Like a dropsical man calling out for water, water, our deluded citizens are calling for more banks. (Jefferson.)Merchants are crumbling to ruin, manufactures perishing, agriculture stagnating and distress universal. (John Quincy Adams.)If we can believe our Democratic editors and public declaimers it [Bank of the United States] is a Hydra, a Cerberus, a Gorgon, a Vulture, a Viper. (William Harris Crawford.)Where one prudent and honest man applies for [bankruptcy] one hundred rogues are facilitated in their depredations. (Hezekiah Niles.)Merchants and traders are harassed by twenty different systems of laws, prolific in endless frauds, perjuries and evasions. (Harrison Gray Otis.)
Like a dropsical man calling out for water, water, our deluded citizens are calling for more banks. (Jefferson.)
Merchants are crumbling to ruin, manufactures perishing, agriculture stagnating and distress universal. (John Quincy Adams.)
If we can believe our Democratic editors and public declaimers it [Bank of the United States] is a Hydra, a Cerberus, a Gorgon, a Vulture, a Viper. (William Harris Crawford.)
Where one prudent and honest man applies for [bankruptcy] one hundred rogues are facilitated in their depredations. (Hezekiah Niles.)
Merchants and traders are harassed by twenty different systems of laws, prolific in endless frauds, perjuries and evasions. (Harrison Gray Otis.)
The months of February and March, 1819, are memorable in American history, for during those months John Marshall delivered three of his greatest opinions. All of these opinions have had a determinative effect upon the political and industrial evolution of the people; and one of them[437]has so decisively influenced the growth of the Nation that, by many, it is considered as only second in importance to the Constitution itself. At no period and in no land, in so brief a space of time, has any other jurist or statesman ever bestowed upon his country three documents of equal importance. Like the other fundamental state papers which, in the form of judicial opinions, Marshall gave out from the Supreme Bench, those of 1819 were compelled by grave and dangerous conditions, National in extent.
It was a melancholy prospect over which Marshall's broad vision ranged, when from his rusticbench under his trees at Richmond, during the spring and autumn of 1818, he surveyed the situation in which the American people found themselves. It was there, or in the quiet of the Blue Ridge Mountains where he spent the summer months, that he formed the outlines of those charts which he was soon to present to the country for its guidance; and it was there that at least one of them was put on paper.
The interpretation of John Marshall as the constructing architect of American Nationalism is not satisfactorily accomplished by a mere statement of his Nationalist opinions and of the immediate legal questions which they answered. Indeed, such a narrative, by itself, does not greatly aid to an understanding of Marshall's immense and enduring achievements. Not in the narrow technical points involved, some of them diminutive and all uninviting in their formality; not in the dreary records of the law cases decided, is to be found the measure of his monumental service to the Republic or the meaning of what he did. The state of things which imperatively demanded the exercise of his creative genius and the firm pressure of his steadying hand must be understood in order to grasp the significance of his labors.
When the Supreme Court met in February, 1819, almost the whole country was in grievous turmoil; for nearly three years conditions had been growing rapidly worse and were now desperate. Poverty, bankruptcy, chicanery, crime were widespread and increasing. Thrift, prudence, honesty, and order had seemingly been driven from the hearts and minds of most of the people; while speculation, craft, andunscrupulous devices were prevalent throughout all but one portion of the land. Only New England had largely escaped the universal curse that appeared to have fallen upon the United States; and even that section was not untouched by the economic and social plague that had raged and was becoming more deadly in every other quarter.
While it is true that a genuine democratizing evolution was in progress, this fact does not explain the situation that had grown up throughout the country. Neither does the circumstance that the development of land and resources was going forward in haphazard fashion, at the hands of a new population hard pressed for money and facilities for work and communication, reveal the cause of the appalling state of affairs. It must frankly be said of the conditions, to us now unbelievable, that they were due partly to the ignorance, credulity, and greed of the people; partly to the spirit of extravagance; partly to the criminal avarice of the financially ambitious; partly to popular dread of any great centralized moneyed institution, however sound; partly to that pest of all democracies, the uninformed and incessant demagogue whipping up and then pandering to the passions of the multitude; partly to that scarcely less dangerous creature in a Republic, the fanatical doctrinaire, proclaiming the perfection of government by word-logic and insisting that human nature shall be confined in the strait-jacket of verbal theory. From this general welter of moral and economic debauchery, Localism had once more arisen and was eagerly reasserting its domination.
The immediate cause of the country's plight was an utter chaos in banking. Seldom has such a financial motley ever covered with variegated rags the backs of a people. The confusion was incredible; but not for a moment did the millions who suffered, blame themselves for their tragic predicament. Now praising banks as unfailing fountains of money, now denouncing banks as the sources of poisoned waters, clamoring for whatever promised even momentary relief, striking at whatever seemingly denied it, the people laid upon anything and anybody but themselves and their improvidence, the responsibility for their distress.
Hamilton's financial plans[438]had proved to be as successful as they were brilliant. The Bank of the United States, managed, on the whole, with prudence, skill, and honesty,[439]had fulfilled the expectations of its founders. It had helped to maintain the National credit by loans in anticipation of revenue; it had served admirably, and without compensation, as an agent for collecting, safeguarding, and transporting the funds of the Government; and, more important than all else, it had kept the currency, whether its own notes or those of private banks, on a sound specie basis. It had, indeed, "acted as the general guardian of commercial credit" and, as such, had faithfully and wisely performed its duties.[440]
But the success of the Bank had not overcome theoriginal antagonism to a great central moneyed institution. Following the lead of Jefferson, who had insisted that the project was unconstitutional,[441]Madison, in the first Congress, had opposed the bill to incorporate the first Bank of the United States. Congress had no power, he said, to create corporations.[442]After twelve years of able management, and in spite of the good it had accomplished, Jefferson still considered it, potentially, a monster that might overthrow the Republic. "This institution," he wrote in the third year of his Presidency, "is one of the most deadly hostility existing, against the principles & form of our Constitution.... An institution like this, penetrating by it's branches every part of the Union, acting by command & in phalanx, may, in a critical moment, upset the government.... What an obstruction could not this bank of the U.S., with all it's branch banks, be in time of war?"[443]
The fact that most of the stock of the Bank had been bought up by Englishmen added to the unpopularity of the institution.[444]Another source of hostility was the jealousy of State banks, much of the complaint about "unconstitutionality" and "foreign ownership" coming from the agents and friends of these local concerns. The State banks wished for themselves the profits made by the National Bank and its branches, and they chafed under the wiseregulation of their note issues, which the existence of the National system compelled.
For several years these State banks had been growing in number and activity.[445]When, in 1808, the directors of the Bank of the United States asked for a renewal of its charter, which would expire in 1811, and when the same request was made of Congress in 1809, opposition poured into the Capital from every section of the country. The great Bank was a British institution, it was said; its profits were too great; it was a creature of Federalism, brought forth in violation of the Constitution. Its directors, officers, and American stockholders were Federalists; and this fact was the next most powerful motive for the overthrow of the first Bank of the United States.[446]
Petitions to Congress denounced it and demanded its extinction. One from Pittsburgh declared "that your memorialists are 'the People of the United States,'" and asserted that the Bank "held in bondage thousands of our citizens," kept the Government "in duress," and subsidized the press, thus "thronging" the Capital with lobbyists who in general were the "head-waters of corruption."[447]The Legislatures of many States "instructed" their Senators and "earnestly requested" their Representatives in Congress to oppose a new charter for the expiring National institution. Such resolutions came from Pennsylvania, from Virginia, from Massachusetts.[448]
The State banks were the principal contrivers of all this agitation.[449]For instance, the Bank of Virginia, organized in 1804, had acquired great power and, but for the branch of the National concern at Richmond, would have had almost the banking monopoly of that State. Especially did the Virginia Bank desire to become the depository of National funds[450]—a thing that could not be accomplished so long as the Bank of the United States was in existence.[451]Dr. John Brockenbrough, the relative, friend, and political associate of Spencer Roane and Thomas Ritchie, was the president of this State institution, which was a most important part of the Republican machine in Virginia. Considering the absolute control held by this political organization over the Legislature, it seems probable that the State bank secured the resolution condemnatory of the Bank of the United States.
Certainly the General Assembly would not have taken any action not approved by Brockenbrough, Roane, and Ritchie. Ritchie'sEnquirerboasted that it "was the first to denounce the renewal of the bank charter."[452]In the Senate, William H. Crawford boldly charged that the instructions of the State Legislatures were "induced by motives of avarice";[453]and Senator Giles was plainly embarrassed in his attempt to deny the indictment.[454]
Nearly all the newspapers were controlled by the State banks;[455]they, of course, denounced the National Bank in the familiar terms of democratic controversy and assailed the character of every public man who spoke in behalf of so vile and dangerous an institution.[456]It was also an ideal object of assault for local politicians who bombarded the Bank with their usual vituperation. All this moved Senator Crawford, in his great speech for the rechartering of the Bank, to a scathing arraignment of such methods.[457]
In spite of conclusive arguments in favor of the Bank of the United States on the merits of the question, the bill to recharter that institution was defeated in the House by a single vote,[458]and in the Senate by the casting vote of the Vice-President, the aged George Clinton.[459]Thus, on the very threshold of the War of 1812, the Government was deprived of this all but indispensable fiscal agent; immense quantities of specie, representing foreign bank holdings, were withdrawn from the country; and the State banks were given a free hand which they soon used with unrestrained license.
These local institutions, which, from the moment the failure of the rechartering of the National Bank seemed probable, had rapidly increased in number, now began to spring up everywhere.[460]From the first these concerns had issued bills for the loan of which they charged interest. Thus banking was made doubly profitable. Even those banks, whose note issues were properly safeguarded, achieved immense profits. Banking became a mania.
"The Banking Infatuation pervades all America," wrote John Adams in 1810. "Our whole system of Banks is a violation of every honest Principle of Banks.... A Bank that issues Paper at Interest is a Pickpocket or a Robber. But the Delusion will have its Course. You may as well reason with a Hurricane. An Aristocracy is growing out of them, that will be as fatal as The Feudal Barons, if unchecked in Time.... Think of the Number, the Offices, Stations, Wealth, Piety and Reputations of the Persons in all the States, who have made Fortunes by these Banks, and then you will see how deeply rooted the evil is. The Number of Debtors who hope to paytheir debts by this Paper united with the Creditors who build Pallaces in our Cities, and Castles for Country Seats, by issuing this Paper form too impregnable a Phalanx to be attacked by any Thing less disciplined than Roman Legions."[461]
Such was the condition even before the expiration of the charter of the first Bank. But, when the restraining and regulating influence of that conservative and ably managed institution was removed altogether, local banking began a course that ended in a mad carnival of roguery, to the ruin of legitimate business and the impoverishment and bankruptcy of hundreds of thousands of the general public.
The avarice of the State banks was immediately inflamed by the war necessities of the National Government. Desperate for money, the Treasury exchanged six per cent United States bonds for the notes of State banks.[462]The Government thus lost five million dollars from worthless bank bills.[463]These local institutions now became the sole depositories of the Government funds which the National Bank had formerly held.[464]Sources of gain of this kind were only extra inducements to those who, by wit alone, would gather quick wealth to set up more local banks. But other advantages were quite enough to appeal to the greedy, the dishonest, and the adventurous.
Liberty to pour out bills without effective restriction as to the amount or security; to loan such"rags" to any who could be induced to borrow; to collect these debts by foreclosure of mortgages or threats of imprisonment of the debtors—these were some of the seeds from which grew the noxious financial weeds that began to suck the prosperity of the country. When the first Bank of the United States was organized there were only three State banks in the country. By 1800, there were twenty-eight; by 1811, they had more than trebled,[465]and most of the eighty-eight State institutions in existence when the first National Bank was destroyed had been organized after it seemed probable that it would not be granted a recharter.
So rapidly did they increase and so great were their gains that, within little more than a year from the demise of the first Bank of the United States, John Adams records: "The Profits of our Banks to the advantage of the few, at the loss of the many, are such an enormous fraud and oppression as no other Nation ever invented or endured. Who can compute the amount of the sums taken out of the Pocketts of the Simple and hoarded in the Purses of the cunning in the course of every year?... If Rumour speaks the Truth Boston has and will emulate Philadelphia in her Proportion of Bankruptcies."[466]
Yet Boston and Philadelphia banks were the soundest and most carefully conducted of any in the whole land. If Adams spoke extravagantly of the methods and results of the best managed financial institutions of the country, he did not exaggerateconditions elsewhere. From Connecticut to the Mississippi River, from Lake Erie to New Orleans, the craze for irresponsible banking spread like a contagious fever. The people were as much affected by the disease as were the speculators. The more "money" they saw, the more "money" they wanted. Bank notes fell in value; specie payments were suspended; rates of exchange were in utter confusion and constantly changing. From day to day no man knew, with certainty, what the "currency" in his pocket was worth. At Vincennes, Indiana, in 1818, William Faux records: "I passed away my 20 dollar note of the rotten bank of Harmony, Pennsylvania, for five dollars only!"[467]
The continuance of the war, of course, made this financial situation even worse for the Government than for the people. It could not negotiate its loans; the public dues were collected with difficulty, loss, and delay; the Treasury was well-nigh bankrupt. "The Department of State was so bare of money as to be unable to pay even its stationery bill."[468]In 1814, when on the verge of financial collapse, the Administration determined that another Bank of the United States was absolutely necessary to the conduct of the war.[469]Scheme after scheme was proposed, wrangled over, and defeated.
One plan for a bank[470]was beaten "after a day of the most tumultuous proceedings I ever saw," testifies Webster.[471]Another bill passed,[472]but was vetoed by President Madison because it could not aid in the rehabilitation of the public credit, nor "provide a circulating medium during the war, nor ... furnish loans, or anticipate public revenue."[473]When the war was over, Madison timidly suggested to Congress the advisability of establishing a National bank "that the benefits of a uniform national currency should be restored."[474]Thus, on April 10, 1816, two years after Congress took up the subject, a law finally was enacted and approved providing for the chartering and government of the second Bank of the United States.[475]
Within four years, then, of the refusal of Congress to recharter the sound and ably managed first Bank of the United States, it was forced to authorize another National institution, endowed with practically the same powers possessed by the Bank which Congress itself had so recently destroyed.[476]But the second establishment would have at least one advantage over the first in the eyes of the predominant political party—a majority of the officers and directors of the Bank would be Republicans.[477]
During their four years of "financial liberty" the number of State banks had multiplied. Those that could be enumerated in 1816 were 246.[478]In addition to these, scores of others, most of them "pure swindles,"[479]were pouring out their paper.[480]Even if they had been sound, not half of them were needed.[481]Nearly all of them extended their wild methods. "The Banks have been going on, as tho' the day of reckoning would never come," wrote Rufus King of conditions in the spring of 1816.[482]
The people themselves encouraged these practices. The end of the war released an immense quantity of English goods which flooded the American market. The people, believing that devastated Europe would absorb all American products, and beholding a vision of radiant prosperity, were eager to buy. A passion for extravagance swept over America;[483]the country was drained of specie by payments for exports.[484]Then came a frenzy of speculation. "The people were wild; ... reason seemed turned topsy turvey."[485]
The multitude of local banks intensified both these manias by every device that guile and avarice could suggest. Every one wanted to get rich at the expense of some one else by a mysterious process, the nature ofwhich was not generally understood beyond the fact that it involved some sort of trickery. Did any man's wife and family want expensive clothing—the local bank would loan him bills issued by itself, but only on good security. Did any man wish to start some unfamiliar and alluring enterprise by which to make a fortune speedily—if he had a farm to mortgage, the funds were his. Was a big new house desired? The money was at hand—nothing was required to get it but the pledge of property worth many times the amount with which the bank "accommodated" him.[486]
Indeed, the local banks urged such "investments," invited people with property to borrow, laid traps to ensnare them. "What," asked Hezekiah Niles, "is to be the end of such a business?—Mammoth fortunes for thewise, wretched poverty for thefoolish.... Lands, lots, houses—stock, farming utensils and household furniture, under custody of the sheriff—SPECULATIONin a coach, HONESTYin the jail."[487]
Many banks sent agents among the people to hawk their bills. These were perfectly good, the harpies would assure their victims, but they could now be had at a heavy discount; to buy them was to make a large profit. So the farmer, the merchant, even the laborer who had acquired a dwelling of his own, were induced to mortgage their property or sell it outright in exchange for bank paper that often proved to be worthless.[488]
Frequently these local banks ensnared prosperous farmers by the use of "cappers." Niles prints conspicuously as "A True Story"[489]the account of a certain farmer who owned two thousand acres, well improved and with a commodious residence and substantial farm buildings upon it. Through his land ran a stream affording good water power. He was out of debt, prosperous, and contented. One day he went to a town not many miles from his plantation. There four pleasant-mannered, well-dressed men made his acquaintance and asked him to dinner, where a few directors of the local bank were present. The conversation was brought around to the profits to be made in the milling business. The farmer was induced to borrow a large sum from the local bank and build a mill, mortgaging his farm to secure the loan. The mill was built, but seldom used because there was no work for it to do; and, in the end, the two thousand acres, dwelling, buildings, mill, and all, became the property of the bank directors.[490]
This incident is illustrative of numerous similar cases throughout the country, especially in the West and South. Niles thus describes banking methods in general: "At first they throw out money profusely, to all that they believe areultimatelyable to return it; nay, they wind round some like serpents to tempt them to borrow—... they then affect to draw in their notes, ... money becomes scarce, and notes of hand areshavedby them to meet bank engagements; it gets worse—theconsummationoriginallydesigned draws nigh, and farm after farm, lot after lot, house after house, are sacrificed."[491]
So terrifying became the evil that the Legislature of New York, although one of the worst offenders in the granting of bank charters, was driven to appoint a committee of investigation. It reported nothing more than every honest observer had noted. Money could not be transmitted from place to place, the committee said, because local banks had "engrossed the whole circulation in their neighborhood," while their notes abroad had depreciated. The operations of the bankers "immediately within their vicinity" were ruinous: "Designing, unprincipled speculator[s] ... impose on the credulity of the honest, industrious, unsuspecting ... by their specious flattery and misrepresentation, obtaining from them borrowed notes and endorsements, until the ruin is consummated, and their farms are sold by the sheriff."[492]
Some banks committed astonishing frauds, "such as placing a partial fund in a distant bank to redeem their paper" and then "issuing an emission of notes signed with ink of a different shade, at the same time giving secret orders to said bank not to pay the notes thus signed." Bank paper, called "facility notes," was issued, but "payable in neither money, country produce, or any thing else that has body or shape." Bank directors even terrorized merchants who did not submit to their practices. In one typical case all persons were denied discounts who traded at a certain store, the owner of which had asked for bank bills that would be accepted in New York City, where they had to be remitted—this, too, when the offending merchant kept his account at the bank.
The committee describes, as illustrative of banking chicanery, the instance of "an aged farmer," owner of a valuable farm, who, "wishing to raise the sum of one thousand dollars, to assist his children, was told by a director, he could get it out of the bank ... and that he would endorse his note for him." Thus the loan was made; but, when the note expired, the director refused to obtain a renewal except upon the payment of one hundred dollars in addition to the discount. At the next renewal the same condition was exacted and also "a judgment ... in favor of said director, and the result was, his farm was soon after sold without his knowledge by the sheriff, and purchased by the said director for less than the judgment."[493]
Before the second Bank of the United States opened its doors for business, the local banks began to gather the first fruits of their labors. By the end of 1816 suits upon promissory notes, bonds, and mortgages, given by borrowers, were begun. Three fourths of all judgments rendered in the spring of 1818 by the Supreme Court of the State of New York alone were "in favor of banks, against real property."[494]Suits and judgments of this kind grew ever more frequent.
In such fashion was the country hastened toward the period of bankruptcy. Yet the people in generalstill continued to demand more "money." The worse the curse, the greater the floods of it called for by the body of the public. "Like a dropsical man calling out for water, water, our deluded citizens are clamoring for more banks.... We are now taught to believe that legerdemain tricks upon paper can produce as solid wealth as hard labor in the earth," wrote Jefferson when the financial madness was becoming too apparent to all thoughtful men.[495]
Practically no restrictions were placed upon these financial freebooters,[496]while such flimsy regulations as their charters provided were disregarded at will.[497]There was practically no publicity as to the management and condition of even the best of these banks;[498]most of them denied the right of any authority to inquire into their affairs and scorned to furnish information as to their assets or methods.[499]For years the Legislatures of many States were controlled by these institutions; bank charters were secured by the worst methods of legislative manipulation; lobbyists thronged the State Capitols when the General Assemblies were in session; few, if any, lawmaking bodies of the States were without officers, directors, or agents of local banks among their membership.[500]
Thus bank charters were granted by wholesale and they were often little better than permits to plunder the public. During the session of the Virginia Legislature of 1816-17, twenty-two applications for bank charters were made.[501]At nearly the same time twenty-one banks were chartered in the newly admitted and thinly peopled State of Ohio.[502]The following year forty-three new banks were authorized in Kentucky.[503]In December, 1818, James Flint found in Kentucky, Ohio, and Tennessee a "vast host of fabricators, and venders of base money."[504]All sorts of "companies" went into the banking business. Bridge companies, turnpike companies, manufacturing companies, mercantile companies, were authorized to issue their bills, and this flood of paper became the "money" of the people; even towns and villages emitted "currency" in the form of municipal notes. The City of Richmond, Virginia, in 1815, issued "small paper bills for change, to the amount of $29,948."[505]Often bills were put in circulation of denominations as low as six and one fourth cents.[506]Rapidly the property of the people became encumbered to secure their indebtedness to the banks.
A careful and accurate Scotch traveler thus describes their methods: "By lending, and otherwise emitting their engravings, they have contrived to mortgage and buy much of the property of their neighbours, and to appropriate to themselves the labour of less moneyed citizens.... Bankers gave in exchange for their paper, that ofother banks, equally good with their own.... The holder of the paper may comply in the barter, or keep the notes ...; but he finds it too late to be delivered from the snare. The people committed the lapsus, when they accepted of the gew-gaws clean from the press.... The deluded multitude have been basely duped."[507]Yet, says Flint, "every one is afraid of bursting the bubble."[508]
As settlers penetrated the Ohio and Indiana forests and spread over the Illinois prairies, the banks went with them and "levied their contributions on the first stroke of the axe."[509]Kentucky was comparatively well settled and furnished many emigrants to the newer regions north of the Ohio River. Rough log cabins were the abodes of nearly all of the people[510]who, for the most part, lived roughly,[511]drank heavily,[512]were poorly educated.[513]They were, however, hospitable, generous, and brave; but most of them preferred to speculate rather than to work.[514]Illness was general, sound health rare.[515]"I hate the prairies.... I would not have any of them of a gift, if I must be compelled to live on them," avowed an English emigrant.[516]
In short, the settlers reproduced most of the features of the same movement in the preceding generation.[517]There was the same squalor, suspicion,credulity, and the same combativeness,[518]the same assertion of superiority over every other people on earth,[519]the same impatience of control, particularly from a source so remote as the National Government.[520]"The people speak and seem as if they were without a government, and name it only as a bugbear," wrote William Faux.[521]
Moreover, the inhabitants of one section knew little or nothing of what those in another were doing. "We are as ignorant of the temper prevailing in the Eastern States as the people of New Holland can be," testifies John Randolph in 1812.[522]Even a generation after Randolph made this statement, Frederick Marryat records that "the United States ... comprehend an immense extent of territory, with a population running from a state of refinement down to one of positive barbarism.... The inhabitants of the cities ... know as little of what is passing in Arkansas and Alabama as a cockney does of the manners and customs of ... the Isle of Man."[523]Communities were still almost as segregated as were those of a half-century earlier.[524]Marryat observes, a few years later, that "to write upon Americaas a nationwould be absurd, for nation ... it is not."[525]Again, he notes in his journal that "the mass of the citizens of the United States have ... a very great dislike to all law except ... the decision of the majority."[526]
These qualities furnished rich soil for cultivation by demagogues, and small was the husbandry required to produce a sturdy and bellicose sentiment of Localism. Although the bills of the Bank of the United States were sought for,[527]the hostility to that National institution was increased rather than diminished by the superiority of its notes over those of the local money mills. No town was too small for a bank. The fact that specie payments were not exacted "indicated every village in the UnitedStates, where there was a 'church, a tavern and a blacksmith's shop,' as a suitable site for abank, and justified any persons in establishing one who could raise enough to pay thepaper makerandengraver."[528]
Not only did these chartered manufactories of currency multiply, but private banks sprang up and did business without any restraint whatever. Niles was entirely within the truth when he declared that nothing more was necessary to start a banking business than plates, presses, and paper.[529]Often the notes of the banks, private or incorporated, circulated only in the region where they were issued.[530]In 1818 the "currency" of the local banks of Cincinnati was "mere waste paper ... out of the city."[531]The people had to take this local "money" or go without any medium of exchange. When the notes of distant banks were to be had, the people did not know the value of them. "Notes current in one part, are either refused, or taken at a large discount, in another," wrote Flint in 1818.[532]
In the cities firms dealing with bank bills printedlists of them with the market values, which changed from day to day.[533]Sometimes the county courts fixed rates of exchange; for instance, the County Court of Norfolk County, Virginia, in March, 1816, decreed that the notes of the Bank of Virginia and the Bank of South Carolina were worth their face value, while the bills of Baltimore and Philadelphia and the District of Columbia were below par.[534]Merchants had to keep lists on which was estimated the value of bank bills and to take chances on the constant fluctuations of them.[535]"Of upwards of a hundred banks that lately figured in Indiana, Ohio, Kentucky, and Tennessee, the money of two is now only received in the land-office, in payment for public lands," testifies Flint, writing from Jeffersonville, Indiana, in March, 1820. "Discount," he adds, "varies from thirty to one hundred per cent."[536]By September, 1818, two thirds of the bank bills sent to Niles in payment for theRegistercould not "be passed for money."[537]
"Chains" of banks were formed by which one member of the conspiracy would redeem its notes only by paying out the bills of another. Thus, if a man presented at the counter of a certain bank the bills issued by it, he was given in exchange those of another bank; when these were taken to this secondinstitution, they were exchanged for the bills of a third bank, which redeemed them with notes of the first.[538]For instance, Bigelow's bank at Jeffersonville, Indiana, redeemed its notes with those of Piatt's bank at Cincinnati, Ohio; this, in turn, paid its bills with those of a Vincennes sawmill and the sawmill exchanged its paper for that of Bigelow's bank.[539]
The redemption of their bills by the payment of specie was refused even by the best State banks, and this when the law positively required it. Niles estimated in April, 1818, that, although many banks were sound and honestly conducted, there were not "half a dozen banks in the United States that are able to pay their debtsas they are payable."[540]
All this John Marshall saw and experienced. In 1815, George Fisher[541]presented to the Bank of Virginia ten of its one-hundred-dollar notes for redemption, which was refused. After several months' delay, during which the bank officials ignored a summons to appear in court, a distringas[542]was secured. The President of the bank, Dr. Brockenbrough, resisted service of the writ, and the "Sheriff then called upon the by-standers, as aposse comitatus," to assist him. Among these was the Chief Justice of the United States. Fisher had hard work in finding a lawyer to take his case; for months no member of the bar would act as his attorney.[543]Forin Virginia as elsewhere—even less than in many States—the local banks were the most lucrative clients and the strongest political influence; and they controlled the lawyers as well as the press.
In June, 1818, for instance, a business man in Pennsylvania had accumulated several hundred dollars in bills of a local bank which refused to redeem them in specie or better bills. Three justices of the peace declined to entertain suit against the bank and no notary public would protest the bills. In Maryland, at the same time, a man succeeded in bringing an action against a bank for the redemption of some of its bills; but the cashier, while admitting his own signature on the notes, swore that he could not identify that of the bank's president, who had absented himself.[544]
Counterfeiting was widely practiced and, for a time, almost unpunished; a favorite device was the raising of notes, usually from five to fifty dollars. Bills were put in circulation purporting to have been issued by distant banks that did not exist, and never had existed. In a single week of June, 1818, the country newspapers contained accounts of twenty-eight cases of these and similar criminal operations.[545]Sometimes a forger or counterfeiter was caught; at Plattsburg, New York, one of these had twenty different kinds of fraudulent notes, "well executed."[546]In August, 1818, Niles estimates that "the notes of at leastone hundredbanks in the United States are counterfeited."[547]By the end of the year an organized gang of counterfeiters, forgers, and distributors of their products covered the whole country.[548]Counterfeits of the Marine Bank of Baltimore alone were estimated at $1,000,000;[549]one-hundred-dollar notes of the Bank of Louisiana were scattered far and wide.[550]Scarcely an issue of any newspaper appeared without notices of these depredations;[551]one half of the remittances sent Niles from the West were counterfeit.[552]
Into this chaos of speculation, fraud, and financial fiction came the second Bank of the United States. The management of it, at the beginning, was adventurous, erratic, corrupt; its officers and directors countenanced the most shameful manipulation of the Bank's stock; some of them participated in the incredible jobbery.[553]Nothing of this, however, was known to the country at large for many months,[554]nor did the knowledge of it, when revealed, afford the occasion for the popular wrath that soon came to be directed against the National Bank. This public hostility, indeed, was largely produced by measures which the Bank took to retrieve the early business blunders of its managers.
These blunders were appalling. As soon as itopened in 1817, the Bank began to do business on the inflated scale which the State banks had established; by over-issue of its notes it increased the inflation, already blown to the bursting point. Except in New England, where its loans were moderate and well secured, it accommodated borrowers lavishly. The branches were not required to limit their business to a fixed capital; in many cases, the branch officers and directors, incompetent and swayed by local interest and feeling,[555]issued notes as recklessly as did some of the State banks. In the West particularly, and also in the South, the loans made were enormous. The borrowers had no expectation of paying them when due, but of renewing them from time to time, as had been the practice under State banking.
The National branches in these regions showed a faint gleam of prudence by refusing to accept bills of notoriously unsound local banks. This undemocratic partiality, although timidly exercised, aroused to activity the never-slumbering hostility of these local concerns. In the course of business, however, bills of most State banks accumulated to an immense amount in the vaults of the branches of the Bank of the United States. When, in spite of the disposition of the branch officers to extend unending and unlimited indulgence to the State banks and to borrowers generally, the branches finally were compelled by the parent Bank to demand payment of loans and redemption of bills of local banks held by it; and when, in consequence, the State banks were forced to collect debts due them, the catastrophe, so longpreparing, fell upon sections where the vices of State banking had been practiced most flagrantly.
Suits upon promissory notes, bonds and mortgages, already frequent, now became incessant; sheriffs were never idle. In the autumn of 1818, in a single small county[556]of Delaware, one hundred and fifty such actions were brought by the banks. In addition to this, records the financial chronicler of the period, "their vaults are loaded with bonds, mortgages and other securities, heldin terroremover the heads of several hundreds more."[557]At Harrisburg, Pennsylvania, one bank brought more than one hundred suits during May, 1818;[558]a few months later a single issue of one country newspaper in Pennsylvania contained advertisements of eighteen farms and mills at sheriff's sale; a village newspaper in New York advertised sixty-three farms and lots to be sold under the sheriff's hammer.[559]"Currency" decreased in quantity; unemployment was amazing; scores of thousands of men begged for work; throngs of the idle camped near cities and subsisted on charity.[560]
All this the people laid at the doors of the National Bank, while the State banks,[561]of course, encouraged the popular animosity. Another order of the National concern increased the anger of the people and of the State banks against it. For more than a year the parent institution and its branches had redeemed all notes issued by them wherever presented. Since the notes from the West and Southflowed to the North and East[562]in payment for the manufactures and merchandise of these sections, this universal redemption became impossible. So, on August 28, 1818, the branches were directed to refuse all notes except their own.[563]
Thus the Bank, "like anabandonedmother, ...bastardizedits offspring,"[564]said the enemies of the National Bank, among them all State banks and most of the people. The enforcement of redemption of State bank bills, the reduction of the volume of "currency," were the real causes of the fury with which the Bank of the United States and its branches was now assailed. That institution was the monster, said local orators and editors; its branches were the tentacles of the Octopus, heads of the Hydra.[565]"The 'branches' are execrated on all hands," wrote an Ohio man. "Wefeelthat to the policy pursued by them, we are indebted for all the evils we experience for want of a circulating medium."[566]
The popular cry was for relief. More money, not less, was needed, it was said; and more banks that could and would loan funds with which to pay debts. If the creditor would not accept the currency thus procured, let laws be passed that would compel him to do so, or prevent him from collecting what his contract called for. Thus, with such demands upon their lips, and in the midst of a storm of lawsuits, the people entered at last that inevitable period of bankruptcy to which for years they had been drawing nearer and for which they were themselves largely responsible.
Bankruptcy laws had already been enacted by some States; and if these acts had not been drawn for the benefit of speculators in anticipation of the possible evil day, the "insolvency" statutes certainly had been administered for the protection of rich and dishonest men who wished to escape their liabilities, and yet to preserve their assets. In New York[567]the debtor was enabled to discharge all accounts by turning over such property as he had; if he owed ten thousand dollars, and possessed but fifty dollars, his debt was cancelled by the surrender of that sum. For the honest and prudent man the law was just, since no great discrepancy usually existed between his reported assets and his liabilities. But lax administration of it afforded to the dishonest adventurer a shield from the righteous consequences of his wrongdoing.
The "bankruptcies" of knavish men were common operations. One merchant in an Eastern city "failed," but contrived to go on living in a house for which he "was offered $200,000 in real money."[568]Another in Philadelphia became "insolvent," yet had $7000 worth of wine in his cellar at the very time he was going through "bankruptcy."[569]A merchant tailor in the little town of York, Pennsylvania, resorted to bankruptcy to clear himself of eighty-four thousand dollars of debt.[570]
In their speculations adventurous men counted on the aid of these legislative acts for the relief of debtors. "Never ... have any ... laws been more productive of crime than the insolvent laws of Maryland," testifies Niles.[571]One issue of theFederal Gazettecontained six columns of bankruptcy notices, and these were only about "one-third of the persons" then "'going through our mill.'" Several "bankrupts" had been millionaires, and continued to "live in splendid affluence, ... their wives and children, or some kind relative, having been made rich through their swindlings of the people."[572]Many "insolvents" were bankers; and this led Niles to propose that the following law be adopted:
"'Whereas certain persons ...unknown, have petitioned for the establishment of a bank at ——:
"'Be it enacted, that ... these persons, ... shall have liberty to becomebankrupts, and may legally swindle as much as they can.'"[573]
In a Senate debate in March, 1820, for a proposed new National Bankruptcy Act,[574]Senator Harrison Gray Otis of Massachusetts moderately stated the results of the State insolvency laws. "Merchants and traders ... are harassed and perplexed by twentydifferent systems of municipal laws, often repugnant to each other and themselves; always defective; seldom executed in good faith; prolific in endless frauds, perjuries, and evasions; and never productive of ... any sort of justice, to the creditor. Nothing could be ... comparable to their pernicious effects upon the public morals."[575]Senator Prentiss Mellen, of the same State, described the operation of the bankruptcy mill thus: "We frequently witness transactions, poisoned throughout with fraud ... in whichallcreditors are deceived and defrauded.... The manpretendsto be a bankrupt; and having converted a large portion of his property into money ... he ... closes his doors; ... goes through the form of offering to give up all his property, (though secretly retaining thousands,) on condition of receiving a discharge from his creditors.... In a few months, or perhaps weeks, he recommences business, and finds himself ... with a handsome property at command."[576]
Senator James Burrill, Jr., of Rhode Island was equally specific and convincing. He pictured the career of a dishonest merchant, who transfers property to relatives, secures a discharge from the State bankruptcy courts, and "in a few days ... resumes his career of folly, extravagance, and rashness.... Thus the creditors are defrauded, and the debtor, in many cases, lives in affluence and splendor."[577]Flint records that "mutual credit and confidence are almost torn up by the roots."[578]
It was soon to be the good fortune of John Marshall to declare such State legislation null and void because in violation of the National Constitution. Never did common honesty, good faith, and fair dealing need such a stabilizing power as at the moment Marshall furnished to the American people. In most parts of the country even insolvency laws did not satisfy debtors; they were trying to avoid the results of their own acts by securing the enactment of local statutes that repealed the natural laws of human intercourse—of statutes that expressed the momentary wish of the uncomfortable, if honest, multitude, but that represented no less the devices of the clever and unscrupulous. Fortunate, indeed, was it for the United States, at this critical time in its development, that one department of the Government could not be swayed by the passion of the hour, and thrice happy that the head of that department was John Marshall.
The impression made directly on Marshall by what took place under his very eyes in Virginia was strengthened by events that occurred in Kentucky. All his brothers and sisters, except two, besides numerous cousins and relatives by marriage, lived there. Thus he was advised in an intimate and personal way of what went forward in that State.[579]
The indebtedness of Kentucky State banks, and of individual borrowers to the branches of the National Bank located in that Commonwealth, amounted to more than two and one half millions of dollars.[580]"This is thetriflingsum which the people of Kentucky are called upon to pay inspecie!"[581]exclaimed a Kentucky paper. The people of that State owed the local banks about $7,000,000 more, while the total indebtedness to all financial institutions within Kentucky was not far from $10,000,000.[582]The sacrifice of property for the satisfaction of mortgages grew ever more distressing. At Lexington, a house and lot, for which the owner had refused $15,000, brought but $1300 at sheriff's sale; another costing $10,000 sold under the hammer for $1500.[583]Even slaves could be sold only at a small fraction of their ordinary market price.
It was the same in other States. Within Marshall's personal observation in Virginia the people were forced to eat the fruits of their folly. "Lands in this State cannot now be sold for a year's rent," wrote Jefferson.[584]A farm near Easton, Pennsylvania, worth $12,500, mortgaged to secure a debt of $2500, was taken by the lender on foreclosure for the amount of the loan. A druggist's stock of the retail value of $10,000 was seized for rent by the landlord and sold for $400.[585]In Virginia a little later a farmof three hundred acres with improvements worth, at the lowest estimate, $1500, sold for $300; two wagon horses costing $200 were sacrificed for $40.
Mines were shut down, shops closed, taxes unpaid. "The debtor ... gives up his land, and, ruined and undone, seeks a home for himself and his family in the western wilderness."[586]John Quincy Adams records in his diary: "Staple productions ... are falling to ... less than half the prices which they have lately borne, the merchants are crumbling to ruin, the manufactures perishing, agriculture stagnating, and distress universal in every part of the country."[587]
During the summer and autumn of 1818, the popular demand for legislation that would suspend contracts, postpone the payment of debts, and stay the judgment of courts, became strident and peremptory. "Our greatest real evil is the question between debtor and creditor, into which the banks have plunged us deeper than would have been possible without them," testifies Adams. "The bank debtors are everywhere so numerous and powerful that they control the newspapers throughout the Union, and give the discussion a turn extremely erroneous, and prostrate every principle of political economy."[588]
This was especially true of Kentucky. Throughout the State great assemblages were harangued by oratorical "friends of the people." "The reign of political quackery was in its glory."[589]Why thescarcity of money when that commodity was most needed? Why the lawsuits for the collection of debts, the enforcement of bonds, the foreclosure of mortgages, instead of the renewal of loans, to which debtors had been accustomed? Financial manipulation had done it all. The money power was responsible for the misery of the people. Let that author and contriver of human suffering be suppressed.