William Gouge,
A Short History

Of the Old Bank of the United States.

"Let the Americans," said William Pitt, "adopt their funding system, and go into their Banking institutions, and their boasted independence will be a mere phantom."

No small number of Americans were of a similar opinion: but it was contended by others, that if the revolutionary debt was not funded, injustice would be done to the public creditors.  Out of this funding system sprung the old Bank of the United States, for three-fourths of its capital consisted of public stocks.  The Bank, its friends averred, was necessary to support the public credit, and aid the fiscal operations of the Federal Government.  Its opponents contended that it was anti-republican in its tendency, and that the Constitution gave Congress no power to establish such an institution.

The period immediately succeeding the Revolutionary War, was, in a peculiar sense, an age of speculation.  Trafficking in soldier's certificates, in the public lands, and in the various evidences of the public debt, was the business of many who had money, and of many who had not.  Perhaps the fortunes some thereby acquired, may have excited envy, and thus increased the opposition to the system which had its origin with some in political, and with others, in moral reasons.  Be this as it may, the Bank of the United States was regarded as the cap-stone of a policy which was viewed as very objectionable: and the democratic journals of the day abounded in what one of our most respectable authors calls "abuse of the Banking and funding system."

Mr. Jefferson's opposition to Banks was of the most decided character.  In his preface to Destutt Tracy's Political Economy, he denounces them as parasitically institutions: and he seldom let slip an opportunity of expressing his abhorrence of their whole scheme of operations.  His objections to the Bank of the United States on constitutional grounds were equally strong.

"I consider," he says, "the foundation of the Constitution as laid on this ground, that all powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States or the people.  To take a single step beyond the boundaries thus specially drawn around the power of Congress, is to take possession of a boundless field of power, no longer susceptible of definition.  The incorporation 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 them 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 then they would have power to create a Bank, which would render the great cities, where there were prejudicies 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 democrats, and six out of twenty, who opposed it, were federalists; but it afterwards became, as Mr. Niles says, one of the landmarks of party, and, 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 approached for the expiration of the charter, enmity to the institution gave way, in a great degree, to fear of the distress which the winding up of its affairs 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 Philadelphia to Washington, to beg Congress to avert the impending danger.[18]

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 democratic 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 National Intelligencer said, on recording the vote, that if the question had not been on the indefinite postponement, but 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 expired.  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 Chairman, 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 Constitution."[19]

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.[20]

This was a rapid collection of the debts due to the institution, 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 country had been threatened.  "Many persons" said Dr. Seybert, 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 continued uninterrupted -- no failures in the mercantile community were attributable to that occurrence."


18   See the public papers of the day.
Of the feeling with which a portion of the community regarded the prospect of a non-renewal of the Bank charter, an opinion may be formed from the following extract from a pamphlet, by Mr. Carey, entitled "Desultory Reflections upon the Ruinous Consequences of a Non-Renewal of the Charter of the Bank of the United States," published in May, 1810.
"In the history of nations, as well as of individuals, there are to be found occasional moments of frenzy, in which every movement baffles the calculations of the politician, the moralist and the philosopher. To the distractions and derangements of 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 reality of the danger, the momentary frenzy of too many of my fellow-citizens, and the awful consequences of the 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 Philadelphia."
"Never 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 happiness 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 bewildered and led astray; to be instrumental in dashing the Bank of public credit upon rocks and quicksands, and producing an awful scene of destruction, the consequences or terminations of which elude the power of calculation. At such a crisis, it behooves every man whose experience in any degree qualifies him to shed light upon the subject, to step boldly forward, and use his endeavors to preserve so many vital interests as are at stake from the destruction which menaces them. In such a cause, indifference and guilt would perhaps be synonymous. Influenced 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, an such occasions, takes an active part, to raise my feeble voice in defence of a good cause. I fully resolved that, come the calamity when it might, I should be able to wash my hands from any participation in the guilt, even by neutrality."

19 "Legislative and Documentary History of the Bank of United States." Washington, 1832.

20   Another instalment, amounting to 7 per cent., was paid on the 1st of April, 1813. An additional payment of 5 per cent. was made in April, 1815, and another of 5 per cent. in December, 1817. Two or three small payments, of the exact amount of which we are not informed, were subsequently made. Some years before the expiration of the charter, the stock sold at 156.

Of Banking from 1790 to 1810-11.

In Vol. III of the American edition of the Edinburgh Cyclopedia, published in 1813, the following table is given, "to exhibit in one view the names of the Banks most deserving 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 introduced into the different States.

Names. --- Instituted. --- Capital.
Bank of North America, Pa. 1781-2       $2,000,000
Massachusetts Bank at Boston, Mass. 1784       1,600,000
Bank of New York, N.Y. 1784       950,000
Bank of Maryland, Md. 1790       300,000
Providence Bank, R.I. 1791       400,000
Bank of Albany, N.Y. 1792       260,000
Bank of South Carolina, S.C. 1792       640,000
Union Bank of Boston, Mass. 1792       1,200,000
New Hampshire Bank, N.H. 1792       100,000
Bank of Alexandria, Va. 1792       500,000
Hartford Bank, Conn. 1792       930,000
Union Bank, New London, Conn. 1792       500,000
New Haven Bank, Conn. 1792       400,000
Bank of Columbia, N.Y. 1793       160,000
Bank of Columbia, D.C. 1793       500,000
Bank of Pennsylvania, Pa. 1793       3,000,000
Bank of Nantucket, Mass. 1795       100,000
Bank of Delaware, Del. 1795       110,000
Bank of Baltimore, Md. 1795       1,200,000
Middletown Bank, Conn. 1795       400,000
Bank of Rhode Island, R.I. 1795       100,000
Norwich Bank, Conn. 1796       200,000
Manhattan Bank, N.Y. 1799       2,000,000
Portland Bank, Me. 1799       300,000
Essex Bank, Salem, Mass. 1799      300,000
Washington Bank, Westerly, R.I. 1800      50,000
Bank of Bristol, R.I. 1800      120,000
Exchange Bank, Providence, R.I. 1801      400,000
Farmers' Bank, Lansinburgh, N.Y. 1801      75,000
State Bank of South Carolina, S.C. 1801       800,000
Maine Bank, Portland, Me. 1802      300,000
New Hampshire Union Bank, N.H. 1802      200,000
Lin and Ken Bank, Wiscasset, Me. 1802      $200,000
Kentucky Insurance Company, Ky. 1802      150,000
Merchants Bank, N.Y. 1803      1,250,000
Bedford Bank, at N.B., Mass. 1803      150,000
New York State Bank, N.Y. 1803      460,000
Newburyport Bank, Mass. 1803      550,000
Saco Bank, AIass.1803      100,000
Albany Mercantile Comp., N.Y. 1803      25,000
Plymouth Bank, Mass. 1803      100,000
Boston Bank, Mass.1803     1,800,000
Stafford Bank, at Dover, Mass. 1803      150,000
Philadelphia Bank, Pa.1803     2,000,000
Miami Exporting Comp., Cinn. O. 1803      200,000
Salem Bank, Mass. 1803      200,000
Roger Williams' Bank. R.I. 1803      150,000
Newport Bank, R.I. 1803      100,000
Warren Bank, R.I. 1803      68,000
Exeter Bank, N.H. ----      200,000
Union Bank of Maryland, Md. 1804      3,000,000
Bank of Cape Fear, N.C. 1804      350,000
Bank of Newbern, N.C. 1804      300,000
Newark Banking and Ins., Co. N.J. 1804      225,000
Trenton Bank, N.J. 1804      300,000
Hallowell and Augusta Bank, Me. 1804      200,000
Worcester Bank, Mass. 1804      150,000
Nantucket Pacific Bank, Mass. 1801      100,000
Marblehead Bank, Mass. 1804      100,000
Rhode Island Union Hank, R.I.  1804      150,000
Smithfield Union Bank, R.I.1805      50,000
Narragansett Bank, R.I.1805      60,000
Rhode Island Central Bank, R.I.1805      60,000
Bank of Virginia, Va. 1805      1,500,000
Mechanics' Bank, Baltimore, Md. 1806      1,000,000
Bank of Chilicothe, Ohio 1806      100,000
Bridgeport Bank, Conn. 1806      200,000
Derby Bank, Conn. 1806      200,000
Bank of Kentucky, Ky. 1807      1,000,000
Bank of Nashville, Ten. 1807      500,000
Bank of Marietta, Ohio 1807      100,000
Farmers Bk. of the State of Del., D. 1807      500,000
New Bunswick Bank, N.J. 1807      150,000
Farmers and Mechanics Bank, Pa. 1807      1,250,000
Hagerstown Bank, Md. 1807      250,000
Mohawk Bank, N.Y. 1807      200,000
New London Bank, Conn. 1807      200,000
Hudson Bank, N.Y. 1808      300,000
Bank of Steubenville, Ohio 1809      $100,000
Chambersburgh Bank, Pa. 1809      250,000
Commercial Bank, R.I. 1809          50,000
State Bank of North Carolina, N.C. 1810     1,600,000
Commer. & Farm. Bk. of Balt, Md. 1810     1,000,000
Farm. & Merch. Bk. of Balt., 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. 1811     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. and Mechan. Bk. of Cinn., 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
MorrisDo. 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 and Brandywine,Del. 1812         120,000
Farm. & Mechan. Bank of Del., D. 1812           75,000
Commercial Bank of Del., D. 1812         200,000
Farm. & Mechan. Bk. of Va.,V. 1812      1,500,000
Savannah Bank, Geo.___      1,000,000
Union Bank, S.C. ___      1,000,000
Planters' and Mechanics' Bank, S.C.___      1,000,000
Total,       $77,258,000

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 accommodate 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 Maryland corrected Mr. Burwell, by stating that the failures had in the aggregate exceeded the sum he had mentioned, but in no single instance had the loss to creditors exceeded 600,000 dollars.) I stand corrected only 600,000 dollars."[21]

It was in New England, however, that Banking operations 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 travelling expenses in the country."

Of the principles of operation of some of these institutions, 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 instalments, in gold or silver.  It appears to the Committee that the capital stock was not paid in according to the provisions 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 Bank, for which no security whatever was given, and they gave five notes, without indorsers, for the five first instalments, payable on demand with interest: for the two last instalments, no payment was made or security given.  The said notes remained in the Bank until the directors transferred 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 stockholders, holding four hundred and fifty shares, transferred them to the directors of said Bank.  No money or other consideration whatever was paid by the directors with their own property to any of the stockholders who so transferred their shares, but they were uniformly paid for with the property of the corporation.  Most of the said stockholders 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 Directors 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 accounted 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 before 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; 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 hundred and seventy-five dollars: at some periods, anterior to the 29th day of March, 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 circulation."

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 hundred 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 surrendering 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 with 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 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 sixty-five dollars, and there was paid to sundry persons for his use three thousand seven hundred and eighty-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 directors 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 manner of payment.  The greatest secrecy was used respecting 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 Dexter, 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 receipts: 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 them as often as they returned to the Bank, the cost of redemption to be paid by the Bank.  After these 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 following.

"I, Andrew Dexter, jun., do promise the President, 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 being however understood, that said Dexter shall not be called 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 afterwards given to Dexter, and a note given by him for five hundred and seven thousand seven hundred and seventy-one dollars, bearing date on the 30th of November, 1808; all the money received by Dexter after that time was delivered 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 of eight hundred and fifty-five 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 certain 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 become very low, and the bills were selling at a large discount: 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 provision 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 very 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.

"There is now in said Bank, eighty-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, according 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 precision 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 circulation, 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 dollars in Bank bills, spoken of by the Committee, took place between the 29th of March, 1808, and the 9th of February, 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 extent.  In a speech in Congress, in February, 1811, Mr. Desha, of Kentucky, said, "The Berkshire and Northampton 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 circulation at the same time."

Mr. Burwell, of Virginia, said, "The State of Massachusetts found, upon examining the vaults of the Banks, the whole of them did not contain specie equal to the paper issued 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 testimony, that the Banking institutions in that quarter had extended their operations so far, that the necessary reaction produced very disastrous consequences.

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 "convertible" into either gold or silver.  The old Bank of the United States issued no notes of a less denomination than ten dollars: whereby it was enabled to exercise a more salutary control over the local Banks, than the present Bank has ever found possible.

As long 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 metallic 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 transmitted to those from whom we had obtained those goods; yet, temporary deposits of it were made in the Banks, whereby these institutions were sometimes prevented from feeling the effects their expansions must otherwise have produced.  The specie constantly in transitu from South America 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 sufficient to relieve the Banks from the difficulties into which they were occasionally brought by extending their operations 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.[22]

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 circumstances were such as to render that monopoly very lucrative.  Money being at this period worth more than Bank interest to mercantile men, facility of borrowing gave to such as possessed it great advantages.  Out 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 necessity of their nature always will do, and the occasional plenty of money produced by Banking operations, and the subsequent scarcity, had the same effects that they have in our own times.  As a close veil was then thrown over Banking proceedings, it was not always easy to trace these effects to their causes: but even in those days it was not possible 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 always 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.[23] Notwithstanding all the advantages the Banks then enjoyed, they were probably many times brought near the necessity of suspending specie payments, for they had the same inducements then that they have now for extending their operations as far as possible.

The effects of these operations were less severely felt, the further a county or a town was removed from the sphere of Bank influence.  In many of the agricultural districts, the state of credit was sound, or nearly so.  The "vulgar prejudices 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 were considered as the true roads to wealth: and men of reputation found little difficulty in borrowing as 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 mutually beneficial to the parties concerned.

"Before the establishment of Banks in the interior," say a committee of the Senate of Pennsylvania,[24] "the farmer who possessed credit and character, experienced little difficulty 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, we have seen a continued succession of bankruptcies, and had it not been for the practice so universally prevalent amongst merchants of securing the Banks for the sake of indorsers, 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 the year 1798, no people enjoyed more happiness or prosperity than the people of the United States -- nor did any country ever flourish more within the space of time.  The desk of every agriculturist 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 for him, until he wanted to use it, and the merchant in having the use of the money until it was called for.  Under such circumstances, none will doubt the happy condition of both planter and merchant, 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 advantage, to pay his debts.  The currency of the country being specie, was widely scattered through the land, and in diversified 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 without the aid of Banks.  To this I answer, how was commerce 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 another 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 destroyed the healthful condition of the country, and inflicted on the people political and pecuniary diseases of the most deadly character."


21   Legislative and Documentary History of the Bank of United States. Washington, 1832.

22 The competition 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, 13½; per cent.; from 1794 to 1799, inclusive, 12 per cent. per annum ; from 1800 to 1802, 10 per cent.; in 1803, 9½; per cent.; from 1804 to 1810, 9 per cent. The dividends of the old Bank of the United States were from 7.5-8 per cent. to 10 per cent. From 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."

23 Vide "A Peep into the Bank," New York, 1828.

24 Report on the renewal of Bank charters, Jan. 15th, 1821. Condy Raguet, Chairman.