USA > Kentucky > History of Kentucky, Volume II > Part 5
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Relief was soon demanded by the people throughout the state. They not only needed money for the ordinary transactions of business; but the time to pay for the numerous purchases made directly following the late war, and to redeem many mortgages and notes was at hand. The more money in existence, the easier it would be to obtain it and, there- fore, the easier to pay debts. There had long been a lively desire on the part of many to engage in the banking business, chiefly for the gains to be made from the issuing of notes. As heretofore stated, a law had been passed against private banking. Legalized banking was largely taken care of by the Bank of Kentucky and its branches. But this did not pre- vent frequent attempts of private businesses to secure banking privileges in their charters of incorporation. Such efforts were not actuated wholly by the primary gains through banking but by the feeling that the banking facilities of the state were not sufficient. In 1814, a group of Lexington
19 Robert Alexander, President of the Bank of Kentucky, wrote on January 5, 1817, William H. Crawford, Secretary of the Treasury, "but, however, anxious we may be to see the legal currency of the United States restored to circulation, and however desirous of promoting its accomplishments, you must be sensible, as well as ourselves, that our single efforts would be worse than unavailing; they would be ruinous to ourselves and useless to the community. I am directed to inform you that as soon as the adoption of this measure by a sufficient number of banks in the eastern states shall render it safe for the Bank of Kentucky, that bank and its branches will resume the payment of specie." American State Papers, Finance, IV, 708.
20 In message to Legislature October 16, 1821 in Niles' Register, Vol. 21, p. 185. 21 In message to Legislature October 16, 1821 in Niles' Register, Vol. 21, p. 185. 22 Niles' Register, Vol. 23, p. 234.
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business men sought to obtain a charter of incorporation from the Legis- lature for the double purpose of manufacturing and banking. The capi- tal was to be $1,000,000 of which two-fifths was to be used for manu- facturing purposes and the remainder for banking.23 Even before the baleful effects of the saternalia of extravagance made easy by long credit were apparent, efforts were becoming more persistent and more wide- spread for additional banks. Politics and sectional considerations were beginning to appear to sorely beset the state in controlling where economic laws and reason should have been paramount. In 1815, a movement in the Green River region had started for more banks, and for banks to be located in that section. They also had the feeling that the Bank of Kentucky was becoming too powerful and that it was exercising its power in an unbecoming way in the Legislature. As a remedy, it would have a rival bank set up.24 This growing hostility to the Bank of Kentucky, and increasing tendency to make banks footballs of politics, was echoed in a speech by a member of the legislature in 1815, when a bill was up for increasing the capital of the Bank of Kentucky. He stated that "If this bill be passed, there is no further use for us here; the directors of the State bank, and not we, the representatives of the people will be the legislators of the state-a monied aristocracy will govern every thing." 25
With a smouldering and at time active hostility to the Bank of Ken- tucky, coupled with the fact that this institution did not supply sufficient amounts of circulating medium, the time was becoming ripe for more banks and more money. Hezekiah Niles summed it up thus, "In this state of things, it was found out that the whole difficulty was caused by the want of money! A 'circulating medium' was required. Banks must be established-and there was nothing wanting for them but acts of in- corporations and paper mills !" 26 The forces intent on more money were let loose in the 1817-1818 session of the Legislature, and with such fury that in January of 1818, an act was passed after strong opposition, which provided for the chartering of forty-six independent banks with an aggregate capitalization of $8,720,000. These banks were scattered over the state for the direct purpose of ministering to the monetary wants of the people according to sections and needs. The capital stock varied from $1,000,000 in Lexington and Louisville to $100,000 in Lebanon, Mount Sterling and twenty-one other towns of this class.27 Notes might be issued to the amount of not over three times the capital stock less in- debtedness. Thus, at one throw, there was let loose on the state, institu- tions that had permission to grind out over $26,000,000 in bank notes- an amount equal almost to a third of the total valuation of property in the state in 1815. No one could now reproach the state for not providing money in sufficient quantities to pay all debts that had been contracted. Not only would such a gigantic and unheard of inflation of money tend to the complete upset of all legitimate business in time, but the money itself, over and beyond the militating effect of the quantity, was not to be
23 Crittenden MSS., Vol. 2, No. 278. This is the correspondence of John J. Crittenden in the Manuscripts Division of the Library of Congress at Washington. Letter from John Breathitt to Crittenden January 22, 1814.
24 Kentucky Gazette, September 25, 1815.
25 Ibid., October 2, 1815.
26 Niles' Register, Vol. 28, p. 81.
27 The location and capital of the banks follows: Lexington and Louisville, $1,000,000; Frankfort, $500,000; Bowling Green, Georgetown, Maysville, and Paris, $300,000; Bardstown, Glasgow, Hopkinsville, Newport, Russellville, Richmond, Shelbyville, Versailles, and Winchester, $200,000; Danville, Flemingsburg, Harrods- burg, Henderson, Springfield, and Stanford, $150,000; Cynthiana, $120,000; and Augusta, Barbourville, Burksville, Burlington, Carlisle, Columbia, Elizabethtown, Greensburg, Greenville, Hardinsburg, Lancaster, Lebanon, Millersburg, Monticello, Morgantown, Mount Sterling, New Castle, Nicholasville, Owingsville, Petersburg, Port William, Shepherdsville, and Somerest, $100,000.
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redeemed in specie but rather in the notes of the Bank of Kentucky or of the United States Bank.28
The conservative sound money men attacked this action as equivalent to a raid on the prosperity of the state. A Kentuckian wrote John J. Crittenden a few days after the act had been passed that it was highly problematical whether any ultimate good could come out of these banks. He was sure that this legislation would "afford facilities to commerce and increase the nominal value of real estate; but that it will deluge the state with too much paper money, increase the thirst for speculation, which is already too eager in our country and envolve many of our most useful and enterprising citizens in ruin and bankruptcy, [I] entertain the most fearful apprehensions." 29 Robert Wickliffe was severe in his condemnation : "By the grant of these forty-eight charters, you em- phatically granted away the suffrage of the people, and laid the founda- tion of a tyranny as corrupt as it was strong. Sir, I wish to be understood -I say that the tyranny which you founded with these banks, was as corrupt as it was burthensome, and that the extent of its corruption was only ascertainable by its duration." 30
The state, indeed, was sorely beset by the banks. Including the Bank of Kentucky with its branches and the two branch banks of the Bank of the United States, there were in all fifty-nine such institutions in the state. In some of the towns where the independent banks were set up, there were not a hundred people, as for instance in Greenville and Bar- bourville. In at least eight there were less than two hundred souls. It was estimated by one authority that it would require 826 officers to run the banks, dispersed as follows: 59 presidents, 59 cashiers, and 708 directors and that the salaries of the officers of each bank added to the other expenses of the establishment would average $9,000. To this, would he add the salaries of fifty-nine notaries "to protest notes" at $200 salary each, and in all there would result a total of $552,800 for expenses. "And," he declared, "five hundred and fifty-two thousand eight hundred dollars are to be paid by the laboring classes of that state every year, for services that will not add one cent per annum to the wealth of the country." Counting in the additional expenses the state would undergo in the inevitable depreciation of the currency, he said "From the whole it appears that the banking system in the state may cost the people nearly two million per ann .; and which must be exclusively paid, in the ultimate, by those who labor, for they only create any value." 31
The printing presses were soon set to work producing volumes of crisp new paper notes, causing the eyes of many a debtor to sparkle as he beheld the miracle money. The banks were truly the institutions de- signed to make the poor rich, so why should not all hasten to get in debt for only in that way could they become rich and escape the ruin that came with old debts. The (Louisville) Public Advertiser said: "We are now, it seems, to become wealthy by manufacturing paper money. Our wise legislators have authorized the issuing of paper on paper; but in this, as in the other instance, they appear to have been ignorant or regardless of future consequences-of the miseries and perplexities they were entailing upon their constituents." 32 Large volumes of this money
28 Acts of Kentucky, 1817; John C. Doolan, "The Old Court-New Court Controversy" in The Green Bag, Vol. II (1899), 179; Collins, History of Kentucky, I, 28.
29 Crittenden MSS., Vol. 2, Nos. 189, 190. Letter from J. H. Todd February
4, 1818.
30 Lafayette to the People, 53. (Pamphlet written by a Kentuckian under name of "Lafayette.")
81 Niles' Register, Vol. 14, PP. 109, IIO. 82 July 21, 1818.
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HISTORY OF KENTUCKY
were soon flowing from the springs of a half a hundred banks and were being loaned to the thirsty debtors and speculators on doubtful or worth- less security. Before the day of payment and repentance came joy was great and the time buoyant. As long as the paper money was flowing outward from the banks, no one had a care; but when the notes were drifting back again and loans were being called in, then confusion re- sulted in the medium of exchange and distress among the debtors became evident. So lax were the rules regulating the management of the banks and the issuance of notes, and so varied was the degrees of their enforce- ment that there came to be almost as many values for notes as there were banks. Some remained for a time near par while others depreciated sharply. This state of affairs led the Kentucky Gasette to throw out this advice: "It is now extremely difficult to know when safety exists in taking bank paper in the ordinary transactions of life. We would recommend to farmers, and other country gentlemen, who have not an opportunity of witnessing the fluctuations, to be very cautious in receiv- ing money-lest it might remain on their hands as trash." 33
.Professional brokers or "shavers" as they were called sprang up on all sides who afforded specie or money of recognized value and standing in return for the various Kentucky notes, accepting them only at a heavy discount. An observer described the situation thus: "The people called for banks, and banks were made; they loaned money freely, and, for 'a little season,' the oppressed, having, by new credits, paid off some part of their old debts, rejoiced at the 'relief' afforded. A fig for the old- fashioned way of doing business, said they-there is nothing like credit. But this did not last long. The bills of most of the new-made banks would not 'pass'-it was discovered that they were paper-mere paper ; and then there was the very 'mischief to pay.' Brokers and shavers jumped up like mushrooms, and they gave 'relief,' out of sheer kindness to a suffering people. They began at 10 per cent discount and ended at 95 !- shaving away the greater portion of the little means that were left for the honest payment of debts. The banks, by this time, had obtained judgments-the sheriffs were as busy as 'Old Nick in a gale of wind,'
and a general sweep of ruin was threatened. *
* *" 34
These bundles of paper notes soon came to be outlawed in almost every kind of business transaction. The banks themselves lost faith among each other and refused to receive the notes of certain other banks. The branches of the United States Bank in Kentucky refused in most instances to accept the Kentucky bank notes or have any business deal- ings with the "Forty Thieves" as the independent banks were sometimes called. The butchers of Lexington in a meeting held to protect them- selves from worthless paper, decided to refuse any paper money which was not acceptable to the Lexington banks, for they could not use such money in buying cattle.35 The tavern-keepers and merchants of Frank- fort declared they would not receive or give currency to any bills of any bank whatsoever, under the denomination of one dollar, for apart from the stability of the bank, there was the additional danger of the note being counterfeit. In fact not only were small bills counterfeited but larger ones also; and as charged by some this practice was kept up until the cost of counterfeiting became greater than the current value of the note. In this period of rumors and suspicions the people came to lose faith in all banks and the good ones found great difficulty in proving and maintaining their positions. Notices were frequently inserted in the newspapers denying reports that the conditions of certain banks were bad and that their notes were dangerous.36 Even the notes of the Ken-
33 July 16, 1819.
34 Niles' Register, Vol. 28, p. 81.
35 Kentucky Gazette, July 16, Aug. 19, 1819.
36 For instance Kentucky Gazette, Sept. 10, 1819.
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tucky Insurance Company were refused, an institution which had, al- though gaining banking privileges by deception, used sound principles in its business. A person returned some of these notes to his creditor in 1818, declaring that "nobody will receive [them] here."37
Kentucky was fast becoming the storm center of a world-wide mone- tary and business disturbance, the Panic of 1819. For various reasons, inany of which were not peculiar to this panic but rather common to all, world conditions were out of joint; but it seemed that in Kentucky there had been causes of a local nature almost sufficient to produce a panic. The prices of everything offered for sale came down almost to the van- ishing point when compared to the high levels of a few years previously. It was reported in 1820 corn was selling in some parts of the state for IO cents a bushel and wheat at 20 cents.38 A traveller stated that land around Lexington and Frankfort was selling for only one-sixth as much as it was bringing a few years earlier.39 The Kentucky Gasette said, "The price of property is exceedingly depressed. Real estate will not sell for one-fourth of its value." An example of the hard times result- ing in forced sales was the case of a factory near Lexington costing $150,000 which with other valuable buildings and about one hundred acres of land was sold for $21,000-and on credit at that.40 A writer to the Kentucky Gasette gave this further dismal picture of the times : "Slaves which sold some time ago, could command the most ready money, have fallen to an inadequate value. A slave which hires for $80 or $100 per annum, may be purchased for $300 or $400. A house and lot on Limestone Street, for which $15,000 had been offered some time past, sold under the officer's hammer, for $1,300. A house and lot, which I am informed was bought for $10,000, after $6,000 had been paid by the purchaser, was sold under a mortgage for $1,500, leaving the original purchaser (besides his advances) $3,500 in debt. A number of sales, which excited at the same time astonishment and pity, have occurred in this town. Comparisons of local sufferings should not be indulged in, but I am told that Lexington is less afflicted than almost any part of the state." 41
With the prices of everything reversed from what obtained a few years earlier, labor conditions speedily changed. Instead of high wages and a scarcity of workmen, now men went begging for jobs. An ob- server speaking of the Ohio Valley in general said, "Labourers and mechanics are in want of employment. I think I have seen upwards of 1,500 men in quest of work within eleven months past, and many of these declared that they had no money." Governor Adair urged the beginning of important internal improvements at this time, not only be- canse rivers should be made navigable and roads be constructed, but provisions were cheap and labor low-and this would help to solve the unemployment situation.42 During this period of depression, the state finances were in a healthy state. In 1818 there was a balance in the treasury of over $17,000, in 1819 nearly $54,000, and in 1820 about $70,000.43
One of the most important and far-reaching results of the saturnalia of extravagance and speculation with the consequent hard times was the virtual destruction of the thriving manufactories of the state from which
37 Breckinridge MSS (1818). David Castleman to Joseph C. Breckinridge, Jan. 8, 1818.
38 Niles' Register, Vol. 19, p. 16.
39 Adlard Welby, "A Visit to North America and the English Settlements in Illinois" in Thwaites, Early Western Travels, XII, 147-341.
40 May 7, 1819.
41 Quoted in Niles' Register, Vol. 17, p. 85.
42 Message of October 16, 1821 in Niles' Register, Vol. 21, p. 187.
43 Niles' Register, Vol. 17, P. 340, Vol. 19, p. 176.
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recovery was never completely made. Immediately after the war, when England began to dump her immense surpluses of manufactured articles on the American shores, an almost universal cry went up for protection to the infant American industries from the ruinous English competition. As a result the Tariff Act of 1816 was speedily passed. But relief was not instant nor complete. English competition had already done a great amount of harm to the rather unstable manufactures in Kentucky where labor was not concentrated and from which markets were far distant and transportation facilities lacking. These conditions, coupled with the pestilences of the times, was something more than these manufactories could endure. However, heroic efforts were made by the Kentucky cap- tains of industry to save their industrial fabric. In 1817 the "Kentucky Society for the Encouragement of Domestic Manufacture" was organ- ized with the direct purpose of combating foreign importations. It was recommended that every member dress in fabrics of home manufacture as soon as possible. In a short time, the sixty-five members that com- posed the society appeared in a meeting "in home-manufactured vestures, demonstrative, by their cheapness and elegance." Branches of this society were scattered over the state within a year.44 For a time the promoters of manufacturing felt buoyant. One of the largest factories in Lexing- ton which had been forced to close down on account of English com- petition opened up again in 1819.45 The Kentucky Gazette. had strong hopes and expectations for a revival. It said, "The spirit and pride of our citizens will not sleep, even amid the agonizing pressure of the times." 46 A paper mill in Barren County reported "good demand" for its product ; a bar iron factory in Bath County stated in its report "Con- dition and demand good;" a cotton yarn factory in Bourbon declared that "Condition never better ;" a beer, porter, and ale establishment in Fayette reported conditions "Good;" while a chewing tobacco, cigar, and snuff factory in the same county declared "Demand for chewing tobacco and cigars limited; for snuff good."
But as heretofore noted, the manufacturers were destined to lose, and the story is vividly told in these terse reports: A factory manufac- turing bagging for cotton said, "Formerly the bagging establishments were eight in Lexington, in Fayette County, and made 480,000 yards. At present this is the only one, and does but a small business." A Lex- ington factory manufacturing bridle bits, plated stirrups, and brass and iron castings for machinery stated that it had been "Reduced to four men and $2,000 for raw materials by foreign importation." A Lexing- ton manufactory of cloths, superfine, and course flannels, blankets, and paper reported, "This establishment is said to be the largest and best supplied with machinery of any in the United States. It ceased opera- tion in 1818 in consequence of foreign importations." A cordage, rope, yarn, twine, and bagging factory reported "Discontinued in 1819," while a coach and chariot factory said it was "Rapidly declining. No de- mand." Numerous other factories reported that they had discontinued in 1818 and 1819. A mill making flour and meal reported "markets dull," a hat factory said it had "Declined one-half since 1817," and a soap and candle manufactory "Ceased operations in 1816." A factory making "white lead, dry and in oil, floated lead, red lead, litharge, and sugar of lead" reported a "dull demand" and a continued operation only on hopes in the future. A Harrison County factory making thread, shirtings, and plaids declared that "Foreign importations have put down
44 Kentucky Gozette, Aug. 23, 1817, March 27, 1818.
45 Kentucky Gazette, Nov. 26, 1819. This was the large Saunders cotton factory, which now was reopened under the control of Postlethwait, Brand and Company.
46 Quoted in Commons and Phillips, Documentary History of American Indus- trial Society, II, 301, 302.
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this establishment." But foreign importations were not responsible for all failures. A cotton yarn factory in Mercer County stated that "The want of a good circulating medium prevents the full operation of this establishment." Other factories reported sales "particularly in barter." One factory making cotton yarn in the inaccessible regions of the upper Cumberland in Wayne County said, "This establishment, being in the interior of the country and free from foreign importations, does a good business." 47
Foreign importations and hard times were not solely responsible for the decline of manufacturing. Other causes previously alluded to such as distance from markets, lack of proper transportation, and sparcity of population played their part. Another cause elusive and hard to deter- mine was the presence in the state of the institution of slavery. Imme- diate as well as ultimate results of this institution were inimical to the development of a successful industrialism. Paradoxical as it may seem, one result of the hard times tended to solve in a very slight degree this very situation. Migrations from the state by well-to-do farmers with their slaves reached at times alarming proportions. Concerning this, Hezekiah Niles said: "Kentucky is a grain-growing state, and feels as much the necessity of a home-market as any other in the nation. By the prostration of her manufacturing establishments and the want of a demand for her products, slave-labor, if ever profitable therein, became unprofitable, and many possessed of such persons emigrated to the cot- ton-growing states of Louisiana, Mississippi and Alabama, and some to Missouri. The ravages of the 'independent banks,' together with the want of employment, drove off tens of thousands of the laboring classes of white people into Ohio, Indiana, and Illinois. On the whole, it is probable that the account current of emigration, as to this state, is nearly balanced for the last ten years. These things were not to have been expected, and we sincerely regret that they have come to pass. When the government of the United States shall adopt a system of legislation and support and rely upon things at home, for home prosperity, Ken- tucky will again revive, and go on to gather strength rapidly. And, as the black population is pressed south, its place will be supplied by the sinews of every nation, which are its free laborers." 48
As time went on there appeared little evidence that conditions were becoming better. The people began to look about to discover some per- son or thing on which to lay the blame for all their woes so sorely be- setting them. Many of the sounder and more conservative citizens had long known that the deluge of "paper mills" otherwise referred to as banks was responsible for the hard times, and had been opposing them from the beginning. To the outsider and the casual observer the same cause was held to account for the trials and tribulations of the Ken- tuckians. An Illinois well-wisher gave a dismal picture of the operations of the independent banks and the results they had produced in the latter state: "It has always been my opinion, that of all evils that can be inflicted upon a free state, banking establishments are the most alarm- ing. They are the vultures that prey upon the vitals of the constitution and rob the body politic of its life blood. Look now at Kentucky! What a spectacle does she present! Nothing is to be seen but a boundless expanse of desolation !- Wealth empoverished, enterprise checked, com- merce at a stand, the currency depreciated, all that was promotive of individual wealth, and all that was indicative of state prosperity and advancement, plunged into the great vortex of irremediable involvement.
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