USA > Tennessee > Williamson County > History of Tennessee, from the earliest time to the present; together with an historical and a biographical sketch of Maury, Williamson, Rutherford, Wilson, Bedford and Marshall counties, besides a valuable fund of notes, reminiscences, observations, etc., etc. Vol. 1 > Part 37
USA > Tennessee > Maury County > History of Tennessee, from the earliest time to the present; together with an historical and a biographical sketch of Maury, Williamson, Rutherford, Wilson, Bedford and Marshall counties, besides a valuable fund of notes, reminiscences, observations, etc., etc. Vol. 1 > Part 37
USA > Tennessee > Rutherford County > History of Tennessee, from the earliest time to the present; together with an historical and a biographical sketch of Maury, Williamson, Rutherford, Wilson, Bedford and Marshall counties, besides a valuable fund of notes, reminiscences, observations, etc., etc. Vol. 1 > Part 37
USA > Tennessee > Wilson County > History of Tennessee, from the earliest time to the present; together with an historical and a biographical sketch of Maury, Williamson, Rutherford, Wilson, Bedford and Marshall counties, besides a valuable fund of notes, reminiscences, observations, etc., etc. Vol. 1 > Part 37
USA > Tennessee > Bedford County > History of Tennessee, from the earliest time to the present; together with an historical and a biographical sketch of Maury, Williamson, Rutherford, Wilson, Bedford and Marshall counties, besides a valuable fund of notes, reminiscences, observations, etc., etc. Vol. 1 > Part 37
USA > Tennessee > Marshall County > History of Tennessee, from the earliest time to the present; together with an historical and a biographical sketch of Maury, Williamson, Rutherford, Wilson, Bedford and Marshall counties, besides a valuable fund of notes, reminiscences, observations, etc., etc. Vol. 1 > Part 37
USA > Tennessee > History of Tennessee from the earliest time to the present , together with an historical and a biographical sketch of from twenty-five to thirty counties of east Tennessee, besides a valuable fund of notes, original observations, reminiscences, etc., etc. V. 1 > Part 37
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The repeal of the internal improvement laws in 1840 stopped the issue of bonds to new companies, but as it did not interfere with work already begun bonds to a considerable amount were afterward issued
,
. 3:27
HISTORY OF TENNESSEE.
under those laws, so that the liabilities of the State had increased by October, 1843, to $3,269,416.66. During the next eight years the growth of the debt was not so great. The only appropriations made except for the necessary expenses of the government, were for the erection of the capitol, two issues of bonds being made under acts of 1848 and 1850. The comptroller's report for 1851 shows the total indebtedness to be $3,651,856.66, an increase of less than $400,000 in eight years.
The General Assembly of 1851-52 passed an act directing the Gov- ernor to purchase, for the State, 500 acres of land belonging to the estate of Andrew Jackson, including the mansion and tomb. This was accord- ingly done at a cost of $48,000, for which bonds were issued. During the same year $30,000 of bonds were also issued to the agricultural bureau. Additional capitol bonds were issued in 1852, 1854, 1856 and 1860, making the entire amount for that purpose, $866,000. These bonds with the previous issues, which had not been taken up or canceled, amounted to $3,896,606.06, which constituted what was known as "the State debt proper," at the opening of the war. This debt bore an annual interest of $212,388.25. At the same time the bonds loaned and endorsed to the various railroad companies under the internal improvement sys- tem, established by the Legislature of 1851-52, amounted to $13,959,000, the interest upon which was paid by the companies. This was the finan- cial condition of the State in 1861. There were issued to railroads im- mediately after the war, bonds to the amount of $14,513,000, making the entire liabilities of the State, including unpaid interest, over $35,000,000. The settlement of this enormous debt from that time until the present has been paramount to all other questions of legislation. For the his- tory of this subject since the war, this volume is largely indebted to the very thorough resume by Gov. Bate in his message to the Legislature of 1883. The first act to provide for the funding of the State's indebted- ness was passed November 23, 1865. It authorized and instructed the governor to issue 6 per cent coupon bonds to an amount sufficient to pay off all the bonds and interest past due as well as that to fall due during the two following years. Under this act there were funded $4,941,000 of bonds. A similar act passed in 1868 provided for the funding of bonds maturing during the years 1868, 1869 and 1870, and under it were issued $2,200,000 of bonds bearing 6 per cent interest. Under an act of 1852 and its amendments which provided for the substi- tution of coupon bonds for those without coupons, there were issued $697,000 of bonds known as "renewals."
In 1873 the Legislature passed another act known as "the funding act" under which various classes and kinds of bonds were funded, and
328
HISTORY OF TENNESSEE.
bonds issued for past due interest upon them amounting to $6,641,000. So objectionable was this to the people that at the ensuing Legislature all provisions for the payment of interest under this act were repealed.
An act to fund the State debt in bonds at 100 cents on the dollar and 3 per cent annual interest, was passed by the Forty-second General Assembly, and became a law on April 6, 1881. Before this was in full operation it was thrown into the courts by injunction, and finally declared by the supreme court unconstitutional and void; hence no bonds were issued under this act. The same General Assembly was convened in a third extraordinary session, and its labors during this extra session on May 19, 1882, resulted in the passage of what is known as the "60-6 act," authorizing the issue of bonds at the rate of 60 cents on the dollar for the old bonds and the past due interest upon them, payable in thirty years, bearing interest as follows: The first two years 3 per cent ; the next two years 4 per cent; then 5 per cent for two years and 6 per cent for the remainder of the time. It was also enacted that the funding should cease after January 1, 1883, leaving all bonds not so funded un- provided for. The act went into effect immediately after its passage, and before it expired by limitation there had been funded under its pro- visions $13,706,812.77, nearly one-third of which was made up of coupons. None of these five funding acts were satisfactory to both the people and the creditors. During the entire discussion of this subject there has been much difference of opinion as to the State's moral and legal obligation to pay the debt in full. Many have held that the State should pay the debt in full without regard to the manner in which it was contracted. The sentiments of these persons are expressed by Gov. Por- ter in a message to the Legislature:
"The settlement of this debt is paramount to all questions of legisla- tion that can engage the attention of the General Assembly; it involves the honor and good name of the State, the credit and honor of every one of its citizens. It is a liability that was voluntarily contracted, and whether it was wisely created or not cannot now be a question. I hold and have always believed that in the light of moral and legal duty, as a question of commercial honor and State pride, the best settlement of the debt for Tennessee would be to pay the entire debt according to the terms of the contract."
Gov. Hawkins expresses the same opinion. He says: "I am free to declare that to my mind there can be no well founded question as to the moral and legal obligation of the State for the ultimate payment of the bonds." A large part of those who entertained no doubts as to the va- lidity of the entire debt considered its payment in full an impossibility,
329
HISTORY OF TENNESSEE.
and that taking into consideration the great loss in revenue to the State occasioned by the war, it would be no dishonor to make the best terms possible with the owners of the bonds. This class in general supported the "60-6 act," and considered it an equitable settlement of the debt.
Others held that the bonds issued to railroad companies, under the act of 1852, formed no part of the State's liabilities, and that the owners of the bonds should look to the companies for their payment.
Another class, and the one which was in the majority, held that the liabilities of the State should be resolved into two parts. The "State debt proper," and the railroad debt for which the State had pledged its "faith and credit." They asserted that the "State debt proper" in 1882 consisted of the following bonds:
Capitol bonds.
$493,000
Hermitage bonds.
35,000
Agricultural Bureau bonds.
18,000
Union Bank bonds.
125,000
Bank of Tennessee bonds. 214,000
Bonds issued to various turnpike companies.
741,000
Hiwassee Railroad bonds.
280,000
East Tennessee and Georgia Railroad bonds.
144,000
Memphis & La Grange Railroad bonds.
68,000
Total.
$2,118,000
These bonds with the unpaid interest, exclusive of the interest which accrued from April 12, 1861, to May 26, 1865, it was held, should be funded dollar for dollar, and that the new bonds should bear the same rate of interest which the original bonds surrendered bore.
It was contended that the State, as a matter of right and equity, was entitled to a large abatement of the remainder of the debt. The grounds for this were that it was never intended that the State would be called upon to pay the bonds issued to railroad companies; that a large part of those bonds were issued "by authority of legislative acts passed and en- forced immediately after the war, and by Legislatures elected at a time when more than one-half, if not three-fourths of all the citizens of Ten- nessee who had been voters were disfranchised;" and that the purchasers of the bonds so issued on account of this irregularity in State govern- ment at the time of their issuance and sale bought them at greatly re- duced prices. It was therefore considered equitable to creditors and the State alike to fund this part of the debt with the unpaid interest, exclu- sive of that which accrued during the war, 50 cents on the dollar and 3 per cent interest. The only exception was that the bonds, no mat- ter of what issue, held by literary, educational, and charitable institu- tions; also those owned by Mrs. James K. Polk should be funded dollar for dollar at 6 per cent interest.
330
HISTORY OF TENNESSEE.
This plan of settlement was embodied in the platform adopted by the Democratic State Convention in June, 1882. Upon that platform the canvass was made, and at the ensuing election a large majority of the votes were cast in its favor. Thus sanctioned by the people the Governor reviewed the plan in his message to the Legislature, and a bill in accord- ance with its provisions was passed March 15, 1883. At that time, ac- cording to the closest calculation, the entire indebtedness of the State including principal and interest amounted to $28,786,066.39. Of this sum the State debt proper bonds and other bonds to be funded at 6 per cent made up $2,783,150, leaving $26,002,916.39 to be funded at 50 cents on the dollar and 3 per cent interest. This makes the total ยท bonded indebtedness of the State,* under operation of the act of 1883, about $15,784,608.19. The funding board consisting of the governor, comptroller and treasurer began its work in July, 1883, and on March S, 1886, bonds to the amount of about $19,000.000 had been funded.
Since this plan of settlement is stamped with the approval of the majority of the citizens and taxpayers, and as the progress of funding evidences the acquiescence of the creditors of the State, it is probable that the question has been definitely settled. Should all the bonds be presented for funding, the State will ultimately have to pay $492,399 interest annually. The decisions of the courts making the State liable for the payment of the notes of the old Bank of Tennessee have added nearly $1,000,000 to the debt within the past two years. An act of the Legislature of 1883 provides for the issue of treasury certificates to take the place of bank notes. It also directs that $200,000 of these certificates should be taken up annually in the payment of taxes. No steps have yet been taken toward paying the bonded indebtedness, but it will un- doubtedly be a question for next Legislature. The bonds issued under the funding act of 1883 are made payable in thirty years and redeem- able at the pleasure of the State. With a continuation of the present prosperous and healthy growth, and with wise and economical manage- ment of the government, the State, at the expiration of the thirty years, will have no debt to refund.
After the passage of the ordinance of secession, in May 6, 1861, the Governor was authorized to issue $5,000,000 of bonds bearing 8 per cent interest payable in ten years. Only two-fifths of these bonds were sold, the remaining three-fifths being held as contingent, subject to the orders of the Governor and the Military and Financial Boards. The following month the act was amended and the Governor authorized to issue treasury notes in denominations of from $5 to $100 bearing 6 per cent interest in lieu of the $3,000,000 of bonds.
*Gov. Bate. Message of January 12, 1885.
331
HISTORY OF TENNESSEE.
The first bank in which the State became a stockholder was incorpor- ated by an act of the General Assembly, November 20, 1811, under the name of the "President, Directors and Company of the Bank of the State of Tennessee." The charter provided that the capital stock should not exceed $400.000, divided into shares of $50 each. Subscriptions for stock were opened on January 1, 1812, in Knoxville, and in the fol- lowing counties: Sullivan, Carter, Washington, Greene. Cocke, Jefferson, Hawkins, Sevier, Blount, Grainger, Claiborne. Anderson, Campbell, Roane, Rhea and Bledsoe, to each of which were assigned 440 shares. The State became a stockholder to the amount of $20,000, but reserved the right to withdraw at the end of ten years. The subscriptions were payable in gold or silver, and divided into eight equal installments. As soon as $25.000 was paid in the stockholders met in Knoxville and elect- ed officers, except one director, who was named by the governor.
The main bank was located at Knoxville, with branches in Clarksville, Columbia and Jonesboro. No notes of less denomination than $5 could be issued until 1815, when the limit was reduced to $1. The bank was chartered for a period of thirty years, but continued only until 1828, when it began to close up its affairs, which was accomplished about. three years later.
During the year 1820 the people of Tennessee, in common with those of the other Western States, experienced their first financial panic, and so disastrous were the consequences that Gov. McMinn convened the Legislature in extra session to provide some means of relief. Accord- ingly, on July 26 of that year, an act was passed "to establish a bank of the State of Tennessee, for the purpose of relieving the distresses of the community, and improving the revenues of the State." The capital stock was fixed at $1,000,000, in bills payable to order or bearer, to be issued on the credit and security of the borrower, and the whole to be warranted by the State on the proceeds of the sales of public lands. The treasurers of East and West Tennessee were ordered to deposit all the public moneys in the bank, and the governor was authorized to issue stock bearing 6 per cent interest, to an amount not exceeding $250,000. A branch bank was established at Knoxville, to which was allowed four- tenths of the capital stock. An agency was also established in each county in the State formed previous to the year 1819. The president and directors, ten in number, were elected on a joint ballot of the Leg- islature. The officers were instructed to put the bank into operation by the 15th of the next October, and to issue $500,000 in bills of denomi- nations of not less than $5 nor more than $100. Provision was after- ward made for the issue of $75.000 in fractional notes. According to
332
HISTORY OF TENNESSEE.
the charter either the Nashville Bank or the bank at Knoxville, or both, together with their branches, could consolidate and incorporate them- selves with the State bank, but this they were unwilling to do.
The bank began business at the appointed time, and at first seemed to meet the expectations of its founders, but its capital having been dis- tributed over the State, large amounts were lost by the defalcations of the county agents, and to add still further .to its embarrassment, the cashier of the main bank, Joel Parrish, in 1832, was found to have per- mitted overdrafts to the amount of about $80,000, the greater part of which was lost. On account of the number of branches, or agencies, this bank was sometimes referred to as the "Saddle Bags Bank." Gov. Carroll, in his message to the Legislature in 1833, discussed the subject at considerable length, and advised the closing of the bank, wisely add- ing that "the establishment of banks for the purpose of relieving the people from pecuniary distress, is, in most cases, ruinous to those who avail themselves of such relief."
In conformity with the recommendation of the Governor, the Leg- islature, during the session, passed an act abolishing the bank, and pro- viding that its funds should be deposited in the Union Bank, then just incorporated. The capital stock of the latter bank was limited to $3,- 000,000, of which the State subscribed $500,000, in her own bonds, due in fifteen, twenty, twenty-five and thirty years, bearing 5 per cent inter- est. In consideration of this support the bank agreed to pay annually to the State a bonus of one-half of 1 per cent on the capital stock paid in. The bank began business March 4, 1833, and from that time until the civil war was one of the leading monetary institutions of Ten- nessee. Its stock was mainly held by Eastern capitalists, over 16,000 shares having been taken in Philadelphia.
In 1846 the president of the Bank of Tennessee was authorized to dis- pose of the State's stock in the Union Bank, then amounting to $646,000, provided he could obtain for it an amount sufficient to pay off the bonds issued to the bank. This could not be accomplished, and the State still had $125,000 of those bonds when the bank went out of existence. The Planter's Bank, contemporary with the Union Bank, did an equally ex- tensive business, but received no aid from the State.
In 1817 a petition for the location of a branch of the United States Bank at Nashville was signed by a number of the leading men of the State and forwarded to Washington, but before it was considered, the Gen- eral Assembly passed a law forbidding the opening of such a bank in Tennessee. Ten years later the law was repealed and the bank, with a nominal capital of $1,000,000, was established. It continued to do busi-
333
HISTORY OF TENNESSEE.
ness until 1832 when President Jackson's veto of the bill rechartering the United States Bank necessitated the closing of its doors. Stock banks, like the Union and Planters, were established to take its place, and a dis- astrous system of over-banking and consequent over-trading was the result.
The contraction in the currency and the great depression in business following the panic of 1837, induced the Legislature to establish the Bank of Tennessee. By an act passed January 19, 1838, this institution was chartered in the name and for the benefit of the State, and for the sup- port of which the faith and credit of the State were pledged. The capital stock was fixed at $5,000,000, to be raised and constituted as follows: The whole of the common school fund, the proceeds of the sale of the Ocoee lands, the surplus revenue on deposit with the State, and an addi- tional sum in specie or funds convertible into specie raised on the credit of the State, sufficient to make up the $5,000,000. The Governor was authorized to issue bonds to the amount of $2,500,000, due in thirty years, bearing 6 per cent interest, payable semi annually. The act al- so provided that the bonds should not be sold at less than their par value, and it was with the greatest difficulty that any of them were dis- posed of, the "faith and credit" of all the Western States at that time, be- ing at a very low ebb. The American Life Insurance & Trust Com- pany of New York finally purchased two-fifths of the bonds, and the re- mainder were held by the bank for several months, when they were or- dered to be canceled.
The location of the branch banks was left to the directors, who created considerable dissatisfaction in distributing them. The places chosen were Rogersville, Athens, Columbia, Shelbyville, Clarksville, Trenton, and Summerville. Another at Sparta was afterward created. The bank went into operation in the early part of 1838 with a capital of $1,000,000 derived from the sale of bonds and $90,893.71 of school fund. By April 1, 1839, this had been increased to $2,073,356.45 by the addition of the surplus revenue, and the proceeds of the Ocoee lands. The redemption of notes in specie had been suspended by the other banks of the State in 1837. January 1, 1839, a general resumption of specie payments took place, but the movement was found to be premature, and in the follow- ing October another suspension occurred. At that time the Legislature had just assembled, and Gov. Polk devotes nearly the whole of a long message to a discussion of the financial difficulties. He states that the banking capital of the State exceeds $10,000,000, and discourages any attempt to increase it. He refers to the recent suspension of specie pay- ments as a matter of great regret, and adds that "the only substantial
21
334
HISTORY OF TENNESSEE.
and permanent relief is to be found in habits of economy and industry, and the productive labor of our people."
In compliance with a resolution adopted by the next General Assem- bly, the banks on January 1, 1843, once more began the redemption of their notes in specie, and the succeeding ten years were the most pros- perous in their history. Especially was this the case with the Bank of Tennessee, which was carefully managed, and was looked upon with pride by the citizens of the State. The Legislature of 1851-52, how- ever, began the ruinous policy of granting charters to a large number of banks, the most of which were founded upon fictitious capital. Each is- sued its paper to any extent that it could be disposed of, at no matter how great a discount. The volume of currency thus unduly expanded, the credit of the old banks was impaired and their profits reduced. This extravagant system of over-banking, which had invaded every State in the Union, culminated in the panic of 1857, in which the experiences of twenty years before were renewed. Gov. Johnson foresaw this result, and in his message to the Legislature in 1853 he advised the gradual closing up of the business of the State bank. This advice he renews in his messages of 1855 and 1857. In the last he gives a report from the directors of the bank in which they state that they have come to the con- clusion with great unanimity, "and from a settled conviction, that the best interests of the State require it, that the Bank of Tennessee should be put into liquidation and its concerns closed at as early a period as the convenience of the citizens will allow." These recommendations were disregarded by the Legislature. Had they been acted upon, and the bank closed up, a large reduction of the State debt would have been effected. In October, 1857, the Bank of Tennessee suspended specie payment and began to curtail its business. The other banks did likewise. This was continued until 1861, when the exigencies of war required an in- crease in the circulating medium, and a law was passed compelling them to reverse their policy. Accordingly large issues of new notes were made, the circulation of the State bank, on September 1, 1862, reaching $4,710,666.
When the Federal occupation of the State became imminent the banks were given permission to carry their assets into other States. The Bank of Tennessee was transferred to Georgia, and its specie deposited at Atlanta, where it afterward fell into the hands of the United States authorities. After the removal of the bank from Nashville its assets, to the amount of over $8,000,000, were converted into Confederate bonds, coupons and treasury notes, which of course became valueless upon the restoration of peace. Gov. Brownlow, in his message of 1865, advised
335
HISTORY OF TENNESSEE.
the closing up of all existing banks, declaring them insolvent, and se- verely criticising their management previous to the war. In February, 1866, an act "to wind up and settle the business of the Bank of Ten- nessee " was passed. Six directors were appointed for this purpose, who were instructed to receive in payment for debts due the bank United States currency, or notes of the bank issued prior to May 6, 1861. The notes issued after that date were known as "New Issue" or "Torbett Is- sue," from the name of the president, G. C. Torbett, elected May 9, 1861. These were declared utterly void.
In May, 1866, by appointment of the chancery court, S. Watson be- came the trustee of the bank, and then began a series of litigations ex- tending over a period of twenty years. The act closing the bank gave the school fund the preference in the distribution of assets over all other creditors. The depositors secured a decision of the supreme court against the validity of this act, and the holders of the "New Issue" de- manded the redemption of their notes, also obtained a favorable decision. The assets of the bank were not sufficient to redeem these notes, and the State is compelled to receive them for taxes. The amount of the "New Issue" has not yet been definitely determined, but it is not far from $1,000,000, treasury certificates having already been issued for nearly that amount. According to the constitution adopted in 1870, the found- ing of a bank by the State is prohibited. Section 31, Article 2, reads as follows: "The credit of the State shall not be hereafter loaned or given to, or in aid of any person, association, company, corporation or munici- pality. Nor shall the State become the owner in whole, or in part, of any bank, or a stockholder with others in any association, company or municipality."
In 1875 some effort was made to amend the constitution and estab- lish another State Bank. Comptroller Burch in his report in 1874 ad- vocated this measure. He proposed that the State issue $5,000,000 of bonds, which he thought could be sold at 90 per cent. This would yield $4,500,000 as the capital stock of the bank, and an issue of notes could then be made to the amount of $13,500,000. on the basis of $3 circula- tion to $1 of capital. This scheme received but little support, and it is not probable that so long as the present system of national banks is maintained, the people of Tennessee will care to renew their experience with State banks.
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