Chapter II: Part 2

MILLIONS OF DOLLARS.
------+-------+-------+-------+-------+---------+-------+-------+-------+
| |SPECIE | | DIS- | INDIVI- |NUMBER | |SURPLUS|
|CIRCU- | ON | LEGAL | COUNTS| DUAL | OF | |AND UN-|
YEAR |LATION | HAND |TENDERS| AND | DEPOSITS| BANKS |CAPITAL|DIVIDED|
| | | | LOANS | | | |PROFITS|
------+-------+-------+-------+-------+---------+-------+-------+-------+
|MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN|
1904 | | | | | | | | |
1st Q| 380| 453| | | | | | |
2nd "| | | | | | | | |
3rd "| | |169 | | | | | |
4th "| |504 | |3772 |3707 |5477 |776 |594 |
1905 | | | | | | | | |
1st "| 424| |178 | | | | | |
2nd "| | | 157| | | | | |
3rd "| |495 | | | | | | |
4th "| | 460| |4016 |3889 |5833 |808 |632 |
1906 | | | | | | | | |
1st "| 498|492 |175 | | | | | |
2nd "| | | | | | | | |
3rd "| | | | | | | | |
4th "| | 459| 152|4366 |4289 |6199 |847 |687 |
1907 | | | | | | | | |
1st "| | |173 | | | | | |
2nd "| 543| | | | | | | |
3rd "| | | | | | | | |
4th "| |531 | 151|4678 |4819 |6625 |901 |749 |
1908 | | | | | | | | |
1st "| | | | | | | | |
2nd "| | |192 | | | | | |
3rd "| | | | | | | | |
4th "| 599|680 | |4840 |4720 |6865 |921 |779 |
1909 | | | | | | | | |
1st "| | |198 | | | | | |
2nd "| 615| | | | | | | |
3rd "| | | | | | | | |
4th "| |694 | 176|5148 |5120 |7006 |953 |825 |
1910 | | | | | | | | |
1st "| 667| | | | | | | |
2nd "| | | | | | | | |
3rd "| | | | | | | | |
4th "| |672 | 169|5467 |5304 |7204 |1004 |894 |
1911 | | | | | | | | |
1st "| 680| | 168| | | | | |
2nd "| | | | | | | | |
3rd "| | |185 | | | | | |
4th "| |761 | |5663 |5536 |7328 |1026 |930 |
1912 | | | | | | | | |
1st "| 704| | | | | | | |
2nd "| |769 |188 | | | | | |
3rd "| | | | | | | | |
4th "| | | |6058 |5944 |7420 |1046 |969 |
1913 | | | | | | | | |
1st "| 717|749 | | | | | | |
2nd "| | |189 | | | | | |
3rd "| | | | | | | | |
4th "| | | |6260 |6051 |7509 |1059 |1007 |
1914 | | | | | | | | |
1st "| 720| |201 | | | | | |
2nd "| |792 | |6357 |6111 |7493 |1057 |1003 |
3rd "|1018 | 746| | | | | | |
4th "| 848| 534| 128| | |7581 |1065 |1007 |
1915 | | | | | | | | |
1st "| 746| 591| 127|6499 |6348 |7599 |1066 |1012 |
------+-------+-------+-------+-------+---------+-------+-------+-------+

The adage "buy cheap and sell dear," or its practical equivalent--so scary and imitative are investors--_Buy during the last of a selling movement and sell during the last of a buying movement_, resolves itself, we venture to repeat, into: _Buy when the decline caused by a panic has produced such liquidation that discounts and loans, after steady and long-continued diminution, either become stationary for a period or else increase progressively coincident with a steady increase in available funds; and sell for converse reasons_.

These conclusions are also reached by our author through analyses of the Financial History of England, France, Prussia, Austria, etc. These I omit as unnecessarily wearisome to the reader since I give that of our own country. However, I will here quote the following: "What must be noted is the reiteration and sequence of the same points _(faits)_ under varying circumstances, at all times, in all countries and under all governments," and also this table showing all the panics and their practical coincidence in the past eighty-five years, in France, England, and the United States.

France England United States
1804 1803
1810 1810
1813-14 1815 1814
1818 1818 1818
1825 1825 1826
1830 1830 1829-31
1836-39 1836-39 1837-39
1847 1847 1848
1857 1857 1857
1864 1864-66 1864
1873 1873
1882 1882 1884
(a 1889-90 (a 1890-91 1890-91
p 1894 p 1894 1893-94
p 1897 p 1897 1897
r 1903 r 19O3 1903
o 1907 o 1907 1907
x 1913 x 1913 1913
i i
m m
a a
t t
e e
l l
y) y)

Truly these thirteen panics in the three countries have been practically simultaneous and one common cause must have originated them. The only cause common to all was overtrading to such an extent that neither credit nor money were to be had, so that a forced liquidation or panic inevitably ensued.

The above table effectually does away with the theory that new tariffs are directly productive of panics. For most certainly new tariffs did not occur in England, France, and the United States just before or during all the panic years enumerated, and yet, practically simultaneously in free-trade England, high-protection France, and sometimes low-tariff, sometimes high-protection United States have panics occurred for eighty years.

But, as I have shown in a note attached to this Introduction, a new tariff or a general change of duties is apt to precipitate a panic, on account of the unsettling of business, and that the consequent shaking of credit adds its quota to the forces finally culminating in a panic cannot be doubted. As a matter of history with us, substantially new tariffs have always happened to be the immediate forerunners of a panic, and this I believe to be true in the case of other countries.

Why is this? Is it not because the people instinctively turn to tinkering at and changing their chief tax--the tariff--whenever they as a whole need financial relief; and have we not shown that such relief is needed almost every ten years, when the overtrading, inseparable from the development of all thriving communities has made the call for credit impossible to grant?

A new tariff may defer, or hurry, or, occurring simultaneously, will intensify a panic, but it may not hope to avert one when due: yet if its changes be very gradual, fixed and long predicted, and of a nature to bring about or confirm a judicious tariff for revenue only, they will materially help to put business on so firm and sound a basis that recovery from the inevitable, and approximately decennial panics, will be wonderfully expedited. Thus a new tariff is a quite accurate forewarning of a panic, and is also to no inconsiderable extent a contributory cause. (See foot-note on page 5, _seq., Interrelations of Panics, Tariffs, and the Condition of Agriculture_, etc.; and especially what is said of the panic of 1848, on page 10.)

M. Juglar has fully analyzed the three phases of our business life into Prosperity, Panic, and Liquidation, which three constitute themselves into the business cycle, that for forty years past (that is, since the present Bank of England Act, and practically since that of the Law governing the Bank of France, both of which then increased the required specie reserve) has been of about ten years. These ten years may be apportioned roughly as follows: say, Prosperity for five to seven years; Panic a few months to a few years, [Footnote: The panic after 1873 is the only one I know extending to anything like the length it attained. This may be ascribed to the immense development and consequent speculation, and to the inflation of the currency coming after the period about the Civil War.] and Liquidation about a few years.

I have already pointed out the signs of prosperity, of panic, and of liquidation, but in view of existing conditions perhaps it may be well to restate here the quite familiar fact that the completion of liquidation that precedes the beginning of another period of prosperity is characterized by lack of business, steady prices, and a marked growth in available banking funds.

[The various tables spread through this pamphlet are fully explained by their headings and the text.]

In conclusion I wish to express my thanks for the courtesy M. Juglar has extended me, and to state my appreciation of the motives, painstaking patience, and undoubted originality he has shown in explaining and executing so faithfully and with such genius a most laborious and yet spirited work. It is only justice that such an achievement should have been awarded a prize by the French Institute (Academy of Moral and Political Sciences) and have gained for M. Juglar the Vice-Presidency of the "Society for the Study of Political Economy."

DeCourcy W. Thom.

Wakefield Manor.

A HISTORY OF PANICS IN THE UNITED STATES CONSIDERED WITH SPECIAL REFERENCE TO AMERICAN BANKS.

The English Colonies soon after their settlement issued paper money. The first was Massachusetts, which issued it even before her independence, in 1690, to obtain funds in order to besiege Quebec.

This example was followed to such an extent that it caused a marked speculation in favor of hard money, varying according to the quantity of notes in circulation. In 1745, after a successful campaign against Louisburg and the taking of that fortress, two million pounds of paper money were issued, which step decreased its value. When liquidation occurred these paper pounds were not worth 10 per cent. of their face value.

The War of Independence obliged Congress to issue three million of paper dollars. This amount increased to $160,000,000, so that Congress declared, in 1779, that it would not issue more than $200,000,000. Notwithstanding this guaranty, notwithstanding the forced and legal rating conferred by this enactment, notwithstanding the war spirit, it depreciated; and in 1779 it was necessary to decree that, disregarding its normal value, it should be taken at its face. In 1780 it was no longer taken for customs dues. In 1781 it had no rating and was not even taken at 1 per cent. of its face value.

Between 1776 and 1780 the issue of paper money increased to $359,000,000.

BANK OF NORTH AMERICA.--In 1781 Mr. Morris, Treasurer, persuaded Congress to form a bank (the Bank of North America) with a capital of $10,000,000, of which $400,000 should be turned over to help the national finances. The capital was too insignificant and the course of politics too unpropitious to accomplish this end. However, the example encouraged the States to take up their paper money. Upon the adoption of the United States Constitution the issuing of paper money ceased, and gold and silver were the only means of circulation. Thence arose great embarrassment for the Bank of North America, which, hampered by its loans to the Government, increased its note circulation to an enormous proportion. The ebb of paper through every channel finally aroused the public fears, and people refused the notes. Every one struggled to obtain metallic money, hence it became impossible to borrow, and bankruptcy followed. Such was the, excitement that the Philadelphians as a body demanded and obtained from the Assembly of Representatives a withdrawal of the charter; but the Bank, relying upon Congress, continued until March 17, 1787; succeeded even in extending its charter fourteen years; and later obtained a second extension, limited, however, to Pennsylvania.

The difficulty experienced in the manufacture of money led Mr. Hamilton, Secretary of the Treasury, to propose to Congress in 1790 the founding of a National Bank. After some doubts as to the power of Congress, it was authorized. It began operations in 1794, under the title of "Bank of the United States," with a capital of ten millions, eight millions being subscribed by private individuals, and two millions by the Government. Two millions of the first sum were to be paid in metallic money, and six millions in 6 per cent. State bonds; the charter was to run till March 4, 1811. It seemed to be a good thing for the public and the stockholders, for during twenty-one years it paid an average of 8 per cent. dividends. In 1819 the question of renewing its privileges came up, the situation being as follows:

ASSETS. LIABILITIES.
6 per cent. Paper $ 2,230,000 Capital Stock $10,000,000
Loans and Discounts 15,000,000 Deposits 8,500,000
Cash 10,000,000 Circulation 4,500,000

The profits from the Bank, the prosperous state of the country, and the increase of productions led people to think that the issuing of paper money caused it all; seduced by this alluring theory the "Farmers' Bank" was founded in Lancaster in 1810, with a capital of $300,000. Others followed; such was the mania that the Pennsylvania Legislature was forced to forbid every corporation to issue notes. Despite this preventive message the excitement rose so high that companies, formed to build harbors and canals, also put notes into circulation; in this way the law was eluded.

From 1782 to 1812 the capital of the banks rose to $77,258,000; upon the 1st of January, 1811, there were already eighty-eight banks in existence. Until the declaration of war (June, 1812), the issuing of notes was always made with the intention of redeeming them, but the over-issue soon became general, and depreciation followed. The periodical demands for dollar-pieces for the East Indian and Chinese trade were warnings of the over-speculations on the part of those companies whose members were not personally liable. Traders, who through their notes or their deposits had a right to credit with the banks, did not hesitate to ask for $100,000, whereas, formerly they would have hesitated to ask for $1,000. The war put a stop to the exportation of precious metals, which, in the ordinary course of things, limits the issue and circulation of paper. The upshot of this was to redouble the note issue, each one believing its only duty was to get the largest amount into circulation. Loans, and enormous sums of money, were distributed above all reason among individuals and among the States. The increase of dividends and the ease of obtaining them extended the spirit of speculation in certain districts, and especially among those who owned land. The remarkable results shown by the Bank of Lancaster, the "Farmers' Bank," which, by means of an extraordinary issue of notes, had yielded as much as 12 per cent. and piled up in capital twice the amount of its stock, caused it to be no longer thought of as a bank intended to assist trade with available capital, but as a mint destined to coin money for all owning nothing at all. Led by this error, laborers, shopkeepers, manufacturers, and merchants betook themselves to quitting active occupations to indulge in golden dreams. Fear alone restrained some stockholders connected with the non-authorized companies, and led them to seek for a legal incorporation.

In Pennsylvania, during the session of 1812, an act was passed authorizing twenty-five banks, with a capital of $9,000,000. The Executive nevertheless refused to ratify it, and returned it with some very well-deserved comments. In a second debate the first resolution was rescinded by a vote of 40 to 38. In the following session the proposition was renewed with more vigor, and forty-one banks with a capital of $17,000,000 were authorized by a large majority; the representations of the Executive proved useless, and they immediately entered upon their duties with an insufficient capital.

To discount their own stock was a soon-discovered method. They thus increased the amount of notes, which depreciated in comparison with hard money, and dissipated on all hands the hope of exchanging with it.

In the absence of a demand from abroad for hard money, the demand came from within our own borders.

The laws of New England, which were very severe upon the banks, had placed a penalty of 12 per cent. upon the annual interest payments of those persons who did not pay their notes. The natural result was a difference of value between New England and Pennsylvania, which measured the depreciation caused by paper in the latter district. As remittances on New England could only be made in hard money, the equilibrium of the banks was disturbed; they were not able to respond to the demands for redemption, and a suspension of payments by the banks of the United States, except those of New England, took place in August and September, 1814.

THE PANIC OF 1814.--An agreement took place at Philadelphia between the bank and the chief houses allied with it to resume payments at the end of the war.

Unhappily, the public did not demand the accomplishment of this promise at the time fixed, and the banks, led on by the thirst of gain, issued an unprecedented amount of bank notes. The general approbation brought about a still further increase in their number: the bank notes of the Bank of Philadelphia were at a discount of 80 per cent.; the others at 75 per cent, and 50 per cent., and metallic money disappeared to such an extent that paper had to be used to replace copper coin. The depreciation of fiat money raised the price of everything; this superficial occurrence was looked upon as a real increase, and gave rise to all the consequences that a general inflation of value could produce. This mistake on the subject of artificial wealth made landed proprietors desire unusual proceeds. The villager, deceived by a demand surpassing his ordinary profits, extended his credit and filled his stores with the highest-priced goods; and importations, having no other proportion to the real needs than the wishes of the retailers, soon glutted the market. Every one wished to speculate, and every one eagerly ran up debts. Such was the abundance of paper money that the banks were alarmed lest they could not always find an investment for what they manufactured. It thus happened that it was proposed to lend money on collateral, while the greatest efforts to bring about its redemption were being made. This state of things lasted till the end of 1815, when it was recognized that the paper circulation had not enriched the community, but that metallic money had enhanced.

The intelligent portion of the nation comprehended that even where the estimated value of property had been highest, the true welfare of society had diminished. They learned too late the baleful effects of this circulation of paper money; the greater part of the States and cities had nothing to show for it.

A new class of speculators then appeared, trying to pass these worthless bank notes: forgers of paper money became more active. In the midst of this disorder a National Bank, which should afford a solid basis for the paper circulation, was considered. Influenced by these difficulties, and in hopes of remedying them, the Secretary of the Treasury proposed to Congress, in September, 1814, a few days after suspension, to found a national bank, in order to re-establish metallic circulation, an end which the State banks had failed to accomplish.

This project, which lent the national credit to the capital of the bank, was antagonized by a good many members who exaggerated its consequences; at the same time that they took more or less important sums in bank notes, or borrowed from the banks upon the nation's guaranty, in order to re-establish the public credit and to obtain means for prolonging the war.

CAUSES OF THE PANIC OF 18l4.--The bank directors laid the blame upon the blockade of the ports, which, interfering with, indeed even preventing, the export of products, occasioned the outflow of the metals. The national loans to carry on the war also had their influence. From the beginning of hostilities until 1814 they increased to $52,848,000, distributed as follows: Eastern States, $13,920,000; New York, Pennsylvania, Maryland, and District of Columbia, $27,792,000; Southern and Western States, $11,186,000.

Nearly all of this was advanced by the cities of New York, Philadelphia, and Baltimore. The banks made advances beyond their resources, augmenting their circulation in consequence. [Footnote: The cause of the crisis, according to the Committee of the Senate, was the abuse of the banking system; the great number and bad administration of the banks; and their speculations designed to advance their stock, and to distribute usurious dividends. When the Bank of the United States saw the danger that menaced it, it reduced its discounts and circulation. The circulation of the country banks fell from $5,000,000 to $1,300,000, and the total circulation from $10,000,000 to $3,000,000.

Increase and Decrease Circulation in Pennsylvania.

City Banks. Country. Total.
1814 ........ $3,300,000 $1,900,000 $5,200,000
1815 ........ 4,800,000 5,300,000 10,100,000
1816 ........ 3,400,000 4,700,000 8,100,000
1817 ........ 2,300,000 3,800,000 6,100,000
1818 ........ 1,900,000 3,000,000 4,900,000
1819 ........ 1,600,000 1,300,000 2,900,000

Number
of Banks. Capital. Circulation. Specie.
1811 ... 88 $52,000 00 $28,000 00 $15,000 00
1815 ... 208 82,000 00 45,000 00 17,000 00
1816 ... 246 89,000 00 68,000 00 19,000 00]

From the 1st of January, 1811, to the 1st of January, 1815, one hundred and twenty new banks were registered, thus raising their capital to more than $80,000,000; this increase took place during a war that entirely did away with foreign trade. The expenses of the war declared against Great Britain in June, 1812, were defrayed by notes issued by the banks of the various States. Six million dollars were obtained from them in 1812, in the following year, 1813, twenty million, and then fifteen million in exchange for twelve million of Federal stock, issued at the price of $125 face for every $100 paid in. Until January 1, 1814, in order to avoid taxation, Treasury bonds were issued in addition to what was contributed by the banks.

In 1812 ..................... $3,000,000
" 1813 ..................... 6,000,000
" 1814 ..................... 8,000,000

Up to this time no account of their administration had been rendered, but now Mr. Bland, a Maryland representative, called attention to the fact that all their operations seemed veiled from the public. Unfortunately we have been unable to find a statement of the discounts.

The suspension of specie payments differed with the corresponding state of affairs in England, inasmuch as it was not general, and, since each State was independent, the depreciation varied. It became very difficult to circulate paper, and the Government was again obliged to issue Treasury bonds, bearing 6 per cent. interest. In February, 1815, peace having been proclaimed, it was hoped that the banks would resume specie payments. There was no sign of it. The re-establishment of peace merely made some of the legal regulations seem less pressing upon the banks.

In the middle of May, 1815, the first English vessel arrived, and business became very active again. In May, June, and July it might have been said "This is the golden age of commerce." Discounts of unsecured paper were easy, and it was not an unusual occurrence to have notes of $60,000 offered.

The banks had authorized a suspension of specie payment in order to force the issue of bank notes, and to stimulate trade, although Mr. Carey pretends that no over-trading had taken place. He blames them for having restricted their loans in October and November, thus producing a decline in prices; and the necessity of cutting down credits came about, according to him, from the speculations in National securities.

Six Philadelphia banks with a capital of $10,000,000 held $3,000,000 in Government stock.

On the 15th of February, 1815, when scarcely through with all this confusion, an effort was made to re-establish for the second time a United States Bank. It was authorized on the 10th of April, 1816, the Act permitting the formation of a Company, with a capital of $35,000,000, divided into 350,000 shares of $100 each, of which the Government took 70,000 shares and the public 180,000 shares. These last were payable in $7,000,000 of gold or silver, of the United States of North America, and $21,000,000 in like money, or, in the funded debt of the United States either in the 6 per cent. Consolidated Debt at par, the 3 per cent. at 65, or the 7 per cent. at 106-1/2 per cent.; upon subscription $30 was payable, of which at least $5 had to be in gold or silver; in six months after, $35, of which $10 had to be in metal, and twelve months after the same amount was to be paid in the same manner. The directors were authorized to sell shares every year to the amount of $2,000,000, after having offered them at the current price to the Secretary of the Treasury for fourteen days. The Government reserved the right to redeem the debt at the subscription price.

The charter, made out in the name of the president, ran until March 3, 1836. There were twenty-five directors of the concern, five of whom were appointed by the President of the United States with the consent of the Senate, and not more than three by the State; the stockholders chose the others.

The corporation could not accept any inconvertible property, or any farm-mortgage, unless for its immediate use, either as security for an existing debt, or to wipe out a credit.

It had no right to contract any debt greater than $35,000,000, more than its deposits, unless by special act; the directors were made responsible for every violation, and could be sued by each creditor. They could only deal in gold and silver exchange, and not in other country securities which could not be realized upon at once. The Bank could purchase no public debt nor exceed 6 per cent. interest on its discounts and loans. It could lend no more than $500,000, to the United States, $50,000, to each State, and nothing to foreigners. It could give no bill of exchange greater than $5,000; bank notes less than $100 were to be payable on demand, and greater sums were not allowed to run longer than sixty days. Two settlements were to take place every year.

Branches were to be established upon demand of legislative authorities, wherever 2,000 shares of stock were subscribed for.

There were to be no bank notes less than $5.00, and every bill of exchange, or bill payable at sight, was to be receivable by the public Treasury.

The duty of the Bank was especially to pay out and receive the public money, without profit or loss. It was to serve as agent for every State contracting a loan; the cash belonging to the United States was to be deposited at the Bank whenever the Secretary of the Treasury did not dispose of it otherwise, in which case he was to notify Congress.

Neither the Directory nor Congress could suspend payment of the bank notes, discounts, or deposits: such refusal carried a right to 12 per cent. interest. In exchange for this charter the Bank was to give $1,000,000, to the Government in three instalments.

The charter was exclusive during its life, excepting in the District of Columbia, where banks might be authorized, provided their capital did not exceed $6,000,000. The Bank did not open at once, for it sent an agent to Europe to look up bullion. Between July, 1817, and December, 1818, it thus procured $7,311,750, at an expense of $525,000. On the 20th of February, 1817, it was decided that, excepting gold and silver and Treasury notes, no notes would be received at the Government Treasuries, save such as were payable to the banks in hard money. Notwithstanding this discrimination the Banks decided not to resume specie payment until the 1st of July, 1817.

In the meantime an immense speculation had taken place in its stock, which was compromising for the Bank and for the credit of its Directory, because several of its Directors appointed by the Government took part in it. For example, it became customary to loan a very large amount of money on the Bank's own stock, as much as $125 on each share of $100. Thus more than the purchase price was loaned upon them: in furnishing the means of paying for them by credit, speculation was aroused, and on the 1st of September, 1817, the market price advanced to $156.50, at which rate it continued until December, 1818, when it fell to $110.

At last the public perceived that the excessive issue depreciated the bank-note circulation, and that a greater shrinkage was imminent.

An office for the payment of bank dividends was opened in Europe, so as to increase the price of the stock and the speculation in it through this facility, rather than for the permanent benefit of the institution. Let us note here the short-sightedness of the Directors, who thought they would stem the depreciation of their means of payment by persuading all the banks to declare what was not true, that the bank notes were worth par.

On the 21st of February, still aiming at the same end, they announced the resumption of specie payment. The State Banks, remembering the embarrassment of the public, which for two years had paid an exchange of 6 per cent., persuaded themselves that few people would dare to ask for large sums. They hoped to come to an understanding and to cause the acceptance of a promise to pay upon a designated day.

We say "a promise to pay," for this was not a serious proposition, inasmuch as foreign money and that of the United States had enjoyed a higher market value for a long time.

The depreciation of the bank notes might result just as well, from the fear of the public's enforcing its rights, as from a refusal of the banks to make good their promises. This understanding was not, properly speaking, a resumption of specie payment, but rather a kind of humbug.

In January the banks of New York, Philadelphia, Baltimore, Richmond, and Norfolk decided to resume specie payment on the 20th of February, provided the balance showing against them was not demanded by the Bank of the United States before discounts became $2,000,000, at New York, as much in Philadelphia, and $1,500,000 in Baltimore; and these conditions were accepted.

The discount line of the Bank of the United States was thus greatly increased; it grew from $3,000,000 on the 27th of February to $20,000,000 on the 30th of April; to $25,000,000 on July 29th, and to $33,000,000 on the 31st of October. The Bank imported much metallic money, redeemed its notes and those of its branches without distinction; the notes of its Eastern and Southern branches were returned as soon as those of the North had paid them, and they were newly issued; consequently eighteen months after this practice began the cash boxes of the North were drained of their capital, the length of discount was reduced, and 5 per cent. was charged for sixty days. On April 1, 1819, only $126,000, cash remained on hand, on the 12th only $7l,000, remained, $196,000, was owed to the city banks.

Scarcely had the Directors of the National Bank succeeded in replacing the paper issued but not redeemed by their bank-note circulation, being fully aware from their own experience that the circulation could only reach a limited amount, than they inundated the market with it, and in a few months all reductions vanished. In this way the market price shortly resumed its former quotation, and all the difficulties reappeared. This imprudent management necessarily threw one portion of the public into debt, from which it had saved itself; and the other portion into the vortex which it had avoided. The critical moment was delayed somewhat, but the day of reckoning was near.

THE PANIC OF 1818.--The Bank at last discovered that it had passed the bounds of safety through its issues, and that it was at the mercy of its creditors. It saw firstly, on October 21, 1818, the payment of part of the State of Louisiana's foreign debt withdraw large sums, and then Chinese, Indian, and other goods reach fancy prices because of the depreciation of the circulating medium. All these influences produced a demand for specie payment which the Bank as a public one was obliged to meet, under penalty of 12 per cent. interest, and without power to avail itself of the same accounts as the State banks.

From this moment it thought fixedly of its safety and of how to reduce its notes; this reduction obliged the other banks to imitate it, and a new crisis shook trade in the end of October, 1818. During one year the National Bank furnished from its cash boxes more than $7,000,000, and the others more than $3,000,000.

The State banks naturally followed the same policy in their connection, and their circulation became reduced as follows:

On November 1, 1816, to ............ $4,756,000
" " " 1817, " ............ 3,782,000
" " " 1818, " ............ 3,011,000
" " " 1819, " ............ 1,318,000

It will give a faint idea of the excessive issue to state that the only difficulty was the impossibility of examination by the President and Cashier, and of their jointly signing the notes, which was made obligatory by the regulations; hence they asked power from Congress to grant this right to the Presidents and Cashiers of the Branch Banks. This facility was refused, but Congress granted a Vice-President and a Vice-Cashier to sign. With these issues and a simple capital of $2,000,000, the Bank discounted as much as $43,000,000, during one year, in addition to $11,000,000, to $12,000,000, loaned upon public securities.

In order to carry on its operations, it exchanged in Europe a portion of its funded debt for gold and silver, and bought specie in the West Indies. From July, 1817, to July, 1818, it imported $6,000,000, of specie, at an expense of $500,000, but the excessive issue of paper drained away the cash more rapidly than the Bank could import it. In the face of this hopeless struggle, in July, 1818, it entirely changed its course and reduced its discounts, and 10 per cent. premium was then paid for cash, and the reduction of nearly $5,000,000, in the discount line in three months only had a disastrous effect, while at the same time they would only receive for redemption the notes issued by each Branch Bank: hence general embarrassment arose, and as the Bank of the United States was withdrawing cash from the local banks, Congress wished to forbid the exportation of gold and silver. The committee appointed on the 30th of November, 1818, to examine the affairs of the Bank concluded that it had violated its charter:

1. In buying $2,000,000, of the Public Debt.

2. In not requiring from the purchasers of its stock the payment of the second and third instalments in cash, and in the Public Debt of the United States.

3. In paying dividends to purchasers of its stock who had not entirely paid up.

4. In allowing voting by proxy to a greater extent than the charter permitted.

Upon receipt of the report the Governor fled, and the shares fell to $93. In 1818 the speculation was so wild that no one failed on account of a smaller sum than $100,000. A drawing-room that had cost $40,000, and a bankrupt's wine-cellar estimated to have cost $7,000, were cited as instances of the general prodigality. The Senatorial Committee of Inquiry declared that the panic imposed ruinous losses upon landed property, which had fallen from a quarter to even a half of its value. In consequence forced sales, bankruptcies, scarcity of money, and a stoppage of work occurred. House-rents fell from $1,200, to $450; the Federal stock alone held its own at 103 to 104.

On the 13th of December, 1819, a Committee of the House of Representatives reported that the panic extended from the greatest to the smallest capitalists. It concluded by demanding the intervention of the legislative power to restrain the corporation, which, spreading its branches throughout the Union had inundated it with nearly $100,000,000, of new circulating medium. Those who unfortunately owed money lost all the fruit of long work, and skilled laborers were obliged to exchange the shelter of their old homes for the inhospitable western forests. Forced sales of provisions, merchandise, and implements were made, greatly below their purchase price. Many families were obliged to limit their most necessary wants. Money and credit were so scarce that it became impossible to obtain a loan upon lands with the securest titles; work ceased with its pay, and the most skilful workman was brought to misery; trade restricted itself to the narrowest wants of life; machinery and manufactories lay idle; the debtor's prison overflowed; the courts of justice were not able to look after their cases, and the wealthiest families could hardly obtain enough money for their daily wants.

The Committee appointed by the Senate of Pennsylvania reported on the 29th of January, 1820, that, to prevent a bad administration of the banks, it was necessary:

1. To forbid them to issue more than half of their capital in notes.

2. To divide with the State all dividends in excess of 6 per cent.

3. Excepting the president, that no director should be re-appointed until after an interval of three years.

4. To submit to the State's inspection the bank's business and books.

From this period excessive profits and losses ceased on the part of the American banks. The change of directory of the National Bank, called forth by the unfortunate experience of 1818, was the beginning of a very fortunate epoch. As was always the case, business affairs resumed their usual course when liquidation ceased. Among the various causes assigned for the panic, the increase of import duties had to be pointed out, and the decrease of the Public Debt which was reduced between 1817 and 1818 more than $80,000,000. It was impossible to turn any portion of the public deposits in proper time either into Federal stock or such other forms of value as its creditors might demand, without staking or breaking down any respectable institution whatever. But these seem to be only secondary causes.

Panic of 1825 to 1826.--In 1824 in Pennsylvania there was a new rage for banks, and in 1825 there was a repetition of the marvellous days of 1815. American banking bubbles have always been exactly similar to the English South Sea bubble, and to Law's bank in France. In July, after an advance dating from 1819, there was a reaction, a panic, and liquidation. Here we cannot point out any of the causes which we have indicated above; the growth of trade and the exaggeration of discount sufficiently explain the difficulties of the situation.

In Pennsylvania in 1824 a bill was passed re-establishing the charters of all the banks which had failed in 1814. In New York they thought of banks alone; companies with a capital of $52,000,000 were formed. Ready money had never been so abundant, if we can judge of it by the amount of subscriptions and the great speculations in stocks.

Three millions were subscribed to the "New Jersey Protection Company" in one day. But in July, when the decline on the London market was reported, the want of hard money forced itself into notice. Exchange on England rose from 5 per cent. to 10 per cent.; the discount on New Orleans notes, from 3 per cent. became 50 per cent., and on the 4th of December it had fallen back to 4 per cent. What fluctuation! What disasters!

Mr. Biddle, the President of the United States Stock Bank, said that the crisis of 1825 was the most severe that England had ever experienced, superinduced as it was by the wild American speculation in cottons and mines. Cotton cloth fell from 18 to 13 cents per yard; and out of 4,000 weavers employed in Philadelphia in 1825 not more than 1,000 remained. The reaction of liquidation was experienced in 1826, and from 1827 money was abundant.

EMBARRASSMENT OF THE LOCAL BANKS IN 1828 TO 1829.--Is it necessary to mention these embarrassments? The trouble of 1828 affected only the local banks and not at a11 those of the United States. The chief cause was the Bank of the United States' increase of circulation from August, 1822, to August, 1828. From $5,400,000 it had become $13,000,000 without adding anything to the circulation, merely displacing an equal amount of local bank notes through drafts of branches that it put into circulation. These branch banks' drafts were in form of bank notes, signed by the chief employees of the branches, drawn, it might be, on each other or on the main bank. A great issue of paper was thus brought about; without this roundabout method it would have been impossible to have forced the issue of the notes from the mere physical inability of the president and cashier to sign so large a number. Congress had always refused to delegate this power to any other persons; in consequence of this practice the inevitable result occurred in 1828, as might have been foreseen, and a conflict between notes of the Bank of the United States and that of the local banks occurred.

These drafts circulated everywhere; the branch banks received them on deposit, but did not redeem them: hence it was necessary to guard against panic by keeping hold of cash. This course increased the issue of the Bank of the United States, and of the local banks which discounted the paper of the central bank as if it were so much cash. The local banks, then, whose paper did not widely circulate, exchanged their bank notes for drafts, thus reducing the amount of circulation of the first, increasing that of the central bank, and hence that of the total issue of its bank notes; the local banks continued to exchange their paper with its narrow and limited circulation for drafts of this latter, which passed everywhere.

There occurred, then, in 1828 and 1829 an accidental and very brief scarcity of cash, whose cause we have just indicated; but since the second half of the year difficulties arising from metallic circulation had disappeared.

PANIC OF 183l.--The course of business, having scarcely suffered a stoppage, continued until 1831, and not till then did The Bank, being the agent of the Treasury and having $11,600,000 on deposit, would have been forced to become a borrower in order to pay out the $2,700,000 demanded from it. However, its request was granted.

Jackson soon learned with surprise that, business being more impeded than ever, the President had despatched an agent to England to contract with the Barings a loan of $6,000,000. Seeing the Bank to be insolvent he resolved not to renew its charter. The Bank tried to hide its insolvency by the most foolish land speculations, which had already caused such great disaster in 1818 and 1820. The issue of bank notes had given fresh spirit to speculation. These bank notes were received by the National Treasury and returned to the Bank on deposit, which again loaned them to pay for land upon security of the land sold, with the result that the credit granted the Nation was merely fictitious.

In 1832, Congress having voted for the extension of the Bank's charter, President Jackson refused to ratify it on account especially of certain changes, it sought to introduce. "Why," said he, "grant a capital of $35,000,000 when the first company only had $11,000,000?"

But though the Bank's charter could not be arranged, the law of July 10, 1832, dealing with the regulation of banks, prescribed that "a report" upon their exact condition should be submitted to Congress every year.

In 1833 General Jackson ordered the withdrawal of the Government deposits from the Bank. The law required that the reasons for the withdrawal of the deposits should be given, and the secretary, Mr. Duane, refused to give them, saying the Bank was not insolvent. He was dismissed and replaced by a more amenable secretary. The deposits were withdrawn and placed in different State Banks, The Bank of the United States was obliged to limit its discounts and loans, thus causing trouble; however, the President wished at any loss to establish a metallic circulation.

President Adams favored small paper notes of 25 to 10 cents, to the extent of $1,000,000. From 1831 to 1837, $3,400,000 twenty-five cent notes, $5,187,000 ten-cent notes, and $9,771,000 five-cent notes were issued. To prevent an abuse of this it was necessary to resume a metallic circulation immediately. In 1833 the amount of small notes issued had already reached $37,000,000; in 1837 it became $73,000,000; it even exceeded these figures; it was this circulation of small paper notes that had to be made smaller than $120,000,000

Notwithstanding these frequent panics the national prosperity and the increase of wealth were unquestionable and astonished all observers.

From 1817 to 1834 the national expenses diminished from $39,000,000 to $24,000,000, decreasing even to $14,000,000 in 1835, while the income grew to $37,000,000.

From 1826 to 1836 the condition of business, despite the panic of 1831, grew easier. Industries, agriculture, and commerce were prosperous and every enterprise was successful. Both in New Orleans and in New York there was much building, and more than 1508 houses were erected between January 1 and September 1, 1836. This general prosperity carried with it the seeds of trouble.

The rapid increase of the National revenue gave birth to the belief that capital had increased in the same proportion. This superabundance of income produced temporarily by the inflation in business was recklessly thrown away. People speculated in land, projected a hundred railroads, canals, mines, and every sort of scheme, which would have absorbed $300,000,000 if carried out.

The national capital being insufficient, loans were made in England and Holland, where the rate of interest being more moderate stimulated the passion for enterprises. Finally, in order to stop the flow of English capital to America, the Bank of England raised the rate of interest; this brought people to their senses. They saw the impossibility of carrying out a third of their schemes. Cotton fell, and panic seized the public.

Since 1818 a period of flow and ebb in trade had been seen every five or six years, but this stoppage was much more serious. The lack of ready money and capital destroyed confidence. Money was not to be had upon any collateral; and the banks stopped discounting. The people lacked bread, the streets were deserted, the theatres empty; social observances were in abeyance, there were no more concerts, and the whole social round was stopped.

The Bank of the United States used various expedients to temporarily moderate the crisis until the very moment that it burst all the more violently in 1839, and brought about a new and radical reform.

From the time that the separation of the Bank of the United States from the Government and the cessation of its operations as the National Bank was brought about, the quotation on bank notes considerably decreased, as well for those payable at sight as for the deferred notes payable in twelve months. The President sent an agent to London to raise money upon the bank shares.

Fearing that General Jackson would not establish a new bank, and by way of counterpoise, one hundred banks were created with a capital of more than $125,000,000; issues of bank stock were not to exceed three times the amount of the capital, but this provision was not observed; the issue was without regulation and without limits, and during an inflation in prices of the necessaries of life which had doubled in value, and which had turned the people's attention to agriculture. The price of land had for some time advanced tenfold, and the advance in cotton caused the Southern planters to abandon indigo and rice.

Imports in 1836 exceeded the exports by $50,000,000, which had to be paid in gold or silver. This outflow of metal created a great void.

The advance in the discount rate in the Bank of England under such circumstances came like a thunder-clap, and the distended bladder burst. Banks suspended payment, and bank notes lost from 10 to 20 per cent. Exchange on France and England rose to 22 per cent., all metal disappeared from circulation, and a thousand failures took place. The English export houses lost from L5,000,000 to L6,000,000 sterling; values fell from maximum to minimum. The losses in America were even greater; cotton fell to nothing. At the worst of the panic people turned to the Bank of the United States, and its President, being examined as to the means of remedying the trouble, stated that it was above all necessary to maintain the credit of the Bank of England in stead and in place of private credit, which had disappeared. He proposed to pay everything in bank paper on Paris, London, and Amsterdam.

When the panic came the Bank was very much shaken. At the beginning of April, 1837, the New York banks suspended payments because demands for hard money for export played the chief role; the other banks suspended in their turn, promising to resume with them.

The Bank of the United States, suspended also, Mr. Biddle, the President, asserting that it would have continued to pay were it not for the injury done by New York. This was false, for the New York banks shortly after resumed payment, hoping they would be imitated, but the other banks refused to do so. Mr. Biddle wished, in the first place, to await the result of the harvest. To uphold the Bank, he tried to bring about exchanges, both with banks and general business, not only in America but in Europe, in order to establish a unity of interests which would sustain him and conceal his real condition. In this he was successful to a certain degree, for in 1840 in his balance sheet $53,000,000 of paper of the different States was shown up. He wished above all to secure the monopoly of the sale of cotton: a senseless speculation hitherto unexampled, [Footnote: A similar episode has occurred in our time in the speculation in metals by the "Comptoir d'Escompte."] the like of which may never be seen again.

Whilst the Bank came to the relief of New York business through its exchange and its deferred notes, Biddle posed as the great cotton agent, on condition that the Bank's agents should be consigned to at Havre and Liverpool. In their embarrassment this proposition was accepted by the planters. Cotton was thus accumulated in those two places. This monopoly advanced the price, and vast sums were realized, which enabled him to enlarge the scope of his business. In 1837 he was enabled by this means to draw on London for L3,000,000 sterling; the difference between 5 to 6 per cent. interest and discount at 2 per cent. produced a very handsome profit. The cotton merchants prospered as well as the exchange agent, and Mr. Biddle paid the planters in bank notes which the Bank could furnish without limit, while he received in Europe hard money for the cotton; this aroused opposition.

In the second half of 1837 he established in Missouri, Arkansas, Alabama, Georgia, and Louisiana a number of new banks, to make advances to the planters, and to sell their products for them in Europe. They started with very slight capital, they observed no rules in issuing paper, their bank notes fell 30 per cent. in 1838, and the planters would not take them.

The Bank of the United States, fearing lest foreign capitalists should take advantage of the difficulties of the planters by buying this cotton, cheapened on account of the encumbrances upon the district producing it, resolved to come to the rescue of the Southern banks, and to join them in their operations by purchasing their shares and their long-time paper, having two years to run. It thus put $100,000,000 into the business, and in 1838 it had loaned them upon their cotton crops not less than $20,000,000 at 7 per cent. payable in three years.

It had bought the bank shares at 28 per cent. below par; through its help they had risen again to par; and then it threw them upon the London market, which absorbed them. In order to explain the immense credit enjoyed in Europe by the United States and their banks, we must observe that the extinguishment of the National obligations through surplus crops threw a false light upon the credit of the States, as well as particularly upon that of the corporation. For many years American investments had been sought for above all others in London, and as nothing happened during the first year to destroy that confidence, the amount thus employed increased from $150,000,000 to $200,000,000 in 1840. In Pennsylvania $16,000,000 of European money was used in the Bank of the United States, and $40,000,000 in those of the different States, all of which was payable in two or three years.