USA > Indiana > The history of Indiana > Part 34
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The House Bill resembled the senate bill very much. The capital stock was the same, and the location and number of branches were to be the same; unpaid stock, however, was to be secured by a mortgage, and stock could not be given as secur- ity on a loan. Each branch was a separate corporation; specie payment was necessary, but the branches were not mutually re- sponsible. No municipal corporation could borrow over $5,000 and no State, or county officer could be a director in the bank. The profits were to go to education. As passed by the House, this bill provided for thirteen directors, five chosen by the General Assembly and eight by the stockholders; and the minimum capi- tal for each branch was to be $50,000, instead of $80,000. The Farrington or Senate Bill is printed in the Indiana Journal, Feb 16, 1838; the House Bill in the issue of Feb. 23; and the Ewing or Committee Bill in the issue of March 9.
451
BANK CHARTER
1833.7 The General Assembly that met in December, 1833, lost little time in getting together on a bank charter.8 A bill was before the House for discussion on the 6th of January. It passed the House by a ma- jority of 48 to 23; and the Senate by 18 to 11.
The provisions of this charter show that it was carefully drawn.9 It has no trace of any interests con- trary to the public welfare. The State was divided into ten districts as nearly equal as possible and the direc- tors were to establish a branch in each district. The directors were given power to locate eleventh and twelfth branches as soon as the commercial situation seemed to demand it. The head office was to be at In- dianapolis, but there was no parent bank. The branches were on an equality, and the Indianapolis branch was not to enjoy any prestige nor exert any undue influence over the other branches. This charter forbade the bank's dealing at all in real estate. The provision worked to the advantage of the bank, for the people had more faith in a bank that did not deal in real estate. It was to be a strictly specie-paying insti- tution, and if at any time it refused to redeem its notes in specie it was to forfeit its charter, a provision which was later disregarded in a critical period of its life. This provision in its charter put it in a class with the best banks in our history, and clearly set it off from the "wildcat" brood then springing up in all the sur- rounding States.
The rate of discount was fixed at six per cent, and it was to issue no notes under five dollars; but this limitation was removed in 1841, after which the bank was allowed to issue notes as low as one dollar. The president was elected by the General Assembly for a term of five years at a salary of from $1,000 to $1,500.
7 Indiana Journal, May 4, 1833.
8 Indiana Journal, Jan. 1, 1834.
9 Laws of Indiana, 1834, ch. vii.
452
HISTORY OF INDIANA
For the State bank the General Assembly chose four directors, and each branch one. These constituted what was known as the bank board. This board had full power over the branches, and could make examina- tions, personally, or require a report of any branch without a day's notice. The bank board in its turn made an annual report to the General Assembly. It appointed three directors yearly for each branch, and the stockholders chose from seven to ten more. The branch boards elected presidents and cashiers for the branches. None of the officers could hold State offices while on the bank boards; nor could any stockholder give his stock as security for a loan ; nor could a presi- dent, cashier, or director, endorse for anyone or for each other.
The capital of the bank was placed at $1,600,000, later raised to $2,500,000 by an amendment adopted, March 1, 1836. One-half of the entire capital stock was subscribed by the State. Each branch was to have an equal part of the capital, i. e., $160,000, at first, and after the amendment of 1836, $250,000. The policy in organizing was to distribute the stock as widely as possible, and for this purpose the State ar- ranged to lend money on real estate mortgages to sub- scribers of bank stock. To carry out this provision of the charter and pay for its own subscriptions the State borrowed in the East $1,300,000. The charter was to run twenty-five years, expiring, January 1, 1859.
One cannot fail to note the great care displayed in the charter to make the bank safe, and its circulation sound. All the arts known to "swindling bankers" were guarded against.10 As indicated above, the notes were signed by the local cashier and the central presi- dent. There was mutual responsibility among the branches, but not a division of profits, each branch
10 The reference is to a territorial law of 1815 in which private bankers are called "swindling bankers."
453
BANKING BUSINESS
retaining all it earned. The bank board might limit the loans of any branch to one and one-fourth times the paid in capital; and might call for reports monthly or oftener, or take control and close a branch perma- nently. It might take funds from one branch, when they were not being used, and transfer them to another in need of money. No branch might have more debts due it than twice its capital; later this limit was raised to two and one-half times. A subscriber had to pay $18.75 in cash on each $50 share. The State furnished the balance, $31.25, and took freehold security, double the value of the loan. The loans to subscribers were to run from twenty to thirty years. All money earned by the State stock, above the five per cent interest on the bonds, was to go into the hands of the commission- ers of the sinking fund, by whom it was to be lent on freehold security.
§ 73 ORGANIZATION AND POLICY OF THE BANK
IT was impossible at this time to concentrate the trade of Indiana in one center as was done in Ohio at Cincinnati, in Kentucky at Louisville, and in New York at New York City.11 The Whitewater valley traded to Cincinnati. The trade of the southern part of the State flowed to the Ohio, but one could not say whether Madison, New Albany, or Evansville would secure the larger portion. New Orleans was the final market, and boatmen shipped indifferently from a dozen river-board ports-Vevay, Jeffersonville, Leavenworth, and Troy sharing the trade with their larger rivals.12 Back from the river small centers of population and business, and especially of politics, were growing up at Brook- ville, Lexington, Charlestown, Salem, Bedford, Bono, Paoli, and Princeton. Vincennes Terre Haute, Lafay- ette, and Logansport were the Wabash towns. Craw-
11 Indiana Journal, Feb. 22, 1834.
12 Lanier, Sketch of Life of J. F. D. Lanier, 17.
454
HISTORY OF INDIANA
fordsville, the "town in the big flat woods," was the greatest land market in the United States. There was little commerce at this time at Indianapolis, while Muncietown, Andersontown, Delphi, Peru, and Wabash were blooming out from struggling villages into pre- tentious county seats. Seven out of ten towns chosen as locations of the branches of the bank were on the borders, of the State; only six of the ten contained over two thousand people each. The population of the State was about 500,000. There were about 900 merchants resident in the State, and perhaps an equal number of non-resident traders operating on the Ohio and Wabash.
On the Ohio river the busy pork-packing season was in November and December.13 Drovers traveled through the neighboring counties and bought up large droves of hogs. These were butchered on the river- board as soon as cold weather set in. The products were shipped to New Orleans in the early winter be- fore the ice blocked the Ohio. Thus there was a good demand for money in that section in the fall. The pro- duce of the Wabash was gathered in on flat-boats from the smaller streams. The boatmen had to wait for the thaw in the spring, when the ice was gone, and there was plenty of water. This required capital in Febru- ary and March, and the produce was realized on by June 1.14 What little lake trade there was came in midsummer. At this time the farmers of the interior were buying up hogs and cattle to fatten for the fall market.
On January 30, the General Assembly chose Samuel Merrill, pension agent for the State, president of the bank for a term of five years. By May 10, all stock in the Indianapolis and Lawrenceburg branches was
13 Indiana Journal, Feb. 22, 1834.
14 Wm. F. Harding, "The State Bank of Indiana," a thirty-six page article in the Journal of Political Economy, Dec., 1895.
INDIANA IN 1833
455
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Montgomery
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Hancock
Putnam
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Lawrence
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Jefferson.
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Washington
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INDIANA COUNTIES IN 1833. By E. V. Shockley
Randolph
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Bomi yton
Maddison
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Johnson!
Morgan
Dearborn
Martin
Floydy
Van- der- burgb
To Carroll
456
HISTORY OF INDIANA
taken, and a meeting of directors was called for May 20, at which time all the branches had made returns showing full subscriptions. At a previous meeting of the bank board, February 13, the branches had been lo- cated.15 A loan of a half million dollars was effected by the loan agents of the State, the fund commis- sioners, August 6, and Governor Noah Noble set No- vember 19 as the day for the bank to open its doors for business. The total cost of organization had been $614.45, and this amount was more than offset by the premium received on the bonds issued.
The bank was prosperous from the start.16 Men had subscribed for stock deliberately and there was lit- tle evidence of speculation. Taken as a whole its offi- cers were beyond criticism. The Whig party controlled the State and kept Samuel Merrill at the head of the bank till 1843. Then his place was taken by a worthy successor, Judge James Morrison, who held office till 1853, when he was succeeded by Ebenezer Dumont. These men, by the policy they established, placed the bank on a firm foundation in the confidence of the people.17
§ 74 THE PANIC OF 1837
THE bank passed through two severe trials. The first of these grew out of the internal improvement activity which began in 1836. While both the bank
15 Indiana Journal, Feb. 22, 1834. Also Journal of the Indiana State Senate, 1834, 59. Also Bank Reports, I, p. 1. The annual reports were made by the cashier of the State Bank, to the legis- lature, and were due in November. J. M. Ray was cashier during the entire life of the bank. The branches were located as follows : The first at Indianapolis, second at Lawrenceport, third at Rich- mond, fourth at Madison, fifth at New Albany, sixth at Evans- ville, seventh at Vincennes, eighth at Bedford, ninth at Terre Haute, tenth at Lafayette, eleventh at Fort Wayne, twelfth at South Bend, thirteenth at Michigan City.
16 Bank Reports, II (1835), 1. ff.
17 Harding, "The State Bank of Indiana," 12.
457
PANIC OF 1837
· and the internal improvements were closely allied ventures of the State, their affairs were kept sepa- rate as far as possible. The improvement officials kept their funds in the bank and frequently over- drew their accounts. When the State failed in its pay- ments, in 1839, the bank was involved by one of these overdrafts to the amount of $650,000, which seriously crippled it. In 1836 the fund commissioners of the State had been authorized to sell bonds and procure for the bank $1,000,000 more of capital, but through dealings with a corrupt bankrupt concern in New York all was lost but $20,000. There was a great demand at the time for loans and, depending on the extra capital, the bank had discounted heavily. The failure to secure the extra capital, coupled with the failure of the State, came near breaking the bank, and caused several branches to stop discounting for the time and call in all their loans. The State came to its aid in 1840 and issued bank scrip to the amount of $722,640, which it gave the bank to pay the over- draft.
The second trial of the bank's strength came in the Panic of 1837. Its deposits had risen rapidly from the start. The United States deposit was $1,062,238 in 1835, and the next year it rose to $2,267,489. In 1837, however, the United States deposit dropped sharply to $576,277 and disappeared entirely by 1840. President Jackson's specie circular of July 6, 1836, also helped to weaken the bank at this period by forc- ing the government land offices to refuse all kinds of bank notes. Its "quick" liabilities, November 26, 1836, were : public deposits, $2,276,357; individual deposits, $431,703; notes in circulation, $1,927,050; capital stock, $1,585,481; assets, specie, not given but about $1,000,000 ; discounts, $3,176,613 ; currency, $1,204,737.
It was well that the three years of experience had taught the people the value of the bank. The stages
458
HISTORY OF INDIANA
which reached Indianapolis on Thursday evening, May . 20, 1837, from Lawrenceburg and Madison, brought the news that all the eastern banks, including the old Bank of the United States, had suspended specie pay- ment. The news was as sudden as it was unexpected. The situation was grave. If the bank suspended specie payment it would forfeit its charter. If it did not suspend, it would be broken and thus ruin the busi- ness of the State. The bank board was, fortunately in session, and, in spite of the law, immediately ordered all branches to stop paying specie.18 The most dan- gerous creditor. of the bank was the national govern- ment, which had $1,500,000 in specie on deposit. Mr. Lanier was posted off at once with $80,000 in gold to see what terms could be made with Secretary of the Treasury Woodbury. Lanier went by boat to Wheel- ing, thence by. stage to Frederick, thence by the Balti- more & Ohio railroad to Washington. His mission was entirely successful. Of all the banks then possess- ing government deposits, the Indiana bank was the only one that offered, or paid and specie. The secretary al- lowed the deposit to remain till drawn in the regular course of business.19 It is also very creditable to the bank that its. bills were regularly received by creditors of the nation. Nearly every bank in the west and southwest broke under this strain, and also many in the east. The Indiana bank, alone, west of the Alle- ghanies did not fail. The Whigs attributed the gen- eral disaster to Jackson's war on the Bank of the United States aided and aggravated by the specie cir- cular.20
The citizens of Indianapolis helped the local situa-
18 Indiana Journal, May 20, 1837.
19 Lanier, Life of Lanier, 15.
20 Indiana Journal, May 6, 1837. "Indiana, in 1837, had the largest amount of circulation and of specie in proportion to its capital. of any state in the Union." George Tucker, The Theory of Money and Banks, etc. (Boston, 1839.)
459
SPECIE PAYMENT SUSPENDED
tion by approving in a public meeting the action of the bank board. The merchants of Indianapolis showed their faith in the bank and its directors by giving notice promptly that they would receive State bank notes of all branches at par and by expressing in another resolution full confidence in the bank. In its turn the bank board issued an address to the peo- ple of the State calling attention to the fact that the bank must in self defense, close its doors against specie payment. Agents were in the State from the east who would take away specie by the wagon load, by means of the bank's own currency. The bank had on deposit in eastern banks $1,000,000 of its own notes which could all be used to draw from the various branches the $1,000,000 in specie which was in their vaults. The branches would continue to receive paper currency at par and cancel all indebtedness. The people were warned not to sacrifice their money. The people preserved their confidence and the bank pre- served their money. The suspension was not forced, but was the result of due deliberation. The bank re- ported, and actually had, plenty of specie. A commit- tee of the General Assembly made a thorough investi- tion and approved its conduct.
A meeting of bankers from all parts of the coun- try was called for April, 1838. John Lanier was again called on to represent the Indiana bank. The bankers met in New York, and Lanier surprised the eastern members by making a proposal, in which Al- bert Gallatin concurred, in favor of immediate resump- tion of specie payment. He succeeded in his mission and set August 13, 1838, as the day on which the banks were to begin again the payment of specie. But the banks still feared the specie would all be gathered in the east, and on November 19, 1839, the State bank again closed its specie vaults, not to reopen them until ordered to do so by the General Assembly, June 15,
460
HISTORY OF INDIANA
1842. The bank never defaulted again. No other State in the Union passed through this period with its currency so little deranged.
There was much criticism of the bank during this period of suspension. The bank notes were at a dis- count of about five per cent outside the State. This was an especial hardship on merchants. One of the most lucrative fields of the bank's activity was the purchase and sale of exchange. Bills on New Orleans were bought from shippers in the fall and winter. When these were about to mature, Lanier would go to New Orleans and cash them, using the proceeds in buying exchange on New York and other eastern cities. These bills were sold to Indiana merchants buying in the east and thus the bank turned its money at least three times a year. The discount on these bills, due largely to depreciated currency, was from eight to fif- teen per cent on each transaction. During the panic the bank made ten to fifteen per cent clear profits.21 It took advantage of its freedom from specie payment and expanded its note circulation from thirty to forty per cent.
The report of November, 1840, shows that directors had borrowed from the bank $430,802; other stock- holders, $907,797; thus a total of $1,338,599 of its out- standing debts was, against its own stockholders. All other loans amounted to only $2,339,8.19.22 It was to this condition that President Merrill alluded' when he said many officers of the bank sought the positions only to enable themselves to borrow money. If we add to this amount the $692,433 owed by the State and a suspended debt of over half a million, we realize what a burden the bank was carrying. It had in suit for collection at this time also about $200,000, most of which had to be collected from sureties.
21 Lanier, Life of Lanier, 17.
22 Documentary Journal, 1840, 94.
461
SUCCESS OF THE BANK
This, however, was the ebb in the bank's career. Recuperation was as rapid as demoralization had been. Its large suspended debt was nearly all collected, and from this point onward the prosperity of the bank was steady. The flood of gold in 1849-50 brought life to all avenues of business, and the "hard times" of 1837- 43 were speedily forgotten.
Looking back over the whole history of the State Bank of Indiana, one is compelled to say that it was successful. Its success is the more striking because it stands against the sordid background of "wildcat" banking. Its career fell largely in that most unhappy period of our history called the Panic Era of 1837, and it surely had little in its favor as far as the era was concerned. It was, fortunately, well on its, feet when this panic prostrated business throughout the United States. Although it did not earn large dividends dur- ing that period, it protected itself better and took bet- ter care of its customers than any other bank in the west and did equally as well as any bank in the nation. It had scarcely weathered the panic when it found it- self a creditor of a failing State to the extent of over one-third of its capital stock. The sinister hand of party politics is seen here and there, though never deadly except in the Constitutional Convention of 1851 and in the Free Banking Law of 1852. One is tempted to reflect that Jeffersonian politics and laissez-faire economics never won a more regrettable victory than when they overthrew the State Bank of Indiana.23
One of the arguments used by the advocates of the bank charter of 1834 was that the dividends of the bank would pay the ordinary expenses of the State. A com- parison of the statistics will show that the dividends
23 See Charles A. Conant's A History of Modern Banks of Issue (4th Ed., N. Y., 1909), 386; A. M. Davis's Origin of the National Banking System (Senate Doc. No. 582, 61st Congress 2nd Sess.). For a similar experience see Charles Hunter Garnett's State Banks of Issue (University of Illinois, 1898).
462
HISTORY OF INDIANA
ran low during the decade from 1838 to 1848. Dur- ing a part of this time it had to suspend specie pay- ments and curtail discounts, especially on eastern bills, on which it made most money. The dividends during 1843-45 inclusive ran low, because over $700,000 of the bank's money was tied up in suspended debts. Again in 1852 the State's expenses ran high, on ac- count of the State constitutional convention of 1850. It must also be kept in mind that during this latter period the bank was piling up in its vaults a surplus of over $1,000,000, besides carrying $300,000 of sus- pended debt. The dividends-after paying interest on the borrowed capital at five per cent-amounted to about $2,000,000 for the twenty-one years. Add to this amount a surplus of $1,434,000, a suspended debt of $216,000, which was practically all collected, and banking property worth $100,000, and the total earn- ings of the bank for the twenty-one years were about three and three-fourths millions. The ordinary ex- penses of the State for the same period were about $1,800,000, or just about one-half of the dividends.
A criticism of the bank, frequently heard from the beginning and growing more frequent throughout the twenty years, was that it failed to supply an adequate currency for the growing commerce of the State. That this criticism was just, will be seen by comparing the capital stock, discounts, and circulation statistics with the number of polls, acres of land assessed, and the total valuation of State properties. The wealth of the State mounted by regular steps, while the capital of the bank, its circulation, and its discounts never ap- preciably increased. In 1836 the circulation was $2,000,000, when the polls numbered 75,000, the acres taxed numbered 5,000,000, and the total property was valued at $67,000,000. In 1854 the circulation was only $3,500,000 when the polls were 160,000, the acres 20,000,000, and the taxables near $300,000,000. This
463
FREE BANKS
comparison needs no further comment. The disparity worked a great hardship and injustice on the debtor class, and this class formed a large majority of the people.
§ 75 THE ERA OF FREE BANKS
WHILE the commercial interests maintained a firm faith in the integrity of the State Bank, there gradually grew up a spirit of opposition. The reasons for this were not clearly defined, yet the sentiment was strong enough to control the General Assembly, and espe- cially did it dominate the constitutional convention of 1850-51. When a proposition to extend the State Bank charter was before the convention of 1850 only one of its original supporters, Othniel Clark, voted for it.42
The "hard money" Democrats, who in 1843 had been only an insignificant minority, had increased in numbers till they held the balance of power in 1850. These men, however, were not inflationists. The strong current of public opinion opposed to the State bank came from the inflationists-the men who wanted more money in circulation.
Their chief objections to the State Bank were: (1) It had failed to supply enough currency. (2) It had been partial in lending money to its stockholders, and it had also favored farmers and stock buyers as against merchants. (3) It had refused its assent to the loca- tion of new branches, when business clearly demanded them. (4) It had suspended specie payment twice, and had not resumed the last time till the State forced it. (5) It had used its power as a monopoly and had almost defied the State government. (6) As all sound banks must do, it had made enemies of the large numbers of
42 Debates of the Constitutional Convention of Indiana, 1850-51, 1995. The Debates are printed in two large volumes, paged con- secutively. This work is referred to hereafter as Debates. Where specific reference is not given, any fact may be found readily by use of the index.
464
HISTORY OF INDIANA
those who wanted credit and could not give sufficient security.
On the other hand the teachings of Jackson were against paper currency, State banks, and monopolies. Many Whigs were opposed to paper money and voted against the bank, and some Democrats, like Hendricks, favored it. The demand for more money is always popular and crept out in nearly every speech in favor of free banks. It is to be pointed out that the condi- tions of business, and the needs of the day, had more to do with forming the opinion of the convention than an intelligent, statesmanlike understanding of banking.
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