The Pennsylvania Bank

HISTORY OF AMERICAN CURRENCY. THE PENNSYLVANIA BANK OF THE UNITED STATES. The Bank of the United States, whose charter had now expired, obtained a charter from the legislature of Pennsylvania in a section of a road bill, "by bribery, as subsequent legislative investigation proved." It had not yet paid back the government stock or the government dividends, and it continued to reissue the notes of the old United States Bank which it received. THE CRISIS. One effect of the changes in the coinage in 1834 had been to make gold the better remittance this way. This being the metal on which English banking was based, the movement had importance for the English banking and commercial world which silver remittances had never had. In April, 1836, the gold reserve of the Bank of England began to be lowered. This went .on all summer. The speculation had also reached a point at which the rise was stayed. The Bank rate was raised to \\ in July, and 5 in September.

HISTORY OF AMERICAN CURRENCY. American bills were refused discount. Prices fell and money was withdrawn. A Parliamentary report, which criticised the jointstock banks severely, added to the prevailing uneasiness.* In November, 1836, the Agricultural Bank of Ireland and the Northern and Central Bank of Manchester were in difficulties which forced them to call on the Bank of England for aid. They received it on condition of winding up. This was the first blow of the crisis which convulsed Europe and America. The shock upon the London Exchange developed weakness in three houses doing large business with, and giving extended credit to, this country.f The importations here had been very rapidly increasing, and had been extraordinarily large in 1836. Taking merchandise only, the excess of imports over exports had been very large from 1831 on. The following table shows the excess of imports or exports of coin and merchandise during this period: * Gilbart's "Banking"; Macleod's Dictionary, art. "Banking in England" ; Tooke's "Prices," Vol. II.

f Wilkes, Wilde, and Wiggins, celebrated at the time as " the three W's."

134 HISTORY OF AMERICAN CURRENCY. 1830 1831 1832 18.33 18 34 183s 1836 1837 1S38 1839 1840 1841 1842 1843 MERCH.Excess of Exports. 8,9OO,OOO 9,000,000 25,400,000 3,8OO,OOO 40,400,000 UN-DISK. Excess of Imports. 23,500,000 13,600,000 I3,5OO,OOO 6,300,000 2I,5OO,OOO 52,200,000 19,000,000 44,200,000 I I,IOO,000 SPECIE. Excess of Exports. 1,700,000 3,100,000 5,000,000 700,000 Excess of Imports. 5,9OO,OOO 200,000 4,4OO,OOO 6,6OO,OOO 9.000,000 4,5OO,OOO 14, 2OO, OOO 400,000 2O,8OO,OOO Thus there had been imported, according" to the statement, during the six years ending Jan. 1st, 1837, over 130,000,000 more merchandise than had been exported, and a net import of specie in the same time of over 34,000,000. The movement of the metals I reserve for another section. It is evident here that the imports had not been paid for in coin, exported either by the balance of trade or by the depreciated currency. Allowance must be made for the error in all statements of export and import due to the method of estimating them. The excess of imports contains freights and profits. American shipping at this HISTORY OF AMERICAN CURRENCY.

time was steadily increasing. It increased in spite of this crisis without interruption, and it did the larger part of the American foreign trade. The freights, therefore, added little to foreign payments. Due allowance being made, it remains true that the imports had not been paid for in merchandise or metal. They had been balanced by securities exported—in other words, they had been bought on longer or shorter credits. It does not appear from the above figures, or from any evidence, that any considerable amount of securities was sent back during the panic ; rather the contrary. Outstanding business obligations were, however, called in by English creditors. The revulsion in England had also acted disastrously on the price of cotton. This ran for the year 1836 and the beginning of 1837 as follows : i8374-16J14-16 I5-I9| I6-TC I4-I7JlI-I; 6-19 I2-2O T2-2O 18-19 136 HISTORY OF AMERICAN CURRENCY.

It remained at the latter figures throughout 1837. Nowhere had the paper-money mania raged worse than in Mississippi, where the banks operated as cotton factors, manufacturing money to carry cotton, as they needed it. In March several New Orleans houses were in trouble, and were forced to apply to the banks there for extra aid. Next the pressure was felt in New York, and by April the crisis was general throughout the country. There were one hundred failures in New York in March, and the losses were fifteen millions. The New York and Philadelphia banks, including the Bank of the United States, made advances to the merchants to the amount of $1,500,000; the Bank of the United States loaning bonds payable in London, Paris, and Amsterdam. These bonds sold well, but at rates which made the loans cost the merchants two per cent, per month, and the United States Bank held all the best paper which was running to maturity. * * Macleod. I have not met with mention of this elsewhere.

HISTORY OF AMERICAN CURRENCY. 137 The rule of the Bullion Committee, * that banks should discount freely in the face • of panic, seems to be here obeyed after a certain fashion, but the committee contemplated the loan of notes by a bank whose credit cannot fail in the wildest panic ; not the loan of post notes (as these " bonds " were), on which the merchants must pay a second discount; nor the loan of notes of suspended banks, on which the merchants must suffer a loss. Their rule cannot be obeyed by banks which work up to the utmost verge of capital and credit in the best times, and have no margin for safety in a crisis. The latter can only suspend, escape all the results of a folly in which they had full share, and then loan their notes at exorbitant rates to the merchants who are yet out in the financial storm. This has been the process here in every crisis, and probably will be as long as people stand it without complaint, f * See page 250.

•j-There is a very erroneous opinion prevalent, that the English government allows the Bank of England to suspend in a crisis. There is never any question of the kind. The run on the Bank in a panic is not for gold, but for notes, that is, for discounts. If, however, there is an export of gold at the time, the notes are taken to the issue department and gold demanded. According to the charter, the Bank can circulate only fifteen mil* 138 HISTORY OF AMERICAN CURRENCY. In March a meeting; was held at New York, which was addressed by Mr. Webster. He ascribed the distress to the interference of the government with the currency, and to the " specie circular." A committee of fifty was sent to Washington to ask for the rescinding of the circular. In the address to the President (Van Buren) they said : " The value of our real estate has, within the last six months, depreciated more than forty millions." " Within the last two months there have been more than two hundred and fifty failures." "A decline of twenty millions of dollars has occurred in our local stocks." " The immense amount of merchanlions in notes on government security, and for all other notes it must have gold, sovereign for sovereign. If, therefore, there is a drain on its bullion, it must contract, or keep all notes handed in for gold. This heightens the panic. The action of the government is to recommend the Bank to disregard the clause governing circulation. It promises to ask Parliament for indemnity. The Bank then discounts freely for solvent parties, but at high rates. This always kills the panic as panic. The crisis runs its course.

Erroneous assertions have been made to the effect that the whole crisis comes to an end. This is not the case. Also that the Bank never has to avail itself of the permission. This also is an error. In 1S47 and 1866 there was no overissue. Prices fell, the exchanges turned, gold came in, and the trouble died out in two or three days, but in 1857 the bank issued ^900,000 more than the law would have allowed. They were retired again within a week. Evidently when a bank has over thirty million pounds' circulation, of which fifteen millions are secured on government debt, and the rest by coin, then ^900,000 overissue cannot affect its credit. It has a reserve strength which it can put forth in a panic.

HISTORY OF AMERICAN CURRENCY, dise in our warehouses has, within the same period, fallen in value at least thirty per cent." " Within a few weeks not less than twenty thousand individuals, depending on their daily labor for their daily bread, have been discharged by their employers, because the means of retaining them were exhausted." They ascribe all this, as they say, not to undue extension of mercantile enterprise, but to the attempt to substitute a metallic for a paper currency, the removal of the deposits, and the specie circular, " which withdrew the gold and silver of the country from the channels in which it could be profitably employed." " We therefore ask whether it is not time to interpose the paternal authority of the government, and abandon a policy which is beggaring the people." In a subsequent meeting, at which the committee reported that they could obtain nothing from the President, a resolution was passed in which the defeat of Mr. Clay's land bill was alleged as another cause of the trouble.

In May a run began on two New York banks, of which one failed. Three banks in Buffalo 140 HISTORY OF AMERICAN CURRENCY. failed next. The New York banks then suspended in a body May ioth, a law being passed by the legislature to allow them to suspend for one year. Amongst the direct causes of suspension was the demand upon the government deposit banks for the first two instalments of the 40,000,000 surplus to be paid in specie into the State treasuries, under the deposit-distribution act. These banks having now stopped payment, the government deposits were locked up, or must be taken in depreciated notes. The other banks throughout the Union followed the example of the New York banks, the New England banks holding out longest. The notes of all the banks fell to a discount, specie disappeared, and notes of every description were issued. The New York banks began to contract in order to be ready to resume, but the actual diminution of the circulation throughout the country was very small. Nearly all the banks made money out of the suspension, and paid large dividends during the year.

Two instalments of 10,000,000 each having been paid in specie to the States, one in January HISTORY OF AMERICAN CURRENCY. and one in April, under the distribution act, and a deficit in the revenue being probable, a special session of Congress was called for September, the government still attempting to continue specie payments. The message at the opening of the extra session proposed that the Treasury keep its own deposits (the plan afterwards adopted), and that a bankruptcy law for banks and corporations should be passed. Neither was passed. The President made known an estimated deficit of 6,000,000, and proposed to meet it by retaining the fourth instalment of the surplus to be distributed, and to issue Treasury notes to provide for immediate necessities. The third instalment had been paid on the first of June to the States in notes. As for demanding back the "deposit," no one spoke of it. The States were generally demanding the fourth instalment.

The Treasury notes were issued, bearing interest, and running as low as $50. As for the fourth instalment, the payment of it was put off until January 1, 1839, and then made imperative on the Treasury. When the appointed day 142 HISTORY OF AMERICAN CURRENCY. came, however, the Treasury had a deficit and could not pay it, and it was abandoned by the States. Some States were led by this distribution into expensive improvements and debt, others distributed it per capita, a few shillings per man, " which was received with contempt by some, and rejected with scorn by others ; " others divided it amongst the counties, and others refused it. As a measure of popularity-hunting, it failed. We hear a great deal of wailing about the national debt, and English history is full of such lamentation, but nations go on prospering while the debt stands still, and a forty-million surplus works demoralization far and wide. Where the carcass is, there will the eagles be gathered.

Recent experience shows us that, even under a great debt, when there is a surplus revenue wrung from the people by taxation, it is more likely to increase the appropriations than to lessen the debt. The project for giving back to the people money taken from the people by taxation, was opposed to all sense and reason, and the idea of distributing the proceeds of sales of HISTORY OF AMERICAN. CURRENCY. 143 public lands in largesses was unstatesmanlike to the last degree. The distresses of 1837 were aggravated by a failure of the wheat crop. In that and the following year this country imported bread-stuffs from the Mediterranean. MEASURES FOR RESUMPTION In January, 1838, several Boston banks were insolvent. The Massachusetts country banks were in bad condition. The best of them had $1 in specie for $11 in circulation, and the worst (Berkshire) 1 to 25. A meeting of bank delegates was called by the New York banks for November 27, "for the purpose of conferring on the time when specie payments may be resumed with safety, and on the measures necessary to effect that purpose." The convention did not meet, on account of the refusal of the United States Bank.