USA > Ohio > Montgomery County > Memoirs of the Miami valley > Part 18
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No statistics are available regarding loans and discounts, note circulation, specie on hand, profit and loss, etc., of the banks during this period. It is known, however, that the profits of the banks were considerable. According to Drake, in his "Picture of Cincinnati in
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1815," the dividends of the Miami Exporting company for several years previous had fluctuated between 10 and 15 per cent. And the auditor of the state, in 1813, suggested to the legislature the advisability of investing a portion of the surplus of the state treas- ury in some of the most productive bank stocks, where it would, he considered, yield an annual income of 10 or 12 per cent.
The state legislature, acting on the suggestions of Governor Worthington, on Jan. 27, 1816, passed a law prohibiting the issue and circulation of unauthorized bank paper. This statute fixed a penalty of $1,000 for acting as the officer of a bank violating the law and a penalty of three times the amount of the bills or notes issued by any unincorporated bank, made all contracts with such banks void, and provided that no action could be maintained on any bill or note of such banks. A month later, however, on Feb. 23, 1816, the legislature passed the important banking law known as the "bonus law," an act designed to raise a state revenue from banks and to prevent their future increase.
By this law the charters of the existing banks were extended and six new banks were incorporated with a capital stock of $100,- 000 each, to go into operation when 600 shares of $100 each should be subscribed. By the same act there were also incorporated six of the companies with which the state had been at war in regard to unauthorized banking. The law provided that each of the banks thus incorporated should have thirteen directors; that its books must always be open to the inspection of directors and of persons appointed by the legislature; and that its capital stock might be increased to $500,000. Each of the banks, new and old, was to set off to the state one share in twenty-five of its capital stock by Sept. 1, 1816, and to continue to do so as new stock was created and sold. On the state's share of the stock the dividends were to accumulate until the state owned one-sixth of the stock, after which the divi- dends were to be paid by the state. No provision was made to pay. for the state stock, except that each bank was required to set apart, annually, such a part of its profits as would at the expiration of its charter produce a sum sufficient for that purpose. The considera- tion for this extraordinary bonus was the extension of the charters until Jan. 1, 1843, of all the banks accepting the provisions of the act by the first Monday of September, 1816; exemption from all other state taxation; and a sort of implied promise that no other banks should be created during the term of their charters, but this was not definite. The Miami Exporting company did not ac- cept the provisions of this law before Sept. 1, 1816, the time desig- nated, and the only banks in the Miami valley that were thus in- corporated were the Lebanon-Miami Banking company, of Lebanon, with an authorized capital stock of $200,000, and the Bank of Cin- cinnati, with a capital stock of $600,000. The charter of the former bank was accepted Aug. 24, 1816, and the latter Aug. 28, of the same year.
For several years after the passage of the bonus law of Feb. 23, 1816, it was treated as a general banking law, and under its pro- visions the Little Miami Canal & Banking company was incorpo- rated on Dec. 29, 1817, with a capital stock of $300,000. Besides
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being authorized to canalize the Little Miami river from the Ohio to Waynesville, this company was given power to carry on manu- facturing and banking. The Bank of Hamilton, with a capital stock of $300,000, was chartered on July 30, 1818. While most of the banks were incorporated under this general banking law, to the extent that they filed certificates accepting the provisions of the bonus law, yet they were all chartered by special acts of the legis- lature and their charters varied considerably in details. Thus in the charter of the Bank of Hamilton it was first provided that the capital stock should be paid up in "money of the United States."
During most of this period there was suspension of specie payments in all parts of the country, except in New England, and bank notes were depreciated everywhere. On Aug. 30, 1814, the Philadelphia banks suspended specie payments, followed within a week or two, according to compact it is said, by all the other banks in the middle and southern states. The national government in dis- tress for money at that time and at the mercy of the banks, gave tacit consent to the suspension, which it was said was to continue only during the war. The banks of Ohio and Kentucky, however, maintained specie payments until about the first of January, 1815, and the Bank of Nashville, Tenn., until July or August, 1815. "It must be evident from this," says Gouge, "that if the United States government had immediately compelled the banks of the great Atlantic cities to redeem the pledge they had given in the preceding August, the western country might have suffered but little from the suspension of specie payments." But specie resump- tion did not take place when peace returned. Instead of redeeming their pledge, "the banks, urged on by cupidity, and losing sight of moral obligation in their lust for profit, launched out into an extent of issues unexampled in the annals of folly." "The years 1815, 1816," says Hildreth, "may be well marked in the American calen- dar, as the jubilee of swindlers, and the Saturnalia of non-specie paying banks. Throughout the whole country, New England ex- cepted, it required no capital to set up a bank."
The great over-issue of notes which resulted produced depre- ciation. Notes of the Philadelphia banks were depreciated 16 to 20 per cent, those of the interior of Pennsylvania 25 to 50 per cent, and even the notes of the New England banks and a few others which continued to pay specie were at a discount, 'for," says Gouge, "nobody knew how long any distant bank would continue to pay specie. All the banks whose notes were at a discount at New York of less than 5 per cent were understood to pay specie on demand." Notes of the chartered banks in Ohio, which were quoted at 4 to 5 per cent discount in Philadelphia in November and December, 1814, were quoted at 6 to 7 per cent discount on Jan. 2, 1815, 8 to 10 per cent discount on Dec. 4, 1815, and Jan. 1, 1816, 10 to 12 per cent on Dec. 2, 1816, and from 12 to 15 per cent discount on Jan. 6, 1817. Notes of unauthorized banks in Ohio were quoted in New York at times during this period at a discount of 20 to 25 per cent.
The depreciation of the bank notes, which formed practically the only currency everywhere, except in New England, produced a great rise in prices. In the west lands rose to double and triple
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their value. At Chillicothe, Ohio, wheat was quoted on Sept. 16, 1812, at 621/2 cents per bushel, and on Aug. 3, 1816, it was 75 cents, and corn 371/2 to 43 cents, while on Nov. 28, 1816, wheat was worth $1.50 and corn 50 cents. The apparent value of all kinds of property suddenly went up and the people imagined they were growing rich ever so fast. Meanwhile, the banks were paying enormous divi- dends. As long as they could issue notes without having to redeem them, of course they prospered. They were simply exchanging their notes for those of private citizens on condition that the latter should pay 6 to 10 per cent interest and the principal at maturity, whereas the banks paid neither interest nor principal.
The enactment of the law, April 10, 1816, establishing the Second Bank of the United States, which was expected to lead the state banks in the restoration of the currency to a specie basis, was soon afterward reinforced by the passage of a joint resolution pro- viding that after Feb. 20, 1817, all dues to the United States govern- ment must be paid in legal currency, treasury notes, United States bank notes, or notes of other specie paying banks. The banks thus notified to get on a specie paying basis if they desired credit with the government, were reluctant, however, to reduce their loans and contract their circulation to that extent. So in the following summer the banks of the middle states held a convention and asked that the date set for resumption be postponed, on the ground that the United States bank could not be organized by that time and that they wished its aid in their efforts to resume.
Likewise the Ohio banks were ready with an excuse for delay- ing resumption. In response to a circular letter sent out on July 22, 1816, by the secretary of the treasury of the United States, in- quiring as to resumption, delegates from nearly all the chartered banks of Ohio convened at Chillicothe, Sept. 6, 1816, for the purpose of agreeing on some general course respecting the resumption of specie payments. As the result of their deliberations, they resolved that it would not be safe or prudent for the Ohio banks to resume until the payment of specie became general at the banks of the Atlantic cities; declared that the Ohio banks there represented were ready to resume specie payment; and pledged themselves to pay specie for their notes as soon as it should be ascertained that the payment of specie had become general at the banks of the Atlantic cities. Meanwhile, the banks went on issuing more stock and notes and paying more dividends. In fact, in 1816, the banking capital in Ohio reached the highest amount reported before the 30's.
Events were occurring, however, which finally brought about the general resumption of specie payments. In January, 1817, a branch of the United States bank was established at Cincinnati, and on Feb. 20, following, two of the Ohio banks resumed specie payments. The other chartered banks of Ohio resumed the pay- ment of specie early in the spring, after receiving assurance from the United States treasury, it is claimed, that time would be given them until the ensuing season for the redemption of their paper, large amounts of which had been paid to the government for public lands and for internal taxes.
The effect of resumption at once became apparent in the de-
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creased depreciation of bank notes. Notes of the old chartered banks of Ohio, which were quoted in Philadelphia, Jan. 6, at 12 to 15 per cent discount, rose to 6 per cent discount on April 7. By October the public sentiment, which had manifested itself in the fall of 1816 in efforts of the people of both Cincinnati and Chillicothe to secure branches of the United States bank in those towns, was beginning to turn against the bank. But the inflation period was about to give way to a period of reaction.
The many banks which had sprung into existence supplied an abundant currency. "If the months of May, June, July and August, 1815, were the golden age of Philadelphia," says Gouge, "the first months of the year 1818 were the golden age of the western country. Silver could hardly have been more plentiful at Jerusalem in the days of Solomon, than paper money was in Ohio, Kentucky and the adjoining regions." The Portsmouth, Ohio, Gazette, of Aug. 12, 1818, gives a list of twenty-three chartered banks in Ohio, and re- marks : "It is supposed that all the above banks have been generally prudently managed ; and all (except the German bank of Wooster) are in good credit in their respective neighborhoods, and promptly redeem their notes with specie." It adds, however, "The notes of all the unchartered banks in this state, with the exception of John H. Piatt & Company's bank, Cincinnati, which are in good credit, and the Bank of Xenia, which are still current in some places, are considered as good for nothing."
Confidence in the local banks was not destined to continue much longer, however. For in the summer of 1818 began the crisis in the Mississippi valley-a part of the industrial and commercial storm which swept the entire country. The causes of the crisis were complex. An unnatural expansion in trade had succeeded the restrictions caused by the embargo and the war. The speculation and high prices promoted by the several years of commercial ex- pansion and excessive banking were succeeded by a contraction of credits and a fall in prices when the banks endeavored to return to a specie basis in 1817. The bank circulation, which in 1815 and 1816 had reached $110,000,000, was decreased until, in 1819, it was only $65,000,000. This resulted in a ruinous fall of prices. The expansion of credits and speculative enterprises had been accompanied by a great increase of luxury and waste. A large part of the people became possessed of the desire to live by speculation instead of by work. The gambling spirit dominated them. There were no reason- able foundations to many of the schemes and no limits to the ex- travagances of the people. A fictitious value was given to all kinds of property. Specie disappeared from circulation and all efforts to restore society to its natural condition were treated with contempt.
The crisis in the west began in the summer of 1818, and the im- mediate cause was the bank of the United States. Whether on ac- count of larger purchases of public lands than usual, the excited spirit of enterprise, or whatever cause, it appears that during the years immediately following the opening of the United States bank the amount of debts due by the west, either to the east or to the government, was unusually large. The western branches of the bank as a result discounted too largely. On account of the course
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of exchange being in favor of the east and against the west, the western branches could issue their notes without much danger of their returning upon them. Hence they piled up enormous loans. For example, the Cincinnati branch discounted over $1,000,000 in October, 1817; over $1,836,000 in June, 1818, and $1,867,383 in November, 1818.
However, in the summer of 1818, the United States bank sensed the approaching disaster, and in order to secure safety made a radical change, restricting its issues, calling on the state banks for the balances due, and adopting the policy of redeeming none of its notes except at the branch where issued. This sudden reversal of policy, coming at a time when everything was so inflated, burst the bubble and "precipitated the panic, for which, however, it was hardly more responsible than was Noah for the flood." The United States bank was very sudden in its demands. On July 20, 1818, the parent bank ordered the Cincinnati branch to collect the balances due from the local state banks at the rate of 20 per cent every thirty days. As the balances due from the Cincinnati banks amounted to about $720,000, this demand meant they were called upon to pay about $144,000 every month. The difficulty was increased when, on Aug. 28, 1818, the bank issued its orders to the branches to cease receiving each others' notes. The Cincinnati banks could not pay. In fact, in October they owed more than they had in July, although they had tried to redeem their debt, incidentally inflicting distress upon their own debtors who, having neither specie, nor bank notes, simply could not pay.
The Cincinnati banks protested vigorously against the action of the United States bank. But the latter, instead of yielding and offering more favorable terms, prohibited the receipt of the notes of the Cincinnati banks. This precipitated a disaster. The three Cincinnati banks suspended specie payment on Nov. 5, 1818, and most of the other banks soon followed. Niles' Register of Dec. 12, 1818, says: "It is stated that $2,500 per week are required to pay the discounts on monies loaned by the branch of the bank of the United States at Cincinnati. The branch has scarcely any of its notes in circulation and Ohio has been drained of specie. It is a serious enquiry how these discounts are to be paid."
In November, 1818, the banks were in such a condition that the land agent at Cincinnati was ordered to take nothing but United States notes and specie in payment of land sales. This caused con- sternation among the banks. The notes of the United States bank had never circulated in Cincinnati to any great extent, and at that time specie was equally scarce. Brokers were selling it at 20 per cent premium and their stock threatened soon to be exhausted. The result of the edict was, therefore, that the sale of public lands was stopped in that locality.
In the meantime the unauthorized banks had continued to flourish and their numbers had constantly increased. Some of these were in very good repute. For instance, the notes of the bank of Xenia, in June, 1818, were said to be 2 per cent higher at the banks of Cincinnati than those of any other of the banks of the state, except the Miami Exporting company, and the notes of the bank of
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John H. Piatt & Co., of Cincinnati, were only 41/2 per cent discount in October, 1818.
An act to prohibit the practice of buying and receiving bank notes at a discount was passed Feb. 8, 1819. It provided that all bank notes should pass at their face value; fixed a penalty of not over $500 for receiving or paying away notes at a discount; and provided that persons paying away notes at a discount might, on suit, recover the difference. However, its failure is indicated by the fact that it was repealed Jan. 24, 1820. But that this practice was quite common at the time is made plain by an article from the Cincinnati Enquirer quoted in Niles' Register of July 29, 1820. This article says that there was great excitement at Cincinnati on account of the belief generally entertained that those concerned in the Miami bank were secretly engaged in purchasing up its notes at a very large discount, though, as it was also thought, the bank was able to meet its engagements, under a careful manage- ment. "If such things have not happened at Cincinnati," proceeds the writer, "they have happened at other places, and there is no sort of novelty in them." The bills of the bank alluded to were worth about 25 cents on the dollar in Baltimore. The same article states that the inhabitants of Springfield, Hamilton county, Ohio, had just held a meeting, at which they charged the non-specie pay- ing banks with a design to depreciate their own paper for the pur- pose of buying it up at very reduced rates. At this meeting, resolu- tions were adopted "to desist from the use of any paper of banks that refuse to discharge promptly the obligations specified on the face of the note," and inviting the people of the Miami country to adopt similar resolutions, for too much forbearance had been in- dulged in toward the delinquent banks.
The draining of specie from the state through its financial opera- tions increased the hostility against the United States bank. Early in November, 1818, the Cincinnati papers were complaining of the scarcity of specie. Very distressing was the effect which the sud- den withdrawal of specie by the United States bank and the dis- crediting of bank paper had on prices in the Miami valley. In Dayton, Jan. 1, 1817, wheat was $1 per bushel. In October, 1819, it was selling at 621/2 cents per bushel, while in 1821 and in 1822 the price went as low as 20 cents a bushel. In March, 1822, the Dayton prices were: Flour, $2.50 per barrel; whiskey, 121/2 cents per gallon; wheat, 20 cents; rye, 25 cents, and corn, 12 cents per bushel, fresh beef, 1 to 3 cents per pound; butter, 5 to 8 cents per pound ; eggs, 3 to 5 cents per dozen; and chickens, 50 to 75 cents per dozen. A letter from a Cincinnati man, July 26, 1820, quoted in a Steubenville paper, states that at a marshal's sale a handsome gig and very valuable horse had sold for $4, an elegant sideboard for $3, a fine Brussel's carpet and two Scotch carpets for $3, etc. The writer adds that a man with a little money could make a fortune by attending marshal's and sheriff's sales. In the fall and winter of 1822 the exports from Cincinnati were valued at very low rates, e. g., pork 2 cents a pound, flour $3 a barrel, and whiskey 14 cents a gallon.
While the staples of the western country were at these low
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prices the people were deeply in debt to the United States govern- ment, to eastern merchants, to the local banks, and to one another. The amount due to the Cincinnati branch of the United States bank was more than $2,000,000. The suspension of specie payments by the state banks, the depreciation of their paper, and the hard times followed so closely the demand upon the Cincinnati banks for the balances due the United States branch bank that in December, 1818, the lower house of the Ohio legislature appointed a select committee to investigate and report to the legislature the condition of the state banks and the causes of the existing confusion in the currency. By February, 1819, this committee had made two reports to the legislature, in which they set forth the condition of nearly all the chartered banks in the state, and declared that their investigation led "inevitably to the conclusion that the establishment and man- agement of the branches of the United States bank within this state have very largely conduced to the present embarrassment of the circulating medium, and have had a direct effect in producing the recent suspension of specie payments by the state banks." In view of this the committee recommended the propriety of providing by law that if the branches established within the state should remain there and transact business beyond a certain day, a tax should be assessed and collected of $50,000 annually upon each branch. The committee also recommended that provision be made by law for simplifying legal proceedings in all cases where banks were a party, and for securing the holders of bank notes against imposi- tions by prohibiting all brokerage on bank paper, especially on the part of debtors to and stockholders in banks. The committee further suggested the propriety of providing by law for the ap- pointment of an attorney general whose duty it should be to cause the law against unauthorized banking to be put in force against all that might have infracted its provisions, and to inquire into the condition of those banks which had refused to report.
The reporting banks owed about $694,000 of the debts due to the United States bank, and practically all of this was owed to the Cincinnati and Chillicothe branches, except about $100,000 which was owed by the bank of Steubenville, probably to the Pittsburg branch. As a whole amount due from the Ohio banks to the Cin- cinnati and Chillicothe branches, on Oct. 3, 1818, amounted to $974,000, the committee figured that the difference between $74,000 and the $694,000 due from the twenty banks reporting, or about $280,000, represented the amount due to the United States bank from the five chartered banks in Ohio which did not report. Most of this $280,000 the committee judged, was doubtless due from the Miami Exporting company. Further details as to the condition of the Miami valley banks are shown in the following taken from a statement of the situation of the Ohio banks which reported to the select committee of the legislature in conformity to a resolu- tion passed by the Ohio house of representatives in December, 1818: Bank of Cincinnati-total resources $738,109, bills discounted $521,505, specie $21,701, Ohio notes $6,070, other notes $1,204, due from Ohio banks $152,082, real estate, $21,846, debit profit and loss $7,607 ; Farmers' & Mechanics' bank of Cincinnati-total resources
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$567,698, bills discounted $518,048, specie $26,000, Ohio notes $3,650, real estate $20,000; Lebanon-Miami banking company-total re- sources $166,278, bills discounted $143,252, specie $11,090; Ohio notes $7,701, due from other banks $475, real estate $3,760; Dayton Manufacturing company-total resources $185,007, bills discounted $111,272, specie $36,173, Ohio notes $9,810, other notes $14,140, due from Ohio banks $7,083, due from other banks $1,704, real estate $3,390, debit profit and loss $1,435; Bank of Hamilton-total re- sources $71,433, bills discounted $32,352, specie $15,643, Ohio notes $10,781, United States bank notes $1,425, other notes $2,500, debit profit and loss $8,732. The statement of the liabilities of the above named banks was as follows: Bank of Cincinnati-capital stock paid in $216,430, notes in circulation $230,696, debts due United States bank $195,342, debts due Ohio banks $13,176, debts due other banks $1,427, deposits $47,172, fund to pay state bonus $1,250, credit of profit and loss $33,217, total liabilities $728,710; Farmers' & Mechanics' bank of Cincinnati-capital stock paid in $154,776, notes in circulation $87,000, debts due United States bank approxi- mately $300,000, deposits $9,000, total liabilities $550,776; Lebanon- Miami banking company-capital stock paid in $86,491, notes in circulation $31,831, debts due United States bank $33,270, deposits $2,000, total liabilities $153,592; Dayton Manufacturing company- capital stock paid in $61,340, notes in circulation $96,128, debts due United States bank $8,729, debts due Ohio banks $55, deposits $19,- 873, credit of profit and loss $3,099, total liabilities $189,224; bank of Hamilton-capital stock paid in $22,707, notes in circulation $23,799, deposits $16,744, total liabilities $63,250. In addition to the above figures was an item of $279,155, debts due United States bank, which probably was due chiefly from the Miami Exporting company, which made no statement of resources.
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