1 Writings of Thomas Jefferson, vol. vi. p. 141.

2 Quoted by Sumuer,u s., p.58.

Webster, in 1832, was contending for an extension of the charter of the Second National Bank. The first Bank of the United States had been chartered in 1791, to aid the treasury in the collection and disbursement of the revenue, and in funding the public debt. There were then only three State banks, already mentioned. Before the expiration of the charter of the Bank of the United States, in 1811, eighty-eight State banks had been organized, and were able to prevent a renewal of its privileges. The failure of the national bank to secure a new charter was the signal for a rapid increase in the number of State banks, but the war which began in 1812 and ended in 1815 forced them all into suspension except the New England banks. The treasury was supplied by loans and by the issue of United States notes. The loans were placed at 80 to 88, and this fraction was paid in bank paper worth 10 to 20 per cent. less than par.1 The interest-bearing treasury notes were depreciated from 8 to 10 per cent. and those which bore no interest, being convertible into 7 per cent. securities, came back as soon as they were issued.2 Some of the banks received and others rejected the treasury notes, but all increased their own issues. The only way to bring order out of this confusion was by the establishment of a powerful national bank, and the second Bank of the United States was chartered in 1816 and went into operation in 1817, but too late to prevent the crash which followed. Specie payments were resumed, but the State banks began to fail in 1818, and in 1819 there was another general suspension, lasting for two years. The national bank itself was very nearly carried down, but finally weathered the storm. Its commanding influence repressed the excessive issues of the State banks. Ten years of almost unbroken prosperity followed. The national debt was paid, and the stock of the Bank of the United States rose to a premium of 20 per cent.

1 Wobster's Works, vol iii. p. 395.

2 Ibid , vol. iv. p. 271.

1 Treasury Report, Sept. 23,1814. See also Finance 2Report, 1S76, p. 199. 3 Finance Report, 1S75, p. 193.

In 1832 a bill granting a new charter to the national bank passed both houses of Congress, but was vetoed by President Jackson, whose election the bank had imprudently opposed. Other attempts were made to prolong the existence of the bank, but they all failed, and on the last day of 1836 the charter expired. The second Bank of the United States had become a political machine, and deserved to perish; nevertheless, it had rendered important services to the country, and the government lost not a dollar by either of these institutions, but received from the bank of 1791 a net profit of $1,137,152, and from the bank of 1817, a net profit of $6,093,167.1

The government deposits had been removed from the Bank of the United 8 in 1833, and were distributed among the State banks, which proved to be less faithful custodians. In 1836 the signs of an approaching crisis were already visible. Confidence, excited by a long course of successful adventure, had grown too bold. The controlling influence of the national bank had been removed at the very moment when it was once more needed. A gigantic land speculation was in progress, and the cotton trade was expanding. The speculation in real estate exploded in 1887, but the banks escaped by a general suspension of specie payments. The South wanted more money for the cotton trade. and in 1838 Mississippi issued bonds for $5,000,000 to found a new bank. In 1839 came the second shock, which the banks were no longer able to resist. Out of 850 banks. 343 closed entirely and 62 partially.2 The Mississippi debt was repudiated. The government lost two millions of its deposits. In 1840 Congress passed an act establishing a sub-treasury in New York, providing that the officers of the government should keep the public funds in their own custody, and declaring that coin alone should be received in payments to the United States. Banknotes were no longer to be received or paid out at the treasury.

1 Finance Report, 1876, pp. 122, 127.

2 Sumner's American Currency, p. 152. Many of the banks which escaped in 1S39 went down afterward. In 1S41 fifty-five banks failed, with an aggregate capital of $67,000,000, which was almost wholly lost. Elliot's Funding System, p. 1176.

The State banks, prior to 1839, for the most part, justified Benton's graphic description : "Banks of moonshine, built upon each other's paper, and the whole ready to fly sky-high the moment any one of the concern becomes sufficiently inflated to burst."1 They were not founded on real capital, but upon the notes of the share-holders, who in turn borrowed the notes of the banks. They kept no adequate reserves of coin. There was no general systern of redemption. Their plan of operations was to issue as many notes as possi-ble, and to prevent them from returning for payment, by every device that could be contrived. In point of fact, the currency which they issued was not convertible, though it professed to be. There was no proper supervision by State officers, no collection even of authentic statistics. Several of the Western States owned State banks, and it was decided by the Supreme Court that, although no State could emit bills of credit, a State might own all the stock of a bank, appoint the directors, authorize the emission of notes, and make them receivable for public dues, provided that the capital should be paid in and the bank be held to answer all complaints in the courts.1 How indispensable banking facilities were to the business of the country, was shown by the patience with which these makeshifts were endured,although they failed in every emergency. They were, at 1east, better than nothing-like the log which is felled across a stream and serves for a bridge until the freshet comes.

1 Thirty Years in the United States Senate, vol. ii. p. 51.

1 Supreme Court Reports, 11 Peters, 257. Briscee vs. The Bank of the Commonwealth of Kentucky.

After the collapse of the banks in 1839 industry was prostrated for four years. The machinery of traffic had broken down, and had to be reconstructed. Gradually the banks were re-established on a better basis. In New England the Suffolk Bank, by punctually sending home for redemption all the bills which came to its counter, and refusing to take those which were not promptly redeemed, had already created the feeling of responsibility which is the beginning of sound banking. In New York the Legislature, in 1840, required the banks to redeem their notes at agencies in New York city, Albany, or Troy. The New-York banks were required also to secure their circulation by deposits of stocks; but as it was found that many of them deposited cheap and worthless bonds, the law was amended in 1849 so as to require at least half the securities to be New York State bonds and the rest United States bonds. Under these conditions, any persons who chose could engage in banking in New York. As the banks recovered, business revived, and speculation presently took a new direction. A rapid absorption of capital in railroads began in 1849. In that year, 1369 miles of railroads were built. The annual increase did not again fall below 1000 miles until 1861. In 1853 it was 2452 miles; in 1856 it was 3647. In 1857 the Ohio Life and Trust Company went down in August, with liabilities of $7,000,000. The company had borrowed largely on call in New York, and had placed the funds where they were not immediately available. A panic ensued, and in October the banks throughout the country were compelled to suspend payments. They should have been able to relieve the pressure for money by expansion, but they were found to be already employing their utmost resources, and increased the alarm by closing their doors. The suspension lasted only about two months; but the country had not fully recovered from the consequent depression when the civil war broke out in 1861.