Part 719

"The Pennsylvania Bank, which was organized in Philadelphia during the Revolutionary War, was founded for the purpose of facilitating the operations of the Government in transporting supplies for the army. It began its useful work in 1780, and continued in existence until after the close of the war; finally closing its affairs toward the end of the year 1784. But the need was felt of a national bank which should not only aid the Government on a large scale by its money and credit, but should extend facilities to individuals, and thereby benefit the community as well as the state. Through the influence and exertion of Robert Morris, then Superintendent of Finance for the United States, the Bank of North America, at Philadelphia, was organized with a capital of $400,000. It was incorporated by Congress in December, 1781, and by the State of Pennsylvania a few months afterward. Its success was immediate and complete. It not only rendered valuable and timely aid to the United States Government and to the State of Pennsylvania, but it greatly assisted in restoring confidence and credit to the commercial community, and afforded facilities to private enterprise that were especially welcome. … The success of the Bank of North America, and the advantages which the citizens of Philadelphia enjoyed from the facilities it offered them, naturally suggested the founding of a similar enterprise in the city of New York." The Bank of New York was accordingly founded in 1784.

_H. W. Domett, History of the Bank of New York, chapter 1._

ALSO IN: _W. G. Sumner, The Financier and the Finances of the American Revolution, chapter 17 (volume 2)._

MONEY AND BANKING: A. D. 1789-1796. The Assignats of the French Revolution.

"The financial embarrassments of the government in 1789 were extreme. Many taxes had ceased to be productive; the confiscated estates not only yielded no revenue but caused a large expense, and, as a measure of resource, the finance committee of the Assembly reported in favor of issues based upon the confiscated lands. But the bitter experience of France through the Mississippi schemes of John Law, 1719-21, made the Assembly and the nation hesitate. … Necker, the Minister, stood firm in his opposition to the issue of paper money, even as a measure of resource; but the steady pressure of fiscal exigencies, together with the influence of the fervid orators of the Assembly, gained a continually increasing support to the proposition of the committee. … {2213} The leaders of the Assembly were secretly actuated by a political purpose, viz., by widely distributing the titles to the confiscated lands (for such the paper money in effect was) to commit the thrifty middle class of France to the principles and measures of the revolution. … Oratory, the force of fiscal necessities, the half-confessed political design, prevailed at last over the warnings of experience; and a decree passed the Assembly authorizing an issue of notes to the value of four hundred million francs, on the security of the public lands. To emphasize this security the title of 'assignats' was applied to the paper. … The issue was made; the assignats went into circulation; and soon came the inevitable demand for more. … The decree for a further issue of eight hundred millions passed, September, 1790. Though the opponents of the issue had lost heart and voice, they still polled 423 votes against 508. To conciliate a minority still so large, contraction was provided for by requiring that the paper when paid into the Treasury should be burned, and the decree contained a solemn declaration that in no case should the amount exceed twelve hundred millions. June 19, 1791, the Assembly, against feeble resistance, violated this pledge and authorized a further issue of six hundred millions. Under the operation of Gresham's Law, specie now began to disappear from circulation. … And now came the collapse of French industry. … 'Everything that tariffs and custom-houses could do was done. Still the great manufactories of Normandy were closed; those of the rest of the kingdom speedily followed, and vast numbers of workmen, in all parts of the country, were thrown out of employment. … In the spring of 1791 no one knew whether a piece of paper money, representing 100 francs, would, a month later, have a purchasing power of 100 francs, or 90 francs, or 80, or 60. The result was that capitalists declined to embark their means in business. Enterprise received a mortal blow. Demand for labor was still further diminished. The business of France dwindled into a mere living from hand to mouth.' … Towards the end of 1794 there had been issued 7,000 millions in assignats; by May, 1795, 10,000 millions; by the end of July, 16,000 millions; by the beginning of 1796, 45,000 millions, of which 36,000 millions were in actual circulation. M. Bresson gives the following table of depreciation: 24 livres in coin were worth in assignats April 1, 1795, 238; May 1, 299; June 1, 439; July 1, 808; Aug. 1, 807; Sept. 1, 1,101; Oct. 1, 1,205; Nov. 1, 2,588; Dec. 1, 3,575; Jan. 1, 1796, 4,658; Feb. 1, 5,337.

At the last 'an assignat professing to be worth 100 francs was commonly exchanged for 5 sous 6 deniers: in other words, a paper note professing to be worth £4 sterling passed current for less than 3d. in money.' The downward course of the assignats had unquestionably been accelerated by the extensive counterfeiting of the paper in Belgium, Switzerland, and England. … Now appears that last resort of finance under a depreciating paper: an issue under new names and new devices. … Territorial Mandates were ordered to be issued for assignats at 30:1, the mandates to be directly exchangeable for land, at the will of the holder, on demand. … For a brief time after the first limited emission, the mandates rose as high as 80 per cent. of their nominal value; but soon additional issues sent them down even more rapidly than the assignats had fallen."

_F. A. Walker, Money, part 2, chapter 16._

ALSO IN: _Andrew D. White, Paper-money Inflation in France._

MONEY AND BANKING: A. D. 1791-1816. The First Bank of the United States.

On the organization of the government of the United States, under its federal constitution, in 1789 and 1790, the lead in constructive statesmanship was taken, as is well known, by Alexander Hamilton. His plan "included a financial institution to develop the national resources, strengthen the public credit, aid the Treasury Department in its administration, and provide a secure and sound circulating medium for the people. On December 13, 1790, he sent into Congress a report on the subject of a national bank. The Republican party, then in the minority, opposed the plan as unconstitutional, on the ground that the power of creating banks or any corporate body had not been expressly delegated to Congress, and was therefore not possessed by it. Washington's cabinet was divided; Jefferson opposing the measure as not within the implied powers, because it was an expediency and not a paramount necessity. Later he used stronger language, and denounced the institution as 'one of the most deadly hostility existing against the principles and form of our Constitution,' nor did he ever abandon these views. There is the authority of Mr. Gallatin for saying that Jefferson 'died a decided enemy to our banking system generally, and specially to a bank of the United States.' But Hamilton's views prevailed. Washington, who in the weary years of war had seen the imperative necessity of some national organization of the finances, after mature deliberation approved the plan, and on February 25, 1791, the Bank of the United States was incorporated. The capital stock was limited to twenty-five thousand shares of four hundred dollars each, or ten millions of dollars, payable one fourth in gold and silver, and three fourths in public securities bearing an interest of six and three per cent. The stock was immediately subscribed for, the government taking five thousand shares, two millions of dollars, under the right reserved in the charter. The subscription of the United States was paid in ten equal annual instalments. A large proportion of the stock was held abroad, and the shares soon rose above par. … Authority was given the bank to establish offices of discount and deposit within the United States. The chief bank was placed in Philadelphia and branches were established in eight cities, with capitals in proportion to their commercial importance. In 1809 the stockholders of the Bank of the United States memorialized the government for a renewal of their charter, which would expire on March 4, 1811; and on March 9, 1809, Mr. Gallatin sent in a report in which he reviewed the operations of the bank from its organization. Of the government shares, five million dollars at par, two thousand four hundred and ninety-three shares were sold in 1796 and 1797 at an advance of 25 per cent., two hundred and eighty-seven in 1797 at an advance of twenty per cent., and the remaining 2,220 shares in 1802, at an advance of 45 per cent., making together, exclusive of the dividends, a profit of $671,680 to the United States. Eighteen thousand shares of the bank stock were held abroad, and seven thousand shares, or a little more than one fourth part of the capital, in the United States. {2214} A table of all the dividends made by the bank showed that they had on the average been at the rate of 8 3/8 (precisely 8 13/34) per cent. a year, which proved that the bank had not in any considerable degree used the public deposits for the purpose of extending its discounts. From a general view of the debits and credits, as presented, it appeared that the affairs of the Bank of the United States, considered as a moneyed institution, had been wisely and skilfully managed. The advantages derived by the government Mr. Gallatin stated to be, 1, safe-keeping of the public moneys; 2, transmission of the public moneys; 3, collection of the revenue; 4, loans. The strongest objection to the renewal of the charter lay in the great portion of the bank stock held by foreigners. Not on account of any influence over the institution, since they had no vote; but because of the high rate of interest payable by America to foreign countries. … Congress refused to prolong its existence and the institution was dissolved. Fortunately for the country, it wound up its affairs with such deliberation and prudence as to allow of the interposition of other bank credits in lieu of those withdrawn, and thus prevented a serious shock to the interests of the community. In the twenty years of its existence from 1791 to 1811 its management was irreproachable. The immediate effect of the refusal of Congress to recharter the Bank of the United States was to bring the Treasury to the verge of bankruptcy. The interference of Parish, Girard, and Astor alone saved the credit of the government. … Another immediate effect of the dissolution of the bank was the withdrawal from the country of the foreign capital invested in the bank, more than seven millions of dollars. This amount was remitted, in the twelve months preceding the war, in specie. Specie was at that time a product foreign to the United States, and by no means easy to obtain. … The notes of the Bank of the United States, payable on demand in gold and silver at the counters of the bank, or any of its branches, were, by its charter, receivable in all payments to the United States; but this quality was also stripped from them on March 19, 1812, by a repeal of the act according it. To these disturbances of the financial equilibrium of the country was added the necessary withdrawal of fifteen millions of bank credit and its transfer to other institutions. This gave an extraordinary impulse to the establishment of local banks, each eager for a share of the profits. The capital of the country, instead of being concentrated, was dissipated. Between January 1, 1811, and 1815, one hundred and twenty new banks were chartered, and forty millions of dollars were added to the banking capital. To realize profits, the issues of paper were pushed to the extreme of possible circulation. Meanwhile New England kept aloof from the nation. The specie in the vaults of the banks of Massachusetts rose from $1,706,000 on June 1, 1811, to $7,326,000 on June 1, 1814. … The suspension of the banks was precipitated by the capture of Washington. It began in Baltimore, which was threatened by the British, and was at once followed in Philadelphia and New York. Before the end of September all the banks south and west of New England had suspended specie payment. … The depression of the local currencies ranged from seven to twenty-five per cent. … In November the Treasury Department found itself involved in the common disaster. The refusal of the banks, in which the public moneys were deposited, to pay their notes or the drafts upon them in specie deprived the government of its gold and silver; and their refusal, likewise, of credit and circulation to the issues of banks in other States deprived the government also of the only means it possessed for transferring its funds to pay the dividends on the debt and discharge the treasury notes. … On October 14, 1814, Alexander J. Dallas, Mr. Gallatin's old friend, who had been appointed Secretary of the Treasury on the 6th of the same month, in a report of a plan to support the public credit, proposed the incorporation of a national bank. A bill was passed by Congress, but returned to it by Madison with his veto on January 15, 1815. … Mr. Dallas again, as a last resort, insisted on a bank as the only means by which the currency of the country could be restored to a sound condition. In December, 1815, Dallas reported to the Committee of the House of Representatives on the national currency, of which John C. Calhoun was chairman, a plan for a national bank, and on March 3, 1816, the second Bank of the United States was chartered by Congress. The capital was thirty-five millions, of which the government held seven millions in seventy thousand shares of one hundred dollars each. Mr. Madison approved the bill. … The second national bank of the United States was located at Philadelphia, and chartered for twenty years."

_J. A. Stevens, Albert Gallatin, chapter 6._

MONEY AND BANKING: A. D. 1817-1833. The Second Bank of the United States and the war upon it.

"On the 1st of January, 1817, the bank opened for business, with the country on the brink of a great monetary crisis, but 'too late to prevent the crash which followed.' The management of the bank during the first two years of its existence was far from satisfactory. It aggravated the troubles of the financial situation instead of relieving them. Specie payments were nominally resumed in 1817, but the insidious canker of inflation had eaten its way into the arteries of business, and in the crisis of 1819 came another suspension that lasted for two years. … It was only by a desperate effort that the bank finally weathered the storm brought on by its own mismanagement and that of the State Banks. After the recovery, a period of several years of prosperity followed, and the management of the bank was thoroughly reorganized and sound. From this time on until the great 'Bank War' its affairs seem to have been conducted with a view to performing its duty to the government as well as to its individual stockholders, and it rendered such aid to the public, directly, and indirectly, as entitled it to respect and fair treatment on the part of the servants of the people. … But the bank controversy was not yet over. It was about to be revived, and to become a prominent issue in a period of our national politics more distinguished for the bitterness of its personal animosities than perhaps any other in our annals. … As already said, the ten years following the revulsion of 1819-25 were years of almost unbroken prosperity. … The question of the continuance of the bank was not under discussion. In fact, scarcely any mention of the subject was made until President Jackson referred to it in his message of December, 1829. {2215} In this message he reopened the question of the constitutionality of the bank, but the committee to which this portion of the message was referred in the House of Representatives made a report favorable to the institution. There seems no reason to doubt the honesty of Jackson's opinion that the bank was unconstitutional, and at first he probably had no feeling in the matter except that which sprang from his convictions on this point. Certain events, however, increased his hostility to the bank, and strengthened his resolution to destroy it. … When President Jackson first attacked the bank, the weapon he chiefly relied on was the alleged unconstitutionality of the charter."

_D. Kinley, The Independent Treasury of the United States, chapter 1._

The question of the rechartering of the Bank was made an issue in the presidential campaign of 1832, by Henry Clay. "Its disinterested friends in both parties strongly dissuaded Biddle [president of the Bank] from allowing the question of recharter to be brought into the campaign. Clay's advisers tried to dissuade him. The bank, however, could not oppose the public man on whom it depended most, and the party leaders deferred at last to their chief. Jackson never was more dictatorial and obstinate than Clay was at this juncture." Pending the election, a bill to renew the charter of the Bank was passed through both houses of Congress. The President promptly vetoed it. "The national republican convention met at Baltimore, December 12, 1831. It … issued an address, in which the bank question was put forward. It was declared that the President 'is fully and three times over pledged to the people to negative any bill that may be passed for rechartering the bank, and there is little doubt that the additional influence which he would acquire by a reelection would be employed to carry through Congress the extraordinary substitute which he has repeatedly proposed.' The appeal, therefore, was to defeat Jackson in order to save the bank. … Such a challenge as that could have but one effect on Jackson. It called every faculty he possessed into activity to compass the destruction of the bank. Instead of retiring from the position he had taken, the moment there was a fight to be fought, he did what he did at New Orleans. He moved his lines up to the last point he could command on the side towards the enemy. … The proceedings seemed to prove just what the anti-bank men had asserted: that the bank was a great monster, which aimed to control elections, and to set up and put down Presidents. The campaign of 1832 was a struggle between the popularity of the bank and the popularity of Jackson."

_W. G. Sumner, Andrew Jackson, chapter 11._

Jackson was overwhelmingly elected, and feeling convinced that his war upon the Bank had received the approval of the people, he determined to remove the public deposits from its keeping on his own responsibility. "With this view he removed (in the spring of 1833) the Secretary of the Treasury, who would not consent to remove the deposits, and appointed William J. Duane, of Pennsylvania, in his place. He proved to be no more compliant than his predecessor. After many attempts to persuade him, the President announced to the Cabinet his final decision that the deposits must be removed. The Reasons given were that the law gave the Secretary, not Congress, control of the deposits, that it was improper to leave them longer in a bank whose charter would so soon expire, that the Bank's funds had been largely used for political purposes, that its inability to pay all its depositors had been shown by its efforts to procure an extension of time from its creditors in Europe, and that its four government directors had been systematically kept from knowledge of its management. Secretary Duane refused either to remove the deposits or to resign his office, and pronounced the proposed removal unnecessary, unwise, vindictive, arbitrary, and unjust. He was at once removed from office, and Roger B. Taney, of Maryland, appointed in his place. The necessary Orders for Removal were given by Secretary Taney. It was not strictly a removal, for all previous deposits were left in the Bank, to be drawn upon until exhausted. It was rather a cessation. The deposits were afterwards made in various State banks, and the Bank of the United States was compelled to call in its loans. The commercial distress which followed in consequence probably strengthened the President in the end by giving a convincing proof of the Bank's power as an antagonist to the Government."

_A. Johnston, History of American Politics, chapter 13._

MONEY AND BANKING: A. D. 1837-1841. The Wild Cat Banks of Michigan.