USA > Louisiana > Orleans Parish > New Orleans > Standard history of New Orleans, Louisiana, giving a description of the natural advantages, natural history settlement, Indians, Creoles, municipal and military history, mercantile and commercial interests, banking, transportation, etc. > Part 60
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CHAPTER XXIII.
BANKING AND FINANCE.
BY NORMAN WALKER.
I HE history of banking in New Orleans is interesting and instructive, and not wholly local; that is, not New Orleans alone but the entire country is interested in the development of banking in that city. During the period previous to the Civil War, from 1820 to 1860, New Orleans occupied a far more important position in the commercial and financial system of the country than it does to-day, and from practice and experiment it built up a banking system founded on such strong principles, so well adapted to the needs of the country, with a currency so elastic yet so well protected, that the banking law of Louisiana was imitated or copied in a number of the States, even in the older East; and some of the principles which first saw the light in this law have been incorporated in the National Bank system of to-day. New Orleans had the benefit of the experi- ence and knowledge of financiers who had graduated in the best banking schools of Europe. When the development of steam navigation gave it control of the com- merce of the Mississippi Valley, it became also the banker of the immense popula- tion residing in that valley. It was through the New Orleans banks that the exchanges were made and the European purchasers paid the Southern and Western farmers for their cotton, sugar, flour, etc .; so that these banks were better known at the time in Paris, London, Amsterdam and other monetary centers than even those of New York. To maintain this necessary credit, the laws had to be such as to assure the European bankers against all possibilities of loss; and this was a more difficult matter then than to-day, because American credit had been seriously crippled by several ugly failures and cven by repudiation. The home conditions also required the adoption of some plan by which the people of the interior could obtain without difficulty such capital as they needed for the development of the country, for the opening of new farms, the building of railroads and other improve- ments. Most of this capital, for the South at least, came through New Orleans and through the banks of this city. Later on, it was found possible to negotiate
yours truly RElerag
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loans in Europe and issuc bonds, which ultimately proved too easy a matter and brought on excessive indebtedness and finally a crash; but in the earlier days the New Orleans banks were counted on to furnish the capital needed for any great improvements. Hence we find many of the new improvement companies to be banking institutions or to have banking departments attached to theni. The Canal Bank is one of the relics of this system, having been organized with the specific purpose of building the new canal. A Gas Bank was organized for the purpose of providing New Orleans with gas; while the Citizens' Bank had the special object in view of assisting in the development of the agricultural lands of Louisiana. The Commercial Bank was organized to provide the city with water-works.
In those days, when the varied currency of the country caused even the natives great confusion, and when "shin-plasters" left every one in doubt as to the value of notes, the bankers of New Orleans set to work to establish so perfect a system that their notes would never be at a discount. This they succeeded, in doing, after some very heavy losses and a great deal of financial confusion, and it had a most beneficent effect on the trade and commerce of the city, ultimately compelling the neighboring States to adopt the same or similar systems. It was due as much to its splendid banking system as to its commercial position that New Orleans won the high position it occupied in the ante-bellum period, when it had the entire Southwest not only tributary to it commercially, but in debt to it and com- pletely under its financial control. As the banks of New Orleans are largely responsible, therefore, for the National Bank system of the country and for the credit system upon which the cultivation and moving of crops in the South are based, a history of banking New Orleans will prove interesting not only from a local but from a national point of view as well.
The history of banking in early French and Spanish days in New Orleans and Louisiana-for the two are the same, there being no banks outside of the metropolis until of very recent years-is much like the celebrated chapter on owls in the history of Iceland, which simply recites, "There are no owls in Iceland." There were no banks in Louisiana before the coming of the Americans. The government, first Crozat, then France, then Spain, had securely in their own hands absolute control of the finances, and managed them most execrably.
The very foundation of the colony was due to a bank; for the famous Missis- sippi Company, to which Louisiana owed its origin, and the Royal Bank of France, were one and the same thing, with the famous John Law at its head, the charter
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of the company and its exclusive right to trade with Louisiana being one of the chief assets. As noted elsewhere, the bank failed and the French gov- ernment took charge of the colony. The company which had control of Louisiana wound up its affairs in 1731, and in settlement of its debts issued a large quantity of bonds, called "billets de caisse." These came into general use as the currency of New Orleans and interfered with the king's coin to such an extent that Governor Périer found it necessary, towards the end of 1731, to issue a procla- mation in which lie fixed the time that those "billets" should cease to be used as currency and should be withdrawn from circulation. Any one convicted of dealing in them as currency was subject to a fine of $4 for the first offense and corporal punishment for a second offense,-a law which will give some idea of the paternal government then prevailing in Louisiana and the deep knowledge of finance that existed then. The Perier law had the natural effect of greatly depreciating these "billets," which at that time constituted the principal currency of Louisiana, and resulted in withdrawing them from circulation. Then followed, as a natural consequence, because of insufficient currency-for there was very little coin in Louisiana at the time-a financial crisis which brought great distress upon the colonists. Many of them emigrated and for a time it looked as though Louisiana and New Orleans would be deserted, as the result of the unfortunate commercial and financial policy which the French government was endeavoring to force on them.
The government sought to relieve the financial crisis it had itself caused by the issue of a special currency designed for Louisiana. Many coins have been dug up, from time to time, with the excavations made in New Orleans; but these coins were few and insufficient for the commerce of the colony. In 1735 the government endeavored to replace the depreciated paper money of the India Company (the billets de caisse) by pasteboard notes (known as billets de carte), which it was said would be worth a great deal more, as they had the government behind them as a guarantor instead of an irresponsible company. This change was vigorously opposed by Governor Bienville, but insisted on by the government and put in operation. The new notes did command a better value at first, but they gradually depreciated when the colonists found that there was no means of redeeming them ; and all the punitive laws passed to strengthen them proved of no avail. The billets de carte steadily went downward until, in 1744, nine years after their issue, they were worth only 33 cents on the dollar.
The Council of State was called together to consider the situation and see
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what could be done to remedy the evil. It declared the condition of affairs prevailing to be prejudicial to the finances of the government, the welfare of the colony and the progress of commerce. It was therefore determined to call in all the pasteboard notes, redeeming them at 40 cents on the dollar, which was slightly higher than their current value. How thoroughly bad, if not dishonest, were the financial ideas then in vogue, is shown in the redemption of these billets de carte; for the Council of State, instead of paying cash or coin for them, gave in return drafts on the Treasury in France; in other words, the colonists upon handing in the notes were paid off not in New Orleans, but given orders on Paris. This was a large dis- count on these drafts, because of the delay and the difficulty of cashing them. It was further proclaimed that all the bills not presented within two months of the proclamation should be null and void, and valueless, and could not be accepted in payment of any debt. Thus the colonists were twice fleeccd with depreciated currency,-first by the company which settled Louisiana and founded New Orleans, secondly by the government itself.
In spite of these failures, only five years elapsed before Governor Vaudreuil, on his own responsibility, issued an entirely new paper currency. Finding the revenues not sufficient for the support of the colony and receiving no assistance from the home government, France, he, at the suggestion of the Intendant Commissary, Michel de la Rouvillière, and to the gratification of the wishes of many of the colonists who found the currency too limited for the needs of commerce, manufac- tured and placed on the market a large amount of paper money, ranging from twenty livres ($4) up. These notes were given in payment of all the expenses and debts of the colony and were made exchangeable for all other paper money, obliga- tions and bonds, in the hope that they would speedily become the only currency of Louisiana.
The action of Vaudreuil and de la Rouvillière was at once repudiated by the home government, and the new notes were ordered retired. Governor Vaudreuil's attention was called to the fact that the two previous issues of notes had resulted most unfortunately ; and to the further fact that the governor of Louisiana had no power or authority to issue paper notes ; and that none of his predecessors had ever thought of doing so. The confusion resulting from this illegal issue of paper money was further intensified by the discovery that a very considerable proportion of the new notes in circulation were counterfeits. They were of the crudest character, and an investigation into the counterfeiting disclosed the fact that a negro by the name of Joseph, had been largely instrumental in turning out this
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first bogus money. Such was the history of finance and banking in Louisiana under France,-a succession of gross blunders and outrages, which kept the currency always at a discount, proved a millstone around the neck of commerce and upset and dis- turbed all values; in fact, the same wild policy which ultimately bankrupted the mother country (France) and brought on the Revolution, was tried in Louisiana.
France left the currency in Louisiana in a thoroughly unsettled condition when it transferred the colony to Spain. There were in circulation 7,000,000 livres of paper money issued by the French government and for whose redemption it was responsible. As France drew out, it left this currency with an uncertain stand- ing. The colonists could not know whether the Spanish government would, as the successor of France, accept it or reject it altogether. If Spain redeemed it, it was impossible to say whether that government would take it at par or at a discount of 25 per cent, which the French government had established as the legal amount of its depreciation. In ordinary business, four dollars in paper currency represented one dollar in specie. The matter was laid before Governor Ulloa by the Intendant Commissary, Foucault, and it was pointed out to him what con- fusion and loss would result of Spain established a new currency and neglected the French currency in general circulation. Ulloa wisely realized that the disfavor with which the Spanish rule was received would only be increased by interfering with the currency and ordered the French paper to be received by the Spaniards as well as the French, at the rate of 75 per cent on its face value. The colonists, however, were not satisfied with this and attempted to make the new government give more than the old one had given and demanded par for their paper. Ulloa, in the policy of conciliation he had determined on, bought up a large quantity of this paper money at 75 cents on the dollar and tendered it to his Spanish soldiers, pay- ing them two-thirds in cash and one-third in Louisiana paper; but the troops refused to accept the paper ; and Ulloa, finding both the French (or Creoles) and the Spaniards unwilling to adopt this financial policy, was compelled to abandon it altogether.
Under the Spanish government the financial system slightly improved and a great deal of coin (almost exclusively silver) found its way from Mexico to Louisiana; but the Spanish government also issued a large quantity of paper money, called "liberanza" for the redemption of which no provision was made, and which soon depreciated in value, like all such currency had done in the colony. When Spain pulled out of New Orleans and transferred Louisiana to France, to be sold to the United States, it made no provision for taking care of this paper issue, which shrunk in value to almost nothing.
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It will be seen from this brief recital of the financial history of Louisiana under French and Spanish dominion, there was really no such thing as banking, that the currency was all the time in a more or less disturbed condition, and most of the money at a great discount ; that there was never sufficient currency for the needs of the colony, and that the power in authority, whether the Mississippi or India Company, or the French or Spanish government, devoted itself to fleecing the colonists as much as possible, by issuing unlimited paper or pasteboard currency and then redeeming it at one-third or one-fourth of its face value.
With American rule came a complete change. When Governor Claiborne took possession of Louisiana for the United States, he found the Territory suffering from a depreciated and insufficient currency. Largely through his instrumentality, the Louisiana Bank was founded, in 1804,-the first bank ever to be established in New Orleans. Its officers were Evan Jones, an American, as president, and Paul Lanusse, a Creole, as secretary, the desire being to unite the two races which made up the population of Louisiana at that time, in this financial venture. Com- missioners were appointed to lay before the merchants and people of New Orleans the purposes of the bank and to solicit subscriptions to its stock. This required much delicacy and judgment, because the rule of American government at that time was not popular with the Creoles, who resented the fact that Louisiana was kept under Territorial government instead of being granted full legislative power. When it became known that the bank proposed to issue paper notes, there was a loud protest from the more ignorant classes, who recalled the many disasters that the colonists had met with under Bienville, Vaudreuil and Ulloa from a paper currency.
The commissioners, however, paying no attention to this popular clamor, went to work to organize the Louisiana Bank. They decided, first of all, not to take stock in, and thus it become a part of, the Bank of the United States, which, from its headquarters in Philadelphia, was endeavoring to establish a branch in New Orleans, as a branch here would enable it more or less to control the finances of the new acquisition of Louisiana and the Mississippi Valley. In the resolutions in which it was decided not to join fortunes with the United States Bank, it was recited that "the Bank of the United States is owned by Europeans altogether, by persons residing some thousands of miles from this country.
Whereas the Louisiana Bank, being owned altogether by inhabitants of this country, all the profits which it may make will de divided among them and remain in this country."
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The bank was formally organized in January, 1805, with Paul Lanusse, James Pitot, Julien Poydras, Daniel Clark, Michel Fortier, John Soulie, Thomas Harman, Thomas Urquhart, William Donaldson, John F. Merieult, Francois Du- plessis, James Garrick, John McDonogh, John B. Labatut and Nicholas Girod as directors, and with the following officers: President, Julien Poydras; cashier, Stephen Zacharie; tellers, James Fitzgerald and John Thibaut. It would have been impossible to have secured a better list of names in New Orleans for directors and officers of the new bank. The president, Julien Poydras, was the most prominent and wealthiest man in the French eolony, as was John MeDonogh among the Americans. Clark was the delegate of the Territory in Congress. Pitot was mayor, as Girod was afterwards. It will be seen that the direetors were divided among the French and American elements, the former being in a ma- jority, as they constituted a majority of the population and merchants and busi- ness men of New Orleans at that time.
At the same time, 1805, that the Louisiana Bank came into existence, the United States Bank, of Philadelphia, succeeded in establishing its branch in New Orleans, with Evan Jones, originally the president of the Louisiana Bank, at its head. The local directors in 1805 were Evan Jones, Benjamin Morgan, Thomas Callender, John Palfrey, Whitten Evans, J. B. Prevost, William Brown, Cavalier Jennier, Beverly Chew, John W. Gurley, Joseph McNeill, William Ken- ner and George T. Phillips. It will be seen, at a glance, that while the Louisiana Bank was attempting to unite the Creoles and Amerieans in financial matters, the braneh of the United States Bank was distinctly and exclusively an American institution, which took little aecount of the native French population of Louisiana.
The Louisiana Bank was not a success. Considerable difficulty was encountered in its management, and in 1819, fourteen years after its establishment, it was decided to go into liquidation. At that time the assets were $777,993, and the liabilities $821,547; and it was announced that the stoekholders would not lose more than 11 or 12 per cent of their capital, "provided no more notes of a fraudulent emission should be presented,"-a provision of which no explanation was ever given, and the meaning of which is therefore completely incomprehensible to-day. The liquidation of the bank took a much longer time than was expected, and two ex- tensions had to be granted, the settlement of the bank's affairs not being completed until March, 1823.
Before the failure and retirement of the Louisiana Bank, other and stronger banking institutions had sprung into existenee in New Orleans, which continued
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up to the time of the Civil War, and disappeared then only through the fortunes of war. The first of these was the Bank of Orleans, established under an act of the Louisiana Legislature in 1811, with a capital of $5,000,000. The first board of directors included R. D. Sheperd, William Kenner, Benjamin Morgan, William Nott, John Taylor, Daniel Olivier, D. Ronquette and Thomas B. Williams. An evidence of the peculiar commercial and financial conditions prevailing in New Orleans at the time and the lack of facilities such as exist to-day in the com- mercial exchanges, is given in the fact that the subscription book for the stock of the bank was left open for subscriptions for some time at the Commercial coffee-house,-the coffee-houses, or, as they called themselves, "exchanges," being the places where "merchants most did congregate " and where most of the commer- cial transactions of the period occurred.
The first president of the Bank of Orleans was Benjamin Morgan. He was followed by Samuel Packwood and the latter by Zenon Cavalier. Upon the expiration of its charter, a new charter was obtained, the bank securing exemption from the payment of State taxes by paying a bonus or lump sum of $25,000.
The Louisiana Planters' Bank was organized the same year as the Bank of Orleans, 1811, for the convenience of the agricultural interests of the Territory. It made a specialty of discounting the notes of planters and advancing money for the improvement of agricultural property. Its directorate, therefore, included a number of the more prominent planters in Louisiana, mainly those engaged in the sugar industry,-Colonel Bellechasse, A. D. Duplantier, D. de la Croix, William Donalson, Jacob Trimble, James Johnston, S. Hillen, S. Henderson, P. Foucher, W. W. Montgomery, N. Cox, R. Butler, Jolin Grieve and Samuel Packwood.
These three banks-the Louisiana Bank, the Bank of Orleans and the Plan- ters' Bank-were amply sufficient for the financial needs of Louisiana for the first two decades under American rule; indeed, considering the fact that Louisiana had previously been without any banking facilities at all, they would seem to be more than enough. They did all the business of New Orleans and the region tributary to it for the fifteen years that followed the annexation of Louisiana to the United States. In 1818, however, when the Louisiana Bank was on its last legs and preparing for liquidation, the State-for the Territory had become a State in the interim-was far more ambitious in its banking ideas, and the Louisiana State Bank, which was provided for by the Legislature to take the place of the Bank of Louisiana, was established on far greater foundations than anything that had been seen before in New Orleans. The new institution was quite colossal in its
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proportions. The capital was fixed at $2,000,000. Subscription books were opened at New Orleans under the supervision of five managers and under three managers at each of the following places : Donaldsonville, St. Francisville, Alexandria and St. Martinville. The capital of the branch bank at St. Francisville was fixed at $200,000, while the Alexandria, St. Martinville and Donaldsonville branches had each $150,000 capital. The bank, in fine, was not a New Orleans one alone, but a State institution with no less than five different banks located in the richest and most prosperous portions of the State, but united under one common management. The first directors included F. X. Martin (chief justice of the State), L. B. Macarty, E. J. Forstall, I. Roffignac (mayor of New Orleans), A. Chopin, John K. West, Henry McCall, Charles Harrod, H. Foster, M. Duralde, G. R. Stringer and John B. Dibley. The governor appointed as directors Dusnau de la Croix, Samuel Paxter, John Poulleney, Jr., Bernard Marigny, A. L. Duncan and Etienne Borè (one of the first mayors and the first producer of sugar in Louisiana). The bank being a State institution, in which the State of Louisiana was interested, the governor was entitled to appoint six of the eighteen directors, and he chose them from among the most eminent men in Louisiana, so that its directorate is a roll of honor, including senators, representatives, mayors and even future governors.
The banking business in New Orleans at that time was in a thoroughly satisfac- tory condition, and it was not until more than a dozen years afterward that the spirit of speculation and inflation seized on Louisiana and indeed the whole South and West, and led to those financial excesses that brought on the great panic of 1837.
The Louisiana Bank had gone down in 1818, and had completely wound up its affairs in 1823, after two extensions granted it by the Legislature for the purpose of facilitating liquidation. Soon after its closure the Bank of Louisiana was incorporated, in April, 1824. It was the largest of any of the banks yet established, with a capital of $4,000,000,-many times greater than any institution of the kind existing in New Orleans to-day. It was modeled upon the same style as the (Louisiana) State Bank mentioned above; that is, the State was interested jin it and had a part of the stock. It maintained more or less control over the bank, the governor appointing nearly half the directors, six out of thirteen. This practice prevailed in nearly all the early banks of New Orleans. The position was taken by the Legislature that the State was interested in the banking business, that it should facilitate the people in every possible way, especially by providing the capital necessary for the development of their resources, and that its partici-
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pation in the management of the bank through directors appointed by the governor, would prevent speculation or wild financiering. The State's subscription to the bank was $2,400,000, divided into four equal proportions of $600,000, made in bonds bearing 5 per cent interest, falling due in 10, 15, 20 and 25 years respectively. Branch offices of discount and deposit were established at Baton Rouge, Alexandria, Donaldsonville and St. Francisville, each with a capital of $200,000, on which they were to pay the mother bank 6 per cent.
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