The Journal of Banking
by William M. Gouge,
Prices of Bank Notes.
We beg the reader not to suppose that the table which is found in this number, on pages 354-5, cost us as little trouble to prepare it, as it costs him to look at it. On that table, or rather on the tables from which it has been farmed, many days' labor have been bestowed.
It has been compiled (with the exception of the column for 1841,) from various tables which were prepared by us, or under our direction, while we were in the Treasury Department. It is, however, well worth the labor that has been bestowed upon it: for, to those who will make a proper use of it, it will serve for a condensed history of the currency for more than a quarter of a century.
A few prominent facts should be borne in mind in perusing this table.
On the 30th of August, 1814, the Philadelphia banks suspended specie payments for the first time, and the other banks in the middle and southern states within a week or two of that date. The New Orleans Banks had suspended payment in the April previous; but the Banks of Kentucky and Ohio continued to pay specie till about the 1st of January, 1815: and the only bank then in Tennessee, did not suspend payment till July or August, 1815. Through the whole of this, the first general suspension of specie payments, the Banks of New England continued to pay specie, with the exception of a few banks in Maine that stopped payment early in 1814.
During the first suspension of specie payments, the notes of non-specie paying banks were received in payment of public dues.
On the 1st of January, 1817, the Bank of the United States commenced operations at Philadelphia. Of the effect it had in "regulating the currency," the reader can judge for himself. The table gives the prices of western and southern bank notes at Philadelphia, in that and each subsequent year.
On the 21st of February, 1817, the United States Government refused any longer to receive the notes of non-specie paying banks in payment of public dues.
In 1824, the system, known as the Suffolk Bank system, and which has been described in previous numbers of this Journal, was adopted in New England. The reader, on scanning the table, will not fail to be struck with the uniformity of value which the notes of the many hundred banks of the Eastern States have since maintained, and this whether the banks have sustained or suspended specie payments.
On the 11th of May, 1837, the New York and Natchez banks suspended specie payments: and as fast as the news spread from these two cities, east, west, north and south, the other banks suspended also. In this, the second general suspension of specie payments, the banks of New England were included.
In one year afterwards, or in May, 1838, the New York banks resumed specie payments, and their conduct was immediately followed by the banks of New England. These banks have since (with the exception of the banks of Rhode Island,) steadily maintained specie payments.
In August, 1838, the banks of Philadelphia professed to resume specie payments; and by the 1st of January, 1839, there was at least a nominal resumption of specie payments throughout the Union.
In a little more than a year, or on the 9th of October, 1839, the banks of Philadelphia suspended specie payments for the third time, and their example was quickly imitated by all the banks to the south and west, and also by the banks of West Jersey and Rhode Island. The Bank of Missouri did not, indeed, suspend payment on its own notes; but as it traded on the notes of other western banks, it became an issuer of inconvertible paper. The banks of Rhode Island soon resumed specie payments. The banks of South Carolina resumed specie payments in June or July, 1840. All the other banks to the south and west of New York, (with the exception of the East Jersey banks, and a few others scattered in different places) continued to refuse payment of specie on demand.
January 15th, 1841, the banks of Philadelphia resumed specie payments, and sustained them for about twenty days, or until the 4th of February. They then, for the fourth time, suspended specie payments; and did wot resume them again till the 18th and 19th of March, 1842.
The tables we have given in different numbers of this Journal of the "Prices of Bank Notes and Specie," will enable any one who is so disposed, to prepare for himself a synopsis of the fluctuations in the prices of bank notes in the first part of the year 1842. Some may find the preparation of such a synopsis a very useful exercise.
In the first year of the existence of the North American Trust and Banking Company, offers were made to take stock in it to the amount of between twenty and thirty million dollars. Now its shares are worth nothing.
Cast another glance at the table on pages 354 and 355, and if you are an American, blush for your country. It has the worst currency of any country in the world. Other countries have their paper money systems, but none so vacillating and multifarious as ours. In Russia, the paper currency is so depreciated that three paper roubles and a half are worth no more than one silver rouble. But the paper is fixed at this rate, and it has one value throughout the empire. In Buenos Ayres, twenty paper dollars are worth no more than one silver dollar; but there is but one kind of paper money in circulation in that republic.
Here is an exhibit of the state of our currency, not for two or three years, but for more than twenty-six years, and under the presidencies of Madison, Monroe, Adams, Jackson, Van Buren, Harrison, and Tyler, and under the operations of the old State Bank system, the National Bank system, and "the Pet Bank" system. Every man of sense will admit that as one people, we ought to have a common standard and common measures of value throughout the Union; and that the standard and the measures of value when once correctly fixed ought never be changed. This was what the framers of the Constitution intended, when they prohibited the States from issuing bills of credit, and gave to Congress the exclusive power of coining money. But through the establishment of paper money banks, these wise intentions have been completely frustrated.
The Panic of 1825.
In the latter part of this number, pages 366-8 will be found some of the particulars of the panic of 1825. The effects were very serious in this country, but were trifling in comparison with what was suffered in England.
In consequence of the measures taken for the resumption of specie payments, there was a great influx of gold into Great Britain between the years 1820 and 1823. Encouraged by the prosperous appearance of things, the Bank of England, in 1824, reduced its rate of discount from 5 to 4 per cent. An increase of medium was made about the same time by the country banks. The natural consequence was that the country appeared to enjoy unexampled prosperity. "Silver is with us," said one writer, "as in the days of Solomon, counted nothing of." This artificial plenty of money showed itself first in a rise of Government Stocks, both British and Foreign, and then in the price of land, which advanced to forty or fifty years' purchase. It led also to the formation of two hundred and seventy-six joint stock companies, requiring capitals to the amount of 174 million pounds sterling, or about 850 million dollars.
In February, 1825, stocks were raised so high, that there was no prospect of a further rise. A transfer of funds then took place from the Stock to the Commercial Exchange. And so great was the rage for speculating in colonial produce, that, on one day, four or five hundred merchants forgot or disregarded the hour of closing the London Exchange, and were locked up in it, from a quarter past four till half past five o'clock, when, on their earnest entreaty, they were released. Transactions were on the scale of the largest magnitude: and the same parcels of goods changed hands a dozen times, leaving large profits to the several purchasers.
In May, the Directors of the Bank of England, finding the exchanges turned against the country, deemed it expedient to reduce the amount of notes in circulation. The first effect of this measure was to check the rage for new joint stock companies. The next was to produce a scarcity of money among merchants. This was sensibly felt in August, and continued to increase daily. In November some of the principal city bankers failed, and their bankruptcy was followed by that of many of the country bankers. Distress pervaded all classes.
On the 12th and 13th of December, the difficulties in the money market of London, reached their height. Speaking of these two days, Mr. Huskisson said, "That during forty-eight hours, it was impossible to convert into money to any extent, the best securities of the Government. If the difficulties had lasted for only forty-eight hours longer, he believed the effect would have been to put a stop to all transactions between man and man."
On Wednesday, December 14th, the Directors of the Bank began to increase its issues. Mr. Joplin says, "The only consideration appeared to be how they could issue fast enough. The sovereigns they gave out by weight to save counting, and the notes as fast as they could be counted, until, in a few days, they had neither a sovereign nor a note left. On Saturday night they could not give any kind of exchange for fifteen of their one thousand pound notes, nor could change be had for them in Lombard street. The amount of the increase of their notes, according to a return furnished to Parliament, was as follows:
Nov. 19, 1825, they had L17,594,301 in circulation.
Dec. 3, .. .. 17,477,594
Dec. 17, .. .. 23,942,827
Dec. 24, .. .. 25,709,425
Feb. 22, .. .. 24,399,080
"This does not give the issues of gold, which are still unknown; but which could not have been less than four millions. Neither does it give the increase of issues which took place during the week of the panic. But it is not probable that the total amount of issues was much greater, either on the 10th of December, (the Saturday before,) or on Tuesday, the day before they altered their course of proceeding. If so, it makes the increased issues of notes in the week of the panic six millions [equal to twenty-nine million dollars,] the chief part of which took place in the last four days; and in the week following, the further increase was two millions, being eight millions in all, [more than 38 million dollars.] To this adding four millions of gold, make a total increase of twelve millions," --equal to fifty-eight million dollars.
This certainly exhibits wonderful powers of expansion in a bank. It was a bold operation which prevented a general bankruptcy in Europe and America. Mr. Huskisson said that "of this panic no man could tell what might have been the consequence, if the Bank had not stepped in, and by its timely and liberal interference, saved the country from destruction." Mr. Hume very correctly observed in reply, "That he must enter his protest against the praises which had been heaped on the Bank of England. It appeared to him, just as if an incendiary were to be praised, because, after he had kindled the flame, he endeavored to put it out."
It is well worthy of remark, that the reduction in the circulation of the Bank of England, between March and November, did not exceed three millions and a half. This was sufficient to produce a pressure for money, not only in England and the United States, but in France and in Holland, at the Cape of Good Hope, and at Calcutta. England being the regulating country of the commercial world, produces confusion everywhere, when her own affairs are in disorder. The circulation of the Bank of France was, between May and November, reduced from 237 to 189 million francs, or upwards of twenty per cent. and the reduction of the amount of loans was still more considerable. The Bank of Holland which has been established in the place of the old Bank of Amsterdam, issues no notes of a less denomination than eight dollars. But, being a credit bank, it is of course within the influence of that galvanic sympathy by which paper money banks in all parts of the world are affected. A demand for specie on any one of them, operates with the power of a lever: and when this demand is great on the Bank of England, all the others are forced to reduce their circulation.
Resumption of Specie Payments.
The Banks of Maryland resumed on the 3d of May. Those of Kentucky and Indiana have resolved to resume on the 15th of June. The Bank of Illinois, at Shawneetown, is, it is said, making preparations to resume on the same day. The banks of Virginia are required by law to resume on the 1st of November, but are inducing the people to believe that they will anticipate the day fixed on by the Legislature. The Banks of North Carolina have, it is reported, resumed already. The Banks of Louisiana are required by law to resume on the 1st of December. The Miners' Bank at Dubuque, Iowa, is about resuming.
Georgia, Tennessee, and Alabama, appear to be the only States in "the suspended district," the banks of which have any semblance of strength left, which are not engaged in this resumption movement. The banks of Arkansas, Mississippi, Florida, and Wiskonsan, appear to be too much shattered even to make the attempt.
In Pennsylvania, "the Act of Assembly" to the contrary notwithstanding, none of the banks have resumed specie payments, except those of the cities of Pittsburg and Philadelphia, and those of the few counties nearest to Philadelphia, namely, Delaware, Chester, Montgomery, and Bucks. [Perhaps the Bank of Middleton, lately removed to Harrisburg, should be excepted.] The notes of the Farmers' Bank of Reading, only 50 miles from Philadelphia, are at 12½ to 20 per cent. discount: and those of the different banks in the city of Lancaster, (only sixty miles distant,) are at 10 to 20 per cent. discount.
Our currency, taking the state throughout, is in a much worse condition than it was before the meeting of the Legislature. The reason for this is to be found in the fact, that the resumption was made on wrong principles. The first measure should have been the withdrawing of "the relief notes" from circulation. The next should have been a prohibition to the banks to make any new loans, discounts, or dividends, while they were in a state of suspension. These measures would have brought about "a resumption" without a convulsion, and millions of dollars which are now irretrievably lost, would have been saved by the citizens of the State.
A meeting has been held in a tavern somewhere in this state, "by a number of gentlemen, members of the Democratic party," in which the hard money men have been denounced as a faction.
This has not deterred a number of citizens of Litchfield, Medina County, from entering into an agreement not to receive or pay any thing but hard money.
Perhaps it will ultimately be found that it will be only by the action of the people themselves that the paper money evil can be put an end to. Judging from past experience, little is to be hoped for from the action of Congress, or that of the State Legislatures.
The last number of the Farmers' Register, published at Petersburg, contains a very interesting article from the pen of the editor, on the subject of the banks of Virginia.
From it we learn that fifty-five members of the last General Assembly of Virginia were in debt to the banks in the gross sum of $111,675.
That the bank directors (so far as reported, and the reports are not complete) were indebted to the banks as principals and indorsers, individually or as members of commercial firms, $2,321,080, or nearly one-fourth of all the capital of all the banks in the State.
That very few of the directors have any interest in the banks as stockholders, beyond the exact amount that the law requires them to own, to make them eligible to the appointment. This is five shares.
That the cost of all the banking houses in Virginia amounts to $495,495.
That the salaries of all the officers of the banks of Virginia, amounts to more than $200,000 a year, or nearly as much as would have paid the legitimate and proper expenses of the civil government of the commonwealth, before it was involved in banking and in debt.
The editor of the Register is of opinion that there will be no real resumption in Virginia.
"The branch bank system, (which alone would serve to render any bank irresponsible and therefore corrupt and dishonest) of itself will suffice to protect the banks from paying any thing worth notice for a month, or for several months. And within one month the Legislature will be in session, and ready to grant any relief to the banks and continued indulgence to the suspension."
In some portions of the western part of Virginia, things would, from the following extract from the Morgantown Republican, appear to be in a deplorable condition.
"We are told that in the adjoining county of Harrison, the Deputy Sheriffs have thrown up, and given notice to the High Sheriff that they will no longer act, and that in the lower end of the same county, the people met to the number of four hundred or more, and passed resolutions that during the present state of affairs, they would resist the collection of all debts by the officers of the law. They entered into an agreement to chastise and ride upon a rail any man who would attend a sale of executed property for the purpose of bidding for it, and a number of other resolutions of the same import and bearing."
We seriously apprehend a general suspension of the Law in the Western part of Georgia. The Sheriff sloped and prevented a court in Murray; in Gilmer the Sheriff failed to raise money and went off to avoid a rule. We doubt whether there will be a court in Walker or Floyd. There is a large majority of suspension men in the Cherokee country, and they will elect a Sheriff who will perjure himself for the purpose of disappointing the courts." --Georgia paper.
"The Lumber Business."
Mr. Sharswood, the chairman of the committee of the Legislature, refused, with great propriety, to give up the letters which are supposed to contain evidence of the bribery and corruption used by the banks or their agents in 1840. And Judge Barton has discharged George Handy, D.M. Brodhead, and Joseph Solms, declaring that there was no evidence which would justify their being held longer under arrest.
The United States Bank.
As was expected, Nicholas Biddle, John Andrews, and Joseph Cowperthwaite (accused of a conspiracy to defraud the stockholders of the U.S. Bank) have been discharged by the Court of General Sessions. Judge Doren dissented herein, from the opinion of his colleagues, Judges Barton and Conrad.
The Pittsburg Mercury of May 4th, says, "last week many persons sold Indiana money for notes of the Merchants' Bank of Wheeling at a loss of ten per cent. This week they would be glad to sell the Wheeling bank notes for Indiana money at a loss of 15 per cent."
The Stock Market.
There has been a flare up in the stock market. Pennsylvania fives, which on the 4th of April, sunk to 33, afterwards rose to 50½, then sunk to 39, and after considerable fluctuations, are now at about 45. Most other stocks have also risen.
Specie and Coinage.
The imports of specie into the United States in the year ending September 30th, 1841, amounted to $4,908,408; and the exports to $10,020,044. Excess of exports $5,111,636.
The imports of specie in twenty-one years, from 1821 to 1841, inclusive, have amounted to $181,522,349: and the exports to $137,792,097. Excess of imports $43,730,252.
For the imports and exports in each year from 1821 to 1840, see page 196 of this Journal.
The United States Mint was established in 1793. From that time till Dec. 31st, 1841, the number of pieces coined at it and its branches amounted to upwards of 250 millions (257,864,336.) Their value was upwards of 86 million dollars (86,331,408.67.)
Pieces of Gold coined at Mint and Branches, 6,099,804: value, $29,182,720. Pieces of silver, 154,893,789: value, $56,217,184.90. Pieces of Copper, 96,870,743: value, $931,503.86.
The condition of that State is deplorable, in which the people, lose confidence in their Legislative, Judicial and Executive authorities. Yet such is the present condition of Pennsylvania; if the sentiments of the inhabitants of the rest of the State are to [be] judged of by those of the citizens of Philadelphia. The general belief here seems to be that the banking interest exercises an improper influence in all the departments of Government.
The affairs of the Pascoag (R.I.) Bank, alluded to in our last, have been examined by Commissioners, and the deficiency is found to be 12,000 dollars.
The following paragraph we copy from the Public Ledger of this city, under date of May 4th.
"A number of defalcations have taken place in Georgia, which have not yet been made public. The persons charged are officers in the Augusta Insurance and Banking Company, the Augusta Branch of the State Bank, the Georgia Insurance and Trust Company, and two of the Savannah Banks. One of the defalcations is said to be for a large sum. It is said, too, that Levi Eckley, of Macon, a man of high standing as a merchant, and formerly a member of the State Senate, has absconded, under the charge of forgery to a very large amount; and that I.G. Seymour, President of the Branch Bank of the State, and formerly Mayor of that city, absconded some time ago, under the charge of embezzling a large sum of the money of the Bank, which he had but very recently sworn to be safe in its vaults. The money was supposed to have been long used in speculation."
The Real Estate Bank of Arkansas, has made an assignment. It had five branches and a nominal capital of $1,530,000, or, counting certain State bonds unsold in Nov. 1840, (the date of the last return we have seen) $2,030,000. The only remaining bank in Arkansas, is the Bank of the State. It has three branches, and had in October, 1840, a nominal capital of $1,502,760. It is believed that it also, must soon go into liquidation.
The Foreign News.
Paper money banks are breaking in Great Britain as well as in the United States. Among those that have recently exploded, are a bank at Brighton, and the bank of Renfrewshire. The former was, till lately, regarded as one of the most substantial of the country banks. The latter will pay so small a dividend as would almost disgrace a bank in Mississippi or Michigan. The system is the same in essentials in England and America.
Owing to an influx of the precious metals into England, the Bank of England has reduced the rate of discount from 6 to 4 per cent. This, under ordinary circumstances, would cause an expansion in the United States. Under present circumstances, it will alleviate the evils produced by the folly of Bank Directors, and members of State Legislatures.
Our thanks are due to gentlemen at Spring Hill, and Columbia, Tennessee, and other places, for additions to our list of subscribers.
To the Hon. J.C. Calhoun of the U.S. Senate, to the Hon. C.G. Atherton and B.G. Shields of the U.S. House of Representatives, and to S. Yorke At Lee, Esq., of Detroit, Michigan, we are indebted for valuable papers.