The intelligent portion of the nation comprehended that even where the estimated value of property had been highest, the true welfare of society had diminished. They learned too late the baleful effects of this circulation of paper money; the greater part of the States and cities had nothing to show for it.
A new class of speculators then appeared, trying to pass these worthless bank notes: forgers of paper money became more active. In the midst of this disorder a National Bank, which should afford a solid basis for the paper circulation, was considered. Influenced by these difficulties, and in hopes of remedying them, the Secretary of the Treasury proposed to Congress, in September, 1814, a few days after suspension, to found a national bank, in order to re-establish metallic circulation, an end which the State banks had failed to accomplish.
This project, which lent the national credit to the capital of the bank, was antagonized by a good many members who exaggerated its consequences; at the same time that they took more or less important sums in bank notes, or borrowed from the banks upon the nation's guaranty, in order to re-establish the public credit and to obtain means for prolonging the war.
CAUSES OF THE PANIC OF 18l4.—The bank directors laid the blame upon the blockade of the ports, which, interfering with, indeed even preventing, the export of products, occasioned the outflow of the metals. The national loans to carry on the war also had their influence. From the beginning of hostilities until 1814 they increased to $52,848,000, distributed as follows: Eastern States, $13,920,000; New York, Pennsylvania, Maryland, and District of Columbia, $27,792,000; Southern and Western States, $11,186,000.
Nearly all of this was advanced by the cities of New York, Philadelphia, and Baltimore. The banks made advances beyond their resources, augmenting their circulation in consequence. [Footnote: The cause of the crisis, according to the Committee of the Senate, was the abuse of the banking system; the great number and bad administration of the banks; and their speculations designed to advance their stock, and to distribute usurious dividends. When the Bank of the United States saw the danger that menaced it, it reduced its discounts and circulation. The circulation of the country banks fell from $5,000,000 to $1,300,000, and the total circulation from $10,000,000 to $3,000,000.
Increase and Decrease Circulation in Pennsylvania.
City Banks. Country. Total. 1814 …….. $3,300,000 $1,900,000 $5,200,000 1815 …….. 4,800,000 5,300,000 10,100,000 1816 …….. 3,400,000 4,700,000 8,100,000 1817 …….. 2,300,000 3,800,000 6,100,000 1818 …….. 1,900,000 3,000,000 4,900,000 1819 …….. 1,600,000 1,300,000 2,900,000
Number
of Banks. Capital. Circulation. Specie.
1811 … 88 $52,000 00 $28,000 00 $15,000 00
1815 … 208 82,000 00 45,000 00 17,000 00
1816 … 246 89,000 00 68,000 00 19,000 00]
From the 1st of January, 1811, to the 1st of January, 1815, one hundred and twenty new banks were registered, thus raising their capital to more than $80,000,000; this increase took place during a war that entirely did away with foreign trade. The expenses of the war declared against Great Britain in June, 1812, were defrayed by notes issued by the banks of the various States. Six million dollars were obtained from them in 1812, in the following year, 1813, twenty million, and then fifteen million in exchange for twelve million of Federal stock, issued at the price of $125 face for every $100 paid in. Until January 1, 1814, in order to avoid taxation, Treasury bonds were issued in addition to what was contributed by the banks.
In 1812 ………………… $3,000,000 " 1813 ………………… 6,000,000 " 1814 ………………… 8,000,000