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a great activity to business, the suspension was submitted to by the people without a murmur.

Owing to the extensive and very advantageous loans which the banks had made to the government, the business of banking had become very profitable, and the dividends were high. As always happens, there was a rush to participate in these high profits; and it thus came about, that just about the time of the suspension of specie payments, a great number of new banks came into existence, which thus commenced their operations, unrestrained by that necessary check of payment on demand, by which alone the issues of a bank can be safely regulated. It was about this time that the State of Pennsylvania had chartered thirty-seven new banks, by a single act, many of which took advantage of the suspension of specie payments to go into operation without any solid capital whatever. The same causes gave rise to the establishment of new banks in other states. Almost all these institutions, put into operation during the suspension of specie payments, were mere speculative concerns, not pos sessed of any substantial means whatever.

The suspension, it was said, was to continue only during the war. Peace came in five months; but the banks gave not the slightest indication of any desire to return to honest courses. The people, not well acquainted with the subject, purposely puzzled and misled by the specious arguments of the bank directors, and those who were interested, or who supposed themselves interested, in the continuance of the suspension, and deceived by the apparent prosperity of business, under this new system of banking, did not move in the matter. As to the government, it was still involved in the deepest financial embarrassment. The treasury overflowed with "unconvertible" bank paper; but the greatest difficulty was experienced in meeting the heavy demands which fell due in the Eastern States, where nothing would be accepted in payment except specie or notes equivalent to specie.

The banks therefore went on to suit themselves; and the years 1815, 1816, may be well marked in the American calendar, as the jubilee of swindlers and the Saturnalia of non-specie-paying banks. Throughout the whole country, New England excepted, it required no capital to set up a bank. All that was wanted was a charter; and influential politicians easily obtained charters from the blind party confidence or interested votes of the state legislatures.

The banks, all through the country, immediately commenced lending their paper to all who could give any tolerable security.

This over issue of notes soon produced a depreciation. Depreciation produced a rise in prices; the apparent value of all kinds of property suddenly went up, and the people imagined they were never growing rich so fast. Business and all kinds of speculation were uncommonly brisk; the dividends made by the banks were enormous.

This description does not apply to New England. None of this artificial stimulus was felt there. In fact, that part of the country was subjected to a particular depression; for the foreign trade left Boston and the other New England ports, where the duties were demanded in specie or notes equivalent to specie, and concentrated at Philadelphia, Baltimore and other southern cities, where the currency in which duties were paid had depreciated twenty-five per cent and upwards. Thus, by one of the effects of this public fraud, the New Englanders were punished for being honest; and those places in which swindling was carried to the greatest extent, and the greatest depreciation in the currency produced, obtained, as the reward of their villainy, a monopoly of the foreign trade.

II. SECOND UNITED STATES BANK

A. Necessity of a United States Bank after the War of 18121

In 1816 Congress chartered the Second United States Bank for a period of twenty years. Fourteen years later a committee of the House of Representatives described the condition of the currency at the end of the War of 1812, and explained how the bank had assisted the government in restoring it to a sound basis. This committee reported in part:

The committee will now present a brief exposition of the state of currency at the close of the war; of the injury which resulted from it, as well to the Government as to the community; and their reasons for believing that it could not have been restored to a sound condition, and cannot now be preserved in that condition, without the agency of such an institution as the Bank of the United States.

The price current appended to this report will exhibit a scale of depreciation in the local currency, ranging, through various degrees, to twenty, and even to twenty-five per cent. Among the principal Eastern cities, Washington and Baltimore were the points at which the depreciation was greatest. The paper of the banks in these places was from twenty to twenty-two per cent. below par. At Philadelphia

1

Legislative and Documentary History of the Bank of the United States, etc. (Washington, 1832), 742–3.

the depreciation was considerably less, though, even there, it was from seventeen to eighteen per cent. In New York and Charleston, it was from seven to ten per cent. But, in the interior of the country, where banks were established, the depreciation was even greater than at Washington and Baltimore. In the western part of Pennsylvania, and particularly at Pittsburg, it was twenty-five per cent. These statements, however, of the relative depreciation of bank paper at various places, as compared with specie, give a very inadequate idea of the enormous evil inflicted upon the community by the excessive issues of bank paper. No proposition is better established than that the value of money, whether it consists of specie or paper, is depreciated in exact proportion to the increase of its quantity, in any given state of the demand for it. If, for example, the banks, in 1816, doubled the quantity of the circulating medium by their excessive issues, they produced a general degradation of the entire mass of the currency, including gold and silver, proportioned to the redundancy of the issues, and wholly independent of the relative depreciation of bank paper at different places, as compared with specie. The nominal money price of every article was, of course, one hundred per cent. higher than it would have been, but for the duplication of the quantity of the circulating medium. Money is nothing more nor less than the measure by which the relative value of all articles of merchandise is ascertained. If, when the circulating medium is fifty millions, an article should cost one dollar, it would certainly cost two, if, without any increase of the uses of a circulating medium, its quantity should be increased to one hundred millions. This rise in the price of commodities, or depreciation in the value of money, as compared with them, would not be owing to the want of credit in the bank bills, of which the currency happened to be composed. It would exist, though these bills were of undoubted credit, and convertible into specie at the pleasure of the holder, and would result simply from the redundancy of their quantity. It is important to a just understanding of the subject, that the relative depreciation of bank paper at different places, as compared with specie, should not be confounded with this general depreciation of the entire mass of the circulating medium, including specie. Though closely allied, both in their causes and effects, they deserve to be separately considered.

The evils resulting from the relative depreciation of bank paper at different places, are more easily traced to their causes, more palpable in their nature, and, consequently, more generally understood by the community. Though much less ruinous than the evils re

sulting from the general depreciation of the whole currency, they are yet of sufficient magnitude to demand a full exposition.

A very serious evil, already hinted at, which grew out of the relative depreciation of bank paper, at the different points of importation, was its inevitable tendency to draw all the importations of foreign merchandise to the cities where the depreciation was greatest, and divert them from those where the currency was comparatively sound. If the Bank of the United States had not been established, and the Government had been left without any alternative but to receive the depreciated local currency, it is difficult to imagine the extent to which the evasion of the revenue laws would have been carried. Every State would have had an interest to encourage the excessive issues of its banks, and increase the degradation of its currency, with a view to attract foreign commerce. Even in the condition which the currency had reached in 1816, Boston, and New York, and Charleston, would have found it advantageous to derive the supplies of foreign merchandise through Baltimore; and commerce would, undoubtedly, have taken that direction, had not the currency been corrected. To avoid this injurious diversion of foreign import, Massachusetts, and New York, and South Carolina, would have been driven, by all motives of self defence and self interest, to degrade their respective currencies at least to a par with the currency of Baltimore; and thus a rivalry in the career of depreciation would have sprung up, to which no limit can be assigned. As the tendency of this state of things would have been to cause the largest portion of the revenue to be collected at a few places, and in the most depreciated of the local currency, it would have followed that a very small part of that revenue would have been disbursed at the points where it was collected. The Government would, consequently, have been compelled to sustain a heavy loss upon the transfer of its funds to the points of expenditure. The annual loss which would have resulted from these causes alone, cannot be estimated at a less sum than two millions of dollars.

But the principal loss which resulted from the relative depreciations of bank paper at different places, and its want of general credit, was that sustained by the community in the great operations of commercial exchange. The extent of these operations annually, may be safely estimated at sixty millions of dollars. Upon this sum, the loss sustained by the merchants, and planters, and farmers, and manufacturers, was not probably less than an average of ten per cent., being the excess of the rate of exchange between its natural rate in a sound state of the currency, and beyond the rate to which it has

been actually reduced by the operations of the Bank of the United States. It will be thus perceived, that an annual tax of six millions of dollars was levied from the industrious and productive classes, by the large moneyed capitalists in our commercial cities, who were engaged in the business of brokerage. A variously depreciated currency, and a fluctuating state of the exchanges, open a wide and abundant harvest to the money brokers; and it is not, therefore, surprising, that they should be opposed to an institution, which, at the same time that it has relieved the community from the enormous tax just stated, has deprived them of the enormous profits which they derived from speculating in the business of exchange. In addition to the losses sustained by the community, in the great operations of exchange, extensive losses were suffered throughout the interior of the country in all the smaller operations of trade, as well as by the failure of the numerous paper banks, puffed into a factitious credit by fraudulent artifices, and having no substantial basis of capital to ensure the redemption of their bills.

B. President Jackson's Veto of the Bank Bill in 18321

Despite the assistance the Second United States Bank had rendered in restoring the currency and in placing the banking of the country on a sound basis, there were those who believed that its existence was contrary to the Constitution and that it was a menace to the government. Notable among the public men who opposed the bank was President Jackson.

In 1829 he had expressed doubt as to the necessity or the desirability of the bank. Later, the bank was charged with meddling in politics. Friends of the bank succeeded in 1832 in having Congress pass a bill rechartering it for a term of twenty years. President Jackson vetoed the bill on several grounds, one of which was that the bank was a monopoly and hence inexpedient.

The bill "to modify and continue" the act entitled "An act to incorporate the subscribers to the Bank of the United States" was presented to me on the 4th July instant. Having considered it with that solemn regard to the principles of the Constitution which the day was calculated to inspire, and come to the conclusion that it ought not to become a law, I herewith return it to the Senate, in which it originated, with my objections.

A bank of the United States is in many respects convenient for the Government and useful to the people. Entertaining this opinion, and deeply impressed with the belief that some of the powers and privi

1 Messages and Papers of the Presidents. Edited by James D. Richardson ([Washington], 1895-1903), II, 576–8.

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