TABLE NO. 3._A Brief History of Panics and Their Periodical Occurrence in the United States

UNITED STATES TABLE OF BALANCE SHEETS OF

THE NATIONAL BANKS--QUARTERLY STATEMENT.

MILLIONS OF DOLLARS.

------+-------+-------+-------+-------+---------+-------+-------+-------+

------+-------+-------+-------+-------+---------+-------+-------+-------+

| | | | | | | | |

1865 | 66| 4| 72| 166| 183|1500 |393 |20 |

2nd Q| | | | | | | | |

3rd "| |18 |189 | | | | | |

4th "|171 | | |487 | | | | |

1866 | | | | |500 | | | |

2nd "| 213|19 |187 |500 | | | | |

3rd "| | | | | 522|1644 |415 |71 |

4th "|280 | | | | | | | |

1867 | | |205 |603 |564 | | | |

2nd "| | 9| | |558 | | | |

3rd "| | | | | 512|1642 |420 |86 |

4th "|293 | | 92| | | | | |

1868 | |20 |114 |609 | 532|1643 |420 |101 |

2nd "| | | 84| | | | | |

3rd "| | | | | | | | |

4th "|295 | | | | | | | |

1869 | |29 | | | |1617 |426 |116 |

2nd "| | | |657 |580 | | | |

3rd "| | | 80| | | | | |

4th "| |48 | | | | | | |

1870 | | | |686 |574 | | | |

2nd "| | | |688 | 511|1648 |430 |124 |

3rd "| | 18| 94 79| |546 | | | |

4th "|296 | | | | 501| | | |

1871 | | | |725 | | | | |

2nd "| | |122 | | | | | |

3rd "| | 13| 93| | |1790 |458 |140 |

4th "|318 | | 97 | | | | | |

1872 | | | |831 |611 | | | |

2nd "| | |122 | | | | | |

3rd "| | 10| | | |1940 |479 |147 |

4th "|336 | | | |620 | | | |

1873 *| | | | | | | | |

2nd "| | 16|10 97|885 |656 | | | |

3rd "|339 | 19| | |622 616|1976 |491 |153 |

4th "|341 |33 | 92|944 | | | | |

1874 | | |103 | | | | | |

2nd "| | 21| | 836| 540| | | |

3rd "| | | 80|897 | 595|2027 |493 |173 |

4th "| 331| | |955 |682 | | | |

1875 | | | | |695 | | | |

2nd "| | 8| |984 | |2087 |504 |182 |

3rd "| | | | | 618| | | |

4th "| 314| | 70| | | | | |

------+-------+-------+-------+-------+---------+-------+-------+-------+

*PANIC YEARS

MILLIONS OF DOLLARS.

------+-------+-------+-------+-------+---------+-------+-------+-------+

------+-------+-------+-------+-------+---------+-------+-------+-------+

| | | | | | | | |

1876 | | | | | |2089 |499 |184 |

2nd Q| | 21| | | 612| | | |

3rd "| | | | | | | | |

4th "| 291|32 |90 | | | | | |

1877 | |49 | 66| 929| | | | |

2nd "| 290| | | |659 |2080 |479 | |

3rd "| | 21| | | | | |167 |

4th "| | | 66| | | | | |

1878 | |54 | | | | | | |

2nd "| | 29| | 881| 604| | | |

3rd "| | | | |625 |2053 |466 |165 |

4th "|303 | | | | | | | |

1879 | |41 | 54| 826| 588| | | |

2nd "| | | | 814| |2048 |454 |153 |

3rd "| | | | | | | | |

4th "|321 |79 | 54|933 |765 | | | |

1880 | | | | | | | | |

2nd "| |86 | | | | | | |

3rd "| |109 |64 |974 | |2090 |457 |159 |

4th "| 317| 105| |1040 | | | | |

1881 | | | 52| |1000 | | | |

2nd "| 298|128 | | | 932|2132 |463 | |

3rd "| | | | | | | |176 |

4th "|323 | | | | | | | |

1882 | | 109| |1100 |1100 1000|2268 |483 | |

2nd "| |112 | | | | | | |

3rd "| | 102| |1200 |1122 | | |191 |

4th "|315 | |68 | | | | | |

1883 | | | | | | | | |

2nd "| | 97| | | | | | |

3rd "| 304|115 | | | | | | |

4th "| | | | | 1000|2501 |509 |196 |

1884 *| | |80 |1300 |1100 | | | |

2nd "| |109 | 75| | |2664 |524 | |

3rd "| 289|128 |77 |1306 | | | |209 |

4th "| |167 | | 1200|1000 975| | | |

1885 | | | | | | | | |

2nd "| |177 |79 | | | | | |

3rd "| | | 69| 1200| |2714 |527 |206 |

4th "| 268| | | |1100 | | | |

1886 | |171 | 62| | | | | |

2nd "| | 149| |1470 |1152 |2852 |548 | |

3rd "| | | | |1172 | | |212 |

4th "| 202| | | | | | | |

1887 | |171 |79 | | |3049 |578 | |

2nd "| | | 73|1587 |1285 | | |231 |

3rd "| | | | | | | | |

4th "| 164| 159| | | | | | |

1888 | | 172|83 | | | | | |

2nd "| |178 | | | | | | |

3rd "| | | | | |3120 |588 | |

4th "| 151|182 | | | | | |246 |

1889 | | | 81|1684 |1350 | | | |

2nd "| | |97 | | |3170 |596 |269 |

3rd "| | | | | | | | |

4th "| 126| 164| | | | | | |

1890 *| |171 | 84|1811 |1436 | | | |

2nd "| | | | | |3383 |626 |290 |

3rd "| |178 | | | | | | |

4th "| 123|190 | | | | | | |

1891 | | | 82|1932 |1521 | | | |

2nd "| | | | | 1483|3601 |662 |316 |

3rd "| 123|199 | | |1575 | | | |

4th "| | |100 |1962 |1525 | | | |

------+-------+-------+-------+-------+---------+-------+-------+-------+

*PANIC YEARS

MILLIONS OF DOLLARS.

------+-------+-------+-------+-------+---------+-------+-------+-------+

------+-------+-------+-------+-------+---------+-------+-------+-------+

1892 | | | | | | | | |

1st Q|141 |230 |99 |2044 |1702 |3711 |678 |330 |

2nd "| |239 | |2171 |1769 | | | |

3rd "| | |113 | | | | | |

4th "|145 | 209| | | |3784 |689 |353 |

1893 | | | | | | | | |

1st "| 149| | 90|2161 |1751 |3830 |688 |352 |

2nd "| | 186| | | | | | |

3rd "| 182| | | 1843| | | | |

4th "| |251 |131 | | 1451| | | |

1894 | | | | | | | | |

1st "|174 |259 |146 | 1872| |3777 |678 | |

2nd "| | | | | | | | |

3rd "| 189| | |2007 |1728 | | | |

4th "| | 218| 119| | | | |339 |

1895 | | | | | | | | |

1st "| 169|220 | | 1965| |3728 |662 | |

2nd "| | | | | | | | |

3rd "| | | | |1736 | | | |

4th "|185 | 196| 93|2059 | | | |340 |

1896 | | | | | | | | |

1st "| 187| 196| |1982 |1687 |3699 |653 | |

2nd "| | |118 | | | | | |

3rd "| | | | | | | | |

4th "|210 | | 110| 1893| 1597| | |342 |

1897 | | | | | | | | |

1st "|202 | 233| | | 1669|3634 |642 | |

2nd "| | |126 | | | | | |

3rd "| | | | | | | | |

4th "| 193|252 | 107|2100 |1916 | | |341 |

1898 | | | | | | | | |

1st "| 184| 271|120 | | |3594 |628 | |

2nd "| | | | | | | | |

3rd "| | | | | | | | |

4th "| | | 110|2214 |2225 | | |340 |

1899 | | | | | | | | |

1st "| |371 |116 | | | |608 | |

2nd "| 199| | | | | | | |

3rd "| | | | | | | | |

4th "| | 314| 101|2496 |2522 |3602 | |363 |

1900 | | | | | | | | |

1st "| 204| 339| 122| | | | | |

2nd "| | | | | | | | |

3rd "| | | | | | | | |

4th "| | |145 |2706 |2623 |3942 |632 |403 |

1901 | | | | | | | | |

1st "| 309|399 | | | | | | |

2nd "| | | | | | | | |

3rd "| | |164 | | | | | |

4th "| | 369| 151|3038 |2964 |4291 |665 |448 |

1902 | | | | | | | | |

1st "| 309| | | | | | | |

2nd "| 309| |164 | | | | | |

3rd "| | | | | | | | |

4th "| | 366| 141|3303 |3209 |4666 |714 |516 |

1903 | | | | | | | | |

1st "| 335| | | | | | | |

2nd "| | |163 | |3200 | | | |

3rd "| | | | | | | | |

4th "| | 378| 142|3481 | |5118 |758 |564 |

------+-------+-------+-------+-------+---------+-------+-------+-------+

MILLIONS OF DOLLARS.

------+-------+-------+-------+-------+---------+-------+-------+-------+

------+-------+-------+-------+-------+---------+-------+-------+-------+

1904 | | | | | | | | |

1st Q| 380| 453| | | | | | |

2nd "| | | | | | | | |

3rd "| | |169 | | | | | |

4th "| |504 | |3772 |3707 |5477 |776 |594 |

1905 | | | | | | | | |

1st "| 424| |178 | | | | | |

2nd "| | | 157| | | | | |

3rd "| |495 | | | | | | |

4th "| | 460| |4016 |3889 |5833 |808 |632 |

1906 | | | | | | | | |

1st "| 498|492 |175 | | | | | |

2nd "| | | | | | | | |

3rd "| | | | | | | | |

4th "| | 459| 152|4366 |4289 |6199 |847 |687 |

1907 | | | | | | | | |

1st "| | |173 | | | | | |

2nd "| 543| | | | | | | |

3rd "| | | | | | | | |

4th "| |531 | 151|4678 |4819 |6625 |901 |749 |

1908 | | | | | | | | |

1st "| | | | | | | | |

2nd "| | |192 | | | | | |

3rd "| | | | | | | | |

4th "| 599|680 | |4840 |4720 |6865 |921 |779 |

1909 | | | | | | | | |

1st "| | |198 | | | | | |

2nd "| 615| | | | | | | |

3rd "| | | | | | | | |

4th "| |694 | 176|5148 |5120 |7006 |953 |825 |

1910 | | | | | | | | |

1st "| 667| | | | | | | |

2nd "| | | | | | | | |

3rd "| | | | | | | | |

4th "| |672 | 169|5467 |5304 |7204 |1004 |894 |

1911 | | | | | | | | |

1st "| 680| | 168| | | | | |

2nd "| | | | | | | | |

3rd "| | |185 | | | | | |

4th "| |761 | |5663 |5536 |7328 |1026 |930 |

1912 | | | | | | | | |

1st "| 704| | | | | | | |

2nd "| |769 |188 | | | | | |

3rd "| | | | | | | | |

4th "| | | |6058 |5944 |7420 |1046 |969 |

1913 | | | | | | | | |

1st "| 717|749 | | | | | | |

2nd "| | |189 | | | | | |

3rd "| | | | | | | | |

4th "| | | |6260 |6051 |7509 |1059 |1007 |

1914 | | | | | | | | |

1st "| 720| |201 | | | | | |

2nd "| |792 | |6357 |6111 |7493 |1057 |1003 |

3rd "|1018 | 746| | | | | | |

4th "| 848| 534| 128| | |7581 |1065 |1007 |

1915 | | | | | | | | |

1st "| 746| 591| 127|6499 |6348 |7599 |1066 |1012 |

------+-------+-------+-------+-------+---------+-------+-------+-------+

The adage "buy cheap and sell dear," or its practical equivalent--so

scary and imitative are investors--_Buy during the last of a selling

movement and sell during the last of a buying movement_, resolves

itself, we venture to repeat, into: _Buy when the decline caused by a

panic has produced such liquidation that discounts and loans, after

steady and long-continued diminution, either become stationary for a

period or else increase progressively coincident with a steady increase

in available funds; and sell for converse reasons_.

These conclusions are also reached by our author through analyses of the

Financial History of England, France, Prussia, Austria, etc. These I

omit as unnecessarily wearisome to the reader since I give that of our

own country. However, I will here quote the following: "What must be

noted is the reiteration and sequence of the same points _(faits)_

under varying circumstances, at all times, in all countries and under

all governments," and also this table showing all the panics and their

practical coincidence in the past eighty-five years, in France, England,

and the United States.

France England United States

1804 1803

1810 1810

1813-14 1815 1814

1818 1818 1818

1825 1825 1826

1830 1830 1829-31

1836-39 1836-39 1837-39

1847 1847 1848

1857 1857 1857

1864 1864-66 1864

1873 1873

1882 1882 1884

(a 1889-90 (a 1890-91 1890-91

p 1894 p 1894 1893-94

p 1897 p 1897 1897

r 1903 r 19O3 1903

o 1907 o 1907 1907

x 1913 x 1913 1913

i i

m m

a a

t t

e e

l l

y) y)

Truly these thirteen panics in the three countries have been practically

simultaneous and one common cause must have originated them. The only

cause common to all was overtrading to such an extent that neither

credit nor money were to be had, so that a forced liquidation or panic

inevitably ensued.

The above table effectually does away with the theory that new tariffs

are directly productive of panics. For most certainly new tariffs did

not occur in England, France, and the United States just before or

during all the panic years enumerated, and yet, practically

simultaneously in free-trade England, high-protection France, and

sometimes low-tariff, sometimes high-protection United States have

panics occurred for eighty years.

But, as I have shown in a note attached to this Introduction, a new

tariff or a general change of duties is apt to precipitate a panic, on

account of the unsettling of business, and that the consequent shaking

of credit adds its quota to the forces finally culminating in a panic

cannot be doubted. As a matter of history with us, substantially new

tariffs have always happened to be the immediate forerunners of a panic,

and this I believe to be true in the case of other countries.

Why is this? Is it not because the people instinctively turn to

tinkering at and changing their chief tax--the tariff--whenever they as

a whole need financial relief; and have we not shown that such relief is

needed almost every ten years, when the overtrading, inseparable from

the development of all thriving communities has made the call for credit

impossible to grant?

A new tariff may defer, or hurry, or, occurring simultaneously, will

intensify a panic, but it may not hope to avert one when due: yet if its

changes be very gradual, fixed and long predicted, and of a nature to

bring about or confirm a judicious tariff for revenue only, they will

materially help to put business on so firm and sound a basis that

recovery from the inevitable, and approximately decennial panics, will

be wonderfully expedited. Thus a new tariff is a quite accurate

forewarning of a panic, and is also to no inconsiderable extent a

contributory cause. (See foot-note on page 5, _seq., Interrelations of

Panics, Tariffs, and the Condition of Agriculture_, etc.; and

especially what is said of the panic of 1848, on page 10.)

M. Juglar has fully analyzed the three phases of our business life into

Prosperity, Panic, and Liquidation, which three constitute themselves

into the business cycle, that for forty years past (that is, since the

present Bank of England Act, and practically since that of the Law

governing the Bank of France, both of which then increased the required

specie reserve) has been of about ten years. These ten years may be

apportioned roughly as follows: say, Prosperity for five to seven years;

Panic a few months to a few years, [Footnote: The panic after 1873 is

the only one I know extending to anything like the length it attained.

This may be ascribed to the immense development and consequent

speculation, and to the inflation of the currency coming after the

period about the Civil War.] and Liquidation about a few years.

I have already pointed out the signs of prosperity, of panic, and of

liquidation, but in view of existing conditions perhaps it may be well

to restate here the quite familiar fact that the completion of

liquidation that precedes the beginning of another period of prosperity

is characterized by lack of business, steady prices, and a marked growth

in available banking funds.

[The various tables spread through this pamphlet are fully explained by

their headings and the text.]

In conclusion I wish to express my thanks for the courtesy M. Juglar

has extended me, and to state my appreciation of the motives,

painstaking patience, and undoubted originality he has shown in

explaining and executing so faithfully and with such genius a most

laborious and yet spirited work. It is only justice that such an

achievement should have been awarded a prize by the French Institute

(Academy of Moral and Political Sciences) and have gained for M. Juglar

the Vice-Presidency of the "Society for the Study of Political Economy."

DeCourcy W. Thom.

Wakefield Manor.

A HISTORY OF PANICS IN THE UNITED STATES

CONSIDERED WITH SPECIAL REFERENCE TO AMERICAN BANKS.

The English Colonies soon after their settlement issued paper money.

The first was Massachusetts, which issued it even before her

independence, in 1690, to obtain funds in order to besiege Quebec.

This example was followed to such an extent that it caused a marked

speculation in favor of hard money, varying according to the quantity of

notes in circulation. In 1745, after a successful campaign against

Louisburg and the taking of that fortress, two million pounds of paper

money were issued, which step decreased its value. When liquidation

occurred these paper pounds were not worth 10 per cent. of their face

value.

The War of Independence obliged Congress to issue three million of paper

dollars. This amount increased to $160,000,000, so that Congress

declared, in 1779, that it would not issue more than $200,000,000.

Notwithstanding this guaranty, notwithstanding the forced and legal

rating conferred by this enactment, notwithstanding the war spirit, it

depreciated; and in 1779 it was necessary to decree that, disregarding

its normal value, it should be taken at its face. In 1780 it was no

longer taken for customs dues. In 1781 it had no rating and was not even

taken at 1 per cent. of its face value.

Between 1776 and 1780 the issue of paper money increased to $359,000,000.

BANK OF NORTH AMERICA.--In 1781 Mr. Morris, Treasurer, persuaded

Congress to form a bank (the Bank of North America) with a capital of

$10,000,000, of which $400,000 should be turned over to help the

national finances. The capital was too insignificant and the course of

politics too unpropitious to accomplish this end. However, the example

encouraged the States to take up their paper money. Upon the adoption of

the United States Constitution the issuing of paper money ceased, and

gold and silver were the only means of circulation. Thence arose great

embarrassment for the Bank of North America, which, hampered by its

loans to the Government, increased its note circulation to an enormous

proportion. The ebb of paper through every channel finally aroused the

public fears, and people refused the notes. Every one struggled to

obtain metallic money, hence it became impossible to borrow, and

bankruptcy followed. Such was the, excitement that the Philadelphians as

a body demanded and obtained from the Assembly of Representatives a

withdrawal of the charter; but the Bank, relying upon Congress,

continued until March 17, 1787; succeeded even in extending its charter

fourteen years; and later obtained a second extension, limited, however,

to Pennsylvania.

The difficulty experienced in the manufacture of money led Mr. Hamilton,

Secretary of the Treasury, to propose to Congress in 1790 the founding

of a National Bank. After some doubts as to the power of Congress, it

was authorized. It began operations in 1794, under the title of "Bank of

the United States," with a capital of ten millions, eight millions being

subscribed by private individuals, and two millions by the Government.

Two millions of the first sum were to be paid in metallic money, and six

millions in 6 per cent. State bonds; the charter was to run till March

4, 1811. It seemed to be a good thing for the public and the

stockholders, for during twenty-one years it paid an average of 8 per

cent. dividends. In 1819 the question of renewing its privileges came

up, the situation being as follows:

ASSETS. LIABILITIES.

6 per cent. Paper $ 2,230,000 Capital Stock $10,000,000

Loans and Discounts 15,000,000 Deposits 8,500,000

Cash 10,000,000 Circulation 4,500,000

The profits from the Bank, the prosperous state of the country, and the

increase of productions led people to think that the issuing of paper

money caused it all; seduced by this alluring theory the "Farmers' Bank"

was founded in Lancaster in 1810, with a capital of $300,000. Others

followed; such was the mania that the Pennsylvania Legislature was

forced to forbid every corporation to issue notes. Despite this

preventive message the excitement rose so high that companies, formed to

build harbors and canals, also put notes into circulation; in this way

the law was eluded.

From 1782 to 1812 the capital of the banks rose to $77,258,000; upon the

1st of January, 1811, there were already eighty-eight banks in

existence. Until the declaration of war (June, 1812), the issuing of

notes was always made with the intention of redeeming them, but the

over-issue soon became general, and depreciation followed. The

periodical demands for dollar-pieces for the East Indian and Chinese

trade were warnings of the over-speculations on the part of those

companies whose members were not personally liable. Traders, who through

their notes or their deposits had a right to credit with the banks, did

not hesitate to ask for $100,000, whereas, formerly they would have

hesitated to ask for $1,000. The war put a stop to the exportation of

precious metals, which, in the ordinary course of things, limits the

issue and circulation of paper. The upshot of this was to redouble the

note issue, each one believing its only duty was to get the largest

amount into circulation. Loans, and enormous sums of money, were

distributed above all reason among individuals and among the States. The

increase of dividends and the ease of obtaining them extended the spirit

of speculation in certain districts, and especially among those who

owned land. The remarkable results shown by the Bank of Lancaster, the

"Farmers' Bank," which, by means of an extraordinary issue of notes, had

yielded as much as 12 per cent. and piled up in capital twice the amount

of its stock, caused it to be no longer thought of as a bank intended to

assist trade with available capital, but as a mint destined to coin

money for all owning nothing at all. Led by this error, laborers,

shopkeepers, manufacturers, and merchants betook themselves to quitting

active occupations to indulge in golden dreams. Fear alone restrained

some stockholders connected with the non-authorized companies, and led

them to seek for a legal incorporation.

In Pennsylvania, during the session of 1812, an act was passed

authorizing twenty-five banks, with a capital of $9,000,000. The

Executive nevertheless refused to ratify it, and returned it with some

very well-deserved comments. In a second debate the first resolution was

rescinded by a vote of 40 to 38. In the following session the

proposition was renewed with more vigor, and forty-one banks with a

capital of $17,000,000 were authorized by a large majority; the

representations of the Executive proved useless, and they immediately

entered upon their duties with an insufficient capital.

To discount their own stock was a soon-discovered method. They thus

increased the amount of notes, which depreciated in comparison with hard

money, and dissipated on all hands the hope of exchanging with it.

In the absence of a demand from abroad for hard money, the demand came

from within our own borders.

The laws of New England, which were very severe upon the banks, had

placed a penalty of 12 per cent. upon the annual interest payments of

those persons who did not pay their notes. The natural result was a

difference of value between New England and Pennsylvania, which measured

the depreciation caused by paper in the latter district. As remittances

on New England could only be made in hard money, the equilibrium of the

banks was disturbed; they were not able to respond to the demands for

redemption, and a suspension of payments by the banks of the United

States, except those of New England, took place in August and September,

1814.

THE PANIC OF 1814.--An agreement took place at Philadelphia between the

bank and the chief houses allied with it to resume payments at the end

of the war.

Unhappily, the public did not demand the accomplishment of this promise

at the time fixed, and the banks, led on by the thirst of gain, issued

an unprecedented amount of bank notes. The general approbation brought

about a still further increase in their number: the bank notes of the

Bank of Philadelphia were at a discount of 80 per cent.; the others at

75 per cent, and 50 per cent., and metallic money disappeared to such an

extent that paper had to be used to replace copper coin. The

depreciation of fiat money raised the price of everything; this

superficial occurrence was looked upon as a real increase, and gave rise

to all the consequences that a general inflation of value could produce.

This mistake on the subject of artificial wealth made landed proprietors

desire unusual proceeds. The villager, deceived by a demand surpassing

his ordinary profits, extended his credit and filled his stores with the

highest-priced goods; and importations, having no other proportion to

the real needs than the wishes of the retailers, soon glutted the

market. Every one wished to speculate, and every one eagerly ran up

debts. Such was the abundance of paper money that the banks were alarmed

lest they could not always find an investment for what they

manufactured. It thus happened that it was proposed to lend money on

collateral, while the greatest efforts to bring about its redemption

were being made. This state of things lasted till the end of 1815, when

it was recognized that the paper circulation had not enriched the

community, but that metallic money had enhanced.

The intelligent portion of the nation comprehended that even where the

estimated value of property had been highest, the true welfare of

society had diminished. They learned too late the baleful effects of

this circulation of paper money; the greater part of the States and

cities had nothing to show for it.

A new class of speculators then appeared, trying to pass these worthless

bank notes: forgers of paper money became more active. In the midst of

this disorder a National Bank, which should afford a solid basis for the

paper circulation, was considered. Influenced by these difficulties, and

in hopes of remedying them, the Secretary of the Treasury proposed to

Congress, in September, 1814, a few days after suspension, to found a

national bank, in order to re-establish metallic circulation, an end

which the State banks had failed to accomplish.

This project, which lent the national credit to the capital of the bank,

was antagonized by a good many members who exaggerated its consequences;

at the same time that they took more or less important sums in bank

notes, or borrowed from the banks upon the nation's guaranty, in order

to re-establish the public credit and to obtain means for prolonging the

war.

CAUSES OF THE PANIC OF 18l4.--The bank directors laid the blame upon the

blockade of the ports, which, interfering with, indeed even preventing,

the export of products, occasioned the outflow of the metals. The

national loans to carry on the war also had their influence. From the

beginning of hostilities until 1814 they increased to $52,848,000,

distributed as follows: Eastern States, $13,920,000; New York,

Pennsylvania, Maryland, and District of Columbia, $27,792,000; Southern

and Western States, $11,186,000.

Nearly all of this was advanced by the cities of New York, Philadelphia,

and Baltimore. The banks made advances beyond their resources,

augmenting their circulation in consequence. [Footnote: The cause of the

crisis, according to the Committee of the Senate, was the abuse of the

banking system; the great number and bad administration of the banks;

and their speculations designed to advance their stock, and to

distribute usurious dividends. When the Bank of the United States saw

the danger that menaced it, it reduced its discounts and circulation.

The circulation of the country banks fell from $5,000,000 to $1,300,000,

and the total circulation from $10,000,000 to $3,000,000.

Increase and Decrease Circulation in Pennsylvania.

City Banks. Country. Total.

1814 ........ $3,300,000 $1,900,000 $5,200,000

1815 ........ 4,800,000 5,300,000 10,100,000

1816 ........ 3,400,000 4,700,000 8,100,000

1817 ........ 2,300,000 3,800,000 6,100,000

1818 ........ 1,900,000 3,000,000 4,900,000

1819 ........ 1,600,000 1,300,000 2,900,000

Number

of Banks. Capital. Circulation. Specie.

1811 ... 88 $52,000 00 $28,000 00 $15,000 00

1815 ... 208 82,000 00 45,000 00 17,000 00

1816 ... 246 89,000 00 68,000 00 19,000 00]

From the 1st of January, 1811, to the 1st of January, 1815, one hundred

and twenty new banks were registered, thus raising their capital to more

than $80,000,000; this increase took place during a war that entirely

did away with foreign trade. The expenses of the war declared against

Great Britain in June, 1812, were defrayed by notes issued by the banks

of the various States. Six million dollars were obtained from them in

1812, in the following year, 1813, twenty million, and then fifteen

million in exchange for twelve million of Federal stock, issued at the

price of $125 face for every $100 paid in. Until January 1, 1814, in

order to avoid taxation, Treasury bonds were issued in addition to what

was contributed by the banks.

In 1812 ..................... $3,000,000

" 1813 ..................... 6,000,000

" 1814 ..................... 8,000,000

Up to this time no account of their administration had been rendered,

but now Mr. Bland, a Maryland representative, called attention to the

fact that all their operations seemed veiled from the public.

Unfortunately we have been unable to find a statement of the discounts.

The suspension of specie payments differed with the corresponding state

of affairs in England, inasmuch as it was not general, and, since each

State was independent, the depreciation varied. It became very difficult

to circulate paper, and the Government was again obliged to issue

Treasury bonds, bearing 6 per cent. interest. In February, 1815, peace

having been proclaimed, it was hoped that the banks would resume specie

payments. There was no sign of it. The re-establishment of peace merely

made some of the legal regulations seem less pressing upon the banks.

In the middle of May, 1815, the first English vessel arrived, and

business became very active again. In May, June, and July it might have

been said "This is the golden age of commerce." Discounts of unsecured

paper were easy, and it was not an unusual occurrence to have notes of

$60,000 offered.

The banks had authorized a suspension of specie payment in order to

force the issue of bank notes, and to stimulate trade, although Mr.

Carey pretends that no over-trading had taken place. He blames them for

having restricted their loans in October and November, thus producing a

decline in prices; and the necessity of cutting down credits came about,

according to him, from the speculations in National securities.

Six Philadelphia banks with a capital of $10,000,000 held $3,000,000 in

Government stock.

On the 15th of February, 1815, when scarcely through with all this

confusion, an effort was made to re-establish for the second time a

United States Bank. It was authorized on the 10th of April, 1816, the

Act permitting the formation of a Company, with a capital of

$35,000,000, divided into 350,000 shares of $100 each, of which the

Government took 70,000 shares and the public 180,000 shares. These last

were payable in $7,000,000 of gold or silver, of the United States of

North America, and $21,000,000 in like money, or, in the funded debt of

the United States either in the 6 per cent. Consolidated Debt at par,

the 3 per cent. at 65, or the 7 per cent. at 106-1/2 per cent.; upon

subscription $30 was payable, of which at least $5 had to be in gold or

silver; in six months after, $35, of which $10 had to be in metal, and

twelve months after the same amount was to be paid in the same manner.

The directors were authorized to sell shares every year to the amount of

$2,000,000, after having offered them at the current price to the

Secretary of the Treasury for fourteen days. The Government reserved the

right to redeem the debt at the subscription price.

The charter, made out in the name of the president, ran until March 3,

1836. There were twenty-five directors of the concern, five of whom were

appointed by the President of the United States with the consent of the

Senate, and not more than three by the State; the stockholders chose the

others.

The corporation could not accept any inconvertible property, or any

farm-mortgage, unless for its immediate use, either as security for an

existing debt, or to wipe out a credit.

It had no right to contract any debt greater than $35,000,000, more than

its deposits, unless by special act; the directors were made responsible

for every violation, and could be sued by each creditor. They could only

deal in gold and silver exchange, and not in other country securities

which could not be realized upon at once. The Bank could purchase no

public debt nor exceed 6 per cent. interest on its discounts and loans.

It could lend no more than $500,000, to the United States, $50,000, to

each State, and nothing to foreigners. It could give no bill of exchange

greater than $5,000; bank notes less than $100 were to be payable on

demand, and greater sums were not allowed to run longer than sixty days.

Two settlements were to take place every year.

Branches were to be established upon demand of legislative authorities,

wherever 2,000 shares of stock were subscribed for.

There were to be no bank notes less than $5.00, and every bill of

exchange, or bill payable at sight, was to be receivable by the public

Treasury.

The duty of the Bank was especially to pay out and receive the public

money, without profit or loss. It was to serve as agent for every State

contracting a loan; the cash belonging to the United States was to be

deposited at the Bank whenever the Secretary of the Treasury did not

dispose of it otherwise, in which case he was to notify Congress.

Neither the Directory nor Congress could suspend payment of the bank

notes, discounts, or deposits: such refusal carried a right to 12 per

cent. interest. In exchange for this charter the Bank was to give

$1,000,000, to the Government in three instalments.

The charter was exclusive during its life, excepting in the District of

Columbia, where banks might be authorized, provided their capital did

not exceed $6,000,000. The Bank did not open at once, for it sent an

agent to Europe to look up bullion. Between July, 1817, and December,

1818, it thus procured $7,311,750, at an expense of $525,000. On the

20th of February, 1817, it was decided that, excepting gold and silver

and Treasury notes, no notes would be received at the Government

Treasuries, save such as were payable to the banks in hard money.

Notwithstanding this discrimination the Banks decided not to resume

specie payment until the 1st of July, 1817.

In the meantime an immense speculation had taken place in its stock,

which was compromising for the Bank and for the credit of its Directory,

because several of its Directors appointed by the Government took part

in it. For example, it became customary to loan a very large amount of

money on the Bank's own stock, as much as $125 on each share of $100.

Thus more than the purchase price was loaned upon them: in furnishing

the means of paying for them by credit, speculation was aroused, and on

the 1st of September, 1817, the market price advanced to $156.50, at

which rate it continued until December, 1818, when it fell to $110.

At last the public perceived that the excessive issue depreciated the

bank-note circulation, and that a greater shrinkage was imminent.

An office for the payment of bank dividends was opened in Europe, so as

to increase the price of the stock and the speculation in it through

this facility, rather than for the permanent benefit of the institution.

Let us note here the short-sightedness of the Directors, who thought

they would stem the depreciation of their means of payment by persuading

all the banks to declare what was not true, that the bank notes were

worth par.

On the 21st of February, still aiming at the same end, they announced

the resumption of specie payment. The State Banks, remembering the

embarrassment of the public, which for two years had paid an exchange of

6 per cent., persuaded themselves that few people would dare to ask for

large sums. They hoped to come to an understanding and to cause the

acceptance of a promise to pay upon a designated day.

We say "a promise to pay," for this was not a serious proposition,

inasmuch as foreign money and that of the United States had enjoyed a

higher market value for a long time.

The depreciation of the bank notes might result just as well, from the

fear of the public's enforcing its rights, as from a refusal of the

banks to make good their promises. This understanding was not, properly

speaking, a resumption of specie payment, but rather a kind of humbug.

In January the banks of New York, Philadelphia, Baltimore, Richmond, and

Norfolk decided to resume specie payment on the 20th of February,

provided the balance showing against them was not demanded by the Bank

of the United States before discounts became $2,000,000, at New York, as

much in Philadelphia, and $1,500,000 in Baltimore; and these conditions

were accepted.

The discount line of the Bank of the United States was thus greatly

increased; it grew from $3,000,000 on the 27th of February to

$20,000,000 on the 30th of April; to $25,000,000 on July 29th, and to

$33,000,000 on the 31st of October. The Bank imported much metallic

money, redeemed its notes and those of its branches without distinction;

the notes of its Eastern and Southern branches were returned as soon as

those of the North had paid them, and they were newly issued;

consequently eighteen months after this practice began the cash boxes of

the North were drained of their capital, the length of discount was

reduced, and 5 per cent. was charged for sixty days. On April 1, 1819,

only $126,000, cash remained on hand, on the 12th only $7l,000,

remained, $196,000, was owed to the city banks.

Scarcely had the Directors of the National Bank succeeded in replacing

the paper issued but not redeemed by their bank-note circulation, being

fully aware from their own experience that the circulation could only

reach a limited amount, than they inundated the market with it, and in a

few months all reductions vanished. In this way the market price shortly

resumed its former quotation, and all the difficulties reappeared. This

imprudent management necessarily threw one portion of the public into

debt, from which it had saved itself; and the other portion into the

vortex which it had avoided. The critical moment was delayed somewhat,

but the day of reckoning was near.

THE PANIC OF 1818.--The Bank at last discovered that it had passed the

bounds of safety through its issues, and that it was at the mercy of its

creditors. It saw firstly, on October 21, 1818, the payment of part of

the State of Louisiana's foreign debt withdraw large sums, and then

Chinese, Indian, and other goods reach fancy prices because of the

depreciation of the circulating medium. All these influences produced a

demand for specie payment which the Bank as a public one was obliged to

meet, under penalty of 12 per cent. interest, and without power to avail

itself of the same accounts as the State banks.

From this moment it thought fixedly of its safety and of how to reduce

its notes; this reduction obliged the other banks to imitate it, and a

new crisis shook trade in the end of October, 1818. During one year the

National Bank furnished from its cash boxes more than $7,000,000, and

the others more than $3,000,000.

The State banks naturally followed the same policy in their connection,

and their circulation became reduced as follows:

On November 1, 1816, to ............ $4,756,000

" " " 1817, " ............ 3,782,000

" " " 1818, " ............ 3,011,000

" " " 1819, " ............ 1,318,000

It will give a faint idea of the excessive issue to state that the only

difficulty was the impossibility of examination by the President and

Cashier, and of their jointly signing the notes, which was made

obligatory by the regulations; hence they asked power from Congress to

grant this right to the Presidents and Cashiers of the Branch Banks.

This facility was refused, but Congress granted a Vice-President and a

Vice-Cashier to sign. With these issues and a simple capital of

$2,000,000, the Bank discounted as much as $43,000,000, during one year,

in addition to $11,000,000, to $12,000,000, loaned upon public

securities.

In order to carry on its operations, it exchanged in Europe a portion of

its funded debt for gold and silver, and bought specie in the West

Indies. From July, 1817, to July, 1818, it imported $6,000,000, of

specie, at an expense of $500,000, but the excessive issue of paper

drained away the cash more rapidly than the Bank could import it. In the

face of this hopeless struggle, in July, 1818, it entirely changed its

course and reduced its discounts, and 10 per cent. premium was then paid

for cash, and the reduction of nearly $5,000,000, in the discount line

in three months only had a disastrous effect, while at the same time

they would only receive for redemption the notes issued by each Branch

Bank: hence general embarrassment arose, and as the Bank of the United

States was withdrawing cash from the local banks, Congress wished to

forbid the exportation of gold and silver. The committee appointed on

the 30th of November, 1818, to examine the affairs of the Bank concluded

that it had violated its charter:

A Brief History of Panics and Their Periodical Occurrence in the United States · 第 11 / 23 题