USA > Alabama > Memorial record of Alabama. A concise account of the state's political, military, professional and industrial progress, together with the personal memoirs of many of its people. Volume I > Part 39
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BANKING AND CURRENCY SYSTEM.
The origin of the banking and currency system of Alabama dates back to the period when the region embraced within the present state was a part of Mississippi territory, in fact, to December 23, 1809, when there was passed, by the territorial legislature, "An act to establish a bank in the Mississippi territory." This bank, however, was not established on Alabama soil, and we must come down to the later day- December 11, 1816-when the bank at Huntsville was established-to find the real begin- ning of the legislation that established a banking system in Alabama. By this act a bank was authorized to be established in the town of Hunts- ville, the capital stock of which should not exceed $500,000, divided into 5,000 shares of $100 each. The names of those authorized to open sub- scriptions have a historic interest and they are here given: Leroy Pope, John P. Hickman, David Moore, Benjamin Cox, John M. Taylor, Thomas Fearn, Jesse Searcy, Clement C. Clay and John W. Walker. The
bank, when organized, was to be called "The President, Directors and Company of the Planters and Mechanics' Bank of Huntsville, " and the life of the franchise, as granted, would terminate the last day of December, 1837. The ratio of votes in electing directors was fixed arbitrarily ; a stock- holder holding shares not exceeding five, to have one vote; or, holding over five, then for every two shares above five and not exceeding nine- teen, one vote; holding over nineteen, then for every three shares above nineteen and not exceeding forty-nine, one vote; and so on-no person, co-partnership or body politic being entitled to a greater number than 100 votes. The total amount of the bills to be emitted by the bank was forbidden to exceed three times the amount of the capital stock actually paid in; and in case of excess, the directors were made liable in their natural capacities, while the corporation itself was equally bound with the directors for the abuse of the franchise. The rate of interest permitted to be charged was six per cent. per annum, and the denominations of notes issued were prohibited from being less than $1. Summary means were provided to aid the bank in the collection of its debts; the stock- holders were made liable for all the debts of the corporation, and there was reserved for the state 500 shares in the capital stock of the bank, and on the subscription by the legislature of the territory for the amount, the governor was empowered to appoint the state's quota of directors for the bank.
On February 13, 1818, an act very similar to the foregoing was passed, establishing the Tombeckbee Bank of St. Stephens, Alabama, with a capi-
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tal stock of $500,000, two-fifths of which was reserved for the state, in case the legislature chose to take the amount reserved. Amendatory acts continued to reserve to the state the right to subscribe to stock in these banks. On November 20, 1818, an act was passed establishing a bank in Mobile, with a capital stock of $500,000, subscriptions to the stock, to the amount of one-half of the total, to be paid in gold or silver, and the state reserving the right, within ten years, to subscribe to one-fifth of the capi- tal stock. We are now prepared to understand the provisions of the constitution of 1819, relating to banks. The constitution under which the state was admitted to the union contained the following:
Section 1. One state bank may be established with such number of branches as the general assembly may from time to time deem expedient; provided, that no branch bank shall be established, nor bank charter re- newed, under the authority of this state, without the concurrence of two- thirds of both houses of the general assembly; and, provided also, that not more than one bank, nor branch bank, shall be established, nor bank charter renewed at any one session of the general assembly, nor shall any bank or branch bank be established, or bank charter be renewed, but in conformity with the following rules:
1st. At least two-fifths of the capital stock shall be reserved to the state.
2nd. A proportion of power in the direction of the bank, shall be reserved to the state, equal at least to its proportion of stock therein. .
3rd. The state and the individual stockholders shall be liable, respec- tively, for the debts of the bank, in proportion to their stock holden therein.
4th. The remedy for collecting debts shall be reciprocal, for and against the bank. 5th. No bank shall commence operations until half of the capital stock subscribed for be actually paid, in gold or silver; which amount shall, in no case, be less than $100,000.
6th. In case any bank or branch bank shall neglect or refuse to pay, on demand, any bill, note, or obligation, issued by the corporation, accord- ing to the promise therein expressed, the holder of any such note, bill or obligation shall be entitled to receive and recover interest thereon, until the same shall be paid, or specie payments are resumed by said bank, at the rate of twelve per centum per annum from the date of such demand, unless the general assembly shall sanction such suspension of specie pay- ments; and the general assembly shall have power, after such neglect or refusal, to adopt such measures as they may deem proper, to protect and secure the rights of all concerned, and to declare the charter of such bank forfeited.
7th. After the establishment of a general state bank, the banks of this state, now existing, may be admitted as branches thereof, upon such terms as the legislature and the said banks may agree, subject nevertheless to the preceding rules.
THE STATE BANK.
These provisions of the constitution clearly contemplated the establish - ment of a state banking system, and at the session of the general as- sembly, held during the winter of 1820-21, a banking act for the state
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was passed. The bill was passed December 21st, 1820, and was entitled "a bill to be entitled an act to incorporate the subscribers to the bank of of the state of Alabama." By the provisions of this act the capital stock was fixed at $2,000,000, one-half of which amount was reserved for the state. The bank was to be located at Cahaba, but might be changed to any other point that should be selected as the seat of government. Books of subscription were to be opened at Cahaba, Huntsville, Claiborne, Courtland, Blakely, Demopolis, Tuscaloosa, St. Stephens, Mobile and Montgomery. The amount of the shares subscribed for was required to be paid in gold or silver, one-fourth at the date of subscription, one-eighth in sixty days thereafter, one-twentieth in 150 days thereafter, and the remainder within sixty days after the bank should go into operation. The life of the franchise was to expire in 1835. The other provisions of. the act were substantially those already enumerated as applying to the private banks authorized by the territorial government, with the excep- ' tion that at the end of ten years the state was to be empowered to purchase the stock held by the private individuals. The liklihood that there would be a suspension of specie payments, if suspension had not already become an accomplished fact, caused the enactment, in 1821, of a law giving summary power to a note holder in proceedings against the bank that had assumed payment of the note itself. In fact, in the year 1822, pro- ceedings that had been set on foot against the bank of Huntsville, in the nature of quo warranto, were discontinued on condition that the bank in question would resume specie payments.
The state found its own venture to be a failure; the capital stock was never subscribed. The clamor for a state banking system ripened, in 1823, into the enactment of another statute establishing, a bank of the state of Aalabma. The act began with a preamble, as follows:
Whereas. It is deemed highly important to provide for the safe and profitable investment of such public funds as may now or hereafter be in the possession of the state, and to secure to the community the benefits, as far as may be of an extended and undepreciating currenccy, Be it therefore enacted, etc.
The faith and credit of the state were pledged to the support of the bank and to supply any deficiency in the funds that were specifically pledged in aid of the bank, thus in the beginning marking a radi- cal departure with respect to the system projected two years before, the state now entering directly upon the business of banking. To start a bank money was needed, a bank in its essential character being nothing more than a place where money, less needed by one man can be borrowed by a man who needs it more. To secure the requisite capital, the state . turned in all the moneys arising from the sale or rent of lands given to the state by the United States for the support of the university, state stock bearing 6 per cent. interest per annum to be issued in exchange for the sums thus forcibly appropriated; again, the proceeds of the three per cent. fund were appropriated, the net returns upon these moneys to
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be devoted to making roads and canals and improving the navigation of the rivers within the state; then, again, the proceeds from the sale of the lands granted the state for use as a seat of government, the lease of salt springs and all escheats. It is plain our forefathers were determined to have a bank; they plundered trust funds rather than do without a bank. To make sure, however, and to get some available money in hand immediately, the governor and five commissioners, appointed by the leg- islature, were authorized to issue state stock redeemable in ten years, or at the pleasure of the state, to an amount not exceeding $100,000, bear- ing interest at 6 per cent., and all the moneys at any time in the treasury were pledged for the regular payment of the interest on the stock thus provided for. .
The clause in the act that eventually worked the downfall of the sys- tem was that which provided that the president and twelve directors should be elected, by joint vote of the general assembly. It may, of course, be doubted, whether a system so designed could have continued for any great length of time, but certainly it had not, and could not have, any prospect of long surviving when politics and politicians were turned loose to lay waste and devour the substance of the banks, as was done in the provision relating to the election of officers.
The life of the franchise was fixed to end in 1845. Notes, signed by the president and countersigned by the cashier, not under the denomina- tion of $1, for such sums and with such devices as might be deemed most. expedient and safe, could be issued by the president and directors, all bills or notes to be payable on demand in specie, at the principal bank. Demand notes of the bank, payable in gold or silver, were receivable at the state treasury and by all tax collectors in payment of moneys due the state. The bank was subject to inspection in its books and accounts at stated intervals, and the comptroller could ask the appointment of a spe- cial committee to inquire into and report on the condition of the institution.
CAPITAL STOCK OF STATE BANK.
On March 27, 1824, Governor Pickens wrote to Senator W. R. King, at Washington naming him as the agent of the state to proceed to New York to effect the loan of $100,000 contemplated by the act establishing the state bank. The senator was authorized to say that the state owed nothing, and that on December 25, 1823, had a balance in the treasury of $47,026. He directed the senator's attention, too, to the fact that the depreciation in the medium of some of the western states ought not to make investors diffident, when they considered that Alabama had the benefit of such a good staple crop as cotton. On June 8th, of the same year, he was able to inform the president and directors of the bank, that $100,000 were available as the capital stock. He had a short while before learned through a statement of the United States treasurer, that. there was to the credit of the state in his department $32,969 of the
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three per cent. fund, and he had requested that drafts for that amount be sent out in the care of some member of the Alabama delegation in congress, who might be returning home. There was an occasional wind- fall of a different character, as when, on May 12, 1825, he wrote Jeremiah Austill at Mobile, that the proceeds of the sale of certain "Africans," that had been imported in violation of law, amounting to $3,698.16}, should be deposited in the Mobile bank to the credit of the treasurer of the state. It seems that King's mission was successful. but we find Gov- ernor Murphy. in 1826, writing to John Jacob Astor in New York, to Biddle and to Stephen Girard in Philadelphia, seeking a loan of $100,000. The governor stated to them that the bank was in a very good condition, the means of the state daily increasing, and that nothing rendered the loan desirable. but the constant effect of the purchase of public lands on the circulating medium. From a volume of Niles's Register of that period, it appears that the stock of the bank was sold at par in New York, the $100.000 in specie being shipped to Mobile. and the Democrat, an Alabama journal of the day, exulted over achievement. saying. "The bank will go into operation with upward of $200.000 capital on hand, the prayers and predictions of the Shylocks, the shavers, the skinflints and screwdrivers to the contrary notwithstanding." To which Niles, with an intention of humor, added, "Generally it is the business of bankng which produces them." The state treasurer turned over to the bank all public moneys in his hands. The bank began business at Cahaba, which was then the capital, but it was removed along with the seat of government to Tuscaloosa in 1826.
MANAGEMENT OF THE BANK.
Alabama was fairly started upon a prolonged experience of the labor, the trouble, the difficulty, the peril of managing a gigantic private busi- ness. Every precaution had been taken to guard the safety of the bank's obligations; officers were sworn solemnly, a new oath more solemn in character than the preceding one being now and then prepared by the general assembly to impress upon distrusted officials the profound im- portance of their being honest. It is one of the most curious circum- stances of human nature, that men will, as the Alabama legislature did so repeatedly, lean on an oath as a guarantee of good faith. An oath is a rhetorical expression, effective now and then in being appealed to, when juries or public audiences are being addressed, but changing in no essential particular the course of conduct of the man who swears. The Alabama legislature soon learned this truth. The statutes are strewn with provisions tying the hands of the bank officials, and, more particu- larly, the stringent oaths required, but all in vain. The evil was of the very essence of the plan of banking itself, that is, state managed, polit- ically controlled money, to be loaned at interest. To be more specific, the election of directors by the legislature was the poison that finally
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withered and destroyed an institution that had been inaugurated amid the glad acclaims of the people of the young commonwealth.
In the beginning. however, everything went well, and the only question that really disturbed the public was how to provide a bank for each well settled section of the state. In 1829, the people of Montgomery had to complain that, though they raised 20,000 bales of cotton. they had been able to get accommodations at the state bank to the pitiful amount of $10,000 only. Public meetings were held in various parts of the state, having, as objects, the establishment of banks, or branches of the state bank, or at least to encourage such an increase of the available capital of the state bank that the borrowers who lived at a distance from the state government might hope to be accommodated. The private banks already established naturally did all that could be done to embarrass the state institution. Its success, they construed to mean their failure. The Mobile bank, in particular, did all that was possible to discredit the state bank. The Huntsville bank was not in a position to do much, as the necessity it had been under of suspending specie payments, the institu- tion of quo warranto proceedings by the state because of this suspension, and the final forfeiture of its charter in spite of much delay and indul- gence to give the concern a chance to get on its feet, had disabled that particular bank in any contest with the state. The Tombeckbee bank, at St. Stephens, was founded, when the town of St. Stephens had a future. Its future proved to be a past. The town entered upon its decline, and the money lenders there had to cast about for some new point to which their strong box should be removed. In Mobile, however, Mobile being then one of the strongest cities financially in the United States, a warm. contest was begun againt the state bank. It was more than suspected that when, in 1829, the bank of Mobile threw out the notes of the state bank as worthless, the design had been to discredit the institution with the people, and more espcially with the foreign capitalists who might feel tempted to aid the Tuscaloosa bank in extending its operations. The Mobile bank was bitterly denounced for attempting to wreck an organiza- tion in which the state had invested every dollar of trust funds in hand, and many thousand dollars besides, for the payment of which the faith and credit of the state were pledged.
BRANCH BANKS.
The agitation came temporarily to a close in 1832, when the state issued bonds to establish branch banks at Montgomery, Decatur and Mobile, thus providing for banks at widely distributed points, the politi- cal element remaining prominent. Montgomery's bank was to have a capital of $300,000; Decatur's was to be $1,000,000, and Mobile's $2,000,000. . Montgomery secured an increase, at the next session of the legislature, of $500,000, and in 1835 Huntsville was given a branch with a capital of $500,000, that was increased the next year to $1,000,000. In
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the same year, 1836, Montgomery and Mobile secured an increase-the first $500,000 in amount, and the latter $1,000,000.
These various acts brought the system into full bloom, and it will be proper here to recall some of the better known stories that illustrate the actual workings of the state banks.
SCHEMES OF OFFICE SEEKERS.
Garrett's "Public Men in Alabama" is a storehouse of information about the banks. His book, an undeservedly neglected book, by the way, contains a quantity of valuable reminiscences, related with an engaging frankness. Garrett describes the excitement attendant upon the election of directors of the several banks. The charters provided that fourteen directors should be elected for each bank, seventy in all. More than three times that number of candidates, he said, were in attendance. They thronged the streets, crowded the capitol and jostled the members on the floor of the senate and of the house. It was worth while for the candidate to make himself agreeable, and he did so. He stood treats; whisky and brandy poured in gurgling solicitation for votes, and oysters, frying or stewing, gave out their mute appeals. It chanced that during one ses- sion, when the canvas's for directors' places was warmly proceeding, a member of the general asesmbly died, and, in respect to him, the mem- bers decided to wear crape for thirty days. Crape on the left arm became the familiar sign by which a legislator could be recognized. A wag from Benton, now Calhoun, county, observing how handsomely those men were treated who had crape on their arms, concluded a small bit of enter- prise on his own part would net him handsomely, and he accordingly got
a piece of crape and similarly decorated himself. He was a traveling trader, and so of course a man of the world. His decoration put him in
the swim instantly. He was dined and wined to his heart's content, and his body's also, by the all unsuspecting candidates for the directory, who took him to be a member of the legislature. Garrett tells of a gen- tleman from Greene, Daniel P. Bestor, by name, who was deeply inter- ested in the cause of popular education. He had a measure before the legislature he was much interested in, but he complained of the lack of support he was able to secure for his bill. His aspirations as a public man were destroyed, when he found that almost every man he approached, in behalf of his school bill, told him he didn't know anything about his bill, but added, "I have a friend I want elected a bank director, and if you will vote for him I will vote for your bill."
One of the devices adopted by members of the legislature to gain in- fluence with the directors was to wait until the vote had been nearly com- pleted, refraining from delivering their votes in the meantime, and then, by plumping in for some candidate who was barely short of an election, get in a position to claim that without their votes he could not have been elected. Garrett says at least one-third of the members refrained from
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voting in this way, and the scandal caused was so great that a joint rule was adopted, requiring members to vote on the call of the roll when their names were reached.
The practical working of the banking system was that recommenda- tions of a loan by a member of the legislature was almost certain to be approved by the directors, and a member himself could count certainly upon an accommodation. A Montgomery member furnished one of the most striking proofs of the abuse that were possible. His name was Moseley Baker. He was a brilliant fellow, a lawyer and an editor. He lived beyond his means, however, and carried to the bank a note for dis- count, for $24,000. It was endorsed by John Moonshine and Adam Sun- light. Bank officials seem to have stood in such awe of a member, that the names of these indorsers, that ought to have at once excited suspi- cion, did not, and Baker secured his loan. When the fraud was discov- ered, he was arrested and carried in irons to Tuscaloosa, but escaped and fied to Texas. He achieved distinction there, and on one occasion dramat- ically dispelled the mystery that had invested his career, by rising in his place as a member of the Texas congress, confessed his crime against the state of Alabama, resigned his seat, and put himself in communication with the bank officials. Mr. Joel White, of Montgomery, then a bank director, was dispatched to Houston and collected the debt in bonds that were subsequently sold at a handsome profit.
Another story tells how certain hotel keepers in Tuscaloosa who had managed to secure places on the board of directors, were put down by the president at a meeting where they were passing on applications for loans. Each hotel keeper had his special friends, and, standing together, they did not fail. at this meeting to obtain favorable judgments on the applica- tions of their pets. Finally, one note was taken up and nobody knew any thing about the maker. It was passed from hand to hand, but no- body knew the man. The hotel keepers shook their heads and passed it on. "Gentlemen," said the president, "this man must have camped out. last night."
THE CRISIS.
Enough has been said to show the dangers that lurked in the banking system and how ineffectual were all attempts to mend it. The crisis came more speedily than might have been anticipated, owing to the speculative craze that swept over the union between 1830-40. The Alabama bank had, in 1832, entered upon its enlarged career, as a parent bank with sundry branches. This increased capital came in time to minister to the greed to get rich rapidly and the state started out upon a boom of unprecedented magnitude. When a branch of the Bank of the United States was established at Mobile, it was most bitterly denounced by the governor and legislature. In 1833, however, the legislature was inquir- ing into the expediency of begging congress to re-charter the bank.
22
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Promises to pay were then the great instruments of wealth produc- tion, and the more banks the people could get the richer they would be. The inflation in prices caused during the next few years can be shown by a comparison between real estate values in Mobile in 1837 and in 1851, fourteen years later. In 1837, the value of real estate in that city, ac- cording to De Bow's Review, was $27,482,961. In 1851 it was valued at $11,698,045. The crash came and the bank with all its branches went under. The state came promptly to their aid with a bond issue of five millions in June, 1837, and a still further issue in December of two and one-half millions. The recurring crisis of 1839 produced a new chaos, and the volume of public opinion against the banks began to grow and assume threatening proportions. In 1836, the people were relieved of all but an insignificant kind of taxation. They began to realize they had a bad day of reckoning before them; that it was the part of good sense to pay as they went instead of borrowing millions of dollars to be squandered by ignorant or corrupt bank directors, with the certainty that the bonds issued to secure the loan must be paid, principal and interest, from the proceeds of taxation. In 1839, Gov. Bagby in his annual message scored the bank management and pointed out the necessity of a radical reform. He noted particularly the evil of the plan of electing directors by the legislature. On this point he said: "The evidence is furnished by the record of the banks themselves, that two sets of directors and the members of the legislature for two successive years, embracing the same period, obtained accommodations to a larger amount, and will probably be the cause of a greater loss to the banks, than the whole community besides."
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