III. State Proposals and Actions for Monetary Expansion

Much of the response of the American people to the depression centered on monetary problems. One major group of proposals advocated that governmental measures—federal or state—combat the monetary scarcity. Since the banks were chartered by the states, the supply of money was largely a state problem, and the bulk of the discussion was waged at the state level.

The new state of Alabama, which entered the Union in 1819, had been a particular beneficiary of the postwar boom, with its great rise in cotton prices and its influx of immigrants. Alabama was the major center of speculation in public land purchases. Of the $22 million of public land debt outstanding in 1820 half was located in Alabama. Speculation in public lands was financed by the banks and spurred by the high price of cotton. Credit in Alabama was financed by three banks chartered in 1816 and 1818. It was also financed by new banks in Tennessee and Kentucky, the debtors migrating from these states to Alabama in the boom years.¹ The opinion was common in Alabama that banks were great engines for developing the country’s resources, particularly the potential cotton lands of the area. Banks were expected to create money and increase capital.²

Alabama was divided into two separate trading areas, with little connection between them. Northern Alabama was connected with the Tennessee Valley and used Tennessee bank notes; its farmers sold in local markets or floated produce to New Orleans. Southern Alabama sent its cotton to Mobile and used Georgia and South Carolina bank notes. The chief bank in northern Alabama, the Merchants’ and Planters’ Bank of Huntsville, was greatly affected by the suspensions of specie payment of the Tennessee banks during the crisis of 1819 and was forced to suspend specie payments in 1820. The notes of the Huntsville Bank depreciated rapidly with respect to specie although they continued to circulate at par with Tennessee bank notes. Specie and par bank notes began to pass from circulation into hoards. Northern Alabama suffered from a depreciating currency. Southern Alabama, on the other hand, possessed two sound banks, but they were very small and were of little importance. This area used the notes of solvent banks in South Carolina and especially Georgia. Both regions abounded in complaints of a “scarcity of money.”

As a remedy for the monetary scarcity, business houses began to print “small change tickets,” declared to be worth twenty-five cents, and municipalities also engaged in this practice. There were widespread irregularities and forgeries. Finally, the Alabama legislature, in 1821, prohibited the issuance of private change tickets, leaving the issue of small notes to municipal governments.³

One particularly important monetary problem was the suspension of payment by the Huntsville Bank and the consequent depreciation of its notes. In 1821, the legislature refused to abide by the existing law which forbade accepting notes of non-specie paying banks in taxes. The decision to accept the depreciated notes was defended by Governor Thomas Bibb as necessary to avoid excessive harshness toward the citizens of northern Alabama.⁴ This state forbearance bolstered the acceptance and raised the exchange rate of the Huntsville notes throughout the state. The Alabama legislature went further and issued Treasury notes payable in the depreciating currency of the Huntsville Bank. Under the government umbrella, the Huntsville Bank issued large quantities of notes, which sank to a 25–50 percent discount. The Treasury warrants depreciated correspondingly.⁵

With such disappointing results, the legislators began to look to another solution for the monetary difficulties: the establishment of a large, state-wide, state-owned bank. The constitution of Alabama in 1819 had specifically authorized the establishment of a state bank, with the state to own two-fifths of the stock.⁶

The legislature therefore chartered the Bank of the State of Alabama, on December 21, 1820, with a very large authorized capital of $2 million to which the state would subscribe $800 thousand. Unfortunately for the plan, however, the constitution had also provided that half of the capital stock must be paid in specie before beginning operations, and no such public subscriptions were forthcoming. The Bank remained a stillborn project.⁷

The legislature adopted another plan the following year: to consolidate the three private banks of the state into an amalgamated state bank. This bank plan was vetoed by the new Governor, Israel Pickens. The ostensible reason for the veto was that the plan linked a state bank with private banks. Actually, Governor Pickens was politically powerful in Southern Alabama, a region that had been angered by the actions of the Huntsville Bank and at the favoritism shown toward it by Governor Bibb and the previous legislators.⁸ For his veto, Pickens was hailed by many of his followers as the savior of Alabama. Pickens’s veto was followed by barring the depreciated Huntsville Bank notes from acceptance in taxes. The result was a further rapid depreciation of Huntsville notes.

It is true that Pickens’s actions removed the state prop from the non-specie paying Huntsville Bank and defeated one plan for a state-owned bank. But Pickens was not necessarily opposed to state measures for monetary expansion. On the contrary, he advocated a state bank that would be wholly state-owned, non-specie paying, and would use forthcoming public land revenue for eventual redemption. Such a bank was finally established in December, 1823, but came too late to be considered an anti-depression measure. While Pickens and the Huntsville group each favored some form of monetary expansion, many in the commercial communities were opposed to the whole idea, in particular the newspapers of the metropolis Mobile.

The Alabama experience highlights the two basic measures for monetary expansion advocated or effected in the states: (1) measures to bolster the acceptance of private bank notes, where the banks had suspended specie payment and where the notes were tending to depreciate; and (2) the creation of state-owned banks to issue inconvertible paper notes on a large scale. Of course, the very fact of permitting non-specie paying banks to continue in operation, was a tremendous aid to the banks.

State-owned banks also existed in the neighboring state of Louisiana and in the territory of Mississippi, but these had been established prior to the crisis, and played a conservative rather than an expansionist role. The Bank of Mississippi, the only bank in the infant territory, had been formed from a private bank in early 1818, and was partially government-owned. The bank was partly independent of the government, but its notes were the legal tender for the territory. The major struggle in the Mississippi legislature occurred over a bill by Representative Harman Runnels, of Lawrence County in central Mississippi, to authorize the receipt in taxes of bank paper from Alabama, Georgia, and South Carolina. This passed the legislature after a largely sectional fight between the eastern and central sections of the state, on the one hand—oriented toward the southeastern states—and more wealthy, commercial Natchez, leading town in the state and oriented toward Louisiana and the Mississippi River. Governor George Poindexter vetoed the bill, and it failed to pass over his veto.⁹

The Louisiana State Bank, established in early 1818,¹⁰ continued to be conducted with great caution. The Report of the House Committee on the Louisiana State Bank, in the 1819 legislature, praised the bank for its conservative discount policy and declared that the bank was necessary because of the great scarcity of specie in Louisiana and adjoining states.¹¹ In fact, the Committee suggested that the bank could perhaps be more liberal in granting loans.

In Louisiana the crisis and the scarcity of money led to a tightening of credit rather than expansion. Typical was the reaction of the New Orleans Louisiana Gazette, which feared that “too much regulation” was becoming the order of the day, with “paper systems to substitute for gold and silver”—“one of the hobby horses of our times.”¹²

The state of Georgia had invested in private banks from the establishment of its first bank of 1807.¹³ These investments were for revenue purposes, however, rather than efforts to expand the supply of money. Before the war, revenues from the state’s investment in banks had nearly covered the total state expenditure, so that, after the war, the state increased its investment, culminating in the largely state-owned Bank of Darien, established in 1818. The latter bank was the depository of state funds, capitalized at $1.6 million of which over $600 thousand was paid up, and had branches throughout the state.¹⁴ A proposal for an agricultural bank, however, was turned down by the legislature at the same time.¹⁵ Banks were welcomed also for their aid in supplying money and credit to the merchants and planters of the state, and the Bank of the United States branch at Savannah was originally welcomed for the same reason. The branch expanded credit, while the Georgia banks engaged in heavy expansion of credit for purchases of Alabama public lands. When the panic struck, the Bank of the United States pursued a policy of forced contraction of the notes of its branches, leading to calls on the state banks to pay their balances due to the United States Bank. In Georgia, these balances were particularly heavy, because of the widespread use of Georgia bank notes in payment for the Alabama lands, and the deposit by the federal government of these funds in the Bank of the United States branch at Savannah.

The contraction policy of the Bank of the United States resulted in mounting bitterness against it among the local banks and the population of the state. A joint committee of local banks charged a plot on the part of the bank to destroy them.¹⁶ In 1820, the Georgia legislature suspended the legal 25 percent interest penalty provision for nonpayment of specie by its banks, in so far as the nonpayment applied to debts owed to the Bank of the United States.¹⁷ In the summer of 1821, the two Savannah banks (the Planters’ Bank and the Bank of the State) took advantage of this provision to suspend specie payments to the Bank of the United States, while continuing them to individual note holders. In December, 1821, the Georgia legislature again voided the interest penalty on nonpayment of notes to the Bank of United States and extended this action to all cases of nonpayment. In recommending this action, the joint committee on the state of the banks of the Georgia legislature attacked the Bank of the United States Savannah branch for refusing to expand its note issue, and for draining the state banks of specie.¹⁸

The Bank of the United States sued in the courts, and the Supreme Court of the United States voided the Georgia law in 1824, whereupon Georgia repealed the law.¹⁹ Meanwhile this severe action by the Georgia legislature and banks disturbed Secretary William H. Crawford, one of Georgia’s leading politicians, and he took steps to ease the Georgia monetary situation. He ordered the Treasury office in Alabama to deposit all its funds in the Bank of Darien instead of the Bank of United States branch at Savannah. In its new role as Treasury fiscal agent, the Bank of Darien was able to continue the expansion of discounts and note issues, that it had originally based on the state’s stock subscription at the opening of the bank. In 1822, when the depression was over, the Treasury removed its funds from the Bank of Darien and returned them to the Savannah branch of the Bank of the United States. As a result of its previous expansion and renewed pressure by the United States Bank, the Bank of Darien suspended specie payment, its notes depreciating rapidly by 1824.²⁰

The justification for the Georgia government’s action in protecting the banks against the specie demands of the Bank of the United States was provided by Governor John Clark in his message to the legislature of November 7, 1820.²¹ Countering fears of depreciation, Clark admitted that the action might cause Georgia notes to depreciate outside the state, but justified it as preserving an important source of state revenue—the state’s bank investments—and as insuring “a circulating medium sufficient to supply the real wants of our citizens.”²²

By the end of 1822, however, Clark had changed his mind on banks, which by now had all suspended specie payments. He declared his readiness to dispense with them altogether. Clark asserted that “the opinion . . . almost universally prevails, that the pecuniary embarrassments of the citizens is greater in proportion as you approach the vicinity of a bank.”²³

Permitting banks to continue operations without redeeming their notes in specie was one basic means for a state to maintain or expand the supply of money in a time of financial crisis. The important neighboring state of South Carolina already had as its fiscal agent, a large state-owned bank, established in 1812 with a capitalization of $1.1 million. This Bank of the State of South Carolina, while conservatively operated, suspended specie payment on October 1, 1819, and continued operations until its resumption in 1823.²⁴

Anger in the state was directed against the Bank of the United States, for the pressure on the state banks, and for the general monetary contraction.²⁵ Some South Carolina leaders envisioned a general suspension of specie payments in the state. Robert Y. Hayne, then Attorney General of South Carolina, anticipated that the state would be forced onto an inconvertible paper system.²⁶ He declared that the banks, with notes depreciating, must suspend specie payments, and he denounced agents of Virginia banks for buying up bank notes and coming to Charleston to redeem them. Hayne declared:

It seems to me that the final result will be a stoppage of specie payments by all the banks and then we will find it necessary to follow the example of Great Britain and deal on paper. The time is approaching rapidly when gold or silver will be regarded as merchandise only and bill will become the current coin.

Hayne thought that each bank could be required to maintain $1 million of government bonds (“stock”) and to limit its note issue to $1.5 million. “Might not such bills constitute a circulating medium and be a legal tender?” Hayne added that the legally or constitutionally required limit would be sufficient check on the danger of an excessive issue of the inconvertible paper, and that the notes of borrowers would be as good a backing for the bank notes as specie. He recognized that to secure a stable paper it would be necessary for the states—and perhaps the nations—to act in concert. Stephen Elliott, wealthy landowner and head of the Bank of the State, also advocated an inconvertible nationwide currency, based on land for stability of value.

On the other hand, there was considerable opposition to any suspensions of specie payment. A leader in opposition was Jacob N. Cardozo, influential editor of the leading Charleston daily, the Southern Patriot.²⁷ He attacked state-owned banks including the one in his state, for a tendency to overissue their notes, and to cause excessive spending and speculation. On the other hand, he defended the Bank of the United States and its branches, the existence of which prevented excessive note issues by state banks. Cardozo was particularly angered at plans for inconvertible paper money. He denounced these alleged remedies for the crisis as the “grossest quackery.” Cardozo maintained that inconvertible paper issues would aggravate rather than cure the distress. According to Cardozo, the economic difficulties were largely caused by the banks “having chocked the channel of circulation with paper.” This distress had to be relieved, and the only way that this could be done was to “return to a free exchange of bank notes for specie.” “There is but one mode of relief,” he declared, “and that is the rigid enforcement of specie payments.” The excess of bank notes raised prices of staples and other products too high, and this had practically ended the American export trade. Only rigid enforcement of specie payment would permit removal of the excess paper and the consequent revival of exports.²⁸

There was a considerable amount of controversy in adjacent North Carolina over the actions of the banks in continuing operations while suspending specie payments, and over the role of the Bank of the United States. One of the leading advocates of inconvertible paper was the prominent Archibald D. Murphey, Chairman of the Legislative Committee on the Board of Internal Improvements. Murphey wrote to Colonel William Polk, of the State Bank of North Carolina (a private bank), attacking the Bank of United States branches for ruining banks and individuals, and calling for paper unredeemable in specie.²⁹ To Murphey, the Bank of the United States constituted the “greatest crime in years.” Murphey squarely faced the problem of depreciation:

[The] true interest of the state [is] to have a paper that has a par value at home . . . given to it by . . . the confidence of the people, and which will not pay debts or [circulate] distant markets without a loss. . . . The true mode of fixing our permanent prosperity is to adopt a system of policy as will give us a home market. Our money will easily sustain its credit among its own citizens, and if we had markets at home it could not travel much abroad.³⁰

To help put this plan into effect, Murphey recommended that the legislature “throw” money into circulation in expenditure on public works, to the extent desired by the banks.

The North Carolina banks were not penalized by the legislature for suspending specie payments to those it considered “brokers,” while maintaining payments to others. North Carolina was particularly exercised over the problem of the “money brokers,” who were generally denounced in the press. This institution grew up, almost inevitably, in response to the universally varying depreciation of bank notes. Money brokers, centering in the large cities, would buy up the notes of distant banks at a discount, and then send agents to these banks with packets of notes to claim redemption in specie at par. Banks with depreciating notes liked having as wide a circulation for their notes as possible, but naturally did not like out-of-town brokers descending upon them claiming payment. Many citizens were tempted to agree, since they found it easy to blame foreign brokers for their plight and the plight of the local banks.

Thus, the influential Raleigh Star, early in the crisis, denounced northern money brokers and accused them of being responsible for the monetary contraction and suspensions of specie payments in North Carolina.³¹ The Star suggested that the banks should refuse to pay these demands for specie and advocated outlawing the buying and selling of coin at a premium for bank notes. The paper accused the brokers of being speculators, amassing princely fortunes, and of being obstructionists. The Star also went so far as to suggest a state loan office to issue inconvertible Treasury notes eventually redeemed out of the revenues from taxes and the sale of state lands. The Star presented a detailed plan for the number of branches and suggested the sizable note issue of $30 thousand to be loaned at low rates of interest, covering only the expenses of the institution.

Typical of the attack on money brokers was an article by a “Gentleman in North Carolina,” pointing to the recent withdrawal by two New York City brokers of $100 thousand in specie from the state. “Gentleman” charged that the “brokers are trying to break every bank in the country.”³²

Defending the actions of the banks, “A Citizen” wrote to a friend in the North Carolina legislature that it should not compel them to resume specie payment. The banks had not overissued their notes, he declared; if they had, why was there still a general complaint of scarcity of money?³³ The writer also made a point similar to Murphey’s, that the fact that North Carolina bank notes were not depreciated within the state proved that they were not overissued.

Backed by government and much of public opinion, an agreement not to pay specie to brokers or their agents was made at Fayetteville, in June, 1819, by the three leading banks—the state bank, the Bank of New Bern, and the Bank of Cape Fear. Their notes immediately fell to a 15 percent discount outside of the state. The banks, however, continued to insist that their debtors pay them in specie, although they loaned out depreciated notes. Further, the banks themselves began to send agents to New York City and elsewhere to buy up their own depreciated notes at a considerable discount and then to retire the notes.³⁴

Controversy over the North Carolina bank action raged in the states. One Washington writer commended the banks as saving banks and public, and stated that unsound banks should only liquidate gradually. He suggested this action to all the states.³⁵ The North Carolina banks were vigorously criticized in the neighboring state of Virginia. One article in the leading Virginia newspaper, the conservative Richmond Enquirer, defended the brokers and asserted that the banks would suffer from the partial suspension.³⁶ The brokers, “Philo-Economicus” maintained, “were the only persons who kept up the value of the paper.” A Virginian would take a North Carolina note at par if he knew that at any time he might sell them to brokers for Virginia paper at a 2 percent discount. Should the brokers refuse to purchase the paper, the notes would depreciate and disappear from circulation to return to the issuing bank. “Few people will be willing to take it at a loss of 8 to 10 percent, and it will therefore be driven back to the counter where it first saw the light.” Thus, the individual noteholders themselves would more quickly return the notes to the bank, and the banks’ partial suspension would be of little avail.

The action of the North Carolina banks also drew sharp criticism from the influential New York Daily Advertiser, which denounced this innovation in banking as unjustly discriminating in favor of banks as compared to ordinary debtors.³⁷

In Virginia, a stronghold of financial conservatism, there was little agitation for, or consideration given to, plans for government to bolster or increase the supply of money. We have seen that Representative Miller, leader of the debtors’ relief forces in Virginia, took an anti-bank position, as contrasted to the situation in other states. A typical Virginia attitude was expressed by a writer in the influential Richmond Enquirer. “Colbert” observed that all sorts of monetary and relief projects had been proposed, and that he was “alarmed at the idea of legislative interference in any form or shape.” Such governmental interference would, in the long run, aggravate rather than mitigate the evil. Paper money schemes could only cause loss of confidence by driving specie out of circulation. Furthermore, bankruptcies were eliminating the evils of rashness and avarice. And if the current increase in the value of money were allowed to continue unhampered, specie would return to circulation. At this point, just when the evil paper system was being liquidated through bankruptcies, there were proposals urging Congress or the states to issue large amounts of treasury notes, benefiting only the speculator.³⁸

The situation was more turbulent in Maryland. Maryland had been the scene of considerable expansion in banks and bank notes, and the Baltimore branch of the Bank of the United States was perhaps the most irresponsible of the branches, its officers engaging in lax practice and outright dishonesty. The practice of stockholders paying only the first installment of their nominal capital in specie, or the notes of specie paying banks, and the remainder in stock notes, was particularly prevalent in Maryland, notably in the country banks outside Baltimore, as was the practice of heavy borrowing by directors.³⁹ The panic, as a result, brought about a large number of failures of the country banks and what has been estimated as a reduction of one-third of the bank capital in the state.

The legislature moved quickly to bolster the position of the banks. As in North Carolina, there was bitter criticism of the money brokers; and the legislature, in 1819, moved to require a license of $500 per annum for money brokers, in addition to a $20 thousand bond to establish the business. A milder requirement was soon substituted, however, after the legislature realized that this law was ineffective against out-of-state brokers. More stringent was an 1819 law prohibiting the exchange of specie for Maryland bank notes at less than par value for the notes. The law—repealed after the crisis was over, in 1823—was always readily evaded, the penalty merely adding to the discount as compensation for the added risk.⁴⁰ The New York American aptly pointed out that the undervaluation of specie by this law would cause specie to be exported from the state and discourage its import.⁴¹ In 1821, the legislature imposed a penalty for passing any note of a non-Maryland bank.⁴²

There was considerable agitation for and against various expansionist proposals in Maryland. In the summer of 1819, three such widely scattered counties as Washington, in the north; Somerset, far down on the eastern shore; and Prince Georges, near the District of Columbia, were all the scenes of citizens’ meetings, petitioning for a special session of the legislature to permit suspensions of specie payment by the Maryland banks. The banks were to be allowed to continue in operation despite the suspension.⁴³ A Baltimore writer pointed to England as reason for abandoning slavish devotion to specie payment in an emergency.⁴⁴ “A Farmer of Prince Georges County,” in the influential Baltimore Federal Republican, called on all of the state to follow the example of the three counties.⁴⁵ To permit the banks to suspend specie payments would relieve the distress of the people. It was sufficient, the “Farmer” declared, for the banks to be able to pay specie for their notes at the expiration of their charters. Another writer, signing himself “Specie,” was quick to reply.⁴⁶ His letter is particularly interesting as being evidence that the agitation for suspension was not an overwhelming movement in the grass-roots. “Specie” was interested in defending Prince Georges County from any inference that its citizens were anxious for such a special session. The “Farmer,” he asserted, was probably a bank director; otherwise he was a propertied debtor wishing to evade payment of his just debts or to pay them in a spurious “rag” currency. Suspension of specie payment he denounced as improper, unjust, and absurd. The device, he admitted, might produce a “slight degree of temporary ease,” but in the end would eventually increase our depression and distress. The writer also declared that far from the citizens’ meeting of the county endorsing the proposal, the opposite was true. The meeting was called, he declared, by a few “discontented, meddling, unknown persons.” At the meeting, however, the people were unanimously opposed. He also accused the “Farmer” of obtaining his cue from “Homo” (Thomas Law, the leading advocate of a federal inconvertible paper currency), whom he called a “notorious advocate . . . of the rag system.”⁴⁷ Typical of the opposition to banks permitting suspension of specie payment was a public meeting at Elkton, in the extreme northeastern corner of the state. The meeting was held at the very beginning of the crisis, in the fall of 1818, and was given widespread publicity by the staunch hard-money Hezekiah Niles in Niles’ Register.⁴⁸

Niles termed the meeting a gathering of “respectable” farmers, mechanics, and laborers of Cecil County. They resolved to refuse the paper of non-specie paying banks and to receive no small-denomination notes. It was declared that refusal of the country’s banks to pay specie while continuing to pay large dividends to their stock-holders was a violation of their trust.

The legislature did not act to permit suspensions of specie payment. It did consider a proposal for a state loan office to increase the supply of money. A report of the proposal was given to the Maryland House by a prominent Federalist legislator, Representative Josiah F. Polk.⁴⁹ Polk supported a loan office on the grounds that the cause of the depression was reduction in the currency. The restoration of the supply of currency to its former amount would raise prices, but would not, as critics charged, hinder our exports. In fact, declared Polk, exports from the state would be greater in monetary value, although the quantity of goods sold might be diminished. Polk presumably believed that the demand for American exports was inelastic. The price rise would enable debtors to pay their debts on just terms equal to the terms they had originally contracted, and would also bring about more diligent cultivation of the soil. Polk’s support of a state loan office, however, was very cautious in practice, since he advocated a paper currency redeemable in specie, with heavy specie reserve.

The Delaware legislature, as we have seen, rejected pleas for debtors’ relief legislation, but it did permit banks to suspend specie payments during the panic and continue operations. The citizens of New Castle County, who were in the forefront of pleas for debtors’ relief, also led in asking for monetary expansion. Their proposal, signed by 139 citizens, suggested that the Farmers Bank of Delaware and the Commercial Bank of Delaware be granted renewal of their charters with the proviso that they extend all of the loans to their present debtors for three and one half years.⁵⁰ This plan was never considered by the legislature.

In the next session, however, the House Committee on Banks recommended a new system of banking in the state.⁵¹ Under this plan, the private banks were to merge in one central bank, with branches throughout the state. The capital of the new bank would consist partially of the existing capital of the private banks and partly of new capital to be subscribed mainly by the state itself. This proposal would extend banking capital by state action, but did not involve the issue of inconvertible state paper. The proposal was amended in committee to be a planned merger of three private banks into the fourth—the Farmers’ Bank of Delaware—with some capital added by the state. In the amended plan, the additional capital was scaled down from $500 thousand to $200 thousand, compared to the existing nominal bank capital of $1.1 million. The bill passed by a vote of 11 to 8 in the House, but the Senate refused to concur.

Delaware did, however, pass a law in 1820 similar to Maryland’s, making it illegal for any person to exchange any bank note for less than its par value.⁵² Ironically, as passed by the House, this bill was originally designed to abolish the circulation of notes of non-specie paying banks by closing down banks whose notes were not at par in Philadelphia. The Senate reversed the intent by shifting the onus for depreciation on the noteholders rather than on the banks.

In New Jersey, serious consideration was given to a state loan to persons in need, mainly debtors, upon security presented for repayment. This borderline measure—between monetary expansion and direct debtors’ relief—was rejected in the same Hopkinson Report which ended the possibility of a stay law in the state.⁵³ Hopkinson objected that the “state has no money to lend.” Only a very large sum, say half a million, could appreciably affect the situation, and this could only be obtained through borrowing. Yet, heavy taxes would be required to pay the annual interest. Furthermore, there would be a social loss of the interest earnings, during the time that must elapse between the state’s borrowing and its reloaning to debtors, and, in addition, there would be losses due to expenses of distribution and expenses of recovery. Furthermore, how could the neediest give the required security? Even more fundamental was Hopkinson’s objection that the loan to needy debtors would only be temporary; the debtor would simply change his creditor, and the time of debt would be extended. Addition to state debt and taxes, he declared, was no cure for the depression; the only remedies were industry, economy, and a favorable change in the European situation.

New York opinion was highly critical of all inconvertible paper schemes. Typical was an editorial in the New York Evening Post declaring that at least there would be no suspensions of specie payments in New York City. The attempt to raise prices by increasing the circulating medium would only make the same quantity of produce pass for a greater nominal amount in paper.⁵⁴

Financially conservative New England also remained generally free of controversies over monetary expansion proposals.⁵⁵ It was necessary for the Joint Committee on Banks of the Massachusetts legislature, however, to consider and turn down proposals to prevent circulation of bank notes in the state at a discount. It curtly declared that the exchange value of notes must be regulated by the community itself, according to public wants and needs.⁵⁶

In Vermont, the desire for increased money supply took the form of advocating charters for several new banks, and the battle over these charters raged furiously. Leader in the fight for the new banks was the wealthy, influential Cornelius Peter Van Ness.⁵⁷ Particularly controversial was a proposed new Bank of Burlington—the leading town in northwest Vermont. The bill was heavily favored by citizens of this area, which was a Federalist stronghold in the state. Van Ness piloted the bill through the General Assembly, passing the House in November, 1818 by a vote of 97 to 81.⁵⁸ Even so, many restrictions were imposed on the new bank. There was a penalty of 12 percent interest and forfeiture of the charter for suspending specie payment. Furthermore, the note issue was to be limited to the amount of specie plus three times the paid-in capital, and there were provisions for strict supervision. Even so, Governor Jonas Galusha vetoed the bill, and the veto was sustained.⁵⁹ By a slim margin, the House refused to charter a new bank in Windham County, and five other proposed banks were rejected or refused consideration. In fact, in the three years of agitation from 1818–21, only one bank was chartered, the Bank of Brattleboro, and that over heavy opposition.

A clue to the determined opposition to new bank charters lies in the annual message of Governor Galusha to the state legislature, in the fall of 1819.⁶⁰ Galusha pointed to the general distress, the scarcity of circulating medium, and the inability of debtors to pay their debts. He reasoned that the cause of this distress was the multiplicity of banks, and that therefore adding new banks would merely aggravate the problem. Observing the various states, he declared:

In those states where the banks are the most numerous and the means of credit the most easy, the recent cry of scarcity of medium, and its consequent distresses, have been the most heard and felt.

Pennsylvania was hit heavily by the crisis and was particularly noted for extensive investigations by its legislature into the extent of, and the possible remedies for, the depression. Most notable was the special committee headed by State Senator Condy Raguet of Philadelphia. Raguet received reports of widespread depression throughout the state. After studying written testimony, sheriff’s records, petitions, and answers to committee questionnaires by members of the legislature, Raguet concluded that the economic distress was unprecedented. The distress took the following forms: ruinous sacrifices of landed property at sheriff’s sales for debt; forced sales of merchandise; bankruptcies in agriculture, trade, and manufacturing; a general scarcity of money, making it almost impossible to borrow; a general “suspension of labor”; general stagnation of business; suspension of manufactures, and unemployment.

Raguet tended to be conservative in his economic views. His committee report brusquely rejected any direct debtors’ relief or stay law legislation. On the other hand, Raguet advocated a State Loan Office to lend paper money to distressed debtors. He suggested that the state form a $1.5 million loan office to lend to the largest possible number of sufferers, particularly farmers and manufacturers, on landed security. The loans would be at long term (from five to ten years) and the attempt would be made to exclude speculators. Raguet declared that in this crisis the paternal care of the government was necessary. Not all individuals could be saved, but many unfortunate farmers and debtors could be greatly relieved. Although the details of the plan were never clarified, it appears that, unlike the loan office plans in the western states, this proposal did not involve inconvertible state paper but rather the borrowing of money from the public and relending it to debtors. Raguet declared that such a scheme would diffuse capital and greatly benefit the community. Money would be more plentiful, for

the plenty or scarcity of money depend no less upon the rapidity or slowness of circulation, and upon the expansion or contraction of confidence, than upon its absolute quantity.⁶¹

The greater the turnover of money, the more debts it could cancel.

A loan office for Pennsylvania had originally been suggested the month before by Governor William Findlay, in his annual message to the legislature.⁶² Findlay suggested a state loan office fund, to draw money away “from comparative inactivity” to be loaned on landed security. This would help to check the sacrifices of property and would also “aid in giving new life and activity to numerous pursuits of productive industry, and facilitate the progress of restoration from the embarrassments.” Thus, the government would cooperate in providing the citizens with relief.

Despite the initial impetus to the loan office proposal by the State Administration and the support of such an influential legislator as Raguet, the proposal met with powerful opposition. One of the most influential newspapers in the state was the Philadelphia Aurora, traditionally the organ of ultra-Jeffersonianism. Its editor, William Duane, was a staunch conservative on monetary matters and was in bitter political opposition to the Findlay administration.⁶³ In the House, Duane, a representative from Philadelphia, was named chairman of the Special Committee on the General State of the Domestic Economy.⁶⁴ In his report, Duane also stressed the widespread extent of the distress in all economic occupations throughout the state. Rejecting debtors’ relief proposals as did Raguet, Duane also firmly rejected a state loan office. He declared that such proposals had always aggravated rather than removed the depression. Furthermore, pointed out Duane, lending only on landed security would be unjust and would discriminate against those who did not own landed property. Those in most distress were the speculators who had little land to pledge in security. But more important, a loan office would extend the very evils of “fictitious capital” largely responsible for the depression, would give false new hope to debtors, and would delay the vital restoration of domestic thrift. Also, Duane was highly critical on political grounds, fearing that a large class of debtors to the state would always manage to avoid repayment of their loan. Thus, the public debt would increase with no corresponding increase of capital.

Duane’s report aroused a storm of controversy in the House. Leading the angry opposition was Representative Henry Jarrett, from rural Northampton County in eastern Pennsylvania. Jarrett, a minority member of the committee, who had originally called for the committee investigation to establish a loan office, objected that the Duane report opposed all the petitions from his constituents. These constituents were in great distress and were demanding some relief.⁶⁵ As a result, the House voted to prevent the official printing of the report; the vote was a narrow one, 49 to 40. Heaviest support for the Duane Report in the vote came from the city of Philadelphia, and from nearby Bucks and Chester Counties, all voting unanimously for printing. (Yet, in the previous session, citizens of Chester County had petitioned for a state-owned bank.) On the other hand, while rural York County, for example, voted heavily against printing, so did the representatives from Philadelphia County.⁶⁶

Emboldened by this success, Representative Jarrett submitted, on February 1, a substitute report of his own on the pecuniary distress.⁶⁷ Interestingly enough, in his analysis of the causes of the depression, Jarrett was as conservative as Raguet and Duane, in attributing it largely to excessive bank credit in the boom. But their agreement on causes did not prevent a sharp disagreement on remedies or on the specific question of a loan office. Essentially the controversy was whether now—in the depression—a dose of money and credit would considerably alleviate distress or would aggravate matters by adding more of the alleged original poison leading to the present ills. To Jarrett there was no question that some relief to debtors was needed. At present, he declared, there was a great burden of unpaid debt, and this burden was causing loss of confidence by potential creditors and a consequent near prostration of all private credit. Jarrett conceded that the most important remedy was not new money but restoration of confidence. But he reasoned that if the government established a loan fund, granting loans on ample security, this would tend to re-establish confidence and credit in general. Furthermore, he visualized a similar pump-priming effect as did Raguet. A dollar thus loaned would rapidly circulate, and tend to repay many times itself in outstanding debts. As Jarrett stated:

An inconsiderable sum of money, for which the most ample security could be given, being loaned to a single individual in a neighborhood, by passing in quick succession, would pay perhaps a hundred debts.

Furthermore, the impetus to confidence and credit would “thereby bring into action additional sums that are now dormant, and give renewed impetus to industry.” He therefore called for a $1 million state loan office.

Faced with this controversy, the House tabled the entire issue. Finally, a loan office bill, providing for $1 million—$2 million of state loans on landed security, failed to pass by the narrowest possible margin—a tie vote. According to the well-informed National Intelligencer, much of the support for the loan office bill came from the “log-rolling” of those eager to advance a bill for the appropriation of state money for extensive internal improvements.⁶⁸ The loan office issue continued to be a lively one in the state, however. A year and a half later, the Philadelphia Union, a paper of Federalist leanings and a notable stronghold of conservatism on monetary matters, warned that in Pennsylvania the “rage is for a loan office.”⁶⁹The loan office, it asserted, was being advanced as the sovereign panacea—for the payment of debts, to end speculation, to encourage industry, and even to reorganize society. The Union declared that Pennsylvania had about fifty banks, five hundred brokers, and from five thousand to fifty thousand private lenders of money. Yet they were not willing to lend to all who would like to borrow, so a loan office was supposed to be necessary. Yet, since overextension of credit was the cause of the distress, the loan office would attempt to cure the evil “by forcing still further the causes to which they owe their existence . . . instead of looking for relief in the restriction of the credit system, we are to look for its extension.”

The Union pointed particularly to the plan of a local newspaper in Paradise—in Lancaster County—a small town close to Philadelphia. The Paradise editors advocated a $3 million–$5 million fund loaned for twenty years to distressed persons. Their argument was simply: why shouldn’t the legislature grant such relief “when it is in their power to do so?” The Union attack was directed at the losses that would accrue from unwise lending by government. Private lenders were willing to risk continued fluctuations in the value of money. With proper security, there were plenty of lenders available, and no forcing was required. If a man could not borrow privately, he was really bankrupt and could not put up the security envisioned in the loan office plan. In sum, the Union could only see in the plan a sacrifice of permanent prosperity for mere temporary relief.

The Union added the argument that it was necessary for the crisis to run its course further, since there were still some basically unsound bank notes circulating in some of the counties. When the true value of the currency became evident, its total supply would contract even further. The paper also developed an interesting reply to the loan office claims of bolstering confidence. Lack of confidence and idle capital, it stated, were due not to purely psychological factors but to the simple fact that there was no good security available. Furthermore, as the state would borrow its sums in bank paper the circulation of the banks would increase, and their issues extended. Eventually, the process of cessation of monetary expansion, calling in of loans, and contraction, would be set in motion again. Countering the argument of beneficial increase in velocity of circulation, the Union declared that increased velocity would only lead to further depreciation of the already unsound currency.⁷⁰

The West was the major center of state monetary expansion. Yet, Ohio, very hard hit by the panic and in great monetary difficulties, was very spare with such legislation. It directed its attention instead to its famous conflict with the Bank of the United States, which came to a head during this period. Ohio, a thinly populated state, had experienced a great boom in the postwar years, and contained twenty-four banks by the beginning of the crisis. Heavily in debt, much of Cincinnati was foreclosed during the crisis by the branch of the United States Bank. By 1819, only six or seven of the state’s banks were redeeming their notes, the others struggling to continue with their notes greatly depreciated.⁷¹ The scarcity of money led to barter in many interior areas. Yet, Ohio did not seriously consider a state bank or loan office plan. Governor Thomas Worthington, in his message to the legislature in December 1818, did propose a state bank because of the disordered state of paper currency and the difficulty in collecting taxes, but nothing came of this suggestion.⁷² A bill to this effect was introduced in the Senate, but never came to a vote. Governor Ethan Allen Brown, however, in the next annual message, abjured all such remedies for the crisis.⁷³ He added that there must be further contractions of bank notes rather than an expansion. Brown continued in this position throughout the depression, reaffirming, in December, 1821, his opposition to any system of bank and paper credit as remedy for the distress. The one Ohio act to bolster the money supply was, in February, 1819, to prohibit buying or selling of bank notes below their par in specie. This futile attempt to halt the depreciation of bank notes was not enforced and was finally repealed in January of the following year.⁷⁴

Most of the banks in Ohio failed during the depression, but, as we have seen, the legislature tried to maintain their notes at par, despite their suspension of specie payments. In December 1819, a committee of citizens of Cincinnati issued a report backing the suspension of the banks and urging continued circulation of the notes.⁷⁵ The report absolved the banks from all blame for their plight and attributed the distress to the contractionist pressure of the United States Bank, much hated in many states for similar reasons, and to the machinations of eastern money brokers. These expressions of confidence, however, did not keep the bulk of the banks from failure. It is interesting that this point of view was not seconded by the Cincinnati Gazette itself, which blamed the banks for unwarranted extensions of their credit and even noted that the United States Bank had been extremely patient with the banks’ failure to redeem in specie.

The neighboring state of Indiana suffered severely from the depression. The state’s major money-making export—grain to New Orleans—declined greatly in value. Land values plummeted, and some formerly flourishing towns became uninhabited.⁷⁶ As a result, half of the state taxes were in arrears, and the Indiana legislature petitioned Congress not to prosecute its citizens for non-payment of federal taxes.

The banking situation in the state was unique. The Indiana Constitution of 1816 had prohibited any further incorporation of banks, except for a possible state bank, which would require a minimum specie subscription of $30 thousand.⁷⁷ This provision effectively confined chartered banking in the state to the two banks established two years before, the Bank of Vincennes and the Farmers’ bank of Indiana at Madison. In January 1817, Indiana adopted the Bank of Vincennes as a state bank, and its authorized capital was tripled to $1.5 million with the state contributing $375 thousand of the increase.

By the fall of 1818, the Farmers’ Bank at Madison, under pressure by the United States Bank and others, suspended specie payment and wound up its operations by 1820.⁷⁸ Meanwhile, the grandiose plans for a state bank at Vincennes, with fourteen branches throughout the system, could not be consummated. Most of the leading politicians of the state were stockholders of the state bank and the state itself subscribed heavily. With only seventy-five thousand people—almost all farmers—in the state, and a scarcely developed capital market, such a large bank could hardly be floated. The state had therefore no success with an attempted sale of over $2 million in bank stock. Only three branches were finally organized. The bank participated heavily in the boom and received the benefit of federal deposit in the state; but it suspended specie payments during the crisis, and the federal government removed its deposits in July, 1820.

Indiana, in the monetary sphere, thus differed from most other states. While elsewhere people could call for a state bank as a remedy for the crisis, the people of Indiana had already had a state bank and were disgruntled with its record. In Indiana, state banking was on the defensive rather than the offensive. Among the leading opponents were the large numbers of incoming settlers from other states. These settlers exchanged their specie and Bank of United States notes for state bank notes at the frontier, only to find their value greatly depreciated at the next town. A meeting denounced the banking system of the state as injurious, fraudulent, and dangerous, and decried its political influence. The members vowed not to support any bank director for public office.⁷⁹ Leader of the opposition to the bank was Elihu Stout, editor of the Vincennes Western Sun in Indiana’s leading town. Born in New Jersey, Stout had worked for years in Kentucky and in Nashville, and there had become a personal friend of Andrew Jackson. The leading force on behalf of the state bank was the Vincennes Sentinel, the editor of which was an officer of the bank. The “aristocrats” of the Vincennes area, such as United States Senator James Noble, Jonathan Jennings, and William Hendricks, supported the bank.⁸⁰ The opponents were later to be leaders of the “Jacksonian Democrats” in the state. The opposition pointed to the heavy loans to directors and to leading political figures. It grew more and more exercised because the state continued to accept the unredeemable notes of the bank, notes that continued to be issued in defiance of the bank’s charter. The opposition also pointed out that the state’s receiver of public dues was an officer of the bank. Further, the state, in 1819, deposited $10 thousand of irredeemable bank notes. This was done at a time when the state was short of specie to pay its own officers.⁸¹ In late 1818, the legislature had all but unanimously decreed a stay of execution for one year should creditors refuse to accept at par the paper of those banks of the state, whose “money was current with the markets.”⁸² Finally, the opposition, headed by General Samuel Mulroy, introduced in July, 1820, a resolution in the legislature to investigate the state bank. The resolution failed.

The opposition was particularly angry because the bank was obligated by its charter to pay specie, yet was continuing operations while refusing to redeem. Representative John H. Thompson moved a bill to require the state bank to pay in specie or forfeit its charter, but the bill was defeated. Leader of the pro-bank forces was Representative Thomas H. Blake of Knox County, the county which included Vincennes. Blake’s major arguments were the dependence of governmental salaries on the notes of the state bank and the assertion that no western banks were paying specie. The state election of 1820 was waged on the bank question. The issue was whether or not the state bank should be compelled to redeem its notes in specie. The voters chose overwhelmingly in the affirmative, and there was a heavy turnover of members of the legislature, even in areas that were formerly strongholds of the bank.

Actually the bank was on the edge of bankruptcy, and had been subject to considerable embezzlement by its officers. The election forced its demise. The bank suspended operations on January 2, 1821, and was forced to end its affairs completely by the following year.⁸³ Richard Damil, at a banquet in honor of General William Henry Harrison, at Vincennes, toasted its demise: “The State Bank of Indiana; more corruption than money.”⁸⁴

Although the commerce of the neighboring frontier state of Illinois was hardly developed, it chartered four private banks in the postwar years, two of which loaned heavily for public land speculation. The Bank of Illinois, at Shawneetown, was a particular favorite of the state government. As early as the beginning of 1817, Illinois had passed a stay law, postponing all executions for one year unless the creditor agreed to accept the notes of that bank and of several other banks in surrounding states. When the crisis came, the banks began to fail. There was a mass of unpaid debts, and Illinois note-holders suffered from the wave of bank failures in Ohio, Kentucky, and Missouri, the notes of which also circulated in Illinois. The Bank of Illinois failed by 1823, and another leading bank, the Bank of Edwardsville, which had begun business in the fall of 1818, failed in 1821.⁸⁵ The other two banks—the Bank of Kaskaskia and the Bank of Cairo—never began operations.⁸⁶

Illinois was thus confronted not only with a heavy debt burden but with failure by its own and neighboring private banks. Furthermore, the Illinois State Constitution, ratified in 1818, provided that no further banks be chartered in Illinois except a state-owned bank. The route seemed paved for a state-owned bank to come to the rescue. The first step of the legislature was to establish a specie paying bank.⁸⁷ In the spring of 1819, it chartered the State Bank of Illinois, to be half owned by the state, half by private individuals. Authorized capital was to be the huge amount of $2 million from private sources, plus $2 million from the state, with the state to choose half of the directors. The bank was to have ten branches. Ten percent of the stock would be paid for directly in specie or specie paying bank notes, with a 12 percent interest penalty for any failure to redeem the bank’s notes in specie on demand. Not only was this capital not forthcoming but the new bank could not even attract the $15 thousand in specie capital legally necessary to begin operations. Even a supplementary act declaring state warrants the equivalent of specie could not attract the needed capital. As a result, the bank never began operations, and the charter was rescinded in 1821.

Meanwhile, the fall in prices of land and other property, and the bank failures and contraction of the money supply, added to the distress and to the burden of unpaid debts. A clamor began to arise for a wholly state-owned bank, which would not be hampered in its operations by any specie paying requirement. The agitation was led in the Illinois House in the 1819–20 session by Representatives Richard M. Young and William M. Alexander, both from Union County in the southwestern tip of Illinois. Union County citizens submitted a petition for the establishment of a new State Bank of Illinois to issue inconvertible paper.⁸⁸ After the defeat of an amendment to reduce the bank’s nominal capital, and to increase the proportion of paid-in capital, the bill passed the House by the narrowest of margins, fourteen to twelve. Two weeks later, an unusual protest was filed in the House against the bank bill by four Representatives: Wickliff Kitchell and Abraham Cairnes from Crawford County, Raphael Widen of Randolph County, and Samuel McClintoc of Gallatin County.⁸⁹ These counties are in widely scattered areas of the state: Crawford in the East; Randolph in the West; and Gallatin, a more populous county, in the Southeast containing the town of Shawneetown. The protest assailed the bank bill as unconstitutional. But, in addition, it assailed all banks—even those redeeming in specie—as dangerous, and as creators of false and fictitious habits, corrupting morals by providing “quick and easy access to every luxury and vice.” The proposed state bank, without one cent of specie capital, was far worse. For it was clear that its credit had to depreciate, thus deceiving those who would accept its notes. The paper bank would inject “a false and fictitious currency, which has no intrinsic value, which must depreciate” like the old Continentals. The second economic argument was that the general embarrassments were due to bank credit expansion, and therefore that the bank would also aggravate the depression as well.

Citizens’ meetings in the previously mentioned counties protested against the bill, as did citizens of Bond County, a small county in western Illinois. The Bond County resolution met the relief problem squarely. It stated that the legitimate object of banks was to afford a convenient medium for granting credits on solid capital, and that they were not suited for projects to create funds for needy individuals.⁹⁰ It warned against depreciation of the new bank notes. On the other hand, a citizens’ meeting in adjacent Madison County, containing the important town of Edwardsville, supported the new bank as an expression of the state’s duty to afford relief. Support for relief was also given by the Edwardsville Spectator, Edwardsville’s influential newspaper.

Passing both Houses by a very close margin, the bill was vetoed by the Council of Revision, which consisted of Governor Shadrach Bond, who had opposed such a bank in his opening message, and the judges of the State Supreme Court.⁹¹ The Council vetoed the bill unanimously, on the grounds of unconstitutionality, and issued a prediction that the bank notes would depreciate, and thus be an unsatisfactory medium, especially for interstate purchases.⁹²

The House lost no time in countering the veto message. It referred the bill to a select committee, weighted with supporters of the bank, and the committee recommended overriding the veto in its report a few days later.⁹³ The committee report, in addition to defending the constitutionality of the proposal, admitted that the bank paper might not be received outside the state, but hailed this development as beneficial. “If other states did refuse to receive Illinois paper, the citizens of Illinois would have more for their own use.” Despite the fact that Speaker John McLean, from Gallatin County, temporarily resigned his chair in order to combat the bill, the House overrode the veto (only a simple majority being needed) by seventeen to ten, a far greater margin than before. The Senate also overrode the veto, and the new State Bank of Illinois was established.⁹⁴

The state bank was installed at Vandalia, in middle Illinois, with five branches, and a total nominal capital of $500 thousand. The only specie capital was $2 thousand from the State Treasury to pay for the cost of printing an issue of $300 thousand in inconvertible notes. The notes were distributed to the branches in the various districts with instructions to lend as fast as applications came in, in proportion to the number of inhabitants in each district. They were declared receivable in all debts due either to the bank or to the state. Loans above $100 were securable by mortgage on real estate and by personal security for loans under $100. The maximum loan to any one person was $1,000. The rate of interest was 6 percent, and the loans were renewable annually, with the payment of 10 percent of the principal—the bank was envisioned as operating for ten years. The bank notes were backed by a stay law, delaying all executions for three years unless the creditor agreed to receive the state bank notes. Thus, the state did its best to place the notes on as close to a legal tender basis as constitutionally seemed possible. All the funds of the State Treasury were, of course, deposited in the bank.

The bank lost no time in issuing and lending the notes. There was little concern about security or chance of repayment; in practice, anyone with an endorser could borrow $100.⁹⁵ The officers of the bank, political figures appointed by the legislature, borrowed up to the legal limit, and thus were not averse to depreciation of the notes, a depreciation which would lighten the burden of repayment. The notes began to depreciate immediately, and fell rapidly from 70 percent, to 50 percent, and 25 percent and finally ceased circulating by 1823. In January 1823, with the notes rapidly losing value, the House overwhelmingly rejected the option of issuing an additional $200 thousand.⁹⁶ No notes beyond the $300 thousand were ever issued, and the bank closed in 1824. Very few debtors ever repaid the loan; there was no prosecution for failure to pay. Specie, of course, was completely driven from circulation by the quasi-legal tender bills, while they continued in operation.

Despite the argument of the House Committee, the legislature was alarmed at the depreciation. It was particularly chagrined at the refusal of the land offices of the United States Treasury to accept the notes, and it formally petitioned the Treasury, without success, to accept the new bank notes as equal to specie. While attempting to bolster the value of the bank notes, however, the legislature took the expedient if ironic step of authorizing issue of auditor’s warrants by the state. These warrants exchanged on the market at three times the same nominal amount in bank notes. These warrants were specifically used to pay the salaries of state officials and of the members of the legislature, and arose from refusal of state officials to accept their salaries in the bank notes at their par value.⁹⁷

In the frontier Michigan Territory, the territorial and local officials issued paper money, or scrip. The Governor and judges first issued paper in 1819 in small-denomination bills, from two to twenty dollars. The paper bore interest at 6 percent and was to be redeemed out of the sale of certain public lands, but these lands had already sold at a much lower price. As a result, the paper passed at a 10 percent discount as early as 1820. Wayne County, the site of the town of Detroit, found its taxes largely in arrears in 1819 and 1820, and so the county commissioners issued paper money to be redeemed out of future taxes. No tax at all was levied in 1821, however, and by March 1822, Wayne County was $3,000 in debt. As a result, the scrip depreciated at a 25 percent discount.⁹⁸

Missouri, as noted previously, suffered from a burden of debt, particularly in land speculation. With the halving of migration during the depression and the general fall in prices, land value plummeted. The monetary situation intensified the difficulties.⁹⁹ Missouri’s first bank, the Bank of St. Louis, had opened at the end of 1816, and expanded credit heavily, particularly in real estate loans. Harassed by defaults of its debtors and the failure of other banks, the Bank of St. Louis failed in the summer of 1819. Much the same thing happened with the other major bank, the Bank of Missouri, which failed in 1821. The monetary contraction and resulting distress was intensified by the failures of banks in neighboring states, many notes of which circulated in the state. With notes vanishing or becoming worthless and with specie having been previously drained to the East, a demand arose for the state to furnish needed currency. Typical of the rising agitation for a state bank or loan office to provide paper money was a letter to the St. Louis Enquirer in the spring of 1821.¹⁰⁰ The letter pointed to the sudden creation and withdrawal of a large amount of currency that had taken place in Missouri in recent years. The writer estimated that the total paper circulation in Missouri had risen as a result of the boom—including bank notes of Missouri, Kentucky, Ohio, and the Carolinas—to $1 million. Now, in two years time, the total circulation remaining amounted to only $100 thousand. This 90 percent contraction in the money supply, according to the writer, benefited the creditor tenfold, since the value of his credit had increased to that extent. The writer concluded that a state bank was needed for relief of the people. Many newspapers presented similar letters urging a state bank.¹⁰¹

Representative Duff Green, soon to emerge as leader of the pro-relief and pro-loan office measures in the legislature, set the stage for a loan office, placing the responsibility for the “hard times” squarely on unemployment caused by a shortage of currency.¹⁰²

Although the legislature had discussed a loan office in the regular 1820–21 session, nothing had been done, but with the upsurge of interest in the spring of 1821, rumors of a special relief session of the legislature began to circulate. A special session was finally called for June 4, amid vigorous protests from anti-reliefers. Governor Alexander McNair revealed the major purpose of the special session in his call for relief from the pecuniary troubles, and his submission of the relief proposals. The major bill submitted at this session was a loan office bill. Support was bolstered by the report of a legislative committee investigating the failure of the Bank of Missouri, which urged a new state currency; the committee estimated that the money supply had contracted to one-sixth of the 1818 total. The opponents of the loan office bill liked neither an inconvertible currency based on the state’s credit, nor the two-year stay provision for those creditors who refused to accept the notes in payment. The stay section was therefore eliminated from the bill, although it passed as a separate bill the following January. The loan office bill, after spirited opposition, narrowly passed the House on June 21, by a margin of three votes.¹⁰³

There was no discernible sectional division in Missouri on the loan office or relief measures, either in the legislature or among the public. Each territorial district of the state was closely divided on the issues. Leading the opposition was United States Senator Thomas Hart Benton, later to be dubbed “Old Bullion” because of his staunch advocacy of hard money at Jackson’s side. Benton declared that the only satisfactory money was metallic and urged the citizens to end the specie drain to the East themselves by shifting their custom to a barter trade with New Orleans. Benton also suggested that the United States recognize the revolutionary Mexican government, in order to spur an influx of silver from Mexican mines.¹⁰⁴

The loan office was established with four branch offices throughout the state. It aimed to provide an expanded circulating medium to relieve the shortage of money and to furnish loans, particularly on land, for relief of the burdens of the debtors. The law authorized the issue of $200 thousand of inconvertible paper, in denominations from fifty cents to ten dollars. The state agreed to receive the notes in payments of all taxes and other debts due, and to pay them out to its officers for salaries and fees. A large portion of the law was a description of how the public could obtain loans of the new notes on their land. Loans were to be for one year at 6 percent interest, but the borrower had the right to renew the loan every year, and the state could not call in more than 10 percent of the principal every six months. However, the state was required to call in 10 percent of the notes annually. The loans were to be divided among the districts in proportion to their population. Maxima to each borrower were $1,000 on real estate and $200 on personal property, the landed property to be worth at least twice the amount of the loan. The similarity is obvious between this loan office act and the State Bank Law of Illinois earlier in the year.

The leading issue of the legislative session of the fall of 1821 was the loan office system. The expansionists and relief forces were eager to enlarge the scope of the loan office. The reliefers wanted strong stay laws, for their own sake and to give the notes a quasi-legal tender effect, and the battle over the stay legislation is recorded previously. They also suggested bills for expanding the loan office note issue, for longer loans, and for the use of the notes to finance internal improvements in the state.

Many petitions arrived in the legislature to enlarge the note issue. The St. Louis Enquirer declared that the $200 thousand issue would not be enough. That amount, it asserted, was highly inadequate “to the great purpose in contemplation.”¹⁰⁵ Governor McNair, however, was noncommittal and left the initiative to the legislature. On November 9, a bill was introduced authorizing the State Treasury to redeem its auditor’s warrants in the new notes. The bill passed the legislature, and the scope of the notes was enlarged. Not only were they now receivable by the state for taxes and used in paying its officers, but it was now a means of paying the state’s debts. Furthermore, since the State Treasury “Auditor’s warrants” could be exchanged for loan office certificates at par, they were now usable as money. To enable this backing, the law authorized a further $50 thousand issue of loan office notes.¹⁰⁶

Others wanted the state to furnish the capital to build factories and mills with loan office certificates. New wealth would thus be created, people would obtain new products, and prosperity would be restored. The expanded money supply was in this way conceived as a method of increasing the capital and productive activity of the country, as well as simply of relieving debtors. James Kennedy, George H. Kennedy, and Ruggles Whiting petitioned the legislature to lend them money to build a steam mill. Duff Green, leader of the relief forces, sponsored the project, which needed a special law, since the loan office was legally limited to a $1,000 loan for each person. Furthermore, the loan required landed property, whereas these men and others wished to engage in manufacturing activity. The legislature passed this special bill, lending the three men $10 thousand in new loan office certificates. They used $10 thousand of the $50 thousand which had been previously set aside to redeem the auditor’s warrants. Emboldened by this move, the legislature also agreed to use the other $40 thousand in similar loans for internal improvements. Money to redeem the state’s warrants could wait on loan office receipts coming in from taxes.

Now all the authorized new money was spent. The legislature passed another special act for the issuance of yet another $50 thousand in certificates and the loan of them to a Neziah Bliss for the establishment of an iron works, with mortgaged real estate as security. Governor McNair recommended that new issues of loan office paper be made and be given to each district for lending to enterprisers to erect such factories as they deem most beneficial to the people of the district. The legislature balked, however, at any further increase in note issues. McNair’s proposal was endorsed in resolutions by both houses, but no law was passed to enact it. Various other plans were offered for increases in note issue, but few came to a vote. The major bill in the House was Green’s proposal to emit another $300 thousand in note issue, but the bill was defeated. A similar bill in the Senate lost by a two-to-one vote. The door was emphatically closed on further emissions in this session when the House declared any further issue inexpedient. Authorized issues had totaled $300 thousand. The major action of the session was stay laws bolstering the credit of the loan office notes. As in the case of the stay laws, the voting on the loan office bill revealed no sectional division, but rather a division of opinion within every area and county.

As the loan office swung into action in the summer and fall of 1821, the proponents were hopeful of success. Most of the papers in the state had supported the bill, and they declared that the need for more circulating medium had been met. The Missouri Intelligencer went to the extent of urging that specie be permanently replaced by the new paper.¹⁰⁷ The same paper argued obscurely that these certificates would meet the need for currency within the state, while interstate debts could be met with farm produce, thus giving the farmer a better chance of marketing his produce. Opponents, led by the Jackson Independent Patriot, branded the law the work of sinister selfish groups, particularly speculators and bankrupt spendthrift debtors, who wanted to obtain large amounts of “rag money.” The opponents charged that the inconvertible paper would soon depreciate and drive “real” money from circulation. The advocates of the loan office retorted that the paper was soundly backed by the future resources of the state, by expected future revenues from taxes and land sales.

By January, 1822, the loan office notes began to depreciate. The relief advocates met in January at St. Charles to discuss means to bolster the value of the certificates. To no avail, however. By March, the loan office notes had depreciated to such an extent as to have practically disappeared from circulation. Unreconstructed advocates asserted that the depreciation was due to deliberate attempts of merchants to force down the value for speculative purposes.¹⁰⁸ It is true that merchants generally refused to accept the notes, but it seems evident that the reason was serious doubts on their present and future value. Some merchants took the notes only at a discount, others not at all. Several merchants in the town of Franklin banded together to announce a boycott of the loan office paper, attacking it as “calculated to injure us materially in our business.” One Thomas Willis, a barber of St. Louis, advertised in the press that he would not accept a loan office note “on any terms whatever.”¹⁰⁹

The extraordinary rapidity of the collapse of the notes was partly due to unfavorable judicial decisions that spelled the writing on the wall for the loan office. The loan office law was declared unconstitutional by the courts in February and in July, 1822, and the stay laws were overthrown in the same period. In the course of his St. Louis Circuit Court decision in Missouri on February 18, 1822, declaring the loan office act unconstitutional,¹¹⁰ Judge N. Beverly Tucker shed light on some of the reasons behind the loan office legislation. He declared that Kentucky’s inconvertible paper scheme had stimulated exports from there to Missouri, presumably because of low export prices resulting from depreciating Kentucky paper. Missouri, he declared, attempted a paper system to exclude Kentucky imports, a goal which was accomplished.¹¹¹

The elections, as we have seen, were fought bitterly during 1821 over the loan office and stay measures. The reliefers sought a constitutional amendment to eliminate judicial opposition, and charged that the judges were prejudiced against the notes because they were forced to receive them in salaries. Anti-reliefers called for repeal. The elections were won overwhelmingly by the anti-relief forces.

Governor McNair followed the straws in the wind by not only calling for complete repeal, in his November 4 message to the legislature, but also by stating that the measures had proved unsuccessful in alleviating the financial distress. McNair concluded that the only effective method of relief was private “industry” and economy. Swiftly, the legislature acted to repeal the loan office law, acting after only $200 thousand had actually been issued. The problem of disposing of the existing notes remained. One proposal to fund the notes at half their nominal value was given scant consideration, and, in a law of December 16, the legislature decided that no renewals of loans would be made, and that all borrowers would be required to pay 10 percent of the principal to the state every six months until the debt was completed. The notes would no longer be received in payment of dues by the state and would be destroyed as repaid.

Banking became a matter of controversy in Tennessee as early as the years of the postwar boom. Many small banks were established in the small rural towns of the state, and these were supported in the rural areas. The press in the two big towns of Knoxville and Nashville, however, sharply criticized this development as dissipating the capital that rightly belonged in the larger, commercial areas.¹¹² Most of these small banks were consolidated in 1818 into branches of one of the leading banks, the Nashville Bank.

As insolvencies developed in the crisis, the banking affairs of the state became swiftly disordered. The Nashville Bank, the Farmers’ and Merchants’ Bank of Nashville, and the Bank of Tennessee (Nashville Branch), all had to suspend specie payments during June, 1819. On June 21, the day before the Nashville Bank suspended, citizens of Nashville had recommended immediate suspension of specie payments by all banks of Tennessee.¹¹³ On June 23, the leading bankers of Nashville met at the courthouse and passed an almost identical resolution, urging all the banks to suspend specie payments—while continuing their operations. They insisted that while the banks should suspend specie payments the public should not allow such a step to “impair the credit” of bank paper. By July, every bank in mid-Tennessee had suspended specie payments, and the only major bank continuing to redeem was the Knoxville branch of the Bank of Tennessee. The Nashville banks issued a statement to justify their suspension. They pointed to the increased demand on them for specie; to meet these calls they would have had to press their debtors and ruin them. The Bank of the United States was blamed for the destructive pressure, as were easterners who turned in Tennessee bank notes for redemption. Therefore, the bank’s suspension while continuing operations was really a humanitarian gesture to shield their debtors and to prevent specie from being drained from the state.¹¹⁴

While the banks quickly found themselves forced to suspend payment, the public was not so eager to maintain the credit of their notes. Creditors such as merchants Willie Barrow and Thomas Yeatman advertised in the press their unwillingness to accept bank notes in payment.¹¹⁵ People turned to the legislature for debtors’ relief legislation and for methods of bolstering and expanding the money supply of the state. As has been stated, the leader of the relief forces, in both fields, was one of the dominant political figures in the state: Felix Grundy, now newly elected Representative from central Davidson County (including Nashville) on a relief platform. In Grundy’s resolutions, presented to the legislature on September 20, he stated that the “present deranged state of the currency . . . requires the early and serious attention of the legislature.” His major concrete proposal at that time was a virtual legal tender law, aimed at bolstering the money supply and aiding debtors—a law to compel creditors to accept bank notes of the state or forfeit the debt.¹¹⁶ Grundy’s bill staying executions for two years unless creditors accepted notes of state banks passed in the fall of 1819.¹¹⁷

East Tennessee was generally a more rural, less commercial area than the central region, but its main distinction was the relative absence of cotton and slave plantations, as compared to mid-Tennessee. East Tennesseans considered the suspension of specie payments by the banks, while continuing in operation, as a plan to evade meeting the banks’ just obligations. There was also a great deal of opposition to the bank suspension in mid-Tennessee. Citizens of Warren County, in that area, petitioned the legislature that banks be placed upon a “constitutional equality with the citizens” in paying their debts, by compelling the banks to redeem their notes in specie as promised. Henry H. Bryan, running for Congress from mid-Tennessee, declared in a campaign circular that

banking in all its forms, in every disguise is a rank fraud upon the laboring and industrious part of society; it is in truth a scheme, whereby in a silent and secret manner, to make idleness productive and filch from industry, the hard produce of its earnings.¹¹⁸

During 1820, the crisis continued to intensify; prices of produce fell, sheriff’s sales increased, and the bank notes, not redeemable in specie, continued to depreciate despite the stay law and the exhortations of the bankers. The cry began to spread that the great evil of the times was the continuing diminution of the currency. Davidson County, especially Nashville, was the center of the agitation. These advocates also began to criticize the banks bitterly for continuing to call on their debtors for payment. The legislature began to be considered the source from which new money should be produced. In the late spring and early summer of 1820, the chorus swelled for a special session of the legislature to supply an increased circulating medium. Typical of the agitation for increased currency at a special session was a petition from citizens of Williamson County, adjacent to Davidson.¹¹⁹ It declared that the banks were contracting credit rather than affording relief. Relief must be speedily effected to avoid the “ruin” of most citizens of the state. The Nashville Clarion lauded the “several men of wealth” who had taken up the “fight for relief.”¹²⁰ On the other hand, the Nashville Gazette opposed the plan.

Grundy prevailed upon the newly elected Governor Joseph McMinn to call the special session for June 26. The Governor, in his message to the legislature, recommended a plan for a state money. He first cited the diminution in the supply of money and the need for its increase. In his plan, the state treasury would issue certificates through a loan office, resting vaguely on faith in public responsibility, and on the usual general pledge for eventual redemption from revenues of public land sales and taxation. Three hundred thousand dollars in notes would be emitted by a loan office under control of the legislature, which would have many branches in the various counties. Its notes would be receivable in dues to the state.¹²¹ The proposal was shepherded and considerably expanded in the House by Felix Grundy.¹²² His bill provided for two loan offices, one in Nashville and the other one in Knoxville, with eight branches between them. Total note issue would be $750 thousand; $488 thousand in the Nashville area, and $262 thousand in the Knoxville area. This, he declared, might be insufficient, in which case the note issue should be increased. The notes would be loaned to individuals on real estate and personal security, at 6 percent; the maximum loan for each person would be $1,000. The maximum denomination note was to be $100, to insure plenty of notes in circulation, and to prevent seepage of large denomination notes out of the state and into the hands of eastern creditors. The notes were to rest on “public faith” and the eventual proceeds of land sales, and were to be receivable in payments to the state. Grundy asserted that the object of the legislation was to aid the wealthy as well as the poor, and that both groups were ardently for the legislation.

To the criticism that the loan office notes would not be accepted by the New York and Philadelphia creditors of Tennessean merchants, Grundy retorted that this would be so much the better, since the notes should stay at home. When that happened, surplus produce of the state could be the medium of traffic, rather than gold and silver. Grundy, in conclusion, lauded his proposal as positive and for the benefit of the community.

Representative William Williams, also of Davidson County, led the opposition to the Grundy plan. He offered two amendments to the bill: one to reduce authorized issue to $500 thousand, and the other to pledge in redemption a definite quantity of treasury surplus, thus effectively converting the plan into a far more limited operation. Both amendments were turned down by almost two-to-one majorities.¹²³ Another major leader of the opposition was Representative Pleasant M. Miller, from Knoxville, who submitted a series of amendments to reduce the branches or add funds for redemption, but all were overwhelmingly defeated. Finally, the Grundy bill passed by a two-to-one vote.¹²⁴

The passage of the Grundy bill engendered a great deal of bitterness. Protesting legislators submitted two separate resolutions against the bill. On the day of the passage, Representative Sampson David of Campbell County, in East Tennessee, submitted his reasons for voting against the bill. Among them he charged that this was an “untried and dangerous experiment,” that all paper institutions were ruinous to the best interests of the country, and that one man’s property would be used to pay the debts of another. A week later,¹²⁵ Miller submitted a protest signed by six of the other opponents of the bill, with the result that eight of the thirteen voting against the bill felt it incumbent on them to register a protest. Miller’s statement was more reasoned than David’s. Miller stated that the loan office notes would only be exchangeable in the bank notes of the state, which continued to depreciate. Therefore, the loan office notes would not be higher in value than the bank notes. In fact, they would be lower, since no funds for redemption would be possible for at least five years. Miller warned that the banks, which were the bulk of the creditors, would not receive the new notes, so that the notes would depreciate still further.

The loan office bill reached the Senate floor on July 14. Senator Samuel Bunch, from East Tennessee, moved to reduce the issue to $500 thousand, but this motion was defeated, and the amendment to make the notes redeemable in specie or specie paying bank notes was rejected by almost three to one. A stay provision for two years, if creditors refuse to accept the notes, was retained by a large margin despite an effort to strike it out. Another limiting amendment was approved, however—Nashville’s Adam Huntsman’s proposal to eliminate the Grundy provision to establish branches in every county. However, amendments to prohibit loans either to directors of the office or to members of the legislature were overwhelmingly rejected.¹²⁶

A famous incident occurred at this point. General Andrew Jackson, a wealthy cotton planter from Nashville, and several other citizens of that town, sent a very vigorous memorial to the Senate denouncing the loan office bill as unconstitutional and ruinous. Senators Adam Huntsman and David Wallace denounced the memorial and successfully had it tabled by a vote of 11 to 5. However, it did have the effect of changing the cast of the bill. Instead of a loan office bill, it was converted into a bill for a Bank of the State of Tennessee. The measure was, however, in fact made more expansionist by eliminating even the pledge of future revenue and simply basing the notes on the “faith of the state.”¹²⁷ The House forced a reversion to the eventual pledge of public revenue, but it also raised the maximum note issue by $1 million, although the final bill passed by only one vote. The Senate proposed striking out the maximum limit, but the House by a large majority failed to concur. Finally, after a most vigorous controversy, the bill passed the legislature on July 27.¹²⁸

Andrew Jackson had been most determined in opposing the legislation.¹²⁹ In his memorial, he leveled a far-reaching attack against the bill.¹³⁰ Jackson asserted that the loan office notes would not maintain equivalence with specie. All inconvertible notes depreciated down to a negligible value, and as evidence the memorial cited the old Mississippi Bubble. Jackson also cited the “judicious political economists,” who had established 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.” The abundant money supplied by the banks raised prices and led to extravagant expenditures. The increased paper money and higher prices depressed manufactures by artificially raising the high price of labor and making American products overpriced in foreign markets. If, Jackson and his associates concluded, “the paper issued by the banks upon a specie basis had been the prolific parent of so much distress, how greatly must this pressure be augmented by the emission of loan office notes.” Furthermore, these notes would not only burden tradesmen and farmers but would give a special privilege to the imprudent speculative debtor.

The remedy offered by Jackson and his associates for the depression was the same as that advanced by so many others; a return to industry and economy, an abandonment of extravagance and excessive debt. A return to industry and simplicity would restore confidence and bring back much of the hoarded specie into circulation.

The meeting which sent this memorial was organized by Jackson in Davidson County on July 15. He also organized meetings in adjacent Sumner and Wilson Counties. His friend Major William Berkeley Lewis tried to throw cold water on his moves by writing Jackson that the proposed legislation was really not much worse than private banks, and that the majority of Nashville citizens favored it. Jackson countered that the people were overwhelmingly opposed. The Jackson efforts met with bitter criticism both in the legislature, and from a grand jury of Davidson County, which accused the memorialists of attempting to thwart the will of the people.¹³¹

The final act establishing the Bank of the State of Tennessee was very similar to the loan office proposal. Nominal capital was $1 million, bank notes were to be in denominations of $1 to $100, and the notes were to be eventually redeemed by public funds. All public money was to be deposited in the bank. Loans were to be for one year, at 6 percent interest, and personal loans to be limited to $500. The bank could not call in more than 10 percent of a loan when due, except after sixty days’ notice. Personal loans would be renewable every three months. Notes were authorized up to $1 million. A stay provision held up executions for two years unless the creditor accepted the bank’s notes.

The new bank was never popular in Tennessee. The proponents were disgruntled because they felt the 6 percent interest charge to be too high. On the other hand, the notes immediately depreciated to a great extent. The Nashville Bank and the old private Bank of Tennessee refused to accept the notes of the new state bank. Furthermore, they did their best to thwart inflation of the currency by calling their loans and contracting their note issue.¹³² In June, 1821, the bank received a severe blow when the Supreme Court of Tennessee declared the stay provision unconstitutional. The handwriting for the bank was on the wall.

Both gubernatorial candidates in the 1821 elections staunchly favored rapid return to a specie basis. One of the candidates was Colonel Edward Ward of Nashville, a conservative planter and the leading cosigner of the Jackson memorial. He issued a circular to the people during his campaign denouncing the emission of paper by the new bank. Ward admitted that a large supply of paper might help the debtor, but only through injuring the creditor. Furthermore, the depreciation of currency had brought evil results to the whole country. The remedy, then, was for each individual to practice thorough economy, and for a prompt return to specie payments.

His successful opponent, Major-General William Carroll, a Nashville merchant, had practically the same views. He also advocated a prompt return to specie payment. As a matter of fact, his basic view, even though he himself was a director of the Farmers’ and Merchants’ Bank of Nashville, went beyond Ward’s in opposing all banks. He also attributed the crisis to the previously undue increase in the volume of bank notes.¹³³ In his Inaugural Message, Carroll denounced the evil consequences which had resulted from the state bank:

When floodgates are thrown open . . . there is no safe criterion to regulate . . . emission. The moment you issue more than is necessary, it depreciates . . . [particularly] . . . beyond our own neighborhood. . . . Every specie dollar that can be obtained from the vaults of the banks is . . . hoarded.

He called for gradual resumption of specie payments to restore confidence; prompt resumption, he concluded, would put undue pressure on debtors.¹³⁴

Carroll acknowledged that distress existed, but declared the only remedy to be industry and economy; these remedies had to be put into effect by the individual. By 1822, Carroll declared that the pecuniary embarrassments had “greatly diminished” due to the industry of the citizens.¹³⁵

The Bank was not ended quickly, however, as Grundy managed to battle the Administration for many years. A bill was passed in 1821 providing for resumption by all the banks by 1824, but the Grundy forces managed to postpone the full resumption of specie payments in Tennessee until July, 1826.¹³⁶ It ceased to be an important factor, even though its formal existence was extended to 1831, when it ended with a shortage of funds of $100 thousand.

The state of Kentucky had a checkered banking history before the crisis of 1819. Since 1806, the dominant bank in the state had been the Bank of Kentucky, with $1 million capital stock. This bank was half owned by the state, and half the directors were government-appointed; consequently, its operations were intimately associated with the government. During the postwar boom, the legislature chartered, in one session of 1817–18, no less than forty-six new banks with a total capitalization of $10 million. This contrasted to the total of two banks previously in existence in the state. The legislature made the entire banking structure very weak by authorizing redeemability of their notes in the notes of the Bank of Kentucky, as well as in specie.¹³⁷ The new banks expanded their credit and note issue greatly during the summer of 1818, and large speculative loans were lavishly granted. The crisis of 1819 hit Kentucky severely, and monetary difficulties figured prominently in the debacle. During 1819 and 1820, all of the new banks failed; they were not able to redeem in Bank of Kentucky notes or in specie. Still more significant was the suspension of specie payments by the Bank of Kentucky itself in November, 1818. The Bank of Kentucky had expanded its issue during the boom, too, and much of the pressure for redemption came from balances which had accumulated against it in favor of the Bank of the United States, some of them receipts of the government land office.¹³⁸

Representatives of the leading banks of Kentucky met at Frankfort on May 17, 1819, and pledged to cooperate among themselves to increase the circulating medium, without suspending specie payments. Suspensions, however, continued apace.¹³⁹

In this troubled monetary situation, a group of citizens of Franklin County, containing the city of Frankfort, met on June 4, to take into consideration the present state of the country and devise means to avert impending distress.¹⁴⁰ They drew up a set of resolutions which became famous throughout the country, drawing comment from the presses of Washington, Philadelphia, and New York. This was probably due to the eminence of the sponsors, unusual for county meetings of this type. Chairman of the meeting was Jacob Creath, an outstanding minister and orator, and also present were such leading political figures as George Adams, George M. Bibb, John Pope, and Martin D. Hardin.¹⁴¹ It is interesting that even the bitter eastern opponents of the resolutions admitted the unquestioned respectability of the participants. The Frankfort Resolutions began by pointing to the economic distress, the “scarcity of money,” the pressure of debtors, the “smaller employment,” lack of confidence, and disruption of trade. The resolutions first charged the banks with largely causing the distress by expanding loans and note issues, thereby encouraging speculation and extravagant spending, and leaving themselves vulnerable to runs for specie. After this analysis, the resolutions called upon the banks to do their proper share to remedy the depressed conditions. What should the banks do to fulfill the responsibility? They should “suspend specie payments and make moderate paper issue.” Furthermore, the legislature should meet in special session and take steps quickly to permit the banks to continue in operations while suspending specie payments. This was a curious charge indeed upon the banks. It was not without justice that the New York American charged that from the proposals one would think the meeting was a convention of bank directors.¹⁴² The resolutions did suggest, however, a maximum legal regulation on the amount of bank paper that could be issued during the suspension, violation of which would forfeit a bank’s charter.

The Frankfort Resolutions created a great stir, notably in Kentucky but throughout the country as well. In Kentucky, countywide meetings of citizens immediately mushroomed, some supporting, some opposing the Frankfort proposals. In nearby Bourbon County, a citizens’ meeting passed nearly unanimously similar resolutions calling for a special session to permit suspension of specie payments, and liberal note issue by the banks. Adjacent Shelby and Scott Counties also endorsed the proposals.¹⁴³ Nearby Harrison County issued a similar resolution, but along slightly more conservative lines. It called for the banks to make new issues of paper, postpone their demands on debtors, and for the government to permit suspensions of specie payments. It refused, however, to endorse the demands for a special session.

The Frankfort Resolutions provoked vigorous reactions by conservative papers in the East, especially in New York City. William Coleman, editor of the New York Evening Post and the former “Field Marshal of Federalism,” issued an editorial denouncing the proposals.¹⁴⁴ After proudly proclaiming that in New York City there would be no suspension of specie payments, the Post declared that any new monetary issue would simply depreciate proportionately. “The attempt to raise prices by increasing the circulating medium is only to make the same quantity of produce pass for a greater nominal amount in paper.” The best course for the banks would be to stop and issue no more irredeemable paper, and to redeem the notes which they had already issued. To refuse to redeem notes and to continue issuing more, declared Coleman, “under the pretext of keeping up the value of property,” would be just as wise as it would be for farmers to establish a bank in every field of corn to keep up the price of grain by issuing notes to facilitate purchase. Other papers attacking the Frankfort Resolutions were the New York American, New York Daily Advertiser, and the National Intelligencer. The American and the lntelligencer conceded that the participants at the Frankfort meeting were highly respectable citizens.¹⁴⁵

Although the Frankfort Resolutions were denounced in the eastern press, the controversy over the resolutions must not be conceived as an East-West conflict. The debate within Kentucky was spirited and determined, and the opposition was centered in the same geographical area as the proponents. Thus, the resolutions were attacked by two leading Kentucky newspapers—the Frankfort Kentucky Argus and the Lexington Kentucky Herald—which denounced the proposals as “shielding the extravagant debtor from his honest creditor,” and as trying to “interfere in individual transactions, and thereby . . . to destroy confidence.”¹⁴⁶ The Argus maintained that most Kentuckians opposed the resolutions.¹⁴⁷ “Franklin” conceded a shortage of specie in the West, but stated the reason to be lack of confidence in the banks. “This want of confidence induces every man . . . who gets possession of a fund of dollars, to lay it by.” The proper remedy commended to his fellow citizens of Louisville was a law exacting penalties on banks for so much as whispering the idea of suspending specie payments. This would restore confidence in the banks and their “specie will be abundant.”¹⁴⁸ A citizens’ meeting in Jefferson County, containing Louisville, passed by a large majority a resolution that the banks ought to continue redeeming their notes in specie and opposing a special session. On the other hand, a citizens’ meeting in rural Bullitt County, adjacent to Jefferson, advocated suspension of specie payments, especially for the Bank of Kentucky.

Several rural counties in Kentucky issued anti-Frankfort resolutions. Nelson, Washington, and Green Counties in the more southern part of the state, and Mason County on the northern border, attacked the proposals for legislative sanction of suspensions of specie payment and further bank note issue. Niles, perhaps over-optimistically, estimated that the large majority of citizens’ meetings throughout Kentucky believed that the banks “should pay their debts or shut up shop.”¹⁴⁹ The Washington County resolution asserted that distress was not as great as generally represented, and that it was due to speculation and extravagance.¹⁵⁰ A suspension of specie payment would unjustly withhold their rightful property from the creditors. Furthermore, it would weaken public confidence in the banks and would subsidize extravagance and imprudence. The increased issue of paper, the resolution declared, would, in the end, increase the economic difficulties. The best remedy was for the debtors to “bear the chastisements they bring on themselves.”

Mason County, in a meeting of six hundred citizens, passed a set of resolutions almost unanimously.¹⁵¹ A suspension, it pointed out, would destroy confidence in the state’s circulating medium. The Mason County resolution maintained that bank credit expansion had led to the panic, adding, in opposition to the Frankfort view, that they “contemplate with horror . . . a resort to that very policy as a remedy, which has produced so much distress . . . and which, instead of alleviating, must lamentably increase the evils which it pretends to remedy.”

A special session was not called. The major battle over relief, in the fall elections, was over proposed stay legislation. The victorious relief forces passed a stay law in February, 1820, granting a one year extra stay to debtors whose creditors refused the paper of the Bank of Kentucky, which had suspended specie payments.

By mid-1820, it had become clear that some remedy was needed for the troubled monetary situation. In effect, the legislature had granted the desire of the relief forces to permit banks to continue in operation while suspending specie payments, and had also granted special privileges to notes of the Bank of Kentucky. Yet, the bank notes continued to depreciate rapidly. The Kentucky Gazette warned its readers in the summer of 1819 not to receive any bank notes except with great caution, and with the help of appraisals by professional brokers, nor to exchange specie and specie paying notes for Kentucky notes. Even the banks themselves began to refuse each others’ notes.¹⁵² The public began to lose faith in all of the state’s bank notes. The tavern keepers and merchants of Frankfort decided not to receive the bills of any bank below the denomination of one dollar, and a meeting of butchers of Lexington decided to refuse any paper not acceptable to the banks of that town. As a result, one by one, the “independent” banks, those that had been chartered during 1818, were forced to close their doors. Public opinion generally held the banks responsible for the crash (as could be evidenced even in the Frankfort Resolutions), and this sentiment, coupled with the difficulties of the independent banks, resulted in repeal of all those bank charters in February, 1820.¹⁵³ Consequently, the only bank still operating by mid-1820 was the Bank of Kentucky. In the meanwhile, the very severe monetary contraction added to the great economic difficulties in the state as debts mounted and prices plummeted. Finally, in August, 1820, the conservative administration of Governor Gabriel Slaughter, which had done its best to block relief measures, was replaced by the pro-relief advocate, Governor John Adair. The expansionist forces moved rapidly toward the climax of their effort in Kentucky, the establishment of a wholly state-owned bank issuing inconvertible paper, the Bank of the Commonwealth of Kentucky.¹⁵⁴ The Bank of the Commonwealth, enacted on November 29, had a nominal capitalization of $2 million. The legislature elected all the directors and the bank had branches throughout the state. The notes were inconvertible, but the state pledged future revenues from sale of its public lands in the West and other surplus revenue. The notes were receivable in all debts to the state. Loans were to be made on mortgage security, proportioned to the population of the district. It was stipulated that borrowers must use their notes either to repay debts or to buy stock and produce. The maximum individual loan was $200. To these ends the bank was authorized to issue up to $3 million in notes. The appropriation by the legislature consisted simply of $7,000 to purchase the plates and paper for printing the notes. The object of the act was providing cheap money for debtors for repayment of their debts. As we have seen, the legislature obligingly passed several stay laws to grant preferential treatment to its Bank of the Commonwealth. Courts favored debtors’ payment in Bank of Commonwealth notes.

Expansionist forces in the legislature had to struggle to beat down many amendments for making the new institution a specie paying bank. The hard money leader in the House was Representative George Robertson, who for fourteen years had been Chief Justice of the Kentucky Courts of Appeals. In the House, an amendment, defeated by a small margin, would have imposed an interest penalty on all notes not redeemed in specie. The provision for the state to pledge a redemption fund in the vague future, rather than provide it at present, only passed by a small margin. Another rejected amendment would have prevented the bank from opening until the state had subscribed $100 thousand in specie or in the notes of specie paying banks. The conservative forces managed to defeat a provision permitting the bank to lend money on personal property as well as real estate—this was defeated by a two-to-one vote. The final bill passed the House by a vote of 54 to 40. There was also a sharp fight over the authorized note issue. The House had originally agreed to a $2 million limit, but the relief forces managed, by a three-vote margin, to increase the maximum to $3 million; they failed, however, in an attempt to extend it further to $3.5 million.¹⁵⁵

In the Senate, the battle against the non-specie paying bank was led by John Pope, who had shifted from his previous inflationist stand. Pope’s amendment to begin penalties for non-redemption in specie after three years was defeated by one vote. On the other hand, an attempt by extreme pro-relief forces to prevent any future possibility of redemption was beaten down by a two-to-one vote.

Also, a provision to reduce the maximum interest rate on the banks’ loans from 6 percent to 3 percent was heavily defeated. The final bill passed the Senate by a vote of 22 to 15.¹⁵⁶

The establishment of the Bank of the Commonwealth was a measure of the dissatisfaction of the expansionist forces with the semi-private Bank of Kentucky, for the conservatism of its operations. The charter of the latter bank was due to expire in 1821, and it was clear that the expansionists were aiming for non-renewal of the charter, thus closing the bank. The Bank of Kentucky reacted belligerently, contracting its loans and notes and refusing to accept the notes of the Bank of Commonwealth.

During 1821, the Bank of Commonwealth rapidly issued close to its authorized $3 million in notes, and the hopes of its proponents were high. At the opening of the October, 1821, session of the legislature, Governor Adair hailed the Bank of the Commonwealth and attributed an extensive relief of the “pecuniary embarrassments” of the state to the increased currency provided by the new bank.¹⁵⁷ In particular, many heavy debtors had been saved from ruin. Adair pointed to the general scarcity of money, particularly the scarcity of specie, and the scarcity in circulation of the specie-backed notes of the Bank of the United States as evidence that specie did not suffice for the currency needs of the country. Banks, in order to obtain enough specie, were forced to make heavy calls on their debtors. With specie and Bank of the United States notes insufficient, and the Bank of Kentucky suspending specie payment, a state currency was needed. The duty of every government, declared Adair, was to supply a sound and sufficient circulating medium and to “prevent as far as practicable the evils of a fluctuating currency.” He admitted that, left alone, the condition of the people would gradually improve and commerce revive. But the government must not become an accessory to the distress of its citizens by refusing to perform its monetary duties. Pursuing the approach that the government should stabilize the value of its currency, Adair pointed out that specie itself was not of invariable value; that value was the price which the products of labor bore in relation to money. This value fluctuated in inverse proportion to an increase or decrease in the quantity of the circulating medium. The debtor and creditor should then receive, on repayment of the debt, money of the same value as of the time the loan was made. “To coerce a literal obedience to contract” when the value had greatly changed would be against true equity. The duty of the legislature in depressed times was to apply appropriate remedies and not await the slow growth of more favorable conditions. The clearly proper system was “an increase in the circulating medium.” A private specie paying bank could not successfully accomplish this, because of the demands upon it for specie should its notes increase. Therefore, only use of the resources and faith of the state itself could establish a general paper system.

Adair did not contemplate a permanent inconvertible paper system. He conceded that such would be impossible to establish, but felt that this bank merely “anticipated” the future revenues of the state. Adair warned, however, that it was important to sustain the credit of the paper, and that therefore there should be no further note issues which might weaken public confidence.

Legislative satisfaction in their creation was bolstered by a report, a few days later, of the eminent John J. Crittenden, president of the new bank.¹⁵⁸ Crittenden reported that, since April of the year, when the bank had begun operations, it had issued $2.5 million in notes and was preparing to issue half a million more. He reported that the bank had decided not to lend for too long a period, in order to avoid the evils of the unlimited time granted by banks during the boom. The present loans were, in contrast, from four to six months’ duration. The bank also decided to call the principal of their loans in gradually, at the rate of 1 percent per month. Crittenden also stated that since, unfortunately, only a limited number of people could obtain the benefit of the loans, the bank, as soon as it received payment from one set of borrowers, would lend again to another set.

Crittenden recognized that when the immediate debts were paid there would be less demand by debtors for the notes, and so he asserted that the regular rate of calls would support the credit of the notes until the legislature eventually made the notes redeemable.

Crittenden concluded that the bank was being highly successful in furnishing a circulating medium enabling debtors to repay their debts, and to transfer their debt burden to the bank, repaying the latter gradually.

The bank was also commended in a report by Representative Samuel Brents, chairman of the House committee on the Bank of the Commonwealth.¹⁵⁹ Brents, from Green County in southern Kentucky, pointed out that, before the current year, most citizens were very heavily in debt, and there was little or no market for their produce to enable them to repay. The bank and its note issues had enabled rapid liquidation of the debt burden. The report commended the bank and all of its decisions.

In their triumph, the relief forces failed by only a few votes to repeal the Bank of Kentucky charter immediately and to transfer all state funds to the new bank.¹⁶⁰ They did pass a resolution urging the federal post office to receive the new notes in Kentucky in payment for postage. This resolution was attacked by Representative Thomas Speed of Nelson County, who asserted that this action implied that the inconvertible paper was permanent rather than temporary. He pointed out that the notes had already depreciated considerably.¹⁶¹

In his legislative message in the spring of 1822, Governor Adair continued to eulogize the bank; he declared that it had saved the community from severe suffering, permitted payment of debts, and helped the restoration of commerce.¹⁶² Adair also added that the increased currency had restored activity to construction of improvements and provided capital for depressed industry. A note of alarm was distinctly sounded in this message, however. Already the Bank of Commonwealth notes were beginning to depreciate rapidly. In fact, they sold at 70 percent of par as soon as they were first issued.¹⁶³ Adair exhorted everyone to trust the new bank notes—backed by the faith of the state and advanced for the general good of Kentucky; he stated that he could not understand some people’s distrust of the new bank notes, a distrust that cast discredit on the fair name of Kentucky.

Before the session had opened, the bank, anxious about the depreciation, had decided to try to bolster its credit by increasing the rate of calls on its loans to 2 percent per month. This action ignited fervent controversy in the legislature. Three legislators moved rejection of the change: Representative Tandy Allen of Bourbon County, a rural county adjacent to Lexington; Representative George Shannon of Fayette County, containing commercial Lexington; and Representative Speed. One legislator moved approval, and two others urged provision of some funds by the state to enable redemption in specie. Representative Hugh Wiley of Nicholas County advocated that the bank issue no further notes.¹⁶⁴ Dominant sentiment was for the restoration of the more gentle 1 percent call, and resolutions to that effect were submitted by Representative Charles H. Allen and Representative Shannon from the Committee on Currency. Allen represented Henry County in western Kentucky.

On May 21, a frankly grave report was submitted by President Crittenden and the Board of Directors, on the “present depreciation of the paper of this bank” and the means to correct it.¹⁶⁵ The report declared that for the past several weeks there had been constant and rapid depreciation of the bank notes in the main commercial centers of Lexington and Louisville, and that, at this time, it had depreciated to about 62 percent of par. In contrast to the optimism of the previous fall, Crittenden declared that there was no prospect of preventing further rapid depreciation, unless the cause were removed. The major cause was the “super-abundance of bank paper, compared with the demand of the community.” The original heavy debt burden had been extinguished, while the circulating medium had “increased to a degree hitherto unknown.” Thus, the demand for use of the notes had decreased just at a time when its amount had been rapidly increasing. Once the redundant paper came “into contact with” specie and the various commodities, it instantly depreciated. Crittenden deprecated the alleged influence of brokers in bringing about the decline, asserting that the depreciation would have occurred without them. The final consideration for Crittenden was that Kentucky, being a part of a great, interconnected nation, could not maintain a purely local inconvertible currency without suffering the evils of depreciation as well as great fluctuations in its value, especially since the surrounding states were either on a specie basis or were rapidly returning to one. Unless checked by drastic action, Crittenden warned, the depreciation would proceed, and end circulation of the paper entirely, destroying the bank. The people, already fearing such an eventuality, were accelerating the very depreciation. Farmers and mechanics were beginning to realize that such a depreciated currency was ruinous to their interests, and that the increased prices of imports from other states and countries constituted a virtual tax upon their industry. In self-defense they would soon completely reject the paper of the bank.

Thus, its president virtually repudiated the basis of the bank’s operations. He maintained that the only means of saving the bank would be to cease lending, and heavily contract, thus sharply reducing the notes in circulation.

The legislature, however, was in no mood as yet for such blunt messages. On the contrary, the House passed the Allen Resolution submitted by Representative Tandy Allen of Bourbon County, to reduce the rate of calls to 1 percent per month, by a two-to-one margin, and beat down by slim margins modifying amendments to reduce the note issue of the bank, and to begin providing funds for redemption of the notes. The Senate, however, refused to agree to this resolution, and the 2 percent recall rate was finally allowed to stand.¹⁶⁶

The state, in the meantime, was in turmoil over the bank notes. Actually the notes had never been at par, and by the spring of 1822 were depreciated by 50 percent. Dispute was bitter on the merits of the bank notes. One critic wrote caustically that the only good quality of the notes was that they were too valueless to be worth counterfeiting.¹⁶⁷ Many people refused to accept the Commonwealth notes at any price, and this included many stock raisers, hemp and tobacco growers, commission merchants, and stage drivers. In fact, by 1822, it was impossible to use the notes in any everyday transactions. This included postage, which had to be paid in specie or United States Bank notes.

Bitterly and increasingly, opponents denounced the bank as destroying confidence, commerce, credit, and trade, and leaving the poor with a heavy debt to the state as well. Many had opposed the bank from its inception on the ground that it was no concern of the state’s to help debtors, and that thrift and industry were the only remedies for the crisis, as well as on predictions of inevitable depreciation. On the other hand, the advocates of expansion continued to declare that the depreciation was really a blessing, since the very fact that imports from other states were cut off encouraged manufacturing in the state. The Kentucky Gazette went so far as to declare it good that the federal government did not accept the new notes in payment for public lands, since there would now be no great incentive for good Kentuckians to emigrate further West. It added that the depreciation “protects” Kentucky from imports of iron, leather, wool, and hemp.¹⁶⁸

The end of the state bank experiment was signaled by the capitulation of the leader of the relief forces, Governor John Adair.¹⁶⁹ In his message to the legislature in October 1822, only a year after his warm approval of the bank, Governor Adair concluded that legislative intervention could not really aid financial troubles. The only remedies, he asserted, were economy, industry, and the trade of foreign commerce. It was true, he declared, that government aid was often useful in emergencies, but to continue such measures would be destructive and demoralizing. The relief measures succeeded in alleviating distress, but now they must be ended. Adair recommended rapid contraction of loans and notes, and immediate withdrawal of one-sixth of the total outstanding. In this way, the exchange value of the notes would appreciate. Adair recognized that diminution in the money supply would be inconvenient, but he concluded that the state would be more than compensated by the reestablishment of credit and the “freedom of circulation” of the appreciated currency.

The legislature moved more than enthusiastically to implement these recommendations. It provided for the calling in of $1 million of Commonwealth notes in twelve months, with one half to be immediately recalled, and the received notes to be burned. The burning of Bank of Commonwealth notes took place in public bonfires in Frankfort throughout the ensuing year, to the plaudits of such conservative observers as Hezekiah Niles, and to the discomfiture of the expansionists, who complained of the injustice to debtors. In January, 1823, more than $770 thousand worth of notes were publicly burned.¹⁷⁰ As the notes diminished in quantity and half were withdrawn from circulation, they gradually approached par.¹⁷¹ A proposal to repeal the Bank Act immediately failed by a two-to-one vote, but the bank ceased to play an active role, although it continued formally in existence until the Civil War.¹⁷²

Another monetary experiment was performed in March 1822, by the city of Louisville. Louisville issued an inconvertible city currency in small denominations, from six cents to one dollar, to an amount totaling $47 thousand. This currency was receivable for all taxes and debts due the city; future city taxes and property were pledged for future payment. These notes soon depreciated to a negligible value, and all were retired and burned by the end of 1826.¹⁷³

In sum, the most spectacular expansionist measures were the establishment in several western states—Tennessee, Kentucky, Illinois, and Missouri—of new state-owned banks to issue inconvertible currency. In each of these states, all the banks had suspended specie payment during the depression. After controversy, they had been allowed to continue in operation, but their notes depreciated rapidly. The legislatures then turned, despite heavy opposition, to establishing the new state-owned banks.

All of these monetary ventures began in high hopes to issue large quantities of notes. But all came quickly to grief, despite such aid by the states as legal tender provisions and penalties against depreciation. The notes depreciated rapidly almost as soon as operations began, until the public began to refuse acceptance. In Missouri and Tennessee, the depreciation was spurred by court decisions adverse to the constitutionality of the notes or the accompanying stay laws. Opinion in each of the states swung sharply against the new paper, and where the notes did not disappear from circulation, steps were taken to halt and eventually to liquidate the projects.

This record of monetary expansion should not lead us to label the West as simply “soft money” and the East as “hard money.” Many western states were monetarily quite conservative during the depression. And those that adopted loan office projects did so only over bitter opposition. Nor were the other states, especially in the South, free from expansionist proposals or policies. In some southern states, banks were allowed to suspend specie payment completely and continue operations, while in others, banks were allowed to suspend payment to suspected “money-brokers.” These brokers were money-changers who purchased bills of shaky or remote banks at a discount and then attempted to redeem the mass of notes at par. They performed the function of a rudimentary clearing system, and were naturally hated by the banks whose notes came home to roost.

Only staunchly hard money Virginia remained free from expansionist agitation. Maryland and Delaware passed anti-depreciation laws over bitter opposition, in vain attempts to bolster the credit of suspended banks by outlawing depreciation. Loan office proposals were considered in several eastern states, but were turned down in all of them. On the other hand, many eastern states enforced specie payment on most of their banks, and New York and New England remained largely free of expansionist agitation or policy. Massachusetts, however, considered, and rejected, an anti-depreciation measure.

Thus, one of the sharpest and most interesting controversies generated by the panic centered on the money supply. One group urged various plans for monetary expansion, some of which were adopted; while the majority of articulate opinion advocated restoration of specie payments and abstinence from inflationist schemes. Leading figures on both sides were propelled to engage in trenchant economic analysis in finding support for their positions. Although it is true that the inflationists were relatively stronger in the West, it must not be overlooked that bitter disputes raged within each region, state, and locality. Neither was there a discernible class, or occupational, demarcation of opinion, and both sides were headed by wealthy, respectable men.

---

¹For the economy of Alabama in this period, see Abernethy, Formative Period, pp. 25, 50ff., 86ff

²The Bank of St. Stephens opened in September 1818, with only $7,700 of paid-in capital. U.S. Congress, American State Papers: Finance 3, no. 637 (February 14, 1822): 767–68.

³Abernethy, Formative Period, pp. 86ff.

⁴Alabama General Assembly, Journal of the Senate (1821): 8–9. By 1823, ex-Governor Bibb had become a director of the Huntsville Bank.

⁵Philadelphia Union, November 2, 1821.

⁶Knox, A History of Banking, p. 594.

⁷Albert B. Moore, History of Alabama (Chicago: American Historical Society, 1927), vol. 1, pp. 159–60.

⁸Pickens himself was President of the Tombeckbee Bank of St. Stephens. Abernethy, Formative Period, pp. 93ff.

⁹Poindexter was one of the leading politicians in the State, and later became a staunch Whig. On the veto of the Runnels Bill, see Robert C. Weems, Jr., The Bank of the Mississippi: A Pioneer Bank of the Old Southwest, 1809–44 (New York: Columbia University, 1951, microfilm), p. 388.

¹⁰Stephen A. Caldwell, A Banking History of Louisiana (Baton Rouge: Louisiana State University Press, 1935).

¹¹Louisiana General Assembly, Official Journal of the Proceedings of the House of Representatives, 1819 (January 18, 1819): 16.

¹²Issue of May 6, 1820. Quoted in Joseph George Tregle, Jr., “Louisiana and the Tariff, 1816–46,” Louisiana Historical Quarterly 25 (January 1942): 35.

¹³Thomas P. Govan, “Banking and the Credit System in Georgia, 1810–60,” Journal of Southern History 4 (May 1938): 166ff.

¹⁴George G. Smith, The Story of Georgia and the Georgia People, 1732–1860 (Macon, Ga.: G.G. Smith, 1900), p. 300.

¹⁵Milton S. Heath, Constructive Liberalism (Cambridge, Mass.: Harvard University Press, 1954), pp. 176–78.

¹⁶Report on the Joint Committee of the Planters’ Bank and the Bank of the State of Georgia, June 21, 1820, in U.S. Congress, American State Papers: Finance 4, pp. 1055–56.

¹⁷Govan, “Banking,” p. 169.

¹⁸Washington (D.C.) National Intelligencer, December 15, 1821; Heath, Constructive Liberalism, p. 188.

¹⁹Heath, Constructive Liberalism, p. 182.

²⁰Ibid., pp. 183ff.

²¹Georgia General Assembly, Journal of the House of Representatives, 1820–21 (November 7, 1820): 6.

²²For an example of hard money attack on depreciation, see the Washington (Ga.) News, reprinted in the Washington (D.C.) National Intelligencer, August 4, 1821.

²³Georgia General Assembly, Journal of the Senate, 1822 (November 5, 1822): 14–15.

²⁴Knox, A History of Banking, p. 564; Sumner, History of Banking, pp. 87, 115.

²⁵On the report of Stephen Elliott, appointed head of the Bank of the State of South Carolina, criticizing the action of the Bank of the United States, and the allegedly resulting scarcity of money, see Joseph Dorfman, The Economic Mind in American Civilization, 1606–1865 (New York: Viking Press, 1946), vol. 1, pp. 370–71.

²⁶Robert Y. Hayne to Langdon Cheves, February 22, 1819, in Theodore D. Jervey, Robert Y. Hayne and His Times (New York: The Macmillan Co., 1909), pp. 85–87. Hayne, a wealthy rice planter, was later to become Senator and Governor, and leading proponent of nullification.

²⁷On Cardozo, see Dorfman, Economic Mind, vol. 2, pp. 554–55.

²⁸Editorial in the Charleston Southern Patriot, reprinted in the Cleveland Register, August 31, 1819.

²⁹Murphey had been Justice of the State Supreme Court and was to become known as father of the state’s public school system. In 1816, Murphey had been a staunch advocate of a branch of the Bank of the United States in Fayetteville, and considered inconvertible paper as “vicious.” Now, as a debtor to the Bank, he felt that he was being unjustly compelled to repay. Murphey to Colonel William Polk, July 24, 1821, in William Henry Hoyt, ed., The Papers of Archibald D. Murphey (Raleigh, N.C.: E.M. Uzzell Co., 1914), pp. 216–17. Also Dorfman, Economic Mind, vol. 1, pp. 376–78.

³⁰Murphey, The Papers, p. 216.

³¹Raleigh Star and North Carolina State Gazette, May 14, 1819.

³²Washington (D.C.) National Intelligencer, May 26, 1819. Also see the editorial in the Wilmington Recorder, June 16, 1819, reprinted in the Washington (D.C.) National lntelligencer, July 20, 1819.

³³Raleigh Star and North Carolina State Gazette, December 22, 1820.

³⁴Knox, A History of Banking, p. 549.

³⁵“Cato,” in Washington (D.C.) National Intelligencer, June 19, 1819.

³⁶“Philo-Economicus,” in Richmond Enquirer, June 15, 1819.

³⁷New York Daily Advertiser, June 12, 1819.

³⁸“Colbert,” in Richmond Enquirer, November 6, 1819.

³⁹Knox, A History of Banking, p. 489.

⁴⁰Ibid. Boston New England Palladium, March 2, 1819.

⁴¹New York American, March 6, 1819.

⁴²Dewey, State Banking, p. 66.

⁴³Washington (D.C.) National Intelligencer, June 1, 1819.

⁴⁴“A Citizen,” in the Baltimore Telegraph, reprinted in the Richmond Enquirer, June 1, 1819.

⁴⁵Baltimore Federal Republican, July 1, 1819.

⁴⁶Ibid., July 13, 1819.

⁴⁷For a discussion of Thomas Law and his proposals, see Chapter IV. The charge was inaccurate, since Law primarily advocated a national governmental currency plan, rather than suspension of specie payment by private banks.

⁴⁸Niles’ Weekly Register 15 (September 12, 1818): 33.

⁴⁹Maryland General Assembly, Official Journal of the Proceedings of the House of Representatives, 1820–21 (February 15, 1821): 109–10.

⁵⁰Delaware General Assembly, Journal of the House of Representatives, 1819 (January 26, 1819): 91.

⁵¹Ibid., 1820 (January 18, 20, 28; February 1, 2, 1820): 58ff., 73ff., 128ff., 132.

⁵²Ibid. (February 8, 11, 1820), pp. 169, 196.

⁵³New Jersey Legislature, Votes and Proceedings of the General Assembly, 1819–20 (June 2, 1820), pp. 202–05.

⁵⁴New York Evening Post, June 15, 1819.

⁵⁵Banks were generally solvent in New Hampshire, Connecticut, and Massachusetts, particularly in Boston. Cf. Sumner, History of Banking, p. 112.

⁵⁶Boston New England Palladium, July 4, 1820.

⁵⁷T.D. Seymour Bassett, “The Rise of Cornelius Peter Van Ness, 1782–1826,” Proceedings of the Vermont Historical Society 10 (March 1942): 8–16.

⁵⁸Van Ness was scheduled to become chairman of the board of the new bank.

⁵⁹Vermont General Assembly, Journal of the House, 1818–19 (November 3, November 7): 127ff., 150ff. The Governor had previously vetoed a less stringent charter for the bank.

⁶⁰Vermont General Assembly, Journal of the House, 1819–20 (October 15, 1819): 11–12.

⁶¹The Raguet Report is found in Pennsylvania Legislature, Journal of the Senate, 1819–20 (January 29, 1820): 221–36, and the documentary appendix to the report is to be found in ibid. (February 14, 1820): 311–37.

⁶²Pennsylvania Legislature, Journal of the House, 1819–20 (December 10, 1819): 20–28. Also Philip S. Klein, Pennsylvania Politics, 1817–32 (Philadelphia: Historical Society of Pennsylvania, 1940), p. 98.

⁶³Duane was particularly bitter over the leading role played by Findlay, as State Treasurer in 1814, in pushing through a mass chartering of 42 banks over the veto of Governor Simon Snyder.

⁶⁴Pennsylvania Legislature, Journal of the House, 1819–20 (January 28, 1820): 476–78.

⁶⁵Philadelphia Aurora, February 4, 1820.

⁶⁶Pennsylvania Legislature, Journal of the House, 1818–19, p. 450.

⁶⁷Ibid., 1819–20 (February 1, 1820): 459–66.

⁶⁸Washington (D.C.) National Intelligencer, March 25, 1820. See Appendix A on internal improvements as a suggested remedy for the depression.

⁶⁹Philadelphia Union, August 17, August 24, 1821.

⁷⁰For a warning about loan office agitation as late as the end of 1821, see “Adam Lock,” in Philadelphia Union, December 11, 1821. For early opposition to any government loans, see “A,” in the Philadelphia United States Gazette, December 22, 1818. The Gazette was predecessor of the Union.

⁷¹For the Ohio situation, see especially Huntington, History, pp. 255–351. Also Sumner, History of Banking, p. 152; Greene, “Thoughts on the Present,” pp. 121–22; Rowe, “Money and Banks,” pp. 74–84; Goss, Cincinnati, pp. 139–43.

⁷²Worthington was a country gentleman and leading political figure in the state, a former Senator and leader of the “Chillicothe Junta.” He suffered financial reverses in the depression of 1819. Ohio Legislature, Journal of theSenate, 1818–19, p. 222.

⁷³Brown was a wealthy landowner and former judge. Ohio Legislature, Journal of the House, 1819–20 (December 7, 1819): 9–15.

⁷⁴Philadelphia Union, March 5, 1819; Huntington, History, pp. 295–97; R. Carlyle Buley, The Old Northwest, Pioneer Period, 1815–40 (Indianapolis: Indiana Historical Society, 1950), vol. 1, p. 586.

⁷⁵In the Cincinnati Gazette, reprinted in Detroit Gazette, December 11, 1819.

⁷⁶Mitchell, “Indiana’s Growth,” pp. 384–85; Esarey, History, p. 280; Nathan Ewing, President of the Bank of Vincennes, to Secretary Crawford, January 9, 1819, in U.S. Congress, American State Papers: Finance 3, no. 637 (February 14, 1822): 734.

⁷⁷Dunn, Indiana, pp. 322ff.

⁷⁸Logan Esarey, State Banking in Indiana (Bloomington: Indiana University Press, 1912), pp. 221ff.; idem, “The First Indiana Banks,” Indiana Quarterly Magazine of History 6 (December 1910): 144–58.

⁷⁹Washington (D.C.) National Intelligencer, June 19, 1819.

⁸⁰Noble was a member of one of the most eminent families in Indiana. He was a director of the Vincennes Bank and the new state bank. Jennings was President of the Indiana Constitutional Convention, its first Governor, and later Representative in Congress. Hendricks was a Congressman and secretary of the Indiana Constitutional Convention—later to be Governor and Senator. In later years, he followed Jackson, but even so upheld the United States Bank. Esarey, State Banking, p. 229.

⁸¹Esarey, “The First Indiana Banks,” p. 149.

⁸²Mitchell, “Indiana’s Growth,” p. 389; Buley, Old Northwest, p. 598.

⁸³Dunn, Indiana, p. 328.

⁸⁴Esarey, “The First Indiana Banks,” p. 154.

⁸⁵Dowrie, Development, pp. 9–14, 17–22.

⁸⁶Garnett, State Banks, pp. 1ff.

⁸⁷Dowrie, Development, pp. 23–35; Garnett, State Banks, p. 8.

⁸⁸On the petition and the introduction of the bill, see Illinois General Assembly, House Journal, 1820–21 (January 13, 1821): 157–58.

⁸⁹Ibid. (January 29, 1821), pp. 227–29; Buley, Old Northwest, pp. 599ff.

⁹⁰Dowrie, Development, p. 24.

⁹¹Bond was a prosperous farmer, and former judge.

⁹²Illinois General Assembly, House Journal, 1820–21 (January 30, 1821): 236.

⁹³Ibid. (February 2, 1821): 261–71.

⁹⁴One of the supporters of the bill in the Senate was immediately appointed a cashier of the bank.

⁹⁵Garnett, State Banks, pp. 9–12; and Dowrie, Development, pp. 26–28.

⁹⁶Dowrie, Development, p. 35.

⁹⁷Davidson and Stuve, Complete History, p. 307; Knox, A History of Banking, p. 716.

⁹⁸See Floyd Russell Dain, Every House a Frontier (Detroit: Wayne University Press, 1956), p. 103.

⁹⁹Anderson, “Frontier Economic Problems, I,” pp. 60–62; Cable, Bank, pp. 52–70; Cable, “Some Early Missouri Bankers,” Missouri Historical Review 26 (January 1932): 117–19; Dorsey, “Panic,” p. 83.

¹⁰⁰Dorsey, “Panic,” p. 84. The letter was published in the St. Louis Enquirer, March 17, 1821.

¹⁰¹Hamilton, “Relief Movement,” pp. 58ff.

¹⁰²Franklin Missouri Intelligencer, February 26, 1821, quoted in Hamilton, “Relief Movement,” p. 56.

¹⁰³Missouri General Assembly, Journal of the House of Representatives, 1st General Assembly, Special Session, 1821, pp. 74–77, 84–86.

¹⁰⁴Anderson, “Frontier Economic Problems, I,” pp. 65, 68.

¹⁰⁵July 14, 1821. Hamilton, “Relief Movement,” p. 69.

¹⁰⁶Missouri General Assembly, Journal of the House of Representatives, 2d General Assembly, 1821, pp. 152–53.

¹⁰⁷August 14, 1821, September 25, 1821; in Hamilton, “Relief Movement,” p. 77.

¹⁰⁸Thus see Primm, Economic Policy, pp. 14, 17.

¹⁰⁹Anderson, “Frontier Economic Problems, I,” p. 66.

¹¹⁰Missouri v. William Carr Lane. See Cable, Bank, p. 79.

¹¹¹Tucker came from a very prominent Virginia family. He was a halfbrother of John Randolph. He later returned to Virginia to become professor of law at William and Mary College and leading theoretician of the pro-slavery forces.

¹¹²Abernethy, “Early Development,” pp. 311–25.

¹¹³Hamer, Tennessee, pp. 231–32; Campbell, Development, pp. 43ff.; Beard, “Joseph McMinn,” pp. 162ff.; Parks, “Felix Grundy,” p. 29.

¹¹⁴Hamer, Tennessee, pp. 232ff.

¹¹⁵Parks, “Felix Grundy.” Yeatman, reputed to be the wealthiest merchant in Tennessee, was the son-in-law of Andrew Ervin, and was soon to establish his own private, unchartered bank. Sellers, “Banking.”

¹¹⁶Parks, “Felix Grundy,” p. 22; Tennessee General Assembly, Journal of the House of Representatives, 1819 (September 20, 1819): 22.

¹¹⁷Tennessee General Assembly, Journal of the House of Representatives, 1819, p. 245.

¹¹⁸From Nashville Whig, July 3, 1819. Quoted in Sellers, “Banking,” p. 70.

¹¹⁹Nashville Clarion, May 2, 1820, in Parks, “Felix Grundy,” p. 27. See above on charges and countercharges by the supporters and opponents of a special session.

¹²⁰Hamer, Tennessee, p. 233.

¹²¹Tennessee General Assembly, Journal of the House of Representatives, 1820 (June 26, 1820): 6–17.

¹²²Ibid. (July 4, 1820): 49.

¹²³Ibid. (July 7, 10, 1820): 61, 65.

¹²⁴Ibid. (July 11, 1820): 68–72.

¹²⁵Ibid. (July 17, 1820): 99–106.

¹²⁶Tennessee General Assembly, Journal of the Senate, 1820 (July 5, 1820): 45; (July 14, 1820): 77ff.; (July 15, 1820): 83ff.

¹²⁷Ibid. (July 21, 1820): 109ff.

¹²⁸Tennessee General Assembly, Journal of the House of Representatives, 1820 (July 19, 1820): 123; (July 20, 1820): 126; (July 25, 1820): 159; (July 27, 1820): 175ff. Tennessee General Assembly, Journal of the Senate, 1820 (July 21, 25, 1820): 130; (July 26, 1820): 135.

¹²⁹Jackson to Major William Berkeley Lewis, July 15, 1820; Lewis to Jackson, July 15, 1820; Jackson to Lewis, July 16, 1820, New York Public Library Bulletin 4 (May 1900): 162; (June 1900): 188–91; and Parks, “Felix Grundy,” p. 32.

¹³⁰Niles’ Weekly Register 19 (September 2, 1820): 9.

¹³¹Ibid. 19 (November 18, 1820): 283.

¹³²Hamer, Tennessee, p. 235.

¹³³Ibid., pp. 236–37.

¹³⁴Tennessee General Assembly, Journal of the House of Representatives, 1821 (September 21, 1821): 49. Sellers seems to undervalue the extent of Carroll’s opposition to the new state bank. Sellers, “Banking.”

¹³⁵Golden, “William Carroll,” p. 19.

¹³⁶Sumner, History of Banking, p. 150.

¹³⁷Duke, History, pp. 14ff. Also see Elmer C. Griffith, “Early Banking in Kentucky,” Proceedings of the Mississippi Valley Historical Association 2 (1908–09): 168–81.

¹³⁸See the Report of the Underwood Committee (headed by Representative Joseph R. Underwood) on the causes of the suspension of specie payment by the Bank of Kentucky, Kentucky General Assembly, Journal of the House of Representatives, 1818–19 (December 11, 1818): 44–49.

¹³⁹Cheves to Crawford, June 12, 1819, U.S. Congress, American State Papers: Finance 4, no. 705 (March 22, 1824): 883.

¹⁴⁰Philadelphia Union, June 9, 1819.

¹⁴¹George M. Bibb was to become one of the main leaders of the relief movement. Bibb, from Lexington, was a distinguished jurist and statesman—a former Chief Justice of the Kentucky Court of Appeals, and former Senator. He later became United States Secretary of Treasury. He was widely known as a “gentleman of the old school.” Martin D. Hardin was a famous lawyer from Frankfort, Speaker of the Kentucky House, and former Congressman. He was later to become United States Senator. He had Federalist and later Whig tendencies.

¹⁴²John Pope, one of the leading sponsors of the meeting, had represented the Bank of Kentucky at the earlier conference of banks at Frankfort in May.

¹⁴³See the Washington (D.C.) National Intelligencer, June 9, 19, 23, 26, 1819.

¹⁴⁴New York Evening Post, June 15, 1819. Coleman had been installed by Hamilton upon the founding of the New York Evening Post. He later became a supporter of Crawford and Jackson.

¹⁴⁵New York American, June 9, 1819; New York Daily Advertiser, June 10, 1819; Washington (D.C.) National Intelligencer, June 5, 1819.

¹⁴⁶Washington (D.C.) National Intelligencer, June 9 to 26, 1819.

¹⁴⁷Reprinted in the New York Evening Post, June 15, 1819.

¹⁴⁸“Franklin,” in the Kentucky Herald, reprinted in ibid., and also in the Boston New England Palladium, June 25, 1819.

¹⁴⁹Niles’ Weekly Register 16 (July 3, 1819): 311.

¹⁵⁰Washington (D.C.) National Intelligencer, June 23, 1819.

¹⁵¹Ibid., June 26, 1819.

¹⁵²Connelley and Coulter, History, pp. 595ff.

¹⁵³This repeal passed the House by a two-to-one vote, but only narrowly passed the Senate. See Niles’ Weekly Register 20 (June 9, 1820): 224; Connelley and Coulter, History, p. 206; Stickles, Critical Court Struggle, p. 22.

¹⁵⁴Stickles, Critical Court Struggle, pp. 23ff.; Connelley and Coulter, History, pp. 609–13.

¹⁵⁵Kentucky General Assembly, Journal of the House of Representatives, 1820 (November 3, 1820): 88; (November 9, 1820): 112; (November 10, 1820): 117; (November 11, 1820): 127; (December 9, 1820): 267; (December 12, 1820): 276.

¹⁵⁶Kentucky General Assembly, Journal of the Senate, 1820 (November 21, 1820): 109–12; (November 22, 1820): 116ff.

¹⁵⁷Kentucky General Assembly, Journal of the House of Representatives, 1821 (October 16, 1821): 9–16.

¹⁵⁸Ibid. (October 20, 1821): 61–71. Crittenden was a noted lawyer from Logan County and later from Frankfort, and a close friend of George M. Bibb. He later became Kentucky’s leading politician—a Whig, an Adams nominee for the United States Supreme Court, a United States Senator, and Attorney General.

¹⁵⁹Ibid. (November 2, 1821): 153–55.

¹⁶⁰Ibid. (November 15, 1821): 251–54.

¹⁶¹Washington (D.C.) National Intelligencer, November 27, 1821.

¹⁶²Kentucky General Assembly, Journal of the House of Representatives, 1822, Part I (May 13, 1822): 6–8.

¹⁶³Niles’ Weekly Register 20 (June 9, 1820): 225.

¹⁶⁴Kentucky General Assembly, Journal of the House of Representatives, 1822, Part I (May 15, 1822): 55ff.; (May 17, 1822): 59; (May 21, 1822): 66ff.

¹⁶⁵Ibid. (May 21, 1822): 76–79.

¹⁶⁶Ibid. (May 23, 24, 1822): 91–102.

¹⁶⁷B.B. Still to J.C. Breckenridge, August 16, 1821, in Connelley and Coulter, History, p. 615.

¹⁶⁸Kentucky Gazette, May 9, May 21, in Connelley and Coulter, History, p. 617. Also see Baylor, John Pope, pp. 163–64.

¹⁶⁹Kentucky General Assembly, Journal of the House of Representatives, 1822, Part II (October 22, 1822): 12–14.

¹⁷⁰Wilson, History, II, 127.

¹⁷¹Connelley and Coulter, History, p. 618; and Stickles, Critical Court Struggle, p. 28.

¹⁷²Duke, History, p. 21; Wilson, History, p. 127.

¹⁷³Reuben T. Durrett, The Centenary of Louisville (Louisville, Ky.: J.P. Morton and Co., 1893), pp. 90–92.