Bank Expansion

ures once more, real estate in Mobile was assessed as follows : REAL ESTATE. POLLS. 1834 $4,000,000 '. . 980 1835 6,000,000 788 1836 l8,OOO,OOO 617 1837 27,000,000 836 1838 20,000,000 1)4^7 In 1848, with 1,217 polls, the assessment was just under nine millions. The cotton culture does not require nor build up great cities. BANK EXPANSION The following table shows the bank expansion throughout this period. It is taken from Condy Raguet's " Currency and Banking," and the circulation of specie is added from the report of the Secretary of the Treasury, 1837 (sums in millions) : HISTORY OF AMERICAN CURRENCY. 123 | DATE. 1820 1830 1834 1835 1836 1837 1838 1839 1840 No. of bks. c which ret's. rec 213 282 406 515 559 632 663 662 661 No. of banks estimated. 95 48 100 43 8 2 61 Total No. 308 33O 506 558 567 634 663 840* 901* Loans. 2OO.4 324.I 365.1 457-5 525-1 485-6 492.2 462.8 Specie. I9.8 22.1 ....

43-9 40. 37-9 35-i 45-1 33-* Circulation. 44.8 61.3 94.8 IO3.6 I4O.3 I49.I Il6.1 135.1 I06.9 Capital. I37.I I45-1 200. 231.2 251.8 290.7 317.6 327.1 358.4 in ion. Specie la peci circula Oct. 1833, 4. Jan. 12. 18. 23-Q (It will be observed that the banking capital went on increasing. The banking capital of this country in 1854 was only 332 millions.) It will be evident, from the facts already stated, that the movements of this period had their origin in a number of natural and legitimate causes. The removal of the deposits from the United States Bank gave a great stimulus to the creation of small banks, which could not go on in safety save under a strict system of convertibility. The administration thus pulled down with one hand what it built up with the other, by trying to introduce a specie currency. The bank ex* Branches counted separately.

124 HISTORY OF AMERICAN CURRENCY. pansion, however, was not properly a cause. It simply went along with and sustained a movement whose causes were independent. It is a very easy method of explaining mercantile and industrial movements to ascribe them entirely to expansions and contractions of the currency, but, on a currency even nominally convertible, the currency inflation does not lead off.* The mania for sudden riches gets possession of the community, and the banks fall in with, aid, and stimulate it. The blame cannot be simply thrown upon the banks for ''causing" the trouble. They have a certain function to perform, and they fail to be faithful to it, and this failure takes off the legitimate check to over-speculation. Banks collect the capital of the country from the hands in which it lies idle, and transfer it to those who lack capital, but could use it to advantage. Over-speculation is speculation which outstrips the capital of the country. It is the pitfall which stands always open in a new country. The banks being thus the transfer agents through whose hands the capital passes, * See page 253.

HISTORY OF AMERICAN CURRENCY. are the ones to know and give warning when it is .used up. This they should do naturally by raising the rate of discount, and the usury law, which makes this impossible, is fairly chargeable with a large share of the mischief which is usually ascribed to bank expansions. For, the capital passing out of the bank in the form of discounts and banknotes, the bank has no means of profiting by the increased demand for, and value of, capital save by increasing these items, that is, passing over to the most perilous forms of credit, while the public, obtaining the notes which represent capital and those which are credit, precisely in the same form, and, at first at least, on the same terms, has no warning when the line is passed. Condy Raguet gives, descriptions of ordinary bank operations in the period before us, which were reckless in the extreme, but they were nearly all devices for evading the usury law.

Men who had embarked in speculations clamored for increased issues on any terms, in a manner which has become very familiar to our experience. They formed a public opinion which for126 HISTORY OF AMERICAN CURRENCY. bade any one to test the foundations of credit. The enhanced prices and expanded credit continually absorbed the new issues, and no depreciation occurred until a shock to credit and prices from outside causes produced a collapse. The banks suspended, escaped the results of their share of the folly, and loaned their irredeemable notes at high rates; but the public, conscious that it had been humored in its wish by the excessive issues, could not be severe with them. It is idle for either party to blame the other. They went hand-in-hand in folly. Affairs on the other side of the water were in much the same condition. There was a new demand for capital there also. The new joint stock banks in England, and similar institutions in Belgium and France, pursued much the same course, though not to the same degree, as our banks. The note issues of the Bank of England and of the jointstock banks were not excessive and did not increase, but the methods of banking pursued by the latter were such as to call down blame from those who had favored jointstock banks most zealously, and the rule observed by HISTORY OF AMERICAN CURRENCY. 12j the Bank of England at this time did not prove sound in practice.

"DISTRIBUTION" OR "DEPOSIT" OF SURPLUS RE VENUE. The session of 1835-6 was not marked by financial legislation, save by one plan proposed this year and carried out the next, which added a new element to the financial situation. If there is any property which is of little value, real estate or stocks, some plan is sure to be proposed for selling it to city, town, State, or nation. If the nation or any subordinate body holds any property, stocks or real estate, which is valuable, some one raises the question what to do with it ? The answer is : Why do anything ? If the public owns good property, why not keep it ? But an intrigue for bringing about the sale is very sure to be planned by those who want to buy, or for dividing by those who want to receive. The lands owned by the general government have always been subject to such intrigues, and at the period under review many schemes were proposed for dividing them among the States, though none of I28 HISTORY OF AMERICAN CURRENCY.

them actually received shape in Congress. A still more attractive object for distribution appeared in the surplus revenue. The public debt was now nearly extinguished. It stood on the ist January in each year as follows, in millions.* 1832 24-3 1833 • 7.o 1834 , 4-7 1835 037 1836 3 1837 3-3 1838 10.4 1839 .. 3.5 1840 5.2 1841 13-5 1842 20.6 There was a surplus in the Treasury, and it was anticipated that there would be a surplus until the compromise tariff was in full effect, of nine millions a year on the average. Mr. Clay wanted it divided. Mr. Calhoun introduced the subject. He at first wanted the Constitution amended to satisfy certain scruples of his, but soon dropped this notion. Mr. Webster favored the division. The administration opposed it, and * Finance Report, 1872, p. 374.

HISTORY OF AMERICAN CURRENCY. 129 wanted the lands surveyed and sold at $1.25 per acre, with a homestead provision for actual settlers, surplus revenue to be spent on national defences. The bill for distributing the income from lands sold to the States passed the Senate, but never came up in the House. The Senate passed a bill in 1836 for " depositing"" the surplus revenue (being regarded as the part which came from land) with the States, subject to call. The plan for distribution found no chance in the House, but that for " depositing " was passed by a large majority. It was declared that the name only was changed and that the " deposits " could never be recalled, and so the event proved, but the protest was unheeded. The President unwillingly signed the bill, this being the session before the Presidential election. In his next message, December, 1836, he expressed his fears of the measure, but that whole session was agitated by schemes for distributing land and revenue, and a second "deposit" scheme for the surplus of 1837 was passed by the House as a rider on an appropriation bill. The Senate not concurring, the entire appropriation bill was lost.

G* 130 HISTORY OF AMERICAN CURRENCY. PUBLIC CLAIMS. Several outstanding claims of the United States for embargo damages and blockade captures against France, Spain, Portugal, Naples, and Denmark were settled at this time, and the payments were imported in specie in 1837, in furtherance of the plan for a specie currency. The coin was used in public payments, and in the first instalment of the distribution. THE "SPECIE CIRCULAR:1 On the nth July, 1836, the President issued the famous " Specie Circular," by which he ordered agents for the sale of public lands to take in payment only specie. It was based on the old law of 1816, mentioned above, by which the Secretary was ordered to receive only specie, or Treasury notes, or notes of specie-paying banks. The notes of Eastern banks were carried West for a " good circulation," and " coon-box banks "were set up in the Western States, which issued notes in easy loans to land speculators. These notes were practically inconvertible, and might be HISTORY OF AMERICAN CURRENCY.