. In September there was another 
 pressure on the community ; and in December a great 
 scarcity of money was felt in Boston. 
 
 The President of the United States' Bank, in a letter to 
 the Secretary of the Treasury, dated July 18th, 1829, 
 says the office at Portsmouth, " last year was nearly pros- 
 trated in the general ruin which spread over that coun- 
 try. Out of 400,000 dollars of loans, 148,000 dollars was 
 thrown under protest : still further protests were expected, 
 and the actual loss sustained there will not be less than 
 112,000." 
 
 In March 1829, there was a pressure in Philadelphia : and 
 in the following months great appreliensions were enter- 
 tained in New York for the safety of the country Banks in 
 that and the neighboring States. A writer in the United 
 States Telegraph endeavored to show that the Banks of 
 that city were also in a perilous condition. The difficul- 
 ties appear to have been greatest in that city about the 
 beginning of June. In the middle of the month, it was 
 announced that the money market was becoming easy. 
 Many New York merchants were, however, compelled 
 to make compromises w ith their creditors ; and many 
 mechanics were deprived of employment. 
 
 The greatest distress in this year, appears to have been 
 in Rhode Island. The Providence Literary Subaltern, as 
 quoted by the Philadelphia Gazette, on the 2Gth of June, 
 says — " The embarrassments which have been realized in 
 
196 BANKING FROM 1826--27 TO 1828-29. 
 
 this immediate neighborhood for the last ten days, have 
 had no parallel in the history of the Republic. Men of 
 reputed capital, who have withstood the shock of former 
 changes and times ; men who for the last forty years have 
 stood firm, erect and undismayed before the tempest of the 
 times that have assailed them, are now tottering on the 
 verge of bankruptcy and ruin. Their fall bears excessively 
 heavy on the poor and laboring classes, who, by the way, 
 are in reality the principal sufferers. Deprived of employ- 
 ment, destitute and friendless, they are thrown upon the 
 world, and know not how to obtain a livelihood. VVithin 
 the last ten days, within the circle of the ten adjacent 
 miles, upwards of twenty-five hundred people have been 
 suddenly and unexpectedly thrown out of employment, and 
 the distress that such an event has produced, can be far 
 better imagined than described." 
 
 CHAPTER XXI. 
 
 Additional Particulars of the History of BanJcing from 
 
 1824 to 1829. 
 
 The professors of natural science are able to give satis- 
 factory accounts of the general causes of heat and cold in 
 different latitudes, and of snow and rain in different sea- 
 sons, but it is in most instances beyond their power to state 
 in what degree each of the general causes known to be in 
 operation, has contributed to the state of the weather at a 
 particular time and particular place. Banking is like the 
 weather. It is affected by a variety of causes, which pre- 
 sent themselves in difTerent combinations. Many of these 
 causes are of such a nature that their operation, if sepa- 
 rately considered, would be inapjjreciable, though when 
 united they produce a very sensible effect. Others are so 
 strongly n)arked in their consequences, that their operation 
 can at times be calculated with all the accuracy which is 
 necessary tor illustrating general principles. 
 
 Among these latter causes must be ranked the conflicts 
 of the Banks with one another, and their dealinsis with Go- 
 vernment. These are sufficient to produce great commer- 
 
BANKING FROM 1824 TO 1829. 197 
 
 cial embarrassments, even when there is no very great de- 
 mand for specie for exportation. We have seen that the 
 war between the allied Banks of Boston and the country 
 Banks, produced a great scarcity of money in New Eng- 
 land, in May 1825, or at the very time when speculation 
 was most active in the Middle and Southern States. The 
 President of the United States' Bank speaks of the " re- 
 action, as it is called," taking place in Philadelphia, " in 
 October." But the newspapers make mention of the pres- 
 sure in July, and it is well known that it is not till some- 
 time after great pressures begin, that mention is made of 
 them in the public journals. Taking into consideration 
 the facts that the pressure was felt here some four or five 
 months before the crisis in England, that exchanges were 
 in favor of this country, and that during this time the Eng- 
 lish country Banks were, according to Lord Liverpool, in- 
 creasing their issues, we are inclined to think that some 
 Gther cause besides the foreign demand for specie must have 
 contributed to the reaction of 1825 — at least so far as it 
 affected the United States' Bank, and through it the other 
 Banks and the community. We have a cause adequate to 
 the effect, in the loans of ten million dollars made by the 
 Bank to the Government in 1824 and 1825. The amount 
 may not be large, abstractedly considered, but a paper mo- 
 ney Bank which has been doing business for several years, 
 can seldom, unless it has a surplus stock of specie, make 
 loans for a long period, without being afterwards forced to 
 resort to such measures as operate with great hardship on 
 its regular customers. " The constant tendency of Banks," 
 as Mr. Biddle has correctly observed, " is to lend too much 
 — to put too many notes in circulation." And the Bank 
 of the United States, after having lent as much as it could 
 to private traders, strained its credit and resources to lend 
 to Government, and thereby put more notes in circulation 
 than the state of trade required. 
 
 The peculiar force with which the pressure of 1825 ope- 
 rated on the United States' Bank, strengthens this reason- 
 ing. It receives additional corroboration in the fact that 
 the reaction was over in the United States much sooner 
 than in England : and also in the fact that the exports of 
 gold and silver in the year 1825, exceeded the imports in 
 s 
 
198 BANKING FROM 1824 TO 1829. 
 
 only the small sum of 2,600,000 dollars, the imports for the 
 year being $6,150,785, and the exports $8,787,055. 
 
 It must, indeed, be admitted that a very small export of 
 specie sometimes produces very great confusion. Mr. Carey, 
 in a work published in 1810, says — " The merchants en- 
 gaged in the trade to the East Indies, made application last 
 spring to the Bank of the United States for dollars to remit 
 there, and offered a premium of one per cent. The direc- 
 tors took the matter under consideration, and with liberali- 
 ty resolved to furnish the necessary sums without premium 
 What was the exact amount I cannot state, but I have rea- 
 son to believe it exceeded half a million of dollars. They 
 were applauded for their liberality. But, however extraor- 
 dinary it may appear, the effect of the operation was abso- 
 lutely to impel some of the other Banks to curtail their dis- 
 counts considerably." 
 
 If our currency was metallic, the exportation of ten or 
 twenty millions of gold and silver, would have no more ef- 
 fect on the general train of commercial operations than the 
 exportation of so many dollars' worth of iron and copper, 
 for the exportation of specie would never commence till 
 the domestic demand was fully satisfied. But, now, the 
 fitting out of a single East India ship, may derange the 
 trade of a city : and diminishing the ordinary stock of spe- 
 cie in the amount of only two or three millions, may de- 
 range the trade of the country. 
 
 This may appear strange at first view, but Mr. Biddle, 
 in his Address to the Stockholders of the United Slates' 
 Bank, in September 1831, gives us very satisfactory rea- 
 sons why a cause, apparently so very trifling, should pro- 
 duce so very great an effect. " It is the peculiarity of our 
 moneyed .system, that in many parts of the country the 
 precious metals are excluded from the minor channels of 
 circulation by a small paper currency, in consequence of 
 which the greater portion of these metals is accumulated 
 in great masses in the Atlantic cities, liable to be immedi- 
 ately demanded on notes previously issued in the confidence 
 of the continuance of the same state of things which caused 
 the abundant issue of them ; at the first turn in the -tide of 
 foreign exchange — when the supply of foreign exchange is 
 unequal to the daily demand, the vaults of the Banks may 
 be exhausted before any precaution can prevent it. These 
 
BANKIXG TROM 1824 TO 1829. 199 
 
 very precautions too, consisting as they do almost exclu- 
 sively of curtailnaent of their loans, made suddenly — most- 
 ly without concert, and always under the influence of anxie- 
 ty if not of alarm, may fall with oppressive weight on the 
 community, by the pressure in which alone can be pro- 
 duced the necessary reaction. This reaction, moreover, is 
 necessarily slow, since our distance from Europe makes it 
 less easy to restore the equilibrium than between adjoining 
 countries in the same hemisphere." 
 
 It certainly was not by any increase of its loans to mer- 
 chants that the Bank of the United States was brought into 
 difficulty in 1825, for these loans, including in the calcula- 
 tion common discounts and bills of exchange, actually sus- 
 tained a reduction of upwards of 300,000 dollars, between 
 the 1st of January, 1824, and the 31st of July, 1825. By its 
 loans of ten millions to Government, the Bank appears to 
 have added to its circulation, between the dates just mention- 
 ed, only 3,277,885. But this, it seems, was two millions six 
 hundred thousand more paper than the country could bear, 
 for in this amount the exports of specie exceeded the im- 
 ports in 1825. 
 
 It is well worthy of observation, that the total import of 
 foreign merchandise in 1825, was, according to the custom- 
 house returns, 896,340,075, and the total export of domes- 
 tic and foreign produce, was $99,535,388. If allowance 
 be made for freight of the exports, and profits on them in 
 foreign markets, it will be seen that the " balance of trade" 
 was decidedly in favor of the country. So that, altogether, 
 we have in the events of the year, an example that, in time 
 of profound peace, and when the balance of trade is in 
 favor of the country, and when the exports of specie ex- 
 ceed the imports in the sum of only two or three millions, 
 a whole comnuniity may, by the operations of paper money 
 Banking, be brought to the very verge of insolvency. 
 
 The evils produced by Banks' making loans to Govern- 
 ment are occasional. These produced by Banks' trading on 
 Government deposits, are perpetual. These deposits vary in 
 the amount of millions in the course of a few months. A 
 Bank may know that the Government will, in the course of 
 a short period, require its funds to pay off a portion of the 
 public debt, or for some other purpose, but as the constant 
 tendency of Banks is to lend too much and put too many 
 
200 BANKING FROM 1824 TO 1829. 
 
 notes in circulation, a Bank having possession of such 
 funds seldom fails to make discounts on them as freely as 
 on its own capital, trusting that when the Government 
 shall demand its own, means may be found of meeting the 
 demand through a credit in Europe, or some other financial 
 operation. The most common mode is that of reducing com- 
 mercial discounts. In the voluminous documents appended 
 to the report made by a Committee of Congress in April 
 1832, continual reference is made to changes in the opera- 
 tions of the United States' Bank, rendered necessary by Go- 
 vernment's reclaiming its deposits for the purpose of pay- 
 ing off the public debt. 
 
 If the State Banks should be made the depositories of the 
 public funds, the evil would be increased instead of being 
 diminished. Paper money Banks cannot be employed in 
 any way as fiscal machines, without embarrassing the op- 
 erations either of Government or of the community, and 
 sometimes of both. If we had a metallic currency, and if our 
 fiscal concerns were managed without the agency of Banks, 
 the paying off of ten or twenty millions of public debt in 
 the course of a year, would have the same effect as the 
 paying off of ten or twenty millions of private debt — would 
 produce benefit instead of injury. But as matters have 
 been managed through the agency of the Banks, the pay- 
 ing off of the public debt has indirectly contributed to the 
 irregularities of the money market since the year 1825. 
 
 The pressure of 1828 operated with more force on the 
 local Banks than on the Bank of the United States. It was, 
 as we have reason to believe, with great difficulty that some 
 of the principal Banks of Philadelphia placed themselves 
 in a situation of repose. As the imports of specie had in 
 the previous year exceeded the exports, the imports having 
 been $8,151,130, and the exports 87,971,307, while the 
 total value of exports was 882,324,827, and of im- 
 ports only 879,484,068, we cannot resist the conclusion 
 that the difficulties of 1828 were, as well as those of 1825, 
 owing, in a great measure, to domestic causes. The pres- 
 sure in that year appears to have been independent of any 
 movements in Europe. Money was very plenty in Eng- 
 land. The interest on commercial securities in London 
 in August, was only two per cent. The Bank of France 
 had it in contemplation in November, to reduce the rate 
 of discount to three per cent. In December, there was. 
 
BANKIiYG FROM 1824 TO 1829. 201 
 
 indeed, a pressure in both France and England, but our 
 difficulties commenced in the early part of the year. The 
 foreign demand for specie could not have been great, as 
 the exports of gold and silver in the whole year amounted 
 to 87,550,339, and were nearly balanced by the imports, 
 which amounted to $7,489,741. 
 
 To account for the difficulties in the year 1828, it is 
 necessary to take into consideration a fact which was men- 
 tioned by Mr. Biddle in the verbal expose he gave to the 
 stockholders of the United States' Bank, at their meeting 
 in August. He then stated that the circulation of the 
 Bank had been increased between August 1822 and Au- 
 gust 1828, from 5,400,000 dollars, to upwards of 13,000,000, 
 and that this had been effected, without adding any thing 
 to the aggregate amount of currency, but simply by dis- 
 placing an equal amount of the notes of the Jocal Banks. 
 Admitting this to be the fact, we have a satisfactory reason 
 for the pressure felt by the other Banks of Philadelphia, 
 while the United States' Bank was in a situation of great 
 strength and repose. It was in the previous year, or 1827, 
 that the United States' Bank commenced the issue of 
 branch drafts for the sums of five and ten dollars, by 
 which it obtained a decided advantage over the State 
 Banks. It was thereby able, in December 1827, to put a 
 stop to the circulation of the notes of the Cape Fear Bank 
 of North Carolina ; and to this operation of displacing the 
 notes of the local Banks by the small branch drafts of the 
 United States' Bank, may be attributed great part of the 
 difficulties of the year 1828. It must be evident to every 
 person,that new and unexpected demands on the local Banks 
 by the United States' Bank, must have the same effect on 
 them as new and unexpected demands on them for specie 
 to send abroad. The United States' Bank may expand in 
 the same proportion as the local Banks contract ; but it has 
 a different class of customers, and thus while money is 
 made plenty with one portion of the community, it may be 
 made scarce with another. The pressure of 1828 did not 
 seem to affect the dealers in public stocks. Its weight 
 fell principally on the merchants, and other productive 
 members of society. 
 
 The difficulties of the year 1829, appear to have been 
 owing in part to the operation of displacing local Bank 
 s s 
 
202 BANKING FROM 1629-30 TO 1832-33. 
 
 notes by the branch drafts of the United States' Bank, in 
 part to local causes of different kinds in different parts of 
 the country, and in part to the state of commercial affairs 
 in Europe. The operations of the United States' Bank 
 are so limited in New England, that the people of that 
 quarter of the country must attribute the principal evils 
 they suffer to the doings of their local Banks. The people 
 of the other States must attribute their sufferings to the 
 combined operations of the local Banks and the Bank of 
 the United States, bearing in mind the fact, that the 
 United States' Bank has a share in producing these evils, 
 only in proportion to the amount of its capital, the number 
 of its branches, the control it has of the funds of Govern- 
 ment, and the changes it makes from time to time, in its 
 mode of operation. 
 
 CHAPTER XXII. 
 
 Of Banking from 1829-30 to 1832-33. 
 
 Towards the close of the year 1829, money . became 
 plenty. For this various causes may be assigned. One 
 of the chief was the extensive dealings of the United 
 States' Bank. 
 
 This institution had, early in 1823, devised a plan for 
 extending its operations, and in that year discontinued the 
 practice of paying out the notes of the local Banks, and 
 renewed the practice of receiving the notes of all its 
 branches. But the condition of things was such, that, 
 towards the close of the year, its circulation was diminish- 
 ed, instead of being increased. It stood, in November and 
 December, at §4,081,842, which was less than it was at 
 any previous period, except the three months which immedi- 
 ately followed the first opening of the doors of the Bank at 
 Philadelphia. 
 
 In 1824 and 1825, the Bank increased its active capi- 
 tal, by the sale of three or four millions of forfeited Bank 
 stock. It was by this operation, by adding upwards of 
 three millions to its circulation, and by straining its credit, 
 that it was enabled in these years to lend ten millions to 
 Government. A part of the plan of the Bank was to ex- 
 
BANKIXG FROM 1829-30 TO 1832-33. 203 
 
 tend its dealings in domestic exchanges. This it natural- 
 ly preferred to increasing its business in other commercial 
 securities, as on theseit received only discount, whereas on 
 bills of exchange it received both discount and premium. 
 Being the depository of the public funds in various parts 
 of the Union, it possessed great advantages for dealings 
 in exchange, especially as the greater part of the public re- 
 venues was received in those cities which had naturally 
 the rate of exchange in their favor. The operations of the 
 Bank in its exchange dealings are thus described by its 
 President. 
 
 " The crop of Tennessee is purchased by merchants 
 who ship it to Xew Orleans, giving their bills founded on 
 it to the branch of Nashville, which furnishes them with 
 notes. These notes are in time brought to New York 
 for purchasing supplies for Tennessee. They are paid in 
 New York, and the Nashville Bank becomes the debtor of 
 the branch at New York. The Nashville branch repays 
 them by drafts given to the branch at New York on the 
 branch at New Orleans, where its bills have been sent, and 
 the branch in New York brings home the amount by sel- 
 ling its drafts on the branch at New Orleans : or the New 
 Orleans branch remits. This very plan of circulation, is 
 the basis of the whole interior trade of the United States." 
 
 The true basis of the interior trade of the United States, 
 is the fertility of the soil and the industry of the people. 
 The sun would shine, the streams would flow, and the earth 
 would yield her increase, if the Bank of the United States 
 was not in existence. What is now performed by it in 
 the way of exchange dealings, would, if there were no 
 corporations, be as well performed by private exchange 
 merchants. Perhaps they could not perform it at quite 
 as low a rate, for they would have to provide a capital 
 of their own, whereas the United States' Bank performs 
 it by the control it has of the public deposits, and by 
 means of the credit its charter gives it in different States. 
 Employing no capital of its own in the business — the 
 whole affair being a mere paper transaction between the 
 Bank and its branches, it may well afford to do it cheap. 
 It may, however, be questioned, if the reduction of the 
 price of exchange below its natural rate, is an equivalent 
 for the evils which must necessarily ensue from the substi- 
 
204 BANKIIVG FROM 1829--30 TO 183-2-33. 
 
 tution of the discretion of the officers of the United 
 States' Bank and of its twenty-five branches, for the laws 
 of nature. Whenever and wherever the Bank of the 
 United States reduces exchange below its natural rate, it 
 removes the only effective check on over-trading. This in 
 a short time makes necessary a reduction of discounts, and 
 thus we have in the exchange dealings of the United 
 States' Bank a new element of commercial vicissitude. If 
 there were no paper money institutions, the rate of domes- 
 tic exchange would be regulated by the cost of transporting 
 specie from one part of the country to another. This, even 
 between the most remote parts of the Union, would not ex- 
 ceed two or three per cent., and it would be better to pay 
 this per ceptage than to be exposed to all the evils of an 
 interminable series of expansions and contractions. 
 
 There was, however, a serious obstacle to extending the 
 operations of the Bank as far as was desirable. It was 
 physically impossible for the President and Cashier of the 
 Parent Bank to sign all the notes wanted for the branches: 
 and Congress, though repeatedly solicited, had refused to 
 give authority to any other persons to sign notes for circu- 
 lation. Counsel was then taken of some distinguished 
 legal characters, and they declared that the issue of small 
 drafts signed by the officers of the branches, either upon 
 one another, or upon the Parent Bank, was not prohibited 
 by the charter. The issue of these drafts was accordingly 
 commenced in 1827, and a great increase of paper me- 
 dium has followed. The President of the institution has 
 said, " If branch drafts had not been issued, no notes at 
 all could have been issued, from the mere physical impos- 
 sibility of preparing them. But branch drafts do not increase 
 the circulation more than branch notes would." This 
 is true, but the physical impossibility was made known to 
 Congress, when application was made for authority to be 
 given to other persons besides the President and Cashier 
 to sign notes for circulation. 
 
 In answer to a question propounded by Mr. Camber- 
 breleng, " In what manner can a National Bank diminish 
 the circulation of country Banks, with which it has no 
 transactions except by reducing its own circulation ?" the 
 President of the Bank replied, " Very easily and very na- 
 turally. The very increase of the circulation of a National 
 
BANKING FROM 18-29--30 TO 1832-33. 205 
 
 Bank, may be the most efficient cause of the reduction of 
 a State Bank, and in this way, a branch is near a local 
 Bank — the branch notes are more valuable than the local 
 notes — the local notes are exchanged for the branch notes 
 at the branch Bank, which thus becomes the creditor of 
 the local Bank, and makes it pay its debts, and thus 
 reduce its circulation. Now almost all State Banks stand 
 in this relation to the Bank and its branches." 
 
 This is sufficient to show that the embarrasm.ents of 
 182S were produced in part by the conflicts between the 
 United States' Bank and the local Banks for the circula- 
 tion. Encouraged by the success of its experiment, the 
 United States' Bank took measures for extending the ope- 
 rations of its old branches and for establishing new ones. 
 It felt pretty secure in the emission of branch drafts, for 
 they were made payable at a distance of five hundred or a 
 thousand miles from the places in which they were issued, 
 and though receiveable every where inpayment of debts to 
 Government, could at any time be refused to be received 
 in payment of debts due to the Bank. The Bank did, in- 
 deed, and still does, receive these branch drafts on de- 
 posit, at all its offices. This was necessary to give the 
 drafts a general circulation. But if it should at any time 
 become the interest of the Bank not to receive them, it has 
 only to say so, and the merchants will, as they were in 
 1818-19, be denied the privilege of paying debts due to 
 the Bank in the paper of the Bank, A portion of the paper 
 of each of the twenty-five offices, being distributed through 
 each of the twenty-four States, each office may, in case of 
 a " panic" be delivered from the effects of a " run," by a 
 refusal to receive or to discharge any but its own drafts. 
 
 Under these circumstances the Bank increased its 
 issues, and it is evident that after these issues were swelled 
 to a certain amount, they affiarded a basis for new issues 
 by the the State Banks. It is well known that the country 
 Banksof Pennsylvania discount as freely on deposits of Phi- 
 ladelphia notes as on deposits of specie ; for, Philadelphia 
 notes are, they say, " as good to them as specie," or even 
 better, inasmuch as exchange is usually in favor of Phila- 
 delphia. The Banks throughout the Union regard United 
 States' Bank notes and drafts in much the same light as 
 the country Banks of Pennsylvania regard Philadelphia 
 
206 BANKING FROM 1829-30 TO 1832-33. 
 
 paper; because balances are constantly accumulating 
 against them, in the United States' Bank, through that in- 
 stitution's being made the depository of the public funds, 
 and through its many extensive transactions. The opera- 
 ration was briefly this : — local Bank notes which circulated 
 freely only in the neighborhood of the Banks which issued 
 them, were exchanged at the ofBces of the United States' 
 Bank for branch drafts which were made to circulate every 
 where. This diminished the circulation of the State 
 Banks, and increased that of the United States' Bank. 
 The circulation of the Bank of the United States being in- 
 creased, a number of its notes were received by the State 
 Banks, either on deposit or in payment of debts due to 
 them by individuals. The local Banks finding they had on 
 hand a considerable amount of United States' paper, 
 which was " as good to them as specie, or even better," 
 began to issue their own notes more freely. A portion of 
 these were received by the United States' Bank, and the 
 State Banks, on payment being required, satisfied the de- 
 mand with branch drafts. Each extension of the business 
 of the United States' Bank in exchanges, increased its cir- 
 culation of branch drafts, and each increase of branch drafts, 
 after the new mode of operation was fairly established, en- 
 abled the State Banks to increase their issues, by provid- 
 ing them with means to meet such demands against them 
 as might be made by the United States' Bank. 
 
 From the reports made to the Legislature of Pennsylvania 
 in November, 1828, by the various Banks of the State, and 
 by the Bank of Pennsylvania in February 1829, it appears 
 that their circulation then amounted to 7,238,991 dollars, 
 and their deposits to 6,221,037 dollars— total 13,460,028 
 dollars. From similar reports made in November 1831, it 
 appears that their circulation was 8,753,092, and their 
 deposits 7,736,747— total 16,489,839 dollars. This shows 
 an increase in the local Bank medium of Pennsylvania, 
 of three millions of dollars, or about twenty-two per cent, 
 between these dates. 
 
 Mr. Cambreleng states, that, between the 1st of January 
 1830 and the 1st of January 1832, the country Banks in 
 the State of New York had increased their circulation from 
 3,974,345, to 8,022,277 dollars. The increase in 1831, in 
 the circulation of the Banks of New York, Massachusetts, 
 
BANKIPTG FROM 1829-30 TO 1832-33. 207 
 
 Rhode Island and Pennsylvania, not including the Banks 
 of Philadelphia, is estimated by him at eight millions. 
 
 The gross circulation of the Bank of the United States 
 in January 1829, was 13,391,110 dollars, and in January 
 1832 it was 24,630,747 dollars. The net circulation was 
 at the first of these periods, 11,901,656 — at the second it 
 was 21,250,545 dollars. The increase in the net circula- 
 tion was about seventy-eight per cent. 
 
 Other causes besides the new mode of operation adopted 
 by the United States' Bank have contributed to this in- 
 crease of currency. Multitudes of those who were ruined 
 by the events which followed the war, had found relief in 
 death. Others had sought an asylum in the poor-house. 
 The children of others had become old enough to till, as 
 hirelincrs, the farms their fathers once owned. A new 
 generation of business men had come on the stage of ac- 
 tion, and the incidents of 1818-19 were fast fading from 
 the minds of those who were then old enough to be 
 observant of the course of affairs. In such a country as 
 the United States, the silent operations of society work 
 great changes in a period of ten or twenty years. Perni- 
 cious as the Banking system is, it cannot exhaust the natural 
 sources of wealth, or destroy that desire in men to better 
 their condition, which is the main spring of action. The 
 country was more populous and more wealthy than it was 
 at any previous period. It could bear more Banking, and 
 more Banking it was made to bear. 
 
 The combined operations of these causes began to be 
 very visible in their effects in the latter part of 1829, after 
 the embarrassments caused by a pressure in Europe were 
 over. The rise of property on Market street, Philadelphia, 
 was a subject of newspaper boast in November. 
 
 An increase of the trade with Mexico, and a decline of 
 the trade with China, contributed to swell the amount of 
 specie in the country. In 1830, the exports of gold and 
 silver were only 2,178,773 dollars, while the imports were 
 8,155,964. A method adopted by the Bank of the United 
 States, and imitated by private capitalists, of drawing bills 
 on England to be negotiated beyond the Cape of Good 
 Hope, was one of the causes which, in this year, diminish- 
 ed the export of gold and silver. The committee of Coi>- 
 gress say, " this new method of dealing in bills of exchange 
 
208 BANKING FROM 1829-30 TO 1832-33. 
 
 does not economize the specie of the country at all. It is 
 a universal law of drawing, that funds must either go be- 
 fore or follow after the draft to honor it at maturity ; and 
 whether it goes directly or circuitously, the funds to dis- 
 charge it must sooner or later arrive at the place of pay- 
 ment. These bills are to be paid in England, but they go 
 round the Cape of Good Hope before they reach their place 
 of destination. Instead, therefore, of sending the specie 
 directly to India and China, as formerly, who does not per- 
 ceive that it must now be sent to England, the country upon 
 which these bills are drawn, there to meet them upon the 
 arrival at the place where they are to be paid? The Bank 
 consequently becomes the shipper of the specie, to pay its 
 bills, in place of the merchant, to purchase his merchan- 
 dise in the East Indies. It is simply and purely nothing 
 but a change of the destination of the specie, with only the 
 advantage of its going to London. 
 
 " The supplying of bills encourages an operation which 
 commences and ends without the employment of any capi- 
 tal whatever, and is similar in character to respondentia se- 
 curities. The buyer is enabled, within the term of credit, 
 to make the voyage, dispose of his goods, and obtain from 
 the proceeds the funds to meet his obligation, and the Bank 
 to transmit the same to the place upon which the bills are 
 drawn, (which are at six months' sight,) long before they be- 
 come due. It would seem to produce a greater export of 
 specie, eventually, than would otherwise take place, if the 
 operations were commenced with specie, and not with bills 
 purchased in the manner described: for the merchant, re- 
 lying upon his immediate resources, would not engage to 
 such an extent in the business, and would combine in the 
 operation much of the produce of the country, whereas, re- 
 lying upon an extensive credit, he hazards every thing on 
 the success of the enterprize. It is a species of speculation 
 in trade, leading to great risks, and certainly terminating 
 in over-trading — the evils of which the country is now sorely 
 experiencing. By loans of a similar character by insurance 
 companies, providing funds for traders to China, Govern- 
 ment has sustained more loss than in any other branches 
 of trade." 
 
 All this is true enough, but this method of drawing bills 
 to be negotiated beyond the Cape of Good Hope, enables 
 
BANKING FROM 1829-30 TO 1832--33. ' 209 
 
 the Banks to increase their issues, inasmuch as it defers 
 the demand for specie for six months, a year, or longer. It 
 contributed, with other causes, to swell the amount of silver 
 in the vaults of the Banks, in the latter part of 1829, and 
 in 1830, and 1831. 
 
 In March 1830, the Bank of the United States had in 
 its vaults 8,038,246 dollars, which was more than it ever 
 had before. In December, the Banks of the city of New 
 York complained that they had so much specie that they 
 did not know what to do with it. The amount in their 
 vaults was said to be seven millions. 
 
 Throughout 1830 and the greater part of 1831, the Banks 
 generally extended their operations. Money was unusually 
 plenty, and little embarrassment was suffered, except what 
 was produced by the action of the Banks on one another, 
 in their struggle to determine which should circulate most 
 paper. The efTect in Philadelphia was to raise property, in 
 many parts of the town, as high, or nearly as high, as it 
 was during the suspension of specie payments. Great part 
 of Market street was rebuilt with elegant stores. Rents 
 rose enormously in business places. The trade with the 
 Western country was increased greatly ; and speculation 
 showed its activity in a variety of forms. In aln)ost every 
 part of the country, the same effects were observable, in 
 either a greater or a less degree. 
 
 This continued till October, 1831, when " an active de- 
 mand for money" began, the consequences of which have 
 since been felt in various parts of the country in various 
 forms. 
 
 The President of the United States' Bank, in a letter 
 dated April IGth, 1832, addressed to Mr. Clayton, the chair- 
 man of the committee of Congress, gives the following ac- 
 count of the state of affairs : 
 
 " In addition to the business of domestic exchange, the 
 amount of local loans has increased, owing to the greater 
 demand for the use of money during the last year, and the 
 conversion into the more active form of business of the 
 stocks repaid by Government to the Bank. The first grew 
 naturally out of the state of trade. For eighteen months, 
 the want of employment for capital, and the derangement 
 of industry arising from political and other causes, rendered 
 money very abundant in France and England, the two 
 
 T 
 
210 BAXKIXG FROM 1829--30 TO 1832-33. 
 
 countries whose situation so much influences our own, and 
 produced a correspondintr ease and plenty in the United 
 States, while at the same time, the disturbed state of Eu- 
 rope, and the Cholera which interposed new obstacles to 
 trade, with certain parts of it, naturally directed the manu- 
 facturers of England and France to this country, which is by 
 far the best and safest markets for their productions. These 
 circumstances occasioned, during the past twelve months, 
 an unusual importation of foreign merchandise. While the 
 treatment of this temporary commercial disease was in pro- 
 gress, the sufferers naturally looked for the cause of it every 
 where but in themselves, and the Bank was reproached 
 with having contributed to occasion the importations. With- 
 out going into detail, one single fact is quite decisive on 
 this subject. It will be seen from the following oflicial 
 statement, marked B, that the large importations last year 
 began with the month of April, and of course they must 
 have been founded, so far back as the Bank was concerned, 
 on the state of things in this country a month or two pre- 
 vious, say the month of March last. Now, it will be seen 
 from the'state of the Bank before the committee, that, for 
 nearly two years before the month of March last, (1831,) 
 the local discounts of the Bank had undergone no percep- 
 tible increase— those for July 1S29 being 634,196,000, 
 and those for March 1S31 being $34,2-^0,000, an increase 
 within that period of only 24,000 dollars." 
 
 This does not appear to be a correct mode of viewing 
 the subject. The exchange dealings of the Bank ought to 
 be taken into consideration as well as the local discounts. 
 They contribute quite as much to credit traffic. It is 
 throuCTh them the Bank is able to circulate its branch drafts. 
 The arrival of these branch drafts in the great Atlantic ci- 
 ties, is, as the President of the Bank has stated elsewhere, 
 " the signal of relief to the southern and western traders." 
 The receipt of them at tiie office at \ew York, was near- 
 ly twelve millions in the year 1828, and upwards of eleven 
 millions in 1829. The receipt of them at Philadelphia, 
 and at the three offices of New York, Baltimore, and Bos- 
 ton, amounted to upwards of thirty-seven million dollars, 
 in the two years of 1828 and 1829. It is with these branch 
 drafts that the southern and western merchants pay for fo- 
 rciffu merchandise. It is with tliese the importer pays the 
 
 •t3 
 
BAN RING FROM 1829-30 TO 1832-33. 211 
 
 duties to the Government. Nothing, therefore, can con- 
 tribute more efficiently to an increase of imports. 
 
 " The large importations must have been founded, so far 
 as the Bank was concerned, on the state of things in this 
 country a month or two previous." This is unquestiona- 
 ble, and the state of things in this country was then affect- 
 ed by the new system of operations begun by the Bank in 
 1827. Between the two dates mentioned in the extract, 
 the net circulation of the United Sates' Bank was increased 
 from 13,780,847 to 10,933,122, or about twenty-two per 
 cent., and though the increase in the circulation of the lo- 
 cal Banks may not have been in the same proportion, there 
 is reason to believe it was considerable. It may be admit- 
 ted that the state of trade in Europe, and, perhaps, the Cho- 
 lera, tended to swell the importations, but any disposition 
 to over-trading thereby induced, would, if we had been with- 
 out moneyed corporations and without paper money, soon 
 have been checked by the necessity of paying cash, or at 
 least making engagements to pay in specie. — The Presi- 
 dent of the Bank proceeds as follows : 
 
 " Without having contributed to produce them, the Bank 
 found, about nine months ago, large importations, requiring 
 for their diffusion through the country, increased facilities 
 connected with Banking : having the means of giving them, 
 — being in fact created for the purpose of giving them — it 
 gave them ; it had the means of giving, because, in the 
 early part of the year, it had been strengthened for busi- 
 ness, purposely, by the addition of two millions of its funds 
 in Europe transferred home, by the repayment of about ten 
 millions of the funded debt paid back by Government since 
 October, 1830, making an increase of active means amount- 
 ing to twelve millions. When, in the progress of a few 
 months, the continuance of these importations, and the re- 
 venue which had accrued on them, produced an effect jn 
 the actual state of the market, the Bank applied itself im- 
 mediately to correct any disadvantages from it to the com- 
 munity. The actual position of things was simply this : 
 There were large importations requiring means of remit- 
 tance to Europe to pay for them : there were large amounts 
 of revenue to Government, amounting in New York alone, 
 from March 1831, to March 1832, to nearly seventeen 
 million dollars, requiring great forbearance towards the 
 
212 BANKING FROM 1829-30 TO 1832-33. 
 
 debtors. In the mean time, the southern produce, which 
 furnishes the greater part of the means to pay for these im- 
 portations, was, owing to a great variety of causes, the state 
 of the crops and the weather, unusually late in appearing. 
 This, therefore, was the condition of the country : an unu- 
 sual importation, an unusual amount of debts payable to 
 Government, and an unusual delay in receiving the ordi- 
 nary means of meeting these demands. Undoubtedly, if 
 the Bank had chosen to adopt such a course, it would have 
 been easy, by an immediate diminution of its loans, to place 
 itself out of the reach of all inconvenience, but it would, 
 at the same time, have inflicted very deep wounds on the 
 community, and seriously endangered the revenue of Go- 
 vernment. These exertions of mere power have no attrac- 
 tion, and it was deemed a far wiser policy to deal with the 
 utmost gentleness to the commercial community, to avoid 
 all shocks, to abstain from countenancing all exaggerations 
 and alarms, but to stand quietly by, and assist, if necessa- 
 ry, the operations of nature and "the laws of trade, which 
 can always correct their own transient excesses. Accord- 
 ingly, the whole policy of the Bank for the last six months, 
 [preceding April IGth, 1832,] has been exclusively pro- 
 tective and conservative, calculated to mitigate suffering, 
 and yet avert danger. The point where these importations 
 occurred, and where the revenue was payable, was New 
 York. The whole force of the institution was, therefore, di- 
 rected to strengthen that place, and the distant branches 
 were directed to avoid incommodingr it, and the xitlantic 
 branches near to it, by drafts upon them, but to pay their 
 balances to them with as little delay as the convenience of 
 their respective localities would permit. This is the whole 
 policy of the Bank for the last six months. It will be seen, 
 therefore, that, without a diminution, there has been an ac- 
 tual increase of business in New York, and a large increase 
 of the domestic bills of the branches: the increase in New 
 York being for the purpose of protecting the interest there, 
 and the increase of the hills being the remittances from the 
 West and South to sustain New York and the southern At- 
 lantic branches. In the mean time the Bank, out of its 
 own accumulations, and its own credits in Europe, supplied, 
 since the first of September last, the means of remittances 
 in its own bills to the amount of §5,295,746 52, and part- 
 
BANKING FROM 1329-30 TO 1832-33. ■ 213 
 
 ed with its surplus specie to the amount of 5,000,000, 
 making an aggregate contribution to the commerce of the 
 country of 810,295,746 52." 
 
 The letters from the Cashier of the Bank at Philadelphia 
 to the cashiers of the branches, in the months of October, 
 November, December, January, and February, 1831-32, 
 exhibit a remarkable example of the manner in which the 
 operations of the Bank " assist the operations of nature, 
 and the laws of trade, which can always correct their own 
 transient excesses." The general directions to the cashiers 
 were to shape their business, not according to the natural 
 demands of trade in their immediate vicinity, but accord- 
 ing to the special demands of the Bank in New York, and 
 other Atlantic cities. They were to withhold local accom- 
 modations, and to purchase bills of exchange on particular 
 places, thus increasing facilities to one class of dealers, and 
 denying them to others, when it was as likely as not that 
 regard to the interests of the community in the neighbor- 
 hood of the offices would have required an increase of local 
 discounts and a diminution of exchange dealings, or ex- 
 change dealings of a different character from those which 
 were ordered. It may be doubted if any Board of men 
 sitting in Philadelphia, is able to direct money operations, 
 in many and remote parts of the Union, without inflicting 
 injury on the community, especially when that same Board 
 has on its shoulders the adtlitional burden of regulating the 
 foreign exchanges of the country. It may be doubted if 
 the discretion of any Board, however scientific and how- 
 ever experienced, is an andequate substitute for " those 
 operations of nature and laws of trade," which, if left to 
 themselves, " can always correct their own transient ex- 
 cesses." 
 
 The reduction of accommodations at the Bank in Phila- 
 delphia, between the 5th of January and the 29th of March, 
 1832, was $1,810,408 37, including both promissory notes 
 and bills of exchange ; at the offices at Boston, between the 
 5th day of January and the 29th of March, it was $167,- 
 860 85, on a discount line of less than two and a half mil- 
 lion dollars ; and at the office at Baltimore, between the 
 16th of January and the 2d of April, it was $123,741 63, 
 on a discount line of little more than two million dollars. 
 At the office at New York, the local discounts were, as 
 T t 
 
214 • BAVKING FROM 1629-30 TO 1832-33. 
 
 Mr. Bidille states, increased, but the dealings in exchange 
 were diminished, so that the actual reduction of commer- 
 cial accommodations at that office, was $259,305 43, be- 
 tween the 4th day of January and the 28th day of March, 
 At the Bank in Philadelphia, the reduction between the 
 5th of January and the oth of April, fell a little short of 
 twenty per cent, of the whole amount of accommodations. 
 It appears, from a letter of the Cashier of the Bank in 
 Philadelphia, dated November 24th, 1831, that the orders 
 issued in October were, at some of the Western offices, 
 " unfortunately misunderstood. At some of them, our 
 Cashiers ceased checking altogether upon Philadelphia and 
 New York, and at Nashville the Board refused very large 
 amounts of prime bills upon your city, (New Orleans,) and 
 have thus dried up a few of the rills by which the stream 
 of exchange would have been swelled in its course towards 
 you and thence to us." Thus, it seems, that, in addition 
 to the evils to which the country is exposed from the at- 
 tempts of the Board at Philadelphia to control the whole 
 course of foreign and domestic exchanges, and through 
 them the whole train of commercial operations — attempts 
 which, from the imperfection of human nature, must neces- 
 sarily be productive of evil — we are exposed to other evils 
 from the officers of distant branches misunderstanding di- 
 rections. 
 
 Explanations of the orders of the Bank were then given 
 to such of the branches as had misapprehended them, and 
 it must be stated, in justice to the Cashiers of the Southern 
 and Western offices, that they obeyed orders so well, that, 
 though there was a reduction of dealings to the extent of 
 two millions and a half at Philadelphia, New York, Bos- 
 ton, and Baltimore, there was an increase between Oc- 
 tober 1831, and March 1832, of more than a million in 
 the net circulation of the Bank, of more than six millions 
 in the bills of exchange, and of more than eight millions in 
 the total of discounts and bills. 
 
 The Bank perceived in February that it was necessary 
 to change its policy, for branch drafts came from the South 
 and West in such (juantities into the great Atlantic cities, 
 as to threaten difficulties of another nature. Orders were 
 then issued to the branches to keep down their business, 
 as well in bills of exchange as in local discounts. Notwith- 
 
BANKING FROM 1829-30 TO 1832--33. 215 
 
 standing this direction, the bills of exchange were, by May, 
 increased to twenty-three millions, and the aggregate of 
 discounts and bills to seventy millions. 
 
 The immediate causes assigned for the movement in Oc- 
 tober, were directions from Government to pay off six or 
 seven millions of the public debt. Orders to pay off a 
 small additional amount, only one million and three quar- 
 ters, in April, are specially mentioned, in the instructions 
 given to the southern and western branches, why they 
 should shape their business so as to assist the principal of- 
 fices in the Atlantic cities. If the Government had been 
 willing to leave the national debt unpaid, and to suffer the 
 Bank to have the public funds to trade upon, it would, per- 
 haps, have kept on expanding. But the Government was, 
 very properly, desirous of discharging the national debt 
 while it had the means : and expressed a wish in March, to 
 pay off in July one half of the three per cents. This ren- 
 dered necessary a new movement on the part of the Bank, 
 which is thus related by its chief officer. 
 
 •' I received a letter from the acting Secretary of the 
 Treasury, dated the 24th of March, 1832, informing me 
 that the Government was about to issue a notice on the 1st 
 of April, of their intention to pay on the 1st of July next, 
 one-half of the three per cent, stock, and to do it by pay- 
 ing to each stockholder one-half the amount of his certi- 
 ficate. He added, ' If any objection occurs to you, either 
 as to the amount, or as to the mode of payment, I will thank 
 you to suggest it.' 
 
 " Thus invited by the Government, in a communication 
 marked ' confidential,' to give my opinion on a measure 
 contemplated by the Government, I felt it my duty to ex- 
 press my views of its probable operation. In my reply, 
 therefore, dated the 29th of March, I stated, ' that so far 
 as the Bank is concerned no objection occurs to me, it 
 being sufficient that tho Government has the necessary 
 amount of funds in the Bank to make the contemplated 
 payment.' I then proceeded to observe, that in the present 
 situation of the mercantile community, and with a very 
 large amount of revenue, [amounting to nine millions,] to 
 be paid before the 1st of July, the debtors of the Govern- 
 ment would require all the forbearance and all the aid 
 which could be given to them ; and that the payment pro- 
 
216 BAXKIXG FROM 1629-30 TO 1832-33. 
 
 posed, by creating a demand for the remittance of several 
 million dollars to the European stockholders, would tend to 
 diminish the usual facilities to the debtors of the Govern- 
 ment, and might endanger the punctual payment. For 
 this reason, I thought it for the interest of the Government 
 to postpone the payment till the next quarter. 
 
 " After weighing the circumstances, the Government 
 was desirous of adopting the measure ; but the difficulty I 
 understood to be this, that the sinking fund would lose the 
 quarter's interest, from July to October, of the sum intended 
 lo be paid in July, and that the Government did not feel 
 itself justified in making the postponement, unless that in- 
 terest could be saved ; but that it would be made, provided 
 the Bank would make the sinking fund whole on the 1st 
 
 o 
 
 of October. To this I said, that, as the Bank would have 
 the use of the fifnd during the three months, it would con- 
 sent to save the sinking fund harmless, by paying the three 
 months' interest itself And so the matter stands." 
 
 It was not long, however, before the Bank discovered 
 that it would be as inconvenient to pay the European stock- 
 holders in October, as to pay them in July. One of the 
 directors then made a voyage to Europe, and an arrange- 
 ment was made through the medium of a private Banker 
 in London, by which the reimbursement of a portion of 
 the three per cents, was deferred for a further period. 
 
 It is thus by means of its credit w ith Government, and its 
 credit in Europe, that the Bank has sustained itself during 
 the last six months. And it is well for the community that 
 the Bank enjoys this credit. From the accounts recently 
 published, it appears that its circulation was reduced, from 
 March to November, more than twenty per cent. A fur- 
 ther diminution would, by is operation on the local Banks, 
 have added greatly to the sufferings which the commercial 
 community endured during the last year. If we except 
 the real estate held by the Bank and the specie in 
 its vaults, all its capital and all its credit may be regarded 
 as invested in promissory notes and bills of exchange, and 
 it cannot pay to the public creditors the funds entrusted 
 to it for that purpose, without making a reduction of com- 
 mercial accommodations in a corresponding amount. The 
 reduction during the past year was quite as great as the 
 community could bear ; and though the Government has 
 
BANKING FROM 1829-30 TO 1832-33. 217 
 
 just cause of complaint, inasmuch as the sinking fund was 
 not made whole on the 1st of October, according to agree- 
 ment, it ought, perhaps, not to be very severe in its judg- 
 ment, as an attempt to fulfil the contract literally, would 
 have occasioned a great pressure on the people. 
 
 The President of the Bank said, in his letter to Mr. 
 Clayton in April 183-2, speaking of the plan of operation 
 adopted in October IS31, " This has given time for the 
 operations of the laws of trade : the country is recovering 
 from the temporary inconvenience; the over-stocked market, 
 by checking prices, has checked farther importations ; the 
 southern crop so long delayed, is coming forward ; the ex- 
 portation of specie has ceased ; the importations of specie, 
 postponed by the troubles of Mexico, are resumed ; and in 
 a short time, the whole operation will rectify itself" 
 
 The inconvenience has, however, continued to the pre- 
 sent day, and if a man of Mr. Biddle's great powers of 
 mind, still thinks the embarrassments of the people are 
 such as spring only from " vibrations of trade," having 
 their origin in natural causes, and that they are in no way 
 increased by Banking operations, it must be that his situa- 
 tion at the head of the Banking system, has an influence 
 on his judgment. He speaks of its being natural for men 
 to look for the cause of their sufferings every where but in 
 themselves. With equal truth it may be affirmed that 
 statesmen, and men whose situation gives them the power 
 of statesmen, are apt to attribute the sufferings of the com- 
 munity to any cause but their own measures. 
 
 If it should still be denied that the operations of the 
 United States' Bank in particular, and of the local Banks 
 in general, contributed to that state of things which led to 
 the excessive importations in the spring of 1831, it must 
 be admitted that the subsequent measures of the Banks 
 have contributed to produce the heavier importations of 
 1832. It would be very illogical to argue that the " Cho- 
 lera," when it visits the north of Europe, forces trade 
 from it, and that when it visits the United States, it brings 
 an increase of trade along with it. There must be some 
 other cause than the " Cholera" for the excessive importa- 
 tions of the last year. Mr. Biddle, in the essay he pub- 
 lished in 1828, pointed out very clearly the manner in 
 which over-banking leads to over-trading. 
 
218 BANKING FROM 1829-30 TO 1832-33. 
 
 Id October 1829, the statements of the United States' 
 Bank showed a total of discounts and bills of exchange 
 of 839,960,052, and in May 1832, a total of $70,428,070. 
 In the short period of two years and seven months, there 
 was an increase of 830,068,018 in the accommodations the 
 Bank afforded to dealers. At the same time the local 
 Banks expanded ; and if such causes will not affect trade, 
 it is hard to say what will. 
 
 The present amount of currency would be redundant, if 
 over-bankinor had not induced over-tradinar. But in the 
 present condition of things, men cannot, notwithstanding 
 the abundance of paper money, meet their engagements 
 with ease ; and their embarrassments are, at particular times 
 and particular places, increased by the action of the Banks 
 on one another, and by a system of exchange dealings in 
 which the interests of the community in one town or in 
 one State, are made subordinate to the interest of a Bank- 
 ing office, perhaps five hundred or a thousand miles dis- 
 tant. 
 
 Such consequences are inseparable from the present sys- 
 tem, and must not be ascribed to faults in the men who ma- 
 nage it. Under another President and another Board of Di- 
 rectors, the Bank of the United States might not have com- 
 mitted precisely the same faults, but perhaps it would have 
 committed faults which would have inflicted still greater 
 evils on the community. A President and Board of Direc- 
 tors who would refuse to take the ineasures necessary to 
 raise the rate of dividends and the price of shares as high 
 as possible, would be very unpopular with the stockholders, 
 and would, probably, soon be dismissed from their official 
 stations. 
 
 If the State Banks were made the depositories of the 
 public funds, and if their notes were made receivable in 
 payment of duties, the evils of the system would be in- 
 creased. 
 
 If the Government should, after the expiration of the pre- 
 sent charter of tlie United States' Bank, resolutely refuse 
 to receive any thing but gold and silver in payment of debts, 
 and also refuse to employ any Bunk as an agent in its fiscal 
 operations, the evils of the system would be greatly dimi- 
 nished. 
 
BAXKIXG OPERATIONS AT DIFFEREXT PERIODS. 219 
 
 CHAPTER XXIII. 
 
 Extent of Banking Operations at Different Periods. 
 
 For many years a veil of mystery was thrown over the 
 operations of the Banks. Mr. Bland, a member of Con- 
 gress from Maryland, in a speech made previous to the 
 dissolution of tlie old Bank of the United States, said, 
 "The nature of the loans, the deposits, and all the bargains, 
 dealings, and contrivances, between the Government and 
 the Bank, are wholly invisible to th.e public." 
 
 Dr. Bellman, who undertook the defence of the Bank, 
 after mentioning that the nature of Banking operations 
 was but little understood, spoke of " an idea prevailing 
 with those whom curiosity and a turn for research has led 
 to investigate the subject more deeply, that the interest of 
 of these institutions, as well as their usefulness, required 
 the preservation of what they deem salutary prejudices 
 concerning them." The Doctor justified such revelations 
 as he made by the necessity of the case. 
 
 "I have labored," says Mr. Carey, who was embark- 
 ed in the same cause, " under a most discouraging des- 
 titution of materials. Those whose province it was to 
 furnish them, have most cautiously forborne from the com- 
 munication, in the most extraordinary manner." 
 
 In another sentence he says, " The obligation of se- 
 crecy in Banking transactions, precludes a writer who un- 
 dertakes the defence of such an institution, from many of 
 the most important data, on which his reasoning may de- 
 pend. * * * Were I possessed of a statement of the 
 specie in the dilTerent Banks of Philadelphia — and were 
 it proper to disclose it." 
 
 For many years this veil of mystery was not removed ; 
 if, indeed, it can now be said to be removed. " I have 
 found " said ' A Frienly Monitor,' writing in 1819, " con- 
 siderable embarrassment in obtaining the most simple in- 
 formation in relation to the Bank (i. e. the present Bank 
 of the United States.) If I ask a director, the seal of his 
 finger is significantly impressed on his lips. There is a 
 species of masonry in Banking which to a certain extent 
 is highly proper and necessary. It implies a mutual pledge 
 
220 BANKING OPERATIONS AT DIFFERENT PERIODS. 
 
 among the directors, that nothing shall be divulged which 
 may be prejudicial to the interests of the Bank." 
 
 Before the suspension of specie payments, no regular 
 returns were received by the Legislature of Pennsylvania 
 from the Banks in this Commonwealth. Since that time, 
 accounts have been published annually : but as the Bank 
 of Pennsylvania and the Bank of North America have in 
 many years made no returns, it is impossible to give a gene- 
 ral table from which indisputable conclusions might be 
 drawn. 
 
 In some of the other States, the difficulty of obtaining 
 satisfactory accounts of the extent of Bank operations, is 
 more difficult than in Pennsylvania. During the great 
 excitement of 1818-19, Mr. Niles made an effort to col- 
 lect information respecting all the Banks then in existence ; 
 but, though his correspondence was very extensive, he 
 does not appear to have succeeded in his object ; for the 
 tables which he gave notice of his intention of publishing, 
 do not appear in his Register. 
 
 In 1820, Mr. Crawford, who was then Secretary of the 
 Treasury, made a report on the state of currency, in con- 
 nexion with which he gave a table intended to show the 
 amount of capital paid in, the notes in circulation, the pub- 
 lic and private deposits, and the specie in tlie Banks in 
 1319. Mr. Niles, on publishing the table said, " it will 
 be seen the preceding returns are very imperfect — as, for 
 instance, the capital paid in, in Maryland is given at 86,290, 
 whereas it is nearly eight millions of dollars. Several of 
 the other items I know, from various documents in my 
 possession, are pretty nearly correct ; yet some are also 
 much deficient." 
 
 ]Mr. Gallatin, who was for many years Secretary of the 
 Treasury, published in 1831, " Considerations on the Cur- 
 rency and Banking System of the United States." A 
 comparison of his estimates with those of Mr. Crawford, 
 will show the difficulty there is in arriving at a satisfactory 
 conclusion. 
 
 Mr. Crawford's estimate of the amount of notes in cir- 
 culation, is as follows: 
 
 1813, - - - - i?Gi2.000,000 
 
 1815, - - - . IIO.OOO.OOO 
 
 1819, - . - . 45,000,()U0 
 
BANKING OPERATIONS AT DIFFERENT PERIODS. 221 
 
 Mr. Gallatin's estimate is as follows : 
 
 1811, - - - - $28,000,000 
 
 1815, - . - . 45,000,000 
 
 1816, - - - • - 68,000,000 
 1820, .... 44,863,349 
 1830, .... 61,323,898 
 
 Mr. Gallatin appears to have had more data than Mr. 
 Crawford, but still his tables are so imperfect that variations 
 of from 5 to 25 per cent, may take place in the amount of 
 currency, which they afford no means of ascertaining. 
 
 To collect and arrange the accounts of five or six hun- 
 dred Banks which are, or which have been, scattered 
 through twenty-four States and two or three Territories, 
 would be no easy task. 
 
 If we had all these accounts collected and arranged to 
 our hand, a question might arise as to the sense in which 
 they should be understood. There is an ambiguity in 
 many Bank statements which renders them useless. The 
 word " cash" under the pens of some Bank officers, con- 
 tracts and expands its meaning with as much facility as 
 Bank medium contracts and expands its amount. Some- 
 times it includes " mint certificates," because cash can 
 be got for them in the market. Sometimes, in the case of 
 a country Bank, it includes city Bank notes, because they 
 are to the country Bank " as good as cash." Sometimes 
 cash and " bills of exchange" are given together. 
 
 If all ambiguity were removed from Bank statements, 
 another question might arise, and that is, how far they are 
 to be depended upon. We have seen a committee of the 
 Legislature of North Carolina accusing one of the Banks 
 of that State of rendering a false account of the amount of 
 specie in its vaults : and a committee of the Legislature of 
 Connecticut accusing one of the Banks of that State of ren- 
 dering a false account of the amount of notes in circula- 
 tion. 
 
 No doubt, the accounts of many Banks are fairly render- 
 ed, but it is impossible, in a general view of the subject, to 
 say how many Bank returns are fiiithful and how many are 
 not. There may be a literal exactness in the returns, and 
 yet some fact may be suppressed, which, if generally 
 known, might entirely change the impression the public 
 u 
 
222 BAXKIXG OPERATIONS AT DIFFERENT PERIODS. 
 
 receives from a Bank statement. " I could," says a writer 
 in a Porlsmouth, New Hampshire, paper, " name more 
 than one Bank in this State, where a considerable portion 
 of the debts mentioned in the return, were worth nothing ; 
 and much of the specie was borrowed from individuals or 
 Banks, laid in the vaults those two days, and then returned 
 to the owners with the seals unbroken." The author of 
 a pamphlet published at New York, in 1828, entitled a 
 " Peep into the Banks," objected to a new law of that 
 State, requiring the Banks to make semi-annual returns of 
 the amount of specie in their vaults, for the following rea- 
 sons. " It is well known, that institutions which, hereto- 
 fore, have been required to make these exhibitions, have 
 prepared, previous to the period of making them, to present 
 as favorable statements as possible. If all the Banks in the 
 State are to do so, it will produce a semi-annual pressure 
 for monev. Paper, payable a short time previous to these 
 periods, will be discounted freely, when a general curtail- 
 ment will be made. The notes and bills payable out of the 
 State, will obtain a preference, that thereby funds of 
 specie, in Philadelphia, Boston, «Soc., may be made for a 
 few days the property of Banks in this State. In this and 
 other contrivances, the officers will be employed to make a 
 a display of that which has no permanent existence." 
 
 There is another question. Do even the directors know, 
 in all cases, what is the exact state of a Bank ? — There 
 are not in the city and county of Philadelphia, any men 
 more astute in what regards their own interests, than some 
 of the Directors of the Bank of the Northern Liberties ; yet 
 a sum equivalent to the whole capital of the Bank, was 
 taken from it by some of its clerks and their coadjutors out 
 of doors, without any of the Directors, the President, or 
 Cashier, being aware of the fact. The case of the City 
 Bank of Baltimore, was still more remarkable. It had 
 what was called a " solid" capital of 800,000 or 900,000 
 dollars, and its credit was good. But, about the time Mr. 
 M'Culloh was removed from the cashiership of the Uni- 
 ted States' branch, the Cashier of the City Bank found it ne- 
 cessary to resign. An investigation was then made by a com- 
 mittee of the stockholders, and it .was found that all the 
 persons employed in the Bank, with the exception of one 
 clerk and the porter, had made free with its funds. The 
 
BANKING OPERATIONS AT DIFFERENT PERIODS. 223 
 
 over-drafts of the Cashier amounted to $160,548 85 : those 
 of his particular friend to 185,382 dollars ; those of one 
 clerk to about 30,000 dollars ; those of a second clerk to 
 $15,082 70 ; and those of a third clerk to 86,324 99 * 
 
 It is to be hoped that most Bank officers are every way 
 worthy of the trust reposed in them ; but even then we 
 cannot be sure of the accuracy of their accounts. As is 
 remarked by Governor Wolcott, " The stations of Presi- 
 dent, Cashier, Teller and Book-keeper, are incompatible, 
 and yet some two or more of them are united in the same 
 persons, contrary to established maxims of accountability, 
 prudence, and even justice to the individuals who are so 
 entrusted. If, at the close of the hours of business in every 
 day, full accounts of all the funds issued and of securities 
 obtained and discharged, are not immediately stated, their 
 accuracy ascertained, and their results extended into re- 
 cords, which are regularly continued, by persons whose 
 peculiar duty it is to note all these facts, according to 
 established forms ; then the transactions of different days 
 will be blended, and soon all individual responsibility will 
 be irrecoverably lost." 
 
 While so much obscurity and so much uncertainty hanors 
 over Bank accounts, the reader will be content with a 
 mere abstract of the tables and statements of Mr. Gallatin. 
 We have been for seven years collecting the accounts of 
 the Banks, but so little success has crowned the labors of 
 Mr. Crawford, Mr. Gallatin, and Mr. Niles, that we do not 
 think it worth while to arrange our own materials. 
 
 Number of Banks in operation at different periods, and number of 
 Banks that failed or discontinued business, from 1st January 1811, 
 to 1st January 1830. 
 
 1811. 1815. 1816. 1820. 1830. ^^,f|'/' 
 
 Massachusetts, 
 
 15 
 
 21 
 
 26 
 
 28 
 
 66 
 
 6 
 
 Maine, - 
 
 6 
 
 8 
 
 14 
 
 15 
 
 18 
 
 8 
 
 New Hampshire, - 
 
 8 
 
 10 
 
 10 
 
 10 
 
 18 
 
 2 
 
 Vermont, 
 
 
 
 
 1 
 
 10 
 
 
 Rhode Island, 
 
 13 
 
 14 
 
 16 
 
 30 
 
 47 
 
 1 
 
 Connecticut, - 
 
 5 
 
 10 
 
 10 
 
 8 
 
 13 
 
 2 
 
 New York, - 
 
 8 
 
 26 
 
 27 
 
 33 
 
 37 
 
 10 
 
 New Jersey, __ - 
 
 3 
 
 1] 
 
 11 
 
 14 
 
 18 
 
 7 
 
 Pennsylvania, 
 
 4 
 
 42 
 
 43 
 
 36 
 
 33 
 
 16 
 
 Delaware, 
 
 
 5 
 
 5 
 
 6 
 
 6 
 
 1 
 
 Niles' Register, October 30th, 1819, 
 
224 BANKING OPERATIONS AT DIFFERENT PERIODS. 
 
 
 
 
 1811. 
 
 1815. 
 
 1816. 
 
 1820. 
 
 1830. 
 
 Broken 
 Banks. 
 
 Maryland, 
 
 - 
 
 - 
 
 6 
 
 17 
 
 20 
 
 14 
 
 13 
 
 9 
 
 District of C 
 
 oluDT 
 
 bia, 
 
 4 
 
 10 
 
 10 
 
 13 
 
 9 
 
 4 
 
 Virginia, 
 
 - 
 
 - 
 
 1 
 
 4 
 
 12 
 
 4 
 
 4 
 
 10 
 
 North Carol 
 
 ina, 
 
 - 
 
 3 
 
 3 
 
 3 
 
 3 
 
 3 
 
 2 
 
 South Caro 
 
 ina, 
 
 - 
 
 4 
 
 5 
 
 5 
 
 5 
 
 5 
 
 
 Georg;ia, 
 
 - 
 
 - 
 
 1 
 
 - 2 
 
 3 
 
 4 
 
 y 
 
 1 
 
 Louisiaua, 
 
 - 
 
 . 
 
 1 
 
 3 
 
 3 
 
 4 
 
 4 
 
 2 
 
 Alabama, 
 
 - 
 
 - 
 
 
 
 
 3 
 
 2 
 
 3 
 
 Mississippi, 
 
 - 
 
 - 
 
 
 1 
 
 1 
 
 1 
 
 1 
 
 
 Tennessee, 
 
 - 
 
 . 
 
 1 
 
 2 
 
 4 
 
 8 
 
 1 
 
 9* 
 
 Kentucky, 
 
 - 
 
 - 
 
 1 
 
 2 
 
 2 
 
 42 
 
 
 43 
 
 Ohio, - 
 
 - 
 
 - 
 
 4 
 
 12 
 
 21 
 
 20 
 
 11 
 
 20 
 
 Indiana, 
 
 - 
 
 - 
 
 
 
 
 2 
 
 
 2 
 
 liiinois, - 
 
 - 
 
 - 
 
 
 
 
 2 
 
 
 2 
 
 Missouri, 
 
 - 
 
 - 
 
 
 
 
 1 
 
 
 2 
 
 Michigan, 
 
 - 
 
 - 
 
 
 
 
 
 1 
 
 1 
 
 Florida, 
 
 - 
 
 - 
 
 
 
 
 
 1 
 
 
 88 208 246 307 330 165 
 We have another list, which contains the names of twen- 
 ty-eight broken Banks not mentioned in Mr. Gallatin's ta- 
 ble, viz. one in Massachusetts, one in Maine, three in New 
 York, three in Pennsylvania, one in Delaware, one in the 
 District of Columbia, two in Virginia, one in Georgia, four 
 in Kentucky, eight in Ohio, one in Indiana, one in Illinois, 
 and one in Michigan. Even this, however, does not ap- 
 pear to be complete. No. list has yet been published of the 
 number of Banks in operation in the first six months of 
 1818, which was the time the mania reached its height; 
 and Mr. Gallatin, with all his industry, has not been able 
 to give a complete list of all the Banks which were in ope- 
 ration in the years mentioned in the above table. There 
 were, for example, two if not three Banks in Missouri in 
 the year 1820. 
 
 Mr. Gallatin's estimate of the capital of the Banks, the 
 notes in circulation, and specie in their vaults, at different 
 periods, is as follows : 
 
 Capital. Circulation. Specie. 
 
 1st. Jan. 1811, - 52.010,001 28,100,000 15,400,000 
 
 1815, -. 82,259,.')90 45,.500,000 17,000,000 
 
 1816, - 89,822,422 68,000,000 19,000,000 
 1820, - 137,110,011 44,863,344 19,820,240 
 1830, - 145,192,268 01,323,898 22,114,917 
 
 ** Iiicludini' five Branches. 
 
BANKING OPERATIONS AT DIFFERENT PERIODS. 225 
 
 In making these estimates, Mr. Gallatin was forced to 
 gttess at the amount of specie possessed by, and the amount 
 of notes circulated by, thirty-eight Banks in 1811, eighty- 
 eight Banks in 1815, one hundred and twelve Banks in 
 1816, ninety-five Banks in 1820, and forty-nine Banks in 
 1830. Where he had returns they were not all of the same 
 dates, and in some years the returns were from but little 
 more than half the whole number of Banks. After all, his 
 guesses may be as near the truth as some Bank state- 
 ments. 
 
 Nothing is more certain than political economy. Nothing 
 is more uncertain than political arithmetic. 
 
 Bank statements, taken by themselves, are too vague to 
 be made the basis of an argument. We have, however, 
 throughout this book, received them without dispute, be- 
 cause we believed them to approximate sufficiently near the 
 truth to serve the purposes of illustration. Abstract signs 
 would, if generally understood, answer the same end. 
 Bank statements may be used with this view, though, taking 
 them in the aggregate, they may not be worthy of implicit 
 confidence. That the Banks should make such reports as 
 will place their operations in the most favorable light, is 
 natural. 
 
 If any think differently, and are disposed to reason a 
 priori with Bank statements for their basis, we hope they 
 will avoid the error of some modern writers, who have 
 represented an increase of some eight or ten millions in 
 the circulation of a single Bank in a year or two as quite 
 gradual and moderate. If Mr. Gallatin is correct in his 
 conjecture, that the whole amount of medium, Bank notes, 
 Bank credits, and specie in circulation, is but one hun- 
 dred and ten or one hundred and twenty millions, an in- 
 crease of ten or twelve, or fifteen per cent., in one of these 
 components of the currency, must have a very considera- 
 ble effect on prices. This able writer is confident that the 
 amount of notes in circulation did not exceed thirty mil- 
 lions in 1811, forty-seven millions in 1815, and seventy 
 millions in 1816 : yet this he thinks, and he probably thinks 
 justly, is quite sufficient to account for the depreciation of 
 the currency. He agrees with Mr. Crawford in the opi- 
 nion that the notes in circulation were not reduced to a 
 less amount than forty-five millions in 1820 : yet his judg- 
 u u 
 
226 BANKING OPERATIONS AT DIFFERENT PERIODS. 
 
 nient is, that the numerous failures which preceeded the 
 year 1819. or which have since taken place, have been 
 principally owing to the operations of the Banks. 
 
 Full and correct accounts of the amount of notes in 
 circulation, and of the amount of deposits, would gratify curi- 
 osity : but, for practical purposes, they are not necessary. 
 The effects of Banking are inscribed on every page of our 
 country's history, from the year 1783 up to the present day. 
 Those who have been in business can speak of these effects 
 from their own experience. Those who have never been 
 in business, have only to open tlieir eyes, and they will 
 behold the effects of the system in the condition of differ- 
 ent classes of society. 
 
 Many of the operations of the system are such that they 
 cannot be embraced in the annual reports made by the 
 Banks to the Legislature. Fluctuation of prices is but one 
 of the evils of paper money Banking, and that not the great- 
 est. If it were possible for a metallic currency to vary in 
 amount as Bank medium varries, such variations would be 
 limited in their effects, for they would not operate on 
 a false and super-extended system of credit, nor would 
 the evil be aggravated by the machinations of irrespon- 
 sible Boards of Directors. Paper money must be regarded 
 as the foundation of the American Banking System, since 
 the founders of Banks would not, if they were prevented from 
 issuing paper money, accept of charters : but this paper 
 money does less evil as an uncertain medium of com- 
 merce, than is produced by its being made the instrument 
 by which the foundation is laid for a false and super-ex- 
 tended system of credit, and by its giving to corpor<itions 
 a power which enables them to exercise an influence on 
 society nearly as great as that which was exercised by 
 feudal lords in the middle ages. 
 
GENERAL REFLECTIONS. 227 
 
 CHAPTER XXIV. 
 
 — General Rcfiections. 
 
 Our American Bankers have found that for which the 
 "ancient alchymists sought in vain ; they have found that 
 which turns every thing into gold — in their own pockets ; 
 and it is difficult to persuade them that a system which is 
 so very beneficial to themselves, can be very injurious to 
 the rest of the community. They exclaim, as perhaps some 
 of the rest of us would exclaim, if we were in their situa- 
 tion, " every thing goes on very well :" thus verifying the 
 remark of Say, that " some persons who, under a vicious 
 order of things, have obtained a competent share of social 
 enjoyments, are never in want of arguments to justify to 
 the eye of reason such a state of society. If the same in- 
 dividuals were to-morrow required to cast anew the lots 
 assigning them a place in society, they would find many 
 things to object to." 
 
 Not a few who have no interest in Banks, are equally 
 devoted to their support. They appear to think that if Bank 
 notes were withdrawn, there would be no money in the 
 country — no credit — no trade. They have a vague notion 
 that the wealth of the country is chiefly, if not entirely, 
 owing to the Banks. 
 
 This is not surprising. The institutions to which men 
 have long been accustomed, they believe to be necessary 
 to social order. Church establishments were once regard- 
 ed in this light, and hereditary nobility also. The distin- 
 guished writer whom we have just quoted, says, " Certain 
 individuals who have never caught a glimpse of a more im- 
 proved state of society, boldly affirm that it cannot exist : 
 they acquiesce in established evils, and console themselves 
 for their existence by remarking that they could not possi- 
 bly be otherwise — in this respect reminding us of the Em- 
 peror of Japan, who thought he should have been suffocated 
 with laughter on hearing that the Dutch had no king. The 
 Iroquois were at a loss to conceive how wars could be car- 
 ried on wilh success, if prisoners were not to be burnt." 
 
 Some of our countrymen who are aware of the evils of 
 the Banking system, seem to think all discussion of it su- 
 perfluous, apparently regarding it as a system so deeply 
 
228 GENERAL REFLECTIOIVS. 
 
 rooted that it must exist in perpetuity. What always has 
 been, always will be : but we know of no reason why Bank- 
 ing should be exempt from the vicissitudes which usually 
 attend human institutions. Banking with convertible pa- 
 per has been known in England for about one hundred and 
 forty years, and in the United States for about fifty. Eng- 
 land, in prohibiting the issue of all notes of a less denomi- 
 nation than twenty-four dollars, has begun to retrace her 
 steps. In the United States we are fur behind England in 
 this respect, yet Bank notes may, fifty years hence, be found 
 only in the cabinets of the curious. The penny notes which 
 were issued by the Bank of North America about the year 
 1790, are already regarded as rarities by the virtuosi. 
 
 Banking, it must be admitted, is deeply interwoven with 
 all the business, the interests, operations, and even the 
 rights of society, public and private. But so was the feu- 
 dal system, which had an effect, in the middle ages, similar 
 to that which the paper system has in modern times. Like 
 the feudal system, the paper system divides the community 
 into distinct classes, and impresses its stamp on morals and 
 manners. In the progress of society it may be as neces- 
 sary to pass through the one as it was to pass through the 
 other ; but the feudal system is giving way in Europe to 
 enlightened reason, and it may, at least, be hoped, that the 
 paper system will not last forever in America. 
 
 The comparison some writers are fond of making be- 
 tween paper Banking and steam power, is — only a compari- 
 son. It is not an argument, and it is not, in all respects, 
 just even as a simile. Steam power is essentially good. 
 Paper money Banking is essentially bad. Against acci- 
 dents in the use of steam, effectual guards may be provided. 
 No checks which can be devised can make paper credit 
 Banks innoxious. 
 
 We may amuse ourselves by contriving new modes of 
 paper Banking. We may suppose that a kind of money 
 which has been tried, in various forms, in China, Persia, 
 Hindostan, Tartary, Japan, Russia, Sweden, Denmark, 
 Austria, France, Portugal, England, Scotland^ Ireland, 
 Canada, the United States, Brazil, and Buenos Ayres, and 
 which has every where produced mischief, would, if we had 
 the control of it, be productive of great good. We may 
 say, it is true that paper money has always produced evil, 
 
 I 
 
GENERAL REFLECTIONS. 229 
 
 but it is because it has not been properly managed. But, 
 if there is not something essentially bad in factitious money, 
 there seems to be something in human nature which pre- 
 vents its being properly managed. No new experiments 
 are wanted to convince mankind of this truth. 
 
 Any new paper money that we may devise must be is- 
 sued either by individuals, by corporations, or by the Go- 
 vernment. If it should be issued by individuals, it would 
 not be a new experiment, for that has been tried in Scot- 
 land. Of the result, an eye witness shall speak for us. 
 Mr. McCulIoh, in his Historical Sketch of the Bank of 
 England, recently published, says, " the example of the 
 Scotch Banks may here be referred to. They are most li- 
 beral of their advances so long as they conceive they run 
 no risk in making them ; but the moment alarm and dis- 
 credit begin to make their appearance, they demand pay- 
 ment of every advance that is not made on the very best 
 security ; they cease, in a great measure, to discount ; and 
 provide for their own safety by ruining thousands of their 
 customers." 
 
 Such must ever be tlie effect of " convertible " paper. 
 Commercial credit is an excellent thing, but it requires 
 metallic money as an accompaniment, to prevent its 
 being carried to excess. 
 
 If we give to corporations the power to issue paper mo- 
 ney, we produce other evils. The very act of establishing 
 a money corporation destroys the natural equilibrium of 
 society. As is remarked by Raymond, "sound policy re- 
 quires that the natural equality of men should be preserv- 
 ed as far as practicable : and it is the duty of Government 
 to preserve this natural equality, so far as equal laws and 
 equal rights and privileges will preserve it ; to keep all 
 the members of the community as distinct and indepen- 
 dent as possible ; to preserve the individuality of the 
 citizens, and to discourage, as far as practicable, all asso- 
 ciations for the purpose of giving to those combined an 
 artificial power." 
 
 On the subject of paper issues by Government, the 
 warning voice of Alexander Hamilton may be heard. 
 His words are — " The emitting of paper money is wisely 
 prohibited to the State Governments, and the spirit of the 
 prohibition ought not to be disregarded by the United 
 
230 GENERAL REFLECTIOiVS. 
 
 States' Government. Though paper emissiong under a 
 general authority, miglit have some advantages not appli- 
 cable, and be free from some disadvantages which are 
 applicable, to the like emissions by the States, separately, 
 yet they are of a nature so liable to abuse — and it may 
 even be affirmed, so certain of beingf abused — that the 
 wisdom of Government will be shown in never trusting 
 Itself with the use of so seducing and dangerous an expe- 
 dient. In times of tranquillity it might have no ill-conse- 
 quence ; it might even perhaps be arranged in a way to be 
 productive of good : but in great and trying emergencies, 
 there is almost a moral certainty of its being mischievous." 
 Government issues of paper would be incentives to ex- 
 travagance in public expenditures in even the best of times ; 
 , would prevent the placing of the fiscal concerns of the 
 
 [{ country on a proper basis, and would cause various evils. 
 
 Nor is a system of Banking in which the Government should 
 deal in exchanges, after the manner of the present Bank 
 of the United States, at all desirable. It would be as 
 reasonable in a man to wish his flour transferred from 
 Pittsburg to Charleston by the public officers, as to wish 
 his money transferred through such a medium from St. 
 Louis to Philadelphia. To manage its own fiscal concerns, 
 and manage them well, is as much as is in the power of 
 any Government. The financial operations of the United 
 States' Government should be strictly limited to the collect- 
 ing, safe-keeping, and disbursing of the public moneys, and 
 , the transferring of them from the places where tliey are 
 
 II collected to the places where they are disbursed. Further 
 
 than this, Government should have no more concern with 
 Banking and brokerage than it has with baking and 
 tailoring. 
 
 Why should ingenuity exert itself in devising new modi- 
 fications of paper Banking ? The economy which prefers 
 fictitious money to real, is, at best, like that which prefers 
 a leaky ship to a sound one. With private bankers trad- 
 ing on metallic money, and with public offices of transfer 
 and deposit, we can secure all the good of the present sys- 
 tem, and get rid of all the evils. 
 
 A reform will not, however, be accomplished, as some 
 suppose it may, by granting charters to all who apply for 
 them. It would be as rational to attempt to abolish a 
 political aristocracy by multiplying the number of nobles. 
 
 i 
 
GEXERAL REFLECTION'S, 231 
 
 The one experiment has been tried in Germany ; the 
 other, in Rhode Island. 
 
 Competition in that which is essentially good — in farm- 
 ing, in manutactures, and in regular commerce, is pro- 
 ductive of benefit : but competition in that which is essen- 
 tially evil, may not be desirable. ^lO one has vet proposed 
 to put an end to gambling by giving to every man the pri- 
 vilege to open a gamiuiT house. 
 
 " It has often been said'" remarks the author of ' A 
 Peep into the Banks,' " that the evils of Banking will work 
 their own cure : and this doctrine has been advanced rears 
 ago. The evils have continued, and even increased, with- 
 out the cure so long promised being produced. But even 
 admitting the cure to the extent to which it is maintained, 
 is it wise to create a disease, because a cure will be effect- 
 ed ? Is not prevention better than cure ! Is it desirable 
 that confidence should be placed in the responsibility of 
 persons and companies, and to sutler loss in order to shake 
 the confidence of the community respecting all securities. 
 The doctrine is so absurd, that it might be doubted whether 
 it ever had any real advocates. The idea has been advo- 
 cated upon the presumption, that whenever incorporated 
 companies could not make interest for their capitals, no 
 more would be applied for. This, however, is not the fact, 
 inasmuch as the generality of applications have not been 
 with a view of investing, but on the contrary, of creating 
 capit:il. It is, therefore, futile to calculate upon a cure 
 being effected by the small dividends such companies may 
 make, as that is not the object of pursuit. So long, there- 
 fore, as there are any persons wanting capital, we may e.\- 
 pect there will not be wanting applicants for the power to 
 create capital. Thl evil will be cured by itself, as a 
 
 NATIRAL DISEASE IS ENDED BY TERMINATING IN DEATH. 
 
 When a total annihilation of all credit takes place, and 
 public confidence is destroyed, then the evil will terminate 
 by self-destruction." 
 
 A bad system cannot be abolished, and a good one esta- 
 blished in its place, without exertion : but the necessary 
 labor will not, perhaps, be as great as many imagine. The 
 common-sense notions of money, have never yet been obli- 
 terated t>om the minds of the great body of the people. 
 The sophistry of the Bank men silences but does not satisfy 
 
232 GENERAL KEFLECTIONS. 
 
 them. They may feel themselves unable to reply to the 
 ingenious arguments of the advocates of paper medium, 
 but they think within themselves, with an honest old German 
 farmer of Pennsylvania, " You may say what you will, but 
 paper is paper, and money is money." Thousands of them 
 knovv the evils of Banking by personal experience. Thou- 
 sands of others have seen the effects of the system display- 
 ed in the ruin of their neighbors. 
 
 The power is at present in the hands of the Bank inte- 
 rest, but by exertion the seat of power may be changed. 
 If our leading politicians should be as zealous on this ques- 
 tion, as they have been either for or against the tariff, that 
 want of inclination which is the only real obstacle to the 
 establishment of a sound system of credit and currency, 
 will be overcome. Great difficulties may be encountered 
 at the outset, but they will yield to zeal and perseverance. 
 Nine Americans in. ten, if not ninety-nine in a hundred, 
 have an interest in the downfal of the paper money and 
 money corporation system, and it is impossible for them 
 not to see, sooner or later, where their true interest lies. 
 
 For the salvation of the country, we must look to the 
 farmers and mechanics. The mercantile classes are so 
 entangled in the meshes of the Banks that they cannot 
 yield much assistance. For similar reasons, little must be 
 expected from -public journals in the towns where Banks 
 are in operation. If the editors are not in debt to these 
 institutions, they are dependent, in a great degree, on the 
 patronage of the Bank interest for support : and it would 
 be unreasonable to wish them to sacrifice the means of sub- 
 sistence of themselves and families to promote a public 
 object, while the great body of the public is disposed to 
 make no sacrifice at all. 
 
 The good work should be begun in the country, where 
 there is the strongest motive to begin it ; for, the present 
 Banking system enriches the towns at the expense of the 
 country, and the large towns at the expense of the small 
 ones. In some counties, there are, as yet, no Banks. There 
 the public papers may discuss the question freely. In due 
 time, the conductors of some city journals may find it pos- 
 sible to speak on the subject without reserve, and perhaps 
 find their interest thereby i)ronioted. 
 
 If inducements are wanted for exertion, they are afford- 
 
GENERAL REFLECTIOXS. 233 
 
 ed in the history of the country, from the time of the intro- 
 duction of paper nxoney into Massachusetts, up to the pre- 
 sent day. Let any man think on the wrongs that were in- 
 flicted by the instrumentality of provincial paper money — 
 of the many thousand familes who were ruined by conti- 
 nental money, and who lie in ruins to this day — and of 
 the multitudes who have been reduced to poverty by vari- 
 ous Banking processes. Let him then trace the system in 
 its remote consequences — in its effects on morals — on man- 
 ners — on education — on happiness. Let him consider that 
 the same causes being now in operation must produce the 
 same effects, and he will, if he has one spark of real patri- 
 otism in his breast, be willing to make any exertion which 
 will not interfere with his duty to himself and to his family. 
 If the work were once fairly begun, assistance might, 
 perhaps, be obtained from some quarters, from which, on a 
 first view, the most violent opposition might be feared. 
 There are strong indications of dissatisfaction in the offi- 
 cial reports of some of the Banks. From the language they 
 use in private conversation, no men appear to have 
 clearer views of the evils the public sufier, than some 
 of the officers of these institutions. They have comformed 
 to a system which they found established in the country, 
 but if a sincere desire should be evinced by the people to 
 introduce a better system, not a few Presidents, Cashiers 
 and Directors may be found willing to yield all the aid that 
 lies in their power. 
 
 There are reasons, besides those which spring from pa- 
 triotic motives, which should make men of property very 
 desirous to see the foundation laid of a system of sound cre- 
 dit and sound currency. They now hold their wealth by a 
 very uncertain tenure. It may pass from them as rapidly 
 as it came to them. In one respect the comparison of pa- 
 per Banking with steam power is an apt one. The danger 
 of an explosion is very great, and the effects of an explo- 
 sion would be tremendous. 
 
 The attempts at corrective legislation which the suffer- 
 ings occasioned by paper Banking are sure to induce, offer 
 other motives for reflection to men of property. The " re- 
 lief system" of the West, and the " tariff system" of the 
 East, are but specimens of what is to be expected. As it 
 has become a kind of principle that when the evils pro- 
 
 X 
 
234 GENERAL REFLECTIONS. 
 
 duced by paper money rise to a certain height, they are to 
 be cured by more paper money, we may see a return of the 
 times spoken of by Dr. Witherspoon, " when creditors were 
 seen running away from their debtors, and debtors pursuing 
 them in triumph, and paying them without mercy." 
 
 If the virtue and intelligence of the nation should direct 
 the movements of Government during the ten or twenty 
 years which might elapse in the gradual withdrawal of Bank 
 notes and Bank credits, the people would suffer less from 
 the application of the remedy, than they must otherwise 
 suffer from the operation of the disease. Clamors might, 
 indeed, be excited ; for some of the community are always 
 mistaking want of money's worth for want of money — want 
 of things to be circulated for want of circulating medium. 
 But such clamors ought to be disregarded. The work of 
 reform once begun, should be steadily persevered in. If 
 a State Government, after having prohibited the issue of 
 notes of a less denomination than five dollars, should after- 
 wards be prevailed on by a complaint of " want of money" 
 to repeal the law, it would act with the same wisdom as a 
 surgeon, who, being engaged in the amputation of a dis- 
 eased limb, should be frightened by the cries of the patient, 
 and withdraw his knife after having cut through the first 
 artery. 
 
 If we should go to work too hastily — if Congress should, 
 for example, exerting its constitutional power over the cur- 
 rency, pass an act prohibiting on short notice, the issue 
 of Bank notes of any and every denomination, its con- 
 duct would be like that of a surgeon who should endeavor 
 by one random slash of his knife to remove a diseased mem- 
 ber. This is an evil, however, of which no fears need be 
 entertained. All that it will be necessary for Congress to 
 do, will, probably, be to declare that, after a certain day, 
 nothing but gold and silver shall be received in payment 
 of dues to Government, and that no corporation shall be 
 an agent in the management of its fiscal concerns. The peo- 
 ple will then begin to distinguish between cash and credit : 
 and public opinion will operate with so much force on the 
 State Governments, that they will, one by one, take the ne- 
 cessary nieasures for supplanting paper money by metallic. 
 
 Proceeding gradually in winding up the affairs of the 
 Banks, the stockholders will get the real worth of their 
 
GENERAL REFLECTIONS. 235 
 
 Stock, whatever that may be, and more than this they are 
 not entitled to. Many of the officers of Banks will be sub- 
 jected to little inconvenience, as it is to presumed that, 
 under a better system, their talents and industry will in- 
 sure them as ample a reward as they receive at present. 
 
 When the work is done, the condition of the country 
 will be very different from what it would have been, if paper 
 money and money corporations had never been known. A 
 system which has been in operation in different forms, for 
 more than one hundred and forty years, must, by this time, 
 have affected the very structure of society, and, in a greater 
 or less degree, the character of every member of the com- 
 munity. It may require one hundred and forty years more, 
 fully to wear out its effects on manners and morals. 
 
 In getting rid of paper money and money corporations, 
 we shall not get rid of tha.t principle of evil, in which they 
 have their origin : but we shall get rid of very efficient in- 
 strumeiits of evil. Our political institutions will then have 
 their proper influence. Conjoining equality of commer- 
 cial privileges with equality of political rights, we shall no 
 longer startle those philosophers of Europe who land on our 
 shores, by exhibiting to them a state of society so different 
 from that which their views of republicanism had led them 
 to hope for. We have heretofore been too disregard ful of 
 the fact, that social order is quite as dependent on the laws 
 which regulate the distribution of wealth, as on political or- 
 ganization. Let us remove these excrescences by which 
 our excellent form of Government is prevented from answer- 
 ing its intended end, and our country will become, " the 
 
 PRAISE OF ALL THE EARTH." 
 
 J 
 
APPENDIX. 
 
 JBanJc of North America. 
 
 Minutes of the Assembly, March 21, 1785. 
 
 Petitions from a considerable number of the inhabitants of Ches- 
 ter County were read, representing that the Bank established at 
 Philadelphia has fatal effects upon the community ; that while men 
 are enabled, by means of tlie Bank, to receive nearly three times 
 the rate of common interest, and, at the same time, to receive their 
 money at very short warning, whenever they have occasion for it, 
 it will be impossible for the husbandman and the mechanic to bor- 
 row on the former terms of legal interest and distant payment of 
 the principal; that the best security will not enable the person to 
 borrow; that experience clearly demonstrates the mischievous 
 consequences of this institution to the fair trader ; that impostors 
 have been enabled to support themselves in a fictitious credit, by 
 means of a temporary punciuality at the Bank, until they have 
 drawn in their honest neighbors to trust them with their property, 
 or pledge their credit as securities, and have been finally involved 
 in ruin and distress ; that they have repeatedly seen the stopping 
 of discounts at the Bank operate on the trading part of the com- 
 munity, with a degree of violence scarcely inferior to that of the 
 stagnation of the blood in the human body, hurrying the wretched 
 merchant who hath debts to pay into the hands of griping usurers; 
 that the Directors of the Bank may give such preferences in trade, 
 by advances of money, to their particular favorites, as to destroy 
 the equality which ought to prevail in a commercial country ; that 
 paper money has often proved beneficial to the State, but the Bank 
 forbids it, and the people must acquiesce : therefore, in order to 
 restore public confidence and private security, they pray that a 
 bill may be brought in and passed into a law for repealing the law 
 for incorporating the Bank. 
 
 March 28. — The report of the committee, read March 2-5, on 
 the petitions from the counties of Chester and Berks, and the city 
 of Philadelphia and its viciuity, praying the Act of Assembly 
 whereby the Bank was established at Philadelphia, may be repeal- 
 ed, was read a second time as follows, viz: 
 
 The committee to whom were referred the petitions concerning 
 
238 APPENDIX. 
 
 the Bank established at Philadelphia, and who were instructed to 
 inquire whether the said Bank be compatible with the public safe- 
 ty, and that equality which ought always to prevail between the 
 individuals of a republic, beg leave to report, that it is the opinion 
 of this committee, that the said Bank, as at present established, is 
 in every view incompatible with the public safety; that in the pre- 
 sent state of our trade, the said Bank has a direct tendency to ba- 
 nish a great part of the specie from the country, so as to produce 
 a scarcity of money, and to collect into the hands of the stockhold- 
 ers of the said Bank almost the whole of the money which re- 
 mains amongst us. That the accumulation of enormous wealth 
 in the hands of a society who claim perpetual duration, will ne- 
 cessarily produce a degree of influence and power, which cannot 
 be entrusted in the hands of any set of men whatsoever, without en- 
 dangering the public safety. That the said Bank in its corporate 
 capacity, is empowered to hold estates to the amount of ten mil- 
 lions of dollars, and by the tenor of the present charter is to exist 
 forever, without being obliged to yield any emolument to the Go- 
 vernment, or to be at all dependent upon it. That the great pro- 
 fits of the Bank, which will daily increase as money grows scarcer, 
 and which already far exceed the profits of European Banks, have 
 tempted foreigners to vest tlieir money in this Bank, and thus to 
 draw from us large sums of interest. 
 
 That foieigners will doubtless be more and more induced to be- 
 come stockholders, until the time may arrive when this enormous 
 engine of power may become subject to foreign influence ; tliis 
 country may be agitated with the politics of European courts, and 
 the good people of America reduced once more to a state of subor- 
 dination, and dependence upon some one or other of the European 
 Powers. That at best, if it were even confined to the hands of 
 Americans, it would be totally destructive of that equality which 
 ought to prevail in a republic. We have nothing in our free and 
 equal Government capable of balancing the influence the Bank 
 must create : and we see notliing which, in the course of a few 
 years, can prevent the directors of the Bank from governing Penn- 
 sylvania. Already we have felt its influence directly interfering 
 in the measures of tlie Legislature. Already the House of Assem- 
 bly, the representatives of the people, have been threatened that 
 the credit of our paper currency will be blasted by the Bank; and 
 if this growing evil continues, we fear the time is not very distant 
 when tlie Bank will be able to dictate to the Legislature, what 
 laws to pass and what to forbear. 
 
 "Vour committee therefore beg leave further to report the follow- 
 ing resolution to be adopted by the House, viz; 
 
 Resolved, That a committee be appointed to bring in a bill to re- 
 peal the Act of Assembly, passed the first day of April 17S2, en- 
 titled, " An Act to incorporate the subscribers to the Bank of 
 North America ;" and also to repeal one other Act of Assembly, 
 
APPENDIX. 239 
 
 passed the 18th of March 1782, entitled, " An Act for preventing 
 and punishing the counterfeiting of the common seal. Bank bills, 
 and Bank notes of the President, Directors, and Company, of the 
 Bank of North America, and for the other purposes therein men- 
 tioned." 
 
 The opinion the Legislature of 1786 had of grants to corpora- 
 tions, may be judged of by the following extract from a speech by 
 Mr. Smihe. 
 
 " There are charters so sacred that they cannot be revoked. 
 But there is a material distinction between charters, and the opi- 
 nions of many have been very wrong on that head. When once 
 an error is taken up, men go on a long time in delusion. There 
 are many things which we now consider as absurd, which were 
 formerly venerated, for want of being properly considered. The 
 doctrine of hereditary right, which is now held odious, was once 
 deemed sacred. There is a strong reason why persons from Eu- 
 rope are so highly prejudiced in favor of charters. In the twelfth 
 and thirteenth centuries, Europe was in the lowest state of vas- 
 salage — the people were in some measure rooted to the soil, and 
 sold with it. While affairs were in that situation, the kings and 
 powerful barons granted charters of incorporation to towns and 
 cities, thereby exempting them from the common vassalage of the 
 state, and bestowing on them particular immunities ; thus giving 
 them political existence. These charters were sacred, because 
 they secured to the persons on whom they were bestowed their 
 natural rights and privileges. But, there are, sir, charters of a 
 very different nature. And here it is necessary to fix the point 
 of distinction. Charters are rendered sacred, not because they 
 are given by the Assembly or by the Parliament, but by the ob- 
 jects for which they are given. If a charter is given in favor of a 
 monopoly, whereby the natural and legal rights of mankind are 
 invaded, to benefit certain individuals, it would be a dangerous 
 doctrine to hold that it cannot be annulled. All the natural rights 
 of the people, as far as is consistent with the welfare of man- 
 kind, are secured by the Constitution. All charters granting ex- 
 clusive rights, are a monopoly on the great charter of mankind." 
 
 Mr. Lollar said, " the House which granted it (the charter) en- 
 tertained no idea of its being for a perpetuity, or of its being out 
 of the power of the Assembly to alter or new-model it, as they 
 might see fit. In support of this, 3Ir. Lollar quoted the minutes 
 of that House, where it appeared that a clause had been intro- 
 duced as a rider to the bill, for the purpose of empowering the As- 
 sembly that should sit in 1789, to alter or amend the charter as 
 might be necessary. This was rejected by twenty-seven to twen- 
 ty-four, and the express reason assigned for the rejection was, that 
 the charter of the Bank must necessarily be always in the power 
 of the House." 
 
240 APPENDIX. 
 
 " What is all this to us!" said Mr. Morris in reply. " Are we 
 to regulate our conduct by the private opinions of former members 
 of Assembly ]" 
 
 The friends of the Bank maintained, that the Legislature had 
 no power over a charter once granted, and that the courts of law 
 alone had power to declare a charter forfeited. 
 
 There are traces of a Bank in Virginia, previous to the esta- 
 blishment of the Bank of North America, but we have not been 
 able to learn any thing satisfactory concerning its character. 
 
 Note. — This work has been printed in about half the time usual- 
 ly employed in prmting works of this size, in consequence of 
 which some typographical errors escaped correction. Of these it 
 is proper to note the following : 
 
 PART I. 
 
 Page 18 line 21, for equivalent, read equivalents 
 22 26, for creditors, read credits. 
 24 1, for exchanged, read exchangeable. 
 
 55 23, for first, read second. 
 91 IS, for reflux, read reflex. 
 
 103 2, for Bank, read back. 
 
 107 28, for currently, read concurrently. 
 120 23, for this, read they. 
 
 30, for discreditable, read indestructible 
 PART II. 
 Page 24 line 18, for appeared, read appear. 
 55 17, for Banks, read Bank. 
 
 80 3, for Banks, read Bank. 
 
 
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