William Graham Sumner

“ During the year 1815, the bank note currency became worse and worse. The story is told of a "little Frenchman and his bank notes," who entered the country at Savannah with specie and travelled up the coast to Boston. He found his "money" all the time melting away. His American adviser told him that if he would begin at Boston and go back again, he could recover it all. The Frenchman, "holding up a parcel of ragged, dirty bills, pregnant with filth and disease," said: "Voila! it's like making a difference between the rags of one beggar and the rags of another." ”

“ Isaac Bronson attributed it to the anomalous state of things produced by the war, cutting off intercourse, so that inflation produced no demand for export. [1]
From the time of this suspension the banks of the Middle States entered upon a career of reckless increase of their issues stimulated by the public loans. "It is impossible," said Crawford, "to imagine a currency more vicious than that which depends upon the will of nearly four hundred banks, entirely independent of each other, when released from all restraint against excessive issues." ”

“ In this "Plan" he maintained that the general government ought to agree to pay the interest of the public debt in coin, and that the notes of the national bank ought to be payable on demand in six per cent. stock at par, or in specie at the option of the institution. The national bank ought to have no branches, but to be the bank of the banks. The notes of all the banks in any one State should be made convertible on demand in the notes of one designated central bank, and the notes of these chief State banks ought to be redeemable in notes of the national bank. ”

“ All stock of the United States, loan office bonds, bank shares, and credits belonging to the State are to be put in this bank, and the faith of the State is pledged to make good any deficiencies; public deposits to be placed in it; to lend on two-name paper and on real and personal property, the borrower giving power of attorney to confess judgment; no loan to run more than a year; no renewal to be granted unless the next year's interest is paid in advance; no loan to one person to exceed $2,000; one-tenth of each loan to be called in in each year ”

“ The cashier of the branch at Lexington, Kentucky, being alarmed at this remittance of his notes to be redeemed at Philadelphia, thought best to use the notes of the State banks, and to restrict his own circulation. For this he received a rebuke of extraordinary severity from the president of the parent Bank, who instructed him that his business was to issue and circulate his own notes, and directed him to sell drafts at a low enough rate to hinder the shipment of his notes, and to buy drafts when he could get them. ”

“ Stockholders actually resident in the United States and none other might vote by proxy. Five of the elected directors and one of the appointed directors were to go out each year, and no one might be a director more than three years out of four, except the president. The Bank might not buy public stocks nor take over six per cent. for loans. It was forbidden to loan the United States more than $500,000, or any State more than $50,000, or any foreign prince or state anything. ”

“ Though the Bank of the United States and its branches has had a considerable effect to equalize the exchange of moneys between different places, being assisted in its operation by the natural courses of trade, still the people are inundated with paper called bank notes at almost every depreciated rate, one-half to seventy-five per cent. ”

“ He objected to the stamp tax, which, as we have seen, Dallas had proposed to be laid on non-resuming banks, because the specie stock was quite inadequate to sustain a general resumption. In his Letters to the Bank Directors of Philadelphia, he described the great prosperity of 1816. It was the golden age of Philadelphia. An immense business was done with great profit, upon bank credit, the banks being very liberal. Superficial observers have blamed them for too free loans, over-issues, and over-trading. ”

“ People who are unfamiliar with affairs then do not know that there is any discount or any negotiation. If the discount of the paper. varies, an insurance rate is included in the prices, etc., but, as it is uniform, it is unnoticed. These latter suppositions were fulfilled in the case of our paper money after the civil war. It was our money of account, or "current funds," and was cash. This is why people came to think that it was money and lost the sense of its relation to money. In 1814 the notes of each bank were at a different rate ofdiscount. ”

“ Local Banks are Multiplied to Replace the Bank of the United States. Their Issues are Stimulated by their Fiscal Functions, soon Intensified by War Financiering. Commercial Crisis is Produced with a Prolonged Liquidation, Attended by Various Experiments in Bank Issues and Stay Laws for Relief. A Banking System is Created Consisting of Local Banks Co-ordinated Around a Bank of the United States, as a Regulator of the Currency, and Fiscal Agent of the Government.
CHAPTER V.
Inflation on the Atlantic Coast. ”

“ Speculation is the order of the day." Such indeed was the fact. Stock jobbing with the shares of the Bank began from the first subscription and was carried on most vigorously by the officers and directors of the Bank.
The second installment was due January 1, 1817. Ten dollars per share would then become due in specie. Specie, however, was then still at six per cent. premium in Philadelphia. At a directors' meeting December 18th, it was voted to make loans on stock in order to facilitate the payment of the specie portion of this second installment. ”

“ This bill was framed with a view to induce moneyed men to subscribe to its stock. It was the best ever devised. It did not impose any bonus, and if it had then become a law would have worked wonders." * * * "Had the news been delayed a single hour, the bill would have passed and its stock would have been worth 100 per cent. premium." [6]
At this point, then, all demand for a national bank as a means of war finance ceased, but a new demand arose for it to regulate the currency, which had now fallen into great disorder. ”

“ The Northwestern Bank of Virginia was chartered February 5, 1817, at Wheeling; capital not less than $400,000 nor more than $600,000; to be paid in in coin. A peculiar provision was here introduced that 15 per cent. of the capital should be created in additional stock to be given to the State as a fund for internal improvements. ”

“ They were only to be blamed for too great loans to some individuals, and for curtailing their loans in order to invest in government securities. He expected the national bank to emancipate men from slavish dependence upon the local banks for loans. ”

“ The exchanges steadily improved down to the day fixed for resumption. At the end of July, specie was at par at Boston, at five per cent. premium at New York, at eleven or twelve per cent. premium at Philadelphia, at fourteen or fifteen per cent. premium at Baltimore. Southern and western notes were generally at a discount of about the cost of shipping specie from the place at which they were issued to the place at which the quotation was made. In September, it was announced that the New York banks were paying specie. ”

“ It was not to issue notes under $5, and was not to suspend specie payments under a penalty of 12 per cent. There were to be twenty directors chosen by the stockholders, and five, being stockholders, appointed by the Presidefit of the United States. No person might subscribe over 3,000 shares, unless the total subscription should be less than $28 millions. ”

“ In December, 1816, before the Bank of the United States went into operation, the Secretary had to borrow $500,000 from it, with which to pay interest at Boston. In his report for 1816, he complained that he could not tell which notes were at par and which not. ”

“ The currencies of the various parts of the Union at once began to fall to different stages of depreciation, and the internal exchanges were thrown into confusion because the quotation contained the depreciation. ”

“ He says that the bill had passed both Houses, and lay on the clerk's table for assent to be given by the Senate to a change in respect to the date of organization, "when an express on its way to Alexandria for a speculation in flour passed through Washington with the news of peace, which so elated Congress that the members left their seats without waiting for an adjournment, and they could not again be induced to consider the question of a national bank during that session. ”

“ This amount was to be paid in in thirty semi-annual installments, the first one on the day of the first dividend, out of which such installment was to be retained, if the dividend sufficed for it; if not, the shares were to be assessed and any stockholder who did not pay the assessment was to forfeit his stock. ”