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CHAPTER VII.

BANKING AND CURRENCY.

Old United States Banks-Paper Money-Liberal Charters and Monopolies-Opposed by General Jackson and the Democracy-Collapse of a Rotten Institution- Wild Cat" Money-Establishment of United States Sub-Treasury System-Specie and "Greenbacks"-National Banks.

Ir is now proposed to give an account of the United States Bank, and, incidentally, of the issue of paper money by the general government. This subject also includes the National Banks and their issue of currency as authorized by the government. As the right of doing so is seriously questioned, and as the question is second to none in general importance, the subject will receive all the attention necessary to a correct understanding of the general principles of a sound circulating medium. Of all the questions upon which a people have to decide, there is is none more involved in the fog of obscurity, and yet none that yields more readily to the light of common sense than this.. And it may be also said that there is none more important in its consequences on the welfare of a nation, for, with an easily easily disarranged or unstable currency there can be no established and settled standard of values-there will be

excessive and wild periods of inflation of prices, necessarily to be followed by corresponding depression and financial ruin.

1

The first emission of paper money by the United Colonies, known as Continental money, was issued in 1775. Other issues were authorized from time to time until the amount outstanding reached three hundred millions of dollars. The value steadily declined until at the end of the Revolutionary War it was totally worthless. It is now at this distant day common to speak of a valueless thing as "not worth a continental." It is one of the saddest reflections attending the Revolutionary War, that in addition to the hardships and loss of life which those noble men endured, there was added nearly the total loss of all the means which were patriotically loaned to Congress to aid in the great struggle. The first bank established in America was the Bank of North America in Philadelphia, founded in 1781 by Robert Morris. This bank commenced business with a capital of $400,000, of which $254,000 were subscribed by the government. Its notes were made by law receivable for duties and taxes in every State, and from the respective States by the treasury of the United States. This bank, incorporated in 1782 by the State of Pennsylvania, is still in existence under the national system, with a capital of $1,000,000 and $1,000,000 surplus. The first bank of the United States was

established at Philadelphia in 1791. The principal features were, charter for twenty years, capital $10,000,000, payable by subscribers in onefourth specie, the remainder in United States stocks. The notes of issue, payable in specie, were legal tender. The government was also to subscribe for $2,000,000, in consideration of which the bank loaned the government the same amount to be paid within ten years.

This bank, devised by Alexander Hamilton, was highly successful. Its charter expired in 1811, when opposition was manifested against it in the House of Representatives, which prevented a renewal of its charter. Besides paying annual dividends of 10 to 12 per cent., the stockholders received a premium of 8 per cent. on the par value in the final settlement.

The Second Bank of the United States, chartered in 1816, grew out of the disordered state of the finances caused by the war of 1812. The capital was $35,000,000, of which $7,000,000 was subscribed by the government. Its privileges consisted of the following, as summed up by Mr. Benton :

1st. "To carry on the) business of banking on the revenue and credit of the United States, and in the name thereof."

2d. "To hold the moneys of the United States without making compensation for undrawn balances."

4th. "To discredit other banks by excluding their notes in the collection of the revenues."

5th. "The stockholders to be exempt from liability on failure of the bank."

6th. "The monopoly of these privileges." The charter was to run for twenty years; but in 1829, President Jackson, in his message to Congress, condemned the institution as unconstitutional and unnecessary, and strongly advised the repeal of its charter. Then commenced a furious altercation, which was in 1832 the leading feature of the contest between Mr. Clay and General Jackson for the Presidency, and which resulted in the triumphant re-election of General Jackson. In the same year the bank applied for a new charter, although its present charter had yet four years to run. In this attempt it was defeated by the veto of General Jackson, and in 1836 it procured a charter from the State of Pennsylvania, under which it continued business under the same name after the expiration of the United States charter. In 1837 it suspended specie payments, in common with all the other banks, and again in 1840, when in compliance with a resolution of the State Legislature, it was compelled to resume or suspend. On winding up its affairs, after paying off its debts, there remained nothing to its stockholders, its entire capital having been sunk.

In a political aspect it may be said that the charter of the first United States Bank was opposed by the leading Democrats of the time, and at the expiration of its charter a renewal

was prevented by a strict party vote. In 1815 a charter having passed in Congress, was vetoed by President Madison, and was very reluctantly signed by him the following year. President Jackson was strongly opposed to it, and his opposition was the occasion of very great abuse by the friends of that institution. Believing the institution unsound, he took the liberty, as his position required him to do, to remove the govcrnment deposits from the bank, which hastened its downfall. That the institution was rotten, its utter collapse shortly afterwards abundantly proved, and that the government should allow any set of men to "bank" on the government surplus money no one will now claim.

The State and "Safety Fund Banks" had no political significance. They were chartered in large numbers by the different State governments, it being estimated that there were no fewer than 1,500 in existence in 1856. Their circulation not being sufficiently secured, there had been much loss, especially in the Western States, through these institutions. The old designation "Wild Cat" will be remembered by all who had occasion to handle money forty years ago. The remedy then proposed-a hard money currency arose out of the sense of insecurity felt in the solvency of these institutions. The gen

eral failure of those in existence was directly occasioned by the order of General Jackson to refuse these "wild-cat" issues in payment for

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