3 X 236 SERIES NINE LECTURES FORTY-ONE (Part 2) TO FORTY-THREE The Jeffersonian Era: Democracy and Nationality, 1801–1829 (Continued) 41. Internal and Foreign Affairs after the War of 1812 (Part 2) 42. The Missouri Compromise and the Monroe Doctrine The Administration of John Quincy Adams THE RISE OF STATE BANKS. 175 CHAPTER XXXI. 1818-1825. ANTI-BANKING: TARIFF REVISION. The rage for borrowing - Methods of the State banks Causes of the hard times - Mismanagement of the National Bank Changes in its officers - Attempts of the States to tax it out of existence The cases of McCulloch vs. Maryland and Osborne vs. the Bank of the United States - Anti-banking in Kentucky Conditions in Missouri Anti-banking in Georgia-Petitions to Congress for protection to American industries Passage of the tariff of 1820- The election of 1820- Remonstrances against the tariffReports of the committees - - Failure of Congress to act. At the opening of the year 1818 the hard times which had been experienced by the manufacturers and traders a year before began to be felt by the people, who, carried away by the flush times of 1815, had engaged in speculation, had involved themselves in debt, and now began to reap the reward of their folly. The ease with which money could be borrowed was undoubtedly due to the great number of chartered banks, wild-cat banks, and other corporations, which were everywhere endeavoring to circulate their notes. As their inducements were tempting, the people began to borrow; and as the profits to the banks were very great, numerous others began to seek charters, until by 1818 392 banks were conducting business in the 23 States and Territories.* * McMaster, vol. iv., p. 485. Dewey (Financial History, p. 154) gives different figures. He says in 1815 there were 208 State banks, with a capital of $82,000,000; in 1820 there were 307 banks, The methods to which the New York banks resorted in an effort to keep their notes in circulation brought on such widespread distress that Governor Clinton was finally induced to ask for remedial legislation. In his message to the legislature, Governor Clinton said that these institutions had been responsible for the banishment of metallic money, fictitious capital, the rise of prices, and the dangerous extension of credit, which could end only in general bankruptcy. In their report, rendered February 24, 1818, the committee to which this matter was referred declared the State banking system to be particularly bad. Many of the banks had been guilty of numerous frauds. Some, in with a capital of $102,000,000 and deposits of $31,200,000; and on November 1, 1829, there were 320 banks, with a capital of $110,100,000 and deposits of $40,700,000. * For the report see Niles' Register, vol. xiv., pp. 39-42. 176 METHODS OF THE BANKS. order to get their notes into circulation, would deposit a small sum in specie in a distant bank for the purpose of redeeming its notes. This fact would be noised abroad, and when the bank bills had risen to par in that locality and were passing freely, a special issue would be made and signed with ink of an unusual color. The bank in which the specie had been deposited would then be ordered not to redeem in notes signed with ink of this color, and thus all who had taken the notes would lose just that much money. Other banks used" facility notes," which could not be deposited and which they would not take save in payment of a debt due the bank. Some banks would give large accommodations to certain persons who agreed to keep a certain sum of the bank notes in circulation for a specified time. Others would give discounts, provided the borrowers agreed to pay their notes in the bills of other banks, which would compel the borrower to collect and lay by the paper of rival institutions; but if by any misfortune he had not secured the necessary amount of paper from the rival bank when the note came due, the loaning bank would then sell him what paper he needed at a premium of from 14 to 20 per cent. On one occasion it was stipulated that no discounts should be given to anyone who traded at a certain store, because the owner had presumed to ask for current money with which to pay a debt in New York. In order to remedy this condition, the committee asked that a joint committee be appointed to investigate the conduct of the incorporated banks, in order to find out if any improper means had been used to circulate their paper, or if any had refused to redeem notes in specie. This committee was also to investigate the conduct of officers and directors to ascertain if any fraudulent or usurious transactions had been made by them.* Under the conditions then existing, people began to look about for something to blame. The majority of the people thought that the banks were responsible for the hard times, and, being in an exasperated state of mind, they turned on the banks with such fury as seemed to threaten their further existence. Thus petitions and memorials were sent to the various State legislatures requesting that charters of such banks as refused to pay specie should be annulled. In other memorials it was said that the ease with which paper money had been obtained from the banks, had led the people into extravagance, speculation and indulgence in foreign luxuries far beyond their means. These importations from Europe were gradually draining the country of specie, and therefore the citizens should refrain from using a single article of foreign make which competed with those of domestic manufacture. In other words, citizens should combine to sup * McMaster, vol. iv., pp. 485-487. |