[that the former would not demand balances of the latter until it had discounted to a certain amount in the large cities], it became necessary to level the exchange from Washington to Boston, whatever might be the cost or hazard of the undertaking, inasmuch as the Bank of the United States had engaged to receive on deposit, and of course to pay in specie, the paper of all the contracting banks, and to permit them to check on each other for the liquidation of the public balances, the payment of which was suspended. The consequence was that each check impaired the value of the debt due to the Bank of the United States by substituting paper less valuable than that of the original debtor. It was soon discovered that this practice was not confined to the liquidation of the public balances, but was made to embrace the current business between the banks of the respective cities. The banks in New York discounted paper payable in Philadelphia, and those in Philadelphia discounted paper payable in New York. The Bank of the United States and its offices were made the instruments to place the amount of these transactions in specie wherever money was most in demand."[1]
The pretended resumption of 1817 was unreal. It never was accomplished. In 1820, Secretary Crawford said that, for most of the time since resumption, the convertibility of bank notes into specie had been rather nominal than real in the great portion of the Union.
By May, 1817, complaints began to be heard that the resumption was only nominal. May 17th, Niles said: "Though our banks ostensibly pay specie, it is almost as rare as it was some months ago to see a dollar."
The third installment of the capital of the Bank became due July 1st. Little notice was taken of it, and it seems to have been paid much as the subscribers chose. No specie was paid in, although $2.8 millions should now have been paid, according to the charter, and as public stocks had risen above the rates at which they were receivable in the capital, and as the amount of public stocks held by the Bank was subsequently found to be deficient, it appears that a large part of this installment was paid in bank notes or by stock notes. July 25th, the directors voted that the branches might make loans on pledge of Bank stock. August 26th, they voted to make loans on the stock of the Bank at 125, giving as a reason that it had been taken as collateral for loans at that rate in New York. The Committee of 1819 could not find that this was true. An endorser was at first required for the amount above par, but later this was not insisted on. September 30th, the president and cashier were authorized to renew notes discounted on pledges of stock. The president and some of the directors were deeply engaged in the stock jobbing. The former had a very large interest, on which he suffered a loss. The stock began to decline at the end of September, and in December, 1818, was at 110.
October 11, 1817, Niles said: "Though the Bank of the United States and its branches has had a considerable effect to equalize the exchange of
- ↑ 4 Folio Finance, 808.
