USA > Tennessee > History of Tennessee the making of a state > Part 21
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1 Andrew M'Millin, eashier of the Knoxville branch said : " With but few exceptions the agents in East Tennessee have aeted with strict integrity and have managed their agencies only with a view to the interests of the institution."
2 Also those of the old State Bank.
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the State was pledged to the redemption of all debts of the bank in proportion to the amount of the state stock. Proper limitations were placed upon the power to inflate the currency. The charter of the Union Bank showed a distinct advance in the knowledge of the proper relations which should exist between State and bank. In 1856 the stock of the State was transferred to the Bank of Tennessee.
In 1833 the Planter's Bank was chartered upon the model of the Union Bank, as also the Farmer's and Merchant's Bank, except that the State had no stock in the latter. The former was designed as a Middle Tennes- see Bank, with headquarters at Nashville, and the latter as a West Tennessee Bank, with headquarters at Memphis.
Up to 1838 the three subjects which chiefly engrossed the attention of those who confined their attention to state affairs, were the public schools, the banks, and inter- nal improvements. As yet, however, the last, although a matter of constant discussion and even legislation, had been compelled to stand upon its own footing. Especially was it true that it had not become in any manner entan- gled with the financial institutions of the State. On Jan- uary 19, 1838, this limit was overstepped, and, undeterred by the experience of the previous' experiment, the legisla- ture chartered the Bank of Tennessee, "to raise a fund for internal improvements and to aid in a system of educa- tion." The faith and credit of the State were pledged for the support of the bank, to supply any deficiency in the funds specifically pledged and to give indemnity for all losses arising from such deficiency. The capital stock was 85,000,000, raised from the whole school funds, the surplus revenue deposited by the federal government and in such sum in specie or in fund convertible into specie at par value as may be necessary to make up the balance. The governor was directed to issue $2.500,000, of state bonds for the benefit of the bank. Twelve directors were
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to be nominated to the General Assembly by the governor. " more than one third of whom shall in no case be mer- chants." Fortunately for the State, William Nichol was elected president, and Henry Ewing cashier. With but slight intermission, either Nichol or Cave Johnson was president of the Bank of Tennessee until Isham G. Harris became governor. Another provision in the charter de- signed for the benefit of farmers, and which subsequently caused much trouble, was one forbidding the bank or its branches to discount more bills of exchange than notes and bills single. Of the dividends, $100,000 were to go to common schools ; $18,000 to academies, and any defi- cieney was to be made good by the State. The bank might not owe at any one time, exclusive of deposits, more than twice the amount of its capital stock. The notes of the bank were receivable for taxes. Discounts were to be apportioned annually among the counties in pro- portion to the number of qualified voters. Of the bonds ordered to be issued, 81.000,000 were sold in New York at par, and the bank reaped a double profit by assign- ing to each branch its pro rata and authorizing it to draw at the usual rate of exchange and receive the bills of the new bank, thus giving them circulation at par. Another problem which met the new bank on the threshold of its existence arose from the fact that the other banks had suspended specie payment. If paper, payable on demand, had been issued, it would have been possible to issue but a small amount of notes beyond the actual quan- tity of specie on hand. On the other hand, was it possi- ble or even honest to issue paper redeemable on demand with the express intention of not redeeming it on demand ? The problem was new and its solution, though novel, was successful. Post-notes were issued payable in twelve months, and the faith of the bank was pledged to redeem them in specie whenever the other banks resumed, either before or after maturity. The president of the bank
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reported that no inconvenience resulted from the experi- ment. Specie payment was resumed in January. 1839.
The principal bank and three branches were to be located in Middle Tennessee, two branches in East Ten- nessee, and two in the Western District. An eager ri- valry arose among the various towns for the location of the branches. Thirty-seven places presented petitions and excitement ran high. The contest over the location of the capital was not more determined. The selection finally made caused great dissatisfaction among the dis- appointed, and for a long time traces of bitterness re- mained. It was supposed that the location of the bank would have a decided effect upon the future prosperity of the town selected. The branches ultimately went to Rog- ersville, Athens, Shelbyville, Columbia, Clarksville, Tren- ton, and Somerville. The most flourishing towns at that time in West Tennessee were Jackson, Randolph. Browns- ville, Memphis, and La Grange. At a later date, branches were established at Sparta, Knoxville, and Memphis. One of the chief reasons for chartering the Bank of Tennessee was the stringency of the money market. The crash of 1832 had brought ruin to or seriously crip- pled nearly every one of the Southern and Southwestern banks, the issue of whose paper had been entirely out of proportion to their capital. It is to the honor of Tennes- see that every one of its banks came triumphantly through the crisis. But it was at the expense of the debtor elasses and by the suspension of specie payment, a practice which the example of the Bank of England and custom had made one of the ordinary expedients for financial depres- sions. The Bank of Tennessee failed to alleviate the stringency caused by the curtailment of discounts on the part of the other banks. The aggregate circulation of the Tennessee banks in 1830 and 1837 was about 85.000.000. In 1842 this had sunk to $1,200,000. Had the intention of the legislature been carried into effect, much of the
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suffering of that period would have been obviated. But the surplus federal revenue which had been deposited with the Union and Planter's banks and the Memphis banks had by these been loaned out, and being required to turn over this sum -in all it amounted to $1,356,746.41 - to the State Bank, these institutions found it necessary to restrict their operations and call in their loans. Instead of inflating the currency, it caused a contraction at the most critical period. In addition to this, only $1,000.000 of the bonds of the State issued for the benefit of the State Bank could be sold at par as required by law. The rest, $1,500,000, were subsequently destroyed by the gov- ernor in pursuance of an act of the legislature.
From the first the dissatisfaction was wide-spread and general. Governor Cannon, in 1839. said : "The bank has failed to effect the amelioration of our pecuniary af- fairs that its authors anticipated. . .. There is probably not another law to be found among our statutes that has more signally failed to fulfill the wishes of the legisla- ture." Another one of the curious financial experiments of that day was a still further attempt to unite banking and internal improvements in the Southwestern Railroad Bank. The act chartering this institution was passed in December, 1837, and its object was to confer banking privileges on the stockholders of the Louisville. Cincin- nati, and Charleston Railroad. The distinctive feature of this enterprise, which was chartered by three States, was that each share in the bank should be inseparably con- nected with a share in the railroad company, never to be transferred without it. Every person owning stock in the railroad company was entitled to one share in the bank for each share in the railroad company, and for- feiture in one worked a forfeiture of the corresponding share in the other. This bank actually went into opera- tion, and in his message of 1841 the governor mentions this as the only bank that bad not suspended specie pay-
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inent. The failure of the railroad, however, carried with it the failure of the bank.
Early in the forties the State Debt for the first time began to be a subject of disquietude. In 1842 the stock banks of the State were ordered to dispose of their real estate and receive in payment stock of the banks or bonds of the State. In 1844 it was found necessary to lay a heavy tax on personalty by an act with the sig- nificant title, "To preserve the faith and credit of the State and to avoid reducing the amount distributed annu- ally under existing laws for the support of common schools." In 1846 a sinking fund for the gradual extin- guishment of the State Debt was created. The profits of the Bank of Tennessee were inadequate to the demands upon it. The necessity of curtailment became apparent, and it was found necessary to relieve the bank by a sale of the State's interest in the stock banks. From now until the war, the history of the Bank of Tennessee is in- tricately interwoven with the history of the State, at times dragged into the arena of politics by partisan prejudice. but being always preserved by the judicious management and undoubted integrity of William Nichol and Cave Johnson. Nearly every governor of the State, from the time of its establishment to the election of Governor Harris, recommended that its affairs be wound up, but it lived through it all.
In 1852 the Free Banking Act was passed which con- tained the germ of the present national banking system. Any one with a capital of 850,000 was allowed to do a general banking business and issue circulating notes to be secured by bonds, worth par in the market, to be deposited with the comptroller, who was required to issue notes coun- tersigned, numbered, and registered in a proper book kept for that purpose. Subsequent amendments were added, and the whole act was repealed in 1858, but not until several banks had organized under it. The General
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Banking Act of 1860 placed a wise restriction upon banks and banking operations, and, had it come sooner, would have prevented not only the speenlative mania that ham- pered the legitimate industries of the State, but would also have prevented the reekless waste which turned the blessings of internal improvements to curses, the evil ef- feets of which still elog heavily the wheels of our indus- trial enterprises. The capital stoek of all banks was re- quired to be paid in coin ; it was not to exceed $3,000,000 or go below $300,000 ; the circulation was not to exceed twice the amount of its specie bonds. Monthly state- ments were to be made to the comptroller of the State. A suspension of specie payments worked a forfeiture of the charter. Individual liability of stockholders ex- tended to the amount of their stock until the original sub- scription had been paid in full. A supervisor of banks was to be appointed by the governor and confirmed by the senate.
During the war, a part of the bank's funds was used to advance the cause of secession. In addition to this, 83.000,000 of bonds were issued to assist the confederate government, and the seeds of litigation were sown which still flourish in healthful vigor. The issue signed by G. C. Torbett, and known as the Torbett Issue, was the chief source of contention. One of the first acts of the Brownlow regime, after gaining control of the State, was to pass certain amendments to the constitution, one of which declared void all notes and bonds issued on or after the sixth day of May. 1861. In his message of April, 1865, Governor Brownlow suggests an investigation into the affairs of the " three old banks." He regarded all as insolvent, and recommended that they be closed up and made to redeem their issues, and that no future state banks be chartered. In February, 1866, an act was passed requiring the governor to appoint six directors to wind up the business of the Bank of Tennessee. The
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Free Banking Aet was repealed (the previous repeal ap- plied only to banks to be organized after the date of re- peal), and the banks were ordered into liquidation, saving only those which should place their notes at par with United States treasury notes within sixty days. In April, 1866, the board of directors of the State Bank made an assignment of all the assets of the bank to Samuel Wat- son as trustee, who proceeded to wind up the bank in chancery. In 1866 he reported the entire assets of the bank to be about $16,000,000, including worthless claims. The case continued almost up to the present time. When the available assets were finally distributed to note hold- ers pro rata, provision was made for issuing notes for the balance, which were receivable for taxes. The United States Supreme Court had already decided that the issues of the bank were receivable for taxes, despite legislative enactments. An attempt was made in 1869 to convert the notes of the bank into bonds, but this failed. The holders of the notes were finally paid in full. But those who had money deposited with the State Bank have never received any return. Even those who find in the Brown- low régime a justification for the settlement at fifty cents on the dollar of that part of the State Debt issued to rail- roads, can and do offer nothing against the validity of the claims of those who deposited their money with the Bank of the State upon the faith and credit of the sovereign State of Tennessee.
Since the war the financial history of Tennessee, apart from the State Debt, has been, in the main, the financial history of the rest of the Union. Apart from a few so- called exemption charters, obtained during the disastrous period following the close of the war. the banks of Ten- nessee rest upon a healthy and just basis, always subject to the scrutiny of the State. Their complete severance from the State, the necessity of regular reports, and the inability to issue notes are the historical sequence of the
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financial experience through which Tennessee passed prior to the war. A new spirit of commercial conservatism has come in, bringing with it the possibilities of a new era of expansion, growth, and enterprise. Until a knowl- edge of the history of the various Tennessee banks shall have been lost to the people of this State, it is not proba- ble that the State as such will ever again attempt to de- part in any radical degree from its proper sphere into the fields where great rewards only come to individual effort, guided, watched, and guarded by the jealous eagerness of individual self-interest. The financial history of Tennes- see has colored and influenced the whole commercial com- plexion of the State. Radiating from the banks of the present, the true spirit of business life has permeated the entire social structure. Business has laws of its own for violations of which it has its own punishments, unknown to the code. The commercial prosperity of a community can be gauged by the extent of the reign of these laws. Before the war, this spirit was practically unknown. Be- ginning with the Southern planter, but few in practice drew a sharp line of demarcation between the exactions of business and the amenities of social life. The custom of indorsing notes indiscriminately for friends was uni- versal, and a refusal frequently brought about a rupture, at times a personal clash. A bill too often presented aroused anger and indignation. A gentleman's credit was supposed to be above suspicion, and, resting upon this supposition, liberties were taken with the goods of mer- chants and the bills of doctors that would now stamp a man as having no credit at all. In every respect, the business organization of the present is sounder, broader, and better than before the war.
CHAPTER XXVII.
INTERNAL IMPROVEMENTS.
INTERNAL improvements in Tennessee, which have played an important part in its history, were at first con- fined to the making of roads and turnpikes and the build- ing of jails, court-houses, and stocks. The roads leading from Tennessee to Virginia, Georgia, and Kentucky were matters of inter-state regulation and enterprise. Resolu- tions, memorials, and messages were constantly inter- changed. Very soon attention was turned to river navigation, and the pages of the earlier statute books are crowded with enactments allowing inill-dams and fish traps to be erected in certain creeks and rivers, or requiring them to be removed. At first, matters of this kind were subjects of local regulation. In 1804 an act was passed empowering the county courts of the State to order the laying off of public roads, establish and settle ferries, and to appoint where bridges should be built. In 1811 Gov- ernor Blount laid before the General Assembly an act passed by the New York legislature providing " for. the improvement of the internal navigation of the State of New York," which had been sent by the authorities of that State with the request that the legislature of Tennes- see be formally requested " to instruct representatives in Congress to advocate such measures in relation thereto as shall be before Congress." This was the beginning of the great canal. This memorial in effect turned the at- tention of the State in the direction of internal navigation. In November of this same year, in a resolution addressed
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to the Tennessee delegation in Congress, they are directed to obtain " free navigation of the boatable waters between this State and Mobile, to establish a road from East and one from West Tennessee to Mobile, to be kept up by turnpikes and ferries at proper points to be kept by white people, and to have the Natchez Trace kept in repair." In 1813 the governor of Tennessee is authorized to open a correspondence with the governors of the States of Alabama and Georgia, on the subject of internal improve- ment. A correspondence had already been opened with the governor of Alabama in reference to removing the obstruetions occasioned by the Muscle and Colbert's Shoals in the Tennessee River. Governor M'Minn, in his message of September, 1817, said : "I will submit for your consideration the propriety of turning your atten- tion to improving the navigation of our rivers, either by incorporating navigation companies for a definite number of years with the right to charge toll, or by such other means as your wisdom may suggest."
One of the first steps taken in pursuance of this policy was the appointment of a board of managers for opening the navigation of the rivers, who, however, beyond a meagre report or two, accomplished nothing. The gen- eral policy of internal improvement. however, was rapidly gaining favor, and the success of the Erie Canal was to the entire country an index-finger that pointed towards the goal of assured prosperity.1
In 1819 Governor M'Minn again urged on the General Assembly the subject of improving the navigation of the rivers and roads in the State. A joint resolution empow- ered him to appoint one or more fit persons to examine and explore the navigable rivers of the State for the pur-
1 The contest between Clinton and Tompkins for the governorship of New York in 1819 was a wager of battle between those favoring and those opposing internal improvements. The success of the former gave a renewed impulse to the policy.
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pose of reporting to the next General Assembly on the obstructions which existed, and the probable expense to be incurred in removing the same. The idea of the Gen- eral Assembly was to appropriate immediately 8500,000 for this purpose. In 1821 Governor M'Minn submitted to the Treasury Department of the United States an elaborate report prepared by himself, on the navigable waters of Tennessee. He also suggested a canal uniting the Holston and Tennessee to the Mobile, it being not more than eleven miles from Hiwassee to Connasanga. He also urged upon the United States the necessity of free navigation through the Muscle Shoals in the Tennes- see River.
The constitutional questions involved in the relation of the federal government to internal improvements gave rise to long debates, acrimonious discussions, and exhaustive investigations. Out of the mists, however, Henry Clay emerged as a body of light, and taking as his basis one of the pentateuch of Democratic authority, the report of Mr. Madison to the Virginia General Assembly, replying to the resolutions passed by some of the States in refer- ence to the Alien and Sedition laws, he evolved the prin- ciple of internal improvements as a part of his broader scheme or plan known in American politics as the Ameri- can system. The objections raised against the participa- tion of the general government in such works, which culminated in Mr. Monroe's celebrated veto message, but emphasized the necessity of such works and compelled the strict constructionists to look to the efforts of the in- dividual States. Clay's speeches of March 13, 1818, and January 16, 1824, were widely circulated and read. As yet no comprehensive plan had been formulated in Ten- nessee, but evidences of the demand were not wanting. In 1825 Robert H. Drer was loaned 83,000 for three years for the purpose of cutting a canal from the Forked Deer River to the Mississippi. In the same year the
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governor was authorized to appoint a suitable person to aet with the United States engineers in the survey which was about to be made of a route through the State for the Great National Road. All of these measures bore but little fruit at the time, but they indicated and encouraged the general drift towards works of this kind, and were the forerunners of the subsequent mania or bubble. This tendency was further illustrated by the readiness of the legislature to grant special inducements to those who es- tablished manufactures of any kind, by the purchase for the State of the patent right of Eli Whitney and Phineas Miller in a machine or new invention for cleaning cotton, commonly called the " saw gin," 1 and by the number of lotteries authorized to be drawn for public and local pur- poses. Among the first, if not the very first, instance of a legal sanction being given to lotteries in the Sonthwest, was the law of 1794, " to raise money to cut a wagon road from Southwest Point to Cumberland settlement." Lotteries were as common as church festivals of the pres- ent day. In 1825 the town of Franklin was allowed to proeure a town clock in this way. In 1826 alone, lot- teries were allowed for the benefit of Cumberland Col- lege, to improve the navigation of Forked Deer River, to build a masonic hall in Knoxville, to enable certain parties to make salt in Bedford County, to remove ob- structions from Caney Fork, and to encourage the estab- lishment of cotton manufactures in White County.
As early as 1823 a standing committee on internal improvements had been appointed in both houses of the state legislature, and the accession of Governor Carroll, who was a warm advocate of internal improvements, gave additional strength to the movement. In 1825 a joint resolution urged on senators and congressmen to use their best exertions " to procure a survey of the route be- tween the Hiawassee and Coosa Rivers, by civil engineers
1 This was the "cotton gin."
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of the United States, appointed to survey and lay out a road from Washington to New Orleans, and to report whether it is practicable to unite the waters of the Hia- wassee and Coosa Rivers by a canal." In 1825 the com- mittee on internal improvement submitted a report on the Great National Road, in which they recommended the line that would run through the centre of the State to a point on the Mississippi River at Memphis, there to be discontinued, as the rest of the journey to New Orleans could be made by water. Commissioners were actually appointed by Tennessee and Alabama to examine the Mus- cle Shoals in the Tennessee River with a view of making the river at that point navigable. They reported that "this could be done at much less expense than has hereto- fore been thoughit necessary."
The difficulties, however, in the way of a regular and systematic plan of operation were found almost insur- mountable. The difficulty was in deciding upon the points of commencement. Local jealousies were aroused. Each·little community clamored for recognition. Political influence came into play. Even the attempt to encourage private investment in turnpike stock failed. But the principle itself flourished, and although the way had not been found, the will was there.
The very scruples which made the strict constructionists deny the power of the general government to undertake works of internal improvements, forced them to an ac- knowledgment of the necessity that the States themselves should adopt measures for this purpose. Great works of this kind were in progress on every hand.
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