Volume IV Part 19 (2/2)

The avarice of the State banks was immediately inflamed by the war necessities of the National Government. Desperate for money, the Treasury exchanged six per cent United States bonds for the notes of State banks.[462] The Government thus lost five million dollars from worthless bank bills.[463] These local inst.i.tutions now became the sole depositories of the Government funds which the National Bank had formerly held.[464] Sources of gain of this kind were only extra inducements to those who, by wit alone, would gather quick wealth to set up more local banks. But other advantages were quite enough to appeal to the greedy, the dishonest, and the adventurous.

Liberty to pour out bills without effective restriction as to the amount or security; to loan such ”rags” to any who could be induced to borrow; to collect these debts by foreclosure of mortgages or threats of imprisonment of the debtors--these were some of the seeds from which grew the noxious financial weeds that began to suck the prosperity of the country. When the first Bank of the United States was organized there were only three State banks in the country. By 1800, there were twenty-eight; by 1811, they had more than trebled,[465] and most of the eighty-eight State inst.i.tutions in existence when the first National Bank was destroyed had been organized after it seemed probable that it would not be granted a recharter.

So rapidly did they increase and so great were their gains that, within little more than a year from the demise of the first Bank of the United States, John Adams records: ”The Profits of our Banks to the advantage of the few, at the loss of the many, are such an enormous fraud and oppression as no other Nation ever invented or endured. Who can compute the amount of the sums taken out of the Pocketts of the Simple and h.o.a.rded in the Purses of the cunning in the course of every year?... If Rumour speaks the Truth Boston has and will emulate Philadelphia in her Proportion of Bankruptcies.”[466]

Yet Boston and Philadelphia banks were the soundest and most carefully conducted of any in the whole land. If Adams spoke extravagantly of the methods and results of the best managed financial inst.i.tutions of the country, he did not exaggerate conditions elsewhere. From Connecticut to the Mississippi River, from Lake Erie to New Orleans, the craze for irresponsible banking spread like a contagious fever. The people were as much affected by the disease as were the speculators. The more ”money”

they saw, the more ”money” they wanted. Bank notes fell in value; specie payments were suspended; rates of exchange were in utter confusion and constantly changing. From day to day no man knew, with certainty, what the ”currency” in his pocket was worth. At Vincennes, Indiana, in 1818, William Faux records: ”I pa.s.sed away my 20 dollar note of the rotten bank of Harmony, Pennsylvania, for five dollars only!”[467]

The continuance of the war, of course, made this financial situation even worse for the Government than for the people. It could not negotiate its loans; the public dues were collected with difficulty, loss, and delay; the Treasury was well-nigh bankrupt. ”The Department of State was so bare of money as to be unable to pay even its stationery bill.”[468] In 1814, when on the verge of financial collapse, the Administration determined that another Bank of the United States was absolutely necessary to the conduct of the war.[469] Scheme after scheme was proposed, wrangled over, and defeated.

One plan for a bank[470] was beaten ”after a day of the most tumultuous proceedings I ever saw,” testifies Webster.[471] Another bill pa.s.sed,[472] but was vetoed by President Madison because it could not aid in the rehabilitation of the public credit, nor ”provide a circulating medium during the war, nor ... furnish loans, or antic.i.p.ate public revenue.”[473] When the war was over, Madison timidly suggested to Congress the advisability of establis.h.i.+ng a National bank ”that the benefits of a uniform national currency should be restored.”[474] Thus, on April 10, 1816, two years after Congress took up the subject, a law finally was enacted and approved providing for the chartering and government of the second Bank of the United States.[475]

Within four years, then, of the refusal of Congress to recharter the sound and ably managed first Bank of the United States, it was forced to authorize another National inst.i.tution, endowed with practically the same powers possessed by the Bank which Congress itself had so recently destroyed.[476] But the second establishment would have at least one advantage over the first in the eyes of the predominant political party--a majority of the officers and directors of the Bank would be Republicans.[477]

During their four years of ”financial liberty” the number of State banks had multiplied. Those that could be enumerated in 1816 were 246.[478] In addition to these, scores of others, most of them ”pure swindles,”[479]

were pouring out their paper.[480] Even if they had been sound, not half of them were needed.[481] Nearly all of them extended their wild methods. ”The Banks have been going on, as tho' the day of reckoning would never come,” wrote Rufus King of conditions in the spring of 1816.[482]

The people themselves encouraged these practices. The end of the war released an immense quant.i.ty of English goods which flooded the American market. The people, believing that devastated Europe would absorb all American products, and beholding a vision of radiant prosperity, were eager to buy. A pa.s.sion for extravagance swept over America;[483] the country was drained of specie by payments for exports.[484] Then came a frenzy of speculation. ”The people were wild; ... reason seemed turned topsy turvey.”[485]

The mult.i.tude of local banks intensified both these manias by every device that guile and avarice could suggest. Every one wanted to get rich at the expense of some one else by a mysterious process, the nature of which was not generally understood beyond the fact that it involved some sort of trickery. Did any man's wife and family want expensive clothing--the local bank would loan him bills issued by itself, but only on good security. Did any man wish to start some unfamiliar and alluring enterprise by which to make a fortune speedily--if he had a farm to mortgage, the funds were his. Was a big new house desired? The money was at hand--nothing was required to get it but the pledge of property worth many times the amount with which the bank ”accommodated” him.[486]

Indeed, the local banks urged such ”investments,” invited people with property to borrow, laid traps to ensnare them. ”What,” asked Hezekiah Niles, ”is to be the end of such a business?--Mammoth fortunes for the _wise_, wretched poverty for the _foolish_.... Lands, lots, houses--stock, farming utensils and household furniture, under custody of the sheriff--SPECULATION IN A COACH, HONESTY IN THE JAIL.”[487]

Many banks sent agents among the people to hawk their bills. These were perfectly good, the harpies would a.s.sure their victims, but they could now be had at a heavy discount; to buy them was to make a large profit.

So the farmer, the merchant, even the laborer who had acquired a dwelling of his own, were induced to mortgage their property or sell it outright in exchange for bank paper that often proved to be worthless.[488]

Frequently these local banks ensnared prosperous farmers by the use of ”cappers.” Niles prints conspicuously as ”A True Story”[489] the account of a certain farmer who owned two thousand acres, well improved and with a commodious residence and substantial farm buildings upon it. Through his land ran a stream affording good water power. He was out of debt, prosperous, and contented. One day he went to a town not many miles from his plantation. There four pleasant-mannered, well-dressed men made his acquaintance and asked him to dinner, where a few directors of the local bank were present. The conversation was brought around to the profits to be made in the milling business. The farmer was induced to borrow a large sum from the local bank and build a mill, mortgaging his farm to secure the loan. The mill was built, but seldom used because there was no work for it to do; and, in the end, the two thousand acres, dwelling, buildings, mill, and all, became the property of the bank directors.[490]

This incident is ill.u.s.trative of numerous similar cases throughout the country, especially in the West and South. Niles thus describes banking methods in general: ”At first they throw out money profusely, to all that they believe are _ultimately_ able to return it; nay, they wind round some like serpents to tempt them to borrow--... they then affect to draw in their notes, ... money becomes scarce, and notes of hand are _shaved_ by them to meet bank engagements; it gets worse--the _consummation originally_ designed draws nigh, and farm after farm, lot after lot, house after house, are sacrificed.”[491]

So terrifying became the evil that the Legislature of New York, although one of the worst offenders in the granting of bank charters, was driven to appoint a committee of investigation. It reported nothing more than every honest observer had noted. Money could not be transmitted from place to place, the committee said, because local banks had ”engrossed the whole circulation in their neighborhood,” while their notes abroad had depreciated. The operations of the bankers ”immediately within their vicinity” were ruinous: ”Designing, unprincipled speculator[s] ...

impose on the credulity of the honest, industrious, unsuspecting ... by their specious flattery and misrepresentation, obtaining from them borrowed notes and endors.e.m.e.nts, until the ruin is consummated, and their farms are sold by the sheriff.”[492]

Some banks committed astonis.h.i.+ng frauds, ”such as placing a partial fund in a distant bank to redeem their paper” and then ”issuing an emission of notes signed with ink of a different shade, at the same time giving secret orders to said bank not to pay the notes thus signed.” Bank paper, called ”_facility notes_,” was issued, but ”payable in neither money, country produce, or any thing else that has body or shape.” Bank directors even terrorized merchants who did not submit to their practices. In one typical case all persons were denied discounts who traded at a certain store, the owner of which had asked for bank bills that would be accepted in New York City, where they had to be remitted--this, too, when the offending merchant kept his account at the bank.

The committee describes, as ill.u.s.trative of banking chicanery, the instance of ”an aged farmer,” owner of a valuable farm, who, ”wis.h.i.+ng to raise the sum of one thousand dollars, to a.s.sist his children, was told by a director, he could get it out of the bank ... and that he would endorse his note for him.” Thus the loan was made; but, when the note expired, the director refused to obtain a renewal except upon the payment of one hundred dollars in addition to the discount. At the next renewal the same condition was exacted and also ”a judgment ... in favor of said director, and the result was, his farm was soon after sold without his knowledge by the sheriff, and purchased by the said director for less than the judgment.”[493]

Before the second Bank of the United States opened its doors for business, the local banks began to gather the first fruits of their labors. By the end of 1816 suits upon promissory notes, bonds, and mortgages, given by borrowers, were begun. Three fourths of all judgments rendered in the spring of 1818 by the Supreme Court of the State of New York alone were ”in favor of banks, against real property.”[494] Suits and judgments of this kind grew ever more frequent.

In such fas.h.i.+on was the country hastened toward the period of bankruptcy. Yet the people in general still continued to demand more ”money.” The worse the curse, the greater the floods of it called for by the body of the public. ”Like a dropsical man calling out for water, water, our deluded citizens are clamoring for more banks.... We are now taught to believe that legerdemain tricks upon paper can produce as solid wealth as hard labor in the earth,” wrote Jefferson when the financial madness was becoming too apparent to all thoughtful men.[495]

Practically no restrictions were placed upon these financial freebooters,[496] while such flimsy regulations as their charters provided were disregarded at will.[497] There was practically no publicity as to the management and condition of even the best of these banks;[498] most of them denied the right of any authority to inquire into their affairs and scorned to furnish information as to their a.s.sets or methods.[499] For years the Legislatures of many States were controlled by these inst.i.tutions; bank charters were secured by the worst methods of legislative manipulation; lobbyists thronged the State Capitols when the General a.s.semblies were in session; few, if any, lawmaking bodies of the States were without officers, directors, or agents of local banks among their members.h.i.+p.[500]

Thus bank charters were granted by wholesale and they were often little better than permits to plunder the public. During the session of the Virginia Legislature of 1816-17, twenty-two applications for bank charters were made.[501] At nearly the same time twenty-one banks were chartered in the newly admitted and thinly peopled State of Ohio.[502]

The following year forty-three new banks were authorized in Kentucky.[503] In December, 1818, James Flint found in Kentucky, Ohio, and Tennessee a ”vast host of fabricators, and venders of base money.”[504] All sorts of ”companies” went into the banking business.

Bridge companies, turnpike companies, manufacturing companies, mercantile companies, were authorized to issue their bills, and this flood of paper became the ”money” of the people; even towns and villages emitted ”currency” in the form of munic.i.p.al notes. The City of Richmond, Virginia, in 1815, issued ”small paper bills for change, to the amount of $29,948.”[505] Often bills were put in circulation of denominations as low as six and one fourth cents.[506] Rapidly the property of the people became enc.u.mbered to secure their indebtedness to the banks.

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