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REPORT ON THE
STATE OF THE COMMONWEALTH IN THE SENATE OF
PENNSYLVANIA, JAN. 29th, 1820. Usurious extortions, whereby corporations instituted for banking, insur
ance, and other purposes, in violation of law, possess themselves of the products of industry without granting an equivalent.
The first bank which was established in the State, and indeed in the United States, was the bank of North America, which was chartered by congress on the 31st day of December, 1781, with a capital not to exceed ten millions dollars, and without any limits being assigned as to its duration. This charter was confirmed by the State of Pennsylvania, on the 1st day of April, 1782. This bank commenced and continued its operations upon a capital paid in of 400,000 dollars, and as its credit stood high, and the Union was deficient in a circulating medium, it was enabled to extend its issues vastly beyond the amount of its capital. The extent of its loans may be inferred from the rate of its dividends, which were as high as 12 and even 16 per cent. per annum. The extensive and distant circulation of the notes of this bank occasioned by the disbursements of the general government, which was a heavy borrower, emboldened its directors, and led them to overstep the bounds of discretion. The channels of circulation becoming overcharged with paper, and the public beginning to doubt the ability of the bank to redeem its notes on demand, naturally led to the consequences, which with the unerring certainty of fate, will sooner or later result from an extravagant emission of paper. The notes returned for payment, and with the diminution of its specie means, the bank, to sustain its credit, was compelled to resort to the measure of calling upon its debtors for payment. This reduction of bank loans operated, in its day, in precisely the same manner that we have seen in ours.
A general pressure for money, bankruptcies, usurious extortions, the disappearance of specie, and the impossibility of procuring loans at legal interest, were among the evils attendant upon it. For the truth of this assertion, your committee beg leave to refer to the journals of the house of representatives of the 21st and 23d days of March, 1785, by which it will appear, that so great were the evils which resulted from the operations of this bank, that a petition from a number of the inhabitants of Philadelphia and of the counties of Chester and Bucks were presented to the legislature, praying for a repeal of its charter. These petitions were referred to the committee, who on the 25th of the same month reported that a bill should be brought in to repeal the charter, “which was accordingly done at the ensuing session, on the 13th day of September, 1785.” The bank, however, claiming the right of prosecuting its business under the charter which it held from congress, continued its operations, and the legislature at a subsequent date, viz. on the 17th day of March, 1787, revived its charter, limiting its capital to 2,000,000 of dollars, (of which about 830,800 only were raised,) and its duration to fourteen years. This charter has been since extended for two successive periods of fourteen and ten years, on the 29th of March, 1799, and the 28th of March, 1814, and will expire on the 17th day of March, 1825.
On the 25th day of February, 1791, the first bank of the United States was chartered by congress with a capital of ten millions of dollars, and located at Philadelphia. Its charter expired without renewal on the 4th day of March, 1811.
On the 30th day of March, 1793, the bank of Pennsylvania was incorporated for twenty years. The charter was renewed on the 14th of February, 1810, for twenty years longer, with an increase of capital which is now 2,500,000 dollars, and will expire the 4th of March, 1833. This bank was authorised to have branches, of which it established four, viz. : at Lancaster, Reading, Easton, and Pittsburg, the last of which has been discontinued.
On the 5th of March, 1804, the Philadelphia bank was chartered, after having been some time in operation without a charter, to continue until 1st May, 1814, with a capital not to exceed two millions of dollars, of which 1,800,000. were raised. On the 1st day of March, 1806, it was renewed for 10 years, and will expire on the 1st day of May, 1824. It was authorized by an act of 3d March, 1806, to institute branches, of which is established four, viz. :-at Wilkesbarr, Washington, Columbia, and Harrisburg, the two last of which have been withdrawn.
On the 16th March, 1809, the farmers' and mechanics' bank was incorporated, with a capital of 1,250,000 dollars, to continue until the 1st May, 1824.
Some two or three years prior to the expiration of the charter of the bank of the United States application was made to Congress for its renewal; which having failed, overtures were made to the legislature of Pennsylvania, but without success. The anxiety displayed by the stockholders of this bank to continue their business, and the successful appearance of their dividends, added to the locating of branches by the Pennsylvania bank in the country, very naturally excited the attention of the public, and particularly of the inhabitants of some of the interior counties of the State, who fancied that much of the prosperity of cities was to be traced to the establishment of banks, and that, if that were the case, there was no reason why the country should not participate in their advantages. Such considerations as these, urged on by the desire of accumulating wealth, without the dull exercise of labour, engendered a spirit of speculation. It was supposed that the mere establishment of banks would of itself create capital, that a bare promise to pay money was money itself, and that a nominal rise in the price of land and commodities, ever attendant upon a plenty of money, was a real increase of substantial wealth. The theory was plausible, and too well succeeded. The farmers' bank, with a capital of 300,000 dollars, was established in the county of Lancaster, in the beginning of the year 1810, and was accompanied by several others in the city, as well as in other parts of the State.
These early symptoms of a mania for banking induced the legislature, on the 19th of March, 1810, to enact a law prohibiting unincorporated associations from issuing notes, or pursuing any of the operations of banks; but, in defiance of its provisions, the system was persevered in, and even companies incorporated for the purpose of constructing bridges departed from the spirit of their charters, converted themselves into banks, and emitted notes for circulation.
The evils, however, which would have flown from this banking spirit would soon have been checked by the usual corrective, viz.--the return of the notes for payment, had not the war which was declared in June, 1812, interposed. Prior to that period the emissions of our banks were regulated with a constant regard to their liability to be called upon for the
payment of their notes in coin. The periodical demand for dollars for the China and India trade, which regularly occurred every spring, was a check upon the overtrading spirit which has always characterised corporations exempt from individual responsibility. The merchants at that day were not afraid to demand their rights, and those who held claims upon the banks in the nature of notes or deposits would make a demand for an hundred thousand dollars, with less hesitation than they now display in asking for a single thousand. Banks were then, what they should always be, the servants of the public, and, until they are again reduced to the
proper relation in which they ought to stand to the community, their operations must ever continue to be injurious. Without liability to prompt payment, uninfluenced by any considerations of fear, forbearance, or delicacy, on the part of the public, the community has no guarantee against a depreciated and fluctuating currency.
The war, as might naturally be expected, put a temporary stop to the exportation of specie, and thereby removed the only sure check against inordinate issues of paper which can possibly exist. This cessation of the returning of notes for payment had the effect of inviting the banks to ens large their issues. Loans were made to government to an immense amount, and to individuals vastly beyond what the absence of foreign commerce justified, and a gradual depreciation of the currency was the result. The increase of dividends, and the facility with which they appeared to be made, extended throughout the whole commonwealth the spirit of speculation already introduced into some counties. The apparent success of the farmers' bank of Lancaster, which, from the enormous extent of its issues, was enabled to divide upwards of 12 per cent. per annum, and to accommodate its stockholders with loans to double the amount of their stock, had a powerful influence upon the public mind. A bank, by many, was no longer regarded as an instrument by which the surplus wealth of capitalists could be conveniently loaned to their industrious fellow-citizens; but as a mint in which money could be coined at pleasure for those who did not possess it before. Under these delusive impressions, associations of individuals sprang up in every quarter, holding out inducements to the farmer, the merchant, the manufacturer, and mechanic, to abandon the dull pursuits of a laborious life for the golden dreams of an artificial fortune.
The liability, however, to individual ruin, attendant upon unchartered co-partnerships, restrained in a degree the banking mania, and impelled the projectors to apply for a legislative sanction. During the session of 1812-13 a bill to incorporate twenty-five institutions, the capitals of which amounted to 9,525,000 dollars, was passed by both houses of the legislature by a bare majority of one vote in each. The bill was returned by the governor with his objections, which were sensible and cogent, and on a reconsideration the votes were 33 to 40. At the following session the subject was renewed with increased ardour, and a bill authorizing the incorporation of forty-one banking institutions, with capitals amounting to upward of 17,000,000 of dollars, was passed by a large majority. This bill was also returned by the governor with additional objections ; but two-thirds of both houses (many members of which were pledged to their constituents to that effect) agreeing on its passage, it became a law on the 21st of March, 1814; and thus was inflicted upon the commonwealth an evil of a more disastrous nature than has ever been ex
perienced by its citizens. Under this law thirty-seven banks, four of which were established in Philadelphia, actually went into operation, the charters of which will expire on the 1st of April, 1825.
The immediate commencement of a number of these banks, with scarcely a bona fide capital equal to the first instalment--for the convenient mode of discounting stock-notes to meet the subsequent payments was soon discovered-increased the mass of paper credits already too redundant, and depreciated the whole circulating medium so far below a specie value as to excite a want of confidence in its convertibility. In the absence of a foreign demand for specie a domestic one arose. The laws of the New England States had been so rigorous upon the subjects of banks, which were liable to a penalty of 12 per cent. per annnm for the non-payment of their notes, that no depreciation of their currency
took place. The consequence thereof was, that the difference between the New England prices of commodities, stocks, and foreign bills of exchange, and those of Pennsylvania, was equal to the extent of the depreciation of the currency of the latter; and, as our bank-notes were at that time redeemable on demand, the most profitable remittance which could be made to New England in exchange for her commodities was specie, and this demand created a run upon the banks, which they were not able to withstand. The situation of the southern and of the western banks was pre.. cisely similar to that of our own. All had over-issued, and a general depreciation had ensued. The same causes produced the same effects, and a general stoppage of payment of all the banks in the United States, except those of New England, took place in August and September, 1814. The New England demand, it is true, was increased by two causes, viz. first, by facilities in foreign trade through neutral vessels, which were afforded them by an exemption from the blockade of the enemy, and, secondly, by a well-grounded apprehension that the southern banks, from their extensive emissions, would necessarily become embarrassed. Certain it is, however, that all these causes combined could not have produced a general suspension of payment, had our banks observed the same caution in their issues as that which characterized the banks of the eastern States, IAt the time of the suspension of our city banks a public meeting of merchants and others was held, who publicly sanctioned the measure, under a pledge given by the banks that as soon as the war was terminated specie payments would be resumed. That this measure was intended is evident from the curtailment of loans immediately consequent upon the suspension. A to But, unhappily, the redemption of the pledge was not demanded by the public at the stipulated time, and the banks, urged on by cupidity, and losing sight of moral obligation in their lust for profit, launched out into an extent of issues unexampled in the annals of folly. The fulfilling of a promise to pay money by tendering another promise equally false, sanctioned by the public acquiescence, led to the organization of additional banks under the act of March, 1814, which had not until then been attempted to be formed, and a scene of indiscretion in the loaning of bank credits was everywhere exhibited, which realized the anticipations of those who had foretold the ruinous effects of the paper system. Money lost its value. The notes of the city banks became depreciated 20 per cent., and those of the country banks from 25 to 50, and specie so entirely disappeared from circulation, that even the fractional parts of a
dollar were substituted by small notes fand tickets, issued by banks, corporations, and individuals. The depreciation of money, enhancing the prices of every species of property and commodity, appeared like a real rise in value, and led to all the consequences which are ever attendant upon a gradual advance of prices.
STATE OF NEW YORK.--No. 68.-IN SENATE,-- April 9th, 1838. REPORT of a Select Committee on so much of the Governor's Message
as relates to the repeal of the restraining laws, and free competition in the business of Banking.
(Extracts.) The causes of the terrible explosion and revulsion, and of the universality of pecuniary embarrassment under which the country is now agonized, and under which it is destined still longer to suffer, are well worthy of development and exposure. And it is due to such portions of the community as have not had time and opportunity for the investigation, that the well-established monetary laws, whose infraction by the issues of paper-money has produced the present inundation of distress, should be explained and exemplified.
It is not expected that truth and sound principles willgain proselytes from among those who derive emolument and consequence from the blindness of prejudice, and enjoy pecuniary profit and political notoriety from the heavy mental tax and moneyed assessments which ambitious and interested demagogues, in all ages, have imposed upon ignorance.
Had it been predicted eighteen months ago, that the artificial being called “ the credit system,” in the spasms and convulsions which are inseparable from its organization, would have overturned the foundations of all pecuniary confidence and credit, would have converted every man into an Ishmaelite, and darkened the monetary horizon with one universal scowl of suspicion and distrust, the cry of “false prophet” would have astounded the ear. And yet, what would have been prediction then, has, for the last ten months, been reality and history, No combination of individuals, unclothed with corporate or legis
could have inflicted on the community such enormous diffusive and durable evils. God has not vouchsafed to man, in his individual and social condition, such a capacity for mischief.
The virtual subversion of contracts--the loosening of the moral and social ligaments which bind men togetherthe laxity of legal restraint and honourable obligation-the propagation of gambling, dissipation, and extravagance - the diversion of the minds of the
young and thoughtless from all regular habits of industry—and the multiplication of pauperism, fraud, and crime, are among the evils which are propagated by an expanding and contracting paper currency. During the past year this pernicious influence has been extensively manifested in this State.
In all times a few individuals may be found who are sufficiently depraved to disregard the obligations of morality, and to put legal restraints at defiance. But when has the spectacle ever before been exhibited in