History of American Currency

8/7/2019 History of American Currency

1/397

A HISTORYOF

AMERICAN CURRENCYW I T H C H A P T E R S O N

THE ENGLISH BANK RESTRICTIONA N DAUSTRIAN PAPER MONEYBY

W I L L I A M G. S U M N E RProfessor of Political &> Social Sciencein Yale College

TO W H IC H IS A P P E N D E DTHE BULLION REPORT"

NEW YORKH EN RY H O L T A N D CO MP A N Y

1874


2/397

Entered according to Act of Congress, in the year 1874, byH E N R Y H O L T ,In the Office of the Librarian of Congress, at Washington.

M a c l a u c h l a n ,Stereotyper and Printer, 56, 5s and 60 l'ark Street, Now York.


3/397

PREFACE.

T N the autumn of 1873 I published in the ' Fi-* nancier," four or five short sketches of those

portions of history which are most instructive inreg ard to doctrines of currency. T h e plan wasto leave the historical facts to tell their own storywithout comment. It succeeded so far that manypersons who do not believe that financial lawsvary with the period, the climate, or the conti-nent, read them with interest, and drew the infer-ences of which it seemed to be important that weshould all be convinced. I was ask ed to re-pub-lish the sketches in pe rm anen t form. In accedingto this request, however, I desired to presentthese chapters of history more completely, and Idetermined also to incorporate with this projectanother plan which I had formed, viz., to editthe Bullion R ep ort . Tw o of the articles referredto treated of the pap er money in the Am erican


4/397

iv PREFACE.colonies, and the crisis of 1819. T hese have beenexpanded here into an outline sketch of the his-tory of Am erican currency. I rega rd the historyof American finance and politics as a most impor-tan t depar tm en t which lies as yet almost un-touched. T h e m aterials even are all in the rough,and it would require very long time and extensiveresea rch to do any justice to the subject. I hope ,at some future time, to treat it as it deserves, andI should not now have published anything in re-gard to it, if I had no t felt tha t it had, at thisjuncture , gr ea t practical impo rtance, and thateven a sketch might be more useful perhaps thanan ela bo rate treati se . It follows from this ac-count of the origin and motive of the presentwork, that it does not aim at any particular unity,but consists of three distinct historical sketches,united only by their tendency to establish two orth ree fundamental doctrines in rega rd to currency.

Yale College, March, 1874.


5/397

CHAPTER I .HISTORY OF AMERICAN CURRENCY.

r I ^HE English Government made no objection-*- to the emigration of the Pu ritans to New

England, save that they carried money out of therealm. T h e earliest settlers carried very little;oth er forms of capital were more valuable tothem , and they had no use for it, save inexchanges amo ngst them selves. Y et W inthropwrote to his son, in 1630, especially to bring ^150or ^200 in money. Later settlers broughtmoney to exchange for cattle, seed, and otherforms of capital which th e first colonists hadalready accum ulated. In this form, the law thatevery comm unity will have so much of theprecious metals as it needs for its exchanges*vindicated itself in their case.

* See p. 250.


6/397

2 HISTORY OF AMERICAN CURRENCY.Of the value of money amongst them we may

judge from the following incidents :A married clergyman was allowed 30 per

annum.Josias Plaistowe, having stolen four baskets of

corn from the Indians, was to repay eight andbe fined ^ 5 .

Carpe nters, sawyers, joiners, and bricklayers(whose services were in great demand, and hada monopoly price), were forbidden to take overI2d. and afterwards 2s. pe r day. Penalty, 10s.to mver and taker.

M agistrates had 3s. 6d. and depu ties 2s. 6d.per day.

E d. Palm er, be ing found guilty of extortionin ch arging 13s. 4c!. for the wood-w ork of th eBoston stocks, was fined $, and condemnedto sit in the stocks one hour.

In Janu ary , 1631 , the crops hav ing failed inEngland, and no crop having yet been raisedin M assachu setts Bay, grain was at famineprices. Includ ing freight, wheat was 14s. pe rbushe l, pe as 10s. Indian corn from Virg inia


7/397

HISTORY OF AMERICAN CURRENCY. 3ios. M any cattle died. A cow was w orth2 5 o r / 3 0 .

The President of Harvard College was con-demned to pay an usher ^20 for flogging him.

WAMPUMPEAG CURRENCY.When exploring parties penetrated to Long

Island So und, they found along its coasts tribesof Indians far more civilized than those who hadbeen met farther north . T h e cause or indicationof their superiority was that they had a circulat-ing medium. T hi s consisted of beads of twokinds, one white, made out of the end of aperiwinkle shell, and the other black, madeout of the black p ar t of a clam shell. T hesebeads were rubbed down and polished as articlesof ornament, and arranged in strings or belts intojewelry, being objects of real beauty when thecolors were artistically combined. T hes e beadsand belts w ere used by the Indians themselvesas m oney, and w ere real money. T he y re-ga rded one black bead as wo rth two white.T hi s money was called wam pum peag, or wam-pum, or peag.


8/397

4 HISTORY OF AMERICAN CURRENCY.T h e colonists be gan to use it first for ex-

chang es with the Indians, and then am ong stthem selve s. It was first m ade legal tend er onlyfor i2d. in M assachu setts, bu t by custom i t b e - lcame the prevailing currency. T h e white manalso proved his superiority by counterfeiting it.A fathom or belt of wampum consisted of 360bea ds. O ne fathom of white would buy furswhich were valued at 5s. sterling, and one fathomof black would buy furs worth 10s. The refore,

360 white beads, = 6od.6 beads, = 1 penny.360 black beads, = i2od .3 beads, = 1 penny.T h e se w ere the ra tes at w hich the p ea g first

circulated am ong the colonists, and its oper-ation is in many resp ects w orthy of study. Itwas, for the Indians, in their limited community,a perfect money. T he y divided their labors,some hunting and fishing, som e, who lived onthe shore, m aking peag . T he y m ade as muchas they chose or could. It w as a pro du ct oflabor, and subject to dem and and supply. It wasvalued as jewelry, and when thus m ade up and


9/397

HISTORY OF AMERICAN CURRENCY. 5appro pria ted , it passed out of circulation. Pr icesmust have fluctuated in it according to the activecirculation which extended several hundred milesinland westward. It was subject to deteriorationby wear and use.

When the colonists, who were in exchangerelations with a world which used gold andsilver, beg an to use it, other currency laws cameinto operation. It was not exp ortable , would no tsatisfy foreign debts , was not desired by thewhites, save for the conventional purpose ofmoney.

BARTER CURRENCY.The colonists began, soon after the settlement

of Massachusetts Bay, to use a barter currency,*ostensibly because they had not money enough:really because they wanted to spare the world'scurrency to purchase real capital, which was theirtrue need . T h e currency history of this countryhas been nothing but a repetition of this down tothe pre sen t hour. It has always been claimedthat a new country must be drained of the

* In 1635 musket bullets were used for change at a farthing apiece, legaltender for sums under i2d.


10/397

6 HISTORY OF AMERICAN CURRENCY.precious m etals , or that it could not afford soexpensive a medium. T h e new country reallyne ed s capital in all forms. T h e only question is,whether, being poor and unable to get all thatit wants, it can better afford to do withoutforeign commodities or without specie currency.N o sound economist can hes itate how to decidethis question. T h e losses occasioned by a badcurrency far exceed the gains from imported com-modities. T h e history of the United S tate s fromthe landing of W inth rop to to-day is a reitera tedproof of it. T h e be st protection to native man-ufactures is to keep a due p ropo rtion of thenational capital in a specie circulation, and dowithout, or find subs titu tes for, or learn to make,the things which the peo ple cannot afford tobuy from older and more advanced countries.

Credit, in its legitimate forms, is priceless to anew community, but when used in illegitimateforms, as in a pure credit currency, or in a cur-rency into which credit en ters as an indefinableelement, it makes legitimate credit impossible.This history will do little more than to exposethe errors involved in mistaking credit currency


11/397

HISTORY OF AMERICAN CU RRENCY. 7for money, and money for capitalerrors whichare repeated to-day by the new States and toshow the bad results of those errors.

T h e b ar ter currency was inferior to gold andsilver in cost. W he n corn and beaver, and, infact, all other products, were made legal tende r,no one would pay debts in specie. It washoarded and paid away for imports.

A barter currency is also the most rapid of allcurrencies in its depreciation . If a cow will paytaxes, the lean est cow will be given. If cornwill p ay a debt, the corn which is of poo restquality, or damaged to a certain extent, will begiven.If a large number of commodities are made le-gal tender, the poorest quality of the commodity,which may be cheap est at the time of payment,will be given. Credit operations are thereforemade almost impossible.

Som e ludicrous complaints, on the pa rt ofthe tax-gatherers, scattered up and down inthe reco rds, be ar witness to the fact tha t thiswas all experienced in New Eng land . T h emore ba rter currency was used " because money


12/397

8 HISTORY OF AMERICAN CURRENCY.was scarce," the scarcer money becam e. Pricesrose to fit the worst form of payment whichthe seller might expect.

Accordingly, in 1640, prices having risen somuch that the nomina l "penny" in the bartercurrency had fallen, we find the MassachusettsCourt rc-rating wampum at four of thewhite andtwo of the black for a penny, to the amount ofI2d. Inte rest was 8 per cent.

During the ten years, then, from 1630 to 1640,the specie brought over, and that gained bytrade with theWest Indies and Virginia (not yetgreat ) had been steadily expo rted. M erchantshad found thecolony a good market. In 1640,Winthrop tells how the merchants came anddrained off the peop le's cash. T hat he shouldnot have understood the case is not strange,butthat people nowadays should not have learnedfrom the experience of two centuries and a half,and the teachings of science, any better than torepeat the same theory, is astonishing.


13/397

HISTORY OF AMERICAN CURREN CY. g

DISTRESS.Meantime silver prices had, of course, fallen

enormously. Now came othe r circumstances toprostrate the colony. T h e emigrants ceased tocome, on account of the prospect of a new stateof things favorable to them at hom e. M erchantscame, but no longer found a m arket. T h e pro-ject of moving away was broached and earnestlyde ba ted in the colony. T his ten de d to still fur-ther dep ress the price of all fixed improvem entsand stock. Cow s were valued in taxation, in1646, at ^5 ; horses four years old, 6.

In the first years, 1630-1640, 22,000 peo-ple came over. F or some time after 1640 morewent back than came. T h e settlers had g ainedby sales of stock, etc., to successive new arrivals.A farmer had clothed his family on one cow soldannually from his stock. ,192,000 had beenspen t on the colony, " a dea r purchase, if theyhad paid nothing to the Council of Plymouthand nothing afterwards to the sachems of thecountry."


14/397

IO HISTORY OF AMERICAN CURRENCY.

NE W IND USTRIES.Under the new circumstances they turned

to new industries, and, so farfrom being ruined,were far better off. In 1641 corn would buynothing", but waslegal tender for debts. Theyturned to ship-building, carrying between Vir-ginia and the West Indies, fishing, seal fishing onthe Isle of Sable, and lumbering. T he se indus-tries all prospered. In 1643 ^l ec r o P failed,andcorn was sold only forready money or forcattle,at i2d. more per bushel than forcash.

In 1648 it wasnecessary to order that onlysuch peag as was unbroken and of good colorshould passlegal tender up to I2d.

In 1649 thecolony treasurer was forbidden totake peag . T he inhabitants beg an toreject it, butthe court then ordered that peag should belegaltender for40s., the white at eight and the blackat six for a penny. D isputes arising about thebarter currency for taxes, three appraisers wereprovided for,one to bechosen bythe treasurer,the second by theowner, and the third by themarshal.


15/397

HISTORY OF AMERICAN CURRENC Y. n

THE "PINE-TREE" COINAG E.Coin was now coming in freely by the trade

with the W es t Indies. T h e buccanee rs alsospent a great deal of their booty in the colonies,bu t it all ju st as stead ily went out. In 1652M assach usse ts set up a mint at B oston to cointhis metal and try to keep it in circulation.They coined shillings, sixpences, and three-pences, and continued to do so for many years,but, as it was a breach of the prerogative to coin,they da ted all the coins 1652. T h e coins wereto be of sterling alloy, \\ fine, and the shillingworth iod . sterling. T he mint m aster had I5d.in 20s. for coining. A s silver was worth 5s. 2d.sterling per oz., if the New England shillings hadbeen equal to iod. sterling each, silver shouldhave been worth 6s. 2I6.. New England currencyper oz., but as the mint m aster kept 13d. out ofevery 20s., silver was worth 63. yd. New Englandcurrency pe r oz., if the coin was up to its ownstand ard. It would therefore have been 22 pe rcent, worse than sterling. T he English Mint de -clared it not of even weight or fineness, and it


16/397

12 HISTORY OF AMERICAN CURRENCY.was taken in Eng land only at 25 pe r cent, dis-count. T h e normal rate, therefore, was 6s. 8d.pe r oz. T h e law forbade exportation on penaltyof forfeiting all visible es tate. Of course this re -strained but it did not prevent it. Thi s currency,known as the " pine-tree" currency, forms thestan da rd by which calculations were m ade fromthis time on.

M eantime the ba rter currency was continued,and ano ther act passed in 1654 prov ides that allcontracts in kind shall be so satisfied. In 1655, aconstable brought cattle to the treasurer for taxeswhich were so poor that he would not take them.In 1657 ano ther prays for relief because, hav ingtaken boards for taxes, the tre asu rer would notallow him as much as he allowed for them . In1658 it was ordered that no man should paytaxes in " l a n k " cattle. In fact the ba rter cur-rency continued general.

In 1655 the colony accounts allow for 35 10s.peag burned with the treasurer's house, and con-tain an entry of eighteen strings of peag at six apenny.*

* F o r this , and many othe r citations from the Colonial R ecord s, I am in-debted to Felt's Mass. Currency.


17/397

HISTORY OF AMERICAN CURRENCY. ^Accordingly, the silver money no sooner ap-

peared than it was either smuggled out of thecou ntry or clipped. T h e principle laid down bySir Thomas Gresham in Queen Elizabeth's time,that a better and a worse currency cannot circu-late together, but that the worse will drive outthe better, was the only secret. If the be ttercurrency could not be exp orted, it w as clippeddown to the rate of the inferior currency, orrathe r below it, in ord er to be on the safe side,and pay rather less than more than one need.*The silver which came to the colony consistedfor the most pa rt of Spanish pillar coins. O naccount of the heavy mint charges these were nottaken to the mint. T hey were not allowed tobe circulated. T h e dollar, or piece of eigh t, wasw orth 4s. 6d. sterling, or 63. New Eng land cur-ency. In 1672 a law was pas sed allowing the sepieces to circulate a t 6s. and other pieces inproportion. In 1675 the mint was leased again,in spite of prohibitions from Eng land. In th e

* In 1873 the United Stat es coined a " trade dollar " w ith the purposeof gettin g a share of the China bank ing and exchange business. Th e projectwas in every way fallacious, but the dollars were made worth $1.03 in gold,and, coming into circulation in Nevada, were clipped.


18/397

H HISTORY O F AMERICAN CURRENCY.same year, 25 per cent, discount on barter taxeswas allowed for cash, and afterwards 50 per cent.In the same year, it was provided that, instead oftrans po rting barte r pay m ents of taxes to andfrom the treasury, the transfers should be madeby pap er ord ers. M eantime, the coin was sentto England and to the other colonies, and wasextremely scarce in Massachusetts.

In 1686 a bank was proposed, to issue no tes.Its history is obscure, and though it seems tohave made issues, they soon disappeared. A n-clros sto pp ed the mint abou t 1688. It formed oneof the chief charges against the colony on accountof which the charter was revoked in 1691.THE FIRST EXPEDITION AGAINST CANADA,AND PAPER MONEY.

In 1690 an expedition was fitted out againstCanada, the payment for which was to come fromthe boo ty. It came back no t only w ithoutboo ty, but in gr ea t misery. T h e soldiers w ereclamorous for pay, and it was to satisfy their de-mands that the first paper money was issued.This expedition cost the colony ^50,000.


19/397

HISTORY OF AMERICAN CURRENCY, 1g^ 7 ,0 0 0 were issued in notes from 5s. to ^ 5 , re-ceivable for taxes, and for goods paid into thetreasury for taxes.

Sir W illiam Ph ipps tried to sustain the pap er bygiving coin for some of it, but the soldiers disposedof it at one-th ird discount. T h e issues were lim-ited to ^40,000, and ,10,000 in the treasury wereord ered bu rne d in 1691. In 1692 it was orderedthat the bills be received at 5 per cent, advanceover coin at the colonial trea sury, and the Courtpromised to redeem them in money within twelvem onths. T his k ep t the paper at par for twentyyea rs. In the same year legal interest was re-duced to 6 pe r cent. T h e ba rter cu rrency nowceased for a time, or at least becam e lesscommon. Fe lt and Bronson bo th quo te M adamK nig ht's lette r that, in Connecticut, the re werefour prices : " pay," " p a y as m oney," "m o ne y ,"and " trusting ." T h e m erchant asked his cus-tomer how he would pay before fixing the price."Pay" was bar ter a t the government ra tes ."Money" was Spanish or New England coin,also wampum for change. " Pay as money " wasbarter currency at prices }i less than the govern-


20/397

16 HISTORY OF AMERICAN CURRENCY.ment rates. " Trusting" was an enhanced price,accord ing to time. A sixpenny knife cost I2cl.in pay, 8d. in pay as money, and 6d. in coin.

Pa pe r was now issued to pay the annual ch argesof the colony of Massachuse tts, bu t it was alsodrawn in by taxes, and it does not app ear tha tthe am ount in circulation at any one timewas excessive. In 1702, money be ing scarce,taxes slowly paid, and government affairs hin-dered, ; 10,000 were issued, secured on the im-port and excise, and ,6,000 taxes were voted.By this tax all the bills out were to be withdrawnand destroyed. In 1704 a royal proclamationfixed the value of Spanish and oth er foreigncoins, not at sterling rates, but apparently on thebasis of the New England coinage. L ittle h eedwas paid to it. T h e curre nt rate s of the coinsobeyed other than royal laws.SECOND EXPEDITION AGAINST CANADA-

DEPRECIATIONIn 1709, ano ther exped ition against C ana da

being intended, ^30,000 in bills of credit wereissued, and ,10,000 of the old were reissued. T h e


21/397

HISTORY OF AMERICAN CURRENCY. 17preparations d ra gg ed on for two years, and, in1711, ,10,000 m ore were issued to pay militaryexpenses. New H am pshire, R hod e Island, Con-necticut, New York, and New Jersey joined in thisexpedition, and now began to issue bills of credit.T h e M assachusetts bills had hitherto been heldclose, and provisions for redemption by taxes ina year or two had always been made. T hey hadbeen pu t out in paym ent of gove rnm ent ex-pen ses, and had thus been a kind of ex chequerbills.In 1709 the time for redemption was set at 4y ea r s ; in 1710 at 5 y e a r s ; in 1711 at 6 y ea rs ;th is injured the credit of the bills at the sametime that they became redundan t. T h e depreci-ation now beg an. T h e paper was legal tender,its accep tance be ing enforced from time to timeby more and more stringent enactments.

COLMANS BANK.The mystery of banking was now attracting

attention the world over. T h e L and Bank inE ng land about 1685, the A ustrian enterp rises of1700, John L aw 's scheme of 1715, the Sou th


22/397

18 HISTORY OF AMERICAN CURRENCY.Sea Company founded in 1711, bea r w itness toit. T h e M assachusetts people were not beh indthe age. In 1715 John Colman and o thers pro-posed a bank based on land and issuing notes.T h e y propos ed to build a bridg e over Ch arlesriver, which was scou ted as impracticable. T h eCouncil (upper house of the General Court, al-ways conservative) forbade them to make publicproposals or print notes until the General As-sembly could act on their plans.

LOAN BANK.T h er e was a grea t clamor for more pap er

money of some sort, and those who opposed allpaper joined those who opposed the Bank in car-ryin g a scheme for a public issue. T hi s was thefirst of the loan ba nk s * which were created innearly if not quite all the colonies before the Rev-olution. In the process of time certain new de -

* " B an k, " as the word was used before the Revolutionary W ar , meantonly a batch of paper money, issued either by the government or a corpor-ation . Th e impression seems to have remained popu lar, that the essentialidea of a bank is the issuing of no tes. Go uge, accepting this definition,assailed all " bank ing ." The notes issued in banks, or masses as loans,were pure p aper money, and may be distinguished from the Treasu rynotes issued for the current expenses of government.


23/397

HISTORY OF AMERICAN CURRENCY. jgvelopments were added, which were supposed toperfect the system . T o take one of the m ostperfect specimens, which enjoyed the approval ofFranklin,* and which was made in Pennsylvaniain 1723, the plan was as follows: the issue wasfor ,15,000, pu t in the hands of commissionersin each county, according to the taxable assess-m ent. T h e commissioners loaned the bills at 5pe r cent, on m or tga ge of land. T h e loan was for16 years, payable TV annually, and the interestwas to defray the exp ense s of gove rnm ent. In-stalments repaid during the first 10 yea rs of theperiod were to be loaned out again only for theremainder of the period.

Rhode Island was the most unfortunate of allthe colonies in her currency legislation. Shekept peag longer than any of the others, andplunged into paper issues more recklessly thanany. T h e loan bank system she tested to thebitter end.

* Th e great philosopher was not unbiassed in his judgm ent. H e printedthe bills, having written a pamphlet in favor of them, and he says, " It wasa very profitable job and a great help to m e." Lo oking back upon itlater, he argues that it was a good thing, " though I now think there arelimits beyond which the quantity may be hurtful." Works, II. 254.


24/397

2 O HISTORY OF AMERICAN CURREN CY.T h e first " b a n k " in that colony w as for

,30,000, issued in 1715, for 10 year s. In 1728the time was ex tend ed to 13 yea rs, and then 10years more were allowed for the repayment, with-out interest bey ond the first 13 ye ars . In 1721 asecond bank was issued of ^40,000 for 5 years,ex tended in 1728 to 13 years , inte res t pay able inhem p or flax. It was intended to act as abo unty on those articles. In 1.631 the sam e col-ony laid a bounty on flax, hemp, whale oil, whale-bone, and codfish.*A s this system of public loans is now ad-vocated by the so-called " labor-reformers," itis especially worth while to know that it hasbeen subjected he re to a full experiment, andwhat its results were. Hutchinson says tha t thepeople of Massachusetts must have wonderedthat no one had before hit upon this marvellousexpedient for paying" the expenses of govern-ment. T h e pe rson s who obtained loans inthe ninth and tenth year of the bank period,complained that they must pay back in seven or

* Potter, R. I. Paper Money in Phillips' Colon, and Contin. Paper Cur-rency, I. 100.


25/397

HISTORY OF AMERICAN CURRENCY. 2Isix years, whereas others enjoyed the loan for six-teen y ears . T h e banks were accordingly " con-tinued ," or renew ed continually. New claimantswho desired to come under this shower ofwealth clamored for new banks on the groundof "justice" and "eq ua lity ." All who had re -ceived loans joined as a com pact body in favorof further issues . All new issues to othe rs de-preciated the currency, and enabled them to payback more easily. How ever, they did not inmany cases pay at all, either principal or inter-est. H av ing accumulated large arre ars they de-camped, and, when process issued, could notbe found. T h e m or tgaged esta tes were foundentang led in inextricable confusion. T h e legis-latures, composed largely of men in the system,would allow no extrem e m easures. Forec losuresw ere rare, and did not pay for the troub leand excitement they caused. T h e pap er becamea political issue, and Douglas says the partieswere no longer Whig or Tory, but Creditors andD eb tors the latter in the majority. Felt saysthat some of the loans of 1714 in Massachusetts,made for five years, were out over thirty years.


26/397

22 HISTORY OF AMERICAN CURRENCY.In 1715 there was a petition from Boston mer-

chants for more paper, which was laid over.Governor Shute recommended the Assembly

to take measures to revive the low state of trade.T hey issued ,100,000 of bills, "becau se billswere scarce." T hese were issued on loan. Sil-ver rose to 12s. per oz.

South Carolina had issued bills in 1712 forwar exp enses. " T h i s emission fell a third thefirst year, a half the second, and continued todepreciate."Felt quotes a writer who sa id : " T h e evilsof litigation abound . People of esta tes cannotraise money, unless they dispose of them at halfthe ir value. Individuals depending- on the irlabor are forced to take for the ir toil from one-half to two-thirds in goods, while their creditorsimperiously dem and cash of them . T h e privatebank* does not receive encouragement from thelegislative authorities. ^5 0 ,0 00 ought to be laidout for building a br idg e over Charles river, sotha t workmen m ight be employed and currency

* There are hints that it had made issues.


27/397

HISTORY OF AMERICAN CURRENCY. 2$enlarged, as well as the public accom modated,and ruin will come unless more bills of creditare em itted." This was in 1719.

In 1720 trad e was stagnant, and there was agreat cry for more bills. L et it be ob -served how this complaint is heard againevery four or five years, although the amountof paper was continually increasing. It isthe best instance in history of the way in whicha country "grows up" to any amount of cur-rency. H ere was a sparse population in a newcountry with untouched resources, and it seemedto them necessary to hav e recourse to artificialissues of currency to "make business brisk;"to ge t up enterprises for the sake of " m a k in gwork ;" and to lay bounties on products in orderto enable the people to carry on production. T h edistress was real, but it came from turning theirbacks on what nature offered them gratuitously,and violating the laws by which they might haveprofited by these gifts.

The commissioners of the New England colon-ies passed a resolution deprecating further issuesof paper, bu t it had no effect. W idow s, orphans,


28/397

24 HISTORY OF AMERICAN CURRENCY.and salaried men suffered greatly from the de-preciation. H utchinson, referring to the tem pta-tion to trus tees, sa y s: " T h e influence which abad currency has on the morals of a peo ple isgre ater than is generally imagined. N um bersof schemes for public and private emissions wereproposed as rem edies. T h e only effectual one,the utter abolition of the bills, was omitted."Expeditions were favored for the purpose ofbringing about issues of paper, and public workswere advocated for the same reason. In 1721Massachusetts issued ,100,000, and forbadebuy ing and selling silver. Hutchinson sa y s :" Such an act can no more be executed than anact to stop the ebbing and flowing of the sea."^ 5 0 0 in paper w ere now equal to .180 sterling.

In 1720 Parliament passed an act forbiddingany companies to carry on banking without acharter.

In the same yea r the treas ury of M assa-chu setts ceased to allow 5 pe r cent, premium onbills. ,5,000 were issued in this year, redeem-able from 1726 to 1730.

The royal instructions forbade the governor to


29/397

HISTORY OF AMERICAN CURRENCY. 25sign any acts for em itting bills, and the histo ryof the next twenty years is a story of longconflicts between successive governors and theL ow er H ouse on this question. Go vernor Sh utegave it up and went home. L t.-G ov. Du m m ersigned a bill issuing ,"30,000 in 1724.

In 1727 W oo d's pa ten t for coining pennies ofEn glish value was issued. T hey were to be sorated in the paper as to circulate. T h ey werevery unpopular because they reflected on thepaper and marked its depreciation. In this year,50,000 w ere issued to help redeem the issueof 1716. O n this g round Dum m er signed it.The council also wanted to redeem the ,30,000issue of 1724, but the House would not agree.In 1728 the redemption of the ,100,000 loanbe ing enforced by orders from En glan d, ,60,-000 m ore w ere allowed, " because bills w erescarce." H utchinson comm ents on this : " It would be

just as rational, when the blood in the humanbo dy is in a pu trid and corru pt state , to in-crease the quantity by luxurious living, in orderto restore it to health." Inter est w as now


30/397

2 6 HISTORY OF AMERICAN CURRENCY.ch arg ed on the loan at 4 pe r cent., because lowinterest encourages business. T h e natural rate\v:is 8 per cent. A gre at speculation in unoc-cupied lands had sp rung up in the last year.Enough new towns were laid out for the wholeexisting population.

D uring the administrations of Burnet andBelcher the war over paper issues went on, butthe restriction was enforced to issue only for gov-ernm ent exp enses. T h e injunction was also toreduce the outstanding am ount to ,30,000, bu tthis was not obeyed.

BANKS.T h e colony be ing no longe r allowed to issue,

bank projects revived. As a concession, ^ 76 ,5 00were allowed in 1733 for public exp enses, andthe year 1741 was fixed as a terminus for all out-standing issues. T his year (1733) w a s o n e fgreat distress througho ut New Eng land. T rad ewas stagnant and "m on ey scarce." R ho deIsland issued ^1 00 ,00 0. T h e Boston m erchan tsagreed not to receive them, and themselvesissued ; 110,000, redeem able in silver at 19s. pe r


31/397

HISTORY OF AMERICAN C URRENCY. 2yoz,, one tenth of the issue each year for tenyears, without reissue. Som e of them broke theengagement and received the Rhode Island bills,and all the notes flowed in tog eth er. Silverrose to 27s. per oz. T h e m erchan ts' notes w erehoarded.

In 1734 Governor B elcher recomm ended thewithdrawal of paper money and bounties onhemp and naval stores, so as to turn the balanceof trade.

In 1737 " n e w te n o r " bills were issued, tocirculate at the rate of one for three of the old.Felt quotes an act showing that a system ofcounterfeiting had grown up by which a counter-feit pa rt was pa sted on a mutilated bill, raisingits denomination. ; 170,000 of ou tstanding billsmust, by law, be redeemed before 1742.

THE LAND BANK.In 1739 the Land Bank scheme was revived.

The scheme was this: a number of land ownersformed a company and m or tga ge d the ir e statesto it for its notes, giving 3 per cent, per annuminterest in merchandise, and 5 per cent, per


32/397

28 HISTORY OF AME RICAN CURRENC Y.annum on the principal in the sam e currency . Amechanic, with two sureties, might have 100stock. T h e notes were payable after twen tyyears " in manufactures of the prov ince." T h epreamble of the schedule of this bank recites thatit is organized "i n order to red ress the existingcircumstances which the trade of this provincelabors under for want of a medium." T hi s ban kwas the most prominent factor in the politicalmovements of the next ten years, and even laterit turns up, from time to time, a cause of perplexityand distress to the government and the survivingstockholders.

THE SPECIE BANK.Another bank was proposed to counteract theL and Bank. It was called the Specie Bank, and

was to issue ,120,000 in notes redeemable infifteen yea rs , in silver, at 20s. per oz. Bothwent into operation, but, in 1740, Parliamentdeclared the old Joint S tock Co m panies' A ct,passed after the South Sea bubble (1720), to beof force in the colonies. Bo th banks w ere there-fore forced to wind up.


33/397

HISTORY OF AMERICAN CURRENCY. 2gThe Land Bank resisted its fate by social and

political intrigues, and became a political issuebetw een its friends and its enem ies. T h e larg emerchants had refused its notes, but the smalldealers had taken them, and ,35,582 were outFor a thorough-going application of the papertheory, nothing has ever been proposed any-where, much less pu t in operation, which couldequal this. A note for $1 payab le tw enty yearshence in gold without interest, when interest is 3per cent., is w orth 55 cen ts, or, if in teres t is 6per cent, 31 cen ts. If payable in any one of adozen commodities it is payable in that one whichtwen ty yea rs hence m ay be the cheapest. A twhat rate, then, ought a man who to-day givesw heat for the note to m ake the exc hange ?These notes were based on nothing, floated onnothing, and rep resented no thing definable. T h esystem of money which consists in " basing,""float ing," and "represent ing" was, therefore,here in perfection.T h e gov ernor made war on this bank withall his energ y, as unlawful and pern icious, con-trary to the act of Parliament and to his instruc-


34/397

30 HISTORY OF AMERICAN CURRENCY.tions. Finding that some civil and militaryofficers were engaged in it, he removed them.This called forth a prote st from Sam uel A dam sand John Choate, as an invasion of personalliberty. T h e re can be no dou bt that the bitter-ness engend ered by this conflict was one grea tcause of the Rev olution. T w o great economicerrors were amongst the causes of that war.One, the attempt of the colonies to issue paperin which they were in error as to the questionof political expediency; the other, the attempt tocarry out the " colonial system ," by which thecolonies were used as means of aggrandizing themother country, in which the latter was at fault.There is no tribunal to decide such questions.They work themselves out in history.The instructions forbidding the governor toallow pap er issues contained one exception. H emight issue for the expenses of government.This was the gap through which the issues werestill continued, though, m ore m oderately. In1741 all outstanding notes were to be cancelled.A s th at year app roach ed, it was found impracti-cable to call in all in one year by tax, no steps in


35/397

HISTORY OF AMER ICAN CURRE NCY. 31th at ' direction havingbeen taken. T ax es w ereprov ided for retiring them in 1741, '2, and '3 .A t the sam e time the g overno r was allowed toapprove issues beyond ^30,000 for expenses,to tide over the withdrawal of the old. A newset of bills was now issued to circulate at the" i d e a l " rate of 6s. 8d. per oz. silver. T h es enow became the " new tenor/ ' and those of 1737," middle teno r." Subseq uen tly it becam e neces-sary to distinguish " new tenor first," and " newten or second." Similar stratification ex isted inth e paper of Rh od e Island and Connecticut. Ifthe new tenor bills depreciated they were to passat current rates, that is, were not legal tender fortheir face. T h e depreciation was to be ascer-tained and published by commissioners, but thesepe rsons were restra ined by public opinion fromever stating the depreciation at its true amount.One commissioner who did rate it truly wasoverwhelmed by a storm of abuse. T h e newtenor bills fell to 7s. 9c!. per oz., but werehoard ed . In 1741 old tenor were at 29s. pe roz. ; new tenor M assachuse tts, 9s. 8d. ; newtenor Connecticut, 8s.; new tenor Rhode Island,


36/397

32 HISTORY OF AME RICAN CURREN CY.6s. o,d. ; old Specie Bank of 1733, one-thi.xibetter than colony bills; Specie Bank of 1740,issued at 20s. per oz., were at tha t rate ; L andBank not quotable. Mr. Hutchinson, the histo-rian, and subsequently gov ernor of M assachusetts,very wisely advised Governor Belcher to try toput down the Land Bank in some other way thanby invoking the authority of Parliament. Colonialindependence was enlisted on the side of thebank, and insurrection was feared.

In 1743 M assachusetts pro posed to theother New England colonies to appoint commis-sioners to agree on joint action for doing awaywith the bills. T hey refused to do so. " M oney "was now scarce ai ever again, the better kinds ofpap er b eing hoarded , and only the w orst pape rof all the colonies circulating in any. T h egovernor of Massachusetts, in 1744, said that of^400 ,000 R ho de Island bills in circulation,380,000 were in M assach usetts. T h e peopleof the latter colony had lost ,25,000 on this sumin nine m on ths . In 1744 the amount of bills inMassachusetts was scarcely diminished.


37/397

HISTORY OF AMERICAN CURRENCY.

EXPEDITION AGAINST LOUISBOURG.

33

The governor now took it into his head tocapture Louisbourg, on Cape Breton, from theFre nch . T h e New Eng land colonies joined inthis enterprise. N othing m ore was heard of theroyal instructions , bu t bills were issued as the yw ere neede d to pre pa re this expedition. It waspopular, as all expeditions against the Frenchwere popular. It appealed to the love of adven t-ure always g re at in a new country, and it m etthe wishes of those who wanted more paper.

All the authorities agree that the enterprisewas wild and reckless, and that it only succeededby a succession of stran ge and lucky accidents.However, succeed it did ; the town was captured,and the colonies were greatly elated by theirmilitary glory.

As a result of this expedition the paper issuesof the colonies in 1749 reduced to old teno r,w e r e :M a s s a c h u s e t t s ^ 2 , 4 6 6 , 7 1 2

Connect icu t 281,000R hod e Is land 550,000New Ham psh i re 450 ,000

2*


38/397

34 HISTORY OF AMERICAN CURRENC Y.

RESUMPTION IN MASSACHU SETTS.Parliament voted to ransom L ou isbo urg from

the colonies. T h e sum coming" to M assachu se ttswas ^138,649 sterling, which at eleven for one,the ruling exchange, would nearly cancel thepaper. Hu tchinson prop osed tha t they shouldask Parliament to ship to them their share of thepayment in silver dollars and copper coins, andthat these should be used to cancel the paper asfar as they would go, the rest to be called in bytax. After considerab le opposition this coursewras ado pted . T h e silver was sent over and ex-changed . Prices w ere adjusted to this newtreasure, and the silver remained in circulationwhen it no longe r had a m eaner rival. T h e"shock" which was apprehended did not occur.T h e only shock was to R ho de Island and N ewHampshire, who found their trade transferred tothe " silver colony," and their paper suddenly andheavily depreciated. T h e W es t India trad e ofMassachusetts had been largely done throughN ew port. It was now transferred to Salem andBoston, In 1752 a N ew po rt m erchant, Josep h


39/397

HISTORY OF AMERICAN CURRENCY. 35Whipple, who was deputy governor at the time,failed. Fa ilures " h a d been almost unknow n inN ew po rt," and M r. W hipp le was constrained toresign his office.

The apprehensions of loss and danger fromthe change in Massachusetts led to some demon-strations of riot, but the chan ge took place soquietly and easily that these fears were not real-ized and the tumult subsided. T ra d e had beenimmediately before (1749-50) at the lowest ebb.Ship-building and fisheries had declined, andpeople were moving away. T ra d e now revivedsteadily and rapidly, and we hear no more of"scarcity of money" until the next violation ofthe laws of circulation.

The following table shows the depreciation ofMassachusetts paper:EX. ON LON- SILVER PER OZ. IN

DON. THE CURRENCY.S. d.

1702 133 6 10J1706 135 71713 X5o 81716 175 9 31717 225 121722 270 14


40/397

36 HISTORY OF AMERICAN CURRENCY.EX. ON LON- SILVER PER OZ. IN

LON. TH E CURRENCY.s. d.

y )f28 3 4 0 18173 38 2 O1737 500 2 6174i 55o 281749 1,100 60

The following table shows the depreciation ofthe pa pe r of the seve ral colonies :

1740 1748Ne w Eng land 525 1,100New Y o rk . ; 160 190Pen nsy lvania 160 180 and 190M aryland 200 200N or th C aro lina 1,400 1,000South Caro lina 800 750Virginia 120 and 125

Douglas, though bitterly opposed to papermoney, opposed violently the plan of Hutchin-son. H is own history show s that he was irasci-ble and impracticable. H e thoug ht th e m easuretoo sudden, and wanted to use the English pay-ment by drawing bills of exchange on long timeand selling them for the bills of credit. If a con-traction had been practicable it ought certainly to


41/397

HISTORY OF AMERICAN CURRENCY. 37hav e been gradual and careful, bu t this was outof the question with a currency sunk to ^T of itsdenomination, and a bankruptcy could not be toosharply and definitely accomplished when re-solved upon.

ACTION OF CONNEC TICUT.His plan was followed in Connecticut, the bills

being drawn at three years' date, and the conse-quence was that the paper was not withdrawnbefore the next war called for new issues.

ACTION OF RHOD E I SI AND.R ho de Island went on upon the pape r system.

In 1750 the paper-money party were in the as-cendant, and the ninth bank was issued for25,000. It was for the pu rpo se of giv ingbounties on manufactured wool, and whale andcod fisheries. " I n June , 1751, the act wasamended . T h e bounties were abo lished ; that onmanufactured wool as being displeasing to Eng-land, the othe rs as useless ." R ate in 1750:Notes of ninth bank, 6s. 9d.=i3s. 6d. new tenor


42/397

38 HISTORY OF AMERICAN CURRENCY.= 5 4 s . old tenor . R ate in 1757: 6s. 9


43/397

HISTORY OF AMERICAN CURRENC Y. 39the above description w ere issued. T hey w ereof small denominations, bore interest, and circu-lated only until the interest accumulated so muchas to m ake them wo rth hoa rding. R em ittanceswere continually received from England to par-tially reim burse th e colonies for their ex penses ,and by these funds, and by taxes, the bills wereredeemed to such an extent as to save them fromgreat depreciation.

Early in the eighteenth century Virginiaadop ted tobacco as a currency. It was depo s-ited in w areho uses, and the receipts for it passe das currency. It was a true money, but not agood one, as it naturally fluctuated considerablyin value. In 1755 Virginia issued pape rmoney.*North Carolina issued paper to build a palacefor the go vernor. A similar project" was sta rtedin New Jersey, but it never passed the legislat-ure.

* P hillips' Colon, and Con tinent. Pape r Money. Vo l. I.


44/397

4 HISTORY OF AMERICAN CURRENCY.

DOU BIE STANDARD TRIED IN MASSACHU-SETTSOTHER COLONIAL ISSUES.Scarcely had specie come into circulation in

M assachusetts when it was found that, althou ghthe remittance had been in silver, gold from theW es t Indies beg an to stay in the colony. T h equestion of making it legal tende r as well as sil-ver soon be^ an to be agitated. It circulated ofcourse, not being legal tender, at its weight.An act was passed in 1762 to make gold legaltend er at 2-id. per gra in. A t this ra te it wasmore profitable for the debtor to pay in gold thanin silver. T h e currency was dep reciated five pe rcent, by this operation, and, as H utchinson de-clared at the time must follow, this drove sil-ver out of circulation. Some hints also show thatbarter currency was still allowed in the paymentof tax es . Silver now becam e scarce, and thenext stage was a new agitation in 1767 for papermoney.In 1768 the House resolved that " in order toprevent the unnecessary exportation of money, ofwhich this province has of late been so much


45/397

HISTORY OF AMERICAN CURRENC Y. 47dra in ed /' they will do without foreign superflui-ties, and encourage the manufactures of thisprovince. T h e same doctrine has been preachedand avowed ever since, as the sum and essence ofpolitical economy, but it has been a signal failure.The colony was drained of money (silver) be-cause it had adopted another legal tender, gold,which, though the best money for large exchan-ges, was so rated th at it was the cheapes t m eansof paym ent. It alone therefore remained, and theothe r metal was expo rted . It was not, how ever,exported for nothing, and no resolutions couldmake the people desist from using foreign super-fluities which came back to pay for it. T he sam eviolation of coinage laws was twice repeated underthe federal constitution, as we shall see below.In the same year (1768) the Massachusetts Coun-cil petitioned the House of Commons for relieffrom the new tax laws, plead ing the gr ea t scar-city of money, which they ascribe to the balanceof trade being against them.Mr. Hickcox, writing on the New York papermoney,* says that the colony traded in 1720 with

* Albany, 1866, page 21.


46/397

42 HISTORY OF AMERICAN CURRENCY.M adeira, the W est Indies, and En gland. H e ex-pressed still more explicitly the theory underlyingthe above view on the subject. T h e trade " tothe West Indies was wholly to the advantage ofNew York, while that to Madeira was to our loss,the province consum ing m ore wine from thencethan could be purchased with its commodities.The money imported from the West Indies wasnot sufficient, however, to preserve a specie cur-rency, a large amount being necessary to balancethe exchange with England."The errors involved in this way of looking atthe matter were most clearly exposed in connec-tion with the " Bullion Report," and will be foundnoticed in Chapter II.

In 1763 Parliament declared any colonial actsfor issuing paper money void. Franklin wrotea pam phlet in opposition to this act. H e saidthat gold and silver owe their value chiefly to theestimation in which they happen to be among thegenerality of nations and the credit given to theopinion that they will continue to be so held." Any oth er well-founded credit is as much anequivalent as gold or silver." W he n exchange rose


47/397

HISTORY OF AMER ICAN CURRE NCY. 43he thought that this was only an advance in exchange , not a fall in paper. In 1773 Parliamentallowed any bills issued by any colony to be atend er at its treasury . In 1774 M assachusettswas out of debt.

In 1775 rep resen tatives of the colonies of Con-necticut and Rho de Island met the Congre ss ofM assachusetts to concert measures for the war.

It was agreed, as their money was paper andthey could not offer anything else, that this shouldbe allowed to pass in Massachusetts.

CONTINENTAL PAPER MONEY.The colonies now went into the Revolutionary

War, many of them with paper already in circu-lation, all of them making issues for the expensesof military prep arations. T h e C ontinental Co n-gress, having no power to tax, and its membersbeing accustomed to paper issues as the ordinaryform of public finance, began to issue bills on thefaith of the " Continent," Fran klin earnes tly ap -pro ving. T h e first issue was for 300,000 Spanishdollars, redeem able in g old or silver, in th re e


48/397

44 HISTORY OF AMERICAN CURREN CY.years, ordered in May and issued in August,1775-

Paper for nine million dollars was issued beforeany depreciation beg an . T h e issues of the separ-ate colonies must have affected it, but the popularenthusiasm went for som ething. Pelatiah W eb -ster,* almost alone as it seems, insisted on taxa-tion, but a member of Congress indignantly askedif he was to help tax the people when they couldgo to th e printing-office and ge t a cartload ofmoney. In 1776, when the depreciation began,Congress took harsh measures to try to sustainthe bills. Com mittees of safety also took m eas -ures to punish those who *' forestalled " or " en-grossed," these being the terms for speculatorswho bo ug ht up for a rise. T h e tyranny of thegovernment was of course only a stimulus to theprivate com m ittees. It is natural to suppose tha tmalicious and criminal persons assumed the dutyof public regulators, and committed those actsof violence and wrong* which equal or surp assanything of the kind under any despotism, butsuch an error as a legal-tender act, enforced by

* Political Essays. Philadelp hia, 1791 .


49/397

HISTORY OF AMERICAN CURRENCY. 45pains and penalties, is responsible for the second-ary evils which are sure to flow from it. W eb -ster says of the pape r : " W e have suffered m orefrom this cause than from every oth er cause orcalamity. It has killed m ore men, pe rvaded andcorrupted the choicest interests of our countrymore, and done more injustice than even the armsand artifices of our enem y." T h e enemy, perceiv-ing the terrible harm the Am ericans were doingthemselves, thought it well to help on the move-m ent. T h e y counterfeited the bills and passedthem through the lines.

A t th e end of 1779 Con gre ss was at its w its'end s for money. Its issues had pu t specie en-tirely out of reach, and the cause was in dangerof being drowned under the paper sea.W eb ster says : " T h e people of the States atthat time had been worried and fretted, disap-pointed, and put out of humor by so many tender-acts, lim itations of prices, and oth er com pulsorym ethods to force value into pape r money, andcompel the circulation of it, and by so many vainfunding schem es, dec larations of prom ises, allwhich issued from Congress, but died under the


50/397

46 HISTORY OF AMERICAN CURRE NCY.most zealous efforts to put them into operationand effect, that their patience was all exhausted.I say these irritations and disappointments hadso destroyed the cou rage and confidence of thepeople, that they appeared heartless and almoststupid when their attention was called to anynew propositions."

The French alliance helped more by giving"means of procuring loans in Europe than by mili-tary assistance. C on gress prom ised to limit itsissues to $200,000,000, and tried a new form ofno te ; also loan offices and lotter ies. O ver 350,-000,000 w ere issued in all, but it is doubtful ifmore than 200,000,000 were out at any onetime.

In the spring of 1780 the bills were worthtwo cents on the dollar, and then ceased to cir-culate. Specie now came into circulation, be ingbro ug ht by the French , and also that expen dedby the English pass ing the lines. T h e pap erwas now worth more for an advertisement or ajoke than for any prospect of any kind of re-dem ption. A ba rbe r's shop in Philadelphia waspapered with it, and a dog, coated with tar, and


51/397

HISTORY OF AMERICAN CURRENC Y. 47the bills stuck all over him, was paraded in thestreets.

On account of the peculiar character of Ameri-can society, there are few family traditions of theCon tinental curre ncy ; b ut the contem porary lit-erature shows that the suffering it caused waswide-spread and intense. It fell most heavily onthe most patriotic and most helpless. Phillipsquo tes a letter addre ssed by a lady to the" Pennsylvania Packet" in 1779, saying that herfather had left her a competence which herguardian had invested in real estate six yearsbefore. H e now prop osed to pay her fortune inpap er. It is only a single instance.

" T h e gradual depreciation was urg ed as areason why the notes should not be redeemed atpar. It was said to operate as a ta x ; as a mostequal tax, because it acted in proportion to theamount held. T h e rich suffered largely on the irvast sums; the needy but slightly on theirscanty pittances . H ow fallacious thes'e reason-ings, with which the Congress and the peoplesolaced themselves, are, must be apparent.Po or consolation it was to those who had been


52/397

48 HISTORY OF AMERICAN CURRENCY.beg ga red confiding in the honor and in the hon-esty of their country, to hear that their ruinhad merely been a gradual tax; to know thatfrom the operation of tender laws their propertyhad been taken away and given to others ; tosee the wealth accumulated by the dishonestmultitudes of contractors and the many defraud-ers of that unhappy period, and to feel that ithad been plundered from their own coffers forthe aggrandizem ent of such peop le." * T h etrouble is that the government cannot make aforced loan by legal tender issues, without givingthe opportunity for private individuals to take" forced loans " from their neighbors.

" If it saved the State, it has also polluted theequity of our laws, turned them into enemies ofoppression and wrong , corrupted the justice ofour public administration, destroyed the fortunesof thousands who had most confidence in it, en-ervated the trade, husban dry , and manufacturesof our country, and went far to destroy themorality of our people." f

* Phillips: Colonial and Continental Paper Currency, II. 175.f Webster / . c. 175, note.


53/397

HISTORY OF AMERICAN CURREN CY. 4 9It ough t to be noticed that this paper was

vaunted as "the safest possible currency," which" nobody could take away."

BANK OF NORTH AMERICA.D ecem ber 31 , 1781, the Bank of N orth A m er-ica was charte red with a capital of $400 ,000, It

took its origin in a union of citizens of Philadel-phia, formed in the preceding year, to supply thearmy with rations. T hey were allowed to forma bank, and, as it seems, issue notes to buy thearticles requ ired. Congre ss ordered bills draw non American ministers abroad to be deposited inthe bank as a gu aran tee of payment. $70,000in specie were subscribed in 1782 by individ-uals, and the remainder by the gov ernm ent outof the proceeds of a foreign loan. It issuedconvertible notes, redeemable in Spanish dollars;bu t the people w ere slow to take them. Accord-ing to the story given by G oug e, the Bank wasnot over strong, and tried to keep up its creditby parading and handling over its stock of silver.H ow ever, it m ade large dividends, and was at-tacked by a rival which it was obliged to absorb,

3


54/397

5 o HISTORY OF AMERICAN CURREN CY.and secondly by an effort to have its charter re-pealed. T h e lat ter effort was successful so faras the state charter was concerned. It wen t onunder the charter of the Continental Congressuntil 1781, when it was re-ch artered by Pe nnsy l-vania. It exists ye t.RENEW ED AGITATION IN FAVOR OF PAPER

MONEY.In 1785 and 1786 an insurrectionary move-

ment, known as Shay's Rebellion, broke out inNew Englan d. It was an insurrection of de bto rswho were suffering" from the collapse of th ecurrency and return to specie values. T h e yclamored for paper.

" No desperately indebted people can long en-dure a regular, sober go vernm ent." This insur-rection was put down by force, but Massachu-setts passed a law delaying the collection ofdebts.

In R hode Island this m ovement was notriotou s, bu t took the form of a political m ove-ment. T h e paper money pa rty carried the elec-tions in 1786, and be ga n a new period of this


55/397

HISTORY OF AMERICAN CU RRENCY. J Jmania for the ir co lony. ; 100,000 were issuedby a vote of the rural districts against the cities.The bills were to be loaned on mortgage of landfor fourteen ye ars. T hey dep reciated at once.Merchants refused to deal, and closed theirshops. The farmers retaliated by refusing tobrin g produce to the cities, and thus the urbanand rural populations were pitted against oneanother in a ridiculous warfare which broughtbusiness to a stand-still. In Providence it wasagreed to enter into intercourse for necessariesso far as parties could agree, and to borrow $500to send ab road for grain. T he farmers met andpetitioned the A ssem bly to enforce the penallaws in favor of the pa pe r m oney. By thes elaws cases involving legal tender took precedenceof all others, and must be tried within three daysafter complaint en tered , w ithout jury , and withthr ee jud ge s a quorum . T h e decision was final.The fine for the first offence was from 6 to30, and for th e second offence, from ^"io to50. A protest by the representatives of thelarge towns against this law was not allowed tobe recorded.


56/397

52 HISTORY OF AMERICAN CURRENCY.John Trcvett, of Newport, complained of John

Wecdcn, a butcher, for refusing bank paper.T h e five jud ge s ag ree d tha t the act was uncon-stitutional. A special session of the Assem blywas convened, before which the judges were sum-moned to "ass ign the reasons and g ro u n d s" ofthe late decision. T h re e jud ge s came. T w owe re sick. T h e hearing was postponed. Atest act was prepared and sent to the towns forapproval, but it went too far. Only five tow nsappro ved. It pro posed to disfranchise any onewho refused the bills at equality with metal.W ith all this, money w as so scarce tha t landren ts were paid in corn, and ba rter becam e com-mon.

It was now determined to pay off the debt ofthe colony, except the 4 per cents, one quarte r ata time, in the bills received for taxes. Anyholder of colony securities who did no t come upto take h is notes within a set tim e forfeited hissecurities. T h e whole debt was paid off in thisway within two years . T h re e m onths after itwas issued, the paper stood six for one gold.The question of ratifying the new constitution


57/397

HISTORY OF AMERICAN CURRENC Y. 53now coming up, the paper money party was forstate rights, and the specie party for the federalconstitution.

In the spring of 1787 there were twenty billsin equity filed in court for the redem ption ofmortgaged estates . " T h e suitors came prep aredwith pap er m oney in handkerchiefs and pillow-cases to redeem their lands." It was moved tohave the bills counted, and the tende r recorded,but the court held that it had nothing to do withthe money before rendition of judgment, nor wasit for them to be instrum ental in p rov ing a ten-der. T hey refused to entertain any motion w iththe latter intention. T h e Assembly next rem ovedfour of the jud ge s who declared the leg al-tenderact unconstitutional. In Jun e, 1787, the pap erwas at eigh t for one. In 1789 it was at twelvefor one . In Sep tem ber of that year the action ofthe legal-tender act was suspended; October 12the depreciation was legally fixed at eighteen forone, and debtors were allowed to pay in produce.

If paper-money issues, tariff laws, and bountieson exp orts can make a nation grea t and pro spe r-ous, R ho de Island oug ht to have been the first


58/397

54 HISTORY OF AMERICAN CURRENC Y.State in the union in point of wealth, though thelast to enter it.

The historian, Arnold, apologizes for her dila-toriness in joining the union by the extrao rdinarydeg ree of liberty her citizens had enjoyed, andtheir jealousy of hav ing it curtailed. T hey mayhave had la Liberte in R ho de Island ; they didnot have liberty.

It appears that all the provinces were strug-gling with paper issues during the period of theold confederation. Specie was scarce in som e,and plentiful in others, according to the amountof paper outstanding. T he Congress of the con-federation had not the power to tax, and itsefforts to obtain the consent of the States to itsfiscal legislation failed. Its certificates of in-debtedness were worth only twelve or fifteencents on the dollar. A coinage law was passedin 1786, but no coins of gold or silver werestruck. Copp er coins were made, bu t they werebelow standard and depreciated.


59/397

HISTORY OF AMERICAN CURRENC Y.

ASSUMPTION OF THE STATE DEBITS.55

One of the first acts of the Federal Congresswas to provide for the settlement of the out-standing accounts. $21,500,000 were appor-tioned to the States to assume their indebted-ness, subscriptions being received in their paperat a discount, but as the federal debt at once rosein value, the transaction was very favorable tothe holders of Sta te obligations. T h e am ountactually assum ed was $18,271,814. A t thesame time the States were credited with advancesmade to the confederation, and charged theirquota of its expenditure. T hus some app earedas creditors and others as deb tors. T h e debtorS tates never settled the account. T h e creditorSta tes were paid. T h e whole transaction wascriticised by Mr. Gallatin * as unwise and waste-ful. It met with much opposition, especially fromthe South, and there were always rumors of bar-gain in connection with this act and the removalof the capital to Washington.

* Sketch of the finances of the Un ited Sta tes. 1796.


60/397

5 6 HISTORY OF AMERICAN CURRENC Y.

BANKING ON CONVERTIBLE CURRENC Y.We come now to the period in which the cur-

rency consisted more or less of bank-notes, nom-inally convertible, issued by chartered banks.The system to which it has most analogy is thatof the Scotch banks, although of these latteronly three are chartered, the others being joint-stock companies and partnersh ips. W e shallhave abundant proof that this system of freebanking requires, as its indispensable conditions,moderation, sagacity, and scientific knowledge onthe pa rt of the bank ers. W ithou t these qualitiesin the managers, it is as wild as any scheme ofpap er m oney. Men who believe that " bank-ing " consists in making paper issues and loaningthem, making them as large as possible and stim-ulating them by all artificial means, and discour-ag ing conversion as much as possible, may, aswe shall see, bring down more ruin on the com-munity by this engine than by any other.T h e Bank of N orth A merica had already beenfounded. Its success in ea rning dividends led toothe r similar ente rprises. M assa chu setts char-


61/397

HISTORY OF AME RICAN CURREN CY. 57tered the M assachuse tts Bank in 1784. Soonafter, a bank was chartered in N ew Y ork andanother in Maryland.PAPER MONEY AND THE FEDERAICONSTITU-TION.

In 1787 the Federal constitution was framed.It contains a clause that no S ta te shall " coinmoney, emit bills of credit, or make anything butgold or silver coin a tender in payment of debts."The framers of the document thus fixed their con-demation of the old paper system, and the people,smarting under recent experiences, acquiesced.

It was proposed in the constitutional conven-tion to give to C on gre ss the righ t to emit billsof credit, but the proposition was defeated nineSta tes to two. (Madison Pa pe rs, III. 1,344.)

Two questions have been raised under thisclause : 1. Can a State authorize banks to do whatit cannot do itself? A s th e confederation hadalready chartered the Bank of North America, itdoes not seem that the " bills of credit " were un-derstood to cover bank notes. T h e courts haveheld that a State may authorize bank issues when


62/397

5 8 HISTORY OF AMERICAN CURRENCY.itself owns all the stock, the legislature appointsthe directors, the faith of the State is pledged forthe redemption of the bills, and they are receiva-ble for public dues, provided the capital is paid inand the bank may be sued. (Sto ry, 4th ed., I.227, note.)2. Can the national governm ent do what th eSta tes cannot do under this clause? T h e legal-tender cases have recently decided this ques-tion in the affirmative. M r. Gallatin said, in1831, of Congress : " As this body has no author-ity to make anything whatever a teiider in pay-ment of private debts, it necessarily follows thatnothing but gold and silver coin can be madea legal tend er for tha t pu rpo se, and tha t Con-gress cannot authorize the paym ent, in anyspecies of paper currency, of any other debts butthose due to the Un ited S tate s." T his is onlyimportant as showing the belief of prominent pub-lic men on this point in earlier times. For themit was a simple matter of course th at Con gre sscould not pass a legal-tender act of any kind,how much less one which should apply to exist-ing contracts. T h e legal-tender decision did as


63/397

HISTORY OF AMERICAN CU RRENCY. 59great a wrong" as the D red Scott decision, andthe latter instance shows us that it is not uselessto discuss a constitutional question, even after thecou rt has decided it. It will no t probab ly tak e awar to overthrow the principle of the legal-tenderact, but it may take a national bankruptcy.

THE FIRST BANK OF THE UNITED STATES.The first United States Bank was chartered by

C ongress in 1791. Its capital was $10,000 ,000,to be paid, one-fourth in cash, the rest in bo nd sof the Un ited States . T h e charter was to runfor twenty ye ars . It issued no bills under $1 0.

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

Banks Banks Bankschartered. chartered. chartered.1792 8 1799 3 1806 41793 3 1800 2 1807 91794 O 1801 3 1808 I1795 5 1802 4 1809 31796 1 1803 15 1810 81797 o 1804 10 1811 n1798 o 1805 4 1812 19


64/397


COINAGE.In 1794 the first silver was actually coined,

the dollar weighing 416 grs., 1485 parts pure to179 pa rts alloy. Its pu re contents w ere, the re -fore, 371.25 g rs . Gold was first coined in 1795,the eagle weighing 270 grs., -]-- fine, so that onedollar contained 24.75 grs . pu re go ld. It will beobserved that where two metals are thus madelegal tender, and there is both a silver " dollar"and a gold " dollar," the question of relativevalue of the two metals is involved. It was a s-sumed in the above rating that silver was to goldas 15 to 1. W e have had one instance before usalready when M assachuse tts, in 1761, overratedgold in the coinage and drove out silver. If therating should be correct at the time of passingthe coinage law, yet the fluctuations which arecontinually taking place in the relative value ofthe two metals would in time disturb the rela-tions, and only one metal would circulate, viz., thecheaper one. Fra nce has changed to a silvercurrency only, and then to a gold currency only,by these fluctuations since her mint law fixed


65/397

HISTORY OF AMERICAN CURRENCY. 61the relation inthecoinage. T h e ratio of 15 to 1was, at this time, unjust to gold. The actualmarket value being 15J- to 1. We shall have oc-casion tonotice the operation inthis case.

BANK ISSUES IN NEW ENGIAND.The development of banking took place first

in New E ngland. Itwas of the kind later knownas "wild-cat" banking. The new financialmachine seemed sopowerful and beneficent thatall that was necessary was to work it tothe ut-most. Notes under $5 were not allowed inMassachusetts until 1805, butafter that smallerdenominations were allowed, and finally noteswere issued aslow as 25 cents, and, by the lawthat paper drives out specie tothe lowest denom-ination towhich it isissued, there was no speciein the New En gland State s. T he stock ofspeciein bank was insignificant, and was moved frombank tobank tomeet the inspectors' visits. Thedownfall came in 1809. Onebank in Massa-chussetts had $40 in specie; another nothing.The system of subscribing to capital by noteswas, as it appears, universal. The Farmers


66/397

62 HISTORY OF AMERICAN CURRENC Y.Exchange Bank of Gloucester, R. I., founded in1804, was probab ly the w orst case. Its capitalwas $1,000,000. On ly $19,141.86 w ere everpaid in, and of this the directors withdrew whatthey paid in, leaving $3,08 1.11. O ne D ex terbought out eleven of the directors for $1,300each, paid out of the ba nk 's funds. H e borrow edof the ban k $760,26 5. W hen it failed it ha d$86.46 in specie ; bills out unknown ; the com-m ittee estima ted them at $580 ,000. So uth ofNew England banks were fewer, and there wasno disturbance. Silver was plentiful in the W es t.The exportation from Mexico was through theUnited States.

After this crash, the New England States passedsevere banking laws, with penalty of twelve percent, interest on all notes not redeemed on de-mand. In 1813 the New En gland Bank waschartered as a bank of redemption at Boston, inorder to keep the pape r of banks in the adjacentcountry at par. It accomplished this object, bu twas exceedingly unpopular with its country cli-en ts. This was the origin of the Suffolk Banksystem.


67/397

HISTORY OF AMERICAN CURRENCY. 63

BANK ISSUES IN THE MIDDLE STATES.The banking mania now broke out in the

M iddle S tates . In 1810 Pensy lvania found itnecessary to forbid the issue of no tes by incor-po rated companies bridg e companies, etc.The charter of the Bank of the United States ex-pired in 1811, and its renew al met w ith suchvigorous opposition that it was defeated. T h econstitutionality of the charter by Congress wasdoubted from the outset. T h is bank, so far aswe can ju dge from the information we have inregard to it, was soberly managed, successful,and beneficial in restraining the issues of thesmaller ba nk s. It was on this latter account es-pecially, and also because others desired to formsmall banks, that a strong party was formedaga inst the renew al of its charter. T h e same in-fluence defeated its efforts to ge t a charter fromthe Sta te of Pennsylvania. G rea t fears were en-tertained that a severe crisis must follow thewinding up of the United States Bank, but theywere not realized.


68/397

64 HISTORY OF AMERICAN CURRENC Y.The note circulation of the banks of the coun-

try in 1811 is estimated by Gallatin at 46,000,000 .T h e field being- thus cleared , twenty-five char-

ters were passed through the Pennsylvania legis-lature in 181 2-13 , bu t all vetoed. In the follow-ing" session forty-one ba nk s, with $17,000,00 0capital, were chartered by Pennsylvania over theveto. In a report to the Pennsylvania Senatemade in January, 1820, by a committee of whichCondy Raguet was chairman,* it is stated that atthis time prices were low in New England, andspecie was flowing thither.

T he country being now at war, M r. Epp es , ofthe Ways and Means Committee, thus explainedthe financial measures by which it was proposedto carry on war (Winter of 18131814).There were $75,000,000 bank capital, and$100,000,000 circulation and discounts (depos-its). Deduct forty-seven millions circulation re-quired ; th ere remain fifty-three millions, "ofwhich we pro po se to borrow thirty millions." In1812 the government borrowed six millions from

* Abstracts are given in the appendix to Raguet's Currency and Banking.Philadelphia, 1840.


69/397

HISTORY OF AMER ICAN CURREN CY. 65banks, and four millions from individuals at par.In 1813 it borrow ed twenty millions, allowingone hundred and thirteen for one hun dred paid.In 1814 it borrow ed fifteen millions ; twelve mil-lions nett, allowing one hundred and twenty-fivefor one hun dred received. N o more was to behad. N o tax was laid until Jan uary 1, 1814. T h eloans nearly all came from the Middle States, theNew En gland State s being strongly opposed tothe war, as foolish, unnecessary, a help to Napo-leon, and completing the ruin begun by the em-bargo.

The revenue for 1812, '13, and '14 was twelvemillions. T h e peace exp end itures had beeneight millions. T re as ury notes for one yea r wereissued in 1812 to the amount of three millions,interest at five and two-fifths per cent., receivablein tax es . Six millions w ere issued in 1813 ; eightmillions in 1814. By 1814' prices were rapidlyadvancing, business was brisk, and importationswere grea t. Pennsylvania notes were at fourteenpe r cent, discount. It was complained at Phila-delphia that silver flowed to New England andwas there exported. T h e importations came


70/397

66 HISTORY OF AMERICAN CURRENCY.throu gh New En gland. T he re was, therefore,now an " adverse balance of trad e," between theM iddle and New Eng land Sta tes. It was alsoclaimed that the New Englanders were buyingbills drawn for the supply of English troops inCanada with their surplus silver.

The New England Bank having collected over$100 ,000 worth of the New Y ork bills whichflooded New England, sent them home for redemp-tion. T h e silver was loaded and on its way to Bos-ton, when the Collector of New York stopped itat Ch ester, and orde red it to the M anha ttanBank, of which he was a directo r. H e said hesuspected tha t it w^as to be sen t to Canada. T h ePresident of the United States ordered it to begiven up.On the 30th August, 1813, the directors of thechartered banks of Philadelphia published a cir-cular, in which they said that, on account of th eblockade, exportation of p roduce was impossible.Hence specie had been exported, and " as the im-portation of foreign go od s in the E as tern S tate shas been very large , it has for many m onths pa stoccasioned a continual drain from the bank."


71/397

HISTORY OF AMERICAN CURRENCY. 67They also refer to the English bills of exchange.For a time they had been able to draw from theSouthern States (the New Orleans banks sus-pended because " a contraband trade was draw -ing off the specie "), but this was no longer possi-ble. " It became a serious consideration whetherthe banks should continue their exertions to drawwithin their vaults the specie capital of the coun-try, and thus facilitate the means of exporting itfrom the United States, or whether they shouldsuspend the payment of specie before their meanswere exhausted."

This plausible explanation appealed to the pop-ular prejudice against exporting silver, but evi-dently concealed the true relation of facts. T h esilver went to New Eng land unquestionably. Onthe 1st June , 1811, the ban ks of M assachusettsheld $1,709,000 in specie;

1812 $3,915,000.1813 6,171,000.1814 7,326,000.1815 3,915,000.1816 ' 1,270,000.

It went thither because there was a sound cur-


72/397

68 HISTORY OF AMERICAN CURRENCY.rency and low prices there, and went away fromthe Middle and Southern States because displacedby redundant paper and consequent high prices.It was because the Pennsylvania banks had issuedpape r until it "was at a discount, that, when the ygot the silver into their vaults, they could not keepit the re, but it was dem anded of them and ex-ported. W hen the New Eng land ers took it theygave something for it, and there was an unusualimportation from New Eng land . T hey also usedit. H av ing far more than they needed , they ex-ported it either directly to Europe or by buyingbills payable in London, and increased their im-ports . I know of no more complete illustrationof the true doctrine, and of the error by which itis becloudedThere was at the same time a movement ofspecie to Ohio, Kentucky, and Tennessee, wherethere were no banks.

SUSPENSION OF 1814.In 1814 all the ban ks, save the New E ng land

banks, suspend ed. In the year 1815 the Penn-sylvania banks increased their loans $10,000,000.


73/397

HISTORY OF AMERICAN CURRENCY. 69Business w as active and prices high . T h e mer-chants agreed to the suspension if specie pay-ments should be resum ed after the war. Smallcoin disappeared and tickets w ere used. N ote swere depreciated from tw en ty to fifty per cent.Importations, especially of articles of luxury, in-creased. Cred it was grea t and expand ing, pricescontinually rising.

T h e Secretary of the T rea su ry now began tobe eng age d in the m oney-m arket. H e tried toget the banks to come to some agreementwhich should b rin g about a uniform currency,bu t he failed. H e then ord ere d that tax esshould be received only in specie, T re as ur ynotes, or notes of banks which received Treas-ury notes at par. T h e bank s received themat par when they were at or above par in them arket, but not otherwise. T h e bank s whichtook T re as ur y notes issued bills for them, sothat the issues of the Treasury stimulated thoseof the ban ks. T h e notes of th e latter whenissued accumulated in the banks which did nottake Treasury notes, so that the Treasuryreceived the notes of debtor ban ks when it


74/397

j o HISTORY OF AMERICAN CURRENCY.would not receive those of creditor b an ks .At the same time, while loans increased threeper cent, on capital, there was $3,000,000 lessmercantile discount, the rest being" on govern-m ents, and the gov ernm ent T rea su ry held banknotes instead of T rea su ry notes. T he se b anknotes would not pass thirty miles from the placeat which they were issued. T h e paper prosp er-ity was now in full tide (1815). G ouge quotes apam phlet of Mr. M atthew Carey, in which h ecalled this the " golden age " of Philadelphia.

The ideas about money and currency whichhad prevailed in Eng land in 1810 and 1811 nowappeared here, as they always appear where pap ermoney is in use . It was said tha t silver hadrisen (though the Pennsylvania Senate Committeesay this notion was abandoned by the end of1815), and tha t a dollar was an ideal unit. D r.Bollman propo sed a scheme for a National Bankto issue notes redeemable in six per cent, gov-ernment stock, which would keep them from de-preciation and tie them to a fixed value. S tateban ks were to issue notes and redeem them in


75/397

HISTORY OF AM ERICAN CURRENCY. yithis pape r. Carey said it was a " magnificent "plan.

Madison recommended another national bank,but vetoed the first bill because it allowed thebank to begin under a suspension. Peace wasratified in February, 1815, and the Conservativesnow held that a national bank was necessaryto hold the Sta te ban ks in check. T h ey didnot want it to begin unde r a suspension. Asecond charter was passe d. T h e capital was tobe $35,000,000.

There were immense importations in thisyear. T h e Eng lish m erchants expo rted enor-mously* after peace was declared, anticipatingdemand. T he se goo ds were forced to sale he reas well as elsew here. T h e prices proved un-remunerative to the foreign owners, and also ruin-ous to the injudicious enterprises which, havingbeen undertaken here under the protection ofwar, had taken perm anent form. T h es e we reby no means so numerous or extensive as issometimes asser ted and gene rally believed, butthere were such. T his bro ug ht us the boon

See Chapter II. p. 283.


76/397

72 HISTORY OF AMERICAN CURRENC Y.of our first strong protective tariff, though theaverage duties were only about thirty per cent, ondutiable. T he principle of protection had beenadop ted in 1789, and the rate s of duty, very lowat first, had been steadily increased by successiveenactm ents. T h e tariff of 1816 was avow edlycarried as a realization of the " American sys-tem," but afterwards it came to be referred to, inthe retrospect, as a British free-trade tariff.

The great importations gave the governmenta large surplus revenue. It had $22,000,000nominal balance in the Treasury, but it consistedof bank -no tes which could only circulate in asmall district around their place of issue, and theplaces w here the gov ernm ent was creditor andheld the notes were not the places where it want-ed to pay its floating deb t. New seven per cent,notes were issued to p ay the qua rterly interest,and, to pay the interes t at Boston, Ja nuary 1,1817, the g overnm ent was obliged to borrow$50:,000 of the United States Bank before itopened. Banks which were gove rnm ent dep os-itories refused to pay government drafts, save forcurrent expenses, and they controlled other


77/397

'HISTORY OF AMERICAN CURRENCY. 73banks because they held government depositsin the bills of the latter.

SECOND UNITED STATES BANK.O n Jan uary 1st, 1817, the Second U nited

S tate s B ank opened. By the cha rter its capitalwas to consist of $7,000,000 government subscrip-tion, 7,000,000 specie, and $21 ,000,000 go v-ernm ent stock or specie. It began businesswith $1,400,000 in specie, $14,000,000 in stocks,and the res t in stock no tes. $2,800,00 0were soon due on the second instalment, butthis would come for the most part from notes ordiscounts of the bank itself. Only $32,400 of itwere paid in specie. T h e third instalm ent wasstill worse. T h e bank discounted its own stockat par to enable the instalment to be paid." The discounts, the payment of the second in-stalment, the payment of price to the owner,the transfer, and the pledge of the stock were,as it was termed, simultaneous op erations." InAugust, 1817, the bank discounted its ownstock at 125. T h e facilities for stock-jobbingwere excellent, and they were used.


78/397


RESUMPTIONCongress resolved that after February 20th,

1817, only specie, T rea su ry notes, and notes ofspecie-paying" banks oug ht to be taken by thenational T reas ury . T h e bank s refused to resum ebefore July, 1817. New Yo rk passe d a law im-posing twelve per cent, interest on notes not re -deemed, and the bank s finally ag ree d to resum e onFe brua ry 20th, if the United State s Bank wouldextend its discounts as they contracted. This wasagre ed to. T h e bank allowed $30,000,000 dis-counts the first year, and the Committee of thePennsylvania Se na te say tha t it more than madeup for the contraction of the S tate bank s, andthat the resumption was only nominal.

The Western banks were still comparativelysound, silver being at six per cent, premium there,and fourteen pe r cent, in Philadelph ia. T h eSo uthe rn bank s had joined the inflation. T he rewere fourteen banks in Virginia, North and SouthCarolina, and Georgia, in 1814, and twenty-threein 1815.

In 1817 a case at Richmond, after specie pay-


79/397

HISTORY OF AMERICAN CU RRENCY. 75ments were resumed, gives an insight into thestate of things. Aman having presented tenone-hundred-dollar notes for redemption wasrefused. He could not get a lawyer to takea case against the bank for a long time. Fi-nally, having obtained judg m ent, the sheriff wassent tocollect. Thepresident of thebank wastaken before the court, but refused topay. Thebank wasclosed by the sheriff, but soon afteropened and wenton.

The inflation during this year wasincreasedby the government paying off eleven millionsofthe public securities held by the bank. Thenote circulation at this time is estimated at onehundred millions. It is to be noticed that thebanks were asrecalcitrant about giving statistics,either to the Secretary ofthe Treasury orprivateinvestigators, as about any of their other duties,so that we have notrustworthy statistics.CONDITION OF THE UNITED STATES BANK.

In March, 1818, thediscounts of the UnitedStates Bank were forty-three millions, elevenmillions onstock. T h e notes could not be signed


80/397

ye HISTORY OF AMERICAN CURRENC Y.fast enough . It had two millions in specie. Ourknowledge of its affairs at this time is derivedfrom the report of Mr. Cheeves, who became itspresident during this year, and three years after-wards delivered a report stating how he foundthe bank, and what he did to save it. It nowhad eighteen branches, but never over $3,000,000specie in them all. Its ope rations in the W estdrew that region into the prevailing mania.Its branches paid out their own no tes and heldtho se of the S tate bank s as far as possible. T heyredeemed their own notes by drafts on the East.They thus obtained the specie of those States,and the States had credits at New York for thevalue of the same, which they used for en largedpurchases. T h e W es t therefore now enteredon the " golden ag e." T he re were forty-threebanks in Kentucky, ten in Tennessee, and eight inOhio in 1818.

The bank now bought seven millions bullionin the West Indies at a cost of $800,000 ex-pe nses . It was ex po rted as fast as it was im-ported . In A pril, 1818, fifteen m onths afterthe bank started, it was doubtful whether it was


81/397

HISTORY OF AMERICAN CURRENCY. yjsolvent. Ene rge tic m easures of contraction wereadop ted. It was ordered that discounts bereduced by N ovem ber ist, $2,000,000 at Bal-timore, $2,000,000 at Philadelphia, $700,000at Richm ond, $500,000 at Norfolk. $4,500,000contraction was accompli

Documents

History of American Currency