It is quite evident from the above table that a considerable amount of foreign capital came to the country after 1830. It was estimated that the debt abroad probably exceeded two hundred millions in 1835. At that time (no United States bonds being outstanding), the bonds of the states of New York, Pennsylvania, Ohio, Louisiana, Mississippi, Alabama, Florida, and Indiana were quoted in London; also certain bank shares and canal company bonds. Conditions in 1837. The states and the surplus. CHAPTER VI 1837 TO 1849 BRIEFLY recapitulated the conditions affecting the currency early in 1837 were as follows: the Bank of the United States had acted as regulator of the circulation of state banks by refusing the notes of doubtful concerns and requiring the redemption of others; now, since its federal charter had expired and it was operating under a charter from the state of Pennsylvania, it necessarily ceased to perform that function and was merely a very largely capitalized state institution. This check upon the state bank issues having been removed and the enticing prospect of obtaining public deposits being held out by the Jackson administration resulted, as it did in 1811-1817, in a large increase in the number of state banks and an inordinate inflation of both notes and discounts. Many banks were conducting business without a dollar of actual capital paid in, and a majority were subject to no legal restriction. The distribution to the states of the surplus in the Treasury caused a number of the states to create "fiscal banks," and the others selected state banks as public depositories; thus this large sum was transferred from "pet" federal to "pet" state depositories. These transfers naturally necessitated the calling of loans, for the federal depositories had loaned the funds, and a general curtailment of credits. ensued, thereby involving domestic exchange in more or less confusion. The states had undertaken various enterprises to employ the surplus, the first instalment of which was paid in January, 1837, and an era of unbounded speculation set in. The federal government under the existing regulation (the "specie circular ") required payments to it for public lands (a large source of revenue) to be made in specie, and other taxes were to be collected in the notes of speciepaying banks. Congress received at this time, and ignored, a petition from the Board of Trade in New York, which, foreseeing trouble, asked for a reëstablishment of a national bank for the regulation of the disordered currency and exchanges. Van Buren, who became President in March, 1837, continued Woodbury as Secretary of the Treasury and adhered to Jackson's policy. After the second instalment of surplus had been paid to the states in April, the serious nature of the financial and commercial situation became very apparent. A public meeting in New York in that month appointed a committee of fifty, with Gallatin at its head, to appeal to the administration to abandon a policy which threatened destruction of the material interests of the nation. Over two hundred and fifty failures had already occurred.1 In May specie payments were suspended and the Suspension of specie people were compelled to take irredeemable bank-notes, payments. as well as "shin-plasters" of all sorts, in order to carry on the necessary transactions of each day. On May 15 Van Buren called Congress to meet in special session. the following September. Notwithstanding the fact that the depository banks had suspended and the Treasury funds were running low or becoming unavailable by reason of the inability of the state depositories to make payment when required, Woodbury in July paid the third instalment of the surplus to the states (over $9,300,000), and in so doing barely escaped defaulting in his own payments.2 1 Sumner, History of Banking. 2 Finance Reports, Vol. III. Van Buren's message. Subtreas ury suggested. Treasury notes. When Congress met, Van Buren in his message, a most discursive document of twenty-four pages, recounted the events and cast upon the banks, depositories included, the blame for the deranged business conditions. These institutions, which but nine months before had been declared by Jackson to be satisfactorily performing their functions, and thereby demonstrating that a national bank was unnecessary, were now denounced as unfaithful to their trusts. Regarding banks as a necessary evil, he believed that the government should entirely sever all connections with them and keep its own revenues, to be collected only in specie, until needed for disbursements.1 Secretary Woodbury reported that funds in but six out of the eighty-six depository banks were available. Five others had in a measure been able to meet the demands of the Treasury. His nominal balance was $34,000,000, but of this $28,101,644 was on deposit with the states, and over $5,000,000 was in suspended banks, leaving him actually but $700,000. He had arranged to have the revenues retained by the collectors and receivers subject to Treasury drafts, instead of depositing the same in banks as formerly. To meet the pressing obligations Congress did not call upon the states to repay the deposits recently made with them, but an act of October 2 postponed the payment of the fourth instalment until January 1, 1839, at which time there proved to be no surplus to divide. On October 12 an act was passed providing for an issue of $10,000,000 of one year Treasury notes, receivable for public dues and bearing not to exceed 6 per cent interest, and also an act postponing the payment of customs bonds. On October 16 Congress took away from the Secretary of the Treasury the power to recall the deposits with the states, reserving the right to itself. 1 Messages of Presidents, Vol. III. The amount which had been paid in the three instalments, as given above, it may be remarked, remains "on deposit" to this day, and is carried on the books of the Treasury as "unavailable." 1 Its recall has on several occasions been suggested. On the other hand, a number of the states have, even in recent years, asked for the fourth instalment, which, however, has never been distributed. bill ury defeated. Van Buren's recommendations for an independent Subtreas treasury were formulated into a bill, reported by Silas Wright (N.Y.) in the Senate, where it passed over Clay's vigorous opposition by a vote of 26 to 20; in the House, however, a contingent of Jacksonians who favored banks refused to act with their party, and the measure was defeated 107 to 120. The Whigs, under the lead of Clay and Webster, insisted that a national bank was the only adequate remedy for the existing evils. The chief need was a uniform currency system with a proper regulation of the issues of the local banks, which only a central bank could enforce. Van Buren's supporters, under the lead of Wright and Benton declared (in the face of the facts) that the Bank of the United States had been unable to prevent over-issues, that it was no part of the government's duty to regulate exchange, that the people wanted a separate establishment, that the public money would be more secure in subtreasuries than in banks, that by this system the use of specie would be encouraged and the depreciated bank-notes rejected, thus lead ing to a uniform currency. subtreasury Webster declared the subtreasury plan a conception Webster on belonging to barbarous times, leading to the hoarding plan. of money, keeping from general use the sums which the government should receive to-day only to pay out again 1 Finance Report, 1902, p. 183. |