It could lend no more than $500,000, to the United States, $50,000, to each State, and nothing to foreigners. It could give no bill of exchange greater than $5,000; bank notes less than $100 were to be payable on demand, and greater sums were not allowed to run longer than sixty days.

Two settlements were to take place every year.

Branches were to be established upon demand of legislative authorities, wherever 2,000 shares of stock were subscribed for.

There were to be no bank notes less than $5.00, and every bill of exchange, or bill payable at sight, was to be receivable by the public Treasury.

The duty of the Bank was especially to pay out and receive the public money, without profit or loss. It was to serve as agent for every State contracting a loan; the cash belonging to the United States was to be deposited at the Bank whenever the Secretary of the Treasury did not dispose of it otherwise, in which case he was to notify Congress.

Neither the Directory nor Congress could suspend payment of the bank notes, discounts, or deposits: such refusal carried a right to 12 per cent. interest. In exchange for this charter the Bank was to give $1,000,000, to the Government in three instalments.

The charter was exclusive during its life, excepting in the District of Columbia, where banks might be authorized, provided their capital did not exceed $6,000,000. The Bank did not open at once, for it sent an agent to Europe to look up bullion. Between July, 1817, and December, 1818, it thus procured $7,311,750, at an expense of $525,000. On the 20th of February, 1817, it was decided that, excepting gold and silver and Treasury notes, no notes would be received at the Government Treasuries, save such as were payable to the banks in hard money.

Notwithstanding this discrimination the Banks decided not to resume specie payment until the 1st of July, 1817.

In the meantime an immense speculation had taken place in its stock, which was compromising for the Bank and for the credit of its Directory, because several of its Directors appointed by the Government took part in it. For example, it became customary to loan a very large amount of money on the Bank's own stock, as much as $125 on each share of $100.

Thus more than the purchase price was loaned upon them: in furnishing the means of paying for them by credit, speculation was aroused, and on the 1st of September, 1817, the market price advanced to $156.50, at which rate it continued until December, 1818, when it fell to $110.

At last the public perceived that the excessive issue depreciated the bank-note circulation, and that a greater shrinkage was imminent.

An office for the payment of bank dividends was opened in Europe, so as to increase the price of the stock and the speculation in it through this facility, rather than for the permanent benefit of the inst.i.tution.

Let us note here the short-sightedness of the Directors, who thought they would stem the depreciation of their means of payment by persuading all the banks to declare what was not true, that the bank notes were worth par.

On the 21st of February, still aiming at the same end, they announced the resumption of specie payment. The State Banks, remembering the embarra.s.sment of the public, which for two years had paid an exchange of 6 per cent., persuaded themselves that few people would dare to ask for large sums. They hoped to come to an understanding and to cause the acceptance of a promise to pay upon a designated day.

We say "a promise to pay," for this was not a serious proposition, inasmuch as foreign money and that of the United States had enjoyed a higher market value for a long time.

The depreciation of the bank notes might result just as well, from the fear of the public's enforcing its rights, as from a refusal of the banks to make good their promises. This understanding was not, properly speaking, a resumption of specie payment, but rather a kind of humbug.

In January the banks of New York, Philadelphia, Baltimore, Richmond, and Norfolk decided to resume specie payment on the 20th of February, provided the balance showing against them was not demanded by the Bank of the United States before discounts became $2,000,000, at New York, as much in Philadelphia, and $1,500,000 in Baltimore; and these conditions were accepted.

The discount line of the Bank of the United States was thus greatly increased; it grew from $3,000,000 on the 27th of February to $20,000,000 on the 30th of April; to $25,000,000 on July 29th, and to $33,000,000 on the 31st of October. The Bank imported much metallic money, redeemed its notes and those of its branches without distinction; the notes of its Eastern and Southern branches were returned as soon as those of the North had paid them, and they were newly issued; consequently eighteen months after this practice began the cash boxes of the North were drained of their capital, the length of discount was reduced, and 5 per cent. was charged for sixty days. On April 1, 1819, only $126,000, cash remained on hand, on the 12th only $7l,000, remained, $196,000, was owed to the city banks.

Scarcely had the Directors of the National Bank succeeded in replacing the paper issued but not redeemed by their bank-note circulation, being fully aware from their own experience that the circulation could only reach a limited amount, than they inundated the market with it, and in a few months all reductions vanished. In this way the market price shortly resumed its former quotation, and all the difficulties reappeared. This imprudent management necessarily threw one portion of the public into debt, from which it had saved itself; and the other portion into the vortex which it had avoided. The critical moment was delayed somewhat, but the day of reckoning was near.

THE PANIC OF 1818.--The Bank at last discovered that it had pa.s.sed the bounds of safety through its issues, and that it was at the mercy of its creditors. It saw firstly, on October 21, 1818, the payment of part of the State of Louisiana's foreign debt withdraw large sums, and then Chinese, Indian, and other goods reach fancy prices because of the depreciation of the circulating medium. All these influences produced a demand for specie payment which the Bank as a public one was obliged to meet, under penalty of 12 per cent. interest, and without power to avail itself of the same accounts as the State banks.

From this moment it thought fixedly of its safety and of how to reduce its notes; this reduction obliged the other banks to imitate it, and a new crisis shook trade in the end of October, 1818. During one year the National Bank furnished from its cash boxes more than $7,000,000, and the others more than $3,000,000.

The State banks naturally followed the same policy in their connection, and their circulation became reduced as follows:

On November 1, 1816, to ............ $4,756,000 " " " 1817, " ............ 3,782,000 " " " 1818, " ............ 3,011,000 " " " 1819, " ............ 1,318,000

It will give a faint idea of the excessive issue to state that the only difficulty was the impossibility of examination by the President and Cashier, and of their jointly signing the notes, which was made obligatory by the regulations; hence they asked power from Congress to grant this right to the Presidents and Cashiers of the Branch Banks.

This facility was refused, but Congress granted a Vice-President and a Vice-Cashier to sign. With these issues and a simple capital of $2,000,000, the Bank discounted as much as $43,000,000, during one year, in addition to $11,000,000, to $12,000,000, loaned upon public securities.

In order to carry on its operations, it exchanged in Europe a portion of its funded debt for gold and silver, and bought specie in the West Indies. From July, 1817, to July, 1818, it imported $6,000,000, of specie, at an expense of $500,000, but the excessive issue of paper drained away the cash more rapidly than the Bank could import it. In the face of this hopeless struggle, in July, 1818, it entirely changed its course and reduced its discounts, and 10 per cent. premium was then paid for cash, and the reduction of nearly $5,000,000, in the discount line in three months only had a disastrous effect, while at the same time they would only receive for redemption the notes issued by each Branch Bank: hence general embarra.s.sment arose, and as the Bank of the United States was withdrawing cash from the local banks, Congress wished to forbid the exportation of gold and silver. The committee appointed on the 30th of November, 1818, to examine the affairs of the Bank concluded that it had violated its charter:

1. In buying $2,000,000, of the Public Debt.

2. In not requiring from the purchasers of its stock the payment of the second and third instalments in cash, and in the Public Debt of the United States.

3. In paying dividends to purchasers of its stock who had not entirely paid up.

4. In allowing voting by proxy to a greater extent than the charter permitted.

Upon receipt of the report the Governor fled, and the shares fell to $93. In 1818 the speculation was so wild that no one failed on account of a smaller sum than $100,000. A drawing-room that had cost $40,000, and a bankrupt's wine-cellar estimated to have cost $7,000, were cited as instances of the general prodigality. The Senatorial Committee of Inquiry declared that the panic imposed ruinous losses upon landed property, which had fallen from a quarter to even a half of its value.

In consequence forced sales, bankruptcies, scarcity of money, and a stoppage of work occurred. House-rents fell from $1,200, to $450; the Federal stock alone held its own at 103 to 104.

On the 13th of December, 1819, a Committee of the House of Representatives reported that the panic extended from the greatest to the smallest capitalists. It concluded by demanding the intervention of the legislative power to restrain the corporation, which, spreading its branches throughout the Union had inundated it with nearly $100,000,000, of new circulating medium. Those who unfortunately owed money lost all the fruit of long work, and skilled laborers were obliged to exchange the shelter of their old homes for the inhospitable western forests.

Forced sales of provisions, merchandise, and implements were made, greatly below their purchase price. Many families were obliged to limit their most necessary wants. Money and credit were so scarce that it became impossible to obtain a loan upon lands with the securest t.i.tles; work ceased with its pay, and the most skilful workman was brought to misery; trade restricted itself to the narrowest wants of life; machinery and manufactories lay idle; the debtor's prison overflowed; the courts of justice were not able to look after their cases, and the wealthiest families could hardly obtain enough money for their daily wants.

The Committee appointed by the Senate of Pennsylvania reported on the 29th of January, 1820, that, to prevent a bad administration of the banks, it was necessary:

1. To forbid them to issue more than half of their capital in notes.

2. To divide with the State all dividends in excess of 6 per cent.

3. Excepting the president, that no director should be re-appointed until after an interval of three years.

4. To submit to the State's inspection the bank's business and books.

From this period excessive profits and losses ceased on the part of the American banks. The change of directory of the National Bank, called forth by the unfortunate experience of 1818, was the beginning of a very fortunate epoch. As was always the case, business affairs resumed their usual course when liquidation ceased. Among the various causes a.s.signed for the panic, the increase of import duties had to be pointed out, and the decrease of the Public Debt which was reduced between 1817 and 1818 more than $80,000,000. It was impossible to turn any portion of the public deposits in proper time either into Federal stock or such other forms of value as its creditors might demand, without staking or breaking down any respectable inst.i.tution whatever. But these seem to be only secondary causes.

Panic of 1825 to 1826.--In 1824 in Pennsylvania there was a new rage for banks, and in 1825 there was a repet.i.tion of the marvellous days of 1815. American banking bubbles have always been exactly similar to the English South Sea bubble, and to Law's bank in France. In July, after an advance dating from 1819, there was a reaction, a panic, and liquidation. Here we cannot point out any of the causes which we have indicated above; the growth of trade and the exaggeration of discount sufficiently explain the difficulties of the situation.

In Pennsylvania in 1824 a bill was pa.s.sed re-establishing the charters of all the banks which had failed in 1814. In New York they thought of banks alone; companies with a capital of $52,000,000 were formed. Ready money had never been so abundant, if we can judge of it by the amount of subscriptions and the great speculations in stocks.

Three millions were subscribed to the "New Jersey Protection Company" in one day. But in July, when the decline on the London market was reported, the want of hard money forced itself into notice. Exchange on England rose from 5 per cent. to 10 per cent.; the discount on New Orleans notes, from 3 per cent. became 50 per cent., and on the 4th of December it had fallen back to 4 per cent. What fluctuation! What disasters!

Mr. Biddle, the President of the United States Stock Bank, said that the crisis of 1825 was the most severe that England had ever experienced, superinduced as it was by the wild American speculation in cottons and mines. Cotton cloth fell from 18 to 13 cents per yard; and out of 4,000 weavers employed in Philadelphia in 1825 not more than 1,000 remained.

The reaction of liquidation was experienced in 1826, and from 1827 money was abundant.

EMBARRa.s.sMENT OF THE LOCAL BANKS IN 1828 TO 1829.--Is it necessary to mention these embarra.s.sments? The trouble of 1828 affected only the local banks and not at a11 those of the United States. The chief cause was the Bank of the United States' increase of circulation from August, 1822, to August, 1828. From $5,400,000 it had become $13,000,000 without adding anything to the circulation, merely displacing an equal amount of local bank notes through drafts of branches that it put into circulation. These branch banks' drafts were in form of bank notes, signed by the chief employees of the branches, drawn, it might be, on each other or on the main bank. A great issue of paper was thus brought about; without this roundabout method it would have been impossible to have forced the issue of the notes from the mere physical inability of the president and cashier to sign so large a number. Congress had always refused to delegate this power to any other persons; in consequence of this practice the inevitable result occurred in 1828, as might have been foreseen, and a conflict between notes of the Bank of the United States and that of the local banks occurred.

These drafts circulated everywhere; the branch banks received them on deposit, but did not redeem them: hence it was necessary to guard against panic by keeping hold of cash. This course increased the issue of the Bank of the United States, and of the local banks which discounted the paper of the central bank as if it were so much cash. The local banks, then, whose paper did not widely circulate, exchanged their bank notes for drafts, thus reducing the amount of circulation of the first, increasing that of the central bank, and hence that of the total issue of its bank notes; the local banks continued to exchange their paper with its narrow and limited circulation for drafts of this latter, which pa.s.sed everywhere.

There occurred, then, in 1828 and 1829 an accidental and very brief scarcity of cash, whose cause we have just indicated; but since the second half of the year difficulties arising from metallic circulation had disappeared.

PANIC OF 183l.--The course of business, having scarcely suffered a stoppage, continued until 1831, and not till then did The Bank, being the agent of the Treasury and having $11,600,000 on deposit, would have been forced to become a borrower in order to pay out the $2,700,000 demanded from it. However, its request was granted.

Jackson soon learned with surprise that, business being more impeded than ever, the President had despatched an agent to England to contract with the Barings a loan of $6,000,000. Seeing the Bank to be insolvent he resolved not to renew its charter. The Bank tried to hide its insolvency by the most foolish land speculations, which had already caused such great disaster in 1818 and 1820. The issue of bank notes had given fresh spirit to speculation. These bank notes were received by the National Treasury and returned to the Bank on deposit, which again loaned them to pay for land upon security of the land sold, with the result that the credit granted the Nation was merely fict.i.tious.

In 1832, Congress having voted for the extension of the Bank's charter, President Jackson refused to ratify it on account especially of certain changes, it sought to introduce. "Why," said he, "grant a capital of $35,000,000 when the first company only had $11,000,000?"

But though the Bank's charter could not be arranged, the law of July 10, 1832, dealing with the regulation of banks, prescribed that "a report"

upon their exact condition should be submitted to Congress every year.

In 1833 General Jackson ordered the withdrawal of the Government deposits from the Bank. The law required that the reasons for the withdrawal of the deposits should be given, and the secretary, Mr.

Duane, refused to give them, saying the Bank was not insolvent. He was dismissed and replaced by a more amenable secretary. The deposits were withdrawn and placed in different State Banks, The Bank of the United States was obliged to limit its discounts and loans, thus causing trouble; however, the President wished at any loss to establish a metallic circulation.