advances of money to the government, when required, at the customary rate of interest. It served the purpose of a regulator of the currency by maintaining the highest standard of commercial honor, a standard to which other banks were obliged to conform under penalty of being discredited in the eyes of the business community.

When its charter was about to expire the bank applied to Congress for a renewal of the same. The Federalist party was now in the minority, and its opponents made the granting of the proposed new charter a political issue. The state banks joined the opposition because they wished to get rid of the competition of the great bank and its branches. In the last year of its existence the bank was made a football of politics. Its usefulness from a financial point of view received very little attention in the debate on the recharter. The final decision was adverse to it, by a majority of one vote in the House and a tie in the Senate.

AUTHORITIES

Clarke and Hall's Legislative and Documentary History of the Bank of the United States.

Hamilton's Writings, edited by H. C. Lodge.

Henry Adams' Life of Albert Gallatin.

Gallatin's Writings, edited by Henry Adams.

Von Holst's Constitutional History of the United States.

Sumner's History of Banking in the United States.

CHAPTER VII

SECOND BANK OF THE UNITED STATES

Financial Distress in 1814.

THE second war with Great Britain began in 1812. Specie payments were suspended in September, 1814, by nearly all the banks south and west of New England. Their notes fell to a discount ranging from 10 to 30 per cent. The government had defaulted on the interest of the public debt. Its money was mainly in the suspended banks. The financial condition of the country was desperate.1 Naturally the statesmen of the day bethought themselves of the Bank of the United States. On the 17th of October the Secretary of the Treasury, Mr.

proposed.

Dallas, recommended that a national bank A National Bank be established with a capital of $50,000,000, of which one-tenth should be specie and the remainder government securities of one kind and another. It was to begin under a suspension of specie payments. As Daniel Webster said in the debate: "It was to commence its existence in dishonor; it was to draw its first breath in disgrace." Webster's speech of January 2, 1815, was fatal to this bill, for it was rejected by a tie vote. A reconsideration was moved and carried, and the bill was amended by striking

1 "The government might possess immense resources in one State and be totally bankrupt in another; it might levy taxes to the amount of the whole circulating medium yet have only its own notes available for payment of debt; it might borrow hundreds of millions and be none the better for the loan."- HENRY ADAMS' History of the United States, VIII, 215.

out the clause requiring a specific loan to the government and the one authorizing the suspension of specie payments. In this shape it was passed by both houses; but it was vetoed by President Madison because it did not furnish sufficient financial aid to the government. The Senate thereupon took up the original Dallas Bill and passed it on February 11. But news that a treaty of peace with Great Britain had been signed at Ghent reached Washington on the 13th, and on the 17th the House, by a vote of 74 to 73, indefinitely postponed the measure.

The Bank Charter of 1816.

As the war had come to an end, the Treasury was no longer in the desperate condition of the preceding year; yet Mr. Madison, in his message of December 5, 1815, suggested a national bank as an instrumentality for bringing about a resumption of specie payments. A bill for this purpose was reported to the House by Mr. Calhoun on January 8, 1816. It passed both houses and was signed by President Madison on April 10, 1816. The capital was to be $35,000,000,-four-fifths to be subscribed by private persons and one-fifth by the United States. There were to be twenty-five directors, five of whom should be appointed by the President of the United States, by and with the advice and consent of the Senate, and twenty elected by those stockholders who resided in the United States. Foreign stockholders could not vote either in person or by proxy. Both the notes and the deposits of the bank were to be paid in specie. It was authorized to issue post notes not smaller than $100 each, payable not more than sixty days after date. No circulating notes were to be issued of less amount than $5.00. All notes were to be signed by the President and the principal cashier. The notes should be receivable in all payments to the United States. The bank was to provide facilities for transferring the public funds, without expense to the

government, to any places within the United States where payments were to be made. Section 16, regulating the public deposits, provided:

That the deposits of the money of the United States in places in which the said bank or branches thereof may be established shall be made in said bank or branches thereof, Public Deposits. unless the Secretary of the Treasury shall at any time otherwise order and direct; in which case the Secretary of the Treasury shall immediately lay before Congress, if in session, and if not, immediately after the commencement of the next session, the reasons of such order or direction.

Other Regulations.

The bank was forbidden "to purchase any public debt whatsoever." In case the bank should fail to pay any note, obligation, or deposit, in specie on demand, it was to forfeit 12 per cent per annum on the amount of the claim. The government's subscription of $7,000,000 could be paid either in money or in its own obligations bearing 5 per cent interest. It was, in fact, wholly paid by the latter, i.e., by a stock note, and the note was not fully paid until 1831. The bank was to pay the United States the sum of $1,500,000 as a bonus for the charter, which was to be exclusive and was to continue twenty years. It was forbidden to pay dividends to stockholders whose shares were not fully paid for.

The directors

were authorized to establish branch banks wheresoever, in the United States or the territories thereof, they should see fit.

Of the foregoing regulations the most important was the one which required the deposits to be paid in specie. Strictly speaking, all obligations payable in Deposits payable dollars were payable in specie. There was no other legal-tender money than gold and Yet the conception prevailed universally that while a bank ought to pay its notes in specie on demand, it

in Specie.

silver coin.

might properly pay its deposits in the notes of other banks, near or remote, provided the latter paid their notes in specie. Consequently, even when the banks were solvent, there were two kinds of currency in circulation in every city: (1) specie and the notes of the local banks, which were at par; (2) the notes of banks of other cities and states, which were at a discount greater or less according to the difficulty of securing their redemption. This discount was not observed by the masses of the people. To them one dollar was as good as another. Anything that would pass was gladly accepted. But to merchants the discount on out-of-town bank notes was a considerable expense, and they sought to recoup themselves by charging enough for their goods to cover the loss. Daniel Webster was opposed to the pending bill in any shape, but he struck a blow for sound principles of currency by securing the adoption of an amendment providing that the deposits as well as the notes of the Bank of the United States should be paid in specie. It did not abolish everywhere the bad practice of having two kinds of bank notes in circulation at the same time and place, one at par and the other at a discount, - but it abolished it in the operations of the great bank, and it established a standard of good banking which was never wholly lost sight of, and which reached its fulfillment in the Suffolk Bank system a few years later. Mr. Webster made another contribution to sound finance during this session of Congress by securing the passage of a bill requiring the payment of all government dues in specie, or in Treasury notes, or in notes of the Bank of the United States. Previously, any bank notes that were current at the places where the duties and taxes were collected had been accepted by the Treasury, although no banks except those of New England were at that time paying specie.

Duties and
Taxes.