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named in the banking law, which are the great controlling centres of business, might do much to give steadiness and safety, if they were authorized, through properly constituted boards or committees of their own officers, to exercise a large discretion in the use of their reserves, in the rate of interest to be charged at different seasons and under different circumstances, and in other matters, within limits prescribed by law.
Should it be deemed necessary or expedient to temporarily enlarge the paper-money circulation in cases of great emergency, provision may be made to permit the national banks, under certain circumstances and to a limited extent, to increase their note circulation by a pledge of United States bonds, bearing no interest while so pledged, or subjecting the banks to special taxation upon the circulating notes obtained thereon, or upon such other terms that it would be for their interest to recall the notes and redeem the bonds at the earliest possible day after the pressure and their necessities should have ceased.
Annual Report, Comptroller of Currency (John Jay Knox)
[Forty-fourth Congress, 2d Session, December 2, 1876, Pages 5-15]
The Comptroller receives frequent applications for public documents containing statements of the resources and liabilities of the banks authorized by the legislatures of the several States previous to the establishment of the national banking system; and similar inquiries are also made in reference to the two Banks of the United States authorized by Congress, the first by act of February 25, 1791, and the second by act of April 10, 1816. A resolution of the House of Representatives of July 10, 1832, directed the Secretary of the Treasury to procure and publish such statements of the banks organized in the various States as could be obtained from State officials; and in 1873 it was made the duty of the Comptroller of the Currency to present annually to Congress similar information from official and other reliable sources.
In compliance with the resolution of 1832, a compilation of statistics, more or less complete, showing the condition of the banks in the several States, was, with the exception of a few years, published annually until 1863. Many of these reports are out of print, and when comparative statistical information is desired in reference to particular States it cannot be obtained without consulting a series of volumes. Information in reference to the two Banks of the United States is alike inconvenient of access. The Comptroller, therefore, deeming the present time and circumstances especially appropriate, devotes a portion of his report for 1876 to the presentation, in a concise and convenient form, of the more valuable of the statistics contained in these various reports, together with such additional information as he has been able to collect from other official sources.
As preliminary to these statistics, a brief sketch is herewith given of the history of the Bank of North America and of the two Banks of the United States, the only banking institutions authorized by Congress previous to the establishment of the national banking system. It is not proposed here to trace the history of banking in this country, nor to sketch in detail its progress in the several States. The execution of such a purpose would require a volume, instead of the space usually allotted to an annual report. A glance at the history of banking in Massachusetts and New York, and in a few of the older Western and Southern States, exhibits the general outlines of the bank legislation of the country previous to 1863. This review presents to us in a favorable light the operations of the charter system of banks in two of the most prosperous States of the Union, while it also exposes many of the imperfections of that system as it existed in some of the other States of the Union during the period when circulation was issued by State authority.
BANK OF NORTH AMERICA.
The first organized bank in the United States, and "the first one which had any direct relation to the Government of the United States," commenced operations on January 7, 1782. The institution had its origin,* as a banking company without charter, in a meeting of citizens of Philadelphia on June 17, 1780, at which it was resolved to open a "security subscription to the amount of three hundred thousand pounds, Pennsylvania currency, in real money," the intention being to supply the Army, at the time reported by Washington to be destitute of the common necessaries of life and on the verge of mutiny. Thomas Paine, then clerk of the Pennsylvania Assembly, suggested a subscription, in a letter to Mr. Blair McClenaghan, in which he inclosed a contribution of five hundred dollars to the fund, the latter gentleman and Robert Morris each subscribing two hundred pounds in hard money. The first proceedings in the Congress of the United States in reference to the establishment of a bank were on June 21, 1780, at which time a committee of three was appointed to confer with the inspectors and directors of this proposed association. The committee reported a series of resolutions, which were unanimously adopted, accepting the offerings of the associators as a distinguished proof of their patriotism, and pledging the faith of the Government for the effectual re-imbursement of the amount advanced. The resolution was accompanied by the following preamble:
Whereas a number of patriotic citizens of Pennsylvania have communicated to Congress a liberal offer, on their own credit, and by their own exertions, to supply and transport 3,000,000 rations, and 300 hogsheads of rum, for the use of the Army, and have established a bank for the sole purpose of obtaining and transporting the said supplies with the greater facility and dispatch; and whereas, on the one hand, the associators, animated to this laudable exertion by a desire to relieve the public necessities, mean not to derive from it the least pecuniary advantage, so, on the other, it is just and reasonable that they should be fully re-imbursed and indemnified.
*Paine's Dissertations on Government, 1786.
In the spring of 1781, Robert Morris, then holding the office of Superintendent of Finance, under appointment of Congress, arranged the system of the Bank of North America. On the 26th of May, 1781, Congress adopted a resolution approving the plan submitted by Morris, and promising it a cordial support; and on December 31 following, it granted the bank a perpetual charter, with capital limited to ten million Spanish silver milled dolars. The amount of capital paid in by the individual stockholders did not, however, exceed $85,000. The Superintendent of Finance, to encourage the undertaking, subscribed $250,000 to the stock on behalf of the Government, but the national finances were so far exhausted that the bank was subsequently obliged to release $200,000 of the subscription, and its remaining stock paid in was sold to persons in Holland. The bank was opened for business on January 7, 1782. Before the month of July following, it had loaned to the Government $400,000 and to the State of Pennsylvania $80,000. The legislature of Pennsylvania granted the company an act of incorporation of perpetual duration on April 1, 1782, which was repealed in 1785, but the bank continued its business under the act of Congress. A change of parties in 1787 brought with it a renewal of the charter by the State of Pennsylvania, limited, however, to the term of fourteen years, with a capital of two million dollars. In 1790 Hamilton, in his report, refers to the "ambiguous situation in which the Bank of North America has placed itself by the acceptance of its last State charter," and concludes that, as this has rendered it a bank of an individual State, with a capital of but two millions, liable to dissolution at the expiration of its charter in fourteen years, it would not be expedient to accept it as an equivalent for a Bank of the United States. The State charter of the bank was renewed from time to time until December 3, 1864, when it became a national bank, retaining its original name, with a capital of $1,000,000, and a surplus of nearly the same
The annual dividends of this bank from 1792 to 1875-eighty-four years have averaged within a small fraction of eleven per cent. The amount of its outstanding State-bank circulation in 1862 was $687,000. The amount unredeemed is estimated at $40,000.
THE FIRST BANK OF THE UNITED STATES
The first Bank of the United States was proposed by Alexander Hamilton, Secretary of the Treasury, in his report on a national bank made December 13, 1790. In that report he acknowledges the essential service rendered by the Bank of North America, as a fiscal agent of the general Government, from the commencement of its operations, January 7, 1782, to the close of the revolutionary war, which bank at that time (1790) was operating under the charter obtained from the State of Pennsylvania in 1787. In an elaborate report, he gives at length his reasons for the necessity of the organization of the proposed bank, and disapproves of the proposition to issue United States notes. On this point he says:
The emitting of paper money by the authority of Government is wisely prohibited to the individual States by the National Constitution, and the spirit of that prohibition ought not to be disregarded by the Government of the United
States. Though paper emissions, under a general authority,
The capital of the proposed bank was fixed at ten millions; and onefourth of all the private and corporate subscriptions was to be paid in gold and silver, and three-fourths in United States stock bearing six per cent. interest. Two millions were to be subscribed by the United States, and paid in ten equal annual installments by loans from the bank, or, as Mr. Hamilton describes the operation, by "borrowing with one hand what is lent with the other." The board of directors of the bank was to consist of twenty-five persons, not more than three-fourths of them to be eligible for re-election in the next succeeding year. The bank had authority to loan on real estate security, but could only hold such real estate as was requisite for the erection of suitable bankinghouses, or should be conveyed to it in satisfaction of mortgages or judgments. No stockholder, unless a citizen of the United States, could be a director, and the directors were to give their services without compensation. The bills and notes of the bank were made receivable in payment of all debts to the United States.
The act of incorporation was opposed in the House of Representatives by James Madison and eighteen others, all of whom, with one exception, were members from the States of Virginia, Maryland, and North and South Carolina. It was also opposed by Thomas Jefferson, Secretary of State, and Edmund Randolph, Attorney-General, in opinions requested by the President. The grounds taken by the opponents of the charter were, a denial of the general utility of banking systems, and opposition to the special provisions of the bill; but the main force of their objections was directed against the constitutional authority of Congress to pass an act for the incorporation of a national bank. The supporters of the bill in the House of Representatives numbered thirty-nine a majority of twenty; all of them, except four, being representatives of Northern States, among whom were Fisher Ames, Elbridge Gerry and Theodore Sedgwick, of Massachusetts; Roger Sherman and Jonathan Trumbull, of Connecticut; Elias Boudinot, of New Jersey; and Peter Muhlenberg, of Pennsylvania. Hamilton, Secretary of the Treasury, and Knox, Secretary of War, in official opinions rendered to the President, maintained the constitutionality and the policy of the act.t
Hamilton's plan, substantially unchanged, was adopted by Congress, and the act was approved by Washington on February 25, 1791. The average dividends of the bank, from its organization to March, 1809, were at the rate of 82 per centum per annum. The 5,000 shares of four hundred dollars each, owned by the United States, were disposed of in the years 1796 to 1802, at a considerable profit, 2,220 shares having been sold in the last mentioned year at a premium of 45 per cent. Accord
*Financial Report, vol. 1, page 64. [Editor's note: See p. 18 above.]
Editor's note: Inquiry early in 1963 to the Library of Congress and the National Archives failed to disclose any such opinion by Secretary Knox.
ing to the Treasury records the Government subscription, with the addition of the interest which was paid by the United States on the stock issued for it, amounted to $2,636,427.71, while there was received by the Treasury in dividends, and from the sale of the bank stock at various times, $3,773,580, the profit realized by the Government being $1,137,152.29, or nearly fifty-seven per cent. on the original investment. The act provided that a report of the condition of the bank should be furnished to the Secretary whenever required by him, but not oftener than once a week. The Treasury records do not show that any formal reports were ever made to the Department, and the only balanced statements to be found, showing the condition of the bank are two, which are contained in letters* of Albert Gallatin, Secretary of the Treasury, communicated to Congress on March 2, 1809, and January 24, 1811. These reports are follows:
The charter of the bank expired by limitation on the 4th of March, 1811, and application for its renewal was made in April, 1808. In 1810 the subject underwent investigation and discussion in Congress. Albert Gallatin, then Secretary of the Treasury, favored the renewal, with some minor changes. Of the conduct of the bank under its first charter he said: "The affairs of the bank, considered as a moneyed institution, have been wisely and skillfully managed." On the final vote in the Senate, on February 20, 1811, the parties stood 17 to 17, and the bill was defeated by the casting vote of the Vice-President, George Clinton. Mr. Clay voted against its passage, and Mr. Crawford and Mr. Pickering in its favor, the latter voting against instructions of the Massachusetts legislature. The legislatures of Pennsylvania and Virginia instructed their representatives to oppose the renewal of the charter on the ground of its unconstitutionality. The bill was lost in the House by a minority of one vote, as it had previously been in the Senate by the casting vote of the Vice-President.
'American State Papers-Finance, vol. 2, pp. 352 and 470.