be $2,603,000. The working capital of the institution was obtained by the issue of State bonds, of which $2,000,000 were authorized. These, however, it was found impossible to sell until after the resumption of specie payments in the northeast had in some degree restored public confidence. In September, 1838, $500,000 of them were sold to the Secretary of the United States Treasury for the investment of certain funds of the Smithsonian Institution, and $1,000,000 of them to ae North American Trust and Banking Company at New York. The remaining $500,000 were never sold, though in 1840 an attempt was made to raise money by hypoth cating them.

On the 12th of December, 1838, the head office of the bank at Little Rock opened its doors for business, which began with a rush. The offices at Helena, Columbia and Washington followed, upon February 15, March 5 and April 1, 1839, respectively. By their combined action the loans and discounts aggregated $1,290,339.22 by May 29th, and by the following November, $1,585,190.80. In spite of the fact that its total circulation at the time amounted to but $156,910, to meet which it had in specie $111,967.54, the bank suspended specie payments on November 2d, 1839. No reason for this action can be found except that the managers were bent on giving "relief," and wished to extend their loans and discounts further than would be practicable if they continued to pay specie. Indeed, this was the motive conceded by the president in a sort of proclamation issued at the time, from which the following is an extract:

*

*

66

*

As long as the bank paid specie it was found impossibic to keep out as much money as the public wants and the business of the country rendered proper. It cannot but be proper that a prudent expansion of the currency of the State should be produced-an expansion which should, and it is hoped will, be so gradual and guarded as to avoid a too stinted accommodation to the public on the one hand, and an unduly depreciated currency on the other."

The "prudent expansion of the currency was brought about by an increase in the circulation of the bank from $156,910, November 1st, to $328,400, January 1st; and-evidently fearing that this might afford "a too stinted accommodation to the public"-a further increase to $759,000 by May was effected. The paper depreciated rapidly, falling to a discount of 35 or 40 per cent. This seems to have struck the managers as "unduly depreciated currency," for they appointed a committee "to devise the ways and means for securing, if practicable, the appreciation in value of the paper of this bank." What arrangements were devised is not stated; but as late as September, 1840, the cashier states that the notes were then at 35 to 40 per cent. discount at Little Rock. By the end of November, however, this discount seems to have been only 14 to 20 per cent.

Meanwhile the "accommodation to the public" had not been much "stinted.” The loans and discounts increased from $1,585,190.80 on November 1st, 1839, to $2,158,869.57 a year later-and the amount in May had been even larger. But it was found harder to collect the loans as they fell due than it had been to grant them. The bank was obliged to hypothecate the $500,000 of bonds undisposed of in order to secure specie funds to meet the interest payments on the $1,500,000 of bonds already issued.

After May, 1840, the directors reduced both circulation and loans and discounts, as follows:

*Including $130,059 held in the vaults of the Bank of the State. Both institutions were in liquidation at the latter date.

On April 2d, 1842, the directors made an assignment of all the effects of the institution to certain of their own number as trustees, to close up the affairs of the bank. The Legislature in January, 1843, passed "An act to settle and liquidate the affairs of the Real Estate Bank of Arkansas;" but the self appointed trustees disregarded the act and refused to relinquish their control. For some unexplained reason no further legislation was had in the matter on the part of the State until 1853, when an act was passed in accordance with which the trustees were divested of authority and all the assets turned over to a receiver. At this time, November, 1855, the unredeemed circulation outstanding amounted to $49,320, of which $34,040 was redeemed and cancelled during the following year.

From the time of the assignment in April, 1842, up to the 1st of October, 1858, there were received by the bank in payment of debts due it 548 of the Real Estate bonds issued in 1838, amounting with accrued interest to $1,137,172.10. These

bonds were then canceled and retired. It was mainly in this way also that the circulation was reduced from $395,000 in 1842 to $15,000 in 1856. The bonds and circulating notes were in many cases purchased in the market at low rates by debtors, who used them in settlement of their debts to the bank, which was obliged to receive them at par. Some of the notes thus received, however, were afterwards paid out again; and in such cases there was usually a scaling down-i. e., the notes were paid out, not at their face, but at their market value-two hundred, three hundred, or even four hundred dollars in Arkansas notes being regarded as the equivalent of one hundred dollars in specie.

Neither bank seems to have sold its own notes outright for specie, though paying them out at their market value amounted practically to the same thing; but they played a game of give and take in selling each other's notes. The State Bank about 1848 sold $50,191 of Real Estate Bank paper to raise $13,425.36 "good money" with which to pay salaries; $37,690 more to raise $9,500 appropriated by the Legislature for rebuilding the penitentiary, and $18,149.36 to raise $4,667.19 in good funds for printing. In all, $106,030.36 of the notes of the Real Estate Bank were at that time sold to raise $27,592.54 in "good money." The Real Estate Bank also sold in January, 1848, $12,150 of notes of the State Bank to raise $3,645 in good funds.

As in the case of the Bank of the State, the remaining assets were not sufficient to offer any prospect of redeeming the balance of the bonds, the burden of which was left to be removed by taxation of the people of the State. On October 1, 1868, the total amount of unredeemed bonds issued on behalf of both banks, including interest, was $4,993,503.19. This was funded in 1869 into 30 year 6% bonds. MISSOURI.

The Constitution of Missouri, of 1820, contains the following section : "The General Assembly may incorporate one banking company, and no more, to be in operation at one time. The bank to be incorporated may have any number of branchés, not to exceed five, to be established by law, and not more than one branch shall be established at any one session of the General Assembly. The capital stock of the bank to be incorporated shall never exceed $5,000,000, at least -one-half of which shall be reserved for the use of the State."

The earliest venture of this State into the field of this study proved to have been beyond the limits set down by the Constitution [see Craig vs. State of Missouri, 4 Pet. (U. S.), 410]; yet it is especially interesting in this connection as being the nearest approach in any of the States to the Banks" of Rhode Island and the "loan issues" of several of the colonies in their earlier history.

On the 27th of June, 1821, the Legislature passed "an act for the establishment of loan offices," by the third section of which the treasury officers, under the direction of the governor, were required to issue certificates to the amount of $200,000 in denominations from 50 cents to $10, bearing two per cent. interest. These certificates were receivable at the treasury and by all public officers, towns and counties, in payment of taxes and public dues, and by all officers in discharge of salaries and fees. Certain property of the State was pledged for their redemption; and the governor was authorized to negotiate a specie loan for the same purpose.

The commissioners of the loan offices were authorized to make loans of the -certificates at six per cent., to citizens of the State, upon mortgage security, or, to the amount of $200, upon personal security. Provision was made for the gradual withdrawal of the certificates from circulation.

In the case above cited the Supreme Court of the United States decided that the certificates were "bills of credit," and their emission unconstitutional. They were in circulation only a few years.

But the unfavorable reception of a scheme which promised so much relief had a depressing effect upon the financial enterprises of the State, and it was not until 1837 that another move was made toward extending the banking facilities of the State, which in the meantime were limited to such as could be offered by a branch of a Cincinnati bank located in St. Louis.

Its

The Bank of the State of Missouri was chartered in 1837, and with its branches held for many years a practical monopoly of the banking franchises in the State. first branches were located at Fayette, Palmyra, Cape Girardeau, Springfield and Lexington. The bank was the fiscal agent for the State of Missouri; it effected the sale of the State bonds, and paid the interest upon the State indebtedness. The State had subscribed to one-half the capital stock originally issued by the bank, and at times the bank advanced to the State large sums of money. It issued paper currency against a coin reserve held in its own vaults, either by the parent bank or by the branches. The amount of the circulation thus issued was limited to three dollars of paper for each dollar of coin.

In the year 1856 the amount of coin in its vaults was $1,140,000, while its circulation was only $2,200,000-less than two dollars of circulation for each one dollar of specie. It dealt only in its own notes and coin.*

The bills issued by this bank were always redeemed at par on presentation. According to Hunt's Merchants' Magazine for 1858, this was the only bank in the South and West, started at the time of the first suspension, that did not suspend at the second revulsion of 1839. As late as 1856 the only incorporated banks in the State transacting a general banking business were this Bank of the State of Missouri and its five branches. Their combined capital was $1,215,405, of which $954,205 was owned by the State, and $261,200 by individuals. The deposits at that time amounted to $1,328,875, and the outstanding circulation, $2,805,660.

The capital owned by the State was increased by January 1, 1863, to $1,086,300; while that owned by individuals increased to $2,315,392. Four additional branches had also been added. But the other banks established since 1856 (with an aggregat capital of nearly $8,000,000), had resulted in a very marked curtailment of the field for circulation of the notes of the State Bank, which on January 1, 1863, amounted to but $845,183.

In 1854 the constitutional inhibition against other banks than the State Bank was removed; in 1865 the new Constitution prohibited the incorporation of banks of issue and required that the Legislature should provide for the sale of the stock owned by the State; and by the Constitution of 1875 the final renunciation was enacted in the section:

"No State bank shall hereafter be created, nor shall the State own or be liable for any stock in any corporation, or joint stock company, or association for banking purposes now created, or hereafter created."

COMPARISON SYSTEMS AND SPECIAL FEATURES.

It seems unnecessary to go into any extended comparison of the various State institutions to which attention has been directed in the preceding pages. The examples speak for themselves. Yet a grouping of them into such classes as they most naturally form may aid in an understanding of the subject.

I. Institutions toward the capital of which the State contributed a large share and in the management of which the State, through directors appointed by it, had a large-though not necessarily controlling-interest. In the case of the most of the institutions of this class it will be noticed that the bank was made the fiscal agent of the State, and generally the notes of the bank were expressly made receivable for taxes and dues to the State.

This is the class that includes the greatest number of the institutions described above. It is also the class in which it has been found most difficult to decide what banks should and what should not be included. For the field it covers shades off gradually into a class of institutions in which the State is merely an ordinary stockholder, and which cannot in any sense be considered as State institutions.

Of the banks which fall within this category, the following may be cited: The first and second Banks of Kentucky, 1806 and 1834, respectively; the Farmers' Bank of Delaware, 1807; the State Bank of North Carolina, 1810, and the Bank of the State of North Carolina, 1833; the Bank of the State of Tennessee, 1811, and the Pianters' and Union Banks, 1832-33; the State Bank of Indiana, 1814, and the State Bank of 1834; the Bank of the State of Georgia, 1815, and the Bank of Darien (Ga.), 1818; the Bank of the State of Mississippi, 1818, and the Planters' Bank (Miss.), 1830; the Bank of Louisiana, 1824; the State Bank of Illinois, 1935, and the Bank of Illinois at Shawneetown, 1838, and the Bank of the State of Missouri, 1837.

II. The "real-estate" and "property" banks, in which the actual working apital of the institution was secured through the sale of bonds issued by the State to the bank for that purpose. The State was not ordinarily a stockholder in the bank, but usually received a certain proportion of the profits in return for the guaranty which its credit afforded the institution. The capital being secured by the sale of State bonds, it was not necessary that the subscribers for the stock should pay up any amount upon their shares, and they were allowed to secure them by mortgages upon real estate. In the case of each of the banks founded upon this. plan the stockholders themselves were the principal borrowers of the funds secured by the sale of the State bonds issued to the bank and through the issue of its own notes.

The States in which these institutions were located are all Southern States. The instances are: The Union Bank of Florida, 1833; Union Bank of Louisiana, 1832, Consolidated Association, and Citizens' Bank, (La.), 1836; The Mississippi

* L. F. Stephens, in World's Congress of Bankers and Financiers.

Union Bank, 1838; The State Bank of Arkansas, and the Real Estate Bank of Arkansas, 1836.

III. Banking institutions for which the State furnished the entire capital and which were under the direct control of the State.

The cases coming under this head are: The State Bank of Vermont, 1806; The Bank of the Commonwealth of Kentucky, 1820; The Bank of the State of South Carolina, 1812; The State Bank of Illinois, 1821; The State Bank of Tennessee, 1320; The Bank of Tennessee, 1838; The Bank of the State of Alabama, 1823; The Central Bank of Georgia, 1829; and the Missouri "Loan Offices" of 1821.

Attention has already been called to the fact that the "loan certificates" of Missouri seem to have been patterned closely after the colonial issues of paper currency noted at page 2 above. But the similarity is hardly less striking when comparison is made between the "banks" of Rhode Island or Massachusetts and the issues of the State Bank of Illinois (1821), or the State Bank of Tennessee (1820). In each of these latter instances the bank was in the nature of a loan office, suing bills for the purpose of loaning on landed or personal security, and it is not unlikely that the decision of the Supreme Court in the case of Craig vs. the State of Missouri might have been applied to their issues had not their failures occurred so early as they did.

With one or two unimportant exceptions all of the institutions noted in the preceding pages operated branches, the number of which varied from a single one to more than a dozen. There was no uniformity in the basis upon which they stood. In some cases the connection between the parent bank and the branches was rather nominal than intimate. In the case of the State Bank of Indiana (1834) the branches were actually separate institutions and the parent bank merely a board of control, binding the whole into a common system. In other cases—e. g., the Bank of the State of South Carolina-the branches were little more than agencies of the parent bank, which signed and issued all the notes, making them payable at the head office. But the larger number of these institutions occupied a middle ground-the branches being left to issue their own notes and discount for their own customers, but constantly directed from the parent bank as to general policy.

This practice of making the notes payable only at the particular branch which issued them occasionally led to the adoption of the subterfuge especially mentioned above in the case of the Bank of the State of Arkansas-the circulation by each branch of the notes of some distant branch, so that, while their notes were nominally convertible into specie on demand, they were received by the branch in the vicinity of which they were circulated only at a slight discount. Instances of this are mentioned in the case of the United States Bank, and the banks of North Carolina, Virginia and Tennessee.

Another point which is perhaps worthy of note is the stimulus given to these State institutions by the distribution of the surplus revenues among the States in 1836-7. In the case of States which had subscribed for large amounts of stock in banks recently incorporated, the receipt of this revenue often enabled a considerable portion of the subscription to be paid at once in cash. In the case of institutions the capital of which had been wholly contributed by the State, this was increased by the addition of the State's share of the surplus revenue. And even where neither of these courses was followed, the moneys thus received were generally deposited with the State institution, and as there was every prospect that the deposit would be permanent, the result was practically the same as a direct increase of capital.

STATUS WHEN NATIONAL BANKING SYSTEM INAUGURATED. At the time of the establishment of the National Banking system in 1863-4, most of the State banking institutions described in the foregoing pages had already passed into history. That of Vermont had ended disastrously before 1815. The first two experiments in Kentucky had come to the same end before 1830. The first experiment of Indiana had proved a failure; and the second, though eminently successful, had given place before 1860 to an institution in which the State had no interest. The ventures of Mississippi and Illinois had ended disastrously early in the forties. Tennessee's first institution had been closed in 1832, and her second State Bank was in 1864 engaged in its final struggle previous to an assignment in 1866.

The Bank of the State of Alabama had passed out of existence in 1845, leaving behind a public debt of several millions of dollars, which still existed in 1864 as a vivid reminder of the follies of earlier years. Louisiana had long before the war severed her connection with the banking interests with which she had affiliated,

except so far as was involved in the payment of interest and principal of the portion of the debt still remaining of that which she had then created. Georgia's public bank had gone down early in the forties; while those of Florida had failed even earlier. Arkansas' two State institutions had been in liquidation since 1842. There remained then in 1863, of the institutions here discussed, only the later Bank of Kentucky, the Farmers' Bank of Delaware, the Banks of North and South Carolina and the Bank of the State of Missouri.

The Bank of Kentucky was never very intimately connected with the State, and it is perhaps due to the fact that it was allowed to conduct its own affairs, mainly upon its own capital, that its continuance and success may be attributed. The Bank of Kentucky and its branches, in 1863, possessed a capital of $3,666,400, and issued circulation amounting to $1,125,000.

The Farmers' Bank of Delaware is the one institution described in these pages whose connection with the State was least intimate, and whose management seems to have been most independent of political influences. In 1863, as since, this bank was in a sound condition and its notes at par with government paper.

The conditions of war then prevailing make it difficult at this time to ascertain the status of the State Banks of North and South Carolina. Both, however, seem to have been in successful operation-that of North Carolina under the new name of the Bank of North Carolina.

The Bank of the State of Missouri was also apparently in successful operation in 1863; though the measure of that success was not so great as to prevent the State in 1866 from offering for sale and finally disposing of all its stock in the Bank.

In short, therefore, the date of the establishment of the National Banking system found in existence few State banking institutions of the character herein described and those few mainly the ones in which the interests of the State were slight rather in the nature of investments of funds than such as called for any considerable share in management on the part of the State. All the rest had gone down, leaving behind them in many cases a mass of State indebtedness to stand as the result of experiments made in earlier days by men who thought themselves possessed of a genius for finance.