The Life of John Marshall, Volume 4: The building of the nation, 1815-1835

by Albert J. Beveridge

"The Banking Infatuation pervades all America," wrote John Adams in 1810. "Our whole system of Banks is a violation of every honest Principle of Banks.... A Bank that issues Paper at Interest is a Pickpocket or a Robber. But the Delusion will have its Course. You may as well reason with a Hurricane. An Aristocracy is growing out of them, that will be as fatal as The Feudal Barons, if unchecked in Time.... Think of the Number, the Offices, Stations, Wealth, Piety and Reputations of the Persons in all the States, who have made Fortunes by these Banks, and then you will see how deeply rooted the evil is. The Number of Debtors who hope to pay their debts by this Paper united with the Creditors who build Pallaces in our Cities, and Castles for Country Seats, by issuing this Paper form too impregnable a Phalanx to be attacked by any Thing less disciplined than Roman Legions."[461]

Such was the condition even before the expiration of the charter of the first Bank. But, when the restraining and regulating influence of that conservative and ably managed institution was removed altogether, local banking began a course that ended in a mad carnival of roguery, to the ruin of legitimate business and the impoverishment and bankruptcy of hundreds of thousands of the general public.

The avarice of the State banks was immediately inflamed by the war necessities of the National Government. Desperate for money, the Treasury exchanged six per cent United States bonds for the notes of State banks.[462] The Government thus lost five million dollars from worthless bank bills.[463] These local institutions now became the sole depositories of the Government funds which the National Bank had formerly held.[464] Sources of gain of this kind were only extra inducements to those who, by wit alone, would gather quick wealth to set up more local banks. But other advantages were quite enough to appeal to the greedy, the dishonest, and the adventurous.

Liberty to pour out bills without effective restriction as to the amount or security; to loan such "rags" to any who could be induced to borrow; to collect these debts by foreclosure of mortgages or threats of imprisonment of the debtors—these were some of the seeds from which grew the noxious financial weeds that began to suck the prosperity of the country. When the first Bank of the United States was organized there were only three State banks in the country. By 1800, there were twenty-eight; by 1811, they had more than trebled,[465] and most of the eighty-eight State institutions in existence when the first National Bank was destroyed had been organized after it seemed probable that it would not be granted a recharter.

So rapidly did they increase and so great were their gains that, within little more than a year from the demise of the first Bank of the United States, John Adams records: "The Profits of our Banks to the advantage of the few, at the loss of the many, are such an enormous fraud and oppression as no other Nation ever invented or endured. Who can compute the amount of the sums taken out of the Pocketts of the Simple and hoarded in the Purses of the cunning in the course of every year?... If Rumour speaks the Truth Boston has and will emulate Philadelphia in her Proportion of Bankruptcies."[466]

Yet Boston and Philadelphia banks were the soundest and most carefully conducted of any in the whole land. If Adams spoke extravagantly of the methods and results of the best managed financial institutions of the country, he did not exaggerate conditions elsewhere. From Connecticut to the Mississippi River, from Lake Erie to New Orleans, the craze for irresponsible banking spread like a contagious fever. The people were as much affected by the disease as were the speculators. The more "money" they saw, the more "money" they wanted. Bank notes fell in value; specie payments were suspended; rates of exchange were in utter confusion and constantly changing. From day to day no man knew, with certainty, what the "currency" in his pocket was worth. At Vincennes, Indiana, in 1818, William Faux records: "I passed away my 20 dollar note of the rotten bank of Harmony, Pennsylvania, for five dollars only!"[467]

The continuance of the war, of course, made this financial situation even worse for the Government than for the people. It could not negotiate its loans; the public dues were collected with difficulty, loss, and delay; the Treasury was well-nigh bankrupt. "The Department of State was so bare of money as to be unable to pay even its stationery bill."[468] In 1814, when on the verge of financial collapse, the Administration determined that another Bank of the United States was absolutely necessary to the conduct of the war.[469] Scheme after scheme was proposed, wrangled over, and defeated.

One plan for a bank[470] was beaten "after a day of the most tumultuous proceedings I ever saw," testifies Webster.[471] Another bill passed,[472] but was vetoed by President Madison because it could not aid in the rehabilitation of the public credit, nor "provide a circulating medium during the war, nor ... furnish loans, or anticipate public revenue."[473] When the war was over, Madison timidly suggested to Congress the advisability of establishing a National bank "that the benefits of a uniform national currency should be restored."[474] Thus, on April 10, 1816, two years after Congress took up the subject, a law finally was enacted and approved providing for the chartering and government of the second Bank of the United States.[475]

Within four years, then, of the refusal of Congress to recharter the sound and ably managed first Bank of the United States, it was forced to authorize another National institution, endowed with practically the same powers possessed by the Bank which Congress itself had so recently destroyed.[476] But the second establishment would have at least one advantage over the first in the eyes of the predominant political party—a majority of the officers and directors of the Bank would be Republicans.[477]

During their four years of "financial liberty" the number of State banks had multiplied. Those that could be enumerated in 1816 were 246.[478] In addition to these, scores of others, most of them "pure swindles,"[479] were pouring out their paper.[480] Even if they had been sound, not half of them were needed.[481] Nearly all of them extended their wild methods. "The Banks have been going on, as tho' the day of reckoning would never come," wrote Rufus King of conditions in the spring of 1816.[482]