Standard history of Pittsburg, Pennsylvania, Part 36

Author: Wilson, Erasmus, 1842-1922; Goodspeed, Weston Arthur, 1852-1926. cn
Publication date: 1898
Publisher: Chicago : H.R. Cornell & Co.
Number of Pages: 1192

USA > Pennsylvania > Allegheny County > Pittsburgh > Standard history of Pittsburg, Pennsylvania > Part 36

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"That the stockholders of the Farmers' and Mechanics' Bank of Pittsburg shall be, and they are hereby authorized at their next election, for directors of said bank, and annually thereafter, during the existence of the charter thereof, to choose from among the stockholders of said bank, six persons as directors who are not by occupation mechanics or farmers" (g).

The number of shares allotted to the Bank of Pittsburg in Allegheny County was 10,000, in Beaver County 1,000 and in Butler County 1,000, total 12,000; to the Farmers' and Mechanics' Bank in Allegheny County 8,000, in Butler County 1,000, total 9,000 shares. By a special provision the subscrip- tions already given to the Bank of Pittsburg might be applied toward the new stock. It was made lawful for the (then) existing officers of the Pittsburg Manufacturing Company to take charge of the new institution and manage the same until their successors should be duly elected.

The passage of the general banking act of 1814, particularly that portion relating to the Bank of Pittsburg, was secured largely through the sagacity and persistence of William Wilkins. From 1810 to 1814 the Pittsburg Manu- facturing Company, through Mr. Wilkins and others, endeavored to secure a charter of incorporation; but the enemies of general or special banking laws were too numerous to permit the accomplishment of this object. In 1813 the "Mammoth Bill" passed both houses, but was vetoed by the Governor. In 1814 it again passed over his veto and became a law. In the meantime the Pittsburg Manufacturing Company continued to do a banking and an insurance business, regardless of the fact that the former privilege was prohibited by the law of 1810. It was claimed by the editor of the Gazette, in his issue of August 26, 1840, that Mr. Wilkins admitted having "tricked the Legislature" to secure the charter for the Bank of Pittsburg. What the editor doubtless meant was that, owing to the vehement hostility to banks, Mr. Wilkins was obliged to draw freely upon his strong resources of finesse and diplomacy to secure the charter.

"On motion, resolved, that the stock of the Pittsburg Manufacturing Com- pany be, and the same is, hereby transferred to the Bank of Pittsburg, for the purpose, and in order that the stockholders may be considered as subscribers to the Bank of Pittsburg to the amount of shares by them respectively held, agreeably to the provisions of an Act of Assembly entitled, 'An Act Regulating Banks.' Hereby, nevertheless, reserving the right in the present board of man-

(g) Act of the Legislature, March 27, 1819.

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agers of declaring such dividend or dividends as they may think expedient (not impairing the capital stock) among the said stockholders of the Pittsburg Manu- facturing Company, of the profits which have or may accrue up to the time at which the business will be carried on in the name of the Bank of Pittsburg."

The Bank of Pittsburg gave notice that books for the subscription of stock, pursuant to law, would be opened May 10, 1814, at the office of the Pittsburg Manufacturing Company by the commissioners appointed under the banking act. On July 4, 1814, the Pittsburg Manufacturing Company declared a divi- clend of four and one-half per cent. on the paid-in stock for the six months ending July 1, 1814. On Monday, November 23, 1814, William Wilkins was duly elected president of the Bank of Pittsburg; Alexander Johnston, Jr., cashier; George Luckey, teller; William Baxter, bookkeeper, and William M. Black, watchman.

Under the act of March 21, 1814, twenty-seven banking districts were formed in the State; forty-one banks were authorized to commence operations; thirty-nine were chartered; thirty-seven began business, and of the latter eleven forfeited their charters, of which eleven the Farmers' and Mechanics' Bank of Pittsburg was one, without fault of its own. By this act the counties of Allegheny, Beaver and Butler were constituted one banking district in which three banks might be established-two in Pittsburg and one in Beaver County. By supplemental acts banks were authorized to issue notes of less denomination than $5 for short time (h), to relieve the pressure for small change, which time was extended to October 1, 1817 (i); and judges (j), officers in the accounting or treasury departments and land offices, and persons authorized to receive moneys of the State, were debarred from holding the positions of directors and cashiers in the banks formed under the act of 1814. County commissioners were required by law to report regularly to the State Treasurer all banks, incorporated or otherwise, individuals, etc., doing a banking business within their jurisdiction. All notes in the nature of banknotes issued after January I, 1815, by company or individual not duly incorporated were declared null and void (k).

The charter of the first bank of the United States expired in March, 1811, and was not renewed. The next year the war with Great Britain was declared; the products of that country were shut out; prices of all kinds greatly increased; large demands were made for specie to carry on the war; the fund of paper money in circulation was immensely increased and at last, in 1814, banks gen- erally were obliged to suspend specie payments. The Bank of Pittsburg was one of the few, perhaps the only one, in the State to steadily redeem all its notes on demand in specie.

The war with Great Britain stopped the exportation of specie to that country and led to its accumulation by the banks, which were thereby enabled to issue large amounts of their own notes and afford to business men liberal facilities for obtaining discount. Later, when heavy demands for coin came from the East, the banks were compelled to call in their circulation and dis- counts, the panic struck all classes and prostrated banking and industrial operations.

On March 22, 1817, it was enacted that, Whereas, notes and tickets in the nature of banknotes had been issued by individuals as well as by corpora- tions not established for the purpose of banking, and had been productive of inconvenience, fraud and loss to the public and tended to retard the restoration of specie currency, after the Ist of May, 1817: "No bank or office of discount and deposit shall make, issue, reissue or circulate, under the penalty of $25

(h) Act of December 28, 1814. (i) Act of March 22, 1817.

(j) Act of January 27, 1819. (k) Act of March 21, 1814.

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for each note or bill so issucd, any banknote, promissory note, ticket or engage- ment of credit in the nature of a banknote of a less denomination than one dollar;" and in the same act all, except duly and really incorporated bodies for that purpose, were prohibited from making, issuing, or circulating any paper in the nature of a banknote.

Previous to this, in September, 1816, representatives of the banks of Western Pennsylvania and Virginia and of Eastern Kentucky and Ohio, had met at Steubenville "for the purpose of unity in measures to support the credit of the Western banks." At this meeting William Wilkins, John White, Simon Perkins, C. Hammond and Bezaliel Wells were appointed a committee to determine a day for the resumption of specie payments, subsequent to the resumption of the banks of the Atlantic cities. They concluded that, inasmuch as the banks of the Atlantic cities had relief from the Bank of the United States to assist them in effecting resumption, they, also, should have the aid of such bank before actually opening their vaults for the payment of specie. Should they resume before the other banks, they rightly concluded, they would at once be drained of all their specie by the branch bank at Pittsburg, because a large special deposit of their notes was held by the Branch to the credit of the Government. This committee addressed the following letter to the Secre- tary of the Treasury (1):

"Pittsburg, March 15, 1817.

"We beg leavc to suggest that the continuance of the United States deposits in this Branch is a very serious disadvantage to the Western banks. It places them in the power of an institution, the directors of which are not at all identified in feeling or interest with the Western banks or country."

They urged that the Government deposits should be taken from the Branch and placed in one of the sound State banks. In response to the action of the State banks, the directors of the Bank of the United States agreed, in April, 1817, to receive the amounts due from the State banks, with interest, on August I, 1817, or in seven monthly installments, the banks guaranteeing prompt payment. This proposition was accepted by the State banks. The compulsory resumption in 1817 was followed in 1818-19 by one of the severest periods of stringency Pittsburg ever experienced. The newspaper editorials and correspondence of that date reveal the dreadful extent of the mischief.

"What has been their (the country banks .- Ed.) practical effect in Pennsyl- vania? Ask the cultivators of the soil, not one of whom but regrets the hour in which banks were introduced. At first their dealings were confined almost exclusively to the several counties in which they wcre organized; it was a mere transfer of the business of money-lending from indi- viduals to the bank, and so far they were useful in putting a stop to usury. But the facility of obtaining loans soon increased the disposition to borrow. The farmer must make purchases which he and his family never dreamed of when money was hard to be got. Gradually he opens his mind to speculation. From the competition of these who have equal power to raise money, land is run up to an extravagant height and payments are made among each other by checks on the bank. All goes on smoothly while these negotiations are con- fined within the sphere of the institutions, because there its operations are carried on, not by issuing species of banknotes, but by creating and transferring bank credit. No more cash or bank money is required than may be found necessary for change and for the payment of laborers. Thus the bank is enabled to extend its loans to an enormous amount, infinitely beyond its cash means; yet it is safe, because land is pledged for the repayment of its loans, and the poor agriculturists bring their farms to town with as much facility as

(1) American State Papers.

32+

HISTORY OF PITTSBURG.

Bernam's wood came to Dunsinane. One effect of the facility of obtaining money is the creation of a thirst for trade by which the farmer has heard that a fortune can be made easily and rapidly. The bank, finding that it has not suffered from going beyond its cash means, becomes flushed with success and is fearless of consequences. Thus, every man who has a tract of land may command a bank credit. From this point matters begin to wear a more serious aspect. In order to be shopkeepers goods must be purchased. Relying on the assistance of the bank the trader goes fearlessly to Philadelphia or Baltimore, and such is the competition among the merchants there, that he finds no difficulty in procuring what he wants on an extensive credit. It is perhaps known that he is a freeholder and a man of some note, so that he is secure in being received with smiles and treated with great courtesy and hospitality. But in opening shop his expectations are not quite answered. He lias a number of competitors and no experience; so that he realizes but little but vexation and embarrassment, while the great influx of goods deranges the system of business and causes a depreciation which is ruinous to the long estab- lished dealers. At length the time comes round when the mer- chant over the mountains must be paid. He will not accept a check on the bank, because he keeps no account there. The money must be paid and the bank is consequently pressed to do what it is unable to perform; that is, to pay specie, or such paper as will circulate beyond its own petty sphere. It grows peevish and commences by cutting off the discounts of those who are first importunate or who employ artifices to drain its cash means, which drives the poor harassed devil to a shaver. At length the bank discovers its situation and finds that palliatives will do no longer. It begins to draw in. Here is the crash. The bank sacrifices the real estate of its debtors to secure its own solvency; the stockholders divide the funds after having become enriched by the dividends which were made in its flourishing times. Who is the ultimate sufferer? Why, the poor farmer who must give up his property and emigrate westward to recommence his career" (m).

Great fear was manifested at this time that farmers would be deluded into borrowing too much from banks, and thus suffer and perhaps lose their farms. The editor of the Gazette did not believe it and said: "Of the whole sum dis- counted by banks in this city we venture to say that there has not been a bona-fide loan of $10,000 to farmers (n). Whenever the chartered banks of Pennsylvania refuse to redeem their paper, and when the debtors of those banks become insolvent, then the popular slang against banks may have some justifica- tion (o). When the several banks in the United States suspended specie pay- ments, not only dollars, but every denomination of small silver and copper change disappeared. To supply their place a host of banks, corporations, turn- pike, bridge and private trading companies and even individuals, made a requisi- tion on every engraver and printing press in the country and overflooded us with small change bills. While specie payments continued suspended (1814 to 1817 .- Ed.) these 'ragged representatives performed their office' and were of very general use, as no inquiry was made to the source from whence they emanated, provided they wore a fair, legible face. The paper change in circula- tion at present constantly reminds us of its faithful services and nothing but rents and patches and pasting and pinning is to be seen 'on its once fair form.' Now and then we have a three, five or six cent note, ingeniously altered to fifty cents, presented to us in payment by some of our more unlettered customers, and when we discover the imposition to them, vinegar might be made from their sour and distorted countenances. And, to add to our conveniences, some of our

(m) "A Subscriber" in the Gazette of June 9, 1818.

(n) Mistake. Sce first chapter on banking.

(o) Gazette, June 9, 1818.

Robt. P. Nevin

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public-spirited, enterprising citizens have very kindly manufactured and emitted a new edition of six and one-half cent tickets, purporting to be the issue of the borough of Pittsburg, and the ingenious gentleman has succeeded to admiration in the paper, type and well-known signature of L. Stewart; and if, in his zeal to accommodate, he had not mistaken the arm and hammer for an urn, he would have performed well indeed. From Greensburg eastward not a small bill is to be seen. Small specie is so plenty that at every turnpike gate east of the moun- tain change can be had and is made in every instance, even to half cents, and Eastern gentlemen who travel through this place are not only astonished at our small-change currency but very indignantly refuse to touch it, preferring to lose any small change due to them rather than pollute their pocketbooks with the 'ragged stuff,' as they very properly term it. Specie payment having been long since resumed by every responsible and solvent banking institution, and small specie change beginning gradually (even with us) to resume its lawful and destined circulation, it would be a good thing if the trading class of citizens in the city would consult their own and the public interest by aiding to restore these pleasing, smiling, jingling little pocket companions to their wonted home. As current change of every kind is extremely scarce here (to which truth every visitor of the market and every dealing man can certify), it would greatly facilitate business and add very much to our convenience and purse if a sufficiency of small specie could again be restored to our city."

On the 26th of September, 1818, the merchants, traders, and citizens of Pittsburg, in mass meeting assembled, on which occasion Ebenezer Denny was chairman and Alexander McClurg secretary, adopted the following resolutions:

"Resolved, That a committee be appointed, to consist of John Darragh, Esq., mayor of the city, Alexander Johnston and Morgan Neville, Esqs., cashiers of the banks, who are requested to collect subscriptions (receivable in such money as is of par value in the city of Philadelphia) and procure from the proper source the amount of such subscriptions in specie change, and, on its arrival in this city, to divide the net proceeds thereof among the subscribers in proportion to the several sums respectively subscribed. Resolved, That from and after sixty days from this date, the individuals composing the present meeting will not give currency to the notes or tickets of any bank, corporation or individual what- ever under the denomination of one dollar" (p).

The remarkable fact in connection with the financial distress of 1818-19 is, that the people generally, including a man so well informed as Morgan Neville, the editor of the Gazette, placed the blame of the large discounts almost wholly upon the banks. They seemed to think that the temptation to borrow should be removed rather than that prudence and self-restraint should prevent a farmer or merchant from mortgaging his farm or his goods for a larger sum than he could pay without a foreclosure. And yet, it was urged, where was the dif- ference between the farmer who could not meet his note with currency, and the banker who could not meet his with specie? In the former case the farmer, unless he paid his note within a reasonable time, lost. his farm; in the latter case the banker, unless he redeemed his paper within the same time, lost his credit, his business and his bank. But the people blamed the banker and the outcry was almost universal.

"The excessive issues of the banks during the suspension of specie pay- ments and the great exportation of the precious metals to the East Indies during the present year, have produced a pressure upon them which has rendered it necessary to contract our discounts for the purpose of withdrawing from circula- tion a large proportion of their notes. This operation, so oppressive to their debtors, but indispensably necessary to the existence of specie payments, must

(p) Gazette, September 25, 1818.

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be continued until gold and silver shall form a just proportion of the circulating currency. In passing through this ordeal punctuality in the discharge of debts, both to individuals and the Government, will be considerably impaired, and well-founded apprehensions are entertained that, until it is passed, payments in some of the land districts will be greatly diminished. The extent to which the payments in the treasury during the year 1819 will be affected by the general pressure upon the community which had been described and which is the inevitable consequence of the overtrading of the banks and the exportation of specie to the East Indies, aggravated by the temporary failure of the ordinary supply of precious metals from the Spanish American mines, cannot at this time be correctly appreciated" (q).

"From the extensive demand for specie; the high premiums now actually giving for that article; and from the general scarcity of any currency in the market by which specie can be obtained at a reasonable and fair price; it is not improbable that the period is very near when there must, of necessity, result a general suspension of specie payments" (r).

"Without the interference of our Legislature the situation of our country will become deplorable. People to the eastward can have no conception of the state of things west of the mountains. Among us we have none of that class of society called persons of independent circumstances; we have no men who can live without a constant application to business. The desire to increase our fortunes induced almost every member of society to engage in speculation which naturally involved a connection with banks. Our anticipations relative to our speculations are disappointed and we are left without the means of refunding the debt we contracted. We have real property to show as the evidence of our wisdom, but this real property has depreciated so much, or rather our resources have become so completely exhausted, as entirely to destroy the possibility of raising funds by a transfer of real estate. At this gloomy crisis circumstances have forced (for we cannot suppose the existence of a malignant spirit sufficient to make it a voluntary act) the Bank of the United States into a system the result of which, if persisted in, must be ruin. When it is known that the loans of the five Western branches have entirely been exhausted in the payment of merchandise to the eastward; when it is known that not a dollar of these remittances finds its way back except occa- sionally to pay the traveling expenses of a collecting merchant, the unreason- ableness of the Branch demands may be easily appreciated when they require in payment either their own notes or specie; they refuse even the paper of their sister branches. The conclusion is irresistible; the debtors of the branches must extort from the country banks for their paper that which will be received; the country banks, of course, must apply to their discounters who, not being able to pay, must have their property brought to sale by the sheriff, when it will be sacrificed most cruelly. Such is the state of affairs through the West at this moment. All eyes are turned upon Congress and the State legislatures. The people are waiting with fearful anxiety. It is a melancholy fact that we have arrived at such a pitch of luxury as almost to require sumptuary laws. The trade to the East ought at all events to be checked for the present; the importation from Europe ought to be shackled. Whether it is to be done by prohibitory laws or by bank regulations is doubtful; we think there might be a salutary combination of both. All these arguments are no doubt locally tenable, but they will not suit our views. Agriculture never can and never ought to be our dependence. We are too far removed from the ocean; the expense of transportation is too enormous to allow us a chance of

(q) Report of the Secretary of the Treasury, November 21, 1818.

(r) Mercury, November 20, 1818.

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fair competition. Our real happiness depends upon manufactures; by these alone can we be restored; to these alone ought the views of the West to be directed, and we think we do not risk a contradiction when we assert that the same measures which check British importations will relieve us from the oppression of banks and will encourage manufactures" (s).

At this date the notes of the Bank of Pittsburg, one of the strongest institu- tions in the West, were at five per cent. discount in Philadelphia, and notes of the Farmers' and Mechanics' Bank of Pittsburg could find no sales there at any price. Notwithstanding this fact regarding the notes of the Bank of Pitts- burg, that institution continued to pay coin upon demand for its paper. The editor of the Washington Examiner, having expressed a doubt of its ability to do this, the Pittsburg Mercury said (t): "Let the editor point out a single instance in which the bank has refused to redeem its notes in specie, ether when held by a bank or an individual. If he cannot do this, and persists in refusing fairly to retract his error, he makes himself chargeable with maliciously slandering a respectable and honest institution, to their injury, and the injury of the public. We again repeat, that the Bank of Pittsburg has not suspended, nor does it intend suspending specie payments."

The editor of the Mercury further said in answer to a notice in the Baltimore Patriot (u): "We can assure the Patriot that, though the bank has been hard run to be sure, yet it will ride out the gale in triumph. We are author- ized to state that the notes of the Bank of Pittsburg are received in Philadelphia at the Bank of Schuylkill, at par" (v).

In reading the monetary discussions of that time, it seems that the people could not rid themselves of the idea that banks as well as brokers were in some degree a culpable set and should not have taken advantage of the early condi- tions in Pittsburg and in the country to establish banking systems. It was really a formative period in finance, when brokers as well as bankers were undergoing a sort of development side by side with the banking systems. In February, 1819, the Legislature enacted that all banks which did not pay specie on or before August 1, 1819, should forfeit their charters.

"As for banks paying specie, far be it from us to deprive them of this glory, in a wanton manner; but in investigating a subject, and in trying to produce a state of things which may prove beneficial to the community, truth ought to be told. We therefore assert, without fear of denial, that no bank in the State is paying specie; no bank has been paying specie since the sus- pension first took place and that no bank can pay specie; and the impossibility contained in the last position is proved on the face of the late reports to the Auditor-General. When we take this round assertion, we have reference to the spirit and not to the letter of the term 'specie payments.' What we mean by specie payments is the facility offered in the redemption of notes, by which specie change of any denomination, at least silver dollars, may be had by application to a bank. This we contend is not the case. We hear daily com- plaints from the cities that the officers will pay nothing but plugged Portu- guese and other foreign gold. We know it to be the same case here; we have lately seen gold paid out of the Branch in this place, which the holders would certainly find more difficulty in passing than they would the worst Ohio paper (x). We conclude, then, that one of the great causes of our distress is the want of a circulating medium of some kind or other. We have but little bank paper in circulation, and this is generally Ohio trash, about which we are perfectly ignorant. The issue of the Pittsburg banks does not

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Standard history of Pittsburg, Pennsylvania, Part 36

Author: Wilson, Erasmus, 1842-1922; Goodspeed, Weston Arthur, 1852-1926. cn Publication date: 1898 Publisher: Chicago : H.R. Cornell & Co. Number of Pages: 1192

Author: Wilson, Erasmus, 1842-1922; Goodspeed, Weston Arthur, 1852-1926. cn
Publication date: 1898
Publisher: Chicago : H.R. Cornell & Co.
Number of Pages: 1192