The State banks, which the opponents of the recharter believed adequate to the fiscal requirements of the Government and to the monetary necessities of trade and industry, failed in the trial to which the exigencies of the war of 1812 subjected them. In September, 1814, all of them which were south of New England suspended specie payments. Nearly one hundred of them, in different sections of the country, had been, of necessity, in the absence of a national bank, selected as depositories of Government funds. The check of the redemption of their notes being removed, an expansion of their issues followed; its amount, which was estimated in 1811 at $28,100,000, being in succeeding years, according to Mr. Crawford, as follows:* In 1813, from $62,000,000 to $70,000,000; in 1815, from $99,000,000 to $110,000,000; and in 1819, from $45,000,000 to $53,000,000. During the year 1816 the banks continued to issue largely, and that, in addition to this, floods of unchartered currency were poured out, in notes of all denominations, from six cents upward. Great distress resulted to the country from the depreciation of the currency, and from the failures of banks in 1818, '19, and '20. The root of the evil lay in the attempt of the Government to carry on an expensive war by means of bank-loans, and the notes of State corporations over which it had no control, thereby converting an irredeemable paper, issued by irresponsible institutions, into a national currency, assisting in its circulation and encouraging its expansion. In 1814, Treasury funds to the amount of nearly nine millions of dollars were in the suspended banks; and the correspondence of Secretary Crawford with the deposit-banks, from January 1, 1817, to May 8, 1822, fills two volumes, comprising 1237 pages. The loans of the Government in 1815 amounted to $35,220,671. Treasury notes were not redeemed, and general distrust prevailed.

On October 6, 1814, Mr. Dallas was appointed Secretary of the Treasury, and on the 14th of the same month, in response to a communication from the Committee of Ways and Means, he transmitted a report strongly recommending the organization of a national bank. In that report he says:

The multiplication of State banks in the several States has so increased the quantity of paper currency that it would be difficult to calculate its amount, and still more difficult to ascertain its value. *** There exists, at this time, no adequate circulating medium common to the citizens of the Ünited States. The moneyed transactions of private life are at a stand, and the fiscal operations of the Government labor with extreme inconvenience. *** Under favorable circumstances, and to a limited extent, an emission of treasurynotes would probably afford relief; but treasury-notes are an expensive and precarious substitute either for coin or bank-notes, charged as they are with a growing interest, productive of no countervailing profit or emolument, and exposed to every breath of popular prejudice or alarm. The establishment of a national institution, operating upon credit, combined with capital, and regulated by prudence and good faith, is, after all, the only efficient remedy for the dis

*Finance Report, vol. 12, page 59.

+18 Cong., 1 sess., No. 140.

American State Papers-Finance, vol. 2, p. 866.

ordered condition of our circulating medium. The estab-
lishment of a national bank will not only be useful in promot-
ing the general welfare, but it is necessary and proper for
carrying into execution some of the most important powers
constitutionally vested in the Government.

At this time, in place of one United States bank acting as its fiscal agent, the Government accounts were distributed among a large number of State banks, scattered all over the Union. Such was the state of the public credit in 1813-14, that in those two years $42,269,776 of six per cent. stocks, issued by the Government, and running for twelve years, were sold at a discount of nearly fifteen per cent., the Government realizing from their sale but $35,987,762. On February 24, 1815, a loan of $8,856,960, running for nine years, but with interest increased to seven per cent., was negotiated at par; and on March 3, following, another loan of $9,745,745, for nine months, at six per cent. interest, brought into the Treasury but $9,284,044, the discount in this instance being nearly five per cent. In addition to these losses, the money received for the loans was at a heavy discount for specie the depreciation in the local currency at the close of the war ranging to twenty and even twenty-five per cent., and the Government supplies being obtained only at a proportionate rise in price. Such were some of the results of a State-bank system during the period that followed the expiration of the charter of the bank on March 4, 1811, and until its re-establishment on January 7, 1817. The effect of this experience was to revolutionize the opinions of Congress, insomuch that on January 20, 1815, and in accordance with the recommendation of Secretary Dallas, a bill was passed re-organizing the bank, many prominent members of both houses who had previously voted against a renewal of the charter now voting in its favor. The bill was vetoed by President Madison,* in his message of January 30, in which, "waiving the question of the constitutional authority of the legislature to establish an incorporated bank," he says: "The proposed bank does not appear to be calculated to answer the purposes of reviving the public credit, of providing a national medium of circulation, of aiding the Treasury by facilitating the indispensable anticipations of the revenue, and by affording to the public more durable loans." These objections the President supported with copious arguments, concluding with the suggestion, that if they did not meet with the approval of Congress they could be constitutionally overruled, but that in a contrary event "a more commensurate and certain provision for the public exigencies" could be substituted.


On the 10th of April, 1816, a bill was approved by President Madison, which was the second and last charter of the bank granted by the general Government. The plan proposed by Mr. Dallas was modeled upon the charter of the first United States Bank, and the act of incorporation, as finally passed, did not differ materially from the plan

Elliott's Funding System, pp. 567, 572, and 584.
American State Papers-Finance, vol. 2, p. 891.

proposed by him. The charter was limited to twenty years, expiring on March 3, 1836. The capital was fixed at $35,000,000, seven millions of which was to be subscribed by the Government, payable in coin, or in stock of the United States bearing interest at five per cent., and redeemable at the pleasure of the Government. The remaining stock was to be subscribed for by individuals and corporations, one-fourth being payable in coin, and three-fourths in coin or in the funded debt of the United States. Five of the directors were to be appointed by the President, and all of them were required to be resident citizens of the United States, and to serve without compensation. The amount of indebtedness, exclusive of deposits, was not to exceed the capital of the bank. The directors were empowered to establish branches, and the notes of the bank, payable on demand, were receivable in all payments to the United States. The penalty for refusing to pay its notes or deposits in coin, on demand, was twelve per cent. per annum until fully paid. The bank was required to give the necessary facilities, without charge, for transferring the funds of the Government to different portions of the Union, and for negotiating public loans. The moneys of the Government were to be deposited in the bank and its branches, unless the Secretary of the Treasury should otherwise direct. No notes were to be issued of a less denomination than five dollars, and all notes smaller than one hundred dollars were to be made payable on demand. The bank was not, directly nor indirectly, to deal in anything except bills of exchange, gold or silver bullion, goods pledged for money lent, or in the sale of goods really and truly pledged for loans, or of the proceeds of its lands. No other bank was to be established by authority of Congress during the continuance of the corporation, except such as might be organized in the District of Columbia with an aggregate capital not exceeding six millions of dollars; and, in consideration of all the grants of the charter, the bank was to pay to the United States a bonus of $1,500,000, in three annual installments. The bank went into operation on January 7, 1817. This was at the worst stage of the monetary troubles, which began with the suspension of specie payments in 1814, and continued till the general crash of 1819-20. At this time lands and agricultural products had fallen to one-half the prices which were readily obtainable in 1808-'10, and to one-third of the value they possessed when the excessive indebtedness of the people was incurred-namely, during the inflation years of the State banks. The contraction of the circulation and the general failures of the State banks began in 1818. The second United States Bank, therefore, came into existence on the very verge of a great monetary crisis. A committee of investigation was appointed by the House on November 30, 1818, which reported that the charter had been violated in four instances; and a resolution was introduced on February 9, 1819, instructing the Committee on the Judiciary to report a bill repealing the act incorporating the bank. This resolution failed of adoption.

In 1819, the financial affairs of the country were in a wretched condition. The currency was greatly depreciated; very many failures of State banks, corporations, and individuals had occurred, and the country had not yet recovered from the exhausting effects of its late war. In this emergency the bank attempted, by the importation of more than seven millions of dollars from Europe, at a cost of half

a million, to restore soundness to the currency; but it became itself embarrassed, largely through the mismanagement of the branch at Baltimore, and was in danger of absolute failure. Its losses were reported to exceed three millions of dollars; but the bank, as well as the business of the country, eventually recovered.

The industries of the people and the finances of the Government prospered from 1820 to 1835. In this interval the national debt was paid, and the stock of the bank rose in the market until it commanded a premium of twenty per cent. "Long before the election of General Jackson," says Mr. Parton,* "the bank appeared to have lived down all opposition. In the presidential campaign of 1824 it was not as much as mentioned, nor was it mentioned in that of 1828. In all the political pamphlets, volumes, newspapers, campaign papers, burlesques and caricatures of those years there is not the most distant illusion to the bank as a political issue." It was therefore a surprise to all parties when President Jackson, in his first message, in December, 1829, recommended that Congress should take into consideration the constitutional difficulties which might interfere to prevent a recharter of the bank. During the session of 1832-33, the House of Representatives, by a vote of 110 to 46, passed a resolution declaring that the public moneys were safe in the bank of the United States. Mr. McLane, then Secretary of the Treasury, was, in 1833, appointed Secretary of State, and Mr. Duane succeeded him in the Treasury.

After the adjournment of Congress, Secretary Duane declined to remove the public deposits upon the request of the President, in consequence of which he was displaced and Attorney-General Taney appointed in his stead, by whom they were removed. On the re-assembling of Congress, in December, 1833, the Secretary gave his reasons for removing the deposits. Resolutions of both houses followed upon this procedure of the Executive, and the memoranda of John Quincy Adams thus briefly presents the results: "The Senate this day (March 28, 1834) took the question on two resolutions offered by Henry Clay: 1. Censuring the President of the United States for usurpation of power in his late measures; passed by a vote of 26 to 20. 2. That the reasons of the Secretary of the Treasury for removing the deposits are insufficient; by 28 to 18." And Mr. Adams adds that, in his opinion, the first of these resolutions should not have been passed. It was afterward (March 16, 1837) expunged from the Senate Journal. On April 4, 1834, he has the following entry:§ "The first resolution in the House of Representatives (that the Bank of the United States ought not to be rechartered) was carried, 134 to 82. The second resolution, that the public deposits ought not to be restored to the Bank of the United States, passed by a vote of 118 to 103. The third resolution, that the State banks should be continued as depositories, and that Congress should further regulate the subject by law, passed by 117 to 105. The fourth resolution, directing the appointment of a select committee for a bank investigation, with power to visit the bank and any of its branches, was adopted by a vote of 175 to 42."

*Life of Andrew Jackson, by James Parton, New York, vol. 3, p. 256.

Finance Report, Vol. 3, p. 337.

Memoirs of John Quincy Adams, comprising portions of his diary from 1795 to 1848, Philadelphia, 1876, vol. 9, p. 116. § Memoirs of John Quincy Adams, vol. 9, p. 122.

The Treasury records show that the Government realized a profit of $6,093,167 upon its investment in the stock of the bank, as will appear by the following statement:

Bonus paid by the bank to the United States.-
Dividends paid by the bank to the United States---

Proceeds of stocks sold and other moneys paid by the bank to the
United States---


Five-per-cent. stock issued by the United States for

its subscription to the stock of the bank___ ---$7, 000, 000 Interest paid on the same from issue to redemption_



$1,500, 000 00 7, 118, 416 29

9,424,750 78

18, 043, 167 07

11, 950, 000 00

6,093, 167 07

The agitation of the United States Bank question, involving the general subject of the currency, which was awakened by President Jackson's first annual message, had become earnest in Congress as early as the session of 1829-30; and it grew more and more intense until, as a subject of legislation, it was settled on July 10, 1832, by his veto of the bill for rechartering the bank. The interval of about six years from the time of the President's first intimations of hostility to the bank to the expiration of its charter, in March, 1836, is memorable for the persistence and violence of the warfare between the bank and its party, and the administration and its supporters, in and out of Congress. The most important event which marked the struggle was the removal of the deposits of the Government from the Bank of the United States to the State banks, under the order of Secretary Taney, executed on the 1st of October, 1833, which has already been noticed.

Removal of the public deposits.

"The Globe, of the 20th of September, 1833, announced that the public deposits would, 'after the 1st of October, be made in the State banks, but that it is contemplated not to remove at once the whole of the public money now on deposit in the Bank of the United States, but to suffer it to remain there until it shall be gradually withdrawn by the usual operations of the Government.' The bank thenceforward knew that if its own policy should be pacific, it had nothing to fear from any unusual call from the Government; yet with specie enough in its vaults to pay the entire public deposit at once, it maintained its stringency, under the pretext that it must be prepared for vindictive attacks from the Treasury Department."*

But other results followed, which were of much more consequence than the question of the fitness or unfitness of a particular fiscal agency of the Government. The State banks which were selected as depositories of the large revenues of the Treasury expanded their issues, and a multitude of other banks, old and new, went wild in a general inflation of the circulation. The aggregate of their circulating notes (exclusive of those of the Bank of the United States) rose from $61,000,000 in 1830 to $149,000,000 in 1837. In March, 1830, the Finance Committee of the Senate had said: "They are satisfied that the country is in the enjoyment of a uniform national currency, not

* Autobiography of Amos Kendall, Boston, 1872, p. 398.

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