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 hara.s.sed 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 Const.i.tution itself. At no period and in no land, in so brief a s.p.a.ce of time, has any other jurist or statesman ever bestowed upon his country three doc.u.ments 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 rustic bench 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, and unscrupulous 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 circ.u.mstance 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 inst.i.tution, however sound; partly to that pest of all democracies, the uninformed and incessant demagogue whipping up and then pandering to the pa.s.sions of the mult.i.tude; 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 rea.s.serting 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 antic.i.p.ation 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 the original antagonism to a great central moneyed inst.i.tution. Following the lead of Jefferson, who had insisted that the project was unconst.i.tutional,[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 inst.i.tution," he wrote in the third year of his Presidency, "is one of the most deadly hostility existing, against the principles & form of our Const.i.tution.... An inst.i.tution 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 inst.i.tution.[444] Another source of hostility was the jealousy of State banks, much of the complaint about "unconst.i.tutionality" 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 wise regulation 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 inst.i.tution, it was said; its profits were too great; it was a creature of Federalism, brought forth in violation of the Const.i.tution. 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]
Pet.i.tions to Congress denounced it and demanded its extinction. One from Pittsburgh declared "that your memorialists are "the People of the United States,"" and a.s.serted 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 inst.i.tution. Such resolutions came from Pennsylvania, from Virginia, from Ma.s.sachusetts.[448]
The State banks were the princ.i.p.al 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 a.s.sociate of Spencer Roane and Thomas Ritchie, was the president of this State inst.i.tution, 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 a.s.sembly would not have taken any action not approved by Brockenbrough, Roane, and Ritchie. Ritchie"s _Enquirer_ boasted 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 embarra.s.sed 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 a.s.sailed the character of every public man who spoke in behalf of so vile and dangerous an inst.i.tution.[456] It was also an ideal object of a.s.sault 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 inst.i.tution 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 quant.i.ties 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 inst.i.tutions, 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 pay their 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 inst.i.tution 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 inst.i.tutions 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 inst.i.tutions 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 h.o.a.rded 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 inst.i.tutions of the country, he did not exaggerate conditions 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 pa.s.sed 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 pa.s.sed,[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 antic.i.p.ate 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 inst.i.tution, 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 quant.i.ty 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 pa.s.sion 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 mult.i.tude 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 of which 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 the _wise_, wretched poverty for the _foolish_.... Lands, lots, houses--stock, farming utensils and household furniture, under custody of the sheriff--SPECULATION IN A COACH, HONESTY IN THE JAIL."[487]
Many banks sent agents among the people to hawk their bills. These were perfectly good, the harpies would a.s.sure 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 ill.u.s.trative 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 are _ultimately_ able 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 are _shaved_ by them to meet bank engagements; it gets worse--the _consummation originally_ designed 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 endors.e.m.e.nts, 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 ill.u.s.trative 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 a.s.sist 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 general still 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 a.s.sets or methods.[499] For years the Legislatures of many States were controlled by these inst.i.tutions; bank charters were secured by the worst methods of legislative manipulation; lobbyists thronged the State Capitols when the General a.s.semblies 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 munic.i.p.al 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 enc.u.mbered to secure their indebtedness to the banks.