USA > Ohio > Montgomery County > Memoirs of the Miami valley > Part 19
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A computation based on the foregoing figures for the five Miami valley banks which reported shows an average ratio of 92 cents of circulation to each dollar of capital stock paid in, $5.37 of capital stock paid in to each dollar of specie on hand, and $4.21 of circu- lation to each dollar of specie, while the proportion of circulation and deposits combined is $4.99 for each dollar of specie on hand. The ratios for the individual banks are shown as follows: Bank of Cincinnati-circulation to capital $1.07, capital stock to specie $9.97, circulation deposits to specie $12.80, circulation to specie $10.63; Farmers' & Mechanics' bank of Cincinnati-circulation to capital 56 cents, capital stock to specie $5.95, circulation to deposits $3.31, cir- culation to specie $3.35 ; Lebanon-Miami banking company-circula- tion to capital 37 cents, capital stock to specie $7.80, circulation and deposits to specie $3.05, circulation to specie $2.87 ; Dayton Manufac- turing company-circulation to capital $1.57, capital stock to specie $1.70, circulation and deposits to specie $3.21, circulation to specie $2.66; Bank of Hamilton-circulation to capital $1.05, capital stock to specie $1.45, circulation and deposits to specie $2.59, circulation to specie $1.52.
In January, 1819, the twenty-five chartered banks of Ohio were located in nineteen of the fifty-nine counties of the state. Three of the banks were located in Hamilton county, which at that time was
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the most populous county of the state and contained Cincinnati. Hamilton county contained the largest ratio of capital to popula- tion-$23,624 per inhabitant. The Bank of Hamilton in Butler county had $1,044 as the ratio of capital stock to population, the Dayton Manufacturing company in Montgomery $3,834, and the Lebanon-Miami Banking company in Warren $4,849. The propor- tion of banking capital to population would of course have been much increased if statistics of the unauthorized banks were avail- able. For instance, the following shows the condition of the bank of John H. Piatt & Co., of Cincinnati, in 1819, and this was consid- ered one of the best of that class of banks: Resources-real estate $87,994, bills receivable $174,452.14, drafts on New Orleans $68,- 368.68, drafts on sundry places and cash on hand $49,096.72, due from individuals $17,852.61, advanced on the steamboat Gen. Pike $14,600, total resources $412,364.15 ; liabilities-notes in circulation $242,783, drafts or bills payable $64,514, due depositors $19,627.28, total $326,934.28; balance in favor of bank $85,429.87; total $412,- 364.15; this amount was secured by J. H. Piatt's estate, which was valued at $626,302.35.
From the above statement it is impossible to tell how much specie was held, but it is evident that it was less than $50,000, and probably much less, and against it were circulating more than $240,000 worth of notes and nearly $20,000 worth of deposits. In other words, the immediate demand liabilities were over five times the cash on hand! It is, therefore, not surprising to see in an issue of the Ohio Watchman for April 15, 1819, the announcement that the paper of J. H. Piatt is touched with a trembling hand and that some shave it as high as 121/2. A year later the same paper quotes these notes as not received in Dayton, even at a discount of 75 per cent. However, the unauthorized banks were not the only ones whose notes were greatly depreciated. The notes of the Bank of Cincinnati were as bad as those of the Piatt bank, and those of several other authorized banks were but little better. In a table published in the Detroit Gazette, in November, 1819, the condition of the following Miami valley bank notes was given as follows: Bank of Cincinnati, good; Farmers,' Mechanics' and Manufactur- ers' bank of Cincinnati and the Bank of Dayton, decent; the Lebanon-Miami Banking company, middling; and the Miami Ex- porting company, Piatt's bank, and the Farmers' & Merchants' bank of Cincinnati, good for nothing. In many cases, banks whose notes were greatly depreciated continued to pay dividends. Thus the Bank of Cincinnati, in May, 1819, had declared a dividend of 4 per cent on its capital for the preceding half year.
Meanwhile, the United States bank, instead of heeding the warning afforded by the general unrest of the people and leaving the state, opened the second branch in Ohio at Chillicothe early in 1818, and in July increased its offenses by suddenly ordering the Cincinnati branch to collect at the rate of 20 per cent a month the large balances due from the local banks, as has been previously mentioned, thus precipitating the panic, causing the Cincinnati banks to suspend in November, 1818, and bringing disaster and ruin on the people. In an attempted measure of relief the legislature,
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on Feb. 8, 1819, passed an act "to levy and collect a tax from all banks and individuals and companies, and associations of individ- uals, that may transact banking business in this state without being authorized to do so by the laws thereof." This law was passed with great deliberation and by a full vote, and public senti- ment throughout the state supported the legislature in its action. A few weeks later, however, the decision in the famous case of McCulloch vs. Maryland was handed down by the United States Supreme court, Chief Justice Marshall delivering the opinion on March 7, 1819. This decided that Congress has the power to in- corporate a bank, that the bank had power to establish branches in the states without their consent, and that the states had no right to tax them. In view of this decision the branches of the bank in Ohio naturally continued their operations, and just as de- terminedly the state auditor, Ralph Osborn, prepared to collect the tax. To prevent this the bank filed a Bill in Chancery in the United States Circuit court asking an injunction to restrain the auditor from proceeding to collect the tax. A copy of this bill with a subpoena to answer was served on the auditor. Counsel advised that the papers did not amount to an injunction ; and, therefore, the state writ was given to the sheriff, John L. Harper, with instruc- tions to enter the banking house at Chillicothe and demand pay- ment of the tax, and upon refusal thereof to enter the vault and levy the amount required. The officer, taking with him a horse and wagon and competent assistants, went to the bank on the evening of Sept. 17 and, first securing access to the vaults, de- manded the tax. Payment was of course refused, and the officer entered the vault and seized in gold, silver, and bank notes, suffi- cient funds to cover the amount on both branches-$100,000. This was carried in the wagon to the Bank of Chillicothe and deposited there over night.
Meanwhile excitement ran high over the matter, not only in Ohio but throughout the country generally. The governor of Ohio did all in his power to have the money restored, even offering to give security for it, but he could accomplish nothing. The Inquis- itor and Cincinnati Advertiser of Oct. 19, 1819, printed numerous extracts from other papers regretting that Ohio in defiance of the United States Constitution had entered the vaults of the branch bank at Chillicothe and taken therefrom nearly $100,000. Another Cin- cinnati paper commenting on the affair about the same time re- marked that it "appears to have created as much consternation as if it had been an overt act of treason or rebellion," but added, "If the general government can create a monied institution, in the very bosom of the states, paramount to their laws, then indeed is state sovereignty a mere name, 'full of sound and fury, signifying nothing.'"
The elections in Ohio that fall were along the lines of the United States bank fight. General Harrison, a candidate for state senator from the Cincinnati district, declared himself the enemy of banks in general and especially of the United States bank, which he said he viewed as an institution "which may be converted into an immense political engine to strengthen the arm of the general gov-
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ernment and which may at some future day be used to oppress and break down the state governments." Yet of the Ohio act he said, "Is it not a shoot that has sprung from its far famed Boston oppo- sition, and been matured in the foul mind of the Hartford Conven- tion?" He was elected.
In liquidation of debts in 1818-1819 the United States bank had been forced to accept a great deal of western real estate, which was taken at low valuations but afterward increased greatly in value owing largely to the rapid growth of Cincinnati. On account of these real estate acquisitions, the bank came to own a large part of Cincinnati, and this of course maddened the former owners. The entire matter finally reached the Supreme court of the United States and there was adjudged adversely to the state of Ohio. But by the time this decision had been handed down a reaction had begun in the state. The good sense of the plain people had prevailed, and they chose to abide by the decision of the high court. So the bank continued to do business in Ohio until the expiration of its charter, in 1836.
However, in Ohio the stagnation and distress following the crisis of 1818-19 continued without relief through 1820 and 1821 and well into 1822. In the Miami valley, the best farming section of the state, produce sold at minimum prices in the fall and winter of 1822-23, many of the most important articles not paying the farmer more than a fair compensation for taking them to Cincinnati. Pork was sold in large quantities for from one to two dollars per hundred. And it was generally understood in that section that most kinds of provisions shipped from Cincinnati market that season in- volved almost all the shippers in loss, and some of them in total bankruptcy and ruin. In the fall and winter of 1823-24 but little over half the provisions were shipped from that market that were the year before. For example, in 1822, over 42,000 barrels of flour were inspected at Cincinnati for export, while in 1823 the quantity amounted to but 27,206 barrels. Niles' Register of Oct. 23, 1824, contains the statement that "Any quantity of corn may be pur- chased in Cincinnati for 8c per bushel."
In other parts of the state prices were as low or even lower. Thus in Dayton, in 1822, flour was $2.50 a barrel, wheat 20 cents a bushel, corn 12 cents, and whiskey 1212 cents a gallon. In 1823 there was an advertisment running in a Chillicothe paper in which 7,000 acres of land on the Big Miami and Scioto rivers were of- fered for 90 cents an acre cash, or $1 an acre in stock of the Bank of Chillicothe. A Cincinnati paper, in 1824, commenting on the depres- sion of prices and business that for several years previous had pre- vailed in the state, exclaims, "Is it to be attributed to the operation of banks and depreciated currency? No! for our banks, so long blamed as the cause of all our evils, are swept away, and our cur- rency is sound and healthful." The paper then points out that the great trouble with Ohio at that time was the want of a market for the surplus produce of the state. The inhabitants in the southwestern part of the state had access by the Ohio and the Mississippi rivers to the fluctuating market of New Orleans, but this was likely to be overstocked when the shipper from Ohio got there, especially at the
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time of the year when he could pass the falls of the Ohio. To leave his property meant to abandon it to destruction, to wait for higher prices was to incur the dangers of an unhealthful climate. He fre- quently had to ship his produce home again or sell it at a sacrifice, often at a price which would not pay the freight and charges.
In 1825, two events aided greatly in changing these conditions and starting Ohio well on the way to prosperity. One of these was the opening of the Erie canal through New York between Lake Erie and the Hudson river, giving Ohio access at once to the markets of New York City and the Atlantic coast region; the other was the beginning of Ohio's own canal system, connecting Lake Erie with the Ohio river. The "Act to provide for the Internal Improvement of the State of Ohio by Navigable Canals" was passed by the legis- lature by a vote of 92 to 15 on Feb. 4, 1825. This provided for two canals, one 308 miles long, passing through the northeastern, central and south central portions of the state, and connecting Cleveland on Lake Erie at the mouth of the Cuyahoga, with Portsmouth on the Ohio at the mouth of the Scioto; and the other 66 miles long, traversing the southwestern part of the state and connecting Dayton on the Great Miami river with Cincinnati on the Ohio. By July of the same year the work of construction had begun on both these canals, and two years later navigation began on both of them. The demand for labor to construct these canals increased immigration. Cincinnati's population, in 1820, was 2,602. In 1829, it was esti- mated at 24,000. "The settlement and improvement of this city for the last five years," says an Ohio paper, "has been rapid almost beyond example."
All of the banks incorporated in Ohio before Feb. 23, 1816, had accepted charters under the bonus law by Sept. 1, 1816, except the Miami Exporting company. Of the banks incorporated later under that law, however, some did not accept their charters until late in 1818. These, up to the time of accepting their charters, were liable for taxes under the law of Feb. 8, 1815, which had imposed a tax of 4 per cent on the annual dividends of the banks, and had provided that if any bank should fail to report its dividends to the Auditor of State he should levy a tax of 1 per cent on its nominal capital, to be increased by a penalty of 4 per cent in case of delay. The Miami Exporting company, which had refused to accept a charter under the bonus law, was also taxable under the law of 1815. On Jan. 5, 1819, the State Auditor made a report to the legislature on the stock set off to the state by banks and also the taxes paid into the state treasury by banks. This report shows that up to that time the total stock set off to the state under the bonus law amounted to $79,930.27 ; that the amount set off which accrued prior to the ac- ceptance of charters under the law was $6,251.51; and that the amount set apart to the state by the Miami Exporting company was $5,140.98. Many of the banks had failed and most of the others were unable or refused to pay specie for their notes, and as none of the banks, except the Miami Exporting company, seemed disposed to do justice to the state, the committee had recommended that if the treasurer could not collect, he should either get real estate security or sue.
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Under a joint resolution of the legislature at the session of 1824 commissioners were appointed to look after the claims of the state against banking corporations. Their report was given on Dec. 14, 1824. They had sold the claims of the state against the Miami Ex- porting company for 331/3 cents on the dollar, receiving paper of that bank at par. This paper was sold at public auction for 373/4 cents on the dollar and realized the sum of $4,345.50. The judgment against the Miami Exporting company was $9,570.14, which, with interest, dividends, etc., amounted to $11,511.35. The claim against the Lebanon bank by judgment was $9,941. This institution was solvent and able to pay, but such was the difficulty of collecting that its paper commanded only 30 or 35 cents on the dollar.
Cincinnati, the largest town and most important trade center in the Miami valley, had no incorporated bank in 1826, except the branch of the United States bank. The need of banking capital there at that time is indicated in the following quotation from a small work published in 1826:
"Cincinnati for several years has been deficient in the amount of its disposable capital ; a nominal superfluity of it existed during the prosperity of the local banks; after their destruction, paper cur- rency was almost withdrawn from circulation and much of the metallic currency applied to the payments due the United States bank and the eastern merchants. From this condition of things the city has been gradually recovering, but its citizens are not yet large capitalists. Although engaged in profitable business most of them have not the means of extending it to a scale proportioned to their enterprise and the resources of the place. Money is conse- quently in great demand, and a high price is willingly paid for its use. For small sums 36 per cent per annum is frequently given, and for large ones from 10 to 20 per cent is common."
During 1826 and 1827, the effort to establish another incor- porated bank in Cincinnati was discussed generally, but none ma- teralized. Expenditures on the canals of the state, however, and other causes, among which was a more plentiful supply of money in the country generally, in 1827, contributed to improve financial matters in the Miami valley as well as in the remainder of the state. About this time the project of a state bank was discussed consider- ably in Ohio, and in compliance with a resolution of the state senate asking information on the subject, the Auditor of State in his re- port of Jan. 14, 1829, dealt at some length with the question. A little later, a legislative committee, appointed to prepare informa- tion on the subject, reported in favor of a state bank, to be located at Cincinnati and its capital stock to be held by the state and in- dividuals combined. The committee expressed the belief that such a bank would be able to keep its paper at par with gold and silver; that it would effect a lower rate of interest, thus enabling borrowers to obtain loans on cheaper and easier terms ; and that the increase of capital which such a bank would bring about would be accompanied by a corresponding promotion and extension of agriculture, com- merce, and manufacture.
While this recommendation for a state bank was not carried out, the legislature authorized the incorporation of two more banks in
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the state, and on Feb. 11, 1829, the Commercial bank of Cincinnati was authorized with a capital stock of $500,000, of which $100,000 had to be paid in gold and silver before the bank could begin busi- ness. The capital stock remained unsubscribed for two years after- ward, however, in consequence of the demand for capital to be used in more profitable pursuits than banking.
The depreciation of the notes of the Dayton bank, as given in a table taken from a Cincinnati paper, in February, 1822, was 11/2 to 2; of the Hamilton bank, 31 to 35; the Miami Exporting company, 621/2 to 65; the Bank of Cincinnati, 70, and the Lebanon bank, 55. Albert Gallatin, writing in 1831, enumerates among the banks which had failed or discontinued business since Jan. 1, 1811, the Miami Ex- porting company of Cincinnati, with a capital of $468,966; the Farm- ers' & Mechanics' bank of Cincinnati, $184,776; the Bank of Cin- cinnati, $216,430; Dayton Manufacturing company, $61,622; Leb- anon-Miami Banking company, $86,491; Bank of Hamilton, $22,- 707.
It will be seen that this list includes all of the Miami valley banks whose notes were greatly depreciated in 1822. The causes of their failure were various. Some of these banks had been erected on stock notes alone, the directors then turning right around and issuing their bank bills on the promise of the borrower and a pledge of the stock. Some of them had been got up for the purpose of bor- rowing and not lending money, and defrauded the unsuspecting with their depreciated paper. It is not surprising that such banks failed. But many of the defects and many of the failures should be attributed to frontier conditions. The following quotation from a Cincinnati paper of 1826 is interesting as bearing directly on the subject: "The banking operations of the West have, in too many cases, been indiscreetly and injudiciously conducted ; without re- sorting to the threadbare charges of corruption and dishonesty, sufficient causes for their failure can be found in their too great success at first, in a want of correct knowledge of the details of the system, and in the peculiar and unusual state of things during the war, which betrayed, to a certain extent, even the most experienced and veteran institutions in our country." There remained ten banks whose paper was current in the state in 1826 and at a discount of only 1 or 11/2 per cent at Cincinnati, in 1828, as shown by the tables from which the foregoing is taken.
In 1819, the twenty-five chartered banks in Ohio had a circula- tion of only about 1.3 million dollars, while in 1826 the statement was made that some years before paper currency had almost been with- drawn from circulation in Cincinnati, the largest city in the state. As early as Jan. 18, 1831, the Dayton Republican, in speaking of the importance and need of a bank at Dayton, had called attention to the fact that there was a bank in the city whose charter would not expire for thirteen years yet, and suggesting that it ought to be put into operation again. The bank alluded to was the Dayton Manu- facturing company. Another Dayton paper, a few months later, announced that the Dayton bank, which had wound up its business a few years before and paid its stockholders the capital invested, had been revived, its capital stock filled up and actually paid in, and
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its business resumed on a good stable foundation, which inspired confidence and gave assurance that the revival of this bank would prove a public benefit.
It will be recalled that on Feb. 11, 1829, the legislature had authorized the Commercial bank of Cincinnati to begin business with a capital stock of $100,000, but that its stock had remained un- subscribed owing to the pressure for capital in other lines. How- ever, on Feb. 12, 1831, the commissioners in charge of the organiza- tion of this bank advertised that two days later its stock subscrip- tion books would be opened, and each day thereafter for thirty days, within which time $10 on each share must be paid by the sub- scribers according to charter. This stock was all quickly taken, a great part of it by foreign capitalists, and arrangements were at once made for the immediate commencement of business. On May 28 the stock in this bank rose from 5 to 15 per cent premium, and before the day closed 17 per cent was asked, at which figure the price remained firm. Orders to purchase this stock received from eastern cities were said to have contributed to this rise. A pro- vision in the charter granted this bank, Feb. 11, 1829, had provided that it should pay to the state a tax of 4 per cent on its annual divi- dends. That was the rate then paid by all the local banks in the state under the tax law of Feb. 5, 1825. But in 1831, about the time the Commercial bank of Cincinnati began business, a change was made in this law which resulted in giving this bank somewhat of an advantage over the other local banks so far as state taxation was con- cerned. On March 12, 1831, an act to tax banks, insurance, and bridge companies was passed, which increased the rate of the tax on bank dividends from 4 per cent to 5 per cent. This law operated on all the local banks in Ohio, except the Commercial bank of Cin- cinnati. The latter paid 4 per cent on its dividends under its char- ter, which exempted it from general taxation under a general law.
Notwithstanding the revival of the old bank in Dayton, and the opening of the Commercial bank of Cincinnati after a two years' delay, the pressure for more money in the Miami valley continued to increase. A Cincinnati writer for the New York Courier and Enquirer of Aug. 3, 1832, says: "The distress for money here at present is greater than can well be imagined, and the branch bank is, from necessity, in prospect of winding up, curtailing. We have one other bank in the place. and its capital but $500,000. Money can be lent upon mortgages on good city property at from 12 to 15 per cent when the security is unquestionable and worth at least 100 per cent more than the amount loaned. The brokers get readily one- quarter per cent per day."
Throughout the state the question of what should be done became a matter of much agitation, but instead of passing a bill to incor- porate a state bank, which should control all the monied institu- tions of the state, the legislature of 1833 contented itself for that ses- sion with authorizing the Commercial bank of Cincinnati to increase its capital stock from $500,000 to $1,000,000, and granting a charter to the Franklin bank of Cincinnati, on Feb. 19, 1833, which author- ized it to organize with a capital stock of $1,000,000. In arguing in favor of a state bank, which had also been advocated by Governor
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