Triumphs and Wonders of the 19th Century: The True Mirror of a Phenomenal Era / A volume of original, entertaining and instructive historic and descriptive writings, showing the many and marvellous achievements which distinguish an hundred years of material, intellectual, social and moral progress

by James P. Boyd

The bank could not lend more than $500,000 to the government without authority of Congress, was to be the fiscal agent of the Treasury, and to receive deposits of public moneys. No notes of a less denomination than $5.00 were to be issued, and the penalty for refusing to pay notes or deposits in specie on demand was twelve per cent per annum until paid. It began business January 7, 1817. Owing to the impending financial crisis and bad management, the bank verged rapidly toward insolvency, but was resuscitated under the vigorous management of a new president, Langdon Cheves, who was elected March 6, 1819. He was succeeded by Nicholas Biddle in 1823, who was destined to see the fall of the great institution.

The national bank incurred the hostility of the State banks, which called it a monster because it refused to allow the notes of the local banks to accumulate as deposits in its branches without redemption. Various States passed discriminating laws against it. Jackson, in his message to Congress in 1829, attacked the constitutionality of the law establishing it, and charged that it had “failed in the great end of establishing a uniform and sound currency.” At this time the Bank was an imposing institution with its capital of $35,000,000, its public deposits of six to seven million, its private deposits of a like amount, its circulation of $12,000,000, its annual discounts of $40,000,000, its annual profits of over $3,000,000, its palatial establishment in Philadelphia, its twenty-five branches throughout the Union, its five hundred employees, its stock distributed through nearly all parts of the world, and its notes current at par at home and abroad.

Jackson’s message was not received favorably by Congress. His aversion, it was thought, was due rather to his belief that the Bank was his enemy than to any dislike of a national bank. The growing hostility between him and Henry Clay induced the latter to make the renewal of the Bank’s charter a political issue. When the bill rechartering the Bank was passed in July, 1832, Jackson vetoed it, charging, in the main, that the Bank was a monopoly. This brought the question of the further existence of the Bank fully into the arena of politics, in the presidential election of 1832, with the “Hero of New Orleans” on one side, and on the other “monster monopoly,” “Old Nick’s money,” and “Clay’s rags.” Jackson won, and speedily decided to remove the public deposits from the Bank. This decision precipitated a bitter war between Jackson and Congress. But Jackson did not swerve from his purpose. By 1835 it became apparent that the Bank could not secure a renewal of its charter from Congress. As a confession of its defeat, and just thirteen days before the expiration of its federal charter, the Bank obtained from the State of Pennsylvania, February 18, 1836, a charter for the United States Bank of Pennsylvania, for a period of thirty years. Shorn of its importance, in a restricted field, yet with enormous capital, it fell into large bond and stock investments of questionable value. Its troubles were aggravated by bad management. It suspended during the panic of 1837 and the next year, and again for the last time in 1841. Biddle resigned the presidency in 1840, and four years later died poor and broken-hearted. Thus perished what is sometimes called the third Bank of the United States, its predecessor, the second Bank of the United States, having fallen a victim to political intrigue and loss of prestige. The shareholders lost their entire investment of $28,000,000, but the circulating notes were all paid, and also the deposits. The government got back its investment of $7,000,000, and made $6,093,167 besides, from its connection with the Bank.

SECOND UNITED STATES BANK, PHILADELPHIA. NOW CUSTOM HOUSE.

State Banks and Independent Treasury.—After the removal of deposits from the Bank of the United States, September 26, 1833, the public revenues were deposited in selected State banks, sometimes called “pet banks.” In 1836 eighty-eight State banks in twenty-four States held public deposits to the amount of $49,377,986. As the State banks had thrown their influence against the national bank, they were rewarded by allowing them to use the public money intrusted to them as a basis of extending their loans and for enormous issues of their own notes. Banks were started for the sole purpose of issuing notes which they could use in buying public lands. As a consequence the government lost heavily through the depreciation of these notes and the failure of the banks. On July 11, 1836, the Secretary of the Treasury issued a circular forbidding the receipt of anything but specie in payment for public lands. This caused a run on the banks and aided in hastening the financial crisis of 1837. An act of Congress of June 23, 1836, authorizing the calling in of $37,468,859 of the public funds deposited in the State banks, for purposes of distribution, forced the suspension of specie payments by all such banks, with very few exceptions.

The unsatisfactory trial of both federal and State banks as custodians of the public funds led to the establishment of what became known as the independent Treasury system, by which the government collects its money and keeps it in the hands of the United States Treasurer or sub-treasurers, making disbursements when required. An act putting this system into effect became law July 4, 1840, but was repealed the next year. It was repassed August 6, 1846, and remained in operation until the passage of the National Currency Act in February, 1863, which gave the Secretary of the Treasury the right to designate certain national banks as depositories of public funds. There were in such banks, on February 4, 1899, United States deposits amounting to $81,120,873, secured by United States bonds belonging to the banks and deposited in the Treasury, amounting to $89,100,240. Prior to the adoption of the national banking system the country had a somewhat disastrous experience with what has been known as “wild-cat” banks. Many of them were organized for the sole purpose of issuing notes they never intended to pay. While they were numerous and dangerous, it must be remembered that in a number of States the leading banks carried on only a legitimate business, and State banks as they exist to-day compare favorably in their management with the national banks.

IV. HISTORY OF THE LEGAL-TENDER NOTE.

The first act authorizing the issue of legal-tender notes, known popularly as greenbacks, was approved by President Lincoln, February 25, 1862. It provided for the issue of $150,000,000 in notes, in denominations of not less than $5.00. Holders of these notes could deposit them with the United States Treasurer or assistant treasurers in any sum not less than $50.00, or any multiple thereof, and receive United States bonds bearing six per cent interest. The first notes were issued March 10, 1862. An act authorizing a second issue of $150,000,000 was signed by the President, July 11, 1862. Of these $35,000,000 were to be in denominations of less than $5.00. A third issue of $150,000,000 was authorized March 3, 1863, but this act deprived the legal-tender note of its convertibility into six per cent bonds at the option of the holder.

The withdrawal of this privilege worked no particular hardship at the time, for bond issues and various interest-bearing certificates were plenty during the period of war. But after the war had closed and the issues of new securities had ceased, the absence of this provision began to prevent the absorption of the legal-tender notes.