not returned to metallic payments must be re'jected." Again :-"It is believed that the Bank of the United States may be in operation before 'the first day of January next," (before the receipt of the second instalment.) Mr. Crawford (who, after the date of the last letter, had succeeded to the office of Secretary of the Treasury) writes, on the 29th of November, 1816, to the president of the bank, that "if the 'State banks do not make a simultaneous effort, 'it is manifest that, without their co-operation, ' a national currency, equal to the indispensable demands of the community, cannot be obtained 'by the 20th of February next." He asks whether "it is possible for the bank to supply the ' demand of the commercial cities which the col'lection of the revenue arising from imports and tonnnge will create in the interval between the 20th of February and the 1st of July." He suggests that it may be necessary to employ "a Government paper of some description" in that interval, but adds, that "it is most ardently desired by the Government, that the necessity of resorting to the issue of Government paper may be avoided by the resumption of specie payments by the State banks, on or before the 20th of 'February." H. of R. the supply of specie. South of New England there was no specie in circulation. The National Bank had engaged to support the credit of the State banks, and, if it produced a demand of their specie, it was bound to aid them by the loan of its own. He made these observations very much with a view to the conduct of the bank in affording facilities for the payment of the instalments upon its stock. But he did not mean yet to engage upon that topic. A necessary consequence of this compact, the committee would see to have been, that, if a large amount of specie was necessary to the operations of the bank, it could be obtained only from foreign countries. Its importation might have been trusted to the gradual contributions of trade, and he believed it would have been better to have been so. But the error of judgment, if it was one, which consisted in the bank's importing specie from abroad, had no character of bad faith. Perhaps it was unnecessary. If it were necessary, it resulted exclusively from a compact which interdicted all reliance upon the specie of the State banks. If the committee, then, should determine that the early operation of the bank, and its importations of silver, were both of them injudiciousat least they would say that neither was criminal. Perhaps the effect of both was injurious to the stockholder; the country had no right to complain of them. But the second article of the compact had drawn down the severe animadversions of the gentleman from Virginia, (Mr. PINDALL.) He had considered it as obliging the State banks to pay interest for public balances transferred from them to the National Bank, although the National Bank had not undertaken to pay these balances to the Government in its own notes or specie. In other words, he had supposed that the National Bank received interest from the State banks on what had been called the special deposites of the Government. He had admitted it to be fair and right that the bank should receive interest on all balances transferred to it, for which it gave a general credit, and which might at any moment be drawn from it in coin. Now, Mr. L. said he did not hesitate to affirm that these were the only balances on which interest had been received or claimed. There was in the sentence which had been read a little ambiguity, (which would have been avoided by introducing the parenthesis before the five words which now preceded it,) but this error in style was no serious crime; and the meaning of a compact, which had been carried into effect without objection by either party, was best ascertained by its execution. The first object which the Government expected to be attained by the National Bank, was that of throwing into general circulation, by the 20th of February, an amount of notes sufficient to enable the public debtors to comply with their engagements. When it appeared impracticable that the amount or dispersion of these notes should provide for the object, the next resource was to give to those of the State banks a credit which should enable the Treasury to receive them under the resolution of Congress. These banks had refused every proposal for the resumption of specie payments. He would not say they were unwilling, but they were afraid to adopt them. The remonstrances and encouragement of the Government were unavailing. It was then that the National Bank, certainly not in the spirit of narrow jealousy, entered into that compact with the State banks which had been referred to by the gentleman from Virginia. It was impossible to do justice to the conduct of the National Bank, at least for the first year of its operations, without attending to the new obligations in which this compact involved them. Proposed by the Executive Government, and sanctioned by it-required by the interests of the people, and necessary to the credit of the local institutions, there could be no other objection to the act than that it accorded better with the public interest than with Among the errors of the bank, in its first opethat of the stockholders. Under this compact, rations, one of the greatest, as it appeared to him, the bank became bound to discount six millions had not been censured by the committee. He (exclusive of revenue bonds) before the 20th alluded to the attempt to pay the notes of the April, and to sustain, with its unbroken credit bank and its branches at any office at which they and its whole capital, every bank which joined should be presented. The committee had said that in the arrangement. The effect of this compact "the relinquishment of this attempt was involunwas not only to force the bank into earlier opera- tary and reluctant;" but the attempt itself, though tion than a selfish policy might have recom- directed to the promotion of the public convemended, but to oblige it to renounce the resource nience, and urged by the public wish, had produwhich the State banks might have afforded forced so much embarrassment and injury, that any H. OF R. Bank of the United States. FEBRUARY, 1819. exposition of the conduct of the bank must be its discounts. Wherever the state of exchange very defective in which the effects of this injudi-is unfavorable, wherever the just principles of cious scheme were omitted. He hoped not to be banking require a reduction of discounts, there, suspected of enlarging upon this subject for the under this system of indiscriminate payment of purpose of supporting a favorite theory. Its ex- its notes, the bank has nothing to fear from a amination was necessary, because it had produced draft of specie, and is encouraged to lend to every much of the mischief which had been attributed applicant. Wherever the state of exchange is to other causes. He should not have to argue favorable, and on the sound principles of banking that the bank was not bound to pay its notes in- an enlarged accommodation might be given to discriminately at all its offices. He believed that the community, there the flow of notes, from nobody now contended that it was. He should every Sate whose exchange is unfavorable, connot inquire how far it could be practicable so to tracts or suspends all the operations of the bank. pay them. His proposition was, that the attempt, Thus, wherever discounts should be enlarged, while the situation of the country made it practi- the tendency of this system is to reduce them, cable, would even then be embarrassing and in- and to enlarge them wherever they should be jurious. reduced. In every system of bank circulation, the regulation of the amount of discounts and issues is a point of the utmost importance. In banks which redeem their paper by specie, the restraint upon excessive issues consists in this, that the superfluous paper is thrown back upon the bank and its specie withdrawn. The directors of a bank, with very little knowledge of the principles of circulation, and little information as to the currency of other States, are in this way controlled in all their operations, by a principle which proportions the circulating money of the country to its real business. He did not mean to inquire whether other or better regulations of the amount of paper in circulation might be adopted. We had no other. But how were the discounts of a branch bank restrained, under the system which provided that the notes which it issued should be redeemed at every office throughout the United States? If the balance of exchange were unfavorable, (and a profuse discount might at any time make it so,) it would be the interest of every man who got possession of a branch note to send it to a State where the exchange was high. A bank note is an order for the payment of money; and if the holder has the option of drawing this money at different places, he will draw it there where money is most valuable. If the discounts of Lexington were larger than the business of the place required, and the notes which were issued there were redeemable nowhere else, the bank at that place would immediately discover its error by the drafts upon its specie, and its discounts would be accordingly contracted. But if the notes of the Lexington branch are payable at New York, however profuse may be its discounts, the directors themselves discover, within the limits of their observation, no inconvenience from their liberality. They have lent only to those whose possessions are sufficient to secure the payment of their debts, the specie in their vaults remains untouched, and the income of the institution is increased by the large amount of their loans. In New York, indeed, if we suppose the exchange to be in favor of that place, the operation of the system is quite different. There, however prudent may be the bank in limiting the amount of its discounts, the increasing demands of the holders of Lexington paper exhaust its resources, and force a still further reduction of It may indeed be said, that the directors of a branch bank, where the exchange is unfavorable, may contract their discounts, although no specie is drawn from them, because they well know that they might otherwise produce a pressure upon distant banks. This is to suppose that calculation of inconveniences to a distant branch will produce the same result which the sense of them, in their own bank, would produce. It may be said that the parent board, at least, will discover and correct the error, and that when the excessive issues of one branch have forced those of other States to redeem their notes, the controlling board will direct a transmission of specie from the debtor bank which will restore the balance. And all this the parent board will attempt to do. They will endeavor to remedy the irregularities which a better system would have avoided; they will direct, as the directors at Philadelphia have continually done, what the amount of discounts for their distant branches shall be-their orders will often be injudicious, and oftener ineffectual. It was no unfair account of the practical operation of the system of which he was speaking, to say, that it gave to the branches, where the exchange was unfavorable, the entire disposition of the specie of those branches where the exchange was favorable. Upwards of six millions of specie have been sent to the branch of New York, besides the amount which has been paid by the subscribers of the bank there; but, in issuing notes, which the bank of New York has been obliged to redeem, every branch throughout the country has drawn upon a fund, with whose condition, at the time, it could not be acquainted. Such a system might be expected to produce inconvenient changes in the distribution of bank capital, an extreme facility in obtaining loans at one time, and unexpected contractions of discount at another. But it had been eighteen months in operation, and if his views were at all correct, the experience of the bank must exemplify and prove them. The embarrassing effect of the system was developed in Boston, as early as March 17th, and in less than three months after, in New York; but he had not time to trace its history. An extract from the letter of the president of the Boston branch (March 19, 1818) to the president, Mr. Jones) would confirm some of the observa FEBRUARY, 1819. Bank of the United States. tions which he had made: "When the State 'banks were discounting here, though not largely, 'this bank called in, from its debtors, but thirty C per cent. regularly; this placed them in a better state; by reducing their sums discounted, considerably, they acquired a balance against the other banks; but this only induced a call from 'the State banks on their debtors; the result is that, as they operate upon their whole system, they have a remedy. But this branch has the mass of paper thrown out at an opposite extreme to provide for, which it cannot, in any case, have the wished for information. On Monday last the bank made no discount to be mentioned, nor had they so done for many weeks ' previous. They had a balance of $93,000 against the other banks in town, and in specie ' about $23,000. Tuesday took from them about $30,000 and Wednesday about $50,000, and it 'followed that, as a great proportion of this is in 'Southern bills, produced by the scarcity of mo'ney here, this must produce a demand which the specie of the bank, and its balance against 'all the other banks in the town would not half 'discharge." The effect of the system of paying the notes of the branches everywhere; in reducing discounts where the exchange is favorable, and enlarging them where it is adverse, is exemplified by a comparison between the discounts of New York, and those of Kentucky and Ohio. In November, 1818, the discounts in New York were $1,685,874; those in Kentucky, $3,221,450; and those in Ohio, $3,383,790; including, in the two last States, the debts which were due from banks which paid interest for them. Thus, the two agricultural States of Kentucky and Ohio have discounts from the National Bank to the amount of more than six millions and a half, or excluding stock notes from the calculation, about one-fourth of all the discounts made by the bank throughout the United States. It could not be necessary to enlarge upon the objections to this unequal distribution of the capital of the National Bank. But a notion has prevailed, that, in respect to the Western States, the capital employed there has been only that which has been furnished by the deposites of the Government. He regretted that the directors of the National Bank, who had had it fully in their power to remove this prejudice, had hitherto neglected to do so. Mr. L. read many extracts from the report of a committee, lately made to the House of Representatives of the State of Ohio, in all of which, the assertion was made that the National Bank had carried no capital to the State, but had been supported principally, and almost entirely, by the deposites of the Government. Very different was the fact. He had on his table a calculation (deduced from statements contained among the documents which had been published) by which he endeavored to infer the amount of drafts and notes from the offices of Kentucky and Ohio, which had been paid in the Atlantic cities, beyond the amount which those offices had paid on Atlantic drafts. H. of R. This amount, he was confident, exceeded five millions and a half. He would be glad if any gentleman disposed to inquire into the subject would examine the paper. But no specie, it is said, was carried to Ohio and Kentucky. If the branches in those States had wagoned five and a half millions of dollars across the mountains, and then lent them to individuals, who had sent them out of the State for the purpose of merchandise, or the payment of debts, it would be admitted that a capital to that amount could have been transferred to the Western country. The bank did not do this. Instead of carrying the specie to Ohio and there lending it, the specie remained in the Atlantic States, and the citizens of Ohio obtained, not indeed silver in the first instance, but drafts and notes, which were sent to the Atlantic cities, and there drew out silver. If it had been proposed to the directors at Philadelphia, at the establishment of the bank, to employ this enormous capital in the Western States, they would not have consented that a fourth of it should be so engaged. But the unfortunate system which he had endeavored to explain had led gradually, and almost without observation, to a distribution of capital which otherwise could not have been granted, nor even asked. The directors of the western branches had not incurred the imputation of speculation or of collusion with speculators; the amount of stock pledged, and even owned there, was not large, and yet it was there that the amount of discounts was most excessive. The discounts of Kentucky and Ohio he had stated as amounting, in November, to more than six and a half millions; those of Baltimore, at the same time, were less than nine and a half millions, a much less amount than the other, comparing the business of the two. These western discounts were the greatest impediment to the successful administration of the bank. One of the most important duties which it behooved the directors to fulfil was that of making a better distribution of their capital. But many years must elapse before the discounts of the two States which he had mentioned could be reduced within their proper limits. He had just received a copy of the memorial of delegates from the banks of Ohio to the Legislature of that State, and was glad to find that they began to understand the mischiefs which the indiscriminate payment of the National Bank notes was calculated to produce in the States whose exchange was unfavorable. [Mr. L. read a paragraph from the memorial which explains the injury which that practice occasioned, as it supposes, to the State of Ohio.] If the bank had refused payment of the notes of its branches, from the commencement of its operations, the memorialists insist that more of its paper would have circulated in the country. He hoped that the Committee would excuse him for having so long dwelt upon a topic hardly noticed in the report, but he bad thought it important to show how large a part of the complaints against the banks resulted from a practice which must be considered as an error, not a fault, which had been entirely abandoned and which it was extremely improbable that any future board of directors would renew. Mr. L. next adverted to that part of the report of the select committee which condemns the arrangements which were made for the payment of the dividends upon bank stock in England. The committee "do not undertake to decide how far it was objectionable to afford inducements to foreigners to become interested in our stock." "But, thus to compel American stockholders, and the Government, to contribute to the possible loss of paying the dividends to those abroad appears (they say) to be unjust." He thought that a very short inquiry would lead the Committee whom he addressed to a different conclusion. FEBRUARY, 1819. of twenty-six years, had been considerably below par. If the bank then had engaged to sell bills at par, it would have had reason, from the experience of twenty-six years, to think that the arrangement would be a prudent one; but, upon a fair estimate of the time which it gained, its price must be considered as being about one per cent. above par. But the committee suppose "that the able reasons" assigned in the report of the committee (of the bank) against the measure "should have prevented its precipitate adoption." Mr. L. said that there were but two sentences in the report which referred at all to this subject. He read them, and asked whether the intimation that the existing unfavorable balance of trade alone influenced the "committee to decline the unqualified recommendation of such an agency" was considnation of the measure? In truth there was no reasoning in the report. But the authority of the committee was decidedly favorable to the general propriety of the measure which had been adopted. The arrangement in question involved two considerations. Ought the National Bank to deal in exchange, and were the terms on which it soldered as furnishing the "able reasons" in condembills to "the stockholder abroad” fair and advantageous? It was very plain, that, to make an arrangement with the foreign stockholder, by which it was stipulated to make the payment in England at par, six months after the dividend was declared, was substantially to sell at par bills payable six months after date. Ought then the bank to deal in exchange? It is the business for which the charter specifically provides; it is perhaps for the country one of the most useful operations in which a National Bank can be engaged -its appropriate duty. It would do very well, the committee seem to think, if it were not for "the possible loss" in the transaction. And in exchange operations there is certainly some risk. In the case of the bank, the sale of bills implies the purchase of them, and bills may be protested. But the risk of the transaction was as good a reason against discounting notes as purchasing bills. He could not think, then, with the committee, "that it was unjust to oblige the American stockholder to contribute to the possible loss," while he was to share in the probable gain "of paying dividends to those abroad." But were the terms unreasonable? If the bank deals in exchange, is the sale at par of its bills, where they are payable six months after date, or four months after sight, a sale for too low a price? Let an examination of the usual state of exchange decide the question. An examination of exchange, since the bank had gone into operation, might be objected to as furnishing no fair criterion of the prudence of the measure. Its state might have been accidentally favorable. But he held in his hand two statements of the annual gain and loss by exchange in the payment of our debt in Europe; by the one of which it appeared that the whole gain, after deducting occasional losses in remittances for the Dutch loans, from 1791 to 1809, inclusive, was upwards of two hundred and sixty thousand dollars; and by the other, that the gain, after the same deductions, under the operations of the Commissioners of the Sinking Fund, from 1802 to 1817, inclusive, was upwards of three hundred and fifty thousand dollars. The average price, then, which the Government had paid for its bills, in a period exces Among the objections urged by the committee (of which he had had the honor to be a member) against the conduct of the bank, some of the most serious were those which regarded the amount and character of its discounts. He concurred with some of the views of the committee upon this subject. He did not now mean to speak of discounts given to enable the discounter to pay his instalments upon stock. But, without reference to the object for which they were employed, the discounts, with a pledge of stock, were, many of them, as the committee had stated, sive in amount." While a pledge of stock is fairly employed as a mere substitute for personal security, he would not say that, even when valued at twenty-five per cent. advance, it might not be safe to the bank, as well as convenient to the merchant. As a mere substitute for personal security, it would imply that no discount would be made on it to an amount which would be refused to the same drawer with a common endorser. But many of the stock loans were so large that the pledge of stock lost its character of mere collateral security. When a loan for a million of dollars is secured by a pledge of stock, it was obvious that the stock was not considered only as a fund to supply any deficiency which the possible insolvency of the drawer might produce, but was the principal and almost the only foundation of the loan. The same loan would indeed be much more objectionable with the security only of an endorser. There were expressions in the report which might be construed to imply a partiality in the distribution of these loans, which perhaps it was not designed to convey, and which, as it seemed to him, the evidence would not support. It was said that the loans "were not made"-he understood that the committee meant to say that most of them were not made" to the merchants and traders," but to a few persons, consisting of directors, brokers, and speculators. It was diffi cult for him—a stranger at Philadelphia-to pronounce sentence on the character of those who had borrowed money on a pledge of stock. Of the whole number, he knew personally but two or three, and neither of these were speculators or brokers. The committee had selected the names of fourteen, and had obtained evidence of their employments in life-seven were merchants, five were brokers, and two could not be classed in either list. Mr. McEuen's testimony, which has been published by the committee, contains his "opinion that a considerable proportion of discounts on pledged stock, was for the benefit of merchants, and not of speculators." Major Butler says, that "he has never known any good paper refused on account of the amount of stock notes offered." It is said in the tenth page of the report that "not an instance has occurred of a note secured by the pledge of stock being rejected." If the merchant and trader then had not their share of the loans, it was only because they did not apply for them. The partiality in their distribution was not to individuals, professions, or parties: merchants, farmers, and artisans, obtained those discounts whenever they wished them. The partiality was to the whole body of holders of bank and funded stock throughout the United States. He believed there was not an instance of a note secured by a pledge of funded stock being rejected. While his judgment led him to the conclusion that many of the stock loans were highly objectionable, from their amount, he thought it fair to add the view which had satisfied his mind, that a considerable proportion of those loans was necessary. He should have occasion, in another part of his remarks, to examine the state of exchange between the United States and other countries since the establishment of the National Bank, for the purpose of showing that the whole amount of its discounts was not excessive, although their distribution was unequal. But he wished now only to apply the test which the rate of exchange, as he thought, furnished, in an inquiry into the propriety of the discount operations of the bank in Philadelphia, in the months of July and August, 1817, when the amount of stock loans first became considerable. From the statement which he held in his hand, it appeared that the exchange with the principal countries of Europe continued, with very little variation, nearly at par during the time. This fact was incompatible with the supposition of an excessive circulation. The whole amount of notes, with a pledge of stock, discounted in Philadelphia in July and August, 1817, was about six millions and a half. The committee think it "singular" that at this time "any business paper should have been rejected." The whole amount rejected, was less than one million and a half. Supposing this sum to have been discounted, whether the parties were insolvent or not, and the stock notes rejected, the amount of discounts in Philadelphia, in two months, would have been less by five millions than it actually was. Of H. of R. these five millions, a part (he did not know what part) was employed for the payment of subscriptions to the bank, and did not add to the amount of money in circulation. Suppose half to have been so employed, and a reduction of two and a half millions in the circulation of Philadelphia, below the amount which kept its exchange at par, would have suspended mercantile business, and spread embarrassment and distress through every town in the State. He appealed to gentlemen whose business or curiosity had led them to observe the effects which even an inconsiderable change in the quantity of money produces in a commercial community, to say whether there was anything visionary or extravagant in this view. It had been alleged as an excuse for the magnitude and permanence of the loans which were made about this time by the bank, that the redemption of its stock by the Government had made it necessary that it should invest the State bank paper, which it was paid in, in some other securities. He must, however, observe, that the embarrassment of the bank, from the accumulation of the paper of State banks in some parts of the Union, did not originate in the measure to which it had been exclusively attributed. Its own errors were a principal cause. As early as March, 1817, it suffered, from a deficiency of resources, at Boston; and three months afterwards, in New York; while a large amount of balances against the banks to the South and West of those places had accumulated, even at that early period of its operations. The observations of the report on the subject of post notes, Mr. L. thought liable to misconstruction. After referring to several transactions in which post notes were received by those who had obtained discounts, it is observed, "that not being drafts on other offices, they cannot be considered as exchange operations." Now, every post note but one, to which reference was made in the report, was "a draft upon another office." The resolution under which they were given, would be found among the documents, (page 92.) They were post notes of the bank at Philadel phia. They were obtained by those who got discounts at Baltimore. This appeared to him, therefore, to be a simple case of exchange. The case of the post notes mentioned in the first part of the paragraph, was different. The post note was payable in the same place in which the discounted note was payable. There was, too, some ambiguity in the resolution for granting the discount, and it might possibly be inferred, if we had no other evidence, that it was a condition of the loan, that a post note, payable sixty days after date, should be received by the discounter. But had we no other evidence? Mr. Smith swears (documents, p. 114) that "post notes at sixty days date, have frequently been issued on the application of persons who have had notes discounted, but it has never been the condition of the discount." To every man who knows what post notes are, their convenience to mercantile men, and indeed to society generally, |