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'^^. ^4^%. ^O ^^ f^ ^^ m H O -o m -o > C CO I TJ ^ m O m 2.5 mm ABCDEFGHUKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyz 1234567890 ^-'^A ^^.:f4^. ^^ V t« * .<' <^ x^ f. fc. o- o > Si (/I ^ >< JO a>x OOM o ^cp ^fcP fp t- 1— » ro en o - E 0) o >> TO Q 5 = I f • • • . % . 7 Entered according to Act of Congress, in the year 18M, BY HENRY F. BAKER, _1 «a U.e ClerV. Office of the District Co.rt of the District of Ma.achu«.es. / ■ O 8 T O N ; Thurston, Torrjr, & Emerson, Printers. / J) 133 317 "Ba.T>Km^ -AJ.S BANKS AND BANKING. J- h 1 The banking interests of our country have risen to an im- portance and magnitude and exert a sway, secondary only to that of the National Government itself. Deeply affecting the trade, property, and business pursuits of the whole people, it is obvious that a right or wrong policy in the system of Banking affects the prosperity of the entire community, and it is therefore the subject of constant watchfulness and dis- cussion. Enlightened statesmen, political economists, and experienced financiers have advocated the most contradictory theories, and have introduced into the various States of our Union, systems totally dissimilar to each other, which, after experimental trials, have been substituted by other plans; but none of them have yet obtained universal assent and adoption. We have, accordingly, banks of di scount and deposit, with a limited^ circulationj banks of deposit, ex- chang e, a nd more ex t ended circ ulatij)nT ajid banks ^f c ircu- latio n chiefly y w it h but linii ted^meansjor discount. Some are established upon a purely specie basis ; some upon public stocks, bonds, mortgages, of nominal value; some under general banking laws^ s afety fund laws, and free bankin g principles; some are managed by discreet and responsible J&ectors, and others by inexperienced and reckless specula- tors, whose only aim is personal aggrandizement. While this diversity of practice exists in regard to the system of banking, there is a still wider difference in relation to the circulation of bank notes, and it is to the examination of these subjects that the following remarks are devoted. I 1 I I I Our banks were originally founded, and are still theoreti- cally so, upon the contribution of the surplus means or capital of individuals, who unite in forming a joint stock company for the purpose of obtaining a profit on the funds thus sub- scribed, and which were remaining unproductive ; and by loans made to individuals who need funds for business or speculative operations, facilitate the transactions of trade, and enable others to secure profits which would otherwise be beyond their reach. By these facilities, the manufacturer is enabled to erect more extensive buildings, procure his expen- sive machinery, and supply himself, at the most favorable moment, with a stock of the raw materials for his fabrics. From this source the merchant obtains his funds to build his costly freighting ship, or convert the proceeds of his return cargo into specie or merchandise for new enterprises ; the builder is furnished with the means to erect new edifices for comfort and use ; the land speculator can seek new sites for improvement and occupation; and the mechanic can enlarge his business, and extend the sphere of his operations beyond the requisition of his own immediate neighborhood, and furnish supplies of the varied articles of luxury, use, or necessity, even to the remotest part of our country. The trader, too, who is the intermediate factor between the pro- ducer and the shipper, is greatly aided in his operations by these bank facilities, and all the transactions of demand and supply are essentially accelerated. By all these the capitalist derives a profit from his dormant funds, the inert avail them- selves of the enterprise and sagacity of the more energetic, and those whose property is vested in the hands of trustees or guardians are enabled to rely with security and certainty upon the dividends, which prudent directors are anxious to earn for them. Hence, new activity is imparted to trade, new facilities furnished to enterprise, railroads are constructed, factories erected, villages become towns and cities, farms are rendered more valuable, agricultural products find new mar- kets, and the country at large becomes enriched. Strike out of existence the facilities which banking capital creates, and how rapidly would all our industrial pursuits retrograde and decay. Agriculture, commerce, manufactures, and the arts would languish by impoverishment, and a general gloom would settle down upon the whole surface of the com- munity. If such, then, are the objects and results of banking opera- tions, who can desire to preclude or embarrass them ? Surely no lover of his country's welfare, or of the true interests of the community in which he dwells. Next to sound political measures, social order, and right education, nothing is of more vital importance than our monetary condition, and this mainly depends upon our banking institutions. No matter how fertile may be our farms, if we cannot dispose of the surplus produce, we have merely the means of subsistence. We may fill our manufactories with the results of labor, but if we cannot find a market for our wares, the implements must cease to be employed, as well as the hands which used them. Our ships may make a voyage to India or China, but if their cargoes must be sold and paid for before they are refitted for a new adventure, what precious time must be lost. And so we might carry out the calculation into every depart- ment of active life, but it is useless to pursue it It is sufRcient to state, that it is utterly impossible, in the present age of the world, to hold our place in it, much less to advance in importance, without the facilities which banking institutions afford. If, then, they are of such weighty importance to the prosperity of the community, it is certain that means can be devised to control their operations, and render them the servants and not the masters of the public; subservient to our use like the element of fire, which ministers to our com- fort without being allowed to gain an ascendancy beyond our control. In a word, banking institutions must be reduced to a system, simple in its regulatib if, restricted in its pow«r^ founded upon a substantial basis, watched with a jealous eye^ but with~generous privitegi^ "To "eitable those-who embark in it, the full reward to which their confidence is entitled. During the last twenty-five years, the system has been altered from the original plan, in some of the States of the Union, only twice. Originally established upon a purely specie basis, its first modification was the safety fund system, and the second, the free banking system. The / original plan allowed three doUars of c-ency for one of metallic deposit, but in the most conservative State, t is now Se^to 125 per cent, of the capital, and more than two Ss of this privilege is practically -available, epb^^ some of the smaller banks, who make great eftorts to extend ''?bffiMtn"ovation, the safety fund system, was adopted in New York in 1829, and required from each bank an annual contibution of half per cent of its capital to a common unj^^ to be deposited with the State Treasurer as a bank fund, Intent amounted to three per cent of the capital of each bank Ind was to be applied to the payment of the nconce,vable, that the ^ safety fund system was abandoned, an.dJk£j^.^-§P^of j free Ukiflg under3._£eneral law was -bst.tuted, and has ' acquired general favor in the State where it originated, and been adopted in other States as more perfect than any hereto- fore devifed. it has now been in practical operation in New 1 York neariy fifteen years, and has at various periods been amended with a view of providing more perfect security and LTy be regarded as perfect as legislative acts can render it wJ propofe to review each of these systems ,n detail, and ^ select the States of Massachusetts, Ohio, and New \ ork, as illustrations of the operation of the three difterent systems m X rvrwh^eifr Massachusetts Bank was chartered in Boston, gold and silver were the only true standards of va ue in dimity with the usage in all civilised countries, and th. was the firsi effort in the United States, subsequent o our Eevolution, to introduce a paper currency ^'J^'^^l^"* ^X;;* Gold and silver had long been regarded as the best standards 4. i i of value, because they are the best and most convenient instruments of exchange, and possess an intrinsic worth, corresponding with the cost and trouble of production, and neither deteriorate by time, nor diminish in value. They are the best adapted for the basis of engagements, receivable or payable at a distant period, and being divisible, and univer- sally desirable, their appreciation is uniform in every country. At that period, the trade of our country was limited in its extent. Manufactures were carried on by individual exertions only; the markets for them were circumscribed within the narrow precincts of their immediate neighborhood; and the products of agriculture were exchanged for articles of domestic use. Our commerce was then in its infancy, and was princi- pally employed in the conveyance of our agricultural products, and the proceeds of our fisheries, to the West Indies, South America, and Europe, returning home with such productions of those countries, as were required for immediate consump- tion or use ; and bank facilities were hardly needed in these operations. But the unparalleled increase of our navigation and com- merce soon created a class of traders, who purchased and held larger stocks of merchandise for their business, and whose transactions were profitably carried on between the merchant and the agriculturist, the importer and the consumer, the ex- porter and producer. In proportion as trade and commerce increased, their operations called into requisition additional capital, and bank facilities were more or less frequently needed. The bank restrictions of those early days allowed only " $3000 ^j \. to any individual at one time, and but $5000 in the aggregate to any one borrower," and the loan was only granted "for sixty days, upon merchandise, bullion, or other securities as ( collateral, and for thirty days only on personal obligations, | with two securities," without the privilege of renewal on any i terms, " but the money must be paid when it becomes due." These stringent regulations did not meet the wants of the community, and as trade increased, new banks were created, with more liberal views, but still conducted with extreme cau- tion. The merchants having gradually adopted the practice of selling their goods on a credit, and requiring Spanish milled 8 If dollars for shipment to India and China, or doubloons for the purchase of the produce of Cuba for Europe, they became dependent upon the banks for facilities, and these institutions were multiplied conformably with the wants of the commu- nity, and the expansion of trade. With their increase, the prosperity of the country constantly but unequally advanced, until we reached that crisis in our national affairs, which even- tually involved us in a second war with Great Britain, and ter- minated so satisfactorily to all parties in 1815. During this entire period, the bank notes of Massachusetts were at all times convertible into specie at par, although, at the close of the war, those of New York, Philadelphia and Baltimore suffered material depreciation, in consequence of their suspension of specie payments; whereas, with the exception of a single year, during the financial crisis of 1835-38, when all the banks in the country suspended cash payments, the banks of Massa- chusetts have redeemed their paper on presentation, and fur- nished the clearest illustration of the fact, that an adherence to sound banking principles upon a specie basis, is auxiliary to a high degree of prosperity. If we look at the condition of Massachusetts at the present day, we shall find her commerce, manufacturing interests, railroads, internal improvements and mechanic arts, all in the highest degree of prosperity, while the interests of education, morality, religion, and all the chari- ties of life, are provided for with princely munificence, and science, literature, and the fine arts have found a congenial home. In all that constitutes the true dignity and greatness of a State, Massachusetts will bear a favorable comparison with any of her compeers; and although small in territorial extent, her influence is as widely felt, her resources are as ample, her wealth as substantial, and her foreign credit as high, as that of any other State in our Union. The origin of this success, is the steady labor, resolute per- severance, strict economy, and deep sagacity, which charac- terize the men of Massachusetts, and the results of these have been accumulated in bank capital, which has again dispensed the benefits which created its existence. Like a generous fountain, its copious streams have irrigated the soil, whence it received its supplies, every drop of which percolates and per- meates to its pristine source, without perceptible diminution, and if undisturbed by extraneous causes, may still flow on forever. As the banks were originally established on a specie basis, and above all were managed by discreet and responsible direc- tors, the public were satisfied with their security and ready accommodations. When any one of them has shown signs of weakness, the public have been put upon their guard, and the Legislature have been prompt to impose new restrictions, whenever experience has suggested the necessity. As it now stands, the banking laws of Massachusetts are as perfect for the protection and security of the bill-holder, as human laws can make them. They require that " No bank shall go into"^ operation, until one half of its capital is paid in gold and sil-/ ver, by the stockholders, towards the payment of their respec-V tive shares, and not for any other purpose, and that it shall remain in the vaults of the bank, as a part of the capital ; " and bills cannot be issued for more than 25 per cent, beyond the amount so paid in, nor can a bank extend its lines of discount beyond double the amount of capital paid in, however large or permanent its deposits may be. The stockholders are also liable, individually, for the payment of all the bills issued by the bank ; and thus the community have ample security for the redemption of the bank bills; first, in the capital originally paid in ; second, in the commercial paper taken for the notes paid out; and third, in the individual responsibility of the stock- holders. This last requisition has been regarded as too exacting and onerous, but it ought not so to be viewed. A number of in- dividuals associate together, and form a joint-stock company, for the purpose of profit. They elect their own officers and managers, in whom they have confidence, and whom they thus constitute their agents. They have full power to ascertain the condition of the bank, publicly declare the amount of their profits, in which they participate, and enjoy the privilege of issuing their promissory notes without interest, as the money of the country. If the bank is unfortunate, is there any rea- son why they should not suffer the loss, as well as share the profits ? Is the community to suffer by the mismanagement I of any of the partners in the business, when perhaps their own neglect in relation to the management of the bank affairs has occasioned its downfall ? If partners in other occupations are liable for the losses of the firm, through mismanagement or misfortune, there is no substantial reason why the partners in a bank should be exempt from the same liability. Severe, however, as this law may be regarded, it is the condition upon which every stockholder in a bank in Massachusetts now holds his shares, and he is therefore deeply interested in the condi- tion of the bank, since he can make no valid transfer of his interest therein, if the bank is insolvent. The last returns of the banks in this State were forty-three millions of capital, and twenty one millions of circulation ; the bill-holders then have the responsibility of the stockholders, in addition to the com- mercial paper, taken in exchange for the bank notes issued, and the aggregate is eighty-five millions of dollars, as security of the payment of one quarter of the amount. In addition to this, the Suffolk Bank system exercises a constant watchful- ness over the issues of every bank in the State, and not one could venture upon an excessive issue of its bills, with- out immediate exposure. And finally, there are the bank commissioners, whose special duty it is to examine into the condition of every bank in the State, and personally examine not only the liabilities of the banks, but the actual value of their assets. It seems impossible to suggest any better sys- tem of banking, and yet individuals have been found restless enough to attempt a change of this system, and introduce a free banking law for the better protection of bill-holders ! It is, however, a severe commentary on the value of the labors of these legislative philanthropists, that no set of men have yet availed themselves of the privilege, during the two years which have elapsed, since the act was passed, although appli- cations for seventeen millions additional bank capital have been subsequently made to the Legislature of the State. During nearly seventy years, which have elapsed since the establishment of the first bank in Massachusetts, the country has passed through the various vicissitudes of prosperity and adversity, commercial seizures and embargoes, peace and war, growing out of the continental troubles in Europe; and when, II after the general peace of 1815, by the indomitable energies of our countrymen, the nation again emerged from the thick darkness of despondency, and resumed her commercial pur- suits, it was with a buoyancy and daring which astonished the world with her unprecedented success. During the last thirty-five years, we have been in imminent peril of war, once with France, twice with Great Britain, once with Spain, and engaged in actual hostilities with Mexico, to say nothing of Austria and Peru, which were of minor importance; and although these troubles have all, with one exception, been amicably settled without an appeal to arms, still the effects have been felt in our financial circles, producing those fluctu- ations which operate directly upon the interests of trade. Through all these perilous periods, Massachusetts has proud- ly sustained herself, yielding only once to the financial crisis, which prostrated every bank in the country for one brief year, and then with reluctance. A system, then, which has for seventy years been subjected to such severe experience and trial, through such various vicissitudes, must possess ele- ments of vitality and strength, which should entitle it to the confidence and support of the commercial community, how- ever antiquated it may appear, in comparison with those subtle theories which our modern financiers so strenuously advocate. Let us now examine the safety fund system, which was first adopted in New York, in 1829, and, after nine years' trial, abandoned for the free banking system, which was substituted in April, 1838. As before stated, the safety fund was obtained by a tax upon the banks, of half per cent, per atmum, for the redemption of the notes of insolvent banks, and for their other liabilities ; and ten of these banks have absorbed more than two millions and a half dollars, of which about $1,550,000 were for redemption of bills, and more than one million for other liabilities. If the fund had been appropriated only to the payment of the bills, it would have been amply sufficient for this purpose, as at the time of the failure of the banks it amounted to $1,876,000 ; but the surplus has been absorbed by the other debts of these banks, together with $900,000 more for their debts to depositors and other creditors. Our 13 late excellent chief magistrate, tiien comptroller of the State of New York, remarks, in one of h.s reports, "That banks which enjoy the exclusive privilege of furnishing a currency, Thould be required to contribute something to a common fund to make that currency safe and secure, seems reasonable and iTr; but what propriety »' J-«- -" ^^^^^ "^ m requmng Cbanks to contribute to a g--^ ^^ ^^ ^^^^^P^s „o or other general creditors of the individual banks? It is no exclusive privilege of a bank to receive deposits, or to contract gene" 1 debts, and no reason, therefore, is seen, why this fund should be applied to pay them." ,r , • Cs it wm be seen that the Legislature of New York, m attempting more than could be accomplished, by paying de- pS of the insolvent banks out of the safety fund have LCsted it, and mortgaged all its ^^t- r-ipt. ^^^^^^^^^^ holders will have no longer any security, during the remainder rf the term which some of the banks have yet to run. In f846 the new constitution was adopted, which prohibits he i^JLt^re from "granting any special <^^^^J>^J^Z ™,moses but that corporations or associations might be Cd under general laws." The State of Ohio, however - IftS adopted the safety fund system, and established their S!; BaTk upon the pLciples which N- Jo'^ J. ,r ■1 56 and adopted as a permanent affiance, our banking institutions will continue to be perturbing forces, without the central sun of our planetary system, to retain the revolving bodies in their orbits, and prevent devious movements. In the language of that valuable journal, the Banker's Magazine, " This all- important banking interest requires a combined effort in its direction, and it is only by a concert of action among its man- agers, that it can be made to accomplish the most good." ;i I BANKS AND BANKING IN THE ( i. i . I I. UNITED STATES. It-. PART II: RELATING TU THE STATES OF 1 KENTUCKY, OHIO, INDIANA, AND ILLINOIS BY HENRY F. BAKER, OF CINCINNATI. •5 i k CINCINNATI: nilNTEl) BY C. F. mi.VDl.EY & CO., U? MAIX STREET. 1854. ip INTENTIONAL SECOND EXPOSURE 56 IM and adopted as a permanent affiance, our banking institutions will continue to be perturbing forces, without the central sun of our planetary system, to retain the revolving bodies in their orbits, and prevent devious movements. In the language of that valuable journal, the Banker's Magazine, " This all- important banking interest requires a combined effort in its direction, and it is only by a concert of action among its man- agers, that it can be made to accomplish the most good." BANKS AND BANKING IN THB UNITED STATES. PART II: RELATING TO THE STATES or KENTUCKY, OHIO, mDIAM, AND ILLINOIS. BY HENRY F. BAKER, OF CINCINNATI. CINCINNATI: PllIXTEl) BY C. F. BRADLEY & CO., It? MAIN STREET. 1854. I'i ■ 4 Entered according to Act of Congress in the year 1854, BY HENRY F. BAKER, In the Clerk's office of the United States District Court for the District of Ohio. "^"^f\V,\T\g-\i.5. P ART II. BANKS AND BANKING, IN THE UNITED STATES. In some former remarks, on this subject, a cursory examina- tion of the different systems of Banking in operation, in the United States, was briefly undertaken ; and the practical merits and demerits of each system, were impartially described. The Banking systems of the older States had been frequently dis- cussed, in the leading periodicals of the day, and by sagacious and well-informed, practical writers of pamphlets, on this all-im- portant subject. But the history of the fiscal operations of the more recent States, has been but imperfectly commented upon, and this will now be attempted in the following pages. In the Eastern States, comparatively little was known, in regard to the financial condition of the great producing States of the West ; and even this meagre information was tinged with prejudice, naturally created by the injudicious legislation, which characterised the early history of these States. Within a few years however, the attention of the Eastern capitalists has been directed to the various railroad projects, which have absorbed so large an amount of capital, and the great productiveness, and annual increase of the trade of the States of Ohio, Ken- tucky, Indiana and Illinois have occupied a larger share of pub- lic attention — discovering their wants, and their resources, and unfolding much that it was for the interests of all parties, more clearly to understand and profit by. We propose therefore to review the Banking History of these four important States, to point out the past and present defects, n ;V ■ ■*. !.v ■ A I 1 1 \'i iii I and to offer such suggestions, as the examination of the subject may present. Conscious, that we shall differ in opinion from many, who are now in active positions of influence, and mone- tary power; we shall however, none the less freely express our opinions, although they may clash with those which direct the fiscal concerns of this wide field of labor and enterprise. Claim- ing, as we do, the advantage of the varied experience which an active life, devoted to commercial pursuits and monetary negotiations, both at home and abroad, have amply furnished, we shall write independently of all surrounding considerations, and suggest no measures, excepting those which the public exigencies require, and sound policy dictates. And whatever may be found wrong in practice, or inconsistent with sound Banking principles, we shall freely comment upon, however wide, or general may be the departure from the system we advocate. The early Banks, established in Massachusetts and New York, were founded upon the sound principles of the mother country, and for nearly fifty years no innovations were intro- duced to impair the public confidence in their security ; although some modifications in their arrangement were adopted, corres- ponding with the progressive liberality of the age, and the ex- pansive spirit which foreign commerce naturally engenders and promotes. These Banks were few in number, limited in the amounts of their capitals, and managed by wealthy and discreet stockholders, who were contented with the legal rate of interest for the use of their money. Their capitals were not borrowed ; but were the contributions of the surplus funds of themselves and of their associates, and which were loaned on paper, known to represent the value of solid property, or staple merchandize, required for consumption or export. Every trans- action had its distinct limit, as well as character, and the entire capitals of these Banks were converted into cash, five or six times annually. By this system, the discounted paper of the Banks passed through a constant mutation, and was conse- quently subject to frequent scrutiny and realization. As the wealth of the country increased, the Banks were extended in numbers, localities, and capitals ; sometimes commensurate with, but more frequently in advance of the exigencies of the community. While the Banks of the Eastern States were of slow growth, and were founded on the surplus means, which commerce and the mechanic arts had accumulated, and aided by the frugality and thrift of the people, in the Western States, it appears to( have been the unfortunate, and ill-judged policy to establish/ Banks on paper security, without exacting the indispensable requisition of bona fide cash capital, paid up in coin. The consequence was, that after a brief existence, most of them failed ; and the dreary catalogue of these defunct institutions ) furnishes the most complete illustration of the folly of establish- ing Banks, without a specie capital. The great principle, that Bank note paper must be convertible into specie, or it is nearly worthless, was wholly lost sight of; and although the Corpora- tors were possessed of broad lands, fields of corn and grain, cattle, swine and live stock, of every description, yet all these were insufficient, for Banking purposes, so long as Gold and Silver were wanting. Their live stock, and crops of corn and grain, were marketable articles ; but they were remote from the points, where they could be converted into money, since the modern facilities of railroads were then only in the dim perspec- tive of the hope of the most sanguine. In the earlier period of the history of the Western States, individuals had no claims to a financial credit, which a business man in the Eastern cities would regard as available. Possessed of fertile lands, which a distant period would render valuable, under judicious cultiva- tion, yet without avenues to these remote treasures, they were not available as funds within six or twelve months to the parties east of the AUeghanies, with whom they wished to make contracts. True as this was, in relation to individuals ; in just the same degree, was it true in regard to States. Nothing was permanently established ; the population had neither beconie fixed in locality nor intention — it had established no perma- nent credit, by even a few years of punctual payments of their obligations, nor had the States any settled policy of legislation, by which their future course could be determined. Their only income was derived from taxation upon the lands, which were within their limits, and the collection of even this scanty reve- nue was deferred from year to year, so that no certain reliance could be placed upon its immediate receipt. And yet upon such uncertain foundation, some of these new States issued bonds r? f i I I 6 for furnishing Bank Capital, and borrowed money on disadvan- tageous terms to furnish facilities for speculations in wild lands. In the South Western States, this delusion extended to a ruin- ous amount, not less than forty milions of dollars having been borrowed for this purpose in Europe, and in the Eastern States ; the disastrous consequences of which continue to the present hour. But our present purpose confines us to the Middle Western States, and we commence with the most populous — Ohio. The history of Banking in this prosperous State, furnishes an apt illustration of our preceding remark, that in the new States, there was no settled policy of legislation, by which their future course could be determined. Shortly after the adoption of the Constitution of Ohio, and its admission as a sovereign State into the Union, a Bank was chartered under the name of the Miami Exporting Company, the Bill for which was passed in April, 1803. Banking operations were a second- ary object with the Company, " its main purpose being to facili- tate trade, then suffering under great depression," and Rve years elapsed, before the first regular Bank was established by the charter of the Bank of Marietta in 1808. During the same Session, the proposition of founding a State Bank was con- sidered, and reported upon, and the final result was the estab- lishment of the Bank of Chillicothe. From that period, char- ters were granted to similar institutions, until the year 1816, when the great Banking Law was passed, incorporating twelve new Banks, extending the charters of the old ones, and making the State a partner in the profits and capital of the institutions thus created and renewed ; without any advance, on its part, of any funds for this purpose. The new Law required, that each bank was to set apart, one share in twenty-five, for the State, without payment therefor, and each Bank, whose charter was renewed, was to create for the State, stock in the same proportion. Each bank, new and old, was required annually to set apart, out of its profits, a sum, which at the expiration of the charter, would amount to one twenty-fifth of the whole stock, which was to belong to the State : and the dividends coming to the State were to be invested, and re-invested, until another twenty-fifth of the stock was State property — this last provision was subject to change, by future legislators. The mm aSmm interest of the State was continued in her Banks, until 1825, when the Law was amended, to commute her stock into a tax of two per cent, upon all dividends made up to that time, and four per cent, upon all made thereafter. The system of taxing Banks, commenced in Ohio, in the Legislature of 1815, by a levy of four per cent, upon their divi- dends, but the law was virtually nullified the next year, by ex- empting all Banks from its operation, which accepted the con- ditions of the Act of 1816. The establishment of the second Bank of the United States in 1816, and the location of one of its branches in Cincinnati, in January, 1817, and another at Chillicothe, in October, occa- sioned the well-known controversy between the State of Ohio and the Bank of the United States, in regard to the arbitrary right of taxation ; and although the State was signally defeated in her attempts to collect an unjust and illegal tax, yet after an interval of thirty years, she is again waging another war of ex- termination, against Banks of her own creation, and which are the sinews of the prosperity of her own citizens. The imposition of her modern tax is more insidious in its form of expression, but none the less oppressive in its practical operation. With the branches of the United States Bank, the State declared open war, and passed a law imposing a tax of fifty thousand dollars on each of the two branches at Cincinnati and Chillicothe, if they continued to transact business after the 15th September, 1819, and authorized the State Auditor to issue his warrant to collect the tax. As the narrative of this controversy may be new to some of those, who are now agitating a similar ques- tion in the legislative halls at Columbus, w^e briefly sketch it. The law imposing this tax of $100,000, w^as passed with great deliberation, and by a full vote. But the branches of the United States Bank did not suspend their operations, and the Auditor prepared to collect the money. To prevent this, the Bank filed a Bill in Chancery in the United States Circuit Court, asking for an Injunction upon the Auditor of State, to restrain his proceeding in the matter of collection. The Audi- tor, by legal advice, refused to appear, on the day named in the writ, and of course the Court allowed the Injunction ; but required bonds of the Bank, to the extent of $100,000, which were given. As the day for collection approached, the Bank [y ^ I ■ '^ ■,i I 8 sent an a^ent to Columbus, who served upon the Auditor, a copy of the petition for Injunction, and a subpoena to appear before the Court at a subsequent date ; but he had no copy of the writ of Injunction, which had been allowed. This petition and subpcEna, the Auditor enclosed to the Secretary of State, who was then at Chillicothe, together with the warrant, for levying the tax, requesting the Secretary to take legal advice ; and if the papers did not amount to an injunction, to have the warrant executed ; but if they did, to return it. The counsel advised, that the papers did not amount to an injunction, and therefore the State writ was given to the Sheriff, with instruc- tions to enter the Banking House, and demand payment of the tax, and upon refusal thereof, to enter the vault and levy the amount required. The officer was directed to use no violence, but if he was opposed by force, to go at once before a proper Magistrate, and depose to the fact. Accordingly the officer taking with him competent assistants, went to the Banking House and first securing access to the vaults, demanded the tax ; payment was of course refused, and notice given of the Injunction, which had been granted : but the officer, disregard- ing this notice, entered the vault of the Bank, and seized, in Gold and Silver and Bank Notes, ninety-eight thousand dol- lar, which he paid over to the Treasurer of State. The officer* concerned in this transaction, were very properly arrested, and imprisoned by the United States Circuit Court, for a contempt of the Injunction, granted by them, and the money taken was restored to the Bank. The decision of the Circuit Court finally came before the Supreme Court at Washington in 1824, and was there affirmed ; whereupon the State of Ohio submitted. During the pendency of this suit however, the State Legislature passed four Resolutions ; in consequence of which, the Bank was for a time deprived of the aid of the State Laws, in the collection of its debts, and the usual protection of its legal rights. An effort was also made to effect a change in the Federal Constitution with reference to taking this particular case out of the jurisdiction of the United States tribunals, but fortunately the State of Ohio failed to accomplish its object, in this instance. After 1825, no change was made in the Banking Laws of the State, until 1831, when the Bank Tax was increased from four to five per cent. Subsequently two important Acts were passed by the Legislature ; one in 1839, appointing Bank Com- missioners, to examine the various Institutions, and report upon their condition. This inquisition was resisted by some of the Banks, and much controversy ensued, both in and out of the General Assembly. The other measure was the adoption, in 1845, of a new system of Banking, establishing a State Bank, with branches, on the safety-fund system, (the State, however, owning no part thereof,) and an Independent Bank system, re- quiring State Stocks to be deposited with the State Treasurer, for the full amount of Bank issues. In March, 1851, the General Assembly passed an Act, au- thorizing Free Bankings limiting the amounts to a minimum of $25,000, and a maximum of $500,000, and requiring the amount of notes issued to be secured for the full sum, by the deposit of the stock of the United States, or the State of Ohio ; as in New York, and other Free Banking States ; but in June, 1851, the new Constitution of Ohio was submitted to the people, and its adoption effectually crushed any further Bank associa- tions, by the following Article : " No act of the General Assembly, authorizing Associations, with Banking powers, shall take effect, until it shall be sub- mitted to the people at the general election next succeeding the passage thereof, and be approved by a majority of all the electors voting at such election.'* In 1852, the General Assembly passed the celebrated Tax Law, and thus gave the finishing stroke to fifty years of the most vascillating measures on the subject, which can be found on the statute books of any State in the Union. Commencing in 1815, to levy an equitable tax upon Banking institutions, the Legislative appetite grew more voracious with the taste of blood; and after the prey of the United States Bank was wrested from the fancied grasp of the General Assembly in 1824, they increased the Bank tax in 1831, and finally satiated their relentless rapacity in 1852. Now, we suppose, that there are three propositions, which every business man will admit : First, that Bank Capital is a great desideratum in a newly settled country, whether town or State ; Secondly, that every encouragement should be given by Legislative enactments, for its introduction and protection ; and, 3 -■^l i I i ni It iii ( 1 " 10 Thirdly, that the older States had ascertained by a long ex- perience, to what extent this Capital could be legitimately and safely taxed. Admitting these premises, will any one contend, that the State of Ohio has acted wisely in her late measures of legisla- tion ? Has not the partizan spirit of these measures been ad- verse to the introduction of foreign capital : and while at one period the State fostered a Banking Capital of more than ten millions of dollars, is she not now striving to extinguish it alto- gether, by the most oppressive exactions, at a moment when her vital interests require Banking facilities to the extent of at least twenty -five millions? We need but to cast a single glance at the statistical facts, which the Railroad Record so clearly presents to us in its columns, to perceive the real wants of Ohio. Here is a State, possessing a territory and property valued at eight hundred millions of dollars, with the means of feeding double the number of her own population, and the capacity by increased cultivation, with improved means, to fur- nish ample support for five millions more. " Without at all infringing," says the Record, " on a proper proportion of woods, meadows, pasture and fallow, Ohio might cultivate 12,000,000 of acres, in arable ground. At our present averages, this would give us 80,000,000 of bushels of wheat and 160,000,000 bushels of corn; full enough for the support of twelve millions of people." And yet such a prosperous and prolific State as this, is to be deprived of all Banking facilities, and be dependent on the funds of agents and factors in other States, for the means of bringing forward her products to a ready and profitable market, and lose the percentage, which such extraneous and needless services require for compensa-^ tion. We apprehend, that there are but few of the Solons of Columbus, who rightly estimate, or are willing to compute, the amount of this " compensation," paid in the shape of commis- sions, by the interests engaged in the pork trade alone. From the city of Cincinnati during the last season, there was ex- ported of the products of the hog, in pork, bacon, lard, and lard- oil, the ascertained value of $8,477,431, exclusive of the value of the bristles, grease and other materials, derived from this traffic. A reference to those most largely interested in the busi- 11 ness, discloses the startling fact, that the additional cost of money to them, in consequence of a deficiency of Banking capital in this State, is not less than five per cent, on the amount of these operations. This would show an actual sub- sidy levied on this branch of business alone, of about $424,000 per annum. But this is only a part of the matter. If we take into account, the value of the manufactured articles, exported from Cincinnati only; the flour, whiskey, beef, tallow, soap, linseed-oil, butter, cheese, iron, white-lead, &c., we have another aggregate of $7,688,553, on which there is another percentage of at least five per cent, more paid, making a further sum of $384,400, which together with the former amount, exhibits a total of $808,400 — a large percentage of which is lost to the State, by the improvident legislation in regard to Bank capital. But, large as this sum is, it is but a modicum of the entire amount. The value of the imports of Cincinnati, the last sea- son, were valued at $51,239,644, and the exports at $36,266,108, being more than eighty-seven and a half millions of dollars, and to facilitate these heavy operations, Cincinnati had a Bank- ing capital of only 1,205,526, and, within the whole State, less than $6,500,000. Well may the community exclaim, ** we are short of a circulating medium." Contrast the policy of Massachusetts and Ohio. The former imposes a tax of one per cent, on her Banking capital, and the amount invested in it steadily advances with the increasing prosperity of the State. But Ohio pursues an opposite course, and levies an exorbitant and unconstitutional tax, and cripples the trade of her own citizens, but enables the residents of other States to profit by her mischievous measures. Ohio takes a retrograde step, in the financial movements of the present day, and allows the States of Kentucky, Indiana, Illinois, Virginia, and Tennessee, and finally the New England States, to supply her with currency, who derive a large income therefrom. How an enterprising, energetic and intelligent community, like the agriculturists, traders, and Bankers of Ohio, can sub- mit to such iniquitous laws, as those imposed by the crude, misguided and willful Legislators, who have of late years com- posed the majority at Columbus, and represent the collective wisdom of the people, surpasses our comprehension. The peo- ple of the State have recently adopted a Constitution, which a — s ' expressly stipulates that no one interest shall bear any higher rate of taxation than another ; but that the burden shall fall equally on all descriptions of property in the State. If then, a law has been passed, which will allow, even by a forced con- struction, the levy of a tax on any one interest, double or treb- ble that upon any other property in this State, is not the Con- stitution plainly violated, and the fell purpose of the malicious originators of such a law disclosed, when they find it neces- sary to resort to " Crowbars " to enforce it? Even in the war- fare against the United States Bank, previously narrated, when the State assumed that her rights had been invaded, and levied a tax of $100,000 on the two branches of Cincinnati and Chil- licothe, she directed her oflicer to use no violence in the collec- tion of the tax : " but if he was opposed by force, to go before a magistrate, and depose to the fact." But under the present tax law, the officer is empowered to use " Crowbars," to break open any lock, vault or chest, and to seize upon any amount which he can find, for the full satisfaction of his demand ; and this outrage is authorized to be perpetrated upon the property of her own citizens, transacting business under her own laws, and in direct opposition to the Constitution of the United States, as well as that of the State of Ohio. Fortunately, however, for the people, there is now, as there was in 1824, a restraining power, in the Supreme Court of the United States, which can overrule the decisions of partizan Judges, and sustain the rights of the oppressed. The difficulties attending the present system of Banking in Ohio arise from various causes, but chiefly from the great want of Bank capital. For so large, populous, and productive a State, the amount is utterly insignificant, and considering the large sums necessary to convert the annual crops into money, we may well be surprised, not that it is done with difficulty, but that it can be done at all. But what improvident legislation has discouraged, individual sagacity and cupidity have partially supplied. Hence the large business of the commercial metro- polis of Ohio is transacted by means of the facilities, which pri- vate Bankers afibrd, whose rates of accommodation vary from ten to twenty per cent, per annum, while the incorporated Banks are limited to six per cent. As a class, the private Banking establishments are conducted by men of high integrity 13 and character ; but when a lucrative business can be legally transacted by individuals, which cannot be done in a corporate capacity, it is not a matter of surprise, that the capital should flow into its most productive channel, and partially escape the restrictions of fickle and arbitrary legislation. In the next place, there is no uniform system of Banking in the State. There are in Ohio, at the present period, four distinct classes of Banks, viz : the old banks, incorporated prior to 1845, having a capital of about $1,550,000; the branches of the State Bank, created in 1845, and having a capital of $4,100,000; the Independent Banks, under the same Act, having a capital of $720,000 ; and the Free Banks, authorized by the Act of 1851, and having a capital of about $695,000 ; all under differ- ent rules and regulations, and having no concert of action with each other,[nor unity of interests. They are all amenable, it is true, to the authorities at Colnmbus, so far as to be required to furnish a quarterly report of their condition, and are subject to an annual examination ; but of what value are these ? One of the first named class, with a capital of $200,000, and a circula- tion, according to the August report of $377,682, against which it held $71,000 in specie, and $350,000 in the hands of its prin- cipal proprietor, in New York (now bankrupt) has recently failed. ** This Bank, (the Bank of Massillon) was chartered in 1835, with twenty years to run, simultaneously with the Woos- ter, Clinton and Circleville Banks. It belonged neither to the State Banks, the Independents, nor the Free Banks, but was a sort of Freebooter, with license to sink or swim, as it found most advantageous." The Cleveland and Pittsburgh Rail- road borrowed $200,000 of its notes of circulation, and the Chi- cago and Mississippi Railroad, $200,000 more, and these sums were probably scattered broad cast among the Western farmers and traders, who had a large proportion of it in their posses- sion. How far the principal proprietor in New York may be able to refund the $350,000 in his possession, will determine the ultimate value of these notes of circulation. During the last summer, another class of these Banks has disturbed the finan- cial state of affairs, by the stolen and counterfeited notes of five of their number, and consequently the bills of thirteen Free Banks, amounting to a million of dollars, were rejected by a suspecting community and were consequently withdrawn from <■■ ■ i >. 'I '--V ^■; 'Vf ' >'. .1 ' , I i i llll lii ll>l 111 III 14 circulation, thereby encouraging the Banks of Tennessee, to make an effort to supply the vacuum. These Tennessee bills had for a long time been at a discount of one per cent., but an arrangement was temporarily made, to raise them to a par value, and when a sufficient amount was intermixed with our currency, the arrangement ceased, and the community were compelled to sustain the loss. Every one cognizant of the currency of Cincinnati, is famil- iar with the fact, that a large proportion of it consists of the Bank notes of Kentucky, Indiana, Illinois and Virginia, and that in the winter season, large amounts of Eastern bills enter into the circulation. Other States supply our currency, and reap the profit. They contract and expand the circulation, to suit their own interests, not ours. This is the natural result of Ohio legislation in relation to Banks. We are certainly under great obligation to the Banks of other States, for their supply of currency, on excellent paper, and fine engravings ; but we should be better satisfied to see Ohio itself derive the benefit of this extended circulation, by the introduction of its increasing wealth, into this legitimate and valuable business, and encouraged by the fostering care of legislative protection. But while the present councils prevail, it is hopeless to expect that capitalists will place their funds under the arbitrary control of an Ohio Legislature, when the neighboring State of Indiana by a more liberal policy, will fur- nish them with every facility to conduct their financial opera- tions. A law was passed, in Ohio, in 1848, prohibiting "the circu- lation of any notes, or bills, except the notes or bills of the Banks of the State, issued according to Law," under a penalty of one-half of the amount for the use of the State. We know of but one prosecution, under this Act, and that was against a broker, who was foisting upon the community, some worthless "shin-plasters." The trading community and the Banks treat the law with contempt, and manage their financial affairs in conformity with their own notions of expediency, instead of complying with the absurd requisitions of the Legislature of 1848. By the quarterly returns of November last, the whole amount of the circulation of the Banks in Ohio, was $11,000,000, of mmmt 'sas 15 which the five Banks in Cincinnati had only $353,000, and one- third of even this paltry amount is now withdrawn, by the clos- ing of the Lafayette Bank. The other cities and towns in the State— Cleveland, Columbus, Sandusky, Dayton, &c.— require a large proportion oi their issues, for their own use, and there is left for the commercial metropolis, a totally inadequate supply of currency to meet the engagements of a single day's active business. Why then should the trading community submit to these useless restrictions in relation to the currency, which this law of 1848 imposes ? Necessity, however, fortunately com- pels them to treat it with perfect derision. There is another defect in the Ohio system of Banking, which is not, however, the result of her legislation, and this is the practice of keeping Bank Accounts in "currency," as it is termed, instead of par funds. The Law, establishing "the State Bank of Ohio, and other Banking Companies," requires, that all notes, issued by them, shall be payable at the branch, by which they are issued, in gold and silver coin, or either, at the option of the branch, on demand. Each branch is propor- tionably liable, for the redemption of these bills, and the Board of Control have the supervision of the distribution of their seve- ral quotas of circulation. Theoretically, then, these notes are par funds, but practically they are not so, since the bills of the nearest branches will not command the specie in Cincinnati, at par value. In New England, the Bank notes of six States, whose aggre- gate of circulation exceeds forty millions of dollars, are con- vertible into specie, at the Suffolk Bank in Boston, at par. This system was established there in 1824, and has conse- quently been in operation there nearly thirty years, and the practical results are, that the currency of the New England States commands the specie even in the City of New York, at the trifling discount of one-quarter per cent. Why should not a similar system be adopted in Ohio, and the bills of all her own Banks be redeemed at the central point of business— Cincinnati— at par ? With such a system, once introduced, a nucleus would be formed for more extended ope- rations, similar arrangements might be made in the adjacent States, and the currency of Indiana, Illinois, Kentucky and Vir- ginia would be convertible into gold, on as favorable terms as i-i ^ 1. "... ' > '3 4 w. \ . (fr 1 1 Hi IG the New England notes are now received in New York. Leav- ing, however, the Ohio system of Banking for the present, let us now examine that of the adjoining State of Indiana. This State was admitted into the Union in 1816, but not- withstanding its system of internal improvements, which was commenced in 1832, with the construction of the Wabash and Erie Canal, 375 miles in length in Indiana, there were few in- corporated Banks, until 1834, when the "State Bank of In- diana'' was established, with a capital of $1,600,000, divided among ten branches. This charter allotted to each branch $160,000, and pro- vided, that all should be mutually liable for the debts of each other, but should divide their own profits. Each share was subject to a tax of 12^ cents per share, payable out of the divi- dends, for educational purposes, in lieu of all other taxes : but in case of an ad valorem system of taxation in the State, then the stock was liable, the same as other capital, not exceeding, however, one per cent, altogether. No note under $5 was allowed to be issued, and the Legislature reserved the right to restrict it to $10 within ten years. The capital of any branch might be increased by and with the assent and concurrence of the Legislature and the Directors of the State Bank. The Di- rectors of the parent Bank were to have charge of the plates, and Bank paper of the branches, and were empowered to de- liver to them, an amount of such paper, not exceeding twice the amount of the stock subscribed for. One half of the capital was subscribed for and owned by the State, for which they au- thorized bonds to be issued to the amount of $1,300,000 at five per cent., to realize the funds to pay for their half of the stock ; the remaining half, was to be subscribed for, and owned by in- dividuals, and corporations. The debts of each branch were limited to double the amount of capital paid in, exclusive of deposits. In January, 1836, an amendment was passed by the Legis- lature, and the discounts were allowed to be extended to twice and a half the amount of the capital paid in ; and the branches were allowed to increase their capitals, to $250,000 each, but none of them have availed themselves of this privilege, and there are now but three, which have over $200,000. In February, 1841, the branches were authorized to issue i! 17 notes of a less denomination than $5, not exceeding in the ag- gregate one million of dollars, on the payment of one per cent, for the privilege ; and of its circulation of $3,680,000, about one- sixth part is in small notes, liberally scattered throughout the State of Ohio. After the resumption of specie payments by the Banks in May, 1838, out of the 959 Banks, then in existence, 343 again wholly suspended in October, 1839, and 62 partially so, of which latter number were those of the State Bank of Indiana, and which did not again resume the payment of specie, until October, 1841, when the branches held $1,127,518 to meet a circulation of $2,960,414 and deposits amounting to $317,890 only. Since that period, the Bank has maintained its credit inviolate, and under able management, has successfully effected a regular reduction of its suspended debt, which had rapidly accumulated during the inflation of business in former years, without ruinous sacrifices to the debtors of the Bank. In look- ing over its regular returns for the last ten years, its present high credit, and the names of the efficient officers, who have charge of its branches, it is a matter of deep regret, that so popular and valuable an institution is so soon to be closed by the expiration of its charter, and that the new Constitution pre- cludes its renewal on its present basis. But although the experiment has resulted so favorably in Indiana, it was nevertheless a hazardous one to undertake ; and had it not been for the general suspension of the Banks in 1837, and the continuance of the paper system, south and west of Philadelphia, until 1842, the result might have been widely different. In May, 1837, the capital of the Bank was b;3t $1,846,921, but its loans and discounts amounted to $4,208,956. Its specie was but $1,196,187 to meet $2,516,790 of circulation, and $1,898,061 of deposits. If, therefore, it had then been pressed for the payment of its notes, the Bank would have been compelled to suspend payment, or gone into liquidation- Of course it would have made many bankrupt, and reduced others from affluence to poverty. As it was, the efforts to avert the general calamity only protracted the struggle, and the catas- trophe was the more fatal to individuals. If specie-payments had been persisted in by all the Banks, prices would have fallen at once to their specie value, instead of struggling on 3 - * •••V ;.; ;l / -. i ™ ' I: r ■ ..J 18 from bad to worse for three years in the vain hope of relief, and finally sinking under the accuniulated pressure. Then, the crisis would have been over at once, and trade having reached its lowest point, would speedily have been reorganized on a new basis. With the elastic spirit of our countrymen, new fortunes would have been amassed, upon the ruins of those which had fallen, and the vain efforts to sustain a tottering fabric would have been more wisely directed to a new struc- ture, upon a more enduring foundation. If we recur to the origin of this Bank, we see at once, that it was founded upon false principles, and that one-half of its capital was fictitious, for such we must term the State Bonds for $1,300,000, to pro- vide for its $800,000 of stock, and upon which the Bank was authorized to issue $1,600,000 of its notes. Besides, the Act itself was unconstitutional. In the first Article of the Constitution of the United States, there is an ex- plicit prohibition of the authority of any single State to " emit bills of credit," and the great expounder of that instrument, in his speech on the renewal of the charter of the United States Bank, in the Senate, on the 25th May, 1832, made use of these words : " Congress can alone coin mone}' ; Congress can alone fix the value of foreign coins. No State can coin money ; no State (nor even Congress itself) can make anything a tender, but Gold and Silver. No State can emit bills of credit. But, notwithstanding this apparent purpose in the Constitution, the truth is, that the currency of the country is now, to a very great extent, practically and effectually under the control of the seve- ral State governments : if it be not more correct to say, that it is under the control of the Banking institutions created by the States ; for the States seem first to have taken possession of the power, and then to have delegated it." And again, on the 28th May, in the same place, he said ; " It is further to be observed, that the States cannot issue bills of credit ; not that they cannot make them a legal tender, but that they cannot issue them at all. Is not this a clear indication of the intent of the Constitution, to restrain the States, as well from establishing a paper circula- tion, as from interfering with the metalic circulation? Banks have been granted by States, with no capital whatever, their notes being put into circulation, simply on the credit of the State, or the State Law. What are the issues of such Banks, 19 but bills of credit, issued by the State. I confess, Mr. Presi- dent, the more I reflect on this subject, the more clearly does my mind approach the conclusion, that the creation of Slate Banks, for the purpose, and with the power of circulating paper* is not consistent with the grants, and prohibitions of the Con- stitution." Such were the opinions of Daniel Webster in 1832, and they may be urged with equal force now. In direct oppo- sition to these views, Indiana issued her Bonds for $1,300,000, to provide for her quota of Stock in the Bank subscribed for by her, $800,000, and has for nearly twenty years, been partici- pating in the profits of the institution, although she has never contributed in cash one dollar of the capital. While the ^\^ per cent, bonds of the State, amounting to upwards of twelve millions of dollars, were nearly worthless, the interest thereon unpaid, and in 1842, sold at upwards of eighty per cent, dis- count, and in 1843, at seventy- two per cent. ; yet the Bank has paid the specified interest of five per cent, on the $1,300,000^ and in winding up its affairs, will receive an ample bonus for its services, by the full payment of principle and interest on the bonds which she holds, whatever the amount may be. On the 1st November, 1851, the new Constitution of Indiana went into operation, and on the 28th May succeeding, a Gene- ral Banking Law was passed, in conformity thereto. This Constitution prohibits the incorporation of any monied institu- tion, for the purpose of issuing bills of credit, or bills payable to order, or bearer, except under a general Banking law, and details the privileges and restrictions which are to be embodied in the law. Accordingly, " the Act to authorize and regulate the business of Banking " provides, that whenever any person, or association, shall deposit in the hands of the Auditor, in trust, any of the Stocks of the United States, or of any of the individual SStates which pay interest semi-annually, and an amount which produces six per cent, per annum, or Indiana 5 per cent. Stock, or double the amount of the 2^ per cent. Stock, (the Indiana State Stocks chargeable upon the Canal being excluded,) such person, or association, may receive from the Auditor an equal amount in Bank notes, to be used for Banking purposes, of the usual denominations, of which one- fourth part may be under five dollars. The parties then pos- sess the usual Free Banking powers, limited to twenty years m if^ii • r ^ . i ' t I u. •J li < tH 20 duration of existence, requited to pay specie for their bills, on presentation, liable in their individual capacity for an equal amount of their stock, in payment of all debts incurred, the capital to be at least $50,000, which may however be enlarged indefinitely, but '' no Bank shall at any time, for the space of twenty days, have on hand, at their place of business, less than twelve and a half per cent, in specie, of the bills or notes in cir- culation, as money." No Directors are required for the man- agement of these Banks, nor ate the stockholders required to be citizens of the State. It will be perceived, that the General Banking law may be regarded as an excellent finan' ial measure on the part of the State, to enhance the value of her 5 per cent, stocks, since the Legislature have made them, for Banking purposes, nearly equivalent to the stocks of the United States, or those of the individual States, which pay interest semi-annually ; although the market value of the latter is from ten to fifteen per cent, higher than those of Indiana ; and consequently Indiana bonds will be the only securities deposited with the Auditor, as the basis of the Banking Capital, until the entire amount is ex- hausted for this purpose . And this period will not be a remote one, unless an immediate change is made in the Banking Laws of Ohio. There are some serious objections to this Law, as it relates to the security of the community, and particularly in rela- tion to their accommodation with Bank facilities, which may be briefly pointed out. In the first place, " a Board of Di- rectors is not a necessary appendage to a Bank, nor are Stock- holders required to be citizens of the State." Hence it follows, that a single individual in Ohio, or New York, may deposit with the Auditor of the State of Indiana, $50,000 of the 5 per cent bonds, and receive nearly an equal amount of Bank bills, to be used for Banking purposes, provided that he opens an office within the limits of the State for the receipt of deposits, appoints a Cashier, and other officers, if he thinks proper ; he himself acting as President and manager, and disposing of the funds, as he alone may determine. He may enlarge his circu- lation to $500,000 or more, if he can, on the deposit of the requisite securities, and then distribute the amount among those, who will pay him the highest price for these Bank facilities. The ^ y^c>c^ft 21 Bonds of Railroads, in the process of construction, are the pri- mary investments usually sought for, and these through th ^ active agency of contractors, open a wide field for the speedy distribu- tion of small Bank notes. With sagacious management, other avenues of circulati 'n are easily found, and the whole area of agricultural labor is strewed with this wpupioun ourrency, no one doubting its sterling character, until a crisis arrives. Then perhaps, the rainbow of promise proves as delusive as the morning arch, which only portends a day of darkness and storm. It will be perceived that although the Banker has issued his half million of dollars in Bank notes, yet his original capital stock is not necessarily enlarged beyond the original sum of $50,000, and therefore the provision of the Law, render- ing " any shareholder liable in his individual capacity, for any debt of the Bank to an amount over and above his stock, equal to the amount of his shares of such stock," is wholly nugatory, beyond the minimum amount of $50,000 required for the com- mencement of Banking operations. In prosperous times, when money is abundant, and stocks high, no doubt such institutions will glide along smoothly, and their bills pass currently, and without aeeuri t y ; but in periods v/^«j*tVi of difiiculty and alarm, when the specie Banks are compelled to entrench themselves for protection, the bills of these free Banks would be driven home with such rapidit\% that it would be found impracticable to sustain such an amount of circula- tion. If the Banker was even inclined to redeem his notes, he would find it an Herculean task, since the bills, not having been issued to supply the ordinary wants of trade, but rather forced upon the market, for the mere purpose of circulation, would be found in a few neighborhoods only, and on the least alarm, they would be returned faster than provisions could be made for their redemption. The Massillon Bank of Ohio fur- nishes a pointed illustration of the practical working of a one man power in a Banking institution, although in this case, un- fortunately, there are no deposits of State Stocks to secure the payment of the $380,000, which the public have received through the hands of Railroad contractors, and which is now sold at less than half its nominal value. But is it not obvious, that a Banker who issues ten times the amount of his capital, in cir- culation, does so for speculative purposes only ? The tempta- I 4 ! : ■ u ^ t 1 r tion is great, for in periods of prosperity, he can make $30,000 or $40,000 per annum, by his circulation, and if his Bank fails, in a period of scarcity, he is only liable for $50,000 or the amount of his stock ; and even this he might avoid by a timely conveyance to irresponsible parties, and thus escape personal liability altogether, i^ut how long would it require to dispose of the $500,000 of Indiana 5 per cent, bonds in the New York market at par, in a period of panic ; or even in a severe mone- tary crisis ; and meanwhile, what would be the discount on the bills of his Bank, when driven into liquidation ? Past experience has taught us, that the community would suffer a loss of at least twenty-five per cent, of their amount, and we maintain that that is not legitimate Banking, which ex- poses a community to such a contingent hazard ; and although an extreme case has been stated, yet it is one which may occur, and it would not be difficult to point to one, where the circula- tion now exceeds three times the amount of the capital, under this system of Free Banking. In regard to the accommodation of the trading community in Indiana, a few remarks will suffice. Of all the new Banks, established under this Law, few of them, if any, are Banks of Discount, at their respective places of business, but all of them are Banks of Circulation, beyond the limits of the State, whence they derive their existence, and this is the grand object of the proprietors of the stock. The Law indeed says, that nothing contained therein " shall be construed, to empower any person, or association, to conduct or carry on the business of Banking, at any other than the place of business of such individual Banker or Banking association, which place of business shall in every instance, be the same at which their small Bank bills respectively are made payable." Probably the business of issuing and redeeming the circulation may be deemed a strict compliance with the Law ; but the business of distributing these notes in the shape of loans and discounts, is managed quite beyond the limits of the State, and the constituents of the law makers derive little or no benefit from their General Bank- ing Law, as they will probably find, when their present State Bank has closed its operations, in 1855. Why so excellent and well managed an institution should be doomed to extinction, and the Free Bsmkers of other States encouraged to occupy her 23 proud position, is an enigma to those, who entertain the anti- quated idea, that the primary object of all State governments, Is " to promote the common welfare," and to secure the equal protection and benefit of their own citizens. But the " progres- sive " spirit of the age now denounces such conservatism, and all our legislation is now waited upon a succession of ever varying experiments. We pass now to the state of Illinois, where Bank legislation has been more remarkable, than in any other State in the Union, and where the modern system of Free Banking has been finally adopted as the last experiment. The first Bank established in the Territory of Illinois was at Shawneetown, in 1813, the whole territory then containing but 1500 inhabitants : this Bank was regularly incorporated in 1816, as the Bank of Illinois, with a capital of $300,000 for the term of twenty years, and one third of this amount was reserved for the subscription of the State, when it should be admitted into the Union. It commenced business in 1817, and, aided by the government deposits, it ac- quired nn extensive credit, paying specie for its bills until Au- gust, 1821, after the Kentucky Banks had suspended specie payments : but was at length compelled to stop, and remained dormant, until February, 1835, when by an Act of the Legisla- ture, its charter was extended twenty years from 1st January, 1837. On the 4th March following, its capital stock was in- creased to $1,400,000, to be subscribed for by the State, and State Bonds to provide for the funds were issued, and the faith of the State pledged for their payment, with interest, in 1860. The Constitution adopted in 1818, declared that no new Bank, or monied institution should be permitted in Illinois, ex- cept a State Bank, and its branches, and those then existing. On the 22d March, 1819, a Bank was incorporated, by the name of the State Bank of Illinois, for the term of twenty-five years, with a capital of $4,0OD,O0O, one half to be subscribed by indi- viduals, and the other half by the State, whenever the Legisla- ture should deem it proper. This charter was repealed in 1821, as no effort was made to carry it into practical operation ; and another Bank was chartered in lieu of it, for ten years, with a capital of $500,000, to be owned by the $tate, and man- aged and superintended by the Legislature. This Act was an anomaly in Legislation, and assumed the wild theory, that 24 tii ft paper money was a panacea for financial distress. The capital consist d of its Bank plates only, and $300,000 were directed to be issued, and loaned on notes for one year, with mortgages as securities, in sums not exceeding $1,000 to each individual. The notes issued by the Bank bore interest at two per cent, per annum, and the borrowers paid six per cent, on their discounted notes, and these notes were to be renewed, on the payment of ten per cent, of the principal annually, un'il the expiration of the Bank charter, when the balance was to be paid. These Bank notes were receivable in the payment of taxes, and for all debts due to the State, counties, or the Bank. It had hardly commenced operations, before its bills fell to 75 per cent., shortly after, to 50 per cent, and at length to 25 cents on the dollar, when they ceased to circulate at all. " At one of the branches, of which there were four, two dollars in specie were received, which were preserved, as curiosities," and in the other three, none of any consequence, was received. The country was thus flooded with irredeemable currency, a destruction of public and private credit ensued ; disgraceful legislation, degra- dation of morals, and a succession of calamities followed. The authors of the mischief escaped unharmed, but the innocent, and unsuspecting were plundered without mercy. The mem- bers of the Legislature received their pay in the depreciated currency at the market value, and on one occasion received $9 per day for their services, which the State was compelled to re- deem at par, and a loan of $100,000, which was received in Bank notes at par, was paid out by the State at 50 cents on the dollar. In February, 1835, a new State Bank was incorporated, with a capital of $1,500,000, with the liberty to increase it to $2,500,000, the State to become a partner and to hold $100,000 of the stock. In March, 1837, an addition of $2,000,000 was made to its stock, to be subscribed for by the State. Its char- ter was to continue until February, 1860, and a tax was levied of half per cent, per annum : it had fifty days allowed for the re- demption of its bills, and as a consideration therefor, the Bank was required to redeem the Loan of $100,000 above referred to. To provide for the funds for this Bank capital, Commis- sioners were authorized to issue $2,000,000 in State Bonds. The career of this Bank was brief. Its loans were soon ascer^ ! i^ r w 25 tained to have been made to irresponsible, and insolvent par- ties, and the Bank was shortly compelled to suspend payment, and finally on the 24th January, 1843, it went into liquidation, as will be seen. In 1841, an Act was passed to preserve the charter of the Bank of Illinois, at Shawneetown, which had been forfeited, provided it would pay $200,000 of the State debt; but in 1843, two other Acts were passed, one '* to dimin- ish the State debt, and put the State Bank into liquidation,'* and the other " to reduce the public debt $1,000,000, and to put the Bank of Illinois at Shawneetown into liquidation." Ac- cordingly, without a judicial investigation of the afl'airs of the Bank, Commissioners were appointed to take possession of the Banking House, and its contents, and everything belonging to it, and in case the Directors, stockholders or officers interfered to protect their property, they were declared by this law,/ 36 of the community, who have their daily means of subsistence invested in Bank notes, can withhold their assent to their cor- rectness. If such is the case, why is there not more rigor in public opinion, which ought to sway, or even direct our legisla- tive enactments. The great error in our democratic form of government, is, that the sovereign people are too facile, and are governed by demagogues, instead of principles. There are honest men enough in both the great political parties, from which to select " good men, and true " for our legislators : As for the agitators, let them remain where they ever have been, " the scum of the poUtical pot," whose harmless effervescence is not only superficial, but transitory. But the opponents of this " antiquated system of Banking," sneeringly inquire, if in this " progressive '' age, we are to re- tain this conservative principle, like an incubus on the commu- nity, and reject all improvements in financial operations, while all the great interests of society are undergoing a progressive mutation. The ready answer is, that all improvements ought readily to be adopted in finance, as quickly as they are in ma- chinery, in the arts, or in any of the departments of science. But it is necessary to ascertain, in the first place, if what are termed improvements are really such. For many years past, we have been experimenting on our Banking system, in most of our States, and in many of them, the popular sentiment runs in favor of" Free Banks," which, we fear, will in the end, prove to be a delusive theory. " Free Banking," says GovernorShunk, *'in its legitimate sense, is the right, which every man enjoys, to lend his own money, to whom he pleases. It is the exchange of money for securi- ties, to be repaid with interest. It involves no fictitious in- crease of the circulation, but may be carried on to an indefinite extent, without affecting the currency. This is the Free Bank- ing, which has at all times supplied, and does now supply, the wants of a large proportion of borrowers, and commends itself to general confidence and approval, by its simplicity, and adapta- tion to the circumstances of the people." " But if the system of converting State stocks into Banking capital, and hypothe- cating them as a security for the payment of Bank issues, were not a delusion, mortgages on real estate might be used for the same purpose, which would afford an equal, if not a better 87 security for the payment of notes, and by this process, the whole value of the real estate of the country might be converted into Banking capital, and the people into a nation of Bankers. This proposition shows, that the whole scheme is illusory and unsound." In 1840, the distinguished author of the History of the United States (Mr Hildreth,) published a work on Banks, Banking and Currency, in which he advocated the expediency of the Free Banking system, and the issue of one dollar notes. In regard to the former, he maintains, that if the Government required of Banking associations, security for the payment of their circu- lating notes, as a condition previous to their issue, that this is the only restriction which can be of any practical benefit to the community, and that justice to the holders of tiie notes impera- tively requires such a provision. The author undoubtedly had in view, the New York law of 1838 when he advocated this system, but the events of a later date'have shown, that the securities, which these associaUons had provided, have proved to be very unsubstantial and delu- sive ; and that the new Free Banks, which came into existence "like new mercantile establishments, new railroads, new ca- nals, new lines of packets, &c., facilities, which those who em- ploy them, may and sometimes do employ them U> tlieir own damage^ have in repeated instances, resulted in serious losses to tiie community. The Jamesville, Onondaga, Walter Joy, and other Free Banks have afforded illustrations of the prm- ciple, that Banks may be used to our " own damage." As to the expediency of issuing small notes, the Banks in most of the States are judiciously restricted to an amount of about twenty-five per c^nt. of their circulation, notwithstanding Mr. Hildreth's " apolog>^ for one dollar notes ;" although in Illi- nois, under their Free Banking laws, the entire amount may be of the smaller denominations, if the parties choose to issue them. The Newport Safety Fund Bank has also the privilege of issuing any amount of small notes, signed by the President, or Cashier only, and has now in circulation $135,000, with a capital of less tiian $33,000,-while for all notes of five dollars and upward, they are required to deposit with tiie Auditor of State, bonds and mortgages of an equal amount, as security forther redempiion. 38 ' Among the leading basiness men, and all who have seriously reflected upon the matter, there has been far many years, a decided opposition to the policy of issuing Bank notes, under the denomination of five dollars ; not onh*^ as a safeguard against the counterfeit and altered hills, so universally scattered, but as the only method of introducing a metalic currency in the smaller transactions of daily traffic, so much more satisfac- tory to all parties interested. In the preceding remarks, we wish it to be distinctly under- stood, that we do not advocate any system of Banking, because it is conservative, as that almost derided term is now understood, but because no better system has yet been devised. The same general principles in regard to credit remain now as flxed, as they were a hundred years ago; viz : that to deserve credit, the needful capital, the right intelligence, and well-known probity must all be combined ; and without these, no confldence can be reposed in any promises, unhesitatingly. Destitute of any one of these, the merchant may track his devious way perhaps suc- cessfully, to the attainment of wealth, but he will be one of the few, whom fortune favors : he will owe his success to accident, rather than to merit. His enterprises will be those of rash ad- venture, and not those of sound calculation. So it is with Banks ; destitute of the essential qualifications above stated, there can be no permanent stability, or perfect confidence in a monetary institution, which has not solid capital, discreet management, and a liberal policy with its customers. Destitute of the latter, indeed, no Banking establishment will long be successful, whatever may be the amount of its other resources. In fact, the good xmtl of the depositors of a Bank is of more permanent value than its capital, and instances might be cited to show, that depositors have oflen sustained a Bank, when its innate strength has been suddenly paralyzed by a panic, and new vigor imparted to it, by the prompt aid of its friends ; while others have sunk down into hopeless lethargy, and an ignoble death, without the sympathy of the community, or the regret of even its adherents. Now, we ask, if the modern system of Free Banking, is cal- culated to win the good will of any community ? A Bank may commence its operations with a cash capital of $100,000, but it must instantly be invested in a loan to a State, or to the United States, for the full amount : or in other words, it must purchase the bonds of such State or States, for the full amount of its circulation, on which it depends for its profits. This cir- culation must be issued far away from the neighborhood of the Bank, otherwise the bills would instantly be returned there for redemption in coin, which would shortly paralyze its opera- tions ; consequently it seeks some distant mart, where its bills can intermingle with other currency, and take their chance of circulation in the great arteries of trade. The Banker then will be absolved from the restrictions, which the laws of the State, under whose authority he issues his paper promises to pay, impose, and will feel himself at full liberty to exact what- ever the factitious value of money may be, whether it is twenty or thirty per cent, per annum, instead of six or seven, to which it was intended to confine him. Banking thus becomes "shaving," and it is often worthy of a harsher appellation, " grindiug," when a mean advantage is taken of the necessitous. Is such a system likely to enlist sympathy ? Is it generous ? Is it honest? Volumes have been written on the subject of usury, and much useless sympathy wasted by philanthropists on this topic. We entertain the opinion, that money is a mar- ketable commodity, and should command its intrinsic worth, but not its factitious valuation. But we maintain that these- Free Bank notes are not money, nor are they convertible into- money, without discount. In a late message' of Governor Ford to the Legislature of New Jersey, he says — " The details of the General Banking Act are vague, unsatis- factory, and open to a wide field for abuse. They have already been seized upon by the speculator, and in many cases, our Banks, though ostensibly located in New Jersey, have their whole business operations conducted by Brokers in other States. The facility with which they may be organized, and located,, without reference to the wants of the community, or the busi- ness of the place, is destructive to all the ends of legitimate- Banking. In several instances, one or more Banks have beeni located in places difficult of access, and having very little com- munication with the improved and populous parts of the State.. The tendency, if not the design of this practice, is to prevent applications, for the redemption of the currency issued by such i I* m 'i. M Br ■* 40 Banks, being made at their counters, or ostensible places of business : consequently, the notes are returned to the large cities on our borders, (whence they are no doubt originally issued) and a premium charged for their redemption. Those interested in these operations reap a rich harvest of profit. Our citizens, however, for whose benefit the law was enacted, suffer more or less by the depreciation of the notes." Here we have a partial development of some of the evils of the " Free Banking System." Ought it to claim public sym- pathy ? A recent advocate of this system in England (Mr. Bennoch) in an essay entitled " Suggestions for an improved system of Currency and Banking," proposes to abolish the use of bullion as a standard of value, and substitute two other kinds of money, called National and Commercial. He proposes, accordingly, that the National currency should be issued by the Government, and be based upon the amount of National taxation ; and the Commercial currency be issued by individuals, and be based on the securities deposited with the Government, with the power of sale of such securities, if the Bank proved insolvent. Two kinds of money are thus proposed, and the balances of the foreign trade be discharged by bullion. " Gold would then," he says, " have only one function to discharge, instead of two, and thus its use be economized. Panics never would occur, and we should never hear of gloom in the city, when Gold lefl the coun- try, for when it did go, it would go as a Commodity, instead of for its fixed mint price." When " the fast anchored isle" slips from her moorings, and drifts across the broad Atlantic to " annex " herself to our giant Republic, we shall begin to think that honest John Bull has eradicated his ancient prejudices, and lost his love of gold, as well as his relish for roast beef. But, meanwhile, we imagine, that the " bullionists " will maintain their supremacy in Thread- needle and Lombard streets, and the country at large be con- tent with the liberal supply of national paper, called Consols and Exchequer bills, retaining their Gold to make small change with. In our own country, we have tried this National currency in the shape of Treasury notes, which were never at par, but while " old Bullion " lives, or the Sub Treasury can accumulate its golden hoard, with Government retainers to watch it, a Na- tional paper currency will find few advocates among the present dominant party of our Union . If indeed, our Government would liberate their golden eagles from captivity, and substitute Ex- chequer bills for their disbursements, our Exchanges would re- main more steady, and many financial difficulties be obviated, which now unnecessarily exist. To this extent, we are the ad- vocates of Mr. Bennoch's system of a National currency, limited in amount to the Treasury estimates of our annual revenue. In the financial history of the United States, there have been three epochs in Banking operations: the first, commencing with the early institutions after the close of our Revolutionary war, and extending to the peace of 1815 ; the next, from the establishment, of the second United States Bank in 1816, and closing with its impolitic termination in 1836, and the subse- quent general suspension of the local Banks in 1837 ; and the third, from the resumption of specie payments in 1838, to the present date. During the latter interval of sixteen years only, more experiments have been tried, than were even suggested by the sound practical sense of the preceding half century ; and the first results were illustrated in the suspension of specie pay- ments by most of the Banks, South and West of New York, as we have before stated. Causes were assigned for this, as va- rious as the caprices of individuals could suggest ; but it was as evident then, as it is now, that the operations of local Banks scattered throughout our land, cannot be restrained within pro- per limits, unless by some controling power, which can exer- cise a proper influence, and prevent them from running into excess, to the common detriment of all. Still, however, the experiments go on. Our strong frame, iron constitution, and elastic spirits, have survived quackery, and every variety of nostrums, which " the currency tinkers " have prescribed, and now following the example of New York, many of the States have caught the mania of Free Banking, as the only safe system, and Banks are increasing in number so rapidly, that without a pocket map to discover their locality, it would be difficult to ascertain where to go for the money, which they promise to pay on their pictorial slips. The only classes of the community, who are benefited by these operations, that we know of, are the utterers of these Bank notes, and the 6 il 4 ir, If ill I . 1 42 engravers and paper makers. The public at large, however, unfortunately have to pay for these pleasing specimens of art ; some in the shape of a large percentage on discounted paper, others in the form of a discount on these Bank notes for con- version into real money, and perhaps others may be compelled to await their liquidation by the Auditors of States. The unjust Bank Tax Act of the State of Ohio, has had a most pernicious influence in aggravating the monetary distem- per, now prevalent in the adjoining States of Indiana and Illi- nois, and its effects will speedily be felt in all the departments of trade in Ohio, as well as the utter disappointment of her vulture-like rapacity for the very entrails of her Banks. Instead of deriving the reasonable amount of revenue, which equitable laws would impose upon an increasing amount of Bank capital, she will find that the forty branches of her State Bank have transferred their Discount Books to Indiana, and that their ope- rations at home, have been limited to the exact amount of their capital. Indeed we see no alternative for them to pursue, without an utter disregard of their ow^n pecuniary interests. The inevitable tendency of the present policy of Ohio, is to destroy all her incorporated Banks, and to substitute therefor the financial agency of private Bankers, who will be independ- ent of any restrictions in their rates of discount, and amenable to no laws, but those of conscience. And as the idea of a metalic currency is too preposterous to be entertained for one moment, the trading community will be supplied with the Bank notes of other States, who will reap the profit, thus recklessly cast into their treasuries. But what is to be the final issue of this " Free Banking sys- tem"? It is obvious, that the practical operation of this illusive scheme, is to allow single individuals, or an unlimited number of associations to engage in the " Banking" business, and to issue Bank notes, for the full amount, for which they deposit with the Auditors, State Stocks, as collateral securities. Nominally con^ fined to the localities, where their Bank notes are dated, the scene of their Banking operations will be beyond the limits of the State, from which they derive their power, and the public have only to presume, for they cannot know, that this multinomial currency is all secured, as the Register's signature certifies. But how secured ? By the pledge of Indiana five per cent. 4S Stocks, for instance, worth at the present moment 98 cents on the dollar in New York. Now let us suppose that ten of these new Banks, each starting with a capital of $50,000, should all increase their circulation to $500,000, (as they have the power to do, and with adroit management can obtain the means there- for,) the public would then become their creditors for five mil- lions of dollars. Let us further suppose that one of the ten Banking concerns was unfortunate in its operations, and be- came embarrassed by the delinquency of its discounted paper, so that its notes were sent home for redemption, faster than its collections would supply them with resources; the inevitable consequence would be, that unfavorable rumors would be circu- lated, and a run would commence upon the Bank, which would drive it into liquidation. But the mischief would not be con- fined to one institution only ; if there was a continued pressure on the money market, or a casual panic, the alarm would ex- tend in relation to the whole class of similar Banks, and proba- bly most of them would share a similar fate. In such a period of gloom, what would then be the cash value of five millions of Indiana Rve per cent. Stocks in the New York market, and how soon could such an amount be disposed of? A moment's reflection will convince us, that the bills of all such Banking concerns would immediately depreciate, and the community would be the sufferers to the amount of the discount, or be compelled to await the final liquidation. But there is another objection to this system. It authorizes a single individual to exercise the combined functions of Presi- dent, Directors and Company of one of the incorporated Banks, under the former laws, and to convert established Banking privileges into a vague and unrestricted system of money trading, shaving and extortion. There is surely less security in this description of business, than in legitimate Banking, for generally speaking, it will be principally confined to needy, speculative and bold operators, who are always ready to pay high rates for money, and are generally the most plausible in their expositions of securities. In our commercial communities, it is a familiar fact, that a very large proportion of those who embark in trade, ultimately become bankrupt, and every one who has been in business twenty years, has had ample experience of th« fact. Now as '.■!- , i.j. Hjm -' -*-iJ |! "I V llliHi 44 Banking institutions embark nearly double the amount of their own capital in the business notes, which are discounted, it ne- cessarily requires unceasing vigilance to avoid the hazards, to which they are constantly exposed. The means of informa- tion, which any single individual possesses, however wide may be the circle of his acquaintance, or diversified his sources of information, cannot be commensurate with those possessed by men of intelligence, who are engaged in the busy haunts of trade, and are constantly on the alert, to watch the changes of the market, the rise and fall of merchandise, and their effects upon the fortunes of their competitors. Hence a Board of Di- rectors has always been regarded as one of the essential requi- sites of a Bank, and on their respectability and character, the reputation of the institution mainly depends. Why then dis- pense with this safeguard ? The answer is obvious : designing operators wish to exercise supreme control over the Bank movements, and keep their own dark counsels, and schemes, aloof from public scrutiny or knowledge. But we have still another objection to this one man power. Human life is of so uncertain tenure, and where the functions of a monied institution are vested in a single individual, there is obvious insecurity in its promises. In England, all the large Banking Houses have from three to six partners in the concern, to guard against this very contingency, and no monetary estab- lishment is entitled to. entire confidence, where the loss of a single life would suspend its operations, even for a day. But aside from the uncertainty of human life, there are also the vicissitudes of business to be guarded against. The Banker, who has embarked his tlfty or hundred thousand dollars in this business, will be likely to extend his operations- into other de- partments of trade, and in the event of failure, all his liabilities would share a common fate. The Massillon Bank suspension is a case in point: the principal, or controlling stockholder failed, in New York, and with his downfall, that of the Bank followed. Neither the President, nor Cashier had the requisite funds, under their control, to sustain it, nor was there an effi- cient and independent Board of Directors to aid them in their emergency. But with the New York manager, the whole amount of their Bank circulation fell like a dead weight upon the community; perhaps never to rise again. Would any 4ft prudent man deposit his funds, in such a frangible institution ? But further : one of the primary purposes of the establish- ment of Banks, was to provide for the secure investment of trust funds, belonging to widows and orphans, from which they might derive a sure and regular income. Aided by the services of intelligent atid prudent Directors, Banks have always yielded the most uniform dividends, and when their capitals have been derived from such sources, their stocks have maintained an uniform market value, because they have no needy stockhold- ers to uphold, or cormorants to satiate. Confining themselves to the legitimate business of Banking, they loan their capital stock to responsible parties, and grant all the additional accom- modations to their customers, which the surplus funds of their permanent depositors may regularly supply. Such institutions command the confidence of the community, and need no ad- ventitious aid to sustain their strength, or security. Contrast an institution of this character, with one which is managed by an individual Banker, on his own account. The one is a gallant ship, skillfully laden, ably commanded, fully manned, and thor- oughly equipped, to encounter the perils of the mighty deep, and almost suce to arrive at ' her destined port ;■ — the other, is an SBronautic expedition for the same destination ; its means of transit, a balloon, guided by a single hand ; its momentum, expansion ; its course, erratic and uncontrollable ; and its dan- gers, exhaustion or explosion. It need not to be asked, which is the safer vessel of the two. • We are aware that we are pursuing an unprofitable theme, since the popular sentiment of this section of our country has been driven into the current of Free Banking, following the lead of New York. In that proud State, there are nearly three hundred Banks, forty-three of which are individual establish- ments, in the interior towns, and mostly with small capitals. And Indiana and Illinois will probably furnish the West with a similar proportion of this kind of Bank note paper. Now, it is somewhat remarkable, that while in all the promi- nent departments of business; — our Railroads, Manufacturing establishments, Insurance companies, and other associations, — Boards of Directors are regarded as indispensable for the man- agement of affairs ; yet in Banks, which so directly aflfect the interests of a whole community, and whose movements ought \ ill 46 to be characterized by sagacity, discretion, and a prudent liber- ality ; the aid of an advisory Board should be dispensed with, and all the influence of a Banking institution, be entrusted to a single individual, whose caprice might exercise a despotic sway over the fortunes of his dependents. And while we are on this subject of Bank direction, we would suggest, that there might be a radical improvement in- troduced, by the reasonable payment for the services of Bank Directors, etc. A somewhat extended familiarity with the gratuitous labor in Banks, Insurance ofl[ices and Manufacturing corporations,* has taught us the value of the time, and responsibility, which have for several years been freely bestowed, in the manage- ment of the affairs of productive establishments, and we have never discovered any reason, why the most precious hours of a merchant's daily life, should be gratuitously devoted to the benefit of others, even at the sacrifice of his own interests, when the time of other professions is so liberally compensated, The financial concerns of a whole community are more impor- tant than the title of an estate, or the health of a patient ; and yet we bestow liberal fees upon the guardians of the two latter, while the Bank Director is regarded as amply compensated, by the empty honor. But if the subject was regarded in its true light, it would at once be perceived, that if Directors were paid for their services, they would be under greater responsibility to render prompt and constant attendance at the meetings of the Board, and the stockholders would have stronger claims on their services. What is true in regard to Banks, is equally valid in relation to Insurance, Manufacturing, and Railroad corporations, and in fact, in relation to any association, whose object is pecuniary profit. With every successive year, the varied interests of trade in the widely scattered sections of our country become more and more complicated, and it is obvious that those of our merchants, and capitalists, who can give the tone to public opinion, should furnish the community with the aid of their past experience, instead of looking on supinely, without a warning voice to ap- prise us of our near approach to a vortex ; for in that light we regard the increasing multiplicity of Free Banks, with small capitals, and without Directors. 47 Since, however, the trading community have become en- tangled in the meshes of a heterogeneous currency, it is incum- bent on them to guard against involvedness and sudden sur- prises, as well as to warn the unwary of the jeopardy. And we shall now consider how this may be accomplished. There seems to be but one direct method of effecting this desirable object, and it might result favorably to the interests of all parties, the issuers, and the holders of these Bank notes. Experience has taught the community, that in consequence of the rivalry of small Banks, there is an urgent importunity ^n behalf of interested parties to secure the circulation of their Bank notes, wherever negotiable paper or convertible securities can be exchanged therefor. The questions asked by such financiers, are primarily, if a good circulation can be assured ; secondly, the rate of exaction, to which the parties are willing to submit; and thirdly, the character of the paper to be pro- posed ; — thus reversing the true order of inquiry. But who are the parties ? Probably, a speculative Banker, preying upon the necessities of some bold operator, whose transactions re- quire an unceasing supply, and outlay of Bank notes. Or per- haps some of our modern Railroad contractors come forward, and with one fell swoop, absorb the circulation of a dozen of these trading Banks, and thus furnish them with the means to procure an additional supply of Bank note paper. By these simple operations, the country is soon inundated with a multi- farious currency, which in the natural course of trade, soon finds its way into the larger towns and cities, and is then either sold at a discount, if remote from the point whence it was issued, or sent home for redemption. Now, if the Free Banks, which are coming into operation, would agree to redeem their bills, at the central point of trade in the States where they are located, it would enhance their reputation with the community, and render their circulation more uniform and permanent. Be- sides, the public generously receive these bills, as the repre- sentatives of Specie, and have a correlative claim for their easy conversion into Coin. If, then, the Banks of Indiana and Illi- nois, would make provision for the redemption of their notes at Indianapolis and Springfield, or Chicago, instead of the scat- tered villages or towns, whence they are now nominally issued, all reasonable facilities would thereby be afforded, for their / 48 redemption, and then would attain a wider circalation, and be justly entitled to more confidence in the community. They would then command the Specie in Cincinnati at a much lower rate of exchange, than is now demanded, and the Banks them- selves would be exempt from much needless expense in the transportation of Specie, to which they are now unavoidably liable. It would furthermore be the first step in the Western States, toward the introduction of the Suflfolk Bank system, so long in vogue in New England, and might hereafter lead to an equalization of the currency throughout the entire Western country, and the abolishment of the present distinction betweei^ par and current funds. The concerted action of a few leading Bankers in the two States of Ohio and Kentucky, (whose interests would be di- rectly promoted by the arrangement,) and whose influence would be rightly appreciated by the Bankers in Indiana, Illinois and Michigan, might readily effect this object. We may even go further, and state, that in the city of Cincinnati alone, there are Banking establishments, which could constrain these pre- liminary measures of uniformity in the currency, as easily as the originators of the Suffolk Bank system compelled one Bank after another in New England to adopt their system of equali- zation. In its early stages, the project was denounced, and vio- lently opposed by interested parties, who had gorged the chan- nels of trade with their Bank notes ; but a discriminating com- munity soon appreciated the advantages they derived from the arrangement, and finally nearly all the Banks became partiea thereto. This system is the most perfect one, in our country, and quite equal to that of Scotland — the peculiar feature, and chief excellency of which is, semi-weekly Exchanges. By this ar- rangement, the over issues of any Bank are returned upon it, in a manner and in so short a time, as to remove all induce- ments to over-trade. The exchanges are effected in Edin- burgh, where a general adjustment takes place twice a week, and any Bank refusing to exchange, would lose its credit at once. Each Bank receives in payment the notes of all others in good credit, but it pays out none but its own, in the way of business. All that it receives, are promptly forwarded for payment, and are not allowed, as in this country, to circulate h ! 49 4 from hand to hand to an unknown amount, and for an indefi- nite period. Thus the notes of one Bank in Scotland are as good as those of another, because every Bank readily takes them and turns them into money, by the semi-weekly exchange ; and consequently there is no distrust: the circulation is very large, and each Bank enjoys precisely the proportion thereof, which the business of its section of the country will support. We are not sanguine enough to suppose, that either of these systems can be adopted in the Western States, under the present Banking laws ; but while they allow such extended privileges, the community have a right to require greater facili- ties for obtaining the coin, for these notes at some central point, instead of traversing an entire State, to collect a few hundred dollars. The systematized plans, and combined efforts of two or three leading Bankers, could coerce these scattered Banks into some arrangements for a more convenient point of redemp- tion, than the law provides ; and although, in the onset, it might be opposed by caprice, or selfishness, yet in the end, the plan would be found more advantageous to all parties. It is recorded of the late Samuel Ward, Esq. (the former President of the Bank of Commerce, in New York,) that his indomitable and persevering exertions resisted the suspension of specie payments in 1839, when the Banks of Pennsylvania and those of all the States, south and west thereof, suspended, and clamors, almost amounting to menace, were heard against the declared purpose of the New York Banks, to maintain at all hazards, their specie payments. Mr. Ward threw himself at once into the conflict, sustained and encouraged the timid and doubting, " willing that his exhausted frame should be sacrificed, if by word or deed, he could aid the Banks in adhering faithfully to their duty." "And when at last, he saw that it was accom- plished, and that the honor and fair fame of the much loved City, in which, and with which, he had grown from boyhood to mature age, were to be inviolably maintained, he went home to die. It was literally so : the bed which received him, after the accomplishment of this his last labor, he never again left alive." Here was a noble instance of a single mind acting upon a large community, during the most perilous period of our commercial history, and successfully accomplishing the main- tenance of our public credit, by persuading the Banks to redeem 7 • J I ■ 1, i: T'l 50 • their promises with a specie equivalent. At this critical junc- ture, there were about 350 Banks in New York and New Eng- land, whose aggregate circulation amounted to over twenty -five and a half millions of dollars, and this was promptly redeemed in Coin, on presentation ; but nearly three years elapsed, before the suspended Banks resumed specie payments in the other States. By this one single act, Mr. Ward bequeathed to all Bankers, a noble example of self-sacrifice and perseverance ; and it should induce others, who occupy prominent positions in monetary aftairs, to exert a similar influence in checking the eff'usion of Bank notes, which now threaten to overwhelm us in the West, in the shape of Indiana currency, unless some counteractive influence is exerted, to secure and enforce a more summary specie redemption. At the present moment, the popular sentiment in Ohio, welcomes this accession of cur- rency, as ^an immediate relief, in these exigent times ; but we fear that this circumstance, will stimulate over- Banking in In- diana, and will create an undue proportion of paper to specie, and cause over-trading, over-production, and over-action in all the departments of trade. If this just proportion of specie to paper is derided, and Gold is in requisition to pay our foreign balances, this increase of paper circulation will prove a most delusive policy. But the advocates of this Free Banking system maintain, that in any emergency, the bill holders are secure, because public Stocks are pledged for the final redemption of these bills. We answer in the words of Mr. Webster, " no solidity of funds, no sufficiency of assets, no confidence in the solvency of Bank- ing institutions, has ever enabled them to keep up their paper to the value of Gold and Silver, any longer than they paid Gold and Silver, on demand. This will continue to be the case, so long as those metals shall continue to be the standard of value, and the general circulating medium, among nations." And further, •' The credit and circulation of Bank paper are the .effects, rather than the causes of a profitable commerce, and a well-ordered system of finance. They are the props of na- tional wealth and prosperity, not the foundation of them." " The office of a well-regulated currency,^^ says the London Spectator, " is not to replace the capital, which has been lost, or to restore confidence which has been shaken, or to inspire I 51 it, when it is not due ; but only to furnish that which is a trust- worthy and convenient medium of exchange, for mercantile transactions, both foreign and domestic. No panic can be ar- rested, by the legerdemain trick of issuing Bank promises to pay, without Uie wherewithal to keep the promise." And yet we see, that when currency is scarce, the common impression is, that it is the duty of the Banks to issue, more to supply the deficiency. Such a course would be suicidal — the iaws of trade determine the amount of currency, which can be kept in circulation, and any attempt to over-leap these pre- €cribed limits, would only aggravate, not alleviate the evils, which may temporarily exist. But how is thh ^^ well-regulated currency '''' io be managed? By a thousand different individuals, in different parts cf the country, having no connection with each other ; no concert of action, no unity of purpose ? On the contrary, are they not antagonistic in their influences and operations, each striving to enlarge his sphere of action, without reference to the gene- ral condition of trade ? But let us take another view of this subject. The amount of currency issued by the Banking associations and Bankers in the United States is estimated at $180,000,000. If this amount was all predicated upon the deposit of State Stocks, it would nearly absorb the bonds of all the States in our Union- Many of these States are already preparing to pay their bonds at ma- turity, and avoid any further indebtedness. The surplus revenue of the United States is even now partially appropriated to the anticipatory payment of all the bonds, which can be purchased under certain limits, and this source of supply will probably «oon cease. The State of Ohio is preparing to pay its bonds due in 1857; and Indiana, those due in 1860; and this policy will probably be adopted by many of the other States, as their bonds become due. As the trade of the country enlarges, an additional amount of currency will be required, and a corres- ponding deficiency of State bonds will exist. What then will be the basis of circulation? Already Railroad bonds, City bonds, and mortgages on real estate have been proposed as substitutes, and at the last, we may come down to Insurance stocks, or even Manufacturing corporations, for the requisite materials, to furnish the basis for our Bank note paper. A sys- I k }. lIU' fli I 52 tem, which is constructed upon such a shifting foundation, is delusive, and if generally adopted by the other States, it will convert every Broker's office into a Bank of issue, and their number will be as indefinite as the stars in our firmament. Besides, what good reason can be given for the substitution of private Bankers' paper, for the notes of wealthy, consolidated Banking corporations, who have steadfastly redeemed their promises, and furnished to the community all the facilities, which common prudence would allow ? This quesUon is more easily asked, than satisfactorily answered. Any one conversant with the materiel, of which the popular branches of our Legislatures are constituted, will understand the solution of this problem. Men of honest intentions, but of weak calibre, sit in grave deliberations to decide upon momen- tous questions, and their votes are often determined, not by the arguments, which are uttered on the floors of the Legislatures, but by that pernicious influence, which "Lobby members" in- sidiously exert; and even our National Congress is not exempt from this extraneous interference. Self-interest, cupidity, and personal ambition exercise a more powerful sway over the votes of members, than the sovereign people are aware of: and hence the constant changes in our Legislation, and the frequent amendments of the acts of our lawgivers. When any measure does not quite answer the purposes of its originators, it will be passed through such manifold mutations, to mould it into its de- sired shape, that its original form can hardly be traced, after its final "amendments" have been superadded. Who, for in- stance, could imagine that a Savings Institution, with a capital of $50,000, made up of small deposits, of one, two, and three dollars, could be converted into a mammoth Banking associa- tion, with Trust powers, and with an unlimited Banking capital for issue, discount, and deposit, and a perpetual charter ? And yet this has been done within fiwe years, in a State, which possesses an unexceptionable Banking Code, and whose Banks are entitled to as high a credit, as any in the Western country. But still further. We all know, that most of these modem Free Banking concerns, particularly in the West, are the pro- perty of parties, who embark all the means they possess, or can obtain, in the enterprise ; and invest the whole amount in State Stocks, on which they receive the regular interest. They have 53 no other other funds to loan, excepting their own Bank paper ; and unless the public are willing to accept this in lieu of money, their means of usefulness are at an end. Speculators and needy operators are the only parties, who will be induced to apply fur these notes, and through their agency, these duplicate repres-cntments of State debts assume the form of currency, and silently and gradually intermingle with the general circula- tion. While the channels of trade are deprived of the use of a sound currency, this second-rate paper will usurp its place, and supply the vacuum; but if wiser counsels should ultimately prevail, and encouragement again be given to capital, these mushroom symbols of money would quickly be driven home for redemption, and extinction. One energetic Broker, with ample pecuniary means, might successively paralyze the opera- tions of all the small Free Banks in Indiana, and without any very extraordinary eflibrt, compel them to redeem their paper, as fast as it was issued. Nor would this be harsh treatment : there is no more reason, why a single Individual should issue $100,000 of his notes, as currency, because he is the owner of an equal amount of State bonds, than that another person should have the same privilege, who holds a like amount in Railroads or real estate : indeed the latter might be the more readily convertible into money, than the State bonds. Banks, which are created for the sole purpose of making money out of their circulation, have no claims upon the indul- gence of a community, who have become bewildered with the daily accessions of new Bank notes ; and we know no reason why the talismanic word "Indiana" should give currency to a slip of Bank paper, signed by an unknown President, and Cashier, any more than " Rhode Island," or " Tennessee." It is quite time, that the community bestowed some attention to this matter, before they are enveloped in a mist of endless confu- sion ; for at the present moment, there is neither chart, nor compass, by which they can direct their course. Obviously, it is the duty of the Bankers in Cincinnati, to ascertain the true value of the Bank notes, which they receive on deposit, and pay out again to their customers. Their sanction of this hetero- geneous circulation is an implied guarantee of its soundness, and the public so regard it. We have, perhaps, dwelt upon this subject quite long enough to wf ary our readers, and we now relinquish it. How long these various Banking schemes are to be tolerated by the com- munity, time only will determine ; perhaps some flagrant trans- action like the Merchants and Mechanics' Bank of Oswego and Syracuse, will alone disclose the precipice, on the margin of which, we have long been endangered ; fortunate will it be, if any timely hint, by a single downfall, should warn the unwary, to escape the peril. But, where are we to look for succor ? There is but one sure point, and that is the General Government, who alone have the power to exercise a salutary control over the cur- rency of our entire country, by the adoption of such measures, as have been in successful operation for forty years of our ex- istence as a nation. There can be no other restraining, no other equalizing power, but of the exercise of this, we are topeless, in the present generation. Perhaps in the chaos, which ere many years may ensue, our domestic exchanges will become so deranged, and irregular, that public opinion will de- mand relief, through the agency of an Exchequer system. One of our most eminent statesmen, (whose lamented removal from the scene of his earthly labors, the Nation still deeply mourns, In the present crisis of our Congressional debates, and public excitement,) has left us invaluable lessons on this subject, to which we ought to recur for instruction, in this hour of our need ; and with a few extracts from these, our remarks will be closed. "It is undoubtedly the constitutional duty of the General Government, to see that a paper currency, suitable to the cir- cumstances of the times, and to the wants of trade and busi- ness, as well as to the payment of debts due Government, be maintained, and preserved : a currency of general credit, and capable of aiding the operations of exchange, so far as these operations may be conducted by means of the circulating me- dium ; and there are duties therefore devolving on Congress, in relation to currency, beyond the mere regulation of the gold and silver coins." "Every one, who looks over this vast country, and contem- plates the commercial connection of its various parts, must see the great importance that the Exchanges should be cheap, and easy. To the producer, and the consumer, to the manufac- 55 turer, and the planter, to the merchant, to all, in all classas, this is a matter of moment. We may see an instance, in the common articles of manufacture, produced in the North, and sent to the South and West, for sale and consumption ; and a state of exchange, which shall enable the producers to receive payment regularly, and without loss, is indispensable to any useful prosecution of this intercourse. Derangement of cur- rency and exchange is ruinous. The notes of local Banks, will not answer the purpose of remittance — and there can be no satisfactory state of internal trade, when there is neither cheap- ness, nor promptness, nor regularity, nor security in the do- mestic exchanges." " We may erect Banks, on all the securities, which the wit of man may devise ; we may have capital; we may have funds, we may have bonds and mortgages ; we may add the faith of the State ; we may pile Pelion upon Ossa ; they will be State institutions after all, and will not be able to suppport a na- ional circulation. This is inherent in the nature of things, and in the sentiments of men. It is in vain, to argue that it ought not to be so, or to contend, that one Bank may be as safe as another. Experience proves that it is so, and we may be assured that it will remain so." " We have in actual use a mixed currency ; the Coin, circu- lating under the authority of Congress ; the paper, under the authority of the States. But this paper, though it fills so great a portion of all the channels of circulation, is not of general and universal credit : it is made up of various local currencies, none of which has the same credit, or the sjinje value, in all parts of the country : and therefore theS^loqarctiWen6ie« anr swer but very loosely, and imperfectly the purposes of general currency, and remittance." • ::.!:*. • •' ./ : : *. ; " I think the State Banks can n€fvfcKfurhish*a - median! fo^ circulation, which shall have universal credit, fuid be cvf,eq|ual value everywhere. I think they have n() j»6v\;ej's,.tii\ fii'culties which can enable them to restrain 'e'xce'ssVve issues of paper- I think their respective spheres of action are so limited, and their currencies so local, that they can never accomplish what is desired in relation to Exchanges. I maintain that the peo- ple of this country are entitled at the hands of the Government,, to a Bound, safe, and uniform currency ; and it is a sentiment I t ▼• 56 deeply infused into me ; it ib a conviction, which pervades every faculty I possess, that there can be no settled and per- manent prosperity, of the commerce and business of the coun- try, until the Constitutional duty of Government in regard to the currency be honestly and faithfully fulfilled." We have thus imperfectly delineated the practical operations of the three different Banking systems of New England New York, and the Western States, leaving our readers to draw their own conclusions as to the relative merits of each, and between the pohcy of the old Incorporated Banks, the Safety-fund Banks and the Free Banks. Our own predilection has been fully ex- pressed, in the First Part of these remarks, and we can see nothing m the modern system to qualify our views, or change our deliberate opinions. Others may think differentlv, and we maybe m error; but our conservatism clings tenaciously to old principles, which have hitherto proved safe, yielding to others the hazard of entrusting their fortunes in the buoyant bark of " Onw^ard Progress." 1 1 ^HR. . . . ; EBKATA. '^ On page 21, sixth line' from top, read specious instead of *^.spunous." ....... V Same.page,.tvven^^^ line from top, read scrutint/ instead of "security." ^ - > ■»■' m III «i nil 1. , q|i .^-mi ^ Date Due /y jiA^'^ ' /*"! iWf^ JI\N AE.'. :6& ^ m^sr \m iftJL rfPR 2 4 "58 ■ Ilk * |TTr>Tiinit4 , 1 \ h L'BRARIES [ '■ » \ y ■^ e>i7 , bcMTilMuiyv^U-^.i /h$« ^J^S"**" I ^^f**' NEH^ WR 17199$ JAN 5 \m V- END OF TITLE