The profits of the bank were to go to the State. The notes were legal tender to and from the State. The Legislature appropriated $7,000 to buy books, paper, and plates for printing the notes. This is all the real capital the bank ever had. Stripped of all pretense, therefore, it was the State Treasury put into the hands of a commission, elected by the Legislature. This commission was said to be "incorporated," but they held no assets, and some acts of legislation look as if it required a vote of the Legislature to pay judgments obtained against them. It was asserted that the notes of the bank got into the hands of speculators, who held them in order to buy property when the crash should come. This was expected when the stay laws would expire.[1]
In the Bank of the Commonwealth of Kentucky vs. Mayes, in the Circuit Court of Mercer County, Kentucky, in 1834, the Court said: "This bank is owned and governed by the State; it is established in the name and on behalf of the State; the State pays and defrays its entire expenses; all individuals are indicted from participating in it; its paper is circulated as money; it is receivable and redeemable by the State, and derives its circulation and negotiability from the credit of the State. If its notes are not bills of credit within the meaning of the Constitution, it will be difficult to characterize a bill of credit." From this decision we also learn that the lowest denomination of the notes of the bank was twelve and a-half cents.
This bank was a mere paper money machine. If by a "bank" we understand an institution having some permanency, and intended to continue an action and reaction through some prolonged period, for the satisfaction of constant or recurring financial necessities, this institution would not properly be called a bank, nor yet even a loan office. The idea and intention were to inflate the currency and raise prices until the indebted persons could discharge their debts. Then the issues were to be recalled and burned, and the purpose would be accomplished. It was never proposed to make these issues legal tender, because that was understood to be hopeless under the federal Constitution, but the stay laws were to put the coercion on the creditor which was necessary to make the system work. Gouge quoted from somebody else a description of a similar period when "creditors were seen running away from their debtors and debtors pursuing them in triumph and paying them without mercy."
A supplementary act was passed, December 22, 1820, by which the issue of the Bank of the Commonwealth was extended to $3 millions and the limit of single loans to $2,000. Property mortgaged to it and sold under foreclosure might be redeemed in two years, at ten per cent. advance; notes under $1 might be issued; special officers were appointed to sign them. Debts to this bank were made preferred debts, to be paid first, by executors and administrators. This provision was held valid and enforced in a case in 1829.[2]
In connection with the establishment of the Bank of the Commonwealth
