William Gouge,
A Short History

Of Banking from 1815-16 to 1816-17.

The bona fide revenue of Government for the year ending December 31st, 1815, was only fifteen million seven hundred thousand dollars, and the charges on Government in the same period amounted to upwards of thirty-nine million dollars: but with so much skill did the high officers of State exert those powers of financial metamorphosis which the funding and treasury note system gave them, that there was, at the end of the year, a balance in the treasury of upwards of thirteen millions of dollars.

The grand secret by which this balance was produced, was that of exchanging treasury notes, many of which bore interest, for inconvertible Bank notes which bore no interest.  The officers of the treasury seemed highly pleased with the result of their operations: yet they found a difficulty in applying the balance where it was most wanted.  But little of the money with which the treasury overflowed would pass current thirty miles from the seat of the Banks that had issued it, and paying the discount was a clear loss to Government or the creditors of Government.  As was observed in a former chapter, the disadvantages arising from the various values of Bank notes, were not, in the case of individuals, sufficient to counterbalance the advantages arising from the advancing price of real estate, and the universal briskness of business.  The time for general suffering, through the necessary reaction of the system, had not yet arrived.

The want of uniformity appears to have been the only evil the officers of Government discovered in the state of the currency.  If the depreciation had been uniform, as it was in England, there is no reason to believe they would have complained.

In his message to Congress, on the 5th of December, 1815, President Madison said, "It is true, that the improved condition of the public revenue will not only afford the means of maintaining the faith of the Government with its creditors inviolate, and of prosecuting successfully the measures of the most liberal policy, but will also justify an immediate alleviation of the burdens imposed by the necessities of the war.  It is, however, essential to every modification of the finances, that the benefits of an uniform national currency should be restored to the community.  The absence of the precious metals will, it is believed, be a temporary evil: but, until they can be rendered again the general medium of exchange, it devolves on the wisdom of Congress to provide a substitute, which shall equally engage the confidence, and accommodate the wants, of the citizens throughout the Union.  If the operation of the State Banks cannot produce this result, the probable operation of a National Bank will merit consideration: and if neither of these expedients be deemed effectual, it may become necessary to ascertain the terms upon which the notes of the Government (no longer required as an instrument of credit,) shall be issued, upon motives of general policy, as a common medium of circulation."

The Secretary of the Treasury, in his report on the 7th of December, entered at large upon the subject.  "It is not intended," he said, "upon this occasion, to condemn generally the suspension of specie payments: for appearances indicated an approaching crisis, which would probably have imposed it as a measure of necessity, if it had not been adopted as a measure of precaution.  But the danger which originally induced, and perhaps justified, the conduct of the Banks, has passed away, and the continuance of the suspension of specie payments must be ascribed to a new cause."  The Secretary admitted the practicability of supplanting the paper currency by specie, and did not regard it as a very difficult operation: "But is it," he asked "with in the scope of a wise policy, to create additional demands for coin, and in that way to multiply the inducements to retain and import the precious metals of which it is composed ? * * * * Even, however, if it were practicable, it has sometimes been questioned whether it would be politic, again to employ gold and silver for the purposes of a national currency.  It was long and universally supposed, that, to maintain a paper medium without depreciation, the certainty of being able to convert it into coin was indispensable: nor can the experiment which has given rise to the contrary doctrine be deemed complete or conclusive.  But, whatever may be the issue of that experiment elsewhere, a difference in the structure of the Government, in the physical as well as the political situation of the country, and in the various departments of industry, seems to deprive it of any important influence as a precedent for the imitation of the United States."

Lord Stanhope had laid it down as a principle, "that a pound sterling being the abstract value, by which the computed value of any object of consumption is measured, that value ought to be independent of the variable quantities of gold and silver, the representative signs of which may be found in circulation."  In conformity to this doctrine by which an abstract idea was made the standard of value, the British Government had imposed a penalty on all who should presume to pay more than twenty-one shillings in Bank paper for a guinea: and so very profound and ingenious a doctrine could not fail to make proselytes on this side of the Atlantic.

It was the delusion of the day.  A host of British ministerial writers had taken much pains to prove that Bank of England paper was as good as gold, and even better: and they had numerous copyists in America.  Mr. Dallas, in admitting that inconvertible paper was not, whatever might be its abstract excellence, adapted to the situation of our country, was in advance of many of his co-temporaries.

After the Secretary had made his report, Dr. Bollman45 issued a pamphlet,46 in which he declared:  "The paper of the Bank of England preserves a value, as steady perhaps as any attainable, whilst the precious metals, like other commodities, fluctuate around this standard: and the system now in force, after an experience of eighteen years, is found so perfectly satisfactory, that the greater number of the most zealous bullionists, convinced of their former error, begin to doubt whether the resumption of specie payments would be at all expedient, should even no difficulty what ever stand in the way of this measure."  The Doctor proposed the establishment of a National Bank, the notes of which should be redeemable in United States six per cent. stock.  His plan was to be completed by making the notes of the State Banks payable, not in specie, but in the paper of the National Bank.

Mr. Carey pronounced the plan of Dr. Bollman a "magnificent" one, and said it "would be a sovereign remedy for all the financial difficulties of the country."47

Another of the literati of Philadelphia published some essays in the National Intelligencer, in which he endeavored to refute, what he conceived to be, "the very fallacious and mischievous doctrines which some of the federal orators in Congress had recently uttered on the subject of a paper currency in general.  Such, for instance, as the following: 'That paper not convertible can never have the quality of money.  That the ability of a Bank to redeem, i.e. to pay specie, is the true criterion of excessive issues.  That a paper currency is depreciated when it ceases to be of equal value with gold and silver.  That the suspension of specie payments by the Bank of England in 1797, led to a depreciation of its paper.  That the rise of specie, and a general increase of prices, are the certain indications of depreciation,' &c.– "All which propositions," said our American anti-bullionist, "derived from the report of the English bullion committee, were most triumphantly refuted, in the discussions to which that report gave birth, in and out of Parliament, and are now in England considered as absolutely exploded."

Mr. Carey, and the author of the essays published under the signature of "Anti-Bullionist," appear to have afterwards changed their views of the nature of inconvertible paper: but Dr. Bollman was, if we may judge by his latest publications, inflexible in error.

A new light was now, however, breaking on the people.  To borrow the language of the committee of the Senate of Pennsylvania, "Towards the close of the year 1815, the doctrine so generally taught, and so generally received by the great mass of the community, that the paper currency was not depreciated, but that specie had risen in value, began to be abandoned.  The intelligent part of the people became convinced that, although the nominal prices of property and commodities had been advanced, the substantial wealth of society had absolutely diminished."

In Congress there were few, if any, open advocates of inconvertible currency.  On the eighth of January 1816, a bill was reported to establish a Bank of the United States.  The bill was, word for word, nearly the same as that which had been brought before the House in 1814, excepting that it made the capital thirty-five millions instead of fifty, contained no provision to compel the Bank to lend to Government, and did not directly sanction a suspension of specie payments.

On the 26th of February, the House proceeded to consider the bill in committee of the whole, and Mr. Calhoun addressed them at length in support of the measure.

"There had been," he said, "an extraordinary revolution in the currency of the country.  By a sort of under current, the power of Congress to regulate the money of the country had caved in, and upon its ruin had sprung up those institutions which now exercised the right of making money in and for the United States: for gold and silver are not the only money, but whatever is the medium of purchase and sale, in which Bank paper alone was now employed, and had therefore become the money of the country.  A change, great and wonderful, has taken place, which divests you of your rights, and turns you back to the condition of the Revolutionary War, in which every State issued bills of credit, which were made a legal tender, and were of various values.  We have in lieu of gold and silver, a paper medium, unequally but generally depreciated, which affects the trade and industry of the nation: which paralyzes the national arm: which sullies the faith both public and private of the United States  According to estimation there were in circulation, within the United States, two hundred millions of dollars of Bank notes, credits and Bank paper, in one shape or other.  Supposing thirty millions of these to be in possession of the Banks themselves, there were, perhaps, one hundred and seventy millions actually in circulation, or on which they draw interest, while there were not, according to estimation, in the vaults of all the Banks, more than fifteen million in specie.  The Banks had undertook to make loans to Government, not as brokers, but as stockholders – a practice wholly inconsistent with the system of specie payments.  Of public stock the Banks held on, the thirtieth day of September last, about eighteen millions and a half, and a nearly equal amount of treasury notes, besides stock for long loans made to the State Governments, amounting altogether to within a small amount of forty millions.  If the Banks would regularly and consentaneously begin to dispose of their stock, to call in their notes for the treasury notes they have, and moderately curtail their private discounts: if they would act in concert in this manner, they might resume specie payments.  A National Bank, paying specie itself, would have a tendency to make specie payments general, as well by its influence as its example."

Mr. Ward, of Massachusetts, "acknowledged the correctness of the representation of the existing evil, for which he appeared to think the remedy was near at hand, and more simple in its application than the establishment of a National Bank, viz., by refusing to receive the notes of those Banks which do not pay specie, in dues to Government.  But for an alliance which he considered disgraceful to the country, and unjust to individuals, between the Secretary of the Treasury and the Banks which refused to pay specie, the evil never would have existed."

Mr. Smith, of Maryland, "thought that, as far as he had information, the Banks had not issued more notes than, from the amount of their capital, they had a right to do."  He was friendly to the proposal to establish a National Bank, but "he did not think it would do any harm, if the Bank were to commence its operations without specie, but with an assurance in its charter, of payment of specie at a particular day.  Such an assurance would make the Bank notes equally good, in his eyes at least, as gold and silver."  The National Intelligencer said that, "with these views Mr. S. concluded his practical speech."

Mr. Sergeant proposed to reduce the amount of the capital of the Bank, from thirty-five to twenty millions.  "With regard to the present time, he said, he should be glad to know why the Treasury of the United States had not now the command of specie payments, and the rate of exchange in its own hands."

Mr. Ward thought that, "in the progressive state of the country, it was not very important whether the capital was thirty-five or twenty millions: the latter amount could be used with nearly as much effect for any mischievous purposes as the former – that sum would be quite sufficient to influence the destinies of the nation."

Mr. Tucker, of Virginia, was of opinion, that a capital of thirty-five millions would not be too large.  "In New York, as I have understood, it is contemplated to put into activity an additional Bank capital of fourteen millions.  In the State which I have the honor to represent, efforts have lately been made to establish fifteen new Banks, with a capital, I presume, of about seven millions.  Do not these things prove that there is a fair prospect of profit?"

Mr. Webster said,

"It was a mistaken idea that we were about to reform the national currency.  No nation had a better currency than the United States – there was no nation which had guarded its currency with more care;  for the framers of the Constitution, and those who enacted the early statutes on this subject, were hard-money men;  they had felt, and therefore duly appreciated, the evils of a paper medium;  they therefore sedulously guarded the currency of the United States from debasement.  The legal currency of the United States was gold and silver coin;  this was a subject in regard to which Congress had run into no folly.

"As to the conduct of the Banks, he would not examine whether the great advances they had made to the Government, during the war, were right or wrong in them, or whether it was right or wrong in the Government to accept them;  but, since the peace, he contended, their conduct had been wholly unjustifiable, as also had that of the Treasury in relation to them.  It had been supposed that the Banks would have immediately sold out the stocks, with which they had no business, and fulfilled their engagements;  but public opinion had, in this respect, been disappointed.  When this happened, the Government ought, by the use of the means in its power, to have compelled the Banks to return to their specie payments.

"The establishment of a National Bank not being, in his opinion, the proper remedy, he proceeded to examine what was.  The solvency of the Banks was not questioned;  there could be no doubt, he said, if the Banks would unite in the object, they might in three weeks resume the payment of specie, and render the adoption of any measure by this House wholly unnecessary.  The Banks, he said, were making extravagant profits out of the present state of things, which ought to be curtailed.  He referred, for illustration of this point, to the state of the Bank of Pennsylvania, as exhibited in the return to the Legislature of that State, which, with a capital of 2,500,000 dollars, had done a discount business of 4,133,000 at the same time that it held 1,811,000 dollars of the United States' stock – so that, without taking into account a mass of treasury notes, real estate, &c., that Bank was receiving interest on six and a half millions, nearly three times the amount of its capital.  That Bank had been pronounced by the Legislature to be in "a flourishing state;"  it was so to the stockholders in the Bank, he doubted not.

"The Banks not emanating from Congress, what engine were Congress to use for remedying the existing evil ?  Their only legitimate power, he said, was to interdict the paper of such Banks as do not pay specie, from being received at the Custom Houses.  With a receipt of forty millions a year, if the Government was faithful to itself and to the interests of the people, they could control the evil, and it was their duty to make the effort.  They should have made it long ago, and they ought now to make it."

After some members who were friendly to the proposal to establish a National Bank had spoken Mr. Randolph expressed his fears "lest gentlemen had got some of their ideas on this subject from the wretched pamphlets, under which the British and American presses had groaned, on the subject of a circulating medium.  The proposal to establish this great Bank, he described as a crutch, and, as far as he understood it, it was a broken one: it would tend, instead of remedying the evil, to aggravate it.  The evil of the times was a spirit engendered in this Republic fatal to republican principles – fatal to republican virtue: a spirit to live by any means but those of honest industry: a spirit of profusion;  in other words, the spirit of Cataline himself --alieni avidus sui profusus– a spirit of expediency, not only in public, but in private life: the system of Diddler in the farce – living any way and well;  wearing an expensive coat, and drinking the finest wines at any body's expense.  If we wish to transmit our institutions, unimpaired, to posterity, we must put bounds to the spirit which seeks wealth by every path but the plain and regular path of honest industry and honest fame.

"It was unpleasant, Mr. Randolph said, to put one's self in array against a great leading interest in the community, be they a knot of land-speculators, paper-jobbers, or what not: but, every man you meet, in this House or out of it, with some rare exceptions, which served only to prove the general rule, was either a stockholder, president, cashier, clerk, or door-keeper, runner, engraver, paper-maker, or mechanic, in some way or other to a Bank.  The gentleman from Pennsylvania, might dismiss his fears for the State Banks, with their one hundred and seventy millions of paper on eighty-two millions of capital.  However great the evil of their conduct might be, who was to bell the cat ? who was to take the bull by the horns ?  You might as well attack Gibraltar with a pocket-pistol, as to attempt to punish them.  There were very few who dared to speak truth of this mammoth: the Banks were so linked together with the business of the world, that there were very few men exempt from their influence.  The true secret is, the Banks are creditors as well as debtors;  and if we were merely creditors to them for the paper in our pockets, they would soon, like Morris and Nicholson, go to jail (figuratively speaking) for having issued more paper than they were able to pay when presented to them.  A man has their note for fifty dollars, perhaps, in his pocket, for which be wants fifty Spanish milled dollars: and they have his note for five thousand in their possession and laugh at his demand.  We are tied hand and foot, and bound to conciliate this grand mammoth, which is setup to worship in this Christian land: we are bound to propitiate it.  Thus, whilst our Government denounces hierarchy;  will permit no privileged order for conducting the service of the true God;  whilst it denounces nobility, &c., has a privileged order of new men grown up, the pressure of whose foot he, at this moment, felt on his neck.  But, he said, a man might as well go to Constantinople to preach Christianity, as to get up here and preach against Banks."

The bill was read a third time on the 14th of March, and passed the House by a vote of 80 to 71.

When it came before the Senate, Mr. Mann, of N.H., moved so to amend it that the whole amount of specie to be paid in at the time of subscription should be two million eight hundred thousand dollars, instead of one million four hundred thousand.  "The United States' stock subscribable and payable at the same time, to the amount of seven millions, would be no more aid to the Bank in discounting, with a view to redeeming its notes in specie, than so many Bank bills.  The amount of one million four hundred thousand dollars in specie, divided among the different branches, which he presumed would be immediately established, would, he argued, be insufficient for any operation what ever.  Let the Bank issue paper to produce any effect, and the specie in its vaults would be instantly withdrawn from them;  twenty-five days would be sufficient for that purpose.  It might be said the Banks would commence operations slowly and with caution;  but any man acquainted with the institution of Banks knows that the sum first paid in is nearly all that the stockholders ever pay.  The Bank would continue in operation forever, without taking from the stockholders any considerable sum more than the first instalment: for, as far as the Bank discounted, the second instalment would be paid into the Bank with the specie of the first instalment, &c.  This was a position so fully supported by all experience, that he presumed it would not be denied."

Mr. King, of New York, supported this motion.  "The gentleman from New Hampshire had conclusively shown, that one and a half millions was the greatest extent to which, as it now stood, the Bank could safely issue on a specie system.  Illustrating his view of the subject by a detailed statement of the process, he said, that the first discounts of the Bank being necessarily to those most pressed by the State Banks, the proceeds of the discounts would immediately find their way to the State Banks.  Under this view, a million and a half would be a sum entirely too small to enter into a competition with the existing Banks."

Mr. Bibb, of Georgia, and Mr. Barbour of Virginia, opposed the motion.  In reply to some remarks by these gentlemen, Mr. Mann said, "he knew of no law of the United States which authorized any officer of the Government to receive any part of the spurious money, which the gentleman said was in circulation.  The laws were already perfect on this subject.  If the executive officers had received other moneys in payment than those authorized by law, they had acted without law, without right.  The remedy now proposed, was, Mr. M. thought, something like Sangrado's practice: more Bank paper of the same sort – more hot water for the same evil."

Mr. Mann's motion to amend was rejected.  Mr. Wells opposed the bill on constitutional grounds, and because he did not believe it would have the effect intended.  "This bill," he said; "came out of the hands of the Administration ostensibly for the purpose of curtailing the over issue of Bank paper: and yet it came prepared to inflict upon us the same evil, being itself nothing more than simply a paper making machine;  and constituting, in this respect, a scheme of policy about as wise, in point of precaution, as the contrivance of one of Rabelais' heroes, who hid himself in the water for fear of the rain.  The disease, it is said, under which the people labor, is the Banking fever of the States;  and this is to be cured by giving them the Banking fever of the United States."

So little effect have the strongest arguments on men whose minds are made up, that the bill was passed by the Senate on the 3d of April, by a vote of 22 to 12: and returned to the House for concurrence in certain amendments, not important enough to deserve special notice.

When the question on concurrence with the amendments of the Senate was stated, "Mr. Randolph declared himself the holder of no stock whatever, except live stock, and had determined never to own any: but, if this bill passed, he would not only be a stockholder to the utmost of his power, but would advise every man, over whom he had any influence to do the same, because it was the creation of a great privileged order of the most hateful kind to his feelings, and because he would rather be the master than the slave.  If he must have a master, let him be one with epaulettes – something that he could fear and respect, something that he could look up to – but not a master with a quill behind his ear."

Mr. Webster "animadverted on what he called a compromise of principle, on a great moneyed institution, and the desertion, not only of principles, but of friends, which had characterized the proceedings of this bill."

A motion to postpone the bill indefinitely, was decided in the negative on the 4th of April, by a vote of 67 to 91.  The amendments made by the Senate were concurred in by the House;  and on the 10th of April the bill was approved by James Madison, the President.

At the same session of Congress, a resolution was passed declaring that, after the 20th of February, 1817, nothing but gold and silver, treasury notes, and the notes of specie paying Banks, ought to be received in payment of dues to the United States.

An incident which occurred in the beginning of this year, deserves mention, as an example of the power the Banks had over the community.  A Mr. Fisher, a gentleman of Richmond, wished to enforce the payment of ten notes for 100 dollars each, which had been issued by a Bank in Virginia.  It had been his wish to bring a suit against the Bank in 1815, but he could not find any gentleman of the bar at Richmond, who was willing to undertake the business.  He at length succeeded in engaging a lawyer, and, in January, 1816, regular proceedings were instituted: but the President of the Bank refused to obey the summons.  The sheriff called to his aid a posse comitatus, and the President was forcibly taken before the court.  The Bank still refusing to pay the amount of its notes, its doors were closed by the sheriff.  It then brought suit against Mr. Fisher, laying its damages at 10,000 dollars, and also took measures for instituting legal proceedings against the sheriff !  The doors of the Bank were surreptitiously opened, and the Bank continued its operations, thus gaining a new triumph over the laws.

The Banks of other parts of the country, evinced an equal indisposition to obey the laws of the land.  Notwithstanding that the resolution of Congress designated the 20th of February, 1817, as the day after which the notes of non-specie paying Banks ought not, to be received in payment of dues to Government, "the principal Banks in the Middle States explicitly stated" to the Treasury Department, in the month of August, "their determination not to resume specie payments before the 1st of July, 1817."48  Mr. Dallas had, however, become weary of treating with the Banks as with independent sovereignties.  He gave public notice, on the 12th of September, that the resolution of Congress would be enforced.  But the delegates of the Banks of New York, Philadelphia, Baltimore, and the District of Columbia, assembled at New York on the 16th of September, bid him defiance, by resolutions which they published, fixing on the 1st of July for the resumption of specie payments.

The resolution of Congress was, however, of such a nature that it could not easily be evaded;  and it was not a little strengthened, by an act of the Legislature of New York, imposing a penalty of twelve per cent. on any Bank within that commonwealth, which should not pay its notes on demand.  An act of this kind had been brought before the Legislature in April, 1815, but the fair promises of the Banks, and the exertions of their agents, prevented its being adopted in that year.  Tired out by the subterfuges of the moneyed corporations, the Legislature at last adopted this salutary measure.


45.   BOLLMAN, Eric, physician, born in Hoya, Hanover, in 1769; died in Jamaica, WI., 9 December 1821  He studied medicine at Götingen, and practiced in Carlsruhe and in Paris, where he settled at the beginning of the French revolution  He accompanied Count Narbonne, who fled to England in 1792, and in London fell in with Lally-Tollendal, who induced him to go to Austria and endeavor to find out where General Lafayette was kept in confinement  He established himself as a physician in Vienna  Learning that Lafayette was a prisoner at Olmutz, he formed a plan to rescue him with the assistance of Francis Kinlock Huger, a young American.  Communicating with the prisoner through the prison surgeon, the two fell upon his guards while he was taking exercise in a carriage, and succeeded in getting him away on a horse; but he rode in the wrong direction and was recaptured  Dr. Bollman escaped to Prussia, but was handed over to the Austrian authorities, which kept him in prison for nearly a year, and then released him on condition that he should leave the country  He came to the United States and was well received; but in 1806 was implicated in Aaron Burr's conspiracy and was Burr's agent in New Orleans  In 1814 he returned to Europe, and, after another visit to the United States, took up his residence in London  He published "Paragraphs on Banks" (2d ed., Philadelphia, 1811); "Improved System of the Money Concerns of the Union" (1816);  and "Strictures on the Theories of M. Ricardo."

46.   Plan of an Improved System of the Money Concerns of the Union. Philadelphia, Jan. 16, 1816.

47.   Letters to the Directors of the Banks, March 27th, 1816.

48.   Letter of Mr. Dallas, November 29th, 1816.