A History of Banking in the United States/Chapter 10
CHAPTER X.
Liquidation in the Mississippi Valley.—Relief Measures.
If these facts are noted they go far to explain the extravagances of the relief system, of paper money banking, of internal improvements, etc.
There is in every commercial community a general indebtedness. It is constantly being dissolved and renewed. It is quite a different thing when a simple agricultural community consists of householders, nearly every one of whom is under a load of long debt, by which he has pledged his future production and savings; even if the load is not, under favorable circumstances, excessive. Taking into account the vicissitudes of life:—natural calamities, disease, personal and family misfortune, there will be a percentage of such debtors who will fail to carry out successfully the enterprises which they incurred debt. This is so even in a new country, where the drafts on the future are in fact honored to a marvellous extent, even when they were rashly and unwarrantably drawn. In the case, however, in which the plans are excessive, extravagant, and ill-devised, and where the capital is carelessly and recklessly managed, the only consequence must be a wide sweep of financial disaster. Then, if the bankrupts are voters, and the institutions of civil government are those of a democratic republic, a general indebtedness comes to appear like the worst of political and social diseases. This disease has ravaged the United States again and again within two hundred years. It is no doubt attendant on a spirit of feverish enterprise, indomitable industry, and a sanguine temperament. It has impressed on our national life a character of endless vicissitude, and alternations of heats of prosperity and chills of disaster. How much more capital have we, how much more secure are fortunes, how much more really efficient is the productive power of the nation, than it would have been on a system of cash and patient accumulation with realizations?
"Money is scarce" when a great many people have given money for goods in the expectation of giving the goods for money again at a gain. Then the time comes when the people who have money will not part with it for goods at the prices ruling because they think them too high. They withdraw the money from circulation. This is the "contraction" which tells. There arises a complaint of "sluggish circulation of money," of "over-production," of the "cruelty of competition," and the "tyranny of the conjuncture." The attempt always suggests itself to remedy the trouble by "issuing money enough for the wants of trade." If this remedy could be made operative it would force the holders of money to part with it for goods at rates satisfactory to the holders of the latter. This device has never been made to work. To see the reason why, it suffices to ask one's self whether one would allow it to be put in effect against one's self. "In vain the net is spread in the sight of any bird." The people who have the advantage of the market must be slaves, imbeciles, or cowards to give it up and exchange places with those who are on the other side. As to outstanding contracts the case is different. There the "sovereign" steps in. Ethics and metaphysics are invoked. We hear of "distributive justice," and the legislator and judge go to work to administer it. Stay laws and legal tender laws are their chief engines. The only effect which results is a dissolution of the bonds of society and a reign of injustice, with a suspension of all the recuperative operations which would otherwise automatically begin.
Kentucky.—The Bubble having burst, the time had now come for "relief." Relief meant that some were left long of goods on a market which had dropped. They wanted something to raise prices again long enough for them to unload on somebody else.
The history of the relief laws of the western States runs back to the first settlement of Virginia. Through the eighteenth century the laws for execution on judgments oscillated between security to the creditor and leniency to the debtor. Whenever "times were hard," the collection laws were relaxed; when the exigency passed, they were restored. The preambles of the laws throw an interesting light on the experience of these two lines of policy. It came to be the standard of severity, amongst those who had grown up under the Virginia tradition, that a debtor whose personal property was taken in execution might replevin the goods for three months on giving bond with surety for the debt and costs. In Kentucky, land was made liable to execution although it had not ben so in Virginia. When land was taken, an old Virginia institution was applied in a modified way. Appraisers were appointed and the land was valued. Originally this was a fair device where there was no proper market to make a price. It was adopted in all the States and Territories of the Mississippi Valley, except Louisiana and Michigan. In times of general indebtedness it became a means for the debtors to band together against the creditors. The laws provided, with various minor differences, that the land or property should not be sold unless it would bring at auction one-half or two-thirds or other fraction of the appraisal made by neighbors who were all likewise debtors. If it did not, it was restored to the debtor for a year or other period. The term of replevin was also sometimes extended. Later, this was connected with a provision that the debtor should have a replevin for a year or other set time unless the creditor would endorse on the writ that the officer might accept in payment some specified kind of currency; being always a depreciated kind. These laws always provided that, if the debtor did not avail himself of his relief, the property should be sold on a credit for a term which corresponded to the delay which he might have had under the law; the buyer to give a bond to pay at the term.
The collection laws of Kentucky were brought back, in the first years of the century, to the old standard above described, but at the beginning of the inflation period they began to be relaxed again. The laws staying execution, unless the creditor endorsed the writ, were extended from year to year; but in 1818 the required endorsement was only for notes of the Bank of the United States or of the Bank of Kentucky.
February 6, 1819, the endorsement law was further extended till February 5, 1820, but the endorsement was now to provide for notes of the Bank of Kentucky only. This Bank of Kentucky, whose notes the creditor must agree to take, had suspended in the middle of November, 1818, but was compelled by public opinion to resume within a week. It was, therefore, limping along during the year 1819.
Committees of the Bank of Kentucky, the Farmers' and Mechanics' Bank of Lexington, the Commercial Bank of Louisville, and the Louisville branch of the Bank of the United States held a meeting at Lexington, May 22, 1819, to consider the distressed state of the country and devise a plan of relief; but their real purpose was to "counteract the objects of those who are disposed to suspend specie payments and establish replevin laws."[2]
In June of that year, the gross amount of debts due to the banks in Kentucky was estimated at $10 millions; $5 millions to the Bank of Kentucky, $3 millions to the branches of the Bank of the United States, and $2 millions to the independent banks. County meetings were held to get a suspension of specie payments, more paper money, and an extra session of the Legislature to pass relief laws.
At a county convention in Jefferson County the vote was three to one against approving a suspension of specie payments by the Bank of Kentucky.
In August, 1819, the independent banks refused to do anything but exchange little notes for big ones and vice versa. They nearly all failed before the end of the year.
During the year the Bank of Kentucky became heavily indebted to the Bank of the United States on account of the great advances which the former made to the independent banks. In November, the latter bank ordered the debt to be collected. The Bank of Kentucky suspended and compromised. Its notes were at fifteen per cent. discount. May 4th, 1820, the stockholders of the Bank of Kentucky voted to suspend specie payment. This suspension became permanent and the bank ceased to exist. "What did we tell the people of Kentucky when they littered their banks and were so anxious to introduce the offices of the Bank of the United States?"[3]
The Legislature of 1819-20 showed itself to be a relief Legislature. December 16, 1819, a law was passed over the Governor's veto to suspend for sixty days sales on execution, whether on judgment or on bonds. January 10, 1820, the law of ten per cent. damages on foreign bills of exchange was repealed; a blow at the Bank of the United States. February 10th the independent bank law was repealed. The act has a very long preamble; it states that all men are equal; that there is no monopoly in the social compact; that all power is inherent in the people. These propositions are to lead the way up to the next one which is, that all laws granting privileges to the few are tyrannical and therefore repealable by the supreme authority. To say that charters are irrepealable is to say that abuse must be perpetual. All laws which harm the people are against the social compact, and "are subject on first principles to the condition of being repealed." A bank charter gives privileges to the few. "To the end, therefore, that the good people of this State be delivered in future from the baneful effect of the power and privileges granted by the law establishing independent banks in this commonwealth, which have been exercised in many cases in the plenitude of tyranny, oppression, and abuse, to the great injury of the good people of this State," that act is repealed from May 1st.
The forty banks which were overturned with these solemn and dogmatic enunciations had been founded, not by capitalists and monopolists, but by a beneficent Legislature, pursuing a policy of prosperity on behalf of "poor men."
It is plain that one of the chief reasons for the popular antipathy to banks was the notion that they made the rich richer and the poor poorer. This was the meaning of the endless declamation about aristocracy and equality in connection with banks. That banks of the kind which then existed in such immense numbers, organized by insolvents, destitute of capital, engaged in paper money mongering, had this effect is beyond question, except that, in the end, they almost invariably ruined also those who had at first won by them; being in this like all gambling devices, with which in fact they ought to be classed.[4] The popular feeling did not, however, attach to this view of them. It was because they loaned only to the "rich" that they were alleged to have this effect, and the popular demand was for real democratic banks which would act "equally." Equality before the banks, however, could only mean that all men ought to have equal credit. When the doctrine of equality comes to be applied to commercial credit it receives its final and most pitiless refutation. The great Banks of the States were built upon this notion, and they made an experiment of it which was ample, unreserved, and conclusive. The effect of giving equal credit to all, at least who were freeholders, was to ruin everybody and at last the banks also.
February 11, 1820, another relief law was passed. The creditor might endorse that notes of the Bank of Kentucky would be received. In that case the debtor had a replevin of one year, or the property was sold at one year's credit for the bond of the purchaser, and on such bonds there was no replevin. If the creditor made no endorsement, the replevin was for two years. After judgment and before execution, the defendant might enter into recognizances with one or more good sureties to pay in one year with interest. If he did so, all proceedings were stayed for one year; then there was summary judgment, as on a replevin bond; but if there was no endorsement that Bank of Kentucky notes would be received, the recognizances ran for two years, not one. Where no recognizances were entered into, there was to be no execution until ten days after the rising of the Court. This act was to be enforced until March 1, 1821.
It is evident that in all these stay laws the effort was to get a postponement, such as was employed in the earliest development of bankruptcy proceedings. What is the sense of such an act of the sovereign power? It can only be that a solvent person, disappointed of his receipts, is momentarily unable to pay, but has bills receivable in excess of his bills payable; so that in a short time he can pay. To force him to liquidate on the spot would sacrifice his assets. Another case where such an act would be justifiable in a less degree would be where it is assumed that the debtor can and will win a surplus out of his business in another period of production. In this case, a delay would involve risk on two points,—his success in production, and his persistent frugality to save what he produces and devote it to the payment of his debts. In the stay laws now before us, the pretense was that they were justified under the second head; and it is very possible that there may have been individuals who fitted the theory, and who successfully emancipated themselves from debt under the system; but the debtors, as a class, were persons who had bought for a rise, to whom a delay could be of no use unless the inflated prices should return.
February 14th, it was enacted that no damages or interest on notes due to the Bank of the United States, or on any debts to it, should be awarded by any Court in excess of one per cent. per annum. For the future, any greater rate should be usurious and void. This act was to come into force March 15th, but if the Bank should pay $5,000 to the Auditor before April 1st, the act was no longer to be in force. On the same day, an act was passed to enable the independent banks to collect debts due to them in liquidation. Those which appointed commissioners in liquidation were not to be liable to suit for a year.
The forty banks had been founded in the period of inflation, as a means of developing industry and as a policy of prosperity. They had all been smashed in a reaction of legislative petulance. Next a big paper money bank was founded as another step in the system of relief to the debtors whom the prosperity policy had created.
November 29, 1820, the Bank of the Commonwealth of Kentucky was incorporated. It had no stockholders. The officers were elected annually by the Legislature. Their salaries were paid by the State, and they were incorporated. No one was to have a loan of more than $1,000, except the directors, who might have $2,000. It was to issue $2 millions in notes, which were to be apportioned between the counties in proportion to the taxable property in each, in 1820, and were granted in loans on mortgage securities. Loans were to be made in 1820 only to those who needed them, "for the purpose of paying his, her, or their just debts;" or to purchase the products of the country for exportation. Borrowers during 1821 were to take oath as to the purpose for which they wanted the loan. Here then was a novelty in banking, an institution which sought as borrowers, not solvent persons of high credit, but embarrassed and perhaps insolvent debtors. When complete, the bank had twelve branches; its capital was to consist of all money thereafter paid in for land warrants, or land west of the Tennessee river [this was a contingent revenue, which, inasmuch as the land speculation had passed by, proved very small]; the produce of the stock owned by the State in the Bank of Kentucky, after that bank should be wound up [the compulsion to take the notes of the independent banks had ruined this bank, and destroyed the value of its stock]; the unexpended balances in the Treasury at the end of the year [during the life of this bank there were none]. 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.[5]
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.[6]
In connection with the establishment of the Bank of the Commonwealth of Kentucky, the stay laws were advanced still another stage. If the creditor endorsed the writ that notes of the Bank of Kentucky or of the Bank of the Commonwealth might be received, the replevin was three months; if there was no endorsement, it was two years. This act was not to apply to executions on replevin bonds, but it was to apply to executions which were in the hands of the Sheriff when it was passed. On an original judgment, if the debtor did not avail himself of the replevin, a sale was made at two years' credit, the bond of the buyer being taken. In an execution on a replevin bond, if the above mentioned notes were not endorsed, the replevin was for one year, or there was a sale on one year's credit. Recognizances were to be employed as before. This act was to be enforced from March 1, 1821, when the existing law would expire.
December 26th, the charter of the Bank of Kentucky was extended to 1829, with some new limitations. The stock of the State was to be paid over to the Bank of the Commonwealth in three annual installments, beginning December 31, 1824. At the next session, all laws by which the State was to buy or pay for stock in the Bank of Kentucky were repealed. Imprisonment for debt was abolished, and equitable interests were made liable to execution.
The Bank of the United States applied to the Federal Court at Lexington, Kentucky, in 1822, to instruct the clerk to issue on application the writ of ca. sa., the law of the State abolishing the writ notwithstanding.[7]
The "Union" of Washington, Kentucky,[8] said in March, 1822, that the circulating medium seemed about to cease to circulate. In the previous winter it had been understood that the Bank of the Commonwealth was not to put out any more paper, and that its issues would be regularly withdrawn, on the theory that its only intention was to secure for the debtors a delay of a year or two that they might be able to save the property which they had pledged. This expectation had caused the exchange to rise, although returns,on the exports had not begun to come in. The "relief" had been given to all who were solvent. The Legislature, however, increased the issue. Those who had property would no longer sell it for the notes. If the notes were not restored to value, there would be no currency at all.
This complaint lasted through the year. In October the "Louisville Public Advertiser" argued that there was less money, in value, in circulation than ever before; as follows: "When the paper of the old Bank of Kentucky was nearly as good as specie, it had bills in circulation to the amount of two million and a-half, which was barely sufficient for the purposes of trade, and this bank now has in its vault as large an amount in the bills of the Bank of the Commonwealth as those of its own in circulation. The whole issue of the new bank amounts to $2.3 millions; but as, in the present rate of exchange and price of commodities, this amount only does the business of $1,150,000, the real circulating medium has been reduced nearly one-half."[9]
In 1822 the Legislature used its power in the election of State directors of the old Bank of Kentucky to put in "relief" men who would make that bank accept Commonwealth notes. The effect was that the stock of the old bank at once fell to fifty and this was its death blow.[10] In October, 1822, a specie dollar was worth $2.05 in Commonwealth notes.[11]
The power of the Bank of Kentucky to discount notes and bills was repealed December 5, 1822, and it was ordered to wind up. Its notes were to be burned. The Bank of Kentucky and the Bank of the Commonwealth were to exchange notes with each other. The Auditor was to inform the president of the Bank of the Commonwealth of the amount of revenue in his hands from the lands, the sales of which had been appropriated to that bank; notes of the bank were to be burned, equal to this revenue, and also all notes paid in the cancellation of loans. In February, June and November, similar burnings were to take place, equal to the same income, but not to exceed $750,000 before the next meeting of the Legislature. In another act it was recited that the notes of the Bank of Kentucky and the Bank of the Commonwealth were so dirty and worn that lists could not be made of them, by letter and number, as required by law; therefore the president and directors were to make lists, showing the amount of each denomination burned and the aggregate of each class.
At the session of the Legislature in 1822-3, evidence of trouble with the Bank of the Commonwealth already appears. A resolution was passed November 26, 1822, ordering that the Bank of the Commonwealth should call up only one per cent. per month of its loans, instead of two per cent., which it was demanding, and a committee was appointed to examine the bank. Under the replevin law, the Judges instructed the jury to find "scaling verdicts," rating the judgment sum in specie according to the depreciation at the time of the contract. This sum could be collected after two years, unless the creditor endorsed the execution. If he did that, he obtained payment in three months in paper worth about fifty cents on the dollar,—that is, he obtained about one-fourth of his original claim.[12]
One chief reason of the great interest attaching to the history of Kentucky at this period is the number of great and important elements which became combined in it. The Kentuckians had been the strongest anti-federalists. It was they who, in 1798, had been used by the great Virginians to enounce doctrines of State rights which the latter dared not utter themselves. Until Louisiana was bought Kentucky had been more than lukewarm to the Union. The Legislature, as early as 1796, had been at war with the judiciary; had tried judge breaking and legislating judges out of office. They had shown their respect for vested rights by revoking a pension to Judge Muter after securing his resignation by granting it. In the midst of the history with which we are now occupied, in 1821, the Supreme Court of the United States decided the case of Green versus Biddle, which touched the people Of Kentucky to the quick. The man in occupation of land was a voter, neighbor, friend, relative. By the carelessness of Virginia and of the settlers the titles were often disputed. The Legislature represented the occupiers. The public men sought the favor of the same. An occupier, if ousted, presented a real object of commiseration, for he had lost the labor of years. Still the law, right, and justice of the case might be all against him, and his troubles might be all his own fault.
The laws of Kentucky, for twenty-five years, aimed to enlarge the rights of the occupying claimant against the successful contestant.
In Green versus Biddle those laws were declared void because they were in violation of the compact with Virginia at the separation. All efforts were exhausted to get a reversal of this decision. In Bodley versus Gaither (1825), the Supreme Court of the State refused to be controlled by the decision in Green versus Biddle.[13] Inasmuch as the Supreme Court of the United States, in Hawkins versus Barney's Lessee (1831),[14] very materially modified the ruling in Green versus Biddle, the Kentucky State rights men could claim to have been the champions of justice, truth, and right. The connection between the stay laws and the banking system has already been shown.
The Kentuckians were alarmed at the course of the decisions of the Supreme Court of the United States. They anticipated the effect on their bank and relief system, and they went to meet the inferences hostile to their pet measures, which seemed to flow directly from the law as expounded. Thus a clash between the Legislature and the judiciary, and another between the federal and State authorities, lay in the relief system of Kentucky.
This subject, in all its length and breadth, was opened by R. M. Johnson in the Senate of the United States, January 14, 1822. The document is, like many others which were prepared in Kentucky at this time, and in connection with these measures, very ably written. It must have been prepared with great care in advance, so that its origin goes back to some time early in 1821, and soon after the decision in Green versus Biddle. On the points which now most immediately interest us he said: "I know of no clause in the federal Constitution that gives the power to the judiciary of declaring the laws and Constitution of a State repugnant to the Constitution of the United States and therefore null and void." "No State shall emit bills of credit. This prohibition has not yet produced collision, but it is fairly to be presumed from the principles established by other acts of adjudication that, if the measures of certain States relative to banks were brought before the Courts of the United States, they would be declared unconstitutional and void, nor would it be any matter of surprise should the supreme judiciary yet, by such a decision, obtain control over the policy of a whole community, relative to a circulating medium for any special and necessary purposes, though it might not be pretended that such currency was made a legal tender. Kentucky has incorporated a bank for necessary purposes. The crisis of the country demanded it, and the people have sanctioned it with a unanimity almost unparalleled. If the constitutionality of this subject were brought before the federal judiciary, I have little doubt that the law would be declared null and void, and the State, by such a decision of persons neither interested in her policy nor responsible to her citizens, deprived of the power of relief in these times of overwhelming difficulty." No State shall pass any law impairing the obligation of contracts. "The Constitution recognizes a principle of morality founded on justice'and religion. * * * Each State is the judge of its own honor and the keeper of its own conscience." "The fund upon which executions shall operate is a regulation of a political character and subject to the absolute control of the Legislature. That fund may be extended or contracted at the will of the State." In 1821 Kentucky abolished imprisonment for debt, but at the same session of the Legislature, extended the prison bounds to the limits of the county, "under a belief that the federal judiciary will declare this law abolishing imprisonment for debt unconstitutional, as impairing the obligation of contracts."
Stay laws, paper money, squatters' rights and State rights had now become intertwined, and acted and reacted on one another, constantly intensifying the popular exasperation against vested rights, creditors, the Bank of the United States, and the federal government.
In a great political debate, in the Senate of the State, in 1838, Wickliffe reviewed all this history in the face of the men who had had part in it. He denied that the Bank of the United States had ruined Kentucky. He referred to the creation and repeal of the forty banks, and to the sacrifice of the Bank of Kentucky to try to bolster up those banks, and then its destruction. "It was this outrage against the rights of contract and the sacred honor of legislators that prostrated Kentucky, and not the Bank of the United States. These mad measures left the country nothing but the Bank of the United States to hang upon. She kept the even tenor of her way. * * * No, sir, it was not the Bank of the United States but independent bank makers, property law makers, judge breakers, and paper money schemers that then ruled and ruined Kentucky."
In no case which we have found, did any Court of any grade, in any State, support the stay laws. The next step in this history, which we have to notice, is a collision between the people of the State of Kentucky represented in the Legislature, and their own judiciary.
Judge Clark decided the case of Williams vs. Blair, at the Bourbon Circuit Court, ordering the recognizance of the defendant to be quashed with costs against him, the endorsement act of 1820 being unconstitutional. May 28, 1822, a Committee of the House of Representatives was appointed "to inquire into the decision of [Judge Clark] and report thereon to this House." The preamble recited that the Judge had "given a decision in contravention of the laws of this Commonwealth called the endorsement and replevin laws, and therein has grossly transcended his judicial authority and disregarded the constitutional powers of the Legislature of this Commonwealth." Three days later the Judge was cited to appear and show cause why he should not be removed from office. May 27th he sent a written answer. He gave a list of cases in which the Supreme Court of the State had ruled acts of the Legislature unconstitutional and argued the necessity and propriety of this power in the Judges, both under the federal and State Constitutions. The vote on the motion to address the Governor to remove the Judge was 59 to 35. "The National Intelligencer," from which the account is taken, says: "The key to the unusual excitement caused by this opinion is to be found in the fact which is stated in the 'Louisville Advertiser' that this opinion of Judge Clark was supposed to have an indirect bearing upon the charter of the Bank of the Commonwealth. A majority of the Senate is said to have been opposed to the proposed removal of the Judge."
Upon appeal, this case of Williams vs. Blair, and that of Lapsley vs. Brashears came up together and the decision of them formed a crisis in the great drama whose elements had been gathering for eight or ten years.[15] The records of these cases were burned in the civil war, but the reports state the essential features of them. In the former case, Blair, Ingles, and Barr gave a note to Williams, November 12, 1819, which they did not pay at maturity. He obtained judgment, whereupon, under the stay law, they entered into a recognizance, in the clerk's office, to pay within two years. Williams moved to quash this recognizance, on the ground that the law was unconstitutional. He won as above stated. The decision, on appeal, was rendered by Judge Boyle, October 8, 1823, as follows: "A law passed after a contract is made, extending the term of replevin on a judgment rendered on such contract impairs the obligation of the contract, and violates the Constitution of the United States."
The case of Lapsley was argued on both sides by the leading public men of the two political parties, which were now forming in the State, upon the issue of the relief system; Harrison, Breckenridge, and Wickliffe for Lapsley; Haggin, Barry, and Rowan for Brashears.
The story of this latter case is worth telling at length, as an illustration of the relief system. Brashears was indebted to Lapsley on a contract. Lapsley got judgment for the debt, with interest from March, . Brashears was imprisoned for the debt and then allowed the liberty of the prison rules on a bond, with Barr as surety. He broke the rules. Lapsley brought suit against him and his surety on the bond, and got judgment, January, 1816. Soon after this Lapsley died. His administrator, also named Lapsley, got judgment to have execution in January, 1817. A fieri facias was issued April 23d. June 17th, the defendants and an additional surety executed a replevin bond to pay within twelve months, and the sheriff returned the writ endorsed to that effect. The bond was lodged with the clerk of the Court. August 15, 1818, a fieri facias was issued to the sergeant of the Court of Appeals on the replevin bond, but it was returned "stayed by injunction." September 25th, the injunction was dissolved. October 12, 1821, a new fieri facias was issued on the replevin bond. October 23, 1822, the three defendants, bringing in now another surety, as was necessary at every step, executed another replevin bond to pay in two years, under the endorsement law of 1820. The sheriff made return accordingly. In January, 1823, Lapsley moved to quash this replevin bond and the return. This motion was overruled; both sides appealed. October, 1823, the Court of Appeals held that the endorsement law was unconstitutional, and remanded the case to the Circuit Court for reversal and disposition, in accordance with this decision. Here we lose sight of the case, after eight and a-half years of litigation, and are left to wonder whether Lapsley ever got his money.
It was because the defendant in this case was frustrated in the course of action which he was pursuing to escape an adjudicated debt that the relief orators were so alarmed about rights and justice, and so vehement in their denunciation of the judiciary and of "judge-made" law.
It is significant of the entanglement of this question with the other great political and social questions of the time that, in a petition for a new trial, although the whole matter was a case of debt in a State court, Bibb enlarged upon the danger that diminution of the power of the States would make a consolidated government, which, in so vast a territory as that of the United States, would be inconsistent with the existence of a free republic.
Instead of producing acquiescence and a settlement of pending controversies, this decision became the starting point of a political struggle which lasted for seven or eight years, and was marked by the bitterest and most malignant passion. Indeed a direct train of consequences may be traced far down into the history of the politics and constitutional law of the federal government. The proceedings of the Court were regarded, by about half of the people of Kentucky, as a usurpation by the Judges.
Governor Adair, in his message of that year, approved of the relief system and denounced tho courts for deciding the replevin laws unconstitutional After his term expired, he petitioned for redress on account of the payment of his salary in depreciated paper.[16]
At the following session of the Legislature, the all absorbing topic was the decision of the Court in these cases. December 29, 1823, a long document was adopted,[17] containing an argument against the right of the Courts to declare laws unconstitutional. It went deeply into the metaphysics of obligation, the old subtleties of distributive and commutative justice, the social compact, and the laws of nature; then followed an argument against the decision. Of the Bank of the United States it was said: "Its motto is, 'Pay me that thou owest me.'" "A rigid punctuality (but ill according with the agricultural habits and varying condition and resources of most of the States) is exacted by that institution." The decision means that the existing remedy is binding on the State and the debtor, but not on the creditor. Hence the Legislature protests against the doctrines of the decisions, "as ruinous in their practical effects to the good people of this Commonwealth, and subversive of their dearest and most invaluable political rights." The decisions are then declared erroneous. The Legislature will take no steps to interfere with the administration of justice; but Kentucky will not submit to judicial tyranny.[18] A protest is then uttered against Green vs. Biddle and it is declared that a protest ought to be sent to Congress, and that such an organization of the Supreme Court ought to be secured, that no State law could be declared unconstitutional without a two-thirds majority of the Judges. A remonstrance and memorial to Congress of this character was later adopted. Thus we find, at this point, the stay laws, the banks and the squatters' rights all commingled.
In 1824, the Court of Appeals decided that a remedy which was applicable to a note for the payment of money could not be given for a note "payable in the money of this State," which was held to mean the current paper money; but bank notes are not money.[19]
January 5th, of that year, the Judges were ordered not to scale debts for contracts in notes of the Bank of Kentucky or the Bank of the Commonwealth, but judgment was to be given in the paper. If the plaintiff endorsed this paper on the execution, the replevin was to be only three months. The Court of Appeals, construing this law, held that it did not apply to any contract made before its passage, no matter when the action was begun, and that the Court could not take judicial notice of the value of the notes of the Bank of the Commonwealth on any particular date.[20] It was also decided, in another case, that bank paper was not money, nor an ultimate measure of value, the point at issue being whether it could be sold without imputation of usury.[21]
All the two year replevin laws were repealed January 7, 1824, to take effect from June 1st following. Replevin after that was to be for three months, and if no bond was given, the sale was to be on credit for three months. The date of the contract was to be on the judgment. Real estate in execution was to be valued by the county commissioners in gold and silver. On the same day, the Bank of the Commonwealth was ordered to continue its calls at one per cent. per month. All its notes and those of the Bank of Kentucky were to be called in from the branches and held subject to the order of the Legislature. Officers of the Bank of the Commonwealth were to be called on to pay their loans, like other debtors. Three years from this date were allowed for the independent banks to wind up, provided they would endorse on writs to collect their loans that they would receive Commonwealth notes. One point in the endorsement law of December 25, 1820, which provided that no fee bill should be put in execution within two years after it became due, unless endorsed to receive Bank of Kentucky and Commonwealth notes, remained in effect until February 22, 1834.
December 6, 1824, the Legislature appointed a Committee of Investigation to find out the character of the debts to the Bank of the Commonwealth, and report how many of them were bad. They also stated in their resolution that some directors of the Bank had not complied with the law to pay their debts to it.
At the State election of 1824, the struggle was to elect a Legislature, two-thirds of which would address the Governor for the removal of the Judges who had decided the relief laws unconstitutional. A majority was obtained, but not two-thirds.
Another course was therefore adopted. November 13, 1824, a select committee on the behavior of the Judges was raised, which made an elaborate report to the effect that the Legislature ought to be supreme, and ought not to be ruled by the judiciary. Resolutions were reported that the decision under review encroached on the field of the Legislature and the rights of the people.[22] This led up to a law of December 24th, by which all the laws organizing the Court of Appeals were repealed, and a new court was organized.
The old court denied the constitutionality of the repeal and of the new court, and continued its existence; so that there were two courts. The new court ordered Achilles Sneed, clerk of the old court, to deliver the records to Francis P. Blair, clerk of the new court. Upon Sneed's refusal, he was fined and his papers were seized. A war of vituperative pamphlets ensued. It is said that Blair and Kendall were amongst the pamphleteers on the new court side. Kendall had described the relief system very justly in 1821.[23] His biographer says that he never doubted the constitutionality of the relief measures, and so was driven to defend them. As a director of the Bank of the Commonwealth, he insisted on a conservative policy in that institution.[24] There is a gap in his autobiography from 1823 to 1829, and it is unfortunately impossible to trace the influences which moulded his feelings and opinions. All the leading men on the new court side imbibed the intensest animosity against the Bank of the United States, Blair and Kendall perhaps more than any others.
When Kendall went to Washington, in 1829, he became responsible for a positive and circumstantial assertion that the Bank of the United States gave pecuniary aid to the old court party in the election of 1825; which statement became of the very first importance in the Bank war. When Kendall was called on for his proofs, he could only repeat the assertion from hearsay, but could not produce the responsible authors of it.[25] Nevertheless, the story was often repeated, and the "Globe," in 1831, re-printed it in its original form.[26]
The new court held the records during 1825 by military force, and civil war was avoided only by the moderation of the old court.[27]
In November, 1825, Niles quotes a Kentucky paper that more people had left the State than had come to it for many years. It is plain that two classes of persons were driven away by the relief system,—those who were prevented by it from securing such fruits of their industry as they could accumulate, and those who despaired of ever freeing themselves from their embarrassments.
In the mean time the federal Supreme Court had gone on its way making decisions which established the authority of the federal Constitution and the federal judiciary and so integrated the whole national system. Of these decisions, one which was rendered in 1825, Bank of the United States versus Halstead,[28] directly affected Kentucky. It was held that the federal courts could alter the forms of execution which were in use in the States in 1789, so as to subject to execution lands and other property not then subject, and that the law of Kentucky of 1821 did not apply to writs issued from the federal courts.[29]
These decisions were all received with astonishment, contempt and abhorrence, not only by the radical, but also by the moderate State rights men of the time. There was a great deal of declamation in Kentucky in 1825 about rights, liberty, justice, and the sovereignty of the people; but as the "Lexington Reporter" said: What a mockery to talk of justice, freedom, and happiness when the Constitution was brought to the level of such legislative acts as had been adopted by the relief party.[30]
The concurrent effect of the distress in the State, the sad position of the debtors, the political animosity which had been aroused, and the anxiety about great principles of constitutional liberty which had been caused by the judicial decisions which have been referred to, was, to make the political campaign between the old and new court parties in 1825 exceedingly intense. The old court party won a majority in the lower House. The Senate which held over was still of the new court party. A crisis had therefore been reached, but it could not be solved for the time being, because neither party was in a position to win a victory.
The message of Governor Desha[31] of November 7th, 1825,[32] reflects all the elements of excitement and warfare which were in the situation. "The most prominent objects," he says, "which will arrest your attention are the existing differences in our judiciary and the encroachments of the federal tribunals." Two branches of the Bank of the United States have been established in the State without due consideration of the interests of the people, who "justly alarmed for the fights of the State and the purity of their republican institutions" want these banks removed or taxed. "But the Judges of the federal Court, assuming to themselves the prerogative of restricting the taxing power of this State" forbade this tax, and the State judiciary, although they thought the Bank of the United States unconstitutional and the tax constitutional, have yielded to the Supreme Court of the United States. "Since this surrender of the acknowledged rights of the State by those who were made their special guardians, the branches of the United States Bank, exempt from the burdens imposed on the wealth of our own citizens, have proceeded to purchase up the real property of the country and fill it with tenantry." [It was never ascertained what facts he meant to refer to by this statement.] "These institutions for a series of years have carried on a systematic attack upon the legislative power of the State for the double purpose of curtailing the sphere of its exercise and rendering themselves wholly independent of its authority." He refers to the relief laws as "statutes whose principles have been sanctioned by all authorities, State and federal, from the date of the Constitution down to the establishment of these institutions" [the branches of the Bank of the United States]. They and their friends have attacked these laws. The State Court of Appeals has declared them unconstitutional, and the federal Supreme Court has decided that if they were constitutional, they were not binding on the federal court. "And the federal Judges for the Kentucky district have actually made their code, and put it into operation, by which our citizens are imprisoned in direct violation of our laws, and their property seized and sold in modes not provided in their statute book." This is "nothing short of despotism." The federal courts have made the Bank of the United States independent of State laws and tribunals. "The wrongs suffered by this State from the decision of the Supreme Court of the United States declaring our occupants' law to be unconstitutional have not been redressed." "It is my firm belief that in the insecurity now felt by numberless cultivators of our soil may be found the chief cause of that extensive emigration which is now thinning the population of some of the finest sections of our State." "The doctrine of our late Court of Appeals that an opinion of the Supreme Court of the United States on subjects involving the rights of the State is binding and conclusive upon the State authorities is believed to be not only erroneous but fatal to the sovereignty of the States." The Supreme Court is a part of the general government whose encroachments are complained of. The States can get no more justice, therefore, than an individual could, if judged by his oppressors. The new court of the State has banished "the doctrine of ready submission to the unconstitutional decrees of the Supreme Court." What Kentucky wants is another reformation of the federal judiciary, such as occurred at Jefferson's accession. The relief laws have been repealed "as to all contracts formed after the repeal, and their operation has almost ceased to be felt in our courts of justice; but the questions of legislative power and judicial right, which have sprung from some of those laws and outlived them, are of vital importance to the government as well of this State as of every other in the Union." Virginia had a law like the replevin law in 1789 and re-enacted it afterwards several times, even after Kentucky became an independent State. Kentucky has practiced on the same principle and the principle has never been wholly eradicated from her laws. The constitutionality of these laws "seems never to have been doubted until the interest of the United States Bank made it necessary that new and more rigid principles should be incorporated into our system of government." The decision of the State court "that the remedial law in existence when a contract is made, constitutes the obligation, and that no State Legislature can so change that law as to delay the remedy" has "wrested from the representatives of the people the power to suspend the operation of the laws in any case of contract even in time of insurrection, war, pestilence, or famine." He justifies the act legislating the old court out of office in order to "rid the country of these erroneous and dangerous principles," including the notion that the Judges could not be called to account. The old court has gone on, but without any breach of the peace; hence the Executive has not thought it his duty to molest them. Lately they have shown a disposition to force the execution of their orders. If they do this the writer will perform his painful duty. "Instead of quieting the country as was ardently desired, the act of the last session re-organizing the Court of Appeals, together with other causes made to operate, has filled it with new agitations." The people are dissatisfied with the re-organizing act. Neither the old nor the new court can unite upon themselves the confidence of both parties or exercise judicial power without doubt as to the validity of their acts. If the Legislature sees fit to provide for the appointment of an entirely new set of appellate judges, he will select them equally from both parties. The salaries should be reduced to $1,500, which by the appreciation of the currency would be equal to $2,000, a year before. The salaries of the officers of the Bank of Kentucky, the Bank of the Commonwealth, and the officers of the Transylvania University should be reduced. The stock of the Bank of Kentucky owned by the State and the profits of the Bank of the Commonwealth are a disposable fund which should be used for turnpike roads and other improvements. The appreciation of the currency has increased the burden of taxes. This should be remedied. The execution laws are in a state of chaos on the statute-book and require revision.
The offer of Desha to constitute a new court equally from the two existing ones, if all the Judges would resign, was due to the fact that the new court was losing ground. The bar of the State was not willing to risk the validity of its decisions.[33]
At the session of 1825-6, the House voted to abolish the new court; but the Senate, by the casting vote of the Lieutenant-governor, refused to concur.
The bitterness of the parties to this old and new court contest is illustrated by the fact that a three days' argument, shared in by all the leading lawyers of the day, was held upon the application of a gentleman to be admitted to practice in the Woodford Circuit Court, he having been licensed as an attorney by the old court after that court had been legislated out of existence. The Judge did not dare to decide the question, but allowed him to practice out of courtesy.[34]
After another hotly contested election, in 1826, the old court was in control of both Houses. December 30, 1826, a law was passed over the Governor's veto, "to remove the unconstitutional obstructions which have been thrown in the way of the Court of Appeals." In the preamble it is said: "The above recited acts have been decided by the good people of this Commonwealth at two successive elections, to be dangerous violations of the Constitution, and subversive of the long tried principles upon which experience has demonstrated that the security of life, liberty, and property depends." The two acts erecting the new court and fixing the salaries of the Judges in it were repealed, and all the acts which the new court act had repealed were revived. January 11, 1827, an act was passed to try to bridge over the new court time. The period from November 30, 1824, to April 1, 1827, was to be considered non in the Court of Appeals, and the clerk of the new court was to deliver to the clerk of the old court all papers "in any wise pertaining to the Court of Appeals." The second volume of T. B. Monroe's reports contains the decisions in seventy-seven cases, which have never been cited by the Supreme Court of the State, being the decisions of the new court.
In 1827, the currency of the States in the Mississippi Valley was very much improved. There remained, as was said, only $800,000 of Commonwealth paper out, and this was merchandise, not currency. The bank held notes of individuals to the amount of one and a-half millions and real estate worth $30,592. Hence there was due to it a balance from the public, after all its notes should be paid in, of $600,000.[35] Its debtors had this to pay in specie or its equivalent, or else the Bank would get their property. No other instance is known in which debtors had to endure so great an appreciation between the time of borrowing and repaying as in the case of this paper money machine. No one has ever explained how any paper money machine could act otherwise unless there should be constant new issues, depreciating more and more until they reached zero. On its paper issue of notes nominally for $3 millions it had won $600,000 worth of property in five years. Who got this gain? It seems that there must have been personal interests at stake to account for the intensity of feeling which was enlisted in its defense, especially on the part of a clique of leading politicians.
No positive evidence has been found as to the course of prices in the State from 1820, but nothing indicates that the issues of the Bank of the Commonwealth raised prices in the interest of debtors. In general, the history of currency in this country shows that the doctrine that prices will respond promptly and proportionately to changes in the amount of the currency (or even, more strictly, of the money of account), cannot be accepted without important limitations.
In 1827, the old court Chief Justice, Boyle, resigned and Bibb, new court, took his place. In 1828 Owsley and Mills, old court, resigned and Governor Metcalf re-appointed them. The Senate, which was then in the hands of the relief party, refused to confirm them. They had been members of the Court which had declared the relief laws unconstitutional in 1823, and this action was an expression of the relentless animosity with which they were pursued by the relief party. Two other anti-relief men, Robertson and Underwood, were appointed and confirmed. Bibb then resigned; whereupon the other two Judges declared the new court acts null and void. In 1829, Robertson was made Chief Justice and Buckner, anti-relief, was appointed, making the Court complete again.
In 1828, the parties were still relief and anti-relief, but the ideas had changed somewhat. The banking and currency parts of the relief creed had sunk out of sight and the political elements remained. A relief man was a State rights man and strict constructionist who wanted to set limits to the supposed encroachments of the federal power, especially the judiciary.
If the amounts of Commonwealth notes reported burned, in Niles' Register, from time to time, during 1823, are added, the total is $2,171,000, although the amount to be burned in that year had been limited by the Legislature to $750,000. In November, 1823, it was reported that the Legislature had resolved to issue no more, and that one-sixth of the total issue had been burned.[36] The total issue, up to October, 1825, was reported as $2,943,620, of which $1,436,239 were still out.[37] Notes to the amount of $420,000 were reported as withdrawn, boxed, and sealed by order of the Legislature. The specie and specie funds of the bank were $16,000. The amount ordered burned by the Legislature, from year to year, by the resolutions which are to be found in the Session Laws from 1825 to 1834, is $1,775,414. The last order is that all which is taken in shall be burned. In 1828, on the other hand, the Legislature allowed $1,000 of the notes of this Bank to be taken from the Treasury by the Cumberland Hospital to pay for new buildings. The note in Briscoe's case was made in 1830, so that the Bank must have been doing business then. By an act of that year, January 29th, the president and directors were ordered to withdraw branches which did not pay, which had been mismanaged, and which the interests of the State required should be withdrawn. An agent was to go to such branches and do the business, including the renewal of notes half-yearly. If the renewal was neglected for sixty days, suit was to be brought. Semi-annual reports by the branches to the head office were to be required. All debts were to be called in, so as to be paid by June 1, 1834. No renewal was to be made without security, and no new loans were to be made under any pretense whatever. Salaries were to be paid in Commonwealth notes. All receivers for the Bank were to pay to it the same paper which they received, or other of equal value. In that year, several branches of the Bank of the Commonwealth were broken open and notes were stolen.[38] January 15, 1831, the agents of the Bank of the Commonwealth were to take oath that they were complying with the requirement to pay to the bank the currency received by them.
In 1831, a new Commonwealth Bank was projected. A later generation of debtors did not see why the State should not repeat on their behalf what it had done for those of 1820.[39]
In 1833, and again in 1837, the bank was required to credit the Treasurer with the amount which he owed to it, and in the last year it was enacted that "the said bank shall hereafter redeem all its notes in specie, as well when presented by the Treasury as other persons."
The counsel for the bank, in Briscoe's case, declared that there were not over $40,000 of its notes outstanding, and that perhaps that amount had been lost. In 1834, an official report showed $56,843 outstanding, and notes of the Bank of Kentucky to the amount of $31,081.[40] The former were quoted at Philadelphia in 1830 at thirty-five discount; the latter at twenty-five discount. In 1835, the corresponding quotations were Commonwealth, sixteen discount; Bank of Kentucky, thirteen discount. The sales of land, at this time, had absorbed them to such an extent as to raise their value.[41]
This means, as the net final result of this financial device, that the State had given to the debtors of 1820 its lands with which to pay their debts; or, more strictly, that it had tried to do so, and, in the attempt, had lost its lands to such persons as were in a position to take advantage of the opportunities offered them, during the fifteen years in which the process was going on, to win gain from it. It is not impossible that here and there a debtor who was extraordinarily shrewd and hard-headed may have availed himself of the relief system successfully, but the number of such must have been very small. In all the cases of relief attempted by big paper money machines the advantage was won by influential individuals who got the management of the undertaking into their hands and turned it to their own profit.
It may be said, almost without limitation, that all paper money issues and stay laws for the relief of debtors have had, as their sole result, to curse debtors with life-long poverty, misery, and debt; and further, that, in the history of this country, "relief" has been the word of the most direful omen to those-who-have-not that the dictionary contains.
A law of February 10, 1845, provided for an audit of the accounts of the president of the Bank of the Commonwealth, and he was called on to report the best means of realizing something from the unavailable debts to the bank.
The agent of the old Bank of Kentucky was directed, February 21, 1846, to hand over all the papers and books of that bank to the first Auditor, with $28,209.74 cash which he seems to have; or the Attorney-general is ordered to sue him. The first Auditor is to audit and settle the accounts, put the money in the Treasury, and draw on it for dividends to the stockholders. He is to carry on the liquidation, redeem the notes, and burn them. The president of the Bank of the Commonwealth is to hand over all papers and money to the first Auditor, who is to audit and settle. He is made president of both banks, and the Commissioners of the Sinking Fund are appointed directors for the purposes of liquidation.
Successive acts continuing the liquidation of the old Bank of Kentucky, the independent banks, and the Bank of the Commonwealth were passed every few years until the civil war. In 1855, commissioners were appointed to find out the facts about the liquidation of the first mentioned, since 1836, and to report its status at the time of the act. It was characteristic of all banks of this kind that their liquidation was interminable.
If the following table of the statistics of the bank note circulation of Kentucky is compared with the above history it will be found that the fluctuations in the composition and total amount of that circulation present phenomena in the history of currency more interesting and instructive than any other similar data which can be found. The case is unique for the study of currency. The table is taken from the document, 26 Cong. I Sess. V Exec. No. 172, p. 1354. The figures present millions and decimals thereof. Variations may be noticed between the figures here given and some which occur above and which are taken from other authorities. All statistics of that region and period must be taken with some latitude, which, however, does not affect the value of these figures for purposes of illustration:
| YEAR. | Total. | Bank of Kentucky. |
Branches of U. S. Bank. |
Bank Commonwealth. |
New Bank of Kentucky. |
| 1810 ... | $0.124 | ☜ | |||
| 1811 ... | 0.161 | ||||
| 1812 ... | 0.289 | ||||
| 1813 ... | 0.501 | ||||
| 1814 ... | 0.576 | ||||
| 1815 ... | 1.2 | ||||
| 1816 ... | 1.9 | ||||
| 1817 ... | 1.5 | ||||
| 1818 ... | 1.9 | 1.2 | 0.64 | ||
| 1819 ... | 1.6[42] | 0.6 | 0.63 | ||
| 1820 ... | 1.5 | 1.3 | 0.28 |
TABLE.—Continued.
| YEAR. | Total. | Bank of Kentucky. |
Branches of U. S. Bank. |
Bank Commonwealth. |
New Bank of Kentucky. |
| 1821 ... | $3.8 | 1.2 | 0.20 | ||
| 1822 ... | 3.5 | 0.9 | 0.19 | 2.4 | |
| 1823 ... | 2.2 | 0.48 | 0.18 | 2.3 | |
| 1824 ... | 2.3 | 0.40 | 0.18 | 1.7 | |
| 1825 ... | 1.5 | 0.11 | 0.17 | 1.3 | |
| 1826 ... | 1.3 | 0.083 | 0.25 | 0.9 | |
| 1827 ... | 1.3 | 0.058 | 0.67 | 0.6 | |
| 1828 ... | 1.7 | 0.041 | 1.3 | 0.3 | |
| 1829 ... | 2.8 | 0.038 | 2.4 | 0.3 | |
| 1830 ... | 3.2 | 0.033 | 2.8 | 0.3 | |
| 1831 ... | 3.7 | 0.032 | 3.5 | 0.2 | |
| 1832 ... | 4.3 | 4.1 | 0.13 | ||
| 1833 ... | 3.8 | 3.7 | 0.10 | ||
| 1834 ... | 3.3 | 2.9 | 0.05 | 0.3 | |
| 1835 ... | 5.7 | 3.1 | 2.6 | ||
| 1836 ... | 4.1 | 4.1 | |||
| 1837 ... | 3.4 | 3.4 |
It seems best to introduce here a notice of the litigation which arose in connection with the Bank of the Commonwealth and bills of credit, although we shall be compelled, in so doing, to anticipate several years. The decision in Briscoe's case fell in the midst of important events which have not yet been narrated, and it is an especially important fact in regard to it that it was not rendered until several States had been committed to the great Bank of the State policy beyond what would appear from our history so far as it has yet advanced.
In the Bank of the Commonwealth of Kentucky vs. Wistar et al. (1829)[43] the Supreme Court of the United States held that the bank must pay specie on demand in return for a deposit which had been made with it of its own notes, although these notes were, when deposited, worth only 50 cents on $1. It had been provided in the act establishing the bank that it should pay specie. The bank tried to plead the non-suability of a State, but it was held that if the State was the sole owner of the bank, and issued as a sovereign, it would be non-suable; then, however, the notes would be bills of credit. If the State issued as a banker, not a sovereign, then it was suable under the decision in the case of the Bank of the United States vs. the Planters' Bank of Georgia.
In Craig vs. Missouri (1830)[44] the law of Missouri of I82I establishing loan offices[45] was declared unconstitutional with respect to the notes issued, which were bills of credit. It was held that "to emit bills of credit conveys to the mind the idea of issuing paper intended to circulate through the community for its ordinary purposes as money; which paper is redeemable at a future day." "If the prohibition means anything, if the words are not empty sounds, it must comprehend the emission of any paper medium by a State government for the purposes of common circulation." Bills of credit and legal tender laws were declared to be the objects of two separate and independent prohibitions.
The case, however, through which the Bank of the Commonwealth of Kentucky obtained national importance and effected the whole law of banking in this country was that of Briscoe vs. the Bank of the Commonwealth of Kentucky.[46] Briscoe and others gave a note in 1830 which they did not pay at maturity. In the State Circuit Court Briscoe pleaded "no consideration," on the ground that, the note was given for a loan of notes of the Bank of the Commonwealth, which were "bills of credit" within the prohibition of the Constitution and therefore of no value. The State Court found for the bank. The Supreme Court of the State had held, in 1822, that,—no consideration because bills of credit,—was not a good defense on a suit.[47] The State Court of Appeals affirmed the decision in Briscoe's case. The case was carried to the Supreme Court of the United States on a writ of error. Two of the seven judges were absent in 1834. Of the five who heard the argument in Briscoe's case, three thought that the notes of the Bank of the Commonwealth were bills of credit under the decision in Craig vs. Missouri; but there was not a majority of the whole Court who concurred in this opinion. The rule of the Court was not to pronounce a State law invalid for unconstitutionality unless a majority of the whole Court should concur; hence no decision was rendered.
The Circuit Court of Mercer County, Kentucky, decided, in 1834, under the decision in Craig vs. Missouri, that the notes of the Bank of the Commonwealth were bills of credit.[48]
Judge Johnson died in 1834. Duvall resigned in January, 1835. Wayne took his seat January 14th, 1835.[49] Hence there was one vacancy in 1835 and Briscoe's case went over. Marshall died July 6th, 1835. In 1836 there were only five Judges on the bench of the Court. Taney was confirmed March 15th, 1836, as Chief Justice, and P. P. Barbour[50] was confirmed the same day. This made the Court complete again. Five of the seven Judges were now Jackson's appointees.
Briscoe's case was decided in January, 1837. The decision was by McLean, who had dissented in Craig vs. Missouri. It was held that a bill of credit "is a paper issued by the sovereign power containing a pledge of its faith and designed to circulate as money." "The act incorporating the Bank of the Commonwealth was a constitutional exercise of power, by the State of Kentucky, and the notes issued by the bank are not bills of credit, within the meaning of the Constitution of the United States." It is said to be very difficult to define bills of credit, as the term is used in the Constitution. "In the early history of banks, it seems that their notes were generally denominated 'bills of credit.'" A bill of credit "which includes all classes of bills of credit emitted by the colonies and States, is a paper issued by the sovereign power, containing a pledge of its faith, and designed to circulate as money." It would be unconstitutional for a State to make any bank notes legal tender. "A State cannot emit bills of credit, or, in othor words, it cannot issue that description of paper to answer the purposes of money, which was denominated before the adoption of the Constitution bills of credit; but a State may grant acts of incorporation for the attainment of those objects which are essential to the interests of society. This power is incident to sovereignty, and there is no limitation on its exercise by the States, in respect to the incorporation of banks, in the Constitution." Reference is made to the Bank of North America and the Bank of Massachusetts, as existing when the Constitution was adopted, and it is inferred that bills of credit "do not include ordinary bank notes." Then "it follows that the power to incorporate banks to issue these notes may be exercised by a State." A State could not incorporate a company to coin, because it is forbidden to do so itself; nor could it incorporate a company to issue bills of credit. "To constitute a bill of credit within the Constitution, it must be issued by a State, on the faith of the State, and designed to circulate as money. It must be a paper which circulates on the credit of the State, and so received and used in the ordinary business of life. The individual or committee who issue it must have power to bind the State. They must act as agents, and of course not incur any personal responsibility, nor impart, as individuals, any credit to the paper. These are the leading characteristics of a bill of credit, which a State cannot emit. The notes issued by the Bank of the Commonwealth of Kentucky have not these characteristics."
Story rendered a very strong and vehement dissenting opinion. In it he gave a summary history and analysis of "bills of credit," as they existed before the Revolution, and as they were understood by the Constitution-makers, and he showed what a great variety of them there had been in the use of the colonists from whom the expression was inherited. These notes of the Kentucky bank were, he said, fully under the description. "The history of such a currency constituted the darkest pages in the American annals, and had been written in the ruin of thousands who had staked their property upon the public faith,—always freely given, but too often grossly violated." "It is the substance we are to look to. The question is whether it is issued, and is negotiable, and is designed to circulate as currency. If that is its intent, manifested either on the face of the bill, or on the face of the act, and it is in reality the paper issue of a State, it is within the prohibition of the Constitution." He explicitly referred to the former hearing of the case and said that Marshall had been in the majority against the constitutionality of the issues.[51]
In a philippic against Guthrie, in the Senate of Kentucky, in 1838, Wickliffe charged him with belonging to a party who once issued $3,000,000 in bills of credit without a dollar to redeem them with. "And it is equally true that a portion of his party raised a pony purse and promised great lawyers $50,000 to have their acts declared unconstitutional and void by the Supreme Court, that they might be thereby released from paying their debts to this Commonwealth's bank."
The decision in this case was a distinct victory for Kentucky relief banking and politics. It opened the door wide for abuses of banking by the States. If the degree of responsibility and independent authority which the directors of the Bank of the Commonwealth of Kentucky possessed (which was really nil), and the amount of credit which they gave to the notes, aside from the credit of the State, was sufficient to put those notes outside the prohibition of the Constitution, then no State could find any difficulty in making a device for escaping the constitutional prohibition of bills of credit. Wildcat banking was granted standing ground under the Constitution, and the boast that the constitutional convention had closed and barred the door against the paper money with which the colonies had been cursed, was without foundation.
We have seen, however, that this institution was only a caricature of a bank in any point of view. The great Banks of the States were financially unsound and mistaken, but this is the only one which deserved to be characterized as a shameless fraud. It was devised only to wipe out debts. Its pretenses were all transparently false. The Court was obliged to hold aloof from a real examination of it and to accept all its false pretenses with remote and artificial respect, lest a close and faithful investigation should reveal its rottenness in such a light that it would have been impossible to let it stand. A whole series of decisions has been built upon this case and it has contributed to fasten on the country the federal legal tender law. It would be worth the trouble, on proper occasion, to trace through the cases derived from it, and decided upon it, with reference to the mischievous consequences which have flowed from it.
It is very true that the definition of bills of credit is extremely difficult. No analytical definition has ever been made, which is satisfactory. In fact the Court in this decision labored inconclusively with the analysis, and satisfied itself with an historical definition. Its statement amounts to saying that whatever the Constitution-makers meant by bills of credit is unconstitutional. Now it is entirely beyond question that the antipathy of the Constitution-makers did not attach to the fact that those bills were issued by the State, but to their nature and operation as currency. Their antipathy was equally great against Continental bills of credit, issued by the Confederation, for the same reason; and the notes of the Bank of North America and of the Bank of Massachusetts did not come under this hostile intention because they were regarded as credit instruments of a different character. The term bill of credit, according to its history, was generic and not specific. It meant any current evidence of an obligation. The Colonies and Congress had issued them under a great variety of forms and of varying tenor, until they carried no language which expressed any legal character at all. "This bill shall be current for one shilling." "One dollar, by resolution of Congress."
Even the obligation of the issuer was only assumed and understood. If a member of the Constitutional convention had been asked why he wanted to forbid them, he would have answered that it was because experience had shown that they displaced specie; became the money of account; were in fact forced on everybody's acceptance, as the only medium of exchange; were liable to political control; in short, that they usurped the functions of money and belied every one of those functions so that there was no money. The people lacked all the utilities of money and suffered instead from a political and commercial curse. He would have said that if bills of credit bore interest, they would not circulate. Hence the prohibition did not touch State bonds, and that, if they were cash specie obligations for value promptly enforceable at law, all their evil features would disappear. He would have said that bank notes were of the latter character. The history of the following fifty years showed that the Constitution-makers placed too much confidence in this latter distinction. Unless the cash specie obligation, promptly enforceable at law, was an established actuality in the fullest sense of the words, the bank notes reproduced all the evils of the colonial bills of credit. The discriminations, therefore, presented by Briscoe's case were not really difficult. The distinction between a legitimate bank note and one which. had degenerated into the form of a colonial bill of credit was not difficult, and it would have been an immeasurable benefit to the country to have had that distinction then defined and established. A State which was creating. institutions which were issuing notes of the former kind would have been within the Constitution; one which was creating banks whose notes were of the latter kind would have been outside of it.
In a report on the "Exchequer," at the session of 1841-2, Caleb Cushing said: "It seems to be a strange anomaly of the fundamental law; or if not anomaly, then oversight, to provide that a State shall not issue bills of credit by the instrumentality of a natural person called its 'Treasurer,' but may, by means of a legal person called its 'bank;' in other words, that it cannot, and yet that it can, be the derivative source of the issue of bills of credit. Nor does it vary the principle to enact that the bank shall consist in part or in whole of incorporated private stock."
In his annual report for 1861, Secretary Chase said that emissions of bank notes by State banks "certainly fall within the spirit if not within the letter of the constitutional prohibition of the emission of bills of credit by the States."
Our history has shown that there were, at the time of this discussion, a number of large Banks of the States, in regard to which the State feeling was very strong; and also that the passions which had been enlisted on behalf of the Bank of the Commonwealth, in Kentucky, were intense. It will appear below that the State interest in these institutions before 1837 had been very much extended. In the party politics of the time it was very important to make a decision which should be popular in Kentucky (Clay's State), and also in the other States which were interested in Banks of the State. It seems safe to say that political considerations entered largely into the decision; but it is also true that the educational effect which the current banking system exerted on the minds of the people was discernible on the Bench. As the Court was now strongly Jacksonian, it was a remarkable anomaly that they should have declared the Bank of the Commonwealth of Kentucky constitutional, when their party was assailing the Bank of the United States, on the ground that it was unconstitutional.
The law, so far as the Constitution of the United States prescribed it, was now decided to be that States alone, in the strictest sense, may not issue bills of credit. The United States may; banks, municipalities, associations, and individuals may.
We may now turn our attention to the measures of liquidation and relief adopted by the other States of the Mississippi Valley at this time.
Tennessee, fearing the oppression which Kentucky was suffering from the Bank of the United States, laid a tax of $50,000, in 1817, on any one who should engage in banking in the State without the authority of the same. In the following year a petition was addressed to the Bank of the United States by citizens of Nashville, asking it to establish a branch in spite of the law. The reply was that the Bank had ample occupation for all its capital, and that it could more conveniently test the right of a State to tax it elsewhere.[52]
The banks of this State stopped payment in 1819. Although there was no office of the Bank of the United States in the State, the banks made use of the current excuse for suspension and attributed it to emissaries of the Bank.[53] No doubt it had transactions there. Senator White said that the people of that State had never been accustomed to the punctuality which the great Bank enforced. Thirty years later it was said of them: "Although the planters are the safest and most infallibly solvent class of customers, it is impossible to induce them to observe punctuality."
An extra session of the Legislature was called in June, 1820, on account of the distress. The Governor recommended a property law, saying that his observation of that of 1809,[54] had led him to believe that such a law, although to be used carefully, might be very beneficial.
In compliance with these recommendations, the Bank of the State of Tennessee (No. II.) was incorporated July 26, 1820, "for the purpose of relieving the distresses of the community and improving the revenue of the State." It was to be established "for and in behalf of the State of Tennessee." Its seat was to be at Nashville, with a branch at Knoxville to which four-tenths of the capital was appropriated. The president and directors were to be elected by joint ballot of the Legislature from session to session. It was to last until 1843, to issue notes from $1 to $100. Its capital was to be $1 million "in bills payable to order or bearer, all of which shall be emitted on the credit and security of the borrowers, and the whole be warranted by the State," on the income from sales of land "and the ordinary revenue of the State, not otherwise appropriated." It was to be a depository of public money. Loans were to be secured by bills and notes with two or more sureties, or by mortgage, and not to be made for more than one year. No loan might be renewed unless interest was paid in advance, and not more than one-tenth of any loan might be called in when it was due, without sixty days' notice. In case of default, judgment and execution were to follow. The bank was not to owe over $1 million before the next session. Within twenty days after it was ready to start, an agent to make the loans was to be appointed in each county. The notes were receivable for all dues to the State, to colleges, and academies, on account of the public lands, and on account of such lands as had been appropriated to the educational institutions mentioned. In the midst of this act it is provided that no executions shall take place within two years after judgment, unless the writ is endorsed that the notes of this bank will be received as well as the other notes mentioned in previous laws. The loans were to be allotted to the counties in proportion to the State tax of 1819. All sums paid in were to be re-loaned in the same county. The Treasurer of East Tennessee was to issue six per cent. stock at the request of the president of this bank, "on the faith and credit of the funds vested in said bank by this act" up to the maximum amount of $87,500. The Treasurer of West Tennessee was to do the same up to the amount of $162,500. The bank was to pay the interest on these bonds and sell them from time to time at par. Here was a provision which provided for touching some capital at last. No loan was to be over $500; the Legislature was to make rules for the bank. The Nashville Bank or the previous Bank of the State might consolidate with this. A supplementary act, three days later, pledged to the bank the revenue from the State lands to make up its capital. As there had been some difficulty to find any one to take the offices, it was provided that, if no suitable persons in Knoxville would accept the positions, the bank might be set up elsewhere in East Tennessee. The Treasurer of West Tennessee was to furnish money to buy the plates, etc. The bank was to commence by issuing $500,000. The notes were not to be in excess of twice the paid in capital. The power of the Legislature to make rules for the bank was repealed. This act, like the others creating the big Banks of the States, contained obvious incongruities. The old Bank of the State of Tennessee would have nothing to do with this new one.[55]
This act was passed in the Senate, 13 to 7; in the House, 20 to 19. There was very strong opposition to it. General Jackson, Colonel Ward, and others of Davidson County, presented a remonstrance against it. The memorialists object to the bank bill as unconstitutional and inexpedient. They object to the two years' delay, quoting the bill of rights that "right and justice shall be administered without sale, denial, or delay;" also to the provision which makes the "loan office notes a direct tender in discharge of debts due to colleges and academies from our citizens south of Holston and French Broad." As to the "policy of passing the bill under consideration, the undersigned believe that no one can hesitate to pronounce it ruinous of both public and private interests who will give it a careful and impartial investigation." They do not think the distress so severe as to justify this kind of interposition on the part of the Legislature. Paper notes cannot relieve the distress, because they have no solid basis. "It has heretofore been admitted by every judicious political economist who has devoted his attention to the subject that the large emissions of paper from the banks by which the country was inundated have been the most prominent causes of those distresses of which we at present complain. They greatly increased the facilities of borrowing money, gave property a fictitious value, and introduced amongst us every species of extravagance and folly." "It would appear to the undersigned that the poison which generated the disease is here attempted to be administered for its removal." They also made a special objection to any arrangement by which citizens of the State would become debtors to the State and referred to the debts already due from purchasers of State lands as an illustration and warning. "The undersigned feel no small share of surprise that so much sympathy should be indulged for the debtor and none for the creditor. Although there may be some extreme cases that solicit relief, yet it is suggested as the best policy to keep the courts of justice open and accessible to every citizen, and permit those who are involved to extricate themselves by additional industry and economy." They end by citing the oath taken by members of the Legislature and declare that this measure is a violation of that oath.
This memorial was laid upon the table in the Senate 11 to 5, and two members claimed the right to spread upon the record their reasons for voting to lay it on the table. They cite the passage about the oaths of the members as a ground for declaring that the memorial "is extremely exceptionable and indecorous in its terms and language." They add that "one of the distinguished characters who appears to have been actively zealous in producing the above memorial, but a few days since, at the seat of government, and in the presence of some members of the Legislature, in the most indecorous manner stated that any member who voted for it would perjure himself, ahd that if the law did pass, twelve honest jurymen upon oath would convict those who voted for the measure of perjury."
Although the adjuration to the Legislature to heed their oath is very pointed, and would not probably be put into a similar paper nowadays, there is nothing in the paper which is indecorous in substance or manner.
October 24th, the grand jury of Davidson County begged leave to present their opinion in condemnation of the action of the two old banks in opposing the new Bank of the State, which has a strong capital and all safeguards. "Those banks ought to recollect that they exist by legislative aid and permission. They are barely tolerated by the people whose breath can annihilate them in an instant. They surely forget on what a precipice they stand."[56]
In May, 1821, the Supreme Court of the State had occasion to pass upon the stay law.[57] The clerk of the Supreme Court of the second circuit had been requested to issue an execution on a judgment rendered in the Supreme Court, without the endorsement required by the act of 1819. He refused to do so. The Court was moved to order him to grant the execution, disregarding the endorsement law as unconstitutional. The Court said: "Suspension of execution, as directed by these acts of the Legislature now under consideration, is forbidden by the prohibition of tender laws as a direct consequence of the prohibition; also by the interdiction to pass laws impairing the obligation of contracts (suspension of execution being an impairing of such obligation); and furthermore by the declaration that justice and right shall be done without delay in all cases, the process of execution being one sense of the term 'right' which is not to be delayed. We are therefore bound to say that these acts are repugnant to the Constitution and void so far as relates to the suspension of execution, and that execution ought to issue immediately without any such endorsement as the act requires."
Judge Haywood, who read the decision, went on to urge at length that injunctions should issue against creditors who demanded payment in specie for debts contracted in paper. Judge Emmerson, who joined with him in the decision, as above, dissented on this point on grounds not stated. Final decision on this point (which was, as the Judge declared, not before the Court) was reserved until the third judge, Whyte, could decide it. It seems that the presiding Judge must have brought it in only as some consolation to those who supported the endorsement system. There seems to have been peaceful acquiescence in this decision in Tennessee and the relief system there came to an end.
The Bank of the State of Tennessee was far more moderate in its issues than the Bank of the Commonwealth of Kentucky, and the evils which were occasioned by it were by no means so serious.
In 1821-2, legislation is aimed against the banks. The act of November 13, 1821, forbade any bank to sell its specie stock; the penalty for the president was $1,000 fine and imprisonment not exceeding five years. The banks were ordered to resume on the first Monday in April, 1824, or forfeit their charters, except the Bank of the State of Tennessee. They were ordered to settle accounts with each other every three months. November 15th, a law was passed to give the holders of notes for less than $100 an execution against the bank, with a process for discovering its property and garnishment against the debtors of the bank. On the same day the Bank of the State was authorized to issue $50,000 in notes under $1, to be distributed amongst the counties in the ratio in which the large notes were distributed. November 8, 1823, the same bank was authorized to issue $25,000 in notes for 50 cents and less. The smallest denomination mentioned is six and a quarter cents. November 27th the resumption law was repealed, and the banks were ordered to pay in specie one-quarter of each note presented between April, 1824, and January, 1825; one-third, between January, 1825, and October, 1825; one-half between that date and July, 1826; and after that, the whole. If the State Bank at Knoxville or the Nashville Bank do not pay specie, they shall be liable to six per cent. damages for delay, unless they agree to the conditions of this act about resumption.
October 23, 1823, a new stay law was passed. Executions were to be endorsed according to the existing law. If the creditor did not do this, three valuers were to be selected from the neighboring householders. If the property did not sell for three-quarters of the valuation, it was to be returned to the defendant. The plaintiff might then sue out another execution. The plaintiff may take slaves at three-quarters of their value, or they are to be returned to the defendant; so of land. This law is not to apply to specific contracts for specie or eastern funds, nor to cases where a bank is the defendant, nor to contracts made after April 1, 1823. It is not known that this law ever was tested, but the relief system in Tennessee is said to have declined even before this time, as above stated.
The following year we find the Bank of the State in full operation; new agencies are appointed in the new counties. December 3, 1825, it was enacted that upon application of any person, with security, to the agent of his county, it shall be the duty of the agent to lend from $10 to $500 from any money he has. When a note is reduced to $50 by payments, it shall not be lawful for the agent to demand the remainder in one payment, but in fractions, as before. In that year the Governor congratulated the State on the prospect of resumption. The premium on silver had fallen in a year from 25 to 4 or 5. "The earnest prayer of all should be that we may never again experience the evils of depreciated bank paper." He was confident that the managers of the banks were striving to resume. In 1826, the Nashville Bank did resume, but $260,000 were drawn from it in seventy days and it failed again, leaving only the Bank of the State. December 11th a law was passed in regard to the Nashville Bank which is so carelessly drawn that it is scarcely intelligible. The sense appears to be that, in order to prevent a depreciation of its notes, they are made receivable for State and college lands, if the college trustees agree, and the Bank of the State is to take them for one-half its loans called in. The notes of the Nashville Bank, however, fell at once to fifty per cent. discount, and so remained until 1833, when they were quoted at ten per cent.[58]
The law which had barred out the Bank of the United States was repealed in 1826, and a branch was established at Nashville.
In 1827, the avails of the Bank of the State were constituted a school fund. A peculiar feature of the history of Tennessee was the excessive degree to which the educational organization of the State was entangled with its banking, which also involved an entanglement with its "improvements."
Gov. Carroll, in his message for 1829, said that the Bank of the State ought to be wound up. Within a year it had taken three hundred judgments against debtors, and the Knoxville branch had taken a hundred more. He added that a statement made by the Bank showed that its debtors were paying, in interest, commissions, and charges, from twelve per cent. to twenty-five per cent. for every dollar which they had borrowed of it. It was employing sixty-two agents, at great risk, and cost the State $14,000 per annum. "Our experience furnishes but too much proof of the bad policy of the State's permitting its citizens to become its debtors."
In that year the Bank of the United States had the business of the Valley almost to itself. Judge Catton of Nashville published an address in which he pronounced the crisis a dangerous one on account of the great debt of the people to the Bank of the United States, and the excessive usury everywhere prevailing, namely, from five to ten per cent. per month. He especially warned the people against endorsing for each other.
The cashier of the Bank of the State of Tennessee at Nashville was found short in his accounts in February, 1830, to the amount of seventy or eighty thousand dollars. He refused to give up the books because the deficiency was due to overdrafts by persons whom he would not expose. The charter was amended so that the Legislature should elect the cashier. The total overdrafts by "distinguished persons" were two or three hundred thousand dollars. Lest they should be exposed the matter was hushed up and the cashier was allowed to go.[59]
The Legislature, however, demanded of the president and directors of the Bank of the State, December 20, 1831, that they should report the defalcation of the cashier and the names of the persons who had made the overdrafts, with the amount, and whether they had settled.
In 1831, the State was draining the life out of the Bank of the State No. II., by exactions for internal improvements, etc. The president and directors were ordered to find out how much money there was in the agencies, and also to find out the county apportionment of the total of it, according to the census of 1830, and to apportion it. The School Commissioners of each county were incorporated in order that they might take and hold it. The county loan agencies were to be discontinued, May 1, 1832.
Senator White said, in 1838, that this bank had been converted into a specie-paying bank, but that its capital and profits had all been lost, and that the State was trying to recover what it could from the wreck.
Ohio.—February 5, 1819, an act was passed to discipline the banks which did not redeem their notes. Six per cent. damages might be recovered, the evidence being the notes in one's possession. In an execution against a bank, the Sheriff might enter it and seize specie, notes, or books; and if these did not suffice, he might garnishee the debtors of the bank, beginning with the directors or cashier. Bank notes payable on a future day were made unlawful; notes under $1 were forbidden. An act of February 8th made it a misdemeanor to take a bank note at less than its face, the penalty being a fine of not over $500. Any one who should pay away a bank note at a discount might recover the discount in an action at law, and the defendant was to have no stay of execution. It is stated that the grand jurors of the City Court of Cincinnati decided that this act was unconstitutional, and refused to notice violations of it.[60] It was repealed January 24, 1820. Of twenty-five banks in the State, in 1819, only six or seven were redeeming their notes. They were classified, November, 1819, as seven good, four decent, four middling, and four good for nothing.[61] The Farmers' and Mechanics' Bank of Cincinnati was believed to have been greatly indebted to the United States before it received a share of the public deposit. It was allowed a permanent deposit of $100,000. "Are we to lose the whole for the benefit of the rag barons? but no cost can be too great if modern banking is destroyed by it."[62]
A more stringent and comprehensive law to enforce payment by the banks was passed February 18, 1820. The plaintiff against a bank might declare for money had and received, if over $100, and put the bank notes in evidence if payment had been demanded. He could recover with six per cent. interest, and have an execution as by the previous law. A Sheriff executing a judgment in favor of a bank was to take its notes. When payment was demanded of a bank on its notes, and not given, the cashier was to endorse upon it "payment demanded" with the date; then it bore interest at six per cent. until paid in money of the United States. The cashier must keep a book of record of such refusals, and the person who demanded payment might demand an opportunity to see this book, to verify the entry of his own demand, and might sign an attestation of it. If the cashier refused to do these things, the penalty was ten per cent. on the notes refused. A year later it was enacted, February 2, 1821, that in a suit against a bank, on its notes, real estate might be levied on; either the fee or the equitable interest. After the sheriff has exhausted the goods and chattels, he may levy on lands held in trust for the bank, in which case he may appoint three disinterested persons to find out and report the amount due on the trust deed, putting the parties on oath. If the trustee refuses to deed to the buyer, under the execution, the Court shall award the property with 25 per cent. damages on its value, against the trustee.
These laws undoubtedly testify to their own inadequacy and failure.
In the Cincinnati City Court, in 1820, the Mayor charged the jury that the Bank of the United States had no power to discount notes, because that power was nowhere in the charter conferred in so many words. The jury found for the defendant accordingly, the Bank being plaintiff.[63]
The war between the State of Ohio and the Bank of the United States began February 8, 1819, when it was enacted: "Whereas the president and directors of the Bank of the United States have established two offices of discount and deposit in this State, at which they transact banking business, by loaning money and issuing bills in violation of the laws of this State; and whereas divers companies and associations of individuals within this State, unauthorized by law, continue in like manner to do business as bankers, and banks, by loaning money and issuing bills, and by trading in notes and bills; and whereas it is just and necessary that such unlawful banking, while continued, should be subject to the payment of a tax for the support of government;"—if, after the 1st of September, any of these associations continue, they shall be taxed; the United States Bank, $50,000 per annum for each office, and every other company $10,000. On the 15th day of September, in each year, the Auditor is to charge these taxes against the companies, and to make out his warrant to the agent whom he shall choose and appoint to demand payment. In case of default, the agent is to levy on the goods of the Bank or its credit. He is to seize the specie or notes, searching the Bank for them. The officers may be put to oath to disclose where the funds are, and they may be summoned to court and examined, a refusal to answer constituting contempt. Debtors to the banks must pay the State. The agent is to pay the sum collected to the Auditor and he to the Treasurer. The agent is to have, as his remuneration, two per cent. of the specie or notes; five per cent. of goods taken in execution; and if further proceedings are required, ten per cent.
At the September term of the federal Circuit Court, an injunction was obtained forbidding the Auditor to collect the tax under this law. His legal advisors were of the opinion that there were various irregularities in the injunction and in the service of it.
September 17th, John L. Harper, appointed agent of the Auditor, Ralph Osborne, and bearing his warrant, accompanied by two others, entered the office of the branch at Chillicothe, jumped over the counter, took possession of the vault, and demanded whether the cashier was prepared to pay the tax. Upon a negative reply, Harper took from the vault $120,425. Five days later he left on the counter the amount in excess $100,000. The Governor, upon hearing of this, did all in his power to have the money restored, and offered to give security for it; but could accomplish nothing. "I view," said he, "the transaction in the most odious light, and from my very soul I detest it. * * * I am ashamed it has happened in Ohio."[64]
The bank suspended operations for a few days.
An injunction was served on Harper while on his way to Columbus, and on Osborne before Harper arrived. The money was deposited with Currie, the State Treasurer.
Harper and Orr, one of his assistants, were arrested by the deputy marshal for a trespass with violence, in taking the tax, and bail was required of each of them to double the amount of the money they had taken. They were put in prison, where they lay, an application for habeas corpus having failed, until the following January, when they were released by the federal Circuit Court on the ground that the arrest was irregular.
In the meantime, November 22d, the United States District Judge granted an injunction against any disposition whatever being made of the money. Upon the meeting of the Legislature, Osborne made a report of the proceedings. He was under a subpoena to appear in January to answer in a petition for a return of the money, and an injunction.
January 5, 1820, application was made in the federal Circuit Court for an attachment against Osborne and Harper for contempt, in disobeying the injunction of the previous September; but after argument, the Court held the case, on account of the important constitutional questions involved, under advisement until the following September.
In September, a bill was prayed for to enjoin Currie, Sullivan, his successor in office, the Auditor, and his agents, from paying away the money or acting further under the law. This was granted. Currie in his answer stated that he received $98,000 from Harper (the latter having retained his fee); that he had held it separate and unused, and had delivered it to his successor. Sullivan, in his answer, stated that a committee of the House of Representatives had, in January, 1820, seized the moneys in the Treasury. The Court decreed that the identical notes and coins which had been taken from the Bank must be restored to it, and that interest on the specie part, $19,830, must be paid. A perpetual injunction was granted against the collection of any tax in future under the act of Ohio. By an arrangement between counsel, the attachment for contempt was dismissed at the cost of the defendants, and the action of trespass was continued, to be dismissed, at the defendant's cost, if the Supreme Court affirmed the decree.
Sullivan refused to obey the decree, and was imprisoned for contempt. On the third day of his imprisonment, the Court granted a writ of sequestration against all his property. The commissioners under it took from him the key of the Treasury, from which they took the $98,000 and brought it into Court, where it was delivered to the agents of the Bank. The defendants appealed, but it was agreed that the appeal should operate on the $2,000 yet wanting.
We now meet with utterances of the high State rights doctrine from Ohio. A committee of the Legislature made a long report, about January 1, 1821. They proposed acts of compromise with the Bank, and also of outlawry against it. A resolution which they proposed affirming the doctrine of the resolutions of '98 was passed, 58 to 7; a protest against the action of the Court, 58 to 7; declaring a determination to tax any corporation doing business in Ohio under the authority of the United States, unanimously; protest against the doctrine that the Supreme Court of the United States can decide on the political rights of States, in cases between individuals, 64 to 1; ordering the committee to bring in the bills proposed, 57 to 8.[65] These resolutions were transmitted to the States. Massachusetts answered that the action of Ohio, if allowed, would defeat the purposes of the law by which the Bank was established.[66]
January 29, 1821, an act was passed "to withdraw from the Bank of the United States the protection and aid of the laws of this State in certain cases." No sheriff or jailer, after September 1, 1821, is to take any debtor into custody on suit of the Bank of the United States; nor any person committed for offenses against its property, rights, etc. No officer of justice is to take proof of a deed or other instrument to which the Bank of the United States is a party, and no recorder is to receive or record such deeds. No notary is to protest a note payable to that Bank. The penalty on a sheriff or jailer for violating this act is $200 fine; a judge or other magistrate, if he does what is here forbidden, will be guilty of a misdemeanor, and shall be fined not over $500. A disobedient notary shall be removed.
At this point the Legislature seemed disposed to recede; for it was enacted, February 2, 1821, that the State was willing to forego the tax if the Bank would pay four per cent. on the Ohio business profits, and withdraw its suits against the State officers. If it agrees to this, or will withdraw from the State, the Governor is to certify the Auditor, who is to return $90,000, after which the tax shall be $2,500 per annum, or the above percentage of the dividends on the Ohio business. Any one who impedes the Auditor in the discharge of duty laid upon him by law is to be imprisoned not over six months, and fined not over $500.
The Supreme Court of the United States affirmed the decision in Osborne's case, March 19, 1824, except that interest should not be paid on the coin part of the money taken.[67]
The law outlawing the Bank of the United States was repealed, January 18, 1826.
The State finances were in a most prosperous state at this time, or would have been so if its cash on hand had had value. The Treasurer reported, 1820, that the balance in the Treasury was $155,147, including $98,000 taken from the Bank of the United States, but the rest was nearly all in uncurrent notes of the banks in the State. He gives a list of them in which appear nearly all the banks of 1816.
In his report for 1821, he reported that he had obtained judgments against a number of the banks of the State, and was trying to find their property. In 1822, at least eight of them were bankrupt. A law of February 5, 1825, provided that all the banks under the law of February 23, 1816, should be re-invested with the shares which had been set off to the State, if they would pay the State two per cent. on their dividends from their organization until this time, and four per cent. on their dividends for the future, and concede to the State the right to tax them. During the next years these banks were in liquidation. An act of March 3, 1824, provided that the Treasurer might compound and settle all claims of the State against seven or eight of them. In 1831, twenty were reported broken, including our old acquaintances the Banks of New Philadelphia and Owl Creek.[68]
Indiana.—January 8, 1818,[69] interest at six per cent. was imposed on bank notes not paid on demand in specie. Any officer of the bank was to endorse the demand and refusal or be fined the amount of the note, and witnesses might be called in on whose testinony a justice of the peace should endorse.
The Vincennes Bank, acting as a bank of the State, became an object of suspicion and examination in 1821. A joint resolution provided for an investigation, to find out whether the mother bank had issued notes, payable by its branches, without their knowledge. At the following session, in December, the State Treasurer was directed to make a formal demand on that bank and its branches, for payment of their notes in the treasury. If payment was refused, he was to tender to the mother bank at Vincennes the said notes, in payment of the loans of the bank to the State. A week later, a joint resolution was adopted that a quo warranto should be brought against the bank for a violation of its charter and the laws, and that if judgment was obtained against the bank, the Governor should appoint three receivers to wind it up. In this suit the bank was found guilty on four points, each of which would work forfeiture. Its debts were more than the legal limit; it had made fraudulent over-issues which it could not redeem; it had made large profits while suspended; deposits left for safe-keeping had been embezzled.[70]
The tide now seems to turn against the relief system. January 3, 1822, it was enacted that there should be no execution on replevin bonds. If seven year rents, on being offered for sale, do not bring enough to pay the debt, the land is to be sold. Replevin bonds are to date from the judgment and not from the sale on execution. The jury of freeholders is to consist of five. This last provision was declared unconstitutional. January 11th, the old territorial law was revived, which established a limited stay, varying from thirty days, on a debt of $6, up to one hundred and eighty days on a debt of over $100, and property taken on execution was to be sold for what it would bring.
In a report of the State Treasurer, January 13, 1825, there is returned amongst the liabilities of the State a sum due to the "United States, assignee of the Vincennes Bank," and payments on this account occur in the reports of the following years. This is, no doubt, a debt for a federal deposit in that bank, for which the State found itself liable. There were then $20,000 of treasury notes outstanding. From the forfeiture of the Vincennes Bank, in 1823, until 1834, there was no bank in Indiana. There is no evidence that the State found itself any the worse for the lack. In 1829, we find a law making further provision for the liquidation of the Farmers' and Mechanics' Bank. As a specimen of loose legislation, it may be noted that the act continues "all the privileges and franchises heretofore granted." In 1834, the time was extended, but it was forbidden to do anything but liquidate. All its notes were redeemed.[71]
Illinois.—January 16, 1821, all executions were suspended until November 20th, and property which had been levied on was restored to the debtor.
At the same time, the Bank of the State of Illinois was chartered against the veto of the Council of Revision, in which the vote was 3 to 5. It was established at Vandalia, for ten years, with $500,000 capital, all owned by the State, and was to have four branches and no more. The president and directors of the principal bank were to be elected by the Legislature. The first issue of notes was to be for $300,000, from ones to twenties, bearing two per cent. interest, receivable by the bahk or the State; to be allotted to the districts in which the branches were established in proportion to population. The presidents and directors of the branches were to lend the notes out over the district in proportion to population, on mortgage for loans over $100, on personal security for loans under $100, at six per cent., the loans being renewable yearly, and to be "considered as standing accommodations," the notes for the loans being made payable twelve months from date. The notes of the borrowers ran to the president and directors of the bank "for the use of the people of said State." The lands and revenues of the State were pledged for the debts of the bank and the Legislature pledged the State to pay all the currency issued by the bank within ten years, in gold or silver. No execution was to issue on any replevin bond or judgment, until November 1, 1821. On all causes of action, before the following May, replevin was to be granted for three years, unless the plaintiff would endorse that the notes of this bank would be received. The loans of the bank were to be repaid on installments within ten years, and one-tenth of the notes were to be withdrawn annually and not re-issued. The State funds were to be deposited in the bank; the school money receivable from the United States was to be paid over to it, with all specie or land-office money, and notes for double the amount of these funds might be issued and allotted in loans as above. This last provision seems to be a kind of addendum,—no doubt tacked to the bill in its course through the Legislature. It was repealed February 18, 1823. This State squandered and misappropriated its school money for ten years. February 12th, a supplement to the act for the Bank of the State enacted that there should be sixty days replevin even when there was an endorsement. On contracts after May 1st, for State Bank money, the same stay was provided, and in the same way, as that already provided for other contracts; but if the contracts were for gold or silver, the stay should be thirty days for a debt of $10, and a longer time for larger debts, up to one hundred and fifty days for a debt over $40.
The bank went into operation in 1821. All who could get endorsers borrowed a hundred dollars. The people cut the bills into two pieces so as to make halves of a dollar. For about four years there was no other money but that of the Bank of the State. Few pretended to pay their debts to the bank. More than half of the borrowers considered their debts as clear gain and never intended to pay them.[72] Many debtors refused to pay on the ground that the notes were bills of credit.[73]
The Supreme Court of the State decided, in 1826, that a debtor to the bank could not raise the question of its constitutionality; that is, could not dispute his own liability on the ground that the notes were bills of credit.[74] This decision prevailed as long as the Bank existed, but was overthrown in 1833, when the notes of this bank were decided to be bills of credit.[75] It was decided, in 1829, that a debt to this bank was a debt to the State which the State could forgive.[76]
From 1821, auditors' warrants were made receivable for bank debts. They had been issued at one-third of their face value, and were so quoted, while the State was liable for the full face value. There was a peculiar provision that each member of the Legislature was to receive such a sum, by way of remuneration, not exceeding $7 a day, as he should designate, by writing the same on a piece of paper, that he was willing to receive.[77]
At the same time that the Bank of the State was chartered, all unauthorized paper currency was forbidden, under a penalty of $10,000. If it was issued by a corporation, the charter was to be forfeited and the members were made individually liable for this fine.
February 17, 1823, the execution and stay laws were codified, with slight modifications. Thirty days were allowed for the redemption of personal property sold on execution, fifteen per cent. advance on the price being given. On the following day, another law on the same interminable subject forbade any execution to issue on a judgment by a justice of the peace, until thirty days after it was rendered. At every meeting of the Legislature, a new attempt was made to modify these laws so as to deprive the creditor of his rights and remedies. The only plea which has ever been made on behalf of these laws is that under them the debtors and creditors were led to make compromises and settlements with each other, and that, in the existing state of things, probably this was the most just and reasonable course that could be adopted.
December 16, 1824, commissioners were appointed to make an examination of the branch of the Bank of the State at Shawneetown. The president and directors of it were to pay over all moneys to the cashier of the head bank. This indicates some malfeasance in that branch.
The cashier of the Bank of the State was ordered, January 10, 1825, to burn all the notes in it, including those unsigned and unissued. This marked a revulsion against the institution. All notes which should be paid in afterwards were to be stamped "reissued," and to bear no interest. The cashiers of the branches were to pay over, at the half yearly audit, to the head bank all the money on hand. The bank was to receive no more individual deposits, and was to receive auditors' warrants in payment of bank loans.
January 28, 1826, it was ordered that State paper should not be paid out of the treasury at more than fifty per cent. discount, and the Bank of the State was to determine every three months the valuation at which that paper should be paid out during the following three months. No debt to the Bank of the State was to be scaled by the Court. If any debt had been scaled and endorsed, under the act of January 18, 1825, the sheriff was to collect, In specie or State paper, or bank notes. The wording is extremely confused and unintelligible, but it seems to mean that he shall take paper enough at the scale of depreciation to equal specie.
In speeches which he made in the State campaign of 1826, Ninian Edwards declared that the State was paying out notes of the Bank of the State at 33 cents on $1, but had to receive them for taxes, etc., at their face, and that the non-resident taxpayers bought them up at that rate, although it appears that they had, by so doing, raised their value; for he said that they would cost them 50 cents on $1 at the time of speaking. In five years, about $100,000 of the bank notes had been withdrawn, but auditors' warrants had been issued in place of them and had depreciated to about the same extent. The debtors to the Bank of the State were buying them at from 30 to 50 cents on $1 and were paying their debts to that bank with them. The loans, therefore, if all paid in, would fail to cancel the notes of the bank, for which the State was liable in specie, dollar for dollar.[78]
Edwards was elected Governor, and brought about an investigation of the Bank of the State whose officers he charged with mismanagement and corruption. The committee's report showed mismanagement, but such was the influence of a bank conducted by public officers that this committee was packed to make a report against the charges.[79] Ford makes far better criticisms on the Bank of the State system than any other contemporaneous writer. He noticed the cardinal fact, in respect to these institutions and to public improvements also, that the communities in which they were undertaken could not furnish competent men for their management. Scarcely a word is to be found to show that the legislators had any idea that the management of a great bank would require any special ability, skill, or training. They set up a bank, with $1 million or $2 millions capital, assuming that it was going to run itself and produce great profits, never troubling themselves at all about the question who was competent to manage it, to attain these results. The Legislatures always furnished from amongst their own members a large number of candidates for the offices in the bank. These men had no training whatever, except what they had obtained from some participation in politics. The case was fortunate when the worst that could be laid to them was incompetency. They had crowds of hungry adherents; there were rivals who were eager for rotation in the bank. They were forced to favoritism towards a clique of supporters, and they could not be independent against the leading politicians of the State. In many cases, also, it is beyond question that they sought the positions, and used them in a shameless manner, for their private interests. It never proved possible to call them to account or to hold them to responsibility.
The deposits in the Bank of the State were ordered to be paid back February 13, 1827. The debtors to the Bank of the State might renew their notes, and no execution was to issue against one of them for three months. Here begin the enactments, half of indulgence, half of coercion, showing the uncollectibility of the bank loans. The debtors were allowed, January 23, 1829, to pay in three annual installments, giving three notes. If they did not accept this arrangement, and give security, before September 1st, the bank was to sell the previous security and take three notes for the purchase money at one, two, and three years, with security, "which bond shall have the force of a replevin bond." A record was to be kept of the kind of money received in these transactions. Any debtor who paid by July 1, 1830, was to be released from interest, and those who paid before September 1, 1829, were to get ten per cent. discount. Year after year, either the bank or the bank debtors besought the Legislature for relief.
In 1829, Gov. Edwards tried to draw the three per cent. fund due from the United States. The Treasury Department would not pay it because it was not satisfied that the State was using the money as the law prescribed. Edwards wrote a letter substantially to the effect that it was none of the Secretary's business what the State did with it. It was used in buying up the State debt as an investment. The Commissioners of the Fund bought State bank notes which were cancelled, and the Auditor of public accounts gave them a certificate of the indebtedness, so that the State simply borrowed the school fund and used it in paying old debts, under a promise that it would some time establish and support schools by taxes.[80] The big State paper money machine led the people to despoil their own children of the bounty of the federal government. Edward's letter is a splendid specimen of the State rights literature of the period.
At every turn therefore, we find proofs that "the paper of this bank was floating through the atmosphere of Illinois for ten years, as a poisoning and pestilential vapor, that withered and blighted the country for that length of time. The paper never was at par, and sunk at times as low as twenty-five cents on the dollar."[81]
In the course often years the bank must have lost more than $150,000 by receiving depreciated currency; $150,000 more by paying it out; and $100,000 of the loans which were never repaid by the borrowers, and which the State had to make good.[82]
The cashier of the bank was in default, in 1831, and could not close his accounts. Commissioners were appointed to examine and make a settlement.
The State was bound, according to the terms of the incorporation of the Bank of the State, to redeem all the notes of that bank in specie in 1831. All parties had shirked preparation for this obligation until the last moment. January 27, 1831, the Governor was authorized to borrox $100,000, with which to redeem the outstanding notes of the bank, this loan to be payable after 1850 in specie or notes of the Bank of the United States. This was the "Wiggins Loan." February 15th, it was provided that the notes of this bank might be funded in six per cent. bonds, redeemable at the pleasure of the State. Any specie in the treasury was to be applied to the redemption of the notes, and they were to be burned.
The last enactment in reference to the debtors to the bank was February 14, 1835. They might have three years to pay their debts. All the interest and twenty-five per cent. of the principal was remitted. Thus those who had been the most remiss were the most rewarded, and any one who had paid earlier saw that he had made a mistake.
The Missouri Loan Office,[83] which became famous through the case of Craig vs. Missouri, was established at a special session of the Legislature, June 27, 1821, as a relief measure. The State was divided into five districts, and a loan office was established in each under the supervision of commissioners elected by the General Assembly. The Auditor and Treasurer were to issue certificates for $200,000, in denominations from 50 cents to $10, of the following tenor: "This certificate shall be receivable at the treasury or any of the loan offices of the State of Missouri, in discharge of taxes or debts to the State, for the sum of dollars, with interest for the same, at the rate of two per cent. from this date." The loans in each district were to be proportioned to the population, and to be secured by mortgage or personal security; the mortgages not to exceed one-half the value; the loan to be for not more than one year; the interest to be six per cent. in advance; the repayment not to be required more rapidly than ten per cent. every six months; no loan on personal security to exceed $200, nor any other to exceed $1,000; one-tenth of the notes were to be withdrawn annually by the Auditor and Treasurer. The Governor was to negotiate a loan of specie for any amount up to the amount of the notes issued, and if the Legislature should approve the contract, such loan was to be a fund for the redemption of the certificates. An appropriation of $2,000 was made for expenses. The salt springs and lands attached thereto were to be leased, and the lessees were to stipulate that they would take these certificates for salt at the rate set by law. The State revenue from the salt springs, and all the State property and credit, were pledged, with the faith of the State, to redeem the certificates.
A comparison of this institution with the great Banks of the States, above described, will show what, if any, difference there was between them. If the Loan Office had been called a bank, and the commissioners directors, and if it had been said of the latter that they were "incorporated," no difference would have been discernible.
There was understood to be a strong implication that this Loan Office was to issue no more than the sum mentioned in the act; but within a few months another $100,000 were issued. The depreciation increased thereupon from 33 1-3 per cent. to 50 per cent.[84]
The law was declared unconstitutional in the St. Louis Circuit Court, in February, 1822, in Missouri vs. Lane, the issue being pronounced to be bills of credit. The Judge in his decision gives us some glimpses of the situation. "Kentucky had got the start of us in the paper money system, and her citizens, finding there was nothing else to be had at home for their products, brought them here and sold them to us at reduced prices. The advantage of this to the consumer was overlooked, and we determined to adopt the paper system, to exclude the commerce of Kentucky. This purpose has been accomplished. The price of produce has been so reduced that that of Kentucky comes here no longer." "We are told of the 'pestilent effects of paper money on the industry and morals of the people.'" On this subject, let us look to the listlessness, the broken-hearted indifference to exertion, which, under the pressure of great pecuniary distress (the strongest incentive to exertion, where every ray of hope is not excluded) pervades the hardy population of this fertile country. Let us look for its effect on morals to the criminal docket of this court, at this term. Offenses, the offspring of wantonness, of folly, of desperation, of a cultivated contempt for the rights and feelings of others, and disregard for the opinion of the world, and disrespect for what men have been accustomed to hold respectable,—and in short of a total depravation of the moral sense and dissolution of moral obligation, encumber our proceedings and disgrace our records."
In connection with the Loan Office, a new and wider stay law was also enacted December 28, 1821. Each county court might appoint three valuers. The plaintiff might endorse that he would take property at two-thirds of the valuation. When the Sheriff makes a levy, the valuers are to value the property. After twenty days it is to be put up for sale. If no bid amounts to two-thirds of the valuation, the Sheriff is to deliver the property to the creditor at that limit. If the creditor makes no endorsement, the debtor is to have a stay for two years and six months, giving bond, with sureties, approved by the Sheriff. This law is not to apply to debts for lead ore delivered. Instead of giving a bond with sureties, the debtor may give land at two-thirds of the appraisal, as security, the judgment being then construed as a mortgage. At the expiration of this stay, if the debt is not paid, there is to be a peremptory sale. The act applies to foreclosures on mortgage. If the Sheriff violates this act in his proceedings, he is to be fined $20, and the sale is to be void. On January 11th following, the further provision was made that the plaintiff might endorse Loan Office certificates.
This act was also at once declared unconstitutional in the Circuit Court of St. Louis county, in the case of Glasscock vs. Steen, with a citation of Crittenden vs. Jones[85] and Townsend vs. Townsend.[86] The Supreme Court of the State confirmed this decision, and the people acquiesced.[87] The stay law was repealed November 27, 1822.
The Bank of Missouri failed in the summer of 1821. Its capital was $210,000, of which the directors had paid $108,795 by stock notes. They had borrowed $79,569 on mortgage security, $60,075 on personal security, and they were liable for $37,310 as endorsers, so that they owed it more than $75,000 in excess of its capital. The notes in circulation amounted to $84,301. The bank also held United States deposits to the amount of $152,407.[88]
The State expenses were provided for, January 2, 1822, by $50,000 Loan Office certificates. In the same month, two supplementary acts were passed to perfect the Loan Office system. December 29, 1821, $50,000 in Loan Office certificates were loaned to Neziah Bliss, to encourage him to establish iron works. January 11, 1822, $10,000 in Loan Office certificates were granted, under certain conditions, to some persons who promised to set up a grist mill, and $40,000 in certificates were reserved for similar encouragements to other industrial enterprises.
This was entering on a wide field of possibilities; but the next Legislature assembled with quite different ideas. One of its first acts, November 27, 1822, was to enact that no more Loan Office certificates should be paid out or loaned, and the grant to Bliss was revoked. December 18th, the whole system was arrested as far as possible. Loans were to be called in at the rate of ten per cent. every six months. The certificates were not to be receivable for the fees of State officers. Next followed the struggle to bring about a liquidation of the contract between the State and its debtors, as in all the other cases of this kind. We find a law for this purpose in 1829 and another in 1831. In the latter it is provided that the debtors shall be released at 50 cents on the dollar.
Mississippi.—A joint resolution was passed against the admission of a branch of the Bank of the United States, February 12, 1828, on the ground that any such bank ought to be taxable, like the property of Mississippians. This act was repealed December 13, 1830, and the Bank was invited to establish a branch in the State. One was established at Natchez.
Alabama.—At the session of 1820-21, we find the State struggling with the suspended banks. In a tax law of December 20, 1820, a tax of fifty cents per share was laid on bank stock, but it was to be doubled on any bank which was not paying specie on July 1, 1821. A year later it was enacted that after February 15, 1822, no note should be receivable by the State for dues or penalties, unless the bank which issued it was regularly redeeming its notes with specie. Any note-holder might get judgment against the bank for a note not paid on demand, and if any bank should not be redeeming its notes in July, 1822, the Governor was to inform the prosecuting officer of the county in which it was situated, directing him to try a quo warranto to forfeit the charter. In a tax law passed at the same time, the Governor was directed to inform the tax collectors of a suspension by any bank, in or out of the State; the notes of such bank were not to be received. The penalty tax was also re-enacted. November 29, 1821, the Governor was directed to pay the debt of the State to the Huntsville Bank in its own notes then in the State treasury.
A year later a quo warranto having been entered against the Planters' and Merchants' Bank, the suit was suspended, until March 1, 1823, on condition that the bank would pledge itself to resume during 1823. If it should suspend at any time after January 1, 1824, the Governor was to issue a proclamation that its charter was void. December 3, 1823, however, we find another act ordering this bank to resume August 1st of the next year, or forfeit its charter. If it assents to this, the quo warranto is to be further suspended; if not, it is to be prosecuted.
At the end of 1823, the distress of the people in the northern counties was very great. They had only Huntsville money. The collectors of those counties were therefore directed to take this currency for taxes if the bank would pledge itself to redeem the same in November, in the notes of specie paying banks. The collectors were to take oath that they had not obtained this currency by exchange. At the same time the Treasurer was directed to present the notes of the Huntsville Bank in the treasury to that bank and demand payment. If it refused, he was to sue it. The Governor declared its charter annulled, in February, 1825.[89] The indulgence to the Planters' and Merchants' Bank proved vain and it also failed.
A charter for a Bank of the State of Alabama was enacted, December 2, 1820; $2 millions capital, half by the State. It never went into operation, presumably because the private capital could not be subscribed. December 20, 1823, another act for a Bank of the State was passed, with this preamble: "Whereas it is deemed highly important to provide for the safe and profitable investment of such public funds as may now or hereafter be in the possession of the State, and to secure to the community the benefit, as far as may be, of an extended and undepreciating currency." This bank differed from the one projected in 1820 in that it was purely a State concern and had no private stockholders. It had no specified amount of capital. The faith and credit of the State were pledged to make good deficiencies and losses, and the various funds and permanent revenues, either belonging to the State, or under its care, were put into it; so that it was to "bank" upon them for its own interest, instead of investing them. The proceeds of the school lands from the federal Government were to go into its capital, and the State was to guarantee to the State University its funds, paid into the bank, not exceeding $100,000. The federal three per cent. fund was also placed in it, the dividends on which were appropriated to roads and canals; also the lands assigned by the United States for the seat of government, and the revenues from leases of salt springs; furthermore all escheats and other perquisites of the State. Six per cent. State stock was to be issued in aid of the capital of the bank, and all the public funds, not pledged to the capital of the bank, were pledged for these bonds. No single loan was to exceed $2,000, and the debts were never to exceed twice the capital. The Legislature was to elect annually a president and twelve directors. It was to last until 1845, make annual statements, be inspected by the Comptroller as often as he saw fit, and report to him monthly upon his demand. The lowest denomination of its notes was $1, and they were receivable by the State. A peremptory process of collection in thirty days was provided for it. Its loans were to be apportioned between the counties in proportion to their representation in the General Assembly.
In April, 1824, the notes of northern and eastern Banks were at 26 to 28 premium in Alabama, and the notes of Kentucky banks at 30 discount. In November, the president of the Bank of the State brought to Mobille $100,000 in specie, obtained by the sale of the six per cent. stock at New York, and an Alabama newspaper said that the bank would go into operation with upwards of $200,000 capital on hand, "the prayers and predictions of the Shylocks, the shavers, the skinflints, and screw-drivers to the contrary, notwithstanding;"[90] from which we infer that the capitalists of the State had disapproved of the enterprise and predicted its failure. December 24th, the Bank of the State was authorized to issue post notes, payable to order, in specie, having not over one hundred and twenty days to run. January 2, 1826, it was provided by law that the Legislature should, at each session, appoint a committee to investigate and examine the bank under an injunction of secrecy. January 12th, the bank was ordered to be removed to Tuscaloosa. January 13th, the injunction of secrecy on the report of the Committee of Investigation was removed, and the report was ordered published. A statement of the affairs of the bank, perhaps taken from this report, was as follows: capital, $253,646; circulation, $273,507; deposits, $164,735; loans, $448,859; specie, $141,330.[91]
In the autumn of 1826, a rumor became current that the Bank of the United States was about to establish a branch in the State. Governor Murfee wrote to Biddle, stating that Alabama had established a bank system of her own, with which she was very well satisfied, and asked a postponement of the plan to establish a branch until the Legislature of the State could express its views on that matter. Biddle answered that a branch at Mobile was required for the purposes of the federal Treasury; that the Bank would be of great benefit to Alabama, and that it never did any harm to solvent banks, although firmly resolved to perform its great duty of maintaining a sound currency.
The Mobile and Tombeckbee Banks were resisting the attempt of the State to tax them, as all banks maintained, at this time, that they could not be taxed if the power had not been reserved in their charters. The State was suing them, but offered to release them from all penalties if they would pay the arrears, interest, and costs, and $500 to the State solicitor for prosecuting the suits.
A special subject of difficulty in Alabama arose from the question who should fix the salaries of the officers of the Bank of the State. In the charter, the president and directors were to do so; but a law of January 9, 1827, assumed this power to the Assembly. Frequent acts were passed in the next fifteen years, dealing with this subject. The directors were free from jury and militia duty.
In the case of Alabama, also, no sooner has the Bank of the State been in operation a few years, than we meet with legislation to enforce the recovery of its loans (January 15, 1828), and also to correct improper acts of the directors of the bank, and to maintain due discipline over it. January 14, 1828, the directors of the Bank of the State were ordered not to buy any real estate, except to secure debts due the bank. No single loan was to exceed $5,000, and two endorsers were required on each note, each of whom would be good for the whole. The legislative committee on the bank was authorized to send for persons and papers. At this time, also, the Governor, Comptroller, and Treasurer, with the president of the bank, as a Board, were authorized to issue certificates of stock of the State at six per cent., for twenty years, to the amount of $100,000, and sell them if they could get par for them, in order to increase the capital of the bank. As the Tombeckbee Bank failed in 1827, there were now no banks in the State, except the Mobile Bank and the Bank of the State.
In 1828 there was no local bank in operation in Kentucky, Indiana, Illinois, or Missouri, and only one each in Tennessee and Mississippi. The United States Bank was doing an extensive business.
CHAPTER XI.
The National Bank and the Local Banks Co-ordinated into a New System.
§1.—Local Banks on the Atlantic Coast from the Liquidation of 1819-1822 until the Bank Expansion Produced by the Bank War.
Massachusetts.—The Suffolk Bank was chartered in 1818. It was "required to appropriate one-tenth of its whole funds to loan to citizens of the Commonwealth, residing out of Boston, engaged in agriculture or manufactures, in sums not less than one hundred or over five hundred dollars, with interest annually, these loans to be secured by mortgage." "The State was at liberty to subscribe for an increase of stock equal to one-half of the paid up capital; to appoint a pro rata proportion of directors; and to borrow at any one time any sum not exceeding ten per cent. of the capital of the bank, payable at any time short of five years, at five per cent. interest; and its total liability to the bank was limited to 20 per cent. of the capital."[93]
A committee of this bank to take into consideration the subject of country notes reported, February 24, 1819, "That it is expedient to receive at the Suffolk Bank the several kinds of foreign money which are now received at the New England Bank, and at the same rates. That if any bank will
- ↑ The indignation over the Wiggins' loan of 1831, by which the paper of the Bank of the State of Illinois was redeemed, was unsurpassed in Illinois, except when the legislature passed a law prohibiting small bulls from running at large. This was to improve the breed. The people were furious and "took sides with the little bulls." (Ford, 107.)
- ↑ 4 Folio Finance, 883.
- ↑ 16 Niles, 261.
- ↑ "Most of the errors in the business of the bank," said the president of the Bank of the State of Indiana, in 1842, "have visited with retributive justice all the parties concerned. The large loans, the long loans, and all special favors to directors and stockholders, have been not less injurious to the borrowers than to the bank."
- ↑ 20 Niles, 241.
- ↑ 2 J.J. Marshall, 79.
- ↑ 22 Niles, 291.
- ↑ Quoted 22 Niles, 116.
- ↑ 23 Niles, 162.
- ↑ Collins, 89.
- ↑ 23 Niles, 96.
- ↑ Lexington "Reporter," quoted 24 Niles, 391.
- ↑ 3 T. B. Monroe, 58.
- ↑ 5 Peters, 457.
- ↑ 4 Littell, 34; 57.
- ↑ 27 Niles, 288.
- ↑ Session laws of 1823-4, 448.
- ↑ The Legislature of Georgia passed joint resolutions, November 29, 1815, denouncing the Judges of the Superior Court for having passed, in the previous January, on the constitutionality of State laws. It was declared that if the Legislature yielded to this action, "it would be an abandonment of the dearest rights and liberties of the people." They will take no further step, hoping that this condemnation will suffice.
- ↑ 5 Littell, 335.
- ↑ 5 T. B. Monroe, 336 (1827).
- ↑ 1 J. J. Marshall, 47 (1829).
- ↑ Session Laws of 1824-5, 221.
- ↑ Kendall's Autobiography, 246.
- ↑ Democratic Review, March, 1838.
- ↑ 42 Niles, 315.
- ↑ See page 193.
- ↑ Collins, 105.
- ↑ 10 Wheaton, 51.
- ↑ It was ordered by act of Congress, May 19, 1828, that the forms of writs and proceedings in execution in the federal courts should be the same as when were used in the State courts, in the State in which the proceedings were held.
- ↑ 24 Niles, 391 (1823).
- ↑ This is the gentleman mentioned above, p.52.
- ↑ 29 Niles, 219.
- ↑ Brown's Address.
- ↑ B. F. Buckner's Address to the Kentucky Bar Association.
- ↑ 31 Niles, 310. Cf. also 29 Niles, 229.
- ↑ 25 Niles, 195.
- ↑ 29 Niles, 229.
- ↑ 28 Niles, 137.
- ↑ 39 Niles, 463.
- ↑ Treasury Report, January 4, 1837, 163.
- ↑ Elllot's Funding, 1120.
- ↑ Including $400,000 allowed for the independent banks.
- ↑ 2 Peters, 318.
- ↑ 4 Peters, 410.
- ↑ See page 161.
- ↑ 8 Peters, 118.
- ↑ 2 Littell, 333.
- ↑ 46 Niles, 210. See p.125 above.
- ↑ See Wayne's comments on Jackson's Message of 1830, page 199.
- ↑ See page 191.
- ↑ 11 Peters, 348.
- ↑ 4 Folio Finance, 835.
- ↑ 16 Niles, 341.
- ↑ The plaintiff might take the property at two-thirds of a valuation, or it was sold on a credit of one year.
- ↑ Senator White's Speech, March 24, 1838.
- ↑ 19 Niles, 183.
- ↑ Townsend vs. Townsend, 1 Peck 1.
- ↑ Elliot's Funding, 1117.
- ↑ 37 Niles, 427; 38 Niles, 427; 38 Niles, 157; 44 Niles, 62.
- ↑ 17 Niles, 84.
- ↑ 17 Niles, 186.
- ↑ 16 Niles, 434.
- ↑ 18 Niles, 399.
- ↑ 4 Folio Finance, 903, fg.
- ↑ 19 Niles, 339.
- ↑ 21 Niles, 404.
- ↑ 9 Wheaton, 739.
- ↑ Elliot's Funding, 1122.
- ↑ In the Laws for 1820-21, page 34.
- ↑ 1 Blackford, 267.
- ↑ Dillon; Indiana, 545.
- ↑ Ford, 47.
- ↑ Edward's Edwards, 175.
- ↑ 1 Breese, 161.
- ↑ 1 Scammon, 87.
- ↑ 1 Breese, 316.
- ↑ Edward's Edwards, 176.
- ↑ Edward's Edwards, 208.
- ↑ Ford, 65; Reynolds, 173.
- ↑ Edward's Edwards, 240.
- ↑ Reynolds, 143.
- ↑ Ford, 47.
- ↑ See page 141.
- ↑ Missouri vs. Lane, in the St. Louis Circuit Court, February, 1822. Supplement to 22 Niles, 128.
- ↑ Battle & Taylor; N. C. Repository, 55.
- ↑ See page 149.
- ↑ 22 Niles, 226; Supplement, 121; 23 Niles, 148.
- ↑ 21 Niles, 38.
- ↑ 38 Niles, 34.
- ↑ 26 Niles, 200.
- ↑ 30 Niles, 137.
- ↑ 29 Niles, 20, 73, 211.
- ↑ Whitney; Suffolk Bank, 4.