William Graham Sumner

“ Many interesting and important points in the doctrines of banking and currency were developed in this discussion, and the doctrines were established upon which the Bank act of 1844 was constructed. Among the most important of these doctrines for our present purpose, we may notice the following: An inflation or contraction of the currency does not have that prompt and direct effect upon prices and enterprise which they are popularly supposed to have. ”

“ The dividends on the stock thus paid for by the State, on behalf of the stockholders, were to go to the State in payment of the interest; but if the dividends left a deficiency, the stockholder must pay it. No loans were to be made out of the bank to pay the subscription. A State loan of $1.3 millions was provided for to carry out this act, and the dividends of the bank and the interest on the loans to the stockholders were constituted a sinking fund. The banking powers were to cease in 1857, and the State might then found a new bank. ”

“ The Tammany society being in debt, a plan was proposed for paying the debt by making a bank. [12] When the great fire occurred in New York, in 1835, a proposition was made to create a bank as a mode of relieving the sufferers. "To make a bank," said Niles, "is the great panacea for every ill that can befall the people of the United States; and yet it adds not one cent to the capital of the community." ”

“ The State was entitled to a loan of $200,000, and each stockholder was entitled to a credit equal to one-half his shares for twenty-five years; that is, four per cent. to be paid annually on the principal, the notes being renewed annually. There were to be seven branches; two-thirds of the capital was to be lent on real estate, one-third on promissory notes; borrowers on mortgage were to pay one-eighth annually on their notes. The four last years of the charter period were to be employed in winding up the bank. ”

“ Everywhere there was a scarcity of money, and a demand for more banks to furnish a supply. One per cent. a month was not considered a high rate in any of the great cities. In April the best commercial paper was quoted at New York at 30 per cent. to 40 per cent. per annum; second rate, at a-half of one per cent. per day. "There is an awful pressure for money in most of the cities." [62]
In May, the "Globe" called on the deposit banks to contract loans, demand bank balances, and "check the raging mania for wild speculation and over-trading." ”

“ In order to take the place of one bank with $35 millions capital, which, after all, did not go out of existence, there were organized, between 1832 and 1837, 340 banks with $99 millions capital. The mania for banking was such that formal riots occurred at the subscription of stock, and men of pugilistic ability were employed to enter the subscriptions. [10] The fortunate few who could subscribe the whole sold to the rest at an advance. As the commissioners enjoyed this advantage, it was worth from $500 to $1,000 to be a commissioner. ”

“ Kentucky.—The Louisville Bank of Kentucky was founded February 2, 1833; for twenty years; capital, $2 millions; lowest note, $5; notes discounted by it placed on the same footing as foreign bills of exchange; debts never to exceed twice the capital; twelve per cent. penalty for refusal or unreasonable delay to pay notes or deposits in specie, with forfeiture of charter; may begin when $200,000 paid in in specie and $300,000 in notes of the United States Bank; the State to have an option for five years, to take any part of 5,000 shares, and to have no other right than other stockholders ”

“ One-fifteenth of the shares of the Union Bank were held by one man, one-sixth by three men, one-third by eleven men, one-half by twenty-five men, and five-sixths, or nearly the whole by eighty men; who in addition to the loans upon their mortgages were supposed to be otherwise indebted to the institution. [41] Evidently a clique got the whole enterprise into their hands, substituted the stock for the bonds, sold them, divided the proceeds as loans on the mortgages of their plantations. Then the worse the bank became, the cheaper they could buy its notes with which to pay the loans ”

“ Wickliffe, who was charged with the effort to carry the measure in Kentucky, explained that the Southwestern Railroad Bank was intended to negotiate the stock of the railroad in London and elsewhere. Two shares in the road go with one in the bank, so that the State or individual stockholder will receive through the bank a certain and immediate profit on one-third of the capital invested, and a remote profit on the two-thirds which is to be laid out in constructing the road. ”

“ Many of these banks were started with little or no real capital; specie was borrowed for one day to be counted by the Bank Commissioner, and on the next it was replaced by the notes of the stockholders. The bills of these banks, loaned in violation of the usury laws at high rates of interest, were used in the wildest speculations. The country was flooded with them, and specie was becoming scarce. The ratio of specie to deposits and circulation had fallen to one to thirteen and a-half, or less than seven and a-half per cent., the smallest then ever known. ”

“ At the meeting of the stockholders Biddle said that the Bank had a surplus with which it could pay all the sums which the charter imposed upon it. The charter was accepted two days after it was passed, with great enthusiasm, and a service of plate was presented to Biddle for his services in getting it. [8] His salary was $8,000. Bevan was made president of the old Bank for the purpose of transferring it to the new, and on the 2d of March, all the assets of the old Bank were turned over to the new one on condition that the latter should assume all the obligations of the former. ”

“ The preamble states the purpose to be to give an impulse to labor, by an increase of the circulating medium; to relieve taxation by creating a revenue for the people; and to "enable them to realize the blessings of a correct system of internal improvements." This bank was established at Natchez; $3 millions capital, of which $2 millions by the State; until 1855; subscriptions to be in specie and notes of the Bank of the State; the Auditor to pay the State subscriptions, with five per cent. ”

“ If this bank did not dig a canal named, within eight years, it was to pay the State $500,000. It also had permission to build a railroad. Commenting on this charter, the Supreme Court of the State said that insolvent laws and the statute of distributions did not exist for debts to it. "No legal incapacity could be pleaded by its debtor. No exceptional jurisdiction could obstruct the collection of debts due to it." [36]
In the same year the Commercial Bank of New Orleans was organized to build water works, and the Mechanics and Traders' Bank, of whose directors five were to be mechanics. ”

“ At the next session, December 25, 1833, the Commercial and Railroad Bank at Vicksburg was chartered, because more banking facilities were needed; $4 millions capital; "identified and incorporated with the Clinton and Vicksburg Railroad Company," the charter to become null if the railroad was not built in six years; the bank to cease in thirty-two years; the note issue not to exceed three times the capital and money on deposit; it was to have branches; no provisions about suspension or specie redemption. ”

“ From March, 1835, the chief control and management of the affairs of the institution appears to have passed from the hands of the directors. The mode in which the Committee of Exchange transacted their business shows that there really existed no check whatever upon the officers, and that the funds of the Bank were almost entirely at their disposition. That committee met daily and were attended by the cashier and at times by the president. They exercised the power of making loans and settlements to full as great an extent as the Board itself. ”

“ There was a called session of the Mississippi Legislature in May, 1837, at which a great number of banks, insurance companies, railroads, etc., were chartered just as the financial crisis occurred. April 28th, the Northern Bank of Mississippi was chartered until 1862; $2 millions capital; lowest note $5; if redemption refused, the cashier to endorse; twelve and onehalf per cent. penalty; half the capital on loans for one year or more; must build a specified railroad within ten years, or forfeit the charter. ”

“ Notwithstanding this extraordinary inflation of the currency the banks continue to discount every note which bears the semblance of responsibility, and as the 'Journal of Commerce' observes, 'everything is dear but money.'" [60] In December, 1835, the money market at Philadelphia was very stringent; some political anxiety with reference to relations with France being added to the commercial difficulties. In January Bicknell quoted the rate for capital two per cent. per month and advancing. ”

“ Governor Marcy, of New York, devoted a large part of his message to this subject. "The passion for speculation prevails to an extent heretofore unknown, not only among capitalists, but among merchants and traders. The funds of these capitalists have been withdrawn to some extent from situations in which they afforded accommodation to business men, and they have consequently been obliged to press upon the banks to supply this deficiency in their means. Merchants and others have abstracted from their business a portion of their capitals, and devoted it to speculations in stocks and lands ”

“ A crisis is approaching and is near at hand, to which the panic and pressure of last year will be trifling in comparison. There is a larger sum of money, or rather a larger amount of credit, loaned out in this community, at the present time, than there ever was before. ”

“ As has been said, the local banks did not arouse themselves against the great Bank at Jackson's first attack. They were not dissatisfied with their relations to it. The best of them stood in as much fear as anybody in the community of the possibilities of a bank mania. ”

“ If any branch becomes insolvent or disobedient or acts against the interest of the whole or of the State, the Central Board may appoint a receiver for it. All branches must make up a deficiency in liquidating any one. ”

“ It got a short time after into the hands of some speculators from an adjoining State, and in January, 1834, broke; but, notwithstanding, upon the most solemn pledges, as in the case of the Bank of West Florida, of speedy redemption of its paper, a supplementary act amending the charter was passed within a fortnight afterwards, against the veto of the Governor. These pledges have never been redeemed, and thousands of dollars of the worthless notes of this institution are unpaid, in the hands of our suffering citizens. ”

“ In fact, the paid-up capital was never over two-thirds of five millions, but the government deposits ran at times as high as four millions. The assets consisted very largely of unavailable loans, so that with a discount line of six or seven millions, scarcely two hundred thousand dollars was in active business paper. [23]
In 1836 Dr. Dyott of Philadelphia established what he called a Manual Labor Bank. "His motive for this is to give to the meritorious workingman the full legal interest which he ought always to obtain for his savings." ”

“ The land bill passed the Senate but was tabled in the House. The distribution bill and the deposit bill were consolidated into one, and passed by the Senate, June 17th, 38 to 6. On the 20th of June, in the House, an effort was made to divide the bill so as to separate the regulation of the deposits from the distribution, but the effort failed. As the bill then stood, the surplus was to be divided as a gift to the States. ”

“ The people of the western improvement States had become convinced that without any taxation or other annoyance to themselves they were about to see the land around them very greatly increased in value ”

“ Clay and Calhoun, however, took up this project, the former especially aiming to distribute the proceeds of the public lands as such, or to regard the surplus revenue as due to the sales of lands. At the session of 1835-36, Clay introduced a bill to distribute the net proceeds of the lands after taking out ten per cent. for the ten new States. Calhoun had constitutional scruples about distribution, and proposed an amendment to the Constitution to authorize it. He also introduced a bill to regulate the public deposits, and there was another bill for distributing the surplus revenue. ”

“ The Bank was chartered for thirty years. It was to pay a bonus of two and a half million dollars; pay a hundred thousand dollars per year for twenty years for schools; loan the State not over a million dollars a year, in temporary loans at four per cent., and six million dollars on State bonds, payable in at four per cent., and subscribe six hundred and forty thousand dollars to railroads and turnpikes. ”

“ This was generally done to State banks, who gave for them their obligations, payable by installments at distant periods. At the same time the policy was adopted of converting the active debt into loans upon the security of stocks, by which permanent investments might be provided for the capital of the bank during the long period of its anticipated liquidation. ”

“ The Territorial guaranty is to be given on the bonds of the corporation, under certain conditions; $—— of these bonds have been thus guaranteed. This bank claims to be located at St. Augustine, but, it is said, is chiefly conducted in New York, and has an agency at Appalachicola. blo tax has ever been paid, and the Committee are totally in the dark in regard to the capital or other affairs of the bank, in consequence of the neglect to make returns according to its charter and the general law of 1833. ”