A Short History of Paper Money and Banking

CHAPTER XV. Of Banking in the Southwestern States.

From Mr. Gallatin’s and Mr. Crawford’s tables, there appear to have been three Banks in operation in Louisiana, in 1814, with a capital of $1,432,300; two in Tennessee, with a capital of $212,902; and one in Mississippi, with a capital of $100,000.

The Banks of New Orleans suspended specie payments in the latter part of April, 1814,1 about four months sooner than the Banks of Philadelphia. The pretext was, that a contraband trade was drawing away all the specie. The fact may have been as stated: but if the Banks of New Orleans had not issued to excess, no contraband trade, or any other kind of trade, could have deprived Louisiana of its metallic money. The excuse was, however, quite as good as that made by the Banks of the Middle States, viz. “That dealings in British Government bills of exchange, and importations of foreign goods through the Eastern States, were drawing off all the silver.”

The Bank of Nashville, Tennessee, did not stop specie payments till July or August, 1815, nearly a year after the Banks of Philadelphia.2

The Banks in Tennessee in 1817, were the Fayetteville Bank of Tennessee, with a capital of 200,000 dollars; the Nashville Bank, with a capital of 400,000 dollars; and the State Bank, with a capital of 400,000 dollars. In November 1817, the capital of the State Bank was increased to 800,000 dollars, and authority was given to it to accept a batch of Banks as branches, which thereby swelled its capital to 1,600,000 dollars. A similar union was effected between the Nashville Bank and a number of others, by which the capital of the Nashville Bank was augmented to 1,031,705 dollars.3

Between the years 1817 and 1820, the capital of the Bank of Mississippi was increased from 100,000 to 900,000 dollars: and the number of Banks in Louisiana was increased from three to four, and their capital from 1,432,300 to 2,597,420 dollars. About the same time, the system was introduced into Alabama, by the establishment of the Planters’ Bank at Huntsville.

The same causes that led to the extension of Banking operations in Ohio and Kentucky, were what led to an extension of Banking operations in the Southwestern States; and they all felt the reaction of the system about the same time.

In July, 1819, the Banks of Tennessee stopped payment: and, soon after; a law was passed forbidding the issuing of executions on judgments, for two years, unless the plaintiff would consent to receive “current notes” in payment.

As the “current notes,” (i. e., the notes of the non-specie-paying Banks of the State,) were many per cent. below par, this was making a considerable abatement of the demands of creditors. It gave them cause for complaint, but did not effectually relieve debtors; and, as the public distress increased, a special meeting of the Legislature was held in June, 1820, to consider the state of affairs, The Governor told them, in his message, “He was fully persuaded much good would result to the country generally, by extending the time in which payments can by the present laws be forced, unless the creditor should, by his own voluntary act, make terms of accommodation, and, instead of cash payments, take from the debtor such valuable estate, either real or personal, as it may be in his power to give, and at such abatement under its estimated value as you may direct.” The Legislature, in acting on this subject, not only adopted the proposition of the Governor, but established a relief Bank, with a capital of 1,000,000 dollars, to make loans to debtors only. As a fund for the redemption of the notes of this Bank of the State of Tennessee, as it was called, the proceeds of certain public lands were appropriated. At the same time, an act was passed authorizing defendants to redeem in two years all lands and negroes sold under execution, on paying to the purchaser ten per cent. on the money he might have advanced.

Gen. Jackson, Col. Edward Ward, and other citizens, remonstrated against these proceedings, pronouncing them inexpedient, injurious in their tendency, and in violation of the Constitution. Gen. Jackson, in particular, was very energetic in his opposition; and a number of the most respectable citizens of the State united with him in sentiment. Their combined efforts could not prevent the Legislature from adopting the system: but it would hardly be correct to say, that their opposition had no effect. The issues of the Bank of the State of Tennessee were moderate, when compared with those of the Bank of the Commonwealth of Kentucky: and Tennessee appears not to have suffered as much as her sister State, by the relief system.

In March, 1821, the notes of specie-paying Banks were at an advance, at Nashville, of 13 to 17 per cent., when estimated in notes of the Bank of the State of Tennessee, and the currency does not appear to have undergone any sensible improvement for several years; for, we find Tennessee paper quoted in the Philadelphia papers, of August, 1824, at 25 per cent. discount.

In July, 1826, the Bank of Nashville gave notice of its intention again to resume specie payments. It commenced them accordingly, in September; but 260,000 dollars in specie were drawn from it in seventy days, and it could bear no further drafts. The only Bank then remaining, (except the private Bank of Yeatman, Woods & Co.,) was the Bank of the State, the notes of which are quoted in the Philadelphia papers of 1829 and 1830 at ten per cent. discount.

The notes of the Banks of Mississippi and Louisiana appear, from the Philadelphia price currents, to have been subject to little, if any, more vacillation than those of the Banks of the Middle States: but the currency of Alabama has been very bad.

In 1821, the notes of the local Banks being discredited, no way was found of paying public expenses in Alabama, but by issuing comptroller’s warrants. These would not circulate, as some thought, because they were on bad paper and not handsomely printed; whereupon, it was proposed to send to Philadelphia for blank warrants, handsomely engraved, and printed on silk paper.

In 1824, Huntsville notes were at 30 per cent. discount at Philadelphia.

In the next year, the Bank of the State of Alabama was brought into operation. All the spare funds of the State were devoted to its establishment, and its capital has been augmented from year to year, as the means of the State Government have increased. ts loans are distributed among the different counties in proportion to their population. Its notes do not appear ever to have been at par in the Philadelphia market.

In 1828, there was no local Bank in operation in Kentucky, none in Indiana, none in Illinois, none in Missouri, but one in Tennessee, one in Mississippi, and one in Alabama.

Branches of the United States’ Bank were, however, doing an extensive business in the West: and Judge Catron, of Nashville, in an address which he published in June 1829, pronounced the crisis a dangerous one. “Millions” he said, “have been loaned by a single Bank—the crush of 1819 must overtake us.”

Directing his remarks “to the cultivators of the soil and the laboring people of Tennessee,” he said—“The great pressure upon the people of this State for money, growing out of the excessive loans of the Branch Bank of the United States’ at this place, and the yet more excessive usury (from 5 to 10 per cent. a month,) every where prevailing, has induced me to address you this note upon a subject maturely considered of, during the last ten years; of the necessity of which, my convictions have been confirmed by experience and observation.

“I propose that the Legislature of Tennessee, at their next session, pass a law declaring—“That no one shall be bound for the debt or default of another, by writing or otherwise: Provided, that the act shall not extend to securityships entered into in the courts of justice. In other words, that no one shall be bound as security for another, in any case, by word, bond, note or indorsement, for art ordinary contract between man and man.”

“Should such a law be passed, no man will be trusted, except upon the faith of his property, unless he has industry and honesty; debts will be small and few, cash payments generally required, and the necessaries of life cheaper to the consumer.

“Wives and daughters, I ask your powerful influence and aid, to procure the passage of a law, cutting off the powers of your husbands and fathers, to inflict ruin upon you, by standing the security of worthless adventurers. The writer begs your indulgence to his feelings, when he speaks of you in connection with ruined securities. He has seen you turned out from your happy homes upon the streets and highways in search of bread, the derision of those who had been the cause of your destruction.

“For the sake of your families, fellow-citizens, let me intreat you to refuse your names, should the Banks and usurers outvote us, and the law not be passed. If you go security, what right have you to hope that your house will be your own to cover the heads of your wife and children; you whose labor furnishes us all with bread, I ask—is not the speculator, the idle and worthless coxcomb, who boldly solicits credit and obtains it, more encouraged in society than the most honest and industrious of you, who by hard and daily labor earns his bread? I appeal to you who till the earth, whom I hail as especial friends; I appeal to the mechanic, with the sweat and dust of labor upon him, are you not ridden down by unprincipled adventurers, in cloth and ruffles, who, but the other day, through sheer worthlessness, deserted the plough, the plane, or the trowel, now turned merchants, or mock gentlemen in some form, upon the credit of those from whose side they so lately deserted? Bankrupts in purse, and knaves in principle, with nothing to recommend them save impudence, and the fine clothes bought with the money you have paid, or will be forced to pay, as their securities. Will you longer be imposed upon? I hear you vociferate the energetic NO: you are mistaken, my worthy friends, I know your indulgent natures; a hundred times have you determined, and been ready to take a solemn oath you would never again go security, and as often wanted firmness to resist the succeeding impudent request. Thousands have I known ruined, calling heaven to witness every time they lent their names, that they had gone security the last time. You cannot help it, citizens: it is a weakness of your nature. Step forward boldly and confess that you cannot conquer it, and instruct your representatives to pass a law to protect your frailty, and guard you against those mistaken friends, or designing knaves, threatening your destruction.”

Judge Catron may spare himself further labor. The present rage in the West and Southwest, is for State Banks of various forms. Political power and money power are to be henceforth in the same hands. Our present contests are less for the honors than for the emoluments of office. Their violence is to be increased by making the capital and the credit of the different State Governments the prizes of the successful party. In the regulations which may be made for the distribution of loans, there may be great apparent fairness; but the practical operation of the system must be for the advantage of a small part of the community, and the disadvantage of all the rest. A new kind of aristocracy, a kind of half-political, half-moneyed aristocracy, will spring up in the land.

The State Governments have no constitutional power to establish State Banks, or any other kind of paper-money issuing institutions. They are expressly prohibited to “emit bills of credit.” Qui facit per alios, facit per se. He who does a thing by others, does it himself. State Banks and incorporated paper-money Banks are palpable violations of the Constitution, and would be acknowledged to be so by every body, if interest did not blind men’s eyes to the truth.

The business of lending money is no part of the duty of any Government, either State or Federal. If a Government has more funds than are required for public purposes, its duty is to remit part of the public taxes. Banking and brokerage are the proper businesses of such private citizens as choose to engage in them, protected by the same laws that protect men engaged in other businesses.

 

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4 See Niles’ Weekly Register for May or June, 1814.

5Ib. August, 1815.

6 American Quarterly Review.

• 1* See Niles’ Weekly Register for May or June, 1814.
• 2†Ib. August, 1815.
• 3* American Quarterly Review.
• 4The Banks of New Orleans suspended specie payments in the latter part of April, 1814,* about four months sooner than the Banks of Philadelphia. The pretext was, that a contraband trade was drawing away all the specie. The fact may have been as stated: but if the Banks of New Orleans had not issued to excess, no contraband trade, or any other kind of trade, could have deprived Louisiana of its metallic money. The excuse was, however, quite as good as that made by the Banks of the Middle States, viz. “That dealings in British Government bills of exchange, and importations of foreign goods through the Eastern States, were drawing off all the silver.”
• 5The Bank of Nashville, Tennessee, did not stop specie payments till July or August, 1815, nearly a year after the Banks of Philadelphia.†
• 6The Banks in Tennessee in 1817, were the Fayetteville Bank of Tennessee, with a capital of 200,000 dollars; the Nashville Bank, with a capital of 400,000 dollars; and the State Bank, with a capital of 400,000 dollars. In November 1817, the capital of the State Bank was increased to 800,000 dollars, and authority was given to it to accept a batch of Banks as branches, which thereby swelled its capital to 1,600,000 dollars. A similar union was effected between the Nashville Bank and a number of others, by which the capital of the Nashville Bank was augmented to 1,031,705 dollars.*