ACTION OF CONNECTICUT.

His plan was followed in Connecticut, the bills being drawn at three years' date, and the consequence was that the paper was not withdrawn before the next war called for new issues.

ACTION OF RHODE ISLAND.

Rhode Island went on upon the paper system. In 1750 the paper-money party were in the ascendant, and the ninth bank was issued for,£25,000. It was for the purpose of giving bounties on manufactured wool, and whale and cod fisheries. “In June, 1751, the act was amended. The bounties were abolished; that on manufactured wool as being displeasing to England, the others as useless.” Rate in 1750: Notes of ninth bank, 6s. 9d.=13s. 6d. new tenor =54s. old tenor. Rate in 1757: 6s. 9d. of ninth bank=16s. new tenor=64s. old tenor. In 1756, new bills were issued at 6s. 8d. per oz., payable in two years, called “ lawful money,” and some efforts at reform began to be made. The notes were no longer legal tender, and in 1763 a scale of depreciation was fixed for the settlement of old debts by the courts. It put one Spanish milled dollar, of the value of 4s. 6d. sterling, at £7 in old-tenor notes in 1763. *

LEGAL-TENDER PAPER ABOLISHED.

In the year 1751 Parliament passed an act forbidding any more legal-tender paper issues, and allowing no issues, save in the form of exchequer bills, redeemable by taxes in a year, bearing interest, or, in case of war, similar issues redeemable in four years. The colonies now set to work earnestly, though with only partial success, as above shown, to retire their old issues.

A new war with the French in 1756 involved them once more in war expenditures, and bills of the above description were issued. They were of small denominations, bore interest, and circulated only until the interest accumulated so much as to make them worth hoarding. Remittances were continually received from England to partially reimburse the colonies for their expenses, and by these funds, and by taxes, the bills were redeemed to such an extent as to save them from great depreciation.

Early in the eighteenth century Virginia adopted tobacco as a currency. It was deposited in warehouses, and the receipts for it passed as currency. It was a true money, but not a good one, as it naturally fluctuated considerably in value. In 1755 Virginia issued paper money. *

North Carolina issued paper to build a palace for the governor. A similar project was started in New Jersey, but it never passed the legislature.

DOUBLE STANDARD TRIED IN MASSACHUSETTS—OTHER
COLONIAL ISSUES.

Scarcely had specie come into circulation in Massachusetts when it was found that, although the remittance had been in silver, gold from the West Indies began to stay in the colony. The question of making it legal tender as well as silver soon began to be agitated. It circulated of course, not being legal tender, at its weight. An act was passed in 1762 to make gold legal tender at 2½d. per grain. At this rate it was more profitable for the debtor to pay in gold than in silver. The currency was depreciated five per cent. by this operation, and, as Hutchinson declared at the time must follow, this drove silver out of circulation. Some hints also show that barter currency was still allowed in the payment of taxes. Silver now became scarce, and the next stage was a new agitation in 1767 for paper money.

In 1768 the House resolved that “in order to prevent the unnecessary exportation of money, of which this province has of late been so much drained,” they will do without foreign superfluities, and encourage the manufactures of this province. The same doctrine has been preached and avowed ever since, as the sum and essence of political economy, but it has been a signal failure. The colony was drained of money (silver) because it had adopted another legal tender, gold, which, though the best money for large exchanges, was so rated that it was the cheapest means of payment. It alone therefore remained, and the other metal was exported. It was not, however, exported for nothing, and no resolutions could make the people desist from using foreign superfluities which came back to pay for it. The same violation of coinage laws was twice repeated under the federal constitution, as we shall see below. In the same year (1768) the Massachusetts Council petitioned the House of Commons for relief from the new tax laws, pleading the great scarcity of money, which they ascribe to the balance of trade being against them.

Mr. Hickcox, writing on the New York paper money, * says that the colony traded in 1720 with Madeira, the West Indies, and England. He expressed still more explicitly the theory underlying the above view on the subject. The trade “ to the West Indies was wholly to the advantage of New York, while that to Madeira was to our loss, the province consuming more wine from thence than could be purchased with its commodities. The money imported from the West Indies was not sufficient, however, to preserve a specie currency, a large amount being necessary to balance the exchange with England.”

The errors involved in this way of looking at the matter were most clearly exposed in connection with the “ Bullion Report,” and will be found noticed in Chapter II.

In 1763 Parliament declared any colonial acts for issuing paper money void. Franklin wrote a pamphlet in opposition to this act. He said that gold and silver owe their value chiefly to the estimation in which they happen to be among the generality of nations and the credit given to the opinion that they will continue to be so held. “ Any other well-founded credit is as much an equivalent as gold or silver.” When exchange rose he thought that this was only an advance in ex change, not a fall in paper. In 1773 Parliament allowed any bills issued by any colony to be a tender at its treasury. In 1774 Massachusetts was out of debt.

In 1775 representatives of the colonies of Connecticut and Rhode Island met the Congress of Massachusetts to concert measures for the war.

It was agreed, as their money was paper and they could not offer anything else, that this should be allowed to pass in Massachusetts.

CONTINENTAL PAPER MONEY.

The colonies now went into the Revolutionary War, many of them with paper already in circulation, all of them making issues for the expenses of military preparations. The Continental Congress, having no power to tax, and its members being accustomed to paper issues as the ordinary form of public finance, began to issue bills on the faith of the “ Continent,” Franklin earnestly approving. The first issue was for 300,000 Spanish dollars, redeemable in gold or silver, in three years, ordered in May and issued in August, 1775.

Paper for nine million dollars was issued before any depreciation began. The issues of the separate colonies must have affected it, but the popular euthusiasm went for something. Pelatiah Webster, * almost alone as it seems, insisted on taxation, but a member of Congress indignantly asked if he was to help tax the people when they could go to the printing-office and get a cartload of money. In 1776, when the depreciation began, Congress took harsh measures to try to sustain the bills. Committees of safety also took measures to punish those who “forestalled” or “ engrossed,” these being the terms for speculators who bought up for a rise. The tyranny of the government was of course only a stimulus to the private committees. It is natural to suppose that malicious and criminal persons assumed the duty of public regulators, and committed those acts of violence and wrong which equal or surpass anything of the kind under any despotism, but such an error as a legal-tender act, enforced by pains and penalties, is responsible for the secondary evils which are sure to flow from it. Webster says of the paper: “ We have suffered more from this cause than from every other cause or calamity. It has killed more men, pervaded and corrupted the choicest interests of our country more, and done more injustice than even the arms and artifices of our enemy.” The enemy, perceiving the terrible harm the Americans were doing themselves, thought it well to help on the movement. They counterfeited the bills and passed them through the lines.

At the end of 1779 Congress was at its wits' ends for money. Its issues had put specie entirely out of reach, and the cause was in danger of being drowned under the paper sea.

Webster says: “ The people of the States at that time had been worried and fretted, disappointed, and put out of humor by so many tender-acts, limitations of prices, and other compulsory methods to force value into paper money, and compel the circulation of it, and by so many vain funding schemes, declarations of promises, all which issued from Congress, but died under the most zealous efforts to put them into operation and effect, that their patience was all exhausted. I say these irritations and disappointments had so destroyed the courage and confidence of the people, that they appeared heartless and almost stupid when their attention was called to any new propositions.”

The French alliance helped more by giving means of procuring loans in Europe than by military assistance. Congress promised to limit its issues to $200,000,000, and tried a new form of note; also loan offices and lotteries. Over 350,000,000 were issued in all, but it is doubtful if more than 200,000,000 were out at any one time.

In the spring of 1780 the bills were worth two cents on the dollar, and then ceased to circulate. Specie now came into circulation, being brought by the French, and also that expended by the English passing the lines. The paper was now worth more for an advertisement or a joke than for any prospect of any kind of redemption. A barber's shop in Philadelphia was papered with it, and a dog, coated with tar, and the bills stuck all over him, was paraded in the streets.

On account of the peculiar character of American society, there are few family traditions of the Continental currency; but the contemporary literature shows that the suffering it caused was wide-spread and intense. It fell most heavily on the most patriotic and most helpless. Phillips quotes a letter addressed by a lady to the “ Pennsylvania Packet” in 1779, saying that her father had left her a competence which her guardian had invested in real estate six years before. He now proposed to pay her fortune in paper. It is only a single instance.

“ The gradual depreciation was urged as a reason why the notes should not be redeemed at par. It was said to operate as a tax; as a most equal tax, because it acted in proportion to the amount held. The rich suffered largely on their vast sums; the needy but slightly on their scanty pittances. How fallacious these reasonings, with which the Congress and the people solaced themselves, are, must be apparent. Poor consolation it was to those who had been beggared confiding in the honor and in the honesty of their country, to hear that their ruin had merely been a gradual tax; to know that from the operation of tender laws their property had been taken away and given to others; to see the wealth accumulated by the dishonest multitudes of contractors and the many defrauders of that unhappy period, and to feel that it had been plundered from their own coffers for the aggrandizement of such people.” * The trouble is that the government cannot make a forced loan by legal tender issues, without giving the opportunity for private individuals to take “ forced loans” from their neighbors.

“ If it saved the State, it has also polluted the equity of our laws, turned them into enemies of oppression and wrong, corrupted the justice of our public administration, destroyed the fortunes of thousands who had most confidence in it, enervated the trade, husbandry, and manufactures of our country, and went far to destroy the morality of our people.” †

It ought to be noticed that this paper was vaunted as “ the safest possible currency,” which “nobody could take away.”

BANK OF NORTH AMERICA.

December 31, 1781, the Bank of North America was chartered with a capital of $400,000. It took its origin in a union of citizens of Philadelphia, formed in the preceding year, to supply the army with rations. They were allowed to form a bank, and, as it seems, issue notes to buy the articles required. Congress ordered bills drawn on American ministers abroad to be deposited in the bank as a guarantee of payment. $70,000 in specie were subscribed in 1782 by individuals, and the remainder by the government out of the proceeds of a foreign loan. It issued convertible notes, redeemable in Spanish dollars; but the people were slow to take them. According to the story given by Gouge, the Bank was not over strong, and tried to keep up its credit by parading and handling over its stock of silver. However, it made large dividends, and was attacked by a rival which it was obliged to absorb, and secondly by an effort to have its charter repealed. The latter effort was successful so far as the state charter was concerned. It went on under the charter of the Continental Congress until 1788, when it was re-chartered by Pennsylvania. It exists yet.

RENEWED AGITATION IN FAVOR OF PAPER
MONEY.

In 1785 and 1786 an insurrectionary movement, known as Shay's Rebellion, broke out in New England. It was an insurrection of debtors who were suffering from the collapse of the currency and return to specie values. They clamored for paper.

“ No desperately indebted people can long endure a regular, sober government.” This insurrection was put down by force, but Massachusetts passed a law delaying the collection of debts.

In Rhode Island this movement was not riotous, but took the form of a political movement. The paper money party carried the elections in 1786, and began a new period of this mania for their colony.; £100,000 were issued by a vote of the rural districts against the cities. The bills were to be loaned on mortgage of land for fourteen years. They depreciated at once Merchants refused to deal, and closed their shops. The farmers retaliated by refusing to bring produce to the cities, and thus the urban and rural populations were pitted against one another in a ridiculous warfare which brought business to a stand-still. In Providence it was agreed to enter into intercourse for necessaries so far as parties could agree, and to borrow $500 to send abroad for grain. The farmers met and petitioned the Assembly to enforce the penal laws in favor of the paper money. By these laws cases involving legal tender took precedence of all others, and must be tried within three days after complaint entered, without jury, and with three judges a quorum. The decision was final. The fine for the first offence was from £6 to.£30, and for the second offence, from £10 to £50. A protest by the representatives of the large towns against this law was not allowed to be recorded.

John Trevett, of Newport, complained of John Weeden, a butcher, for refusing bank paper. The five judges agreed that the act was unconstitutional. A special session of the Assembly was convened, before which the judges were summoned to “ assign the reasons and grounds” of the late decision. Three judges came. Two were sick. The hearing was postponed. A test act was prepared and sent to the towns for approval, but it went too far. Only five towns approved. It proposed to disfranchise any one who refused the bills at equality with metal. With all this, money was so scarce that land rents were paid in corn, and barter became common.

It was now determined to pay off the debt of the colony, except the 4 per cents, one quarter at a time, in the bills received for taxes. Any holder of colony securities who did not come up to take his notes within a set time forfeited his securities. The whole debt was paid off in this way within two years. Three months after it was issued, the paper stood six for one gold. The question of ratifying the new constitution now coming up, the paper money party was for state rights, and the specie party for the federal constitution.

In the spring of 1787 there were twenty bills in equity filed in court for the redemption of mortgaged estates. “ The suitors came prepared with paper money in handkerchiefs and pillowcases to redeem their lands.” It was moved to have the bills counted, and the tender recorded, but the court held that it had nothing to do with the money before rendition of judgment, nor was it for them to be instrumental in proving a tender. They refused to entertain any motion with the latter intention. The Assembly next removed four of the judges who declared the legal-tender act unconstitutional. In June, 1787, the paper was at eight for one. In 1789 it was at twelve for one. In September of that year the action of the legal-tender act was suspended; October 12 the depreciation was legally fixed at eighteen for one, and debtors were allowed to pay in produce.

If paper-money issues, tariff laws, and bounties on exports can make a nation great and prosperous, Rhode Island ought to have been the first State in the union in point of wealth, though the last to enter it

The historian, Arnold apologizes for her dilatoriness in joining the union by the extraordinary degree of liberty her citizens had enjoyed, and their jealousy of having it curtailed. They may have had la Libert in Rhode Island; they did not have liberty.

It appears that all the provinces were struggling with paper issues during the period of the old confederation. Specie was scarce in some, and plentiful in others, according to the amount of paper outstanding. The Congress of the confederation had not the power to tax, and its efforts to obtain the consent of the States to its fiscal legislation failed. Its certificates of indebtedness were worth only twelve or fifteen cents on the dollar. A coinage law was passed in 1786, but no coins of gold or silver were struck. Copper coins were made, but they were below standard and depreciated.

ASSUMPTION OF THE STATE DEBTS.

One of the first acts of the Federal Congress was to provide for the settlement of the outstanding accounts. $21,500,000 were apportioned to the States to assume their indebtedness, subscriptions being received in their paper at a discount, but as the federal debt at once rose in value, the transaction was very favorable to the holders of State obligations. The amount actually assumed was $18,271,814. At the same time the States were credited with advances made to the confederation, and charged their quota of its expenditure. Thus some appeared as creditors and others as debtors. The debtor States never settled the account. The creditor States were paid. The whole transaction was criticised by Mr. Gallatin * as unwise and wasteful. It met with much opposition, especially from the South, and there were always rumors of bargain in connection with this act and the removal of the capital to Washington.

BANKING ON CONVERTIBLE CURRENCY.

We come now to the period in which the currency consisted more or less of bank-notes, nominally convertible, issued by chartered banks. The system to which it has most analogy is that of the Scotch banks, although of these latter only three are chartered, the others being joint-stock companies and partnerships. We shall have abundant proof that this system of free banking requires, as its indispensable conditions, moderation, sagacity, and scientific knowledge on the part of the bankers. Without these qualities in the managers, it is as wild as any scheme of paper money. Men who believe that “ banking” consists in making paper issues and loaning them, making them as large as possible and stimulating them by all artificial means, and discouraging conversion as much as possible, may, as we shall see, bring down more ruin on the community by this engine than by any other.

The Bank of North America had already been founded. Its success in earning dividends led to other similar enterprises. Massachusetts chartered the Massachusetts Bank in 1784. Soon after, a bank was chartered in New York and another in Maryland.

PAPER MONEY AND THE FEDERAL CONSTITUTION.

In 1787 the Federal constitution was framed. It contains a clause that no State shall “ coin money, emit bills of credit, or make anything but gold or silver coin a tender in payment of debts.” The framers of the document thus fixed their condemation of the old paper system, and the people, smarting under recent experiences, acquiesced.

It was proposed in the constitutional convention to give to Congress the right to emit bills of credit, but the proposition was defeated nine States to two. (Madison Papers, III. 1,344.)

Two questions have been raised under this clause: I. Can a State authorize banks to do what it cannot do itself? As the confederation had already chartered the Bank of North America, it does not seem that the “ bills of credit” were understood to cover bank notes. The courts have held that a State may authorize bank issues when itself owns all the stock, the legislature appoints the directors, the faith of the State is pledged for the redemption of the bills, and they are receivable for public dues, provided the capital is paid in and the bank may be sued. (Story, 4th ed., I. 227, note.)

2. Can the national government do what the States cannot do under this clause? The legal-tender cases have recently decided this question in the affirmative. Mr. Gallatin said, in 1831, of Congress: “ As this body has no authority to make anything whatever a tender in payment of private debts, it necessarily follows that nothing but gold and silver coin can be made a legal tender for that purpose, and that Congress cannot authorize the payment, in any species of paper currency, of any other debts but those due to the United States.” This is only important as showing the belief of prominent public men on this point in earlier times. For them it was a simple matter of course that Congress could not pass a legal-tender act of any kind, how much less one which should apply to existing contracts. The legal-tender decision did as great a wrong as the Dred Scott decision, and the latter instance shows us that it is not useless to discuss a constitutional question, even after the court has decided it. It will not probably take a war to overthrow the principle of the legal-tender act, but it may take a national bankruptcy.

THE FIRST BANK OF THE UNITED STATES.

The first United States Bank was chartered by Congress in 1791. Its capital was $10,000,000, to be paid, one-fourth in cash, the rest in bonds of the United States. The charter was to run for twenty years. It issued no bills under $10.

Other banks were now formed very rapidly. The following list is given by Gouge, though he says that it is not full:

COINAGE.

In 1794 the first silver was actually coined, the dollar weighing 416 grs., 1485 parts pure to 179 parts alloy. Its pure contents were, there fore. 371.25 grs. Gold was first coined in 1795, the eagle weighing 270 grs., 11/12 fine, so that one dollar contained 24.75 grs. pure gold. It will be observed that where two metals are thus made legal tender, and there is both a silver “ dollar” and a gold “ dollar,” the question of relative value of the two metals is involved. It was assumed in the above rating that silver was to gold as 15 to 1. We have had one instance before us already when Massachusetts, in 1761, overrated gold in the coinage and drove out silver. If the rating should be correct at the time of passing the coinage law, yet the fluctuations which are continually taking place in the relative value of the two metals would in time disturb the relations, and only one metal would circulate, viz., the cheaper one. France has changed to a silver currency only, and then to a gold currency only, by these fluctuations since her mint law fixed the relation in the coinage. The ratio of 15 to I was, at this time, unjust to gold. The actual market value being 15¼ to 1. We shall have occasion to notice the operation in this case.

BANK ISSUES IN NEW ENGLAND.

The development of banking took place first in New England. It was of the kind later known as “ wild-cat” banking. The new financial machine seemed so powerful and beneficent that all that was necessary was to work it to the utmost. Notes under $5 were not allowed in Massachusetts until 1805, but after that smaller denominations were allowed, and finally notes were issued as low as 25 cents, and, by the law that paper drives out specie to the lowest denomination to which it is issued, there was no specie in the New England States. The stock of specie in bank was insignificant, and was moved from bank to bank to meet the inspectors' visits. The downfall came in 1809. One bank in Massachusetts had $40 in specie; another nothing. The system of subscribing to capital by notes was, as it appears, universal. The Farmers Exchange Bank of Gloucester, R. I., founded in 1804, was probably the worst case. Its capital was $1,000,000. Only $19,141.86 were ever paid in, and of this the directors withdrew what they paid in, leaving $3,081.11. One Dexter bought out eleven of the directors for $1,300 each, paid out of the bank's funds. He borrowed of the bank $760,265. When it failed it had $86.46 in specie; bills out unknown; the committee estimated them at $580,000. South of New England banks were fewer, and there was no disturbance. Silver was plentiful in the West. The exportation from Mexico was through the United States.

After this crash, the New England States passed severe banking laws, with penalty of twelve per cent, interest on all notes not redeemed on demand. In 1813 the New England Bank was chartered as a bank of redemption at Boston, in order to keep the paper of banks in the adjacent country at par. It accomplished this object, but was exceedingly unpopular with its country clients. This was the origin of the Suffolk Bank system.

BANK ISSUES IN THE MIDDLE STATES.

The banking mania now broke out in the Middle States. In 1810 Pensylvania found it necessary to forbid the issue of notes by incorporated companies — bridge companies, etc. The charter of the Bank of the United States expired in 1811, and its renewal met with such vigorous opposition that it was defeated. The constitutionality of the charter by Congress was doubted from the outset. This bank, so far as we can judge from the information we have in regard to it, was soberly managed, successful, and beneficial in restraining the issues of the smaller banks. It was on this latter account especially, and also because others desired to form small banks, that a strong party was formed against the renewal of its charter. The same influence defeated its efforts to get a charter from the State of Pennsylvania. Great fears were entertained that a severe crisis must follow the winding up of the United States Bank, but they were not realized.

The note circulation of the banks of the country in 1811 is estimated by Gallatin at 46,000,000.

The field being thus cleared, twenty-five charters were passed through the Pennsylvania legislature in 1812–13, but all vetoed. In the following session forty-one banks, with $17,000,000 capital, were chartered by Pennsylvania over the veto. In a report to the Pennsylvania Senate made in January, 1820, by a committee of which Condy Raguet was chairman, * it is stated that at this time prices were low in New England, and specie was flowing thither.

The country being now at war, Mr. Eppes, of the Ways and Means Committee, thus explained the financial measures by which it was proposed to carry on war (Winter of 1813—1814).

There were $75,000,000 bank capital, and $100,000,000 circulation and discounts (deposits). Deduct forty-seven millions circulation required; there remain fifty-three millions, “of which we propose to borrow thirty millions.” In 1812 the government borrowed six millions from banks, and four millions from individuals at par. In 1813 it borrowed twenty millions, allowing one hundred and thirteen for one hundred paid. In 1814 it borrowed fifteen millions; twelve millions nett, allowing one hundred and twenty-five for one hundred received. No more was to be had. No tax was laid until January 1, 1814. The loans nearly all came from the Middle States, the New England States being strongly opposed to the war, as foolish, unnecessary, a help to Napoleon, and completing the ruin begun by the embargo.

The revenue for 1812, '13, and '14 was twelve millions. The peace expenditures had been eight millions. Treasury notes for one year were issued in 1812 to the amount of three millions, interest at five and two-fifths per cent., receivable in taxes. Six millions were issued in 1813; eight millions in 1814. By 1814 prices were rapidly advancing, business was brisk, and importations were great. Pennsylvania notes were at fourteen per cent, discount. It was complained at Philadelphia that silver flowed to New England and was there exported. The importations came through New England. There was, therefore, now an “adverse balance of trade,” between the Middle and New England States. It was also claimed that the New Englanders were buying bills drawn for the supply of English troops in Canada with their surplus silver.

The New England Bank having collected over $100,000 worth of the New York bills which flooded New England, sent them home for redemption. The silver was loaded and on its way to Boston, when the Collector of New York stopped it at Chester, and ordered it to the Manhattan Bank, of which he was a director. He said he suspected that it was to be sent to Canada. The President of the United States ordered it to be given up.

On the 30th August, 1813, the directors of the chartered banks of Philadelphia published a circular, in which they said that, on account of the blockade, exportation of produce was impossible. Hence specie had been exported, and “ as the importation of foreign goods in the Eastern States has been very large, it has for many months past occasioned a continual drain from the bank.” They also refer to the English bills of exchange. For a time they had been able to draw from the Southern States (the New Orleans banks suspended because “ a contraband trade was drawing off the specie”), but this was no longer possible. “ It became a serious consideration whether the banks should continue their exertions to draw within their vaults the specie capital of the country, and thus facilitate the means of exporting it from the United States, or whether they should suspend the payment of specie before their means were exhausted.”

This plausible explanation appealed to the popular prejudice against exporting silver, but evidently concealed the true relation of facts. The silver went to New England unquestionably. On the Ist June, 1811, the banks of Massachusetts held $1,709,000 in specie;

It went thither because there was a sound currency and low prices there, and went away from the Middle and Southern States because displaced by redundant paper and consequent high prices. It was because the Pennsylvania banks had issued paper until it was at a discount, that, when they got the silver into their vaults, they could not keep it there, but it was demanded of them and exported. When the New Englanders took it they gave something for it, and there was an unusual importation from New England. They also used it. Having far more than they needed, they exported it either directly to Europe or by buying bills payable in London, and increased their imports. I know of no more complete illustration of the true doctrine, and of the error by which it is beclouded

There was at the same time a movement of specie to Ohio, Kentucky, and Tennessee, where there were no banks.

SUSPENSION OF 1814.

In 1814 all the banks, save the New England banks, suspended. In the year 1815 the Pennsylvania banks increased their loans $10,000,000. Business was active and prices high. The merchants agreed to the suspension if specie payments should be resumed after the war. Small coin disappeared and tickets were used. Notes were depreciated from twenty to fifty per cent Importations, especially of articles of luxury, increased. Credit was great and expanding, prices continually rising.

The Secretary of the Treasury now began to be engaged in the money-market. He tried to get the banks to come to some agreement which should bring about a uniform currency, but he failed. He then ordered that taxes should be received only in specie, Treasury notes, or notes of banks which received Treasury notes at par. The banks received them at par when they were at or above par in the market, but not otherwise. The banks which took Treasury notes issued bills for them, so that the issues of the Treasury stimulated those of the banks. The notes of the latter when issued accumulated in the banks which did not take Treasury notes, so that the Treasury received the notes of debtor banks when it would not receive those of creditor banks. At the same time, while loans increased three per cent, on capital, there was $3,000,000 less mercantile discount, the rest being on governments, and the government Treasury held bank notes instead of Treasury notes. These bank notes would not pass thirty miles from the place at which they were issued. The paper prosperity was now in full tide (1815). Gouge quotes a pamphlet of Mr. Matthew Carey, in which he called this the “ golden age” of Philadelphia.

The ideas about money and currency which had prevailed in England in 1810 and 1811 now appeared here, as they always appear where paper money is in use. It was said that silver had risen (though the Pennsylvania Senate Committee say this notion was abandoned by the end of 1815), and that a dollar was an ideal unit. Dr. Bollman proposed a scheme for a National Bank to issue notes redeemable in six per cent. government stock, which would keep them from depreciation and tie them to a fixed value. State banks were to issue notes and redeem them in this paper. Carey said it was a “ magnificent” plan.

Madison recommended another national bank, but vetoed the first bill:—for a specie bank, as not adapted to the currency. Peace was ratified in February, 1815, and the Conservatives now held that a national bank was necessary to hold the State banks in check. They did not want it to begin under a suspension. A second charter was passed. The capital was to be $35,000,000.

There were immense importations in this year. The English merchants exported enormously * after peace was declared, anticipating demand. These goods were forced to sale here as well as elsewhere. The prices proved unremunerative to the foreign owners, and also ruinous to the injudicious enterprises which, having been undertaken here under the protection of war, had taken permanent form. These were by no means so numerous or extensive as is sometimes asserted and generally believed, but there were such. This brought us the boon of our first strong protective tariff, though the average duties were only about thirty per cent, on dutiable. The principle of protection had been adopted in 1789, and the rates of duty, very low at first, had been steadily increased by successive enactments. The tariff of 1816 was avowedly carried as a realization of the “ American system,” but afterwards it came to be referred to, in the retrospect, as a British free-trade tariff.

The great importations gave the government a large surplus revenue. It had $22,000,000 nominal balance in the Treasury, but it consisted of bank-notes which could only circulate in a small district around their place of issue, and the places where the government was creditor and held the notes were not the places where it wanted to pay its floating debt. New seven per cent, notes were issued to pay the quarterly interest, and, to pay the interest at Boston, January 1, 1817, the government was obliged to borrow $500,000 of the United States Bank before it opened. Banks which were government depositories refused to pay government drafts, save for current expenses, and they controlled other banks because they held government deposits in the bills of the latter.

SECOND UNITED STATES BANK.

On January Ist, 1817, the Second United States Bank opened. By the charter its capital was to consist of $7,000,000 government subscription, 7,000,000 specie, and $21,000,000 government stock or specie. It began business with $1,400,000 in specie, $14,000,000 in stocks, and the rest in stock notes. $2,800,000 were soon due on the second instalment, but this would come for the most part from notes or discounts of the bank itself. Only $32,400 of it were paid in specie. The third instalment was still worse. The bank discounted its own stock at par to enable the instalment to be paid. “ The discounts, the payment of the second instalment, the payment of price to the owner, the transfer, and the pledge of the stock were, as it was termed, simultaneous operations.” In August, 1817, the bank discounted its own stock at 125. The facilities for stock-jobbing were excellent, and they were used.

RESUMPTION.

Congress resolved that after February 20th, 1817, only specie, Treasury notes, and notes of specie-paying banks ought to be taken by the national Treasury. The banks refused to resume before July, 1817. New York passed a law imposing twelve per cent. interest on notes not redeemed, and the banks finally agreed to resume on February 20th, if the United States Bank would extend its discounts as they contracted. This was agreed to. The bank allowed $30,000,000 discounts the first year, and the Committee of the Pennsylvania Senate say that it more than made up for the contraction of the State banks, and that the resumption was only nominal.

The Western banks were still comparatively sound, silver being at six per cent. premium there, and fourteen per cent. in Philadelphia. The Southern banks had joined the inflation. There were fourteen banks in Virginia, North and South Carolina, and Georgia, in 1814, and twenty-three in 1815.

In 1817 a case at Richmond, after specie payments were resumed, gives an insight into the state of things. A man having presented ten one-hundred-dollar notes for redemption was refused. He could not get a lawyer to take a case against the bank for a long time. Finally, having obtained judgment, the sheriff was sent to collect. The president of the bank was taken before the court, but refused to pay. The bank was closed by the sheriff, but soon after opened and went on.

The inflation during this year was increased by the government paying off eleven millions of the public securities held by the bank. The note circulation at this time is estimated at one hundred millions. It is to be noticed that the banks were as recalcitrant about giving statistics, either to the Secretary of the Treasury or private investigators, as about any of their other duties, so that we have no trustworthy statistics.

CONDITION OF THE UNITED STATES BANK.

In March, 1818, the discounts of the United States Bank were forty-three millions, eleven millions on stock. The notes could not be signed fast enough. It had two millions in specie. Our knowledge of its affairs at this time is derived from the report of Mr. Cheeves, who became its president during this year, and three years afterwards delivered a report stating how he found the bank, and what he did to save it. It now had eighteen branches, but never over $3,000,000 specie in them all. Its operations in the West drew that region into the prevailing mania. Its branches paid out their own notes and held those of the State banks as far as possible. They redeemed their own notes by drafts on the East. They thus obtained the specie of those States, and the States had credits at New York for the value of the same, which they used for enlarged purchases. The West therefore now entered on the “ golden age.” There were forty-three banks in Kentucky, ten in Tennessee, and eight in Ohio in 1818.

The bank now bought seven millions bullion in the West Indies at a cost of $800,000 expenses. It was exported as fast as it was imported. In April, 1818, fifteen months after the bank started, it was doubtful whether it was solvent. Energetic measures of contraction were adopted. It was ordered that discounts be reduced by November 1st, $2,000,000 at Baltimore, $2,000,000 at Philadelphia, $700,000 at Richmond, $500,000 at Norfolk. $4,500,000 contraction was accomplished, but more was urged, as silver was yet at ten per cent. premium.

The parent bank refused the notes of its branches, and they of each other, and called on the State banks to pay balances in specie. It was proposed that the government should issue Treasury notes, and a meeting was held at Philadelphia, Mr. Carey in the chair, which appointed a committee to petition Congress to pass a law forbidding the exportation of specie. The committee refused to serve.

In November, Congress appointed a committee of investigation, which reported a resolution that a scire facias should issue for the forfeiture of the charter of the United States Bank. This was lost, forty members of Congress being stockholders. John Randolph said a man might as well go to Constantinople and preach Christianity, as to go to Congress and preach against banks.

Mr. Cheeves now became President, vice Mr. Wm. Jones. The total contraction this year was six millions, all in the North and East. The issues in the South and West were increasing.

On April 1, 1819, the state of the bank was: specie, $126,745.28; notes, $6,000,000; due other banks, $79,125.99; due government, $500,000; due Barings, $900,000. There were $267,978.09, in the mint, and $250,000 specie on the way from the West. The New York and Boston branches were in worse condition. The Baltimore branch had given $3,000,000 discounts, of which the parent bank had no knowledge, apparently from corrupt motives. $1,671,221, were lost there. The total losses to date were $3,500,000. Dividends for $4,410,000 had been paid, of which $1,348,553 had been gained by interest on public securities. Net loss over $500,-ooo. The bank now took the most energetic measures to save itself, and in seventy days was once more solvent, but it had ruined the community. The “ golden age” was now far in the past, and was seen to be only a gilt-paper age after all. The ruin was almost universal.

CRISIS OF 1819.

In August, 1819, 20,000 persons were seeking employment in Philadelphia, and there was a similar state of things in New York and Baltimore. Thirty trades which employed 9,672 persons in 1816, at Philadelphia, employed only 2,137 in 1819. Trades which employed 1,960 persons, at Pittsburg, in 1815, employed only 672 in 1819. The papers were filled with advertisements of sheriff's sales.

All this was used as an argument then, and has been so used since, to prove that we needed “ protection to American industry.”

The committee of the Senate of Pennsylvania, already referred to, ascribed the distress to abuses of banking, and a similar committee of the House traced it back to the expansion of banking in 1814. “ In consequence of this most destructive measure, the inclination of a large part of the people, created by past prosperity, to live by speculation and not by labor, was greatly increased. A spirit in all respects akin to gambling prevailed. A fictitious value was given to all kinds of property. Specie was driven from circulation as if by common consent, and all efforts to restore society to its natural condition were treated with undisguised contempt.”

Niles' Register, quoted by Gouge, says of the prevailing extravagance: “ The prodigality and waste of some of these [speculators] were almost beyond belief. We have heard that the furniture of a single parlor possessed (we cannot say owned) by one of these cost $40,000. So it was in all the great cities—dash—dash— dash—vendors of tape and bobbins transformed into persons of high blood, and the sons of respectable citizens converted into knaves of rank— through speculation and the facilities of the abominable paper-money system.”

Land in Pennsylvania was worth on the average, in 1809, $38 per acre; in 1815, $150; in 1819, $35. The note circulation of the country in 1812 was about 45,000,000; in 1817, 100,000,000; in 1819, 45,000,000.

The newspapers of 1819 contain numerous accounts of riots, incendiary fires, frauds, and robberies. The House committee spoke of the “ change of the moral character of many of our citizens by the presence of distress.” The distress extended to New England, but was less severe there than elsewhere. In the West it was intense. In Kentucky stay laws were passed which were distinctly unconstitutional, but, the court having so decided them, a new court was appointed which reversed the decision. Old Court and New Court became political issues. The New Court party carried the State until 1826, when the disorganization and misery occasioned by the laws led to a revulsion, and the laws were set aside. Similar laws were passed in Tennessee, Gen. Jackson vigorously opposing. The banks of the South pretended to pay specie, but Gouge quotes an eye-witness in regard to the proceedings of the Darien Bank, Georgia. One who presented a bill must make oath in the bank before a justice of the peace that the bill was his own, and that he was not an agent for any one. He must also make this oath before the cashier and five directors, and must pay $1.37½ on each bill. The United States Bank protested $500 of the bills of the Bank ol Georgia, and sold them at auction. When specie was demanded, cents were counted out at the rate of $60.00 per day.

Stagnation and distress lasted throughout 1820. Prices were at the lowest ebb and liquidation went slowly on. Wheat was at 20 cts. per bushel in Kentucky. A man in Western Virginia stopped Niles' Register because one barrel of flour used to pay a year's subscription; now three barrels would not. At Pittsburg flour was $1 per barrel, boards 20 cts. per hundred, sheep $1. Imported goods were at old prices. The banks settled down to quiet regularity. Notes were for the most part brokers' merchandise, but others circulated at a discount only equal to the cost of transporting specie from the place of issue to the place of circulation. Money was plentiful in the hands of those who had no debts to pay, where of course it must settle whenever the social machinery comes to a stand-still. They would not lend or invest, though the papers were filled with advertisements. Rent of a given house in Philadelphia fell from $1200 to $450, fuel from $12 to $5.50, flour from $10.00 to $4.50, beef from 25 cents to 8 cents per Ib. Printing was little done. School-books were a drug. Niles says that five years before, stores on Market Street were cut in two and then not enough. Dwelling-houses were in great demand. The stores were now reunited, and houses more than enough. The population of Baltimore decreased 10,000 between 1815 and 1820. Rents on Market Street were $250,000 less in 1820 than in 1815. Wages were low on half time.

In 1820 Virginia forbade notes under $5.

During 1821 the general stagnation continued. Liquidation went on slowly. Investments were only gradually taken up as confidence revived. In April of that year Kentucky notes exchanged for silver 210 for 100. Tennessee notes were at 10 per cent, discount until 1830. Comptroller's warrants were issued in Alabama, which, in order to make them more attractive, were printed on silk paper.

In June an expansion began, and by October there was a well-marked upward movement, but in the fall of 1822 there was a reaction, woollen and cotton goods falling 50 per cent. in a few weeks in December. In 1823 the circulation of the United States Bank was very low—$4,081, 842, but there was a great creation of banks, and insurance and other companies at New York. Later in the year the United States Bank received the notes of all its branches, and began to expand.

CRISIS OF 1825.

In 1824 all the banks expanded. Pennsylvania re-chartered the banks of 1814. A new tariff was obtained raising duties to 35 per cent., and a grand era of prosperity was expected. In the spring of 1825 fifty-two charters were petitioned for in New York for banks and insurance companies. When charters could not be obtained o: New York, they were obtained in New Jersey, and the banks were established on the west bank of the Hudson. In Kentucky there was anarchy. Alabama and Tennessee notes were at a discount. Indiana, Illinois, and Missouri were still suffering from the “ relief” system (stay laws against the collection of debts, etc.). The New York and Boston city banks were fighting the country issues, which, being current and depreciated, drove out the better notes of the city banks. The Bank of the United States increased its issues over 3,000,000.

In the meantime business was reviving in England, manufactures especially being very prosperous, and creating a great demand for raw materials. * Heavy orders for cotton ran its price up here to 27 cents. Corn was pulled up to plant cotton, and an active speculation in it began. The excess of exports over imports of specie in 1825 were $2,646,290. The excess of exports over imports of merchandise were $549,-023. In July the fall in prices in England brought a fall here. Fifty failures took place in New York before December. Banks failed in large numbers. The United States Bank was in trouble. The government wanted to pay off seven millions through the bank, but delayed this operation at the request of the latter, giving occasion to one of Jackson's subsequent charges against it. When it was done the bank became debtor to the State banks and could not redeem its notes, explaining that bills drawn to pay English troops in Canada and for the formation of a bank in New Orleans had shortened specie supplies. It will be observed that the outflow of specie must always take place in that form which at the moment gives greatest profit, though the cause is always the same, and the usage is to explain the cause by the form of the export. The causes mentioned could have had no effect whatever unless there had been overissues.

In 1826 there was dulness and reaction throughout the year. The cotton crop was poor. There were applications for charters for 123 banks and insurance companies in New York, which were refused. In April, 1826, ten or twelve failed and a run followed; but the banks held out. In this year the importations of merchandise exceeded the exportations by $5,202,722; the importations of specie exceeded the exportations by $2,176,433. The method of importation was to buy bills, get long credit for duties, and send the cargos, as soon as received, to auction. The auctioneer's notes were discounted, new bills bought, and the transaction repeated as long as rising prices and easy credit made it possible.

The crisis of 1825 was by no means so great in this country as in England. The country was not yet recovered from the convulsion of 1819. The Western States especially had, as yet, not escaped from the effects of that crisis. The speculation here was led off by the excitement in England, especially in cotton. The joint-stock-company mania seems also to have broken out here by contagion or sympathy. The banks, instead of applying any check to the unhealthy movement, or using any conservative measures, joined freely in the excitement. The crisis was not a bank crisis. Suspensions were not in fashion, and the few banks which did suspend failed. The prudent refusal of the New York legislature to grant the charters asked for during the last two years was amply justified.

In 1827 money was plentiful. In 1828 it was plentiful until May, when there was great scarcity, renewed in September. In May, 1828, the highest protective tariff before 1864 was passed. The percentage of duties on total imports in 1830 was 30.93, and on dutiable, 47.46. In 1829 money was scarce until July, when it became plentiful. President Jackson opened the attack on the United States Bank in his first message in December of that year. In 1830 money was plentiful. An English writer of the period speaks of specie as flowing to America from all parts of the world, and Niles' Register quotes a contemporary as complaining of the over-abundance of silver, and wishing some gulf might open to swallow it. The Bank of the United States increased its loans. During 1831 it continued this movement, increasing its loans from forty to sixty millions, as President Jackson charged, in order to manufacture popularity. In October, 1831, the money-market became stringent. In 1832 the United States Bank still further extended its discounts to seventy millions.

INVESTMENTS OF FOREIGN CAPITAL.

About the year 1830 American securities began to attract English investments. Some stock of the United States Bank had been held by foreigners from still earlier date, but large transfers of it occurred late in the twenties. State and canal stocks were also sold abroad in 1828–1832. The opportunities for remunerative investment of capital in this country waited only for improved transportation to present themselves. Canals were the first movement in this direction, and steamboats the next; but, in the decade from 1830 to 1840, railroads being introduced, the industrial development of the country went on with gigantic strides. At the same time the old restrictive system was partially broken down, first by the freeing of some raw materials in England under Mr. Huskisson's administration, then by the modification of the Navigation Acts, extorted from England by Prussia in 1825, by which the trade with the British West Indies was opened—an advantage which did not accrue to the United States, on account of diplomatic mistakes (this country claiming as a right what was offered as a privilege) until 1830, and thirdly by our lame compromise tariff.

The interesting period whose history we have next to pursue, cannot be understood if observed from a narrow standpoint, and interpreted by subordinate incidents. The introduction of the new means of intercourse produced a development of industry so great as to amount to a revolution, so sudden as to create a convulsion. It required for its guidance, above all, financial skill; for it caused a strain upon the existing capital of society beyond what it was able to bear. This led to the usual resort to credit, and to credit in its most explosive forms, bank discounts and paper currency. The downfall at the end of the decade was the result of too headlong a career of prosperity, or of the intoxication which comes to men when they find themselves in control of undreamed-of powers of production. The two greatest commercial nations, England and the United States, were naturally the first to avail themselves of the new inventions, and they felt the crisis the most severely. They were tied together by the capital loaned by the elder to the younger nation. Some asserted at the time that specie currency would hold the two together, and render every circumstance of the one important to the other; others affirmed the same of paper currency. Neither party was on the right track. Evidently the bond which bound them was the credit extended to America by England, and the crisis in either country cannot be understood without reference to the events and movements in the other.

CURRENCY AND TARIFF AS POLITICAL ISSUES.

Unfortunately during this period—the period in which financial and fiscal questions were studied and understood by the American people better than at any other time in our history—those questions were made issues in party politics. I see no reason why they should not be political issues. Indeed, I am convinced that such questions never will be settled until they become political issues. But the reason why the struggles of the thirties proved so fruitless in the end was that parties did not divide according to intelligent conviction in regard to tariff and hard-money, but parties already formed took sides on these questions. President Jackson, elected as much for military prestige as anything, had imbibed from what he had seen of paper money in Tennessee and Kentucky a fierce, but not too intelligent, detestation of it. He committed his friends and the democratic party to hard money. Thus thousands of men who were democrats on previous issues became hard-money men without knowing why. Mr. Clay committed himself to protection without any thorough knowledge or true conviction of the principles involved. He carried the Whig party (proper exceptions being understood) into the support of protection. Mr. Webster, originally free trader and hard-money man by the convictions of a sober and clear reason, gave his support to protection because Massachusetts had been turned from a commercial into a manufacturing State, and, as he thought, could not go back. He advocated the bank originally for the purpose of checking paper issues by hundreds of petty banks. In the party contest he found himself committed to the bank so far that he could not draw back even if he wished. Mr. Calhoun, a protectionist in 1816, when it was thought that cotton needed protection, turned free trader when the South came to bear the burden of protection without any benefit. Thus it appeared to be a mere question of interest. If Thomas H. Benton's story is correct, the compromise tariff of 1833 was made to save Mr. Calhoun from a trial for treason, and to enable Mr. Clay to retire from a position from which he found it impossible to advance on account of his enemies, or to retreat on account of his friends. Looking at the history of these three men, one is forced to believe, that if any one of them had been less politic and more honest to his convictions, he might have been far more successful. It remains yet for some statesman to show that the. commonplaces about “ yielding to circumstances” and “ doing what you can” are only a petty wisdom; that, so far from being the grand principles of politics in a republic, the latter is just the place for that man to succeed who, by showing that he understands himself, and knows whither he wants to go, proves to the mass that he is fit to lead. The time must come when the people will learn that to rule by the small men is the most expensive and ruinous of all methods of government. History will, moreover, set its verdict upon the position of the South in 1832, selling their product in a free market and buying their manufactures in one loaded by obstructive taxation; that, although the means they employed were unlawful, and their conversion to free trade was due to self-interest, yet their grievance was great and their protest was just. Probably this will come about when the farmers of the West, who have inherited the grievance of the South, shall have learned, as they will learn, what it is which really afflicts them, and shall have broken the system to pieces. The history we have now to follow will show that when existing political organizations take up scientific questions as party capital, they use them only to support ambition, and the questions reach no satisfactory or permanent solutions. It is a vital question for the republic whether parties shall form and reform around issues as they arise, or whether the issues shall arise under and inside of permanent party organizations.

WAR BETWEEN THE ADMINISTRATION AND
THE UNITED STATES BANK.

In 1832 the bank petitioned for a renewal of its charter which was to expire in 1836. In speaking in favor of a renewal, Mr. Webster said:

“ A disordered currency is one of the greatest political evils. It undermines the virtues necessary for the support of the social system, and encourages propensities destructive to its happiness. It wars against industry, frugality, and economy, and it fosters the evil spirits of extravagance and speculation. Of all the contrivances for cheating the laboring classes of mankind, none has been more effectual than that which deludes them with paper money. This is the most effectual of inventions to fertilize the rich man's field by the sweat of the poor man's brow. Ordinary tyranny, oppression, excessive taxation, these bear lightly on the happiness of the mass of the community, compared with fraudulent currencies and the robberies committed by depreciated paper. Our own history has recorded for our instruction enough, and more than enough, of the demoralizing tendency, the injustice, and the intolerable oppression on the virtuous and well disposed, of a degraded paper currency, authorized by law, or any way countenanced by government.”

The bill passed both Houses, and was vetoed by the President on the 10th July. It being now evident that the bank must expire unless some influence could be brought to bear to change the President or win two-thirds of Congress, a violent warfare was begun by the bank. The power of its interest at the time is attested by any amount of evidence. Mr. Wm. Gouge published his work on the History of Paper Money in 1833, in which he bears the strongest testimony to the power of the bank corporations throughout the country. The expressions used now in the West in regard to railroad corporations are not stronger than those used by many writers at the period under review in regard to “ banking”—by which they meant the issue and loan of notes nominally convertible but really inconvertible, and thus subject, in their ex pansions and contractions, to nothing but the will of the bankers themselves. It is certain that the banks paid no more heed to the laws of the State than they did to the laws of prudence or of banking science, and that they paid very little heed to either. This veto was the cause of some genuine anxiety and of some manufactured fears in regard to the business future, and played a prominent part in the political canvass of 1832. Jackson defeated Clay, the latter representing bank, tariff, and internal improvements, by 288 to 49 in the electoral college.

The President, in his message in December, 1832, recommended the sale of the seven millions stock of the United States Bank which was owned by the nation, and the appointment of a committee to investigate its affairs. Bank shares fell from 112 to 104, but on a favorable report by the Treasury agent they recovered to 112. This report showed over seventy-nine millions assets; liabilities, thirty-seven millions; leaving forty-two millions: thirty-five millions capital, and seven millions surplus. But when the Government desired to pay the three per cents., in July, 1832, the bank agreed to pay the interest on them until October, if the payment might be delayed so long. It then negotiated a loan of five millions from Barings to make the payments of drafts on government deposits held by it, which would be made to carry out the payment of this stock. The reason given for negotiating this loan was fear of cholera. These operations raised questions of the safety of the public deposits, but the Committee of Ways and Means (Polk dissenting) offered a resolution that the deposits were safe. It was passed, 109 1046. The motion to sell out the public shares was lost, 102 to 91, through the influence of the bank, which, as was afterwards discovered, had a large number of debtors, attorneys, and stockholders in the House.

THE COMPROMISE TARIFF.

In 1833 was passed the compromise tariff, by which duties were reduced gradually to 20 per cent, in 1842. This tariff was deceptive and complicated. It had no principle of economic science at its root—neither protection nor free trade. It was patched up as a concession, although it really made very little, and its provisions were so intricate and contradictory that it produced little revenue. Specific duties were unaffected by it, and these included books, paper, glass, and sugar. It did not run its course without important modifications in favor of protection, for it could not bind future Congresses, and the doctrine of the horizontal rate of 20 per cent.—a doctrine which has no scientific basis—produced an increase on many articles. It raised the cost of cheap woollens, much worn, and, as it did not provide for any other source of revenue, it was certain that it could not last. It was a compromise between Clay and Calhoun only, but it gave Calhoun the chance to say, as he did often, that the warlike attitude of South Carolina, in 1832, coerced national legislation. It taught Southerners to believe that a warlike attitude was all which was necessary; and the violation of the act in 1842 was used with immense force to justify the repeal of the Missouri Compromise. It would lead me away from any present subject to unravel the effects of the tariff, but I insist strenuously upon this, that the political and financial history of the country are interwoven throughout, and that neither the currency nor the tariff nor the politics can be satisfactorily treated, save as a whole. Take the statistics, and review them in view of the tariff only, and your inferences are vitiated by the currency. Take the same data, and look at the currency only, and you go astray because you neglect the tariff. Neglect the political intrigues which wove the two together, and you cannot explain the motives of legislation. You argue from the authority of common conviction, when the true explanation is log-rolling.

REMOVAL OF THE DEPOSITS.

After Congress adjourned, September 22, 1833, the President ordered Mr. Duane, the Secretary of the Treasury, to remove the public deposits from the United States Bank. He refused to do so, and was displaced by Mr. Taney, who did it. The order was that collectors should send no more money to the bank, but to authorized depositories, to be chosen amongst the State banks. There was no positive and sudden transfer of the amount in bank, but it was proposed to draw for it at the proper intervals.

The war was now in full blaze. The bank had circulated documents during the canvass of the previous year, showing its services and merits. Against this proceeding I see no valid objection. The documents were “ political,” because the question of the bank's existence had become political. It was justified in defending itself. But in August, 1833, it altered its policy. It rapidly contracted its loans, giving as a reason the necessity of providing for the transfer of the deposits, a reason which the facts did not warrant.

On the assembling of Congress, December, 1833, the message announced the step taken, giving as grounds the misconduct of the bank in attempting to control the election, and the unsoundness of the institution. The President also charged the bank with now creating an artificial stringency in order to make itself appear necessary to the community. The bank question occupied a great part of the session. Mr. Clay attacked the President for removing the Secretary. The Senate resolved (28 to 18) that the reasons for removing the deposits were unsatisfactory, and that the President had usurped unconstitutional power over the Treasury by removing the Secretary. The House never noticed the resolution, but resolved (134 to 82) that the bank ought not to be rechartered nor the deposits restored.

DISTRESS OF 1834.

The recharter of the bank being now definitely refused, a number of small banks were organized to take its place. But before they could get into operation the contraction of the bank had time to operate upon the market. Many deputations came up to Congress to complain of distress, and many memorials were sent up. The excitement was great throughout the country. It was asserted, however, on the other side, that all this distress was manufactured by the bank interest, in order to gain a recharter, and that loans were refused to some and granted freely to others, who used them to charge usurious. rates. Benton asserts that two cases were discovered, one in which a broker received $1,100,000 to use in this way, for which he charged 2½ per cent, per month. Prices did fall very slightly in 1834 as compared with 1833, taking them over 80 articles, but some advanced, and the fall on none was great.

The aggregate amount of loans and of circulation in the country increased steadily all these years. * I have not been able to find any statement of the loans of 1833, but the circulation, even of the United States Bank, was not contracted in 1834, and, taking the whole number of banks, there was an increase. The business of the country was increasing quite as rapidly, and it is impossible to ascribe the fluctuations of prices to the sole action of the currency. The fears, real or manufactured, of a crisis on the winding up of the national bank, account for the decline which took place.

CHANGES IN THE COINAGE.

By the law of 1789 the exchange of sovereigns (20/21 of a guinea) for American coin was fixed at $4.44 4/9. It is not known how this ratio was determined. The old exchange of a Mexican dollar was 4 s. 6 d. sterling, but Gallatin says that there was no specimen of that coin which was worth this estimate. The coinage law under which coins were first struck in 1794 and 1795 fixed the ratio of gold to silver at i to 15, the silver dollar being 416 grains, 371.25 grains pure, and the gold dollar 27.0 grains, 24.75 grains pure, the alloy counting for nothing. The actual rate of gold to silver was at that time different in different countries, but in England it was 15.2 to I. Gold was therefore underrated in the coinage, and it was easier for a debtor to get silver to the amount of one dollar than gold to the amount of one dollar. Silver accordingly became the real measure used, and gold bore a premium.

The contents of a sovereign are 113.001 grains (full weight 123.274), supposing it to be up to standard, 916⅔ in the 1000 fine. Our mint, in 1839 and again in 1863, declared it to assay only 916.5 in the 1000. At the ratio of 15.2 to i, 371.25 grs. pure silver would be equal to 24.424 grs. pure gold, and a sovereign would be worth $4.626 of American silver. In American gold the same coin would be worth $4.565. In 1831 Gallatin took 15.6 to i as the existing ratio in England, at which rate a sovereign was worth $4.75 in our silver. The difference between the coinage rating and the true value of the metals was thus greater in 1830 than in 1795, and gold was at a premium, on the average, in 1830, of five per cent, selling price.

The figures above given show the par of the coins grain for grain, but coins are worth more than bullion, being manufactured, that is, an ounce of gold in coin must buy more goods than an ounce of gold in bullion. The difference is the cost of manufacture. Gallatin says that it took two months to coin bullion left at the mint, which involved a loss of one per cent, interest. There was no seigniorage or charge for coining. In England there was no seigniorage, and the loss of interest was represented by the difference between the mint price of bullion, £3 17 s . 10½ d . per ounce, and the market price, which was then generally £3 17 s . 6 d ., * that is, it cost 4½ d. to get an ounce coined. If coins are exported they lose the value of their own coinage, and must pay that of the country to which they go. Freight and insurance must also be paid. The cost of coining here being one per cent., the cost of freight etc. one per cent, more, and the cost of English coinage a slight addition, coin could not be exported unless exchange was a fraction over two per cent, above par. When an American had to pay $4.656 to discharge one pound sterling debt, he would ship gold. He could not ship silver to profit until he had to pay $4.845 for a pound sterling. From 1795 until 1821 exchange was almost always favorable to this country. After 1821 it often ruled adverse. Gold was shipped. The following table from Senate document 290, 1st Ses. 26th Congress, shows the movement from 1824–1833, the gold and silver not having been separated before 1824 in the returns. The figures are in thousands:

The following table shows the amount of both metals coined in the same years, two figures being omitted:

The strong- movement of metal to this country is apparent. In great part it was a real transfer of capital. Of all the gold which came in and was coined the Secretary of the Treasury said, 1836, that not over $1,000,000 remained in the country in 1834, “and of that small amount only a very diminutive portion was in active circulation.” The fact is certain that the law of the mint gave the country a silver currency only, and that gold was exported or melted.

The par of exchange with Great Britain remained at $4.44, and this being taken as 100, exchange was quoted at 105, 106, etc.

These circumstances had attracted attention at various times, and efforts had been made to change the law. Congress, however, hesitated to touch so delicate a matter as the coinage, especially as even experts could not tell accurately what the real ratio of gold to silver was. President Jackson, being determined to introduce a specie currency, the matter was necessarily taken in hand. By an act of June 28th, 1834, the gold eagle was made to weigh 258 grs., standard .899225, that is, its pure contents were 232 grs., or 23.20 grs. to the dollar. Under this regulation silver was to gold as 16 to I. This ratio was fixed upon in a blaze of exultation about the recent discoveries of gold in North Carolina, which, though known to exist since 1801, had only been developed since 1828, and extravagant hopes were entertained of finding “a new Peru” in the mountains of Georgia and the Carolinas. It was thought by some that it would “encourage the miners” to overrate gold in the coinage. In 1837 silver and gold were both made exactly nine-tenths fine, but the pure contents of the silver dollar remained the same as before, the gross weight being reduced to 412.5 grs. The gold dollar now contained 23.22 grs. fine.

There were two different dollars after these changes, as much as before. The silver dollar remained as before, but the gold dollar was now worth less than before. The gold dollar had formerly been worth in the silver coinage $1.038, taking the true ratio to be 15.6 to I, which was asserted by the best authorities to be the true one at that time. The new gold dollar was worth, at the same ratio, in the same coin, 97.5 cts. As before no one would pay a debt with gold dollars, so now no one would pay with silver dollars. Silver went out of circulation and became the better metal to export, while, for the same reasons, gold became the better remittance this way. The only silver which could circulate here was that which was worn or clipped until it was not worth more than silver was rated at in our coinage. All the worn-down Spanish pillar pieces came here, because they had a value here higher than anywhere else in the world. While the mint was coining fine American pieces, scarcely one was to be seen in circulation. The people were obliged to use the smooth shillings, which produced a quarrel at almost every exchange as to whether you could “see the pillars,” until somebody “crossed” them, and they sank into unquestionable dimes. They were generally overrated at that.

Thus, according to the great principle which has governed our fiscal legislation down to the present time, the discovery of gold in the United States was made, as far as the intention of the legislators could do it, to render gold more expensive to the people of the United States than it had ever been before. The absurdity of attempting to influence the price of gold must, however, be plain to every one. We might as well attempt to gain time for the American people by passing a law that all clocks should lose an hour a day.

Prices of goods adjusted themselves to the new dollar. The relations of gold to silver and to goods the world over remained unaltered, and the adjustment of values by the exportation of silver and importation of gold went on in spite of all laws. The experiment cost every creditor 2.5 cts. on every dollar due, and the wrong bore immense interest when this action of the government was made a basis of argument, in the legal-tender cases, to prove that Congress had the constitutional right to issue legal-tender paper, and interfere with existing contracts, because it had already debased the coinage—that is, in the middle of the nineteenth century the United States had committed the greatest wrong charged against the tyrants of the middle ages, and one which no modern despot had dared to repeat, and therefore it had a right to perpetrate another folly which is not yet quite so thoroughly exposed.

The pound-sterling, being now reckoned in the current gold of this country, was worth $4.8665, if of full weight and standard. This dollar, 23.22 grains of pure gold, remains still the definition of “one dollar” in the United States. Other coinage laws, to be mentioned below, have never touched this. The par of exchange for the sovereign has also remained unchanged, but, as the coinage expenses must be lost by export, light coins which cannot be current in England are sent here as bullion. The mint, in 1863, reported sovereigns worth, when new, $4.8391; on the average, $4.8206. The old par $4.44, being retained, actual par was 1.09 7/10. The Chamber of Commerce of New York petitioned, in 1839, that this system of reckoning might be changed, and the exchange quoted in dollars and cents. This was never done until 1873, and January 1, 1874, the method of quoting 4.86, 4.87, etc., came into use. In 1853 the law imposed a seigniorage of one-half of one per cent for coining. The par of $4.86 is “ideal.” If the sovereign weighed and assayed up to this, the seigniorage in this country for recoining would reduce its value to $4.84. If the cost of transporation was one per cent., no sovereigns could come until they were down to $4.80. If the mint assay is to be taken, they could not come until they were worth only $4.78. For the same reasons American gold coin is worth one-half of one per cent more in coin than a? bullion. This is lost when it is shipped. Shipment costs something over one per cent. Taking these expenses all together at two per cent., if $4.866 of our coin is worth £1, no one will pay more than $4.957 for exchange before shipping. If $4.84, are worth one sovereign, coin will be shipped at $4.936, gold.

In 1873 Congress fixed the Custom House valuation of a sovereign at $4.86. By the new coinage law of the same year the seigniorage on gold is reduced to 1/5 of 1 per cent, and provision is made to pay for bullion at the least possible delay. This has greatly improved our foreign exchange relations, but the seigniorage is still too high *

WAR WITH THE BANK CONTINUED.

In the message, December, 1834, the President made known to Congress that the bank had retained dividends due the nation on its stock, to reimburse itself for a draft on the French government which it had negotiated, and which had not been honored because the treaty had not been ratified by the French Chambers. The bank was forced by suit to pay the dividends.

He also said that the bank, after contracting its loans from August, 1833, to June, 1834, had as suddenly extended them. The amount was seventeen millions. He took this as proof that the previous curtailment had been wanton and unnecessary, and placed the bank in the position of having manipulated the money-market solely to carry its own point.

In fact the bank, finding that other banks were taking its place, and that it was robbing itself without coercing the public, had changed its course.

The deposits were now put in designated banks which issued no small notes, and which kept one-third of their circulation represented by specie. Many banks bought or imported gold in order to meet this latter requirement. The general government also used its influence successfully with nearly all the States to have laws passed forbidding small notes.

SMALL NOTES.

The prohibition of small notes is a measure which is simple, but very important for the results it effects. The principle is that paper issues displace coin of equivalent denominations. If paper is issued for sums of $0 and above, it may be issued to the amount of the coins of that and higher denominations which the public require, and no more. If issued for $5, the paper may be increased by the amount of half-eagles, which the public formerly used, and no more. Therefore, if it is desired to use paper to a certain extent, but not to displace specie entirely, the simplest way to accomplish this is to limit the paper to a certain denomination, say $10. Then half-eagles, and pieces of $3.00, $2.50, and $i would circulate, and would form a. stock, which, in the absence of any usury law, might be drawn into bank in a crisis. At the same time, this restriction goes far to make convertibility genuine. Convertibility in the currency is like conscientiousness in a man—it has many grades, and is valuable in proportion as it is strict and pure. The prohibition of small notes does more than any other arbitrary rule to ensure convertibility. It also secures to the poor the use of a value currency for their exchanges, and to the whole community the same currency for the exchanges which are made for consumption. These principles were recognized in England in 1827, * when the notes under £5 were abolished, and President Jackson's administration sought to put them in operation here. The Scotch banks still issue £1 and £2 notes, but they manage them very conservatively, and their example furnishes no argument. They seem to be such sagacious bankers as to need no limitations; therefore they do not need this one; but when limitations are needed, this is the simplest and most efficacious.

Such were the movements up to 1835, to which the subsequent developments must be traced as their origin. The lowering of the standard caused a rise in prices. The easy credit obtained in England for stocks and securities, the low rates for money here on account of the multiplication of small banks and increase of capital devoted to banking, the actual strong and great development of the country, combined to encourage a spirit of speculation and enterprise which, in this country, have never needed urging.

RAILROAD BUILDING.

To show the actual development which was in progress, it is sufficient to notice the number of miles of railroad built in these years. Railroad building was not a subject of unhealthy speculation, and the crisis did not, as it appears, stop an unnatural development in this respect, but rather checked a species of enterprise which, without it, might have gone on to produce great and healthy prosperity.

SPECULATION.

The object on which speculation fixed especially was real estate, either in the Eastern cities or the Western States. The improved communication with the East by the Erie Canal (built in 1817–1825) had done wonders for the development of the territory bordering on the lakes. The advance in values there had been of the kind to produce a speculative mania. In 1835 the canal was enlarged and its benefits increased in a far greater ratio, but the speculative mania outstripped all reason. It did not follow, from any of the facts of the case, that mere speculative holders in the East could realize quick and solid gains from Western lands. The advantage of improved communication fell suddenly on those already settled in the West, and promised sure and steady development to those who should settle there and wait, but nothing more.

The progress of this mania is best shown by the returns of sales of public lands. (Sums in millions.)

City real estate, especially in New York and some of the Southern cities, was also a favorite subject of speculation. New York gained by the canal, becoming from that time the emporium of the country, but, according to a table given by Grosvenor, New York city real estate was assessed at 309,000,000 in 1836, and it did not again reach 300,000,000 until 1851.

The advance in the Southern cities was due to the advance in cotton, and that had its causes in England.

AFFAIRS IN ENGLAND.

After 1832 the monopoly of the Bank of England was restricted to a circle of 65 miles around London. Within that circle strong joint-stock banks were formed, on unlimited liability, to do a true banking business, discount and deposit, but without issues of notes. Beyond that limit joint-stock banks were formed, which did issue notes on the American or Scotch plan. They called it the Scotch plan, but they managed it more in the American fashion. This extension of banking fell in with the industrial development already noticed, and with a great prosperity of cotton, silk, and iron manufactures, and with a series of good crops. The natural consequences followed —rising prices of manufactures, cheap food, demand for raw materials, easy credit, and hopeful speculation. The rapid increase of capital encouraged railroad building and American investment.

COTTON.

The effect on cotton is the one which most interests us.

The average prices for the year 1833 were, 11½ and 13½ cents, and for 1834, 11⅓ and 13¾. For 1835 the prices were:

This was at a time when the supply was increasing both from this country and from India, but it was now certain that cotton was to be the great American staple until the abolition of corn laws in Europe. Even at this time there was a duty of 3 cents per Ib. on cotton, levied in 1790 to secure the “home market.”

It therefore appeared that the Southern cities were to see great prosperity as cotton markets, and at Mobile especially the speculation in real estate was great. To borrow Grosvenor's figures once more, real estate in Mobile was assessed as follows:

In 1848, with 1,217 polls, the assessment was just under nine millions. The cotton culture does not require nor build up great cities.

BANK EXPANSION.

The following table shows the bank expansion throughout this period. It is taken from Condy Raguet's “ Currency and Banking,” and the circulation of specie is added from the report of the Secretary of the Treasury, 1837. Pitkin (Statistics, pp. 450) gives specie for 1834, at 27.3 millions. Five figures are omitted in the table.

*

(It will be observed that the banking capital went on increasing. The banking capital of this country in 1854 was only 332 millions.)

It will be evident, from the facts already stated, that the movements of this period had their origin in a number of natural and legitimate causes. The removal of the deposits from the United States Bank gave a great stimulus to the creation of small banks, which could not go on in safety save under a strict system of convertibility. The administration thus pulled down with one hand what it built up with the other, by trying to introduce a specie currency. The bank expansion, however, was not properly a cause. It simply went along with and sustained a movement whose causes were independent. It is a very easy method of explaining mercantile and industrial movements to ascribe them entirely to expansions and contractions of the currency, but, on a currency even nominally convertible, the currency inflation does not lead off. * The mania for sudden riches gets possession of the community, and the banks fall in with, aid, and stimulate it. The blame cannot be simply thrown upon the banks for “causing” the trouble. They have a certain function to perform, and they fail to be faithful to it, and this failure takes off the legitimate check to over-speculation. Banks collect the capital of the country from the hands in which it lies idle, and transfer it to those who lack capital, but could use it to advantage. Over-speculation is speculation which outstrips the capital of the country. It is the pitfall which stands always open in a new country. The banks being thus the transfer agents through whose hands the capital passes, are the ones to know and give warring when it is used up. This they should do naturally by raising the rate of discount, and the usury law, which makes this impossible, is fairly chargeable with a large share of the mischief which is usually ascribed to bank expansions. For, the capital passing out of the bank in the form of discounts and bank-notes, the bank has no means of profiting by the increased demand for, and value of, capital save by increasing these items, that is, passing over to the most perilous forms of credit, while the public, obtaining the notes which represent capital and those which are credit, precisely in the same form, and, at first at least, on the same terms, has no warning when the line is passed.

Condy Raguet gives descriptions of ordinary bank operations in the period before us, which were reckless in the extreme, but they were nearly all devices for evading the usury law. Men who had embarked in speculations clamored for increased issues on any terms, in a manner which has become very familiar to our experience. They formed a public opinion which forbade any one to test the foundations of credit. The enhanced prices and expanded credit continually absorbed the new issues, and no depreciation occurred until a shock to credit and prices from outside causes produced a collapse. The banks suspended, escaped the results of their share of the folly, and loaned their irredeemable notes at high rates; but the public, conscious that it had been humored in its wish by the excessive issues, could not be severe with them. It is idle for either party to blame the other. They went hand-in-hand in folly.

Affairs on the other side of the water were in much the same condition. There was a new demand for capital there also. The new joint stock banks in England, and similar institutions in Belgium and France, pursued much the same course, though not to the same degree, as our banks. The note issues of the Bank of England and of the joint-stock banks were not excessive and did not increase, but the methods of banking pursued by the latter were such as to call down blame from those who had favored joint-stock banks most zealously, and the rule observed by the Bank of England at this time did not prove sound in practice.

“DISTRIBUTION” OR “DEPOSIT” OF SURPLUS
REVENUE.

The session of 1835–6 was not marked by financial legislation, save by one plan proposed this year and carried out the next, which added a new element to the financial situation. If there is any property which is of little value, real estate or stocks, some plan is sure to be proposed for selling it to city, town, State, or nation. If the nation or any subordinate body holds any property, stocks or real estate, which is valuable, some one raises the question what to do with it? The answer is: Why do anything? If the public owns good property, why not keep it? But an intrigue for bringing about the sale is very sure to be planned by those who want to buy, or for dividing by those who want to receive. The lands owned by the general government have always been subject to such intrigues, and at the period under review many schemes were proposed for dividing them among the States, though none of them actually received shape in Congress. A still more attractive object for distribution appeared in the surplus revenue. The public debt was now nearly extinguished. It stood on the 1st January in each year as follows, in millions. *

There was a surplus in the Treasury, and it was anticipated that there would be a surplus until the compromise tariff was in full effect, of nine millions a year on the average. Mr. Clay wanted it divided. Mr. Calhoun introduced the subject. He at first wanted the Constitution amended to satisfy certain scruples of his, but soon dropped this notion. Mr. Webster favored the division. The administration opposed it, and wanted the lands surveyed and sold at $1.25 per acre, with a homestead provision for actual settlers, surplus revenue to be spent on national defences. The bill for distributing the income from lands sold to the States passed the Senate, but never came up in the House. The Senate passed a bill in 1836 for “depositing” the surplus revenue (being regarded as the part which came from land) with the States, subject to call. The plan for distribution found no chance in the House, but that for “depositing” was passed by a large majority. It was declared that the name only was changed and that the “deposits” could never be recalled, and so the event proved, but the protest was unheeded. The President unwillingly signed the bill, this being the session before the Presidential election. In his next message, December, 1836, he expressed his fears of the measure, but that whole session was agitated by schemes for distributing land and revenue, and a second “deposit” scheme for the surplus of 1837 was passed by the House as a rider on an appropriation bill. The Senate not concurring, the entire appropriation bill was lost.

PUBLIC CLAIMS.

Several outstanding claims of the United States for embargo damages and blockade captures against France, Spain, Portugal, Naples, and Denmark were settled at this time, and the payments were imported in specie in 1837, in furtherance of the plan for a specie currency. The coin was used in public payments, and in the first instalment of the distribution.

THE “SPECIE CIRCULAR.”

On the IIth July, 1836, the President issued the famous “Specie Circular,” by which he ordered agents for the sale of public lands to take in payment only specie. It was based on the old law of 1816, mentioned above, by which the Secretary was ordered to receive only specie, or Treasury notes, or notes of specie-paying banks. The notes of Eastern banks were carried West for a “good circulation,” and “coon-box banks” were set up in the Western States, which issued notes in easy loans to land speculators. These notes were practically inconvertible, and might be issued in any amount. The consequence was that the title to land was passing to speculators, and the Treasury was being filled with worthless paper. The best justification of this measure was, as Benton says, that ten millions of paper on its way to the Land Office was arrested by this circular.

When Congress met (December, 1836) it passed an act rescinding the specie circular, after a long and acrimonious debate. The bill was not sent to the President until the day before the close of the session, and he did not sign it, so that it did not become law. In the course of the debate there were abundant prophecies of coming trouble. Mr. Calhoun did not vote on the bill, and in giving his reasons said: “ He believed the state of the currency was almost incurably bad, so that it was very doubtful whether the highest skill and wisdom could restore it to soundness, and it was destined at no distant day to undergo an entire revolution. An explosion he considered inevitable, and so much the greater the longer it should be delayed.”

THE PENNSYLVANIA BANK OF THE UNITED
STATES.

The Bank of the United States, whose charter had now expired, obtained a charter from the legislature of Pennsylvania in a section of a road bill, “by bribery, as subsequent legislative investigation proved.” It had not yet paid back the government stock or the government dividends, and it continued to reissue the notes of the old United States Bank which it received.

THE CRISIS.

One effect of the changes in the coinage in 1834 had been to make gold the better remittance this way. This being the metal on which English banking was based, the movement had importance for the English banking and commercial world which silver remittances had never had. In April, 1836, the gold reserve of the Bank of England began to be lowered. This went on all summer. The speculation had also reached a point at which the rise was stayed. The Bank rate was raised to 4½ in July, and 5 in September; American bills were refused discount. Prices fell and money was withdrawn. A Parliamentary report, which criticised the joint-stock banks severely, added to the prevailing uneasiness. *

In November, 1836, the Agricultural Bank of Ireland and the Northern and Central Bank of Manchester were in difficulties which forced them to call on the Bank of England for aid. They received it on condition of winding up. This was the first blow of the crisis which convulsed Europe and America. The shock upon the London Exchange developed weakness in three houses doing large business with, and giving extended credit to, this country. † The importations here had been very rapidly increasing, and had been extraordinarily large in 1836. Taking merchandise only, the excess of imports over exports had been very large from 1831 on. The following table shows the excess of imports or exports of coin and merchandise during this period:

Thus there had been imported, according to the statement, during the six years ending Jan. 1st, 1837, over 130,000,000 more merchandise than had been exported, and a net import of specie in the same time of over 34,000,000. The movement of the metals I reserve for another section. It is evident here that the imports had not been paid for in coin, exported either by the balance of trade or by the depreciated currency. Allowance must be made for the error in all statements of export and import due to the method of estimating them. The excess of imports contains freights and profits. American shipping at this time was steadily increasing. It increased in spite of this crisis without interruption, and it did the larger part of the American foreign trade.

The freights, therefore, added little to foreign payments.

Due allowance being made, it remains true that the imports had not been paid for in merchandise or metal. They had been balanced by securities exported—in other words, they had been bought on longer or shorter credits. It does not appear from the above figures, or from any evidence, that any considerable amount of securities was sent back during the panic; rather the contrary. Outstanding business obligations were, however, called in by English creditors.

The revulsion in England had also acted disastrously on the price of cotton. This ran for the year 1836 and the beginning of 1837 as follows:

It remained at the latter figures throughout

Nowhere had the paper-money mania raged worse than in Mississippi, where the banks operated as cotton factors, manufacturing money to carry cotton, as they needed it. In March several New Orleans houses were in trouble, and were forced to apply to the banks there for extra aid. Next the pressure was felt in New York, and by April the crisis was general throughout the country. There were one hundred failures in New York in March, and the losses were fifteen millions.

The New York and Philadelphia banks, including the Bank of the United States, made advances to the merchants to the amount of $1,500,000; the Bank of the United States loaning bonds payable in London, Paris, and Amsterdam. These bonds sold well, but at rates which made the loans cost the merchants two per cent. per month, and the United States Bank held all the best paper which was running to maturity. *

The rule of the Bullion Committee, * that banks should discount freely in the face of panic, seems to be here obeyed after a certain fashion, but the committee contemplated the loan of notes by a bank whose credit cannot fail in the wildest panic; not the loan of post notes (as these “bonds” were), on which the merchants must pay a second discount; nor the loan of notes of suspended banks, on which the merchants must suffer a loss. Their rule cannot be obeyed by banks which work up to the utmost verge of capital and credit in the best times, and have no margin for safety in a crisis. The latter can only suspend, escape all the results of a folly in which they had full share, and then loan their notes at exorbitant rates to the merchants who are yet out in the financial storm. This has been the process here in every crisis, and probably will be as long as people stand it without complaint. †

In March a meeting was held at New York, which was addressed by Mr. Webster. He ascribed the distress to the interference of the government with the currency, and to the “specie circular.” A committee of fifty was sent to Washington to ask for the rescinding of the circular. In the address to the President (Van Buren) they said: “The value of our real estate has, within the last six months, depreciated more than forty millions.” “ Within the last two months there have been more than two hundred and fifty failures.” “ A decline of twenty millions of dollars has occurred in our local stocks.” “The immense amount of merchandise in our warehouses has, within the same period, fallen in value at least thirty per cent.” “Within a few weeks not less than twenty thousand individuals, depending on their daily labor for their daily bread, have been discharged by their employers, because the means of retaining them were exhausted.” They ascribe all this, as they say, not to undue extension of mercantile enterprise, but to the attempt to substitute a metallic for a paper currency, the removal of the deposits, and the specie circular, “ which withdrew the gold and silver of the country from the channels in which it could be profitably employed.” “We therefore ask whether it is not time to interpose the paternal authority of the government, and abandon a policy which is beggaring the people.” In a subsequent meeting, at which the committee reported that they could obtain nothing from the President, a resolution was passed in which the defeat of Mr. Clay's land bill was alleged as another cause of the trouble.

In May a run began on two New York banks, of which one failed. Three banks in Buffalo failed next. The New York banks then suspended in a body May loth, a law being passed by the legislature to allow them to suspend for one year. Amongst the direct causes of suspension was the demand upon the government deposit banks for the first two instalments of the 40,000,000 surplus to be paid in specie into the State treasuries, under the deposit-distribution act. These banks having now stopped payment, the government deposits were locked up, or must be taken in depreciated notes. The other banks throughout the Union followed the example of the New York banks, the New England banks holding out longest. The notes of all the banks fell to a discount, specie disappeared, and notes of every description were issued. The New York banks began to contract in order to be ready to resume, but the actual diminution of the circulation throughout the country was very small. Nearly all the banks made money out of the suspension, and paid large dividends during the year.

Two instalments of 10,000,000 each having been paid in specie to the States, one in January and one in April, under the distribution act, and a deficit in the revenue being probable, a special session of Congress was called for September, the government still attempting to continue specie payments.

The message at the opening of the extra session proposed that the Treasury keep its own deposits (the plan afterwards adopted), and that a bankruptcy law for banks and corporations should be passed. Neither was passed. The President made known an estimated deficit of 6,000,000, and proposed to meet it by retaining the fourth instalment of the surplus to be distributed, and to issue Treasury notes to provide for immediate necessities. The third instalment had been paid on the first of June to the States in notes. As for demanding back the “ deposit,” no one spoke of it. The States were generally demanding the fourth instalment.

The Treasury notes were issued, bearing interest, and running as low as $50. As for the fourth instalment, the payment of it was put off until January 1, 1839, and then made imperative on the Treasury. When the appointed day came, however, the Treasury had a deficit and could not pay it, and it was abandoned by the States.

Some States were led by this distribution into expensive improvements and debt, others distributed it per capita, a few shillings per man, “ which was received with contempt by some, and rejected with scorn by others;” others divided it amongst the counties, and others refused it. As a measure of popularity-hunting, it failed.

We hear a great deal of wailing about the national debt, and English history is full of such lamentation, but nations go on prospering while the debt stands still, and a forty-million surplus works demoralization far and wide. Where the carcass is, there will the eagles be gathered. Recent experience shows us that, even under a great debt, when there is a surplus revenue wrung from the people by taxation, it is more likely to increase the appropriations than to lessen the debt. The project for giving back to the people money taken from the people by taxation, was opposed to all sense and reason, and the idea of distributing the proceeds of sales of public lands in largesses was unstatesmanlike to the last degree.

The distresses of 1837 were aggravated by a failure of the wheat crop. In that and the following year this country imported bread-stuffs from the Mediterranean.

MEASURES FOR RESUMPTION.

In January, 1838, several Boston banks were insolvent. The Massachusetts country banks were in bad condition. The best of them had $I in specie for $11 in circulation, and the worst (Berkshire) 1 to 25.

A meeting of bank delegates was called by the New York banks for November 27, “for the purpose of conferring on the time when specie payments may be resumed with safety, and on the measures necessary to effect that purpose.” The convention did not meet, on account of the refusal of the United States Bank.

Meantime the New York banks had been vigorously contracting to prepare for resumption. Their issues were reduced from $25,480,000, January 1, 1837, to $12,920,000, January 1, 1838. The exchanges turned and gold flowed in, the Bank of England sending £1,000,000, an act which Macleod vehemently condemns, seeing that the exchanges were adverse. *

Early in 1838 Congress passed an act to forbid the Pennsylvania Bank of the United States from using old notes of the United States Bank: penalty, on the president or agents, fine not to exceed $10,000, and imprisonment not less than one nor more than five years. Meantime, the bank, finding that it could sell its post notes in Europe, had issued more of them and made a business of it.

April 15, 1838, a convention of 143 bankers met at New York, by invitation of the New York banks, to discuss resumption. The majority wanted to resume January 1, 1839, but the New York banks were under the compulsion of State law to resume May 10, 1838. They resumed on that day, and nearly all the other banks in the Union, except those of Philadelphia, followed. Philadelphia bills were at a discount in New York, and prices were higher in Philadelphia than in New York. A balance of trade adverse to Philadelphia arose between the two cities, with a movement of specie from Philadelphia. * The New York legislature passed a bill in this year providing for securing bank-notes by a deposit of stocks.

A committee of New York merchants now gave a statement of the causes of the suspension far more correct to the facts than the one made in the first heat of excitement. “ The immediate causes which compelled the banks of the city of New York to suspend specie payments on the Ioth of May last are well known. The simultaneous withdrawing of the large public deposits, and of excessive foreign credits, combined with the great and unexpected fall in the price of the principal articles of our exports, with an import of corn and bread-stuffs, such as had never before occurred, and with the consequent inability of the country, particularly in the South-western States, to make the usual and expected remittances, did, at one and the same time, fall, principally and necessarily, on the greatest commercial emporium of the union.”

In July, 1838, the United States Bank called a convention of bankers at Philadelphia, at which it was agreed to resume August 13. The example of the banks which had resumed made it necessary for others to follow. Thus, at the end of 1838, the great majority of the banks throughout the country had resumed, at least nominally. The Bank of the United States had given as a reason for not resuming with the New York banks, that it was bound to consider its weaker brethren. All the questions between this bank and its enemies must be decided now in view of subsequent developments, which all went to show that the bank was at this time in no condition to perform its functions, but was working mischief.

REVIVAL OF BUSINESS.

During the year 1838 there had been a general revival of trade. The Bank of England rate was from 2½ to 3½ per cent. During the whole of that year. This led to increased investments in American securities. “ Bonds of all kinds issued by the Bank of the United States, by the various States in the Union, and by numerous private undertakings, were poured upon the English market, and found eager purchasers.” * This served as a further extension of credit on American debts carried over by the operations of the Bank of the United States and others from the previous crisis. It is important, as showing that besides the strenuous efforts made by Americans to pay (a fact to which there is the best testimony), and the amount lost in bankruptcy, the time for liquidating the debts of America to Europe was greatly extended.

Towards the end of the year there were symptoms of further trouble. The exchanges became adverse, and the stock of gold in the Bank of England declined until October. In that month the Bank had,£2,525,000 in bullion notes, £17,612,000; and deposits £6,734,000. In May the rate was 5 per cent.; June 20, 5½; August 1, 6; September, 6½. In the autumn the Bank of Belgium failed, and there was a run on the banks at Paris. * The Bank of England borrowed £2,500,000 of the Bank of France through Barings. After October gold began to flow into England, and the pressure subsided.

These incidents again reacted on this country. The suspension had not been followed by any great reduction of paper here, but had rather enabled the banks to go on without reducing; only at New York, where they were most exposed to the action of an adverse exchange, and where the legislature had taken prompt measures of compulsion, was there a thorough reduction.

THE BANK CRASH OF 1839.

The Bank of the United States during the year 1838 became involved in cotton speculations, assuming the troubles to be over, and buying for a rise. On the revival of business in England in that year cotton did rise, and in May, 1839, it was at 16 cents, but from that time it declined again. It was not above II cents in 1840 (September), not above 11 cents in 1841 (February), not above 9 cents in 1842 (March), and not above 8 cents in 1843 (October). It did not reach 12 cents again until February, 1847. To the bank this course of the market was ruinous. It made the utmost exertions to sustain itself by the sale of bonds in Europe, and by issuing post notes which were sold in New York and Boston at 18 to 24 per cent, discount. Several banks failed in different parts of the Union, and the struggle to sustain specie payments became very severe. Throughout the Western States, especially in Michigan and Illinois, the failures were numerous. The banks of Mississippi, which, as above stated, had become extensive dealers in cotton, of which they were carrying large quantities, were nearly all ruined, and their notes, and those of the various joint-stock companies which had issued notes, were at from 25 to 60 per cent. discount. The State of Michigan was engaged in building railroads, and was involved in debt. The roads were sold to incorporated companies at a loss of almost their entire cost. Alabama had created a debt of fifteen millions to found a banking system. This was nearly all lost. In 1838 Mississippi borrowed seven millions in bonds to found banks. This debt was repudiated.

It afterwards came out that the Bank of the United States was carrying on operations at this time for which no condemnation could be too severe. As the New York banks were staggering under the effort to avoid new suspension, which the United States Bank eagerly desired, it took the step of selling exchange in New York, and using the notes and checks obtained in order to make a run on the New York banks for specie, which it shipped to meet the exchange when it fell due. This almost incredible action is stated and described in detail by Mr. Cowperthwaite, formerly assistant cashier of the bank, in an explanatory letter to Mr. Biddle, published with other similar documents, in Nilesȧ Register, April 24, 1841. It, however, met a fit reward. The United States Bank was deeply in debt to Europe, and relied on the success of its manœuvre to meet the bills, but it drew so rapidly and recklessly that it could not send notice of the drafts, and on the 16th of September, 1839, one of its drafts was refused at Paris. It then tried to effect loans in Holland, and, failing, it applied to the Bank of England, where the rate was now 6 per cent. This Bank was itself in as severe straits as at any time in its history, but it loaned a small sum. Macleod quotes the New York Evening Post on the operations of the bank at home, showing that it owed from ten to twenty millions in New York and $800,000 in Boston. It appears that the prestige of the bank was not broken until this time, and that the question between it and its opponents was held open. On the loth of October, 1839, it closed its doors and was followed by nearly all the banks in the South and West. The New England and New York banks held out bravely, but, taking the country over, this was the real collapse of the banking system which had been growing up. 343 out of 850 banks closed entirely, and 62 partially. Of the government deposits some two millions were lost.

The second suspension lasted in Pennsylvania until January 15, 1841, being limited by statute. As soon as the Bank of the United States opened a run upon it began, and it closed finally on February 4, 1841. This led to a third suspension, and specie payments were not definitely resumed until March 18, 1842.

The London Bankers' Circular * said that four million pounds sterling of the stock of the United States Bank was held by Englishmen,£20,000 by the people of Guernsey. Its capital was a total loss, and the seven millions United States stock subscribed into the capital of the bank by the government is mentioned by the Secretary of the Treasury (Finance Report, 1872, p. 18) among the items of the debt for which no cash ever came into the Treasury, i.e., it was created for this purpose.

The speculation in Western lands and city lots burst in 1837, but the banks escaped by suspension. As will be seen by the table given above, * the currency was not greatly reduced in 1837 and 1838, and, as will be seen by the diagram opposite p. 227, prices of staple articles were arrested in their fall in 1838. The blow fell upon speculative investments, articles of luxury, and imported articles, the prices of which always feel paper inflation most. Nor was the fall of prices from 1839 to 1843 due to any forced contraction of the currency. The more correct explanation of the phenomena is that the destruction of the banking system brought with it a collapse of the industry of the country. The revulsion was so complete that it could not be arrested until industry came almost to a standstill and took a fresh start. 1841 was considered comparatively a year of prosperity, but on January 1, 1844, the banks held forty-six millions in specie against forty-four millions of circulation, † and money was easy at 3½ and 4 per cent. The year 1843 was one of the gloomiest in our industrial history. The grand promise of ten years before was now entirely obscured. Mortgaged property was passing into the possession of mortgagees. Factories were idle. Trade was dull, investments slow. All the natural advantages of the country were present unimpaired, but the haste to realize them had brought ruin which time only could repair. The year 1843 was one in which the ideal of some economists was realized. We exported forty millions more merchandise than we imported, and we imported twenty millions more specie than we exported, but the significance of these facts was simply this: we were paying up for the grand times of the years before. It was like the spendthrift living low to recover his position, and we were doing it by producing mainly for export, at prices low enough to suit the creditors. The patient being in this low state the doctors gave him another dose of protective tariff, and, as he got better, they have published the case in their almanacs ever since.

MOVEMENTS OF SPECIE, 1830–1840.

The cases we have had to deal with hitherto have presented us with the simple phenomenon of the export of the precious metals and increased importations of commodities, due to the repetition of the grossest error possible in currency—the attempt to use two kinds of circulating medium, one inferior to the other. In no other way than this can a country be “ drained of its specie,” and in no other way can a permanent and heavy “ balance of trade” against it be brought about. * It may indeed send money abroad to support armies, or to buy food, or for foreign investment, but these are arbitrary acts, not effects of the laws of trade. Their influence is also slight and temporary, for the specie tends at once to return, if it is needed, to where it was. The United States do not need to contemplate either of these contingencies.

The case now before us is different. We have here a large excess of imports over exports, a vitiated currency, and at the same time a flow of specie towards the country.

The Secretary of the Treasury speaks of the movement of specie which escapes the Custom House. He does not seem to place implicit reliance on his statistics, and it must be understood of them that they are not trustworthy, either as to goods or specie, save for general results. The fact, however, may be accepted as true, that the movement was as here shown.

There were certain arbitrary interferences with the natural movement. The banks were induced by government regulations to import specie, and the government itself caused payments this way to be made in coin at every opportunity. By altering the rating of gold to silver also it made gold a profitable remittance to this country until the metals and prices had adjusted themselves to the new arrangement. The operations of the Bank of the United States in 1839 were of a character to traverse all natural laws, and render scientific inferences extremely difficult.

None of these things, however, could have kept the specie in the country, if there had not been other causes at work.

Condy Raguet says that there were but very few small notes in the country until after the suspension of 1837. The habit of calling for specie had never been formed, and it was sternly discountenanced by public opinion. It is indeed extraordinary that, as the currency increased so rapidly, it should not have depreciated, for the fact, as shown by public documents, is that it did not depreciate more than the cost of transporting specie from the place of issue to the place of circulation; but this fact is a strong support of the opinion stated above, that the bank expansion only kept pace with the speculative expansion and rise of prices, and that the issues, although opposed to all sound rules of banking, and sure in the end to prostrate banks and dealers together, were not made faster than they were called for.

Beyond and below all these circumstances we must look for a more permanent law of the movement of the metals, and we find it in the scientific principle which these things only modify more or less. The metals move away from the country in which prices are high to the country in which prices are low, that is, they go from the countries where they have low value to the countries where they have high value. Evidently in a natural state of things there would be some things in each country (those for whose production that country has the best advantages) which would be lower in price, would be given in larger quantity for a given quantity of the precious metals, in that country than in others. The movement of metal from country to country would in that case be very slight, but whenever the average of prices in one country rose above the average in others, an outflow of specie would bring them down to the level, and whenever they fell below the average, an influx would raise them. Some argue that high prices make prosperity: others that low prices make prosperity. High and low prices are only relative terms, and in fact have no meaning when we embrace the production of the world. The true place for prices in each country to occupy is in their due relation to the general average the world over, for then each country gets the utmost possible gain from its relative advantage in those things which it can produce best. The movement of specie would therefore be, if the whole world used the metals and regulated prices by them without interference, as regular, as self-controlled, and as beneficent as the movement of the tides. This, too, is the grand fundamental reason why inconvertible paper is a suicidal folly in the country which adopts it.

In the case before us prices were unduly inflated by speculation and over-issues in nearly all the countries of Europe, as well as in this country. Hunt's Merchant's Magazine for July, 1844, gives a table of English prices showing that if the prices for fifty articles in

This relative inflation in the countries with which our relations were closest, shielded us from the effects which must have followed if their finances had been in a sound condition.

There was one thing, however, which was dearer here than in Europe, and which therefore made this the best market for those who wanted to sell or lend it, and that was capital As has been said above, the country was new, its natural advantages undeveloped, and only just made available by improved means of commmunication. The remuneration for all sorts of investment was high. In the crisis of 1837 the crash was not in production, but in those real estate investments which were to become profitable by the results of productive labor. Even in 1837, and especially in 1838, the European investments in American securities were, as we have seen, very large in amount. When the Bank of the United States finally failed it owed in Europe over fifteen millions. Its failure, with the total loss of its capital, much of which was owned in Europe, the failure of many injudicious enterprises, and, above all, the repudiation of indebtedness by several of the States, ruined American credit abroad. Up to 1840, however, that credit had been high, and it was acknowledged that in 1837 the American merchants had generally exerted themselves to the utmost to meet their obligations. These continual loans and investments from Europe kept down the exchanges. They were transferred, as far as it was profitable to do so, in goods, for the rest, in specie, and the surplus import of merchandise and specie, was, in great part, a real transfer of capital highly advantageous to all parties concerned. The same may be said in general of that “ increasing indebtedness to Europe” which has been going on more or less ever since, and has caused so many good people great anxiety.

FINANCIAL MEASURES FROM 1840 TO 1850.

The second suspension of the United States Bank in 1839, and its operations of that year, cost it a great many of its friends. The administration of Mr. Van Buren clung to the hard-money policy, and opposed any national bank. But the fight was not yet over in fact, the few next years were full of financial legislation and of battles over bank or no bank.

In 1840 the Independent Treasury Act was passed, by which the government was to take the custody of its own funds. It was not passed without fierce opposition, especially from those who saw in the specie circular the beginning of all the woes of the country. As that had withdrawn the support of the government acceptance from the bank issues, so this would withdraw the public funds from use as banking capital. The specie circular did indeed withdraw powerful support from the bank-notes, which enjoyed credit While the government received them, which they did not possess when refused at the Treasury, but if A is a man of doubtful credit, and gains confidence by being supposed to be a friend of B, an honest man, and if B declares that he is not a friend of A, A may lose the credit he enjoyed, and be ruined; but who except A will lay the blame of that ruin on B ? The Independent Treasury Act accomplished the “divorce of bank and State,” and we, who have that battle to fight over again, can see in it only wise statesmanship.

It was proposed in England that the holders of State bonds should try to get Congress to assume the State debts as had been done in 1791. * Sydney Smith wrote a letter to Congress petitioning that this might be done, † and representing that he and other liberals had staked both their word and their money on the honor of the American Republic. After a strong contest resolutions were passed to crush any hopes of success in such an attempt. The opposition was based, not on the impropriety of the assumption of State debts by the general government, but on the necessity of resisting the dictation of foreign bankers. The foreign bankers were only trying to collect their debts, and this story, colored by tradition, still injures American credit, especially in England.

In 1841 Mr. Harrison became President, and called an extra session of Congress for May 31st of that year. This session was held under Mr. Tyler, and was marked by some of the worst legislation ever passed since the Constitution was adopted. Mr. Tyler had become a whig, though formerly a democrat. To this he owed his place on the ticket, and it soon seemed to the whigs that with President Harrison they had lost the victory, for which they had waited so long and worked so hard.

The first act of the session was the repeal of the Independent Treasury Act. Mr. Clay had proposed three other important measures for the session: a national bank, an increase of duties, and a land distribution bill. Before any of these latter could be acted on, a Bankruptcy Act was introduced by the Senator from Mississippi. This act was bargained off for the Bank Act and the Distribution Act, and the three went through together.

Benton says of the Bankrupt Act: “ It applied to all persons in debt—allowed them to commence their proceedings in the district of their own residence no matter how lately removed to it—allowed constructive notice to creditors in newspapers—declared the abolition of the debt where effects were surrendered and fraud not proved.” He says that the number of men who had failed and wanted to get clear of encumbrances for starting anew was estimated at one hundred thousand.

The Land Distribution Bill was the new form of the bill for assuming the State debts. The income from public lands (less than one and a half millions in 1846) was to be divided amongst the States to help them pay their debts ($170,000,000). It contained a proviso that if duties above 20 per cent. should ever be laid, this act should be suspended. When the tariff was passed it contained a proviso that it should not suspend the Land Distribution Act, but it was vetoed.

The Compromise Tariff had cut down the revenue from customs without providing any other resource. During its first years it had produced a surplus, but its last years, falling in with the “ hard times,” had left a deficiency. The debt increased as follows:

From this time it decreased until 1847.

As for the bank, President Tyler took a whim in regard to the word “ Bank.” He wanted it to be called the Fiscal Agent, or something “ fiscal.” He vetoed two bills passed for incorporating such an institution, the relations of which to the Treasury promised great mischief, if either had gone into operation.

The Treasury, being still unable to pay specie by the failure of a loan authorized at the special Session, began to pay congressmen in Treasury notes. Benton caused one of the checks to be protested in January, 1842. Specie payments were soon after resumed by the government, and did not cease until 1862.

Two tariffs having been vetoed in 1842, because they provided for the distribution of the revenue from public lands, a third was passed, which raised duties above twenty per cent., and so suspended distribution.

In 1843 the Bankruptcy Act was repealed, having been found in its operation to be worse for debtors than for creditors. The man who availed himself of it could obtain no further credit.

Thus the legislation of these years came to nothing but the new tariff, and the excitement of party contests only served to keep the country anxious, and to restrain it from entering on the new career. The government was now, however, fixed in the hard-money system, and the subtreasury system, by which it was so entirely severed from the money-market that, fortunately, the bankers and merchants could afford to laugh at the insignificance of the government on their arena. Its position was never so strong or sound as when, in this point of view, it was most ridiculous.

The nation had too much energy and too vast opportunities to long remain inactive. From 1844 on, things began to mend. Banks began to expand once more with the growth of trade. Prices advanced, and in 1846 a new tariff once more relaxed the restrictions of trade. In 1847 the failure of the crops in Europe gave a market for bread-stuffs, of which nearly 37½ million dollars' worth were exported. The total exports of that year were larger than for any preceding year, 158,000,000. The imports of specie exceeded the exports by more than 22,000,000. The abolition of the corn laws in England opened a permanent market for the surplus product of the West, and the settlement of that portion of the country took new form. As soon as the famine was felt in Ireland, its population began to apply the only true cure of the trouble—emigration— and the revolutionary struggles on the continent in the year 1848 contributed to increase emigration to this country by their failure.

The extension of railroads kept pace with the other developments, which it in turn helped to multiply.