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THE
committee . . . as legislators and as guardians of the public welfare . .
. give it as their undivided opinion, that . . . banking establishments,
increased as they already have been, to a great extent in the interior of
our state, counteract entirely all the beneficial effects expected from
them; and instead of facilitating exchange and the transmission of money
from one part of the state to the other, it has rendered it impossible to
be done without great loss; in consequence of local banks having engrossed
the whole circulation in their neighborhood, and the depreciation of their
notes abroad, to the very great embarrassment of internal commerce. But
this is not the extent of the evil, nor, in the opinion of the committee,
by any means the greatest; but the effect it produces on society,
immediately within their vicinity, is still more to be deplored.
They
enable the designing, unprincipled speculator, who in fact has nothing to
lose, to impose on the credulity of the honest, industrious, unsuspecting
part of the community, by their specious flattery and misrepresentation,
obtaining from them borrowed notes and endorsements, until the ruin is
consummated, and their farms are sold by the sheriff. Examples of this
sort are too common and too notorious to need any illustrations from the
committee . . . .
By
adopting a variety of schemes to get their notes into circulation, such as
placing a partial fund in a distant bank to redeem their paper, and after
the fact becomes generally known that their paper is at par in that
quarter, issuing an emission of notes signed with ink of a different
shade, at the same time giving secret orders to said bank not to pay the
notes tints signed, and subjecting the owners of them to loss anti
disappointment compelling them either to sell them for what they would
fetch, or to return without accomplishing the business they went on. . .
Others,
by a different stratagem, but no less contrary to the intent
[442]
and meaning of their charter, have issued a species of paper
called facility notes, purporting to be payable in neither money,
country produce, or any thing else that has body or shape, and thereby
rendering their name appropriate only but by facilitating the ruin of
those who are so unfortunate as to hold them. There are other practices
which the committee are informed are very common, and they believe will
not be doubted, which no less vitiate the first principles of their
charter. They give large accommodations to individuals conditionally; to
some, that they will keep in circulation a certain sum (which notes are
designated by a private mark) for a specified time ; but in case they
return sooner, he is again to be charged with the discount on such sum for
the remainder of the time; to avoid which he is compelled to make long
journeys into distant counties, to change the notes for those of other
banks, thus squandering his time and his money for their benefit. To
others, on condition that they will pay their note when due, in what is
called current money, (meaning notes of such of the banks as are current
throughout the state, they not considering theirs as entitled to that
appellation,) which compels the borrower, during the time his note is to
run, to lay by him all the current money he can collect, which of
necessity he must lose the use of, and for which he is obliged to pay for
the sum he may be deficient of, as the time draws near a close, a premium
of from seven to fourteen, and sometimes, as your committee have been
informed, as high as twenty per cent. for one day, when his note is again
renewed, and the same operation is commenced anew.
To
others on condition they exchange with them, a sum equal to their note
offered, of notes of other banks, (for which they are compelled to give a
premium,) and receive their own in return. To others, on condition one
half the sum remains in the bank until the note is due, thereby receiving
an usurious interest . . . .
They
hold the purse strings of society, and by monopolizing the whole of the
circulating medium of the country, they form a precarious standard, by
which all the property in the country, houses, lands, debts and credits,
personal and real estate of all descriptions, are valued, thus rendering
the whole community dependent on them, and proscribing every man who dares
oppose or expose their, unlawful practices: and if he happens to be out of
their reach so as to require no favor from them, then his friends are made
the victims, so that no one dares complain
The
merchant who has remittance to make abroad, is contented to pocket the
loss, occasioned by the depreciation of their money, rather
[443] than
hazard their resentment by asking them for specie or current notes; and
here the committee beg leave to state as a fact, an instance where the
board of directors of a bank passed a resolution, declaring that no mail
should hold a seat at that board, or receive any discounts at the bank,
who should trade at a certain store in the same village, in consequence of
the owner having asked for a sum less than four thousand dollars in
current money to remit to New-York, while at the same time he kept his
account in said bank . . .
.
. . the committee cannot refrain from remarking, that hitherto liberal and
extended encouragement given to banking operations beyond its legitimate
object, has annually invited to our capitol, skilful and experienced
banking agents, professing general and not local objects . . .
who . . . in the present instance, from seeing notices in the state
paper of eighteen new applications for banks intended to be made at the
present session, have no doubt come up with high raised expectations of
reaping a rich harvest, and by amalgamating banking bills with those of
more importance and more salutary in their nature, and by assorting and
canvassing the house with all the conflicting interests of individuals,
until all distinction is lost between the fair and the honest petitioner,
and the cunning designing speculator, and thus the man who asks in the
simplicity of his heart for what he honestly conceives his right, is soon
made to understand, that in order to obtain it he must become the
instrument of designing men, and advocate that which his better judgment
tells him is wrong. And your committee are constrained to say, that this
practice has hitherto been carried to such an extent, and has met with
such success, as to encourage corporations as well as individuals, to
assume banking powers where none were ever granted: and after having put
all law and authority to defiance, and creating themselves a fund,
calculating on the encouragement and skill of these agents, have had the
unexampled temerity to petition the legislature of this state and urge
them, through the medium of these agents, to grant them a charter for
banking, as a reward for the unwarrantable assumption of that right . . .
.
The
committee will conclude this general report on the state of the currency,
by examining briefly, the foundation on which the present circulating
medium is based. The committee believe, the present circulation in the
state principally consists of the notes of those banks whose nominal
capitals are small, and composed principally of the notes of the
individual stockholders, called stock-notes. So that the security of the
[444] public consists of the private fortunes of
individual stockholders, and those fortunes, in a great measure, consist
of the stock of the bank, for which they have given their notes; so that
the bank is enriched by holding' their notes, and they are enriched by
holding the stock of the bank: And as these banks make large dividends,
many rapid, and what are considered solid fortunes, are made. Like a boy
mounting a summit as the sun is setting, suddenly observes his shadow on
the opposite precipice, (regardless of the gulph between,) is astonished
to see how tall he has grown; when night ensues, ere he is aware, he is
plunged, shadow, substance and all, in the abyss below, covered with
darkness and despair. Such the committee extremely apprehend will be the
result of many of the present institutions, and bring ruin and distress on
the country, unless they change their mode of business . . . .
On
the whole, the committee coincide fully in the opinion expressed by his
excellency on the subject of banks, in his speech, delivered at the
opening of the session, where he says:---
"The
evils arising from the disordered state of our currency, have been
aggravated by the banking operations of individuals, and the
una[u]thorized emissions of small notes by corporations. They require the
immediate and correcting interposition of the legislature. I also submit
it to your serious consideration, whether the incorporation of banks in
places where they are not required by the exigencies of commerce, trade or
manufactures, ought to be countenanced. Such institutions having but few
deposits of money, must rely for their profits principally upon the
circulation of their notes, and they are therefore tempted to extend it
beyond their faculties. These bills are diffused either in shape of loans,
or by appointing confidential agents to exchange them for those of other
establishments. But the former mode being conducive to profit; is at first
generally adopted; and in the early stages of their operations, discounts
are liberally dispensed. This produces an apparent activity of business,
and the indications of prosperity. But it is all fictitious and deceptive,
resembling the hectic heat of consuming disease, not the genial warmth of
substantial health; a reaction soon takes place. These bills are in turn
collected by rival institutions, or passed to the banks of the great
cities, and payment being required, the only resource left is to call in
their debts, and exact partial or total returns of their loans. The
continual struggle between conflicting establishments to collect each
other's notes, occasions constant apprehension. The sphere of their
operations is narrowed. Every new bank contracts
[445] the
area of their paper circulation; and after subjecting the communities
within their respective spheres of operation to the pernicious
vicissitudes of loans, at one period profusely granted, and at another
parsimoniously withheld, they finally
settle down into a state of torpid inaction, and become mere conduits of
accommodation to a few individuals. The legislature are then solicited to
apply a remedy by the incorporation of other banks, whereas, every new one
of this description, unless attended by peculiar circumstances, paralyzes
a portion of capital and augments the general distress. The banishment of
metallic money, the loss of commercial confidence, the exhibition of
fictitious capital, the increase of civil prosecutions, multiplication of
crimes, the injurious enhancement of prices, and the dangerous extension
of credit, are among the mischiefs which flow from this state of things.
And it is worthy of serious inquiry, whether a greater augmentation of
such institutions may not in course of time produce an explosion that will
demolish the whole system. The slow and periodical returns of
husbandry being incompetent to the exigencies of banking establishments,
the agricultural interest is the principal sufferer by these
proceedings."
If
the facts stated in the foregoing be true, and your committee have no
doubt they are, together with others equally reprehensible and to be
dreaded, such as, that their influence too frequently, nay often, already
begins to assume a species of dictation altogether alarming, and unless
some judicious remedy is provided by legislative wisdom, we shall soon
witness attempts to control all selections to office in our counties, nay,
the elections to this very legislature. Senators and members of assembly
will be indebted to banks for their seats in this capitol, and thus the
wise ends of our civil institutions will be prostrated in the dust by
corporations of their own creation. It is therefore evident, the
deleterious poison has already taken deep root and requires immediate
legislative interference with their utmost energy.
H[ezekiah]
Niles, editor, Niles' Weekly
Register, March 14, 1818 (Baltimore), XIV 39-41 passim.
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