USA > Massachusetts > Suffolk County > Professional and industrial history of Suffolk County, Massachusetts, Volume II > Part 19
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In accordance with agreements made at this convention the State of Massachusetts in January, 1112, adopted a statute in which it set forth the value in money of practically all the commodities sold in the colony and the value as well of services paid for by the day. These were to be the prices at which goods were to be sold and services given, the same to be paid in the legal tender of the country, and any discount therefrom or other charge would constitute a serious offence.
In spite of these strenuous efforts depreciation still continued, and it was asserted that to intensify this the British put in circulation a large amount of counterfeit bills in imitation of those that had been emitted by Congress. In June of 1419 Congress felt constrained to take into account the serious question of currency depreciation. It therefore is- sued a proclamation which the Legislature of Massachusetts had print- ed and read by all of the ministers in its jurisdiction on the first Sun- day after it reached them.
This document said: "The present situation of public affairs de- mands your serious attention, and particularly the great and increasing depreciation of your currency requires the immediate, strenuous and united efforts of all true friends to their country for preventing an ex- tension of the mischiefs that have already flowed from that source. For defraying the expenses of this uncommon war, our representatives to Congress were obliged to emit paper money. They were very sensible of the inconveniences with which too frequent emissions would be at-
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tended and endeavored to avoid them. For this purpose they establish- ed loan offices as early as in October, 1426, and have from that time to this repeatedly and earnestly solicited you to lend them money on the faith of the United States. The sums received on loan have neverthe- less proved inadequate to public exigencies. Our enemies prosecuting the war by sea and land with implacable fury, and with some success, taxation at home and borrowing abroad in the midst of difficulties and dangers were alike impracticable, hence the continued necessity of new emissions. Your government being now established and your ability to contend with your invaders ascertained, we have on the most mature deliberation judged it indispensably necessary to call upon you for $45,000,000, in addition to the fifteen millions required by resolution of Congress on the ed of June last."
At that time the paper issues of the national government were about $160,000,000; but the proclamation, we are sorry to say, although ap- pealing to patriotism, did not produce the desired result in strengthen- ing the credit. In September of the same year (1279) the conditions of the currency were such that the Legislature of this State passed the re- solve that, "Whereas, this State are using their utmost endeavors to appreciate the currency of the United States, there is great danger that their laudable exertions will be entirely defeated if measures are not speedily taken to prevent the inhabitants of this and the other United States from conveying articles out of this State, therefore be it enacted," etc., "there shall be no exportation of them either by land or water."
The articles included were wines, spirits, coffee, molasses, sugar, co- coa, cotton wool, sheep's wool, flax, salt, linen and cotton and woolen goods, etc. In certain respects this law seemed necessary, for in con- sequence of the fluctuations in different localities in the value of conti- nental and State bills advantages were taken in trade somewhat disas- trous to our people. For example, while in the latter part of 1:29 forty dollars in continental money was worth one dollar in specie in Boston, the value elsewhere might be sixty dollars in continental money to one in specie; and it is related that a merchant in Boston received a large amount of this paper from a friend of his in Philadelphia with instruc- tions to buy whatever salable articles he conveniently could. Accord- ingly he went to the principal stores which were filled with dry goods, pointed to the shelves of cotton or linen and so on, inquired the price, and when told said that he would take the whole lot, paying for this in
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continental bills that at the time were worth fully fifty per cent. more here than in Philadelphia.
The representatives in Congress, although they continued issuing paper money, allowed themselves to believe, or tried to make the peo- ple think that they believed, that the depreciation in it was due to arti- ficial rather than other reasons. In the proclamation which they sent out they said that " the depreciation of this money is always either nat- ural or artificial. The latter is our case. The artificial depreciation is a most serious subject, a distrust, however occasioned, entertained by the mass of the people either in the ability or inclination of the United States to redeem their bills is the cause of it. The ability of the United States must depend on two things, first, the success of the present rev- olution, secondly, on the sufficiency of the natural wealth, value and resources of the country. That the time has been when honest men might, without being chargeable with timidity, have doubted the suc- cess of the present revolution, we admit ; but that period is past. The redemption of these bills and the settlement of the accounts of the sev- eral States for expenditures or services for the common benefit are among the objects of this confederation, and consequently it cannot, so far as it may respect such objects, be dissolved consistent with the laws of God or man. In order to prevent further natural depreciation of our bills we have resolved to stop the presses and to call upon you for sup- plies by loans and taxes. Leave us not, therefore, without supplies, nor let in that flood of evils which would follow from such neglect. Let it never be said that America had no sooner become independent, than she became insolvent, or that her infant glories and growing fame were obsenred and tarnished by broken contracts and violated faith in the very hour when all the nations on the earth were admiring and almost adoring the splendor of her rising."
In spite of these protestations and this almost burning eloquence the credit of the country did not improve. In fact the depreciation of eur- reney went on at a more rapid rate during the three or four months after the issuance of this proclamation than it had at any previous time. This became so obvious that in the following year Congress decided to abandon the hopeless task of restoring credit to its currency and raise its existing condition, by agreeing to consider forty dollars of national paper to be equal to one of specie, to call in its notes upon this basis, and to redeem them by a new emission of bills equal to and payable in silver and gold within six years at five per cent. interest.
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It was a singular fact that in 1480 hard money had become quite plentiful here and in other parts of the country. Large quantities of it came from the French and British forces, from Havana and other for- eign parts, and from prizes captured in the West Indies. But, while it passed freely among the people, not a dollar of it could be found in the State treasury, because a thousand claims stood there unsatisfied and ready to seize upon it as soon as it made its appearance.
To show the steady decline that had taken place in the continental bills, it may be said that they circulated in 1981-if they could be said to have any circulation at all-at $500 for $1 of specie. That is, that was the value of the early issues, while the later issue, which had been put out partly to redeem the former one, circulated on the basis of three paper dollars to one of specic.
It was at about this time that the Bank of North America received its charter, although the representatives from Massachusetts have to be put down as voting against the proposition. No doubt the bank did a great deal to solve the financial problem by giving stability to our cur- reney system. In 1482 an act passed by the Legislature incorporated a branch of it in Boston, in compliance with the wish of the general government. The condition of this act was that no other similar asso- ciation should be allowed in this jurisdiction while the war lasted with Great Britain. Penalty of death was affixed to the offence of embez- zling the funds of this branch by any of its officers, and a resolve was passed that the paper of this institution and the securities of others, as signed by Robert Morris, shall be received toward a tax of £500,000 assessed on the people of the United States.
The close of the war left the people of Boston and its vicinity in an exceedingly trying condition. This State had contributed much more than her fair proportion in money to the national cause, and it was with feelings of indignation that it was realized that the obligations thus as- sumed were hardly likely to be liquidated. The soldiers who had been paid off in depreciated currency could hardly consider that their serv- ices had been justly requited, and it was long before the evils incident to a deranged currency system could be corrected.
It was at this time that the State, with its old fondness for specie cur- reney, concluded to undertake the work of minting its own money. Congress had already decided that the coins of the country should be cents and half cents of copper, dollars, half dollars, double dimes and dimes of silver, and eagles and half eagles of gold, and had decided
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upon the Troy weight of these. But the money was not sent out with the readiness that was desired. On this account mints were established with the needed machinery, part of the works on Boston Neek, and the rest at Dedham.
It is interesting to note that the copper coins sent ont from this mint, encircled with the letters of the word Massachusetts, were the first to have upon them the American eagle that has since been found on so many of our other coins, having in its right talon a bunch of arrows, and in its left an olive branch, the semblance of defence and peace. This effort on the part of the local authorities to enter into the coinage of money was arrested by the adoption of the Federal constitution, which provided that " no State shall coin money, emit bills of credit, or make anything but gold and silver coin a tender in payment of debts. "
This was a drastic law; but when one takes into account the painful experiences through which the people of this and other American com- munities had passed, how they had witnessed from time to time the depletion of their specie and the depreciation of their paper currency in consequence of excessive issues of bills of credit, one can well under- stand why, as a safeguard for the future, it was thought desirable to place this salutary check upon their action.
The next step in the financial history of Boston was the formation of what has has been since that time the banking system of Massachusetts. In 1:84 a charter was obtained for the first officially recognized local bank, and one which from that time to this has been in constant and regular existence.
The establishment of the Massachusetts Bank was recognized in its charter as a species of experiment. In this it was said that it would probably be of great public utility and particularly beneficial to the trading part of the community if such an institution was established within the borders of this State. The grant of authority from the Gen- cral Court was that the corporation should have the right to hokl 450,000 and no more, in lands, rents and tenements, and $500,000 and no more, in moneys, goods, chattels and effects. These it was per- mitted to sell, grant and devise, alien or dispose of: but except that it was liable to be sned, and that it could not make, establish and put in execution regulations that were repugnant to the laws and constitution of the State, the charter granted was a broad one, giving to its holders permission, without interference on the part of the authorities, to carry
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on any form of banking, and in fact almost any form of mercantile business that might seem desirable.
It is probable that partly through want of experience and partly from a tolerably fair knowledge of the purposes of the incorporators, the re- strietions that now apply, both in general and special laws, to the pro- ceedings of corporations were then thought unnecessary. But two months after the act of incorporation, and doubtless at the instigation of the bank officials, the Legislature passed, March 16, 1184, an act en- titled " An Act to Prevent Frauds on the Massachusetts Bank." This is so far characteristic of the spirit of the times that it warrants repro- duction :
Section 1. Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the same, that if any president, director, officer or servant of the Massachusetts Bank shall secrete, embezzle or convert to his own use any note, bill, obligation, security, money or effect belonging to the said bank, or deposited there by any other persons, every person so offending and being thereof convicted before the Supreme Judicial Court, shall be set in and upon the gallows with a rope about his neck, or be set in and upon the pillory for the space of two hours, shall forfeit all his personal estate and the issues and profits of his real estate during life to the use of the Commonwealth (after deducting such sum as shall indemnify the bank for the loss they may have sustained by means of the said fraud) and shall ever after be rendered infamous and incapable of sustaining any office, either civil or military.
Section 2. And be it enacted by the authority aforesaid, that if any person shall forge, counterfeit or alter any bill, note, or obligation made, signed or given for or in the name of the president, directors, cashier, or other person in behalf of the said bank, or shall forge, alter, or counterfeit any endorsement on such bill, note or obli- gation, or shall forge, alter or counterfeit any order or check drawn by any person on the said president, directors or cashier, every person so offending and being therof convicted before the Supreme Judicial Court, shall suffer the pains, penalties, for- feitures, and disabilities as aforesaid, and shall be subjected to hard labor within this Commonwealth during the term of seven years, to be disposed of by the directors of the said bank in such manner and under such confinement as they shall direct for the use and benefit of the said bank.
SECTION 3. And be it enacted by the authority aforesaid, that if any person shall ntter, pass, tender in payment, or offer to pass any forged, altered or counterfeited bill, note or obligation made, signed or given in the name of said president, directors, cashier, or other person in behalf of the said bank, or any order or check drawn by any person on the said president, directors, or cashier, knowing such bill, note, obli- gation or check to be so forged, altered or counterfeited, every person so offend- ing and being convicted as aforesani, shall suffer the pains, penalties, forfeitures and disabilities as aforesaid, and shall be subjected to hard labor in such manner and for the purpose as aforesaid.
Section 4. And be it enacted by the authority aforesaid, that if any person shall forge, alter or counterfeit any letter of attorney, order or other instrument to transfer
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or convey any share or shares of stock in the said bank, or to receive the same or any dividend or part thereof, or shall knowingly and fraudulently demand to have the share or shares, dividend, or any part thereof transferred, conveyed or received by virtue of such forged, altered or counterfeited letter of attorney, order or other in- strument, or shall falsely and deceitfully personate any true and lawful proprietor or proprietors of any share or shares of stock or dividend or money, or other prop- erty deposited in the said bank, thereby transferring, or endeavoring to transfer, the said stock, dividend, money or other property, in every such case the person so offending, and being thereof convicted as aforesaid, shall suffer the pains, penalties, forfeiture and disabilities as aforesaid, and shall be subjected to hard labor in such manner and for the purpose as aforesaid.
It hardly needs to be pointed out that an aet of this kind is a peculiar species of special legislation which would find little countenance in any of our present State Legislatures. While it was considered necessary to protect the stockholders of the bank against malfeasance on the part of its officers and employees, and while these if they committed wrong doing were to be exposed to public scorn and contempt, and were to have whatever property they possessed either taken, or made use of, for the benefit of the defrauded corporation, there seems to have been a singular leniency shown respecting punishment by imprisonment. The defaulting cashier or teller having sat for two hours upon the gal- lows with a rope about his neck, or having passed the same period of time in the uncomfortable confinement of the public pillory, had his liberty granted to him and might go wherever he pleased, the seizure of his property, if he had not previously disposed of it, being the only serions drawback.
On the other hand, those who forged or counterfeited notes, or those who endeavored to obtain stock and dividends that did not belong to them-offences which would now be considered perhaps less heinous than the betrayal of trust on the part of a bank official -- had to endure under this law all of the public disgrace brought about by infamous exposure which fell to the share of the defaulting bank official, had to lose such property as might be possessed, and had, moreover, to suffer a restraint or confinement for seven years, which we take to have been an intention on the part of the law to reduce the offender during that period to a state of slavery, in which his labor was at the disposal of the bank officials, and apparently without the least interfer- ence on the part of the State authorities, except that they were to see that his time and services inured to the benefit of the bank. It would seem from this rather one-sided means of punishment that the law in
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question was drawn up by the officers of the bank, having in so doing a wish, if not to shelter themselves, at least to clear themselves from too severe a punishment if the weaknesses of human nature prevailed over the dictates of common honesty.
At the same time, March 16, 1784, it was considered advisable to en- act a law restricting the taking of excessive usury. By this it was declared that six per cent. per annum interest was a sufficient return for money or merchandise loaned, and that any contract arranging for a higher rate of interest should be considered utterly void, and that all and every person who made such a contract or entered into any corrupt bargain as a means of evading the law, should forfeit and lose for every such offence the full value of the goods and moneys or other things loaned, and that a moiety of the same should go to the use of the Com- monwealth, the other half to him or them who prosecuted or com- plained by suit for the same, any custom, usage or law to the contrary notwithstanding.
It was under these conditions that the Massachusetts Bank began its business, and there is abundant reason, from the returns that it made to its stockholders, to believe that it had a satisfactory experience. 1ts charter, as we have pointed out, was a broad and comprehensive one, and although it was brought into competition, in certain classes of its business, with the branch of the Bank of North America that had been established here, vet this did not prevent it from accumulating to itself the larger part of the local business and of establishing, in spite of the usury laws, its own rate of discount.
While at that time Boston was a small town, considered from a numerical standpoint-for it was no larger than Taunton, Haverhill, and some of our minor Massachusetts cities -- it had an importance in the world wholly independent of its size. It was the center of trade for this part of the American continent, and the same energy that its people had displayed in insisting upon their rights in opposition to the dictation of the British crown, was shown in the activity they dis- played in prosecuting their business. To provide the financial support for carrying on this business, to give to our merchants of that day, who had begun sending their ships not only to China and the East Indies but to the West Coast of North America, the temporary credit they needed, was a work of finance so obviously necessary that the wonder is that banks such as the Massachusetts Bank were not established in Boston years before they were.
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It is probable that if the directors and managers of this first institu- tion had exhibited in the conduet of their business a greater regard for the prolonged maintenance of their interests, not only would it have been of material advantage to them and to their bank, but that the entire system of banking in Boston as we now know it would have been quite different. The Massachusetts Bank made through these early years of its existence a very large profit, this averaging in 1tel and 1192 quite sixteen per cent. per annum on the par value of its stock.
It was obvious that this was altogether too large a source of revenue to be continued without competition, and hence in 1492 the second Bos- ton bank, the Union Bank, as it was called, was incorporated, having its capital fixed at $1, 200,000, this being nearly five times greater than the original paid in capital of the Massachusetts Bank when it started eight years before.
It is sufficiently evident that the money needed for banking purposes could then be obtained in this city, particularly when the returns held out to investors were as large as we have shown them to have been. The large returns received through discounts indicate that the financial facilities that the Massachusetts Bank had at its disposal were not suf- ficient to meet the demands of its customers, and hence the proper course would have been to have expanded these facilities so that a fair and even large return might be obtained upon the capital invested, but not one so great as to encourage outside competition.
If the directors of the Massachusetts Bank, realizing the situation and knowing that if the business was made unduly profitable, competi- tion would surely set in, had expanded their capital and put their rates of discount upon a reasonable basis, there is reason to doubt whether the second bank, the Union Bank, would have been started, and cer- tainly within the next few years it would not have been found neces- sary to establish the large number of additional banking institu- tions that were brought into existence. No doubt some of these were formed for the purpose of providing official and salaried posi- tions for the friends of certain wealthy gentlemen, but this im- plied that the business of discounting paper must bear the tax which these salaries imposed. If the financiers who held the key to the position at the outset had realized the value of the situation they could undoubtedly have broadened out their field of operation, increased their capital stock to the needs of the times and, by showing less solicitude in the matter of dividends, could have built up a great banking institution
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which would have had far more influence than a number of smaller banks combined, and would also have established a banking method by means of great institutions. It is frequently the first step that de- termines action, and the first step in banking in Massachusetts dis- tinetly favored the organization of relatively small banks having their business restricted to local needs, in place of the formation of a few great monetary institutions having their headquarters in Boston, but having branches or agencies established in those parts of the State where banking capital was needed. This has been the form of develop- ment in England and France, and it is not unlikely that with more progressiveness and enterprise on the part of the original directors of the Massachusetts Bank something of the same kind might have been attempted here.
It is clear that there was a desire on the part of the people in other parts of the State to avail themselves of banking facilities, for the charter of the Union Bank provided that one-fifth of the bank's funds should be appropriated to loans outside of Boston for the benefit of agriculture, in sums of not less than one hundred or more than one thousand dollars, secured by mortgages on real estate and having not less than one year to run. In fact the influence of the State govern- ment was specially turned to secure for the country people opportuni- ties in the way of credits that they did not possess, and if the Boston banks of that day had shown themselves willing to undertake the work they could unquestionably have absorbed through branch establish- ments the larger part of the banking business of all of the New Eng- land States.
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