USA > Indiana > Howard County > History of Howard County, Indiana, Vol I > Part 19
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Great Britain required its American Colonies to trade exclu- sively with the mother country and to import manufactured articles in English ships, levied duties and required them to be paid in specie. forbade them to start banks, coin money, manufacture clothing, hats, iron or paper ; to sell lands to any but British subjects, and to export only in English vessels. But the enterprising inhabitants built ves- sels and carried on a circuitous trade with the West Indies, thus ob- taining Spanish gold and silver for use, and bartering exports for necessary supplies. This was the chief dependence of the colonies for turning their industries to account. England, in 1764, to raise revenue, laid a heavy tax on this West India trade. This led to a clandestine trade and, with other impositions, finally to the Revolu- tionary war.
It was a very unequal struggle. Thirteen colonies with no
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ships or navy. A coast more than a thousand miles long to defend ; not a fort or fortification; not a bank; no money or treasury ; no army or military supplies, and without credit, pitted against the wealth and prestige of England, the greatest naval power of the world. And we were also handicapped by a wilderness in the rear of our scattered settlements filled with murderous savages, ever ready to burn and massacre the settlers. We had no strong central government, only a loose confederation of independent governments. Congress was nearly powerless, a sort of advisory board rather than a legislature. The states were jealous of Congress and of each other. The most necessary and excellent measures could not be en- forced. In war money is indispensable. Congress issued paper money, treasury notes, continental currency, as it had no constitu- tional power to raise money by taxation, and had no commerce. Dur- ing the first year of the war six million dollars of paper were put in circulation ; in 1776, nineteen million dollars more; in 1777, thir- teen million dollars more; in 1778, sixty-three million, five hundred thousand dollars; in 1779, one hundred and forty million dollars ; making a total of two hundred and forty-one million dollars.
To this volume was added the notes issued by the states. An inevitable increase in prices followed, with a depreciation of the value of paper money. In 1779 a dollar in paper currency was worth only twelve cents in specie, and a year later only three cents. All specie disappeared from circulation. Congress had pledged the faith of the nation to redeem this flood of paper. It repudiated its pledge and passed a resolution to redeem all bills of credit at one- fortieth of their face value.
The first parties were Whigs, who favored our independence, and the Tories, or Loyalists, who stood for British rule.
In 1781 Robert Morris was by Congress made Superintendent of Finance and placed at the head of the Continental treasury. He
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was an opponent of paper money. He established the Bank of North America at Philadelphia with a capital of four hundred thou- sand dollars, which was of great service to Congress. The army was on the verge of starvation and nearly naked for lack of shoes and clothes.
Nearly eight million dollars were borrowed in specie in Europe. Of this $6.352,000 was from France : $1.304.000 in Holland : $174 .- 000 in Spain, and nearly $12,000,000 at home. Nearly $6,000,000 were collected by states, and nearly $3.000,000 miscellaneously. Al- together the war cost about $100,000,000.
CONVENTION OF DELEGATES.
The Confederation, without general authority and with the conflicting interests and theories of independent states, was seen to be a failure. So a convention of delegates was called to revise the Articles of Confederation. It assembled at Philadelphia, with Washington as its President. It was found to be utterly imipracti- cable to amend them, and the delegates formed a constitution. to be in force when ratified by nine states. At once two political parties were formed. Those who favored ratification were called Federal- ists, those opposed, Anti-Federalists. The leaders of the Fed- eralists were Washington, Hamilton, Madison, Franklin, Harry Lee, Randolph, John Marshall and Jay. The Anti-Federalists were led by Patrick Henry, Richard Henry Lee, Samuel Adams, Jeffer- son, Elbridge Gerry, George Clinton, James Monroe and George Mason.
Dissensions and irreconcilable theories of government existed between these parties. Hamilton advocated a strong government. a national bank, a protective tariff-in short, a nation with one su- premie head. Jefferson contended for state's rights, or state sover-
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eignty, a tariff for revenue only, and local sovereignty, including monetary affairs.
Hamilton was made Secretary of the Treasury in President Washington's Cabinet.
Hamilton at once proposed that the government should assume the war debts of the states, and proceed to fund the same, and to establish the national credit. He advocated a national bank of the United States. Congress adopted his views, including a protective tariff. Daniel Webster said of Hamilton: "He smote the rock of the national resources and abundant streams of revenue burst forth. The fabled birth of Minerva from the brain of Jupiter was hardly more sudden than the financial system of the United States as it burst from the conception of Alexander Hamilton." He declared we should legislate for American interests, and so raised funds for the treasury by customs duties on imports. The national bank was established by Congress in 1791 with a capital of ten million dollars, the charter to run twenty years, and the government to own one- fifth of the stock. The conflict between the two schools, or parties, made a theoretical and practical war, which exists with some modi- fications to the present time. The Separatists, or State's Rights party, brought the Union to the verge of destruction by civil war. The national school which Washington and Hamilton founded has triumphed and the national principle is now supreme.
A NATIONAL MINT.
A national mint was established in 1792 at Philadelphia for the creation of a uniform metallic currency, which had not theretofore existed, and the lack of which had caused great inconvenience. The metallic currency in common use in the United States consisted of a variety of English, French and Spanish coins-shillings, crowns,
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dollars, moidores, joes, half joes, pistareens, picayunes and small Spanish coins of six and one-fourth, twelve and one-half, eighteen and three-fourths and twenty-five cents, respectively. which came handy for odd change. The paper currency consisted of thirteen kinds of notes, issued by as many different states. The system of coinage by the mint was the first monetary system of the United States. It was decimal, with the dollar as the unit. Both gold and silver were legal tender. The standard was double. The gold dol- lar contained 24.75 grains of pure gold, stamped in pieces of ten dollars, five dollars and two and one-half dollars, denominated, re- spectively, eagles, half-eagles and quarter-eagles. The silver dollar contained 371.25 grains of pure silver. The ratio was 15 to I, that is, the weight of the silver coins was fifteen times that of the corresponding gold coins of the same denominations that being the then market price, the mint price was made to correspond with it. Since that time the ratio has changed often, as the market price of the two metals shifted until the last few years.
When the charter of the national bank expired, in 1811, the Virginia school of politicians prevented its renewal. The bank had been a great success, but they contended that it was unconstitutional. The want of such an institution was severely felt during the War of 1812. The excellent currency which it had supplied to the country was withdrawn and its place taken by a currency issued by state banks, which quickly sprang into existence in large numbers. From 1811 to 1816 state banks increased from eighty-eight to two hun- dred and forty. The flood of paper which they issued could not be redeemed in specie. There was no penalty for refusal to redeem. nor any real check to prevent the issue of bills far beyond the legal limit, and most of the banks were compelled to suspend specie pay- ments.
In April, 1816, the United States Bank was rechartered with a
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capital of thirty-five millions, instead of ten millions, and the gov- ernment was to hold seven millions of the stock and to appoint one- fifth of the twenty-five directors thereof.
The government funds were to be deposited in this bank, as they were before.
The Federalists opposed rechartering the bank, while the "Anti's," then called the Republicans, heartily supported it-the two political parties having thus completely changed sides on this propo- sition. The bank was chartered for twenty years. The public moneys deposited in its vaults averaged six or seven millions, its circulation twelve millions and its discounts more than forty mil- lions a year. Its annual profits were more than three millions an- nually.
The parent bank was at Philadelphia. It had twenty-five branches and more than five hundred employes, and they disbursed the entire revenues of the nation. Its stock often sold at forty per cent. premium. In every county of the Union and in every country on the globe were its stockholders. One-fifth of the stock was owned by foreigners, and one-fourth was held by women, orphans and by trustees of charity funds. So high and unquestioned was its credit, its bank notes were good as gold in every part of the country. A man could travel and pass these notes in London. Paris and in every place in the world without discount, and could sell them at a premium at the remotest commercial points.
The state banks were forced to resume specie payments in Feb- ruary, 1817.
The state of Maryland attempted to tax the circulation of the national bank, but the Supreme Court of the United States, in the case of McCullough vs. Maryland, in an opinion written by Chief Justice Marshall, denied the authority of a state to pass such tax laws, and upheld the constitutionality of the bank and its charter.
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and thus limited the authority of the states and exalted the power of the general government, greatly to the disgust of the State's Rights Republicans, who had rechartered the bank. and to the satis- faction of the Federalists, who had originally chartered a United States bank.
EARLY BANKS IN INDIANA.
Indiana had no distinctive currency of its own. But in 1814 the territorial legislature chartered two banking institutions, one at Vin- cennes, which was to have a capital stock of five hundred thousand dol- lars. and one at Madison, with a capital of seven hundred and fifty thousand dollars. Their bills were soon put in circulation and added to the flood of currency that had been coming into the territory from the general government. When the war with Great Britain ended. the large disbursements by the government ceased, and finan- cial distress followed. During the war specie payments had been suspended by the banks, which had issued far more paper currency than they could redeem. The general government had disbursed in this territory a large amount, most of it in bills of Ohio banks.
The constitutional convention in Indiana met and inserted a provision in the organic law for a state bank with branches. includ- ing the banks heretofore established at Vincennes and Madison. and making the bank of Vincennes the State Bank on January I. 1817. which was by act of the state legislature, with an additional capital of one million dollars, with enlarged powers. Of the ten thousand shares of new stock, three thousand seven hundred and fifty were reserved for the state. Branches were established at Vevay. Brookville and Corydon. The bank was badly managed and for its reckless proceedings the legislature. in 1821, by suit. canceled its charter, for the reasons that it contracted debts double the amount of its deposits and issued, with a fraudulent purpose.
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more paper than it had the means of redeeming, and that it declared and paid large dividends to the stockholders while it was refusing to pay specie for its notes. This crash came while the state was still suffering from the great depression following the end of the war with Great Britain. Every kind of business was prostrated. It was estimated that during the years 1821, '22 and '23 at least one-fourth of the population died or removed from the state. Prior to that time the price of government land had been two dollars per acre, and Congress, thinking to stay the tide of disaster, reduced the price to one dollar and a quarter per acre, which only added to the ruin, for it reduced, in the same proportion, all the land in the state held by individuals. In 1832 the state began its system of internal improvement. It borrowed several million dollars in the East, employed large numbers of men, started another artificial era of prosperity, and speculation ran rife again. Michigan had a very liberal banking law, and her banks issued bills in large numbers, while most of those banks had nothing to redeem the notes they issued.
HOW LABORERS WERE PAID.
The contractors on the canals and other public works in this state secured this cheap Michigan money and used it nearly alto- gether in paying their laborers. Thousands of dollars of this cur- rency were paid out weekly by the contractors, and soon nothing else was afloat in Indiana. The merchants were compelled to take it, but did so at a heavy discount, the laborers who earned it always getting the worst of the bargain. The merchants had to have it to pay their debts. Then merchants, millers and others issued bills, or "shin-plasters," only redeemable in merchandise at the store or mill of the issuer. These were of no value only in the neighborhood. Most of the millers and merchants became bank-
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rupt, leaving thousands of dollars of their currency unredeemed.
In 1834 the legislature chartered the State Bank of Indiana to run twenty-five years. It was modeled somewhat after the United States National Bank. It was a complete monopoly, for during its existence no other bank could operate in the state. It was to have a capital of one million six hundred thousand dollars in shares of fifty dollars each, and the state agreed to take one-half of the entire capital stock.
The state was to borrow the sum of one million three hundred thousand dollars. Of that amount eight hundred thousand dollars were to be used to pay the state's share of the capital stock, and the remaining five hundred thousand dollars were to be loaned out at six per cent. interest to individual subscribers to the stock, to assist them in paying for the same. The bank was required to hold the dividends on this stock and pay the same to the state in discharge of the interest accruing, and to reimburse the state for the loan. The bank was not at any time to suspend specie pay- ment. The branches were to be mutually responsible for the re- demption of all bills issued, but each branch was to have its own profits. No notes of a less denomination than five dollars were to be issued. The state was to elect the president and one-half of the directors, the stockholders to elect the remaining directors. The only tax that could be levied on the bank or its stock was pro- vided for in its charter. This tax amounted to twenty-five cents annually on each one hundred dollars of the stock, and was to be deducted from the dividends and retained in the bank. If the bank failed to make money no tax was paid! The panic of 1837 struck the country soon after the bank got into operation, and it was compelled to suspend specie payments, but its credit remained good and its bills were taken everywhere at their face value. The panic was a bad one, and business in all parts of the country was wrecked.
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One who swung the cradle in wheat harvest received thirty-seven and one-half cents a day, or a bushel of wheat, at his option. In 1842 the legislature ordered the bank to resume specie payment, and from that date it was ready to meet all demands for the redemp- tion of its notes.
A NATIONAL ROAD.
In President Monroe's administration Congress passed a bill appropriating the means necessary for the construction of a National Road across the Alleghanies from Cumberland to Wheeling, and the state of New York took the lead in internal improvements by constructing a splendid canal from Buffalo to Albany, a distance of three hundred and sixty-three miles, at a cost of seven and a half million dollars, taking eight years to complete it. There was a great financial crisis in 1819, which disturbed and distressed the country.
In his first annual message President Jackson took strong grounds against rechartering the Bank of the United States. He thought it inexpedient and unconstitutional, and recommended that the old charter should be allowed to expire by its own limitation in 1836. The partisan elements of the country, which for some years had been whirling about in a chaotic condition, was resolved into two great factions of Whig and Democratic. The old Feder- alist party, under whose auspices the government was organized, had lost control of national affairs when John Adams retired from the Presidency, but it lingered along for some years. On the other side, the line of political descent had begun with the anti-Federal- ists, who, after opposing the national constitution and the adminis- trative policy of Washington and Adams, became, under the lead of Jefferson, the "Republican" party, but soon exchanged that name for Democrats. The arbitrary measures of President Jackson
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alarmed the country and consolidated all opposition elements into a compact phalanx, known as Whigs, under the leadership of Clay and Webster.
SURPLUS FUND DISTRIBUTED.
The national debt having been paid, in October, 1833. Presi- dent Jackson ordered the surplus accumulated fund of the United States Bank, amounting to about ten million dollars, to be distrib- uted among thirty-five pet state banks, to be so distributed in four quarterly installments, reserving about five millions for government use ; and it was so distributed between the states, i. e., the first three installments. The fourth was never distributed, as the government ran short of funds and had to issue and sell bonds to raise money to pay the expenses of the government.
The new state depositories were instructed by the secretary of the treasury to loan the money freely, and having millions to dis- pose of, which was easily borrowed, speculation spread with a furore ; and with a hope of getting deposits of government funds, many banks were established in the various states. In 1830 there were only three hundred and thirty state banks in the country. By 1837 they had increased to six hundred and thirty-four, and the capital had expanded from sixty-one million dollars in 1830 to nearly two hundred and ninety-one million dollars in 1837. These were all banks of issue of paper currency which, in 1837, amounted to one hundred and forty-nine million dollars. Behind this vast amount of paper money there was, in 1837, only thirty-eight million dollars of specie. The banks had loaned in proportion to their issue of paper. In 1830 their loans were two hundred million dollars, and in 1837 five hundred and twenty-five million dollars. The deposits of funds had been made among the states in proportion to their representation in Congress by President Jackson. The general idea
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seemed to be that the way to get rich and prosperous was for the country to establish banks, issue currency and loan money. The inflation of the currency, prices and debt-making went hand in hand. Everybody bought government land as the most promising investment, and paid for the land with bank notes. Again and again these bank notes went from the land office to the deposit banks as government funds, and were loaned out again to the speculators to buy more land. It was a perpetual circle. In 1832 the receipts from the sale of lands were two million six hundred and twenty- three thousand dollars; in 1834 they were four million eight hun- dred and fifty-seven thousand dollars; in 1835, fourteen million seven hundred and fifty-seven thousand dollars ; and in 1836, twenty- four million eight hundred and seventy-seven thousand dollars. Importation of foreign merchandise increased in the same enor- mous proportions. It was a universal carnival. In this way, on January 1, 1837, the surplus for distribution to the states was thirty- seven million four hundred and sixty-eight thousand eight hundred and fifty-nine dollars. Nominally it was in the banks, but really it was in the hands of borrowers. The government took this sur- plus from the deposit banks to distribute it to the several states. The banks had to collect it, and a general collapse followed. For- tunes disappeared over night. "The whole South was bankrupt. Tens of thousands of workmen lost their employment. Everybody was in debt.
GREAT DEMAND FOR SPECIE.
The President sought to stop the exchange of public lands into "inconvertible paper." He ordered that nothing but specie should be received for public lands. This order created an extraordinary demand for specie, drew it from the great centers of commerce, where it was needed to uphold the credit of the banks, and this
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specie circular was the last straw on the back of the banks and commerce, and under it they went down. Indiana and all the other states suffered. The bills of the State Bank were the only good paper money. The state had borrowed large sums of money in the East to carry on its schemes of internal improvement. Spe- cie was scarce and the state full of depreciated currency. Neither the people nor the state could get money. As a measure of tem- porary relief the legislature, in 1839, authorized the issue of state scrip to the amount of a million and a half dollars, to bear six per cent. interest and to be receivable for taxes.
This "scrip" was issued in bills of five and fifty dollars, had a dog's head engraved thereon and was printed on red paper, and was known as "Red Dog" currency.
At first this scrip was well received, but as it had no redeemer in prospect it soon was worth only forty or fifty cents on the dol- lar. The issue of scrip by the state led to further inflation of the currency. Merchants, millers, contractors on public works and plank road companies all went into the business of making paper money. The scrip was issued in bills as low as twenty-five cents, the highest being for three dollars. It was mostly printed on blue paper and was styled "Blue Pup" to distinguish it from the "Red Dog" of the state. Business men went down in the crash, and as most of the merchants were large purchasers of farm products, and owed large sums to farmers, their failures pulled down the farmers and the court calendars were mainly taken up with mortgage fore- closures. The most active men were the sheriffs, endeavoring to find buyers for property under foreclosures.
The United States constructed the National Road from Balti- more to Wheeling and a similar turnpike from Washington to Wheeling. via Cumberland; thence through Zanesville, Ohio, and Indianapolis to St. Louis. It had been agreed by the federal gov-
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ernment that two per cent. of the proceeds of sales of land should be applied to the making of roads in Ohio, Indiana, Illinois, Mis- souri, Alabama and Mississippi. The Michigan road was surveyed in 1828 from New Albany to Michigan City. One mile wide along the same, of the public lands, was set aside by the government to pay the cost of making this road, and the sale was held in October, 1831. The construction was begun, under the authority of the state, in 1830, and it was cut out two hundred feet wide. Ten alternate sections of land were granted by the general government along its route for the construction of the Wabash and Erie Canal, March 20, 1827, and its construction was begun in 1832. The sale of land was held at Logansport in October, 1830. The terms of sale were one-fourth cash, the balance on seventeen years' time, with six per cent. interest. The long time granted prevented the canal commissioners from realizing much with which to then go on with the work. The Indiana legislature passed a bill February 9, 1832, pledging the faith and credit of the state to raise funds to complete the canal.
A further grant of public lands was made by the government, seven miles in width, off of the west side of the Miami Reserve, to aid in the completion of the canal. This grant was made to the state. The state issued scrip, or wildcat money, on white paper, called "White Dog," from the figure and color of the paper. The state agreed to receive such paper in payment for said land, which was sold to individuals to be paid for in installments, with interest. This land was rapidly settled up.
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