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PostPosted: Sun Feb 11, 2007 4:13 pm 
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The first United States Bank was chartered by Congress in 1791. Its capital was $10,000,000, to be paid, one-fourth in cash, the rest in bonds of the United States. The charter was to run for twenty years. It issued no bills under $10.


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PostPosted: Sun Feb 11, 2007 5:16 pm 
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The first Bank of the United States was incorporated by the First Congress in 1791 as a part of the scheme of Alexander Hamilton to strengthen the new Federal government. Those who had opposed the adoption of the Constitution because of its centralizing tendencies, and some of those who had supported it, opposed the granting of the bank charter upon the ground that the Constitution contained no express grant to Congress of the power to establish a corporation. Their argument was that the case fell plainly within the rule subsequently embodied in the tenth amendment to the Constitution, that " The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively or to the people/'President Washington obtained the opinion of the members of the cabinet before signing the bill. The opinions of Jefferson and Edmund Randolph were adverse to the constitutionality of the measure; but Washington followed the advice of Hamilton, his brilliant young Secretary of the Treasury, and gave the bill his approval.

The capital of the Bank of the United States was fixed at $10,000,000, divided into 25,000 shares of $400 each. The protection of small investors in bank stock was sought by a graduated scale of voting which did not permit more than
thirty votes to any shareholder. Foreign shareholders were not allowed to vote by proxy, which practically prevented their voting at all. The number of directors was fixed at twenty-five, who must be citizens of the United States and not more than three-fourths of whom were eligible for reelection. The bank was not forbidden to loan on real estate security, but could not become an owner of real estate (beyond what was needed for banking houses) unless the property came into its hands in satisfaction of mortgages or judgments. The only limitation upon note issues was that which limited all debts other than deposits to the amount of the capital stock. The notes were receivable for dues to the government so long as they were redeemable in coin on demand. The charter was granted for twenty years, with the provision that Congress should not charter another bank within that time. This was far from implying a monopoly of note issues, for the State banks were in no way disturbed in their privileges and methods except so far as the new institution by its example acted as a regulator of the currency. Its large capital and pre-eminent position operated, and were intended to operate, to give it such a commanding position as was occupied by the Bank of England among the country banks of that country.

The charter provided that one-fifth of the capital should be subscribed by the government of the United States, but a loan was to be made to the government equal to the amount subscribed, to be repaid in ten annual instalments of $200,000 each, with interest at six per cent. No other loans were to be made to the government exceeding $100,000 without authority of law. The practical effect of the government holdings of stock was simply to give the bank the note of the government for its final payment, but as the bank was forbidden to deal in its own stock the process of issue of the government stock was somewhat complicated. It would have been useless for the government to draw money from Europe to pay into the treasury of the bank, to be immediately drawn out again and remitted to Europe for charges there. The course adopted was for the Treasurer of the United States to draw bills of exchange on the American Commissioners in Amsterdam for the amount required to pay the bank. The bills were purchased by the bank and warrants issued in favor of the Treasury upon the bank, thereby placing the amount in the Treasury. Other warrants were then issued upon the Treasury in favor of the bank for the amount of the subscription to the stock, which the bank receipted for as paid. The stock having been thus paid for in accordance with law, the bank loaned $2,000,000 to the government in accordance with the act of incorporation by handing over the bills of exchange originally drawn by the Treasury on Amsterdam.

The Bank of the United States was authorized to establish offices of discount and deposit in the several States and $4,700,000 of the capital was reserved for the central bank at Philadelphia. The remainder was divided among eight branches, established eventually at New York, Baltimore, Boston, Washington, Norfolk, Charleston, Savannah and New. Orleans. Private subscriptions were required to be paid one-fourth in gold and silver and three-fourths in six per cent, government stocks or in three per cent, stocks. The capital was over-subscribed to the amount of four thousand shares within two hours after the opening of the books. Oliver Wolcott, who afterwards succeeded Hamilton as Secretary of the Treasury, was offered the presidency, but declined, and Thomas Willing of Philadelphia was selected.

The bank was more successful in its commercial dealings than in obtaining prompt payment of its advances to the government. No regular reports were made to the Treasury Department, but the report communicated to Congress by Secretary Gallatin for January 24, 1811, showed resources of $24,183,046, of which the leading items were $14,578,294 in loans and discounts, $2,750,000 in United State six per cent, stock, and $5,009,567 in specie. The leading items of liability were $10,000,000 on account of capital, $5,037,125 in circulating notes, $5,900,423 in individual deposits, and $1,929,999 in United States deposits. The average annual dividends paid up to March, 1809, were over eight per cent.

The bank made several loans to the government in anticipation of the revenues early in its career. They were not promptly paid and the debt of the government to the bank at the end of 1792 was $2,556,595, which increased at the end of 1795 to $6,200,000. An attempt was made to sell government five per cent, stock, but only $i 20,000 was realized and it became necessary for the government to part with one of its most valuable assets,-its shares in the bank. The third and fourth instalments of the original $2,000,000 loan to the government were not paid until 1797, when 2160 shares of the government stock were sold at $500 per share (a premium of $100) and the proceeds, $1,080,000, were applied to these two instalments and to other obligations of the government to the bank. Six hundred and twenty more shares were sold soon afterwards for $304,260 and in 1802 the remaining shares were sold at an advance of forty-five per cent, and the government ceased to be a stock-holder. Secretary Gallatin reported in 1809 that the government made a profit of $671,860 on the sale of its shares, besides receiving dividends at the rate of about eight and three-eighths per cent, annually. The aggregate payments by the government, including interest, were $2,636,427, while the proceeds and dividends together were $3,773,580, representing a profit of nearly fifty-seven per cent, on the original investment for the eleven years during which the government was a shareholder.

Opposition to the Bank of the United States did not die out with Washington's administration nor with its large advances to the government. The conception of the functions of a bank which then prevailed is indicated by President Jefferson's letter of July 12, 1803, to Gallatin, in which he declared, '' I am decidedly in favor of making all the banks republican by sharing deposits among them in proportion to the dispositions they show." The bank had a steady friend in Gallatin, however, and he not only continued to avail himself of its assistance in the fiscal operations of the government, but induced Jefferson to approve a bill establishing a branch at New Orleans.

The charter of the bank was to expire in 1811 and the shareholders petitioned in 1808 for a renewal. The proposal was strongly supported by Gallatin in a report of March 9, 1809, reviewing the entire history of the bank. He recommended that the capital be increased to $30,000,000, with a view to lending three-fifths of the amount to the government in case of war, and that the States be allowed to subscribe $15,000,000. The advantage derived by the government from the existing bank he classified under the four heads of safe keeping of the public monies, transmission of public monies, collection of revenue, and loans.1 Congress was not disposed to adopt so comprehensive a scheme as this, but theoretical opposition to the bank had so far yielded to practical considerations that the terms of a contract were arranged for a new charter, which received the approval of the House on April 21, 1810, by a vote of 75 to 35. It was the fatal incapacity of the Eleventh Congress to take positive action which prevented the taking up of the bill again, and gave the State bankers time to organize an opposition and instruct their senators against re-charter.

The charter was opposed at the next session not only by the advocates of strict construction of the Constitution, but by party factions opposed to Gallatin in the Cabinet and the Senate. William Duane and Michael I/eib had attempted to dictate the Federal appointments in Philadelphia and upon Gallatin's refusal to submit became his bitter enemies. They were supported in the bank contest by a Maryland clique headed by Robert Smith, the Secretary of State, and Senator Samuel Smith, his brother. The fact that about 1800 of the 2500 shares were held abroad was made the occasion of bitter attacks upon the bank. A type of this sort of opposition was the speech of Mr. Desha of Kentucky, in the House on February 12, 1811, in which he declared that this accumulation of foreign capital was one of the engines for overturning civil liberty and that he had no doubt George III. was a principal stock-holder and would authorize his agent in this country to bid millions for a renewal of the charter. Gallatin had anticipated this ground of hostility in his report to Congress. He called attention to the fact that the foreign shareholders had no vote and that if the charter was not renewed the principal of the foreign holdings would have to be remitted abroad in liquidation of the affairs of the bank.

William H. Crawford of Georgia was the champion of Gallatin and the bank in the Senate and his able argument commended him to the administration and made him a strong candidate in later years for the presidency. Henry Clay held that Congress had no power to create the bank or to continue it, and followed the leanings of Mr. Desha in the opinion that in case of war with England "the English premier" would exercise control over the institution. The House on January 24, 1811, postponed indefinitely the bill for renewing the charter by a vote of 65 to 64. The vote in the Senate on February 2oth was 17 to 17, and the Vice-President, George Clinton, an enemy of Gallatin, gave the casting vote against the bill. "The necessity for such an institution” says Mr. Henry Adams, was merely one of the moment, but in the period of national history between 1790 and 1860, the year 1811 was perhaps the only moment when destruction of the bank threatened national ruin."2 The government was compelled to rely in the war of 1812 on the State banks, and their suspension of specie payments in 1814 almost paralyzed the operations of the Treasury. It became impossible to make transfers of funds from one part of the Union to another, because the notes of the banks of one section did not pass current in other sections. Gallatin has left on record the opinion that the suspension of specie payments in 1814 " might have been prevented at the time when it took place, had the former Bank of the United States been still in existence." He believed that the bank would have aided the treasury and that " both acting in concert would certainly have been able at least to retard the event; and, as the treaty of peace was ratified within less than six months after the suspension took place, that catastrophe would have been altogether avoided.

The necessity for means of carrying on the war with Great Britain led to a great variety of odd proposals in Congress after the suspension of 1814. One of the crudest of these was a plan of ex-President Jefferson's, communicated to President Madison, to issue $20,000,000 in government promissory notes annually as long as might be necessary and to appeal to the State legislatures to relinquish the right to establish banks. Dallas, who succeeded Campbell as Secretary of the Treasury on October 6, 1814, indicated indirectly his opinion of this scheme by recommending a new bank and remarking that '' The extremity of that day cannot be anticipated when any honest and enlightened statesman will again venture upon the desperate expedient of a tender law." The plan of Dallas, as set forth in his report of October lyth, was for a bank with a capital of $50,000,000, empowered to lend $30,000,000 to the Treasury. There was a provision in the bill reported, authorizing the suspension of specie payments at the discretion of the President of the United States, and it was fallen upon by Daniel Webster in a speech of great power and eloquence. He urged the creation of a bank for commercial purposes rather than one involved at the outset with the government. The result of his attack was the defeat of the bill by a tie vote, which was then reconsidered and the bill sent to a select committee. Amendments were adopted which met Mr. Webster's views, but in this form the measure did not meet the wants of the Treasury. It passed the House, 120 to 38, and the Senate, 20 to 14, but was vetoed by the President on January 30, 1815. Another effort was made to pass the Dallas bill, but it failed in the House on February iyth by a majority of one vote.

The evils of the currency had not been remedied when Congress met again in December, 1815, and President Madison suggested a national bank as a suitable instrument for promoting specie payments. Secretary Dallas submitted a detailed plan for the bank, which was adopted by Congress with little change. The capital of the new bank was fixed at $35,000,000, of which one-fifth was to be subscribed by the government in money or in its own obligations. The government subscription was by a stock note, which was not fully paid up in cash until 1831. The public funds were to be deposited in the bank, " unless the Secretary of the Treasury shall at any time otherwise order and direct; in which case the Secretary of the Treasury shall immediately lay before Congress, if in session, and if not, immediately after the commencement of the next session, the reasons for such order or direction.'' Twenty-five directors were to be chosen, five to be named by the President, and the notes of the bank were made receivable in all payments to the United States. The bank was again given duration for twenty years and no other bank was to be established within this time by Congress outside the District of Columbia. This privilege, as in the case of the first bank, carried with it no restrictions upon the State banks of issue except such as the new bank was expected to exercise by its moral and financial influence towards the restoration of specie payments. A bonus to the government was required of $500,000 annually for three years after the end of the second year.

The progress of public opinion in favor of the implied powers of the Federal government under the Constitution is indicated by the attitude of Madison and the democratic party towards the incorporation of the second Bank of the United States. Madison as a member of the First Congress had opposed the incorporation of the Bank of the United States upon constitutional grounds, and in 1799 had alluded to it as one of the examples of the usurping tendencies of the Federal government ;l but as President in 1814 and 1815 he was willing to treat the constitutional issue as res adjudi-cata. More surprising is the fact that Calhoun, in later years the hair-splitting logician of strict construction and the champion of nullification, was found foremost among the supporters of the charter of the second bank. He reported the bill to the House and suggested that if the bank by its financial policy was unable to compel the State banks to return to specie payments, Congress might resort to stronger measures, which were within their power. Both Calhoun and Webster favored the refusal by the government of the notes of suspended banks and the collection of all government dues in specie. Webster secured an amendment to the bank bill, requiring the payment of deposits as well as notes in specie, subject to a forfeit of twelve per cent, on the amount for which specie payment was refused.

The constitutional question had thus been decided by the legislative branch of the government before it reached the Supreme Court in 1819. That court, in the celebrated case of McCulloch vs. Maryland, in which the decision was rendered by Chief-Justice Marshall, decided that the power to create a national bank, to assist in carrying on the fiscal operations of the government, was within the implied powers of the Constitution. Equally important was the decision upon the direct issue raised in that case, whether the States could constitutionally levy taxes upon the circulating notes or the property of a national bank. Representative Fiske of New York, in a strong speech in favor of the renewal of the first charter in 1811, declared that the States, in order to give the preference to their own paper, might exclude that of any other State from circulation within their limits by taxation. He did not suggest that they might pursue the same policy towards the notes of a national bank, but this position was taken by the State of Maryland towards the notes of the second Bank of the United States, and the case was carried to the Supreme Court. A decision in favor of the right of the States to have taxed the circulating notes of the United States or of corporations chartered under its laws, would have precluded forever the creation of a national currency, issued either by the government or by national banks. Indeed, if the Federal government had not the power to withdraw its creations from discriminating legislation by the States, Chief-Justice Marshall declared, they might tax the mail or the mint, the papers of the custom house, or the forms of judicial process.

The question of the existence of the bank in the face of discriminating State taxation was not an academic one in 1818 and the following years, but one which was severely practical. The efforts of the bank to drive the State notes from circulation, and especially its later contraction of discounts when it found itself on the verge of bankruptcy, caused commercial distress and made the bank exceedingly unpopular. North Carolina laid a tax of $5000 per year on the branch at Fayetteville. Kentucky, Tennessee, Ohio, and Maryland laid taxes on circulation or on the branches as such. The Maryland act required the purchase of stamped paper for the printing of the circulating notes or the annual payment of $15,000 by the branch at Baltimore. The branch continued to issue notes on unstamped paper and the cashier, William McCulloch, was sued for debt and gave his name to one of the most celebrated of American constitutional cases. Chief-Justice Marshall, in rendering his decision, admitted that the States possessed unimpaired the power of taxing the people and property of the State and that it might tax the real property of the bank in common with other such property within the State, and might tax the interest of citizens of Maryland in the bank ; but he declared that the Constitution of the United States placed beyond the reach of State power all the powers conferred on the government of the Union and all the means given for the purpose of carrying those powers into execution.

The Bank of the United States was badly managed during the first years of its existence and in the summer of 1818 was upon the verge of insolvency. The bank began business January 7, 1817, and violated its charter from the outset. The proportion of specie required to be paid in on the second and third instalments was not paid and the bank loaned money to stockholders on the pledge of their stock and personal notes. Trading in shares before they were paid for pushed up the quotations and the bank loaned on the increased value when other nominal security was furnished in the form of mutual indorsements. The Baltimore branch was practically wrecked by its managers, with a loss of $1,671,221. The policy adopted for restoring specie payments was also defective. An arrangement was made with the leading banks of New York, Philadelphia, and Richmond for the resumption of specie payments by them on February 20, 1817. The public deposits in these banks, which the government had been unwilling to accept in depreciated bank paper, were to be transferred to the Bank of the United States, but checks on the State banks which were parties to the agreement received by the Bank of the United States were to be credited as cash. Arrangements were also made for liberal discounts by the new bank, in order to relieve the local banks from the commercial pressure. These features of the resumption policy were not subject to criticism and $7,472,419 in public funds and $3,336,491 in special deposits were transferred from the State banks to the central bank at Philadelphia. Eighteen branches of the Bank of the United States were established and the notes issued were received for government dues without reference to the place of issue and were redeemable, wherever issued, by the central bapk or any of its branches. The mistake made by the new bank was in directing the branches to push their own notes into circulation in place of those of the State banks, and to issue drafts on the Eastern cities to prevent the remittance of their own notes. The notes of the local banks were locked up in the Bank of the United States and interest charged upon them to the local banks, but both the notes of the branches and the branch drafts were remitted eastward by the operations of trade. The notes of the Western branch banks which were remitted to the East thus exercised no controlling influence over the volume of Western business, for they were not presented for redemption in the West. What made the matter worse was the necessity imposed in many cases on the branches, in view of the eastward movement of their own notes, to pay out again the local notes in the granting of discounts.

The Western branches paid but limited attention to the instructions of the parent bank to diminish their discounts, even after the danger of their policy became apparent. They issued what were known as " race-horse bills," by which drafts were made by one branch upon another, which were met when due at the accepting bank by new drafts upon some other branch. The bank imported $7,311,750 in specie from Europe during its first two years at a cost of $525,247, but the drain upon its resources had reduced the specie in Philadelphia on April 21, 1819, to $126,745, of which $79,125 was owed to the city banks of Philadelphia.The facts regarding the mismanagement of the bank were brought out by the report of a committee of Congress in 1819 and caused many demands for the repeal of the charter. Langdon Cheveswas elected President, March 6, 1819, and he adopted heroic measures to restore the bank to solvency. He borrowed $2,500,000 in specie of the Barings, who were considerable holders of the bank stock, forbade the issue of notes in the South and West when exchanges were against the branches, which was almost invariably the case, and in dealings with the government insisted upon the interval between the transfer of funds and their disbursement which was actually required for the transfers. The bank was saved and was conducted with comparative prudence until the breaking out of the war with President Jackson.

The second Bank of the United States undoubtedly contributed for more than a decade to facilitate the transfer of funds from one part of the country to another and to maintain a uniform circulation equal to coin. The rates of domestic exchange, which were necessarily high because of the imperfect means of communication, were materially reduced by the bank. Its policy greatly benefited commerce, but invited bitter complaints from the private dealers in exchange, who had been enabled to make excessive profits while the currency was below par because of its different values in different States and the constant fluctuations in these values. The bank, in the language of the report of Senator Smith of Maryland in 1832, furnished " a currency as safe as silver, more convenient, and more valuable than silver, which through the whole Western and Southern and interior parts of the Union, is eagerly sought in exchange for silver; which, in those sections, often bears a premium paid in silver; which is, throughout the Union, equal to silver, in payment to the government, and payments to individuals in business." Mr. McDuffie, who submitted the minority report in the House at the same time, declared that “The whole business of dealing in domestic bills of exchange, so essential to the internal commerce of the country, has been almost entirely brought about within the last eight years. In June, 1819, the bank did not own a single dollar of domestic bills; and in December, 1824, it owned only to the amount of $2,378,980; whereas it now owns to the amount of $23,052,972."

One of the most serious charges of evasion of law, brought against the bank in 1832, was in the issue of branch drafts to circulate as currency. Several appeals were made in vain to Congress to modify one of the provisions of the charter requiring the president and principal cashier to sign all the circulating notes. The volume of circulation necessary to do business was so great that the physical labor of signature could not well be performed by those officers. Congress neglected to act and in 1827 an opinion was obtained from Horace Binney, in which Daniel Webster and William Wirt "concurred, that there was no legal obstacle to the issue of checks drawn by officers of the branches upon the parent bank, printed for even amounts in similar form to banknotes. Drafts of this sort for $5 and $10 were authorized by the board of directors on April 6, 1827, and denominations of $20 were issued in 1831. They became a common medium of circulation in the South and West and were accepted in payments to the United States Treasury.1 The branch drafts outstanding in April, 1832, were $7,410,090. They simply served the purpose of currency without conforming strictly to the intent of the law, in much the same manner as the checks of the London Cheque Bank or the temporary issues in the United States during the panic of 1893.

The Bank of the United States fell because so great an institution in a representative republio could not escape political entanglements and the suspicion of the abuse of political power. President Jackson surprised the financial world by the announcement, in his first annual message in 1829, that "Both the constitutionality and the expediency of the law creating the bank are well questioned by a large portion of our fellow-citizens ; and it must be admitted by all, that it has failed in the great end of establishing a uniform and sound currency/' The bank was at this time under the presidency of Nicholas Biddle, who succeeded Cheves in 1823, and was one of the most imposing institutions of the country. The President's message, therefore, was in the nature of a thunderbolt from a clear sky. Jackson's hostility was due to a complaint by Isaac Hill, a New Hampshire politician who had been made Second Comptroller, that Mr. Mason, the manager of the branch at Portsmouth, New Hampshire, had shown partiality to the political opponents of General Jackson and that his conduct had been " calculated not less to injure the institution than to disgust and disaffect the principal business men." " No measure short of his removal," in Hill's opinion, "would tend to reconcile the people of New Hampshire to the bank.'

The truth appears to have been that Mason had excited hostility by his energetic contraction of discounts at Portsmouth and his efforts to correct previous mismanagement. Levi Woodbury, who had defeated Mason for the United States Senate in 1824, addressed a letter early in July, 1829, to Mr. Ingham, the Secretary of the Treasury, making complaints against Mason's management, which Ingham forwarded to President Biddle for his consideration. Biddle was a ready writer, he occupied one of the most powerful positions in the country, he was surrounded by flatterers and sycophants, and he was quickly entrapped into a quarrel which resulted in the overthrow of the bank. He not only denied that the bank had shown political favor at Portsmouth or elsewhere, but went out of his way to declare that the governing board acknowledged no responsibility whatever to the Secretary of the Treasury in regard to the political opinions of the officers of the bank and that it was carefully shielded by its charter from executive control. So fixed had become the relations between the bank and the Treasury in the handling of public monies, and so much a matter of mere routine, that Biddle appeared to overlook the possibility of the withdrawal of the public deposits. He evidently had no realizing sense of the danger which hung over his head or of the spirit of hostility which was being aroused in the mind of Jackson.

The President's suggestions in his annual message excited the fear for a moment that he had information which was not known to the public and bank shares dropped from 125 to 116, only to recover to 130 after a report by a committee of Congress. The portions of the message relating to the bank were referred to committees in both houses, both of which exonerated the bank from the charge of bad management and condemned the suggestion of the President, whether a national bank, '' founded upon the credit of the government and its revenues, might not be devised which would avoid all constitutional difficulties, and at the same time, secure all the advantages to the government and country that were expected to result from the present bank."

The House on May 10, 1830, tabled, by a vote of 89 to 66, resolutions that the House would not consent to the renewal of the bank charter and on May 2gfh tabled, by a vote of 95 to 67, resolutions calling for a comprehensive report of the proceedings of the bank.1 Similar votes in favor of the bank were given in the Senate. The President was mild in his allusions to the subject in the annual messages of 1830 and 1831 and the Secretary of the Treasury was even allowed in the latter year to incorporate in his annual report a strong argument in the bank's favor. It is not improbable that Jackson might have been persuaded by the eminent financiers of his party to consent to a re-charter if the matter had not been made an issue by Henry Clay in the presidential campaign.

The political dangers of a great central bank were demonstrated in the campaign of 1832. President Jackson had given the country in the main a firm and successful administration and it was necessary for Clay and the Whigs to create political issues upon which to make a respectable contest against him. There were dangers in making the tariff the controlling issue, because different Whig States were on both sides of the question. Clay determined to make the campaign upon the issues of internal improvement and the recharter of the bank. It was natural that he should accept the sentiment of the financial portion of the community in favor of the bank as the sentiment of the whole and he was so confident of success that he feared Jackson would evade the issue. The resolutions adopted at Baltimore on December 12, 1831, at Clay's instigation, declared that the President, "is fully and three times over pledged to the people to negative any bill that may be passed for re-chartering the bank.'' Biddle and the real friends of the bank who were not politicians protested strongly against making the re-charter a party issue, but Clay forced them to the choice between sustaining his party as the friends of the bank or going without political friends. Professor Sumner declares that Jackson never was more dictatorial and obstinate than Clay was at this juncture."

The fight was opened in the Senate on January 9, 1832, when Senator Dallas presented the memorial of the bank for the renewal of its charter. Biddle came to Washington, opened headquarters, gave sumptuous entertainments, and defended the bank vigorously before the committee of investigation appointed by Congress. The bill for the re-charter was passed through both houses, only to encounter a veto message from President Jackson on July loth. The issue was thus made up for the presidential election, exactly as Clay desired it, but the response of the people was 219 electoral votes for Jackson, 49 for Clay, and 18 for all others. The executive triumphed, as usual in a contest with Congress, and the doom of the bank was decided. The bank had five years of life before it. Its credit was good and it still held the public deposits. It was not generally supposed that these would be withdrawn until near the date for the termination of the .charter, as had been the case with the public deposits in the first Bank of the United States. Jackson's blood was now up, however, and he needed no further stimulus to crush his enemy. The bank made two serious blunders during 1832 and 1833 in its relations with the Treasury. It undertook to make a private arrangement with the Barings regarding the payment of $5,000,000 of government three per cent, securities, which the Secretary of the Treasury had notified the President of the bank as early as March 24, 1832, would be paid from the surplus revenues. A contract was made through a private agent of the bank for extending these securities which were to be assumed by the bank and the interest paid to the government. The object was to retain possession of the public money, on deposit with the bank, which was worth seven per cent, in the discount market, rather than permit it to be withdrawn for the redemption of the debt. When the circular of the Barings got into the newspapers in October, Biddle was obliged to disavow the contract and made a lame explanation to Secretary McLane for seeking to delay the payment. The other case was the attempt to collect damages upon the amount of a bill of exchange drawn upon the French government, which was refused payment by the French Minister of Finance, because the money had not been appropriated by the Chambers. The bill was taken up by the Paris agents of the bank, and charged against it. Secretary McLane paid the principal, $961,240 which had been covered into the Treasury, back to the bank and offered to pay actual costs. The bank insisted upon fifteen per cent, damages, under a law of the District of Columbia relating to protested paper, and deducted the amount from the government dividends. The government sued and the Supreme Court decided against the bank.

Performances like these on the part of President Biddle convinced Jackson that the bank was weak and confirmed his purpose to suspend the further deposit of public monies in its custody. Mr. McLane was transferred from the Treasury to the State Department during the spring of 1833 and William J. Duane of Pennsylvania was made Secretary of the Treasury. Duane was a conservative and able lawyer, with little of the politician in his make-up, and when the President insisted upon his suspending deposits in the Bank of the United States and making them in future in the State banks, Duane refused to comply and the President removed him from office. Roger B. Taney, who afterwards became so odious in the free States as Chief Justice of the Supreme Court, was transferred from the Department of Justice to the Treasury on September 23d, and began the deposit of the public funds in the State banks.

The contest which followed in Congress belongs to the history of politics rather than that of finance. The Senate rejected the nomination of Taney for Secretary of the Treasury and rejected the President's nominees for government directors of the bank, apparently upon the remarkable ground that they were disposed to insist upon too accurate a knowledge of the bank's affairs. The Senate called for the paper which Jackson had read in the cabinet regarding the removal of the deposits on September iSth, and received the reply that the Senate had no constitutional right to interrogate him on the subject of his communications with his heads of departments. Clay introduced a resolution which was passed on March 28, 1834, by a vote of 26 to 20, declaring that the President had, " assumed upon himself authority and power not conferred by the Constitution and the laws, but in derogation of both." The President sent a protest against this resolution to the Senate on April iyth, which that body ten days later voted, 27 to 16, was a breach of the privileges of the Senate and should not be entered on the journal. The friends of Jackson appealed to the people and gained enough seats in the Senate to pass resolutions on January 16, 1837, expunging the previous resolutions from the records. The Bank of the United States obtained a charter from the State of Pennsylvania on February 18, 1836, for thirty years. The bank agreed to pay a bonus of $2,000,000 to the State and $100,000 per year for thirty years, besides various subscriptions to the stock of transportation routes, which Benton described as bribery of the legislature and the people. The shares in the bank owned by the United States, amounting to $7,000,000, were paid in four annual instalments at the rate of 115.58. New stock was sold to replace the government stock, leaving the capital intact at $35,000,000.

The capital was too large for local commercial needs and Biddle branched out into loans on stocks of uncertain value, many of which proved worthless after the crisis of 1837. The bank suspended at that time with the other banks of the country, but was compelled to suspend again in 1838, and again in 1841, after which it went into liquidation. The creditors were paid, but the shareholders lost their entire interest. Biddle had resigned in March, 1839, leaving the bank, according to his view, in a prosperous condition. He was indicted during the liquidation for conspiracy to defraud the shareholders. The indictment was quashed, but Biddle was ruined financially and died within five years insolvent and broken-hearted. The principal items in the accounts of the second Bank of the United States up to the time of its final suspension are shown in the following table


The present method of dealing with public monies in the United States is one of the results of the war over the United States Bank. Secretary Taney, under Jackson's instructions, deposited public money in certain State banks,-most of them selected because their officers were friendly to the administration and characterized by its critics as the '' pet banks." The government imposed upon them the conditions of giving security in certain cases, of issuing no small notes and of keeping one-third of their reserve in specie. The State banks undertook by mutual agreement to honor each other's notes and drafts, but the crisis of 1837 caused a general suspension and the payment of $25,000,000 of the deposits in bank-notes bearing an average depreciation of ten per cent. Secretary Taney in his report for 1834 urged legislation to sanction the use of the State banks as depositaries, but the bill prepared on the subject failed in the Senate. The suspension of the banks in 1837 led President Van Buren, in his annual message of that year, to recommend that the public funds be kept exclusively by public officers and that nothing but specie be received for dues to the government. This plan-embodying substantially the features of the present independent treasury system-was several times defeated, but was finally enacted June 30, 1840. One-fourth of all dues to the Treasury were to be paid at once in specie, and an additional fourth each year until the whole were thus paid.

The success of Harrison and the Whigs resulted in the repeal of the independent treasury law August 13, 1841, and two national bank bills were passed, only to be successively vetoed by President Tyler. The public monies were deposited in the banks or not, at the discretion of public officials, until 1846, when the independent treasury system was again established by authority of Congress. The policy of refusing State bank-notes for government dues continued until the creation of the national banking system during the Civil War. That system gave the government the security of its own bonds for the bank-notes, and the national banking act provided that the notes should be '' received at par in all parts of the United States in payment of taxes, exercises, public lands, and all other dues to the United States, except for duties on imports; and also for all salaries and other debts and demands owing by the United States to individuals, corporations, and associations within the United States, except interest on the public debt, and in redemption of the national currency." * The national banks were again made the depositaries of public money during the first administration of President Cleveland, but were required by the Secretary of the Treasury to deposit United States bonds as security for such monies in much the same manner as for the security of national bank-notes. The amount of deposits in the banks on August i, 1888, when Secretary Fairchild made a report on the subject to Congress, was $54,475,055, exclusive of $4,052,021 on deposit to the credit of disbursing officers. The number of banks among which these deposits were distributed was about three hundred and the largest deposit was $1,100,000. The policy of Secretary Windom and the absorption of the surplus reduced these deposits after 1892 and their entire amount on January 2, 1896, was $14,271,280.* The independent Treasury continues to transact the bulk of the public business and sub-treasuries are maintained at New York, Philadelphia, Boston, Baltimore, Cincinnati, Chicago, St. Louis, New Orleans, and San Francisco.


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PostPosted: Mon Feb 19, 2007 6:15 pm 
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http://www.ushistory.org/tour/tour_1bank.htm

http://en.wikipedia.org/wiki/First_Bank ... ted_States

http://eh.net/encyclopedia/article/cowe ... st_bank.us

http://www.bartleby.com/65/ba/BankUS.html

http://www.britannica.com/eb/article-90 ... ted-States

http://www.cr.nps.gov/history/online_bo ... ution7.htm

http://www.maths.tcd.ie/local/JUNK/econ ... ction.html

http://www.answers.com/topic/first-bank ... ted-states

http://columbia.thefreedictionary.com/B ... ted+States

http://www.encyclopedia.com/doc/1E1-BankUS.html

And it just goes on and on...


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PostPosted: Sat Feb 24, 2007 11:47 pm 
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I found this image of the bank in a book entitled Message and Paper of the Presidents... next to the page with the text of Andrew Jackson's Veto Message to the Senate, which is attached to this message as an e-book.


Attachments:
BankOfTheUSs.jpg
BankOfTheUSs.jpg [ 221.91 KiB | Viewed 4566 times ]
BoUSVeto1832.pdf [3.14 MiB]
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PostPosted: Sun Feb 25, 2007 9:05 pm 
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Jackson's comments in his first annual message of 1829 concerning the bank were in two parts... one midway through the speech, and one in the conclusion.

Quote:
The balance in the Treasury on January 1, 1829, was $5,972,435.81. The receipts of the current year are estimated at $24,602,230 and the expenditures for the same time at $26,164,595, leaving a balance in the Treasury on the 1st of January next of $4,410,070.81.

There will have been paid on account of the public debt during the present year the sum of $12,405,005.80, reducing the whole debt of the Government on the 1st of January next to $48,565,406.50, including the seven millions of 5 per cent stock subscribed to the Bank of the United States. The payment on account of public debt made on the 1st of July last was $8,715,462.87. It was apprehended that the sudden withdrawal of so large a sum from the banks in which it is deposited, at a time of unusual pressure in the money market, might cause much injury to the interests depepndent on bank accomodations. But this evil was wholly averted by an early anticipation of it in the Treasury, auded by the judicious arrangements of the officers of the Bank of the United States.


In his concluding remarks, Jackson had the following to say:
Quote:
The charter of the Bank of the United States expires in 1836, and its stockholders will most probably apply for a renewal of their privileges. In order to avoid the evils resulting from precipitancy in a measure involving such important principles and such deep pecuniary interests, I feel that I can not, in justice to the parties interested, too soon present it to the deliberate consideration of the Legislature and the people. Both the constitutionality and the expediency of the law creating this bank are well questioned by a large portion of our fellow-citizens, and it must be admitted by all that it has failed in the great end of establishing a uniform and sound currency.

Under these circumstances, if such an institution is deemed essential to the fiscal operations of the Government, I submit to the wisdom of the Legislature whether a national one, founded upon the credit of the Government and its revenues, might not be devised which would avoid all constitutional difficulties and at the same time secure all the advantages to the Government and country that were expected to result from the present bank.


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PostPosted: Sun Feb 25, 2007 11:15 pm 
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The following is excerpted from Jackson's Second Annual Message (December 6, 1830):

Quote:
The importance of the principles involved in the inquiry whether it will be proper to recharter the Bank of the United States requires that I should again call the attention of the Congress to the subject. Nothing has occurred to lessen in any degree the dangers which many of our citizens apprehend from that institution as at present organized. In the spirit of improvement and compromise which distinguishes our country and its institutions it becomes us to inquire whether it be not possible to secure the advantages afforded by the present bank through the agency of a Bank of the United States so modified in its principles and structure as to obviate constitutional and other objections.

It is thought practicable to organize such a bank with the necessary officers as a branch of the Treasury Department, based on the public and individual deposits, without power to make loans or purchase property, which shall remit the funds of the Government, and the expenses of which may be paid, if thought advisable, by allowing its officers to sell bills of exchange to private individuals at a moderate premium. Not being a corporate body, having no stockholders, debtors, or property, and but few officers, it would not be obnoxious to the constitutional objections which are urged against the present bank; and having no means to operate on the hopes, fears, and interests of large masses of the community, it would be shorn of the influence which makes that bank formidable. The States would be strengthened by having in their hands the means of furnishing the local paper currency through their own banks, which would check the issues of the State banks by taking their notes in deposit and exchange only so long as they continue to be redeemed with specie. In times of public emergency the capabilities of such an institution might be enlarged by legislative provisions.

These suggestions are made not so much as a recommendation as with a view of calling the attention of Congress to the possible modifications of a system which can not continue to exist in its present form without occasional collisions with the local authorities and perpetual apprehensions and dicontent on the part of the States and the people.


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PostPosted: Sun Feb 25, 2007 11:24 pm 
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Excerpted from Jackson's Third Annual Message, delivered December 6, 1831:
Quote:
Entertaining the opinions heretofore expressed in relation to the Bank of the United States as at present organized, I felt it my duty in my former messages frankly to disclose them, in order that the attention of the Legislature and the people should be seasonably directed to that important subject, and that it might be considered and finally disposed of in a manner best calculated to promote the ends of the Constitution and subserve the public interests. Having thus conscientiously discharged a constitutional duty, I deem it proper on this occasion, without a more particular reference to the views of the subject then expressed, to leave it for the present to the investigation of an enlightened people and their representatives.


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