Jackson's experiment, and the tremendous penalty that was paid, in the almost total annihilation of the proper instruments of distribution. Ohio recovered but little till after 1845, when she established the State Bank, with a capital of $6,150,000, with authority to establish 63 branches, the whole to be managed by a Board of Control of one member from each branch. The capital for each was to be supplied where it was established. The system was made liable for the losses of all. To provide therefor each branch was to deposit with the Board of Control a sum equalling 10 per cent of the notes issued to it, in stocks of the State, or the United States; or bonds and mortgages upon productive real estate, having a value of twice the amount secured thereby, and payable on demand to the board. In case of failure, the stock and bonds of the insolvent Bank were first to be applied to the discharge of its notes, before any of the fund contributed by the other Banks could be called upon. The capital was allotted to various parts of the State, which, for this purpose, was divided into twelve districts. The five Banks previously chartered, and then in operation in this State, were allowed to avail themselves of the privileges of the Act. The notes for circulation were to be issued by the Board of Control, and were limited to double the amount of capital on the first $100,000; to one and one-half the amount on the second $100,000, or any part thereof; and to one and one-quarter the amount upon the third $100,000, or any part thereof. Of these Banks, 36 were in operation in 1856, having a capital of $4,034,524, and a circulation of $7,112,320. At that time, the Ohio Life and Trust Company was the only one of the old Banks remaining in operation. The Act of 1845 also authorized the formation of Banks independent of the State Bank. These, however, were to secure their circulation by deposits of the stock of the United States or of the State. Of these Banks, 9 were in operation in 1856, having a capital of $587,500, and a circulation of $893,839.

In 1851, a system of free banking was authorized, whose circulation was to be secured by a pledge of the United States, or Ohio State bonds. Of these, 10 were in operation in 1856; having a capital of $738,050, and a circulation of $769,397. In 1852, the revised Constitution of the State provided that no new Banks should be created by the legisla

ture, unless sanctioned by the people at the next general election. In 1854, there were in operation in Ohio, four distinct classes of Banks: those incorporated prior to 1845, having a capital of $1,550,000; the State Bank and its branches, having a capital of $4,100,000; the independent Banks, created under the safety-fund system, having a capital of $720,000; and the free Banks, created under the Act of 1851, having a capital of $695,000. Most of the Banks organized under the Act of 1851 were gradually driven out of existence by excessive taxation. In 1856, the Act of 1845, incorporating the State Bank and branches, was extended to May, 1877. That Act forbade any higher rate of taxation upon banking than upon any other kind of capital.

The creation of the State Bank and its branches contributed greatly to restore the finances of the State and the people, although all safety-fund systems are radically vicious. No Bank, except, perhaps, a National Bank, should be required to hold securities against its circulation. Whatever means Banks possess over and above that provided by their bills, should always be in the form of coin, or the equivalent of coin, to be held as reserves. The provision for the retirement of the notes and credits should be their bills. Where other provision is made, the inference is unavoidable, that notes may be properly issued upon it, and will circulate by virtue thereof, an inference fatal to all sound banking.

In contrast with the safety-fund system of Ohio, and in fact with all systems of the kind, was that which, for a long time, prevailed in the adjoining State, Indiana. That State, in 1834, established the State Bank of Indiana, the capital of which was almost wholly borrowed from abroad, chiefly on the bonds of the State. The Bank, starting with adequate means, fortunately fell into competent and upright hands. It enjoyed, for the twenty years of its existence, uninterrupted success. It did not even suspend specie payments in the great crisis of 1837. Owing government, as one of the deposit Banks, at the time, something over $1,000,000, it promptly paid the amount in coin. During the whole trying period of the suspension, which in the West lasted several years, with a capital of only about $2,500,000, it usually maintained coin reserves equalling $1,000,000. These, for several

years after the Bank went into operation, equalled 60 per cent of its note circulation. It was for a long time a bright spot in a vast desert of incompetency and ruin. Had it been a safety-fund Bank, with its means locked up in securities, for the alleged protection of its note holders, it would necessarily have followed in the wake of all the Western systems, and ended, perhaps, in bankruptcy; involving an enormous loss to the holders of its notes, even if they had been finally redeemed. As it was, it always had its means in hand for any emergency; securing, at the same time, the confidence of the public, which prevented any runs upon it for coin. The management of this Bank is probably the best subject for study of any instance of the kind in the country. It was in a new State, in which a high degree of mercantile training and experience is not to be expected, and in which it is always difficult for Banks to resist the importunities of their customers. Conducting its operations on strictly business principles, discounting no paper but such as represented actual transactions in merchandise, it supplied, during the whole period of its existence, and without embarrassment, a currency very nearly uniform in amount, and always of the value of coin. In the great contraction which took place between 1837 and 1843, the loans and discounts of the Banks of Ohio fell off from $18,178,699 to $2,968,441; while those of the Banks of Indiana, chiefly of the State Bank and its branches, only fell off from $3,179,271 to $2,677,530. In the same period, the note circulation of the Ohio Banks fell off from $8,329,974 to $1,911,983, while that of those of the State of Indiana only fell off from $1,970,595 to $1,828,371. The operations of her State Bank are a striking illustration of the correctness of the principles laid down in this work, and are carefully to be considered in the provision of any system for the country in the future. Its charter expired in 1854. It was then wound up, returning to the shareholders their capital, with a very large addition in accumulated profits. A new State Bank was created in its place, with a capital of $6,000,000, with the right to establish numerous branches. It was managed with the same ability as was the old Bank, and did not suspend specie payments in 1857, as the old one did not in 1837. In 1862, when it became a National Bank, its capital equalled $3,354,200; its circulation, $5,559,467; its deposits, $1,723,624; its loans and discounts, $4,007,990; its specie,

$3,284,696. It was then, probably, in a stronger position than any other Bank in the country.

There is another side to the picture of the management of Banks in this State, by no means so agreeable. In 1851, the new Constitution forbade the creation of Banks except by general laws. In 1852, an Act was passed, providing for the issue, by the proper authorities, on the deposit by any banking association of the stock of the United States, or of the several States, of notes for circulation equal to 95 per cent of such stocks, which were, in the matter of interest, to be made equal to 6 per cent stocks. The law did not require either the stockholders or boards of directors to reside in the State. In 1854, 86 of these safety-fund Banks had been established. The returns from 67 of them for that year showed an authorized capital of $32,900,000, and a note circulation of $7,425,000. In 1856, there were 94 of these Banks nominally in existence, of which 53 had failed, their notes selling all the way from 25 to 75 per cent of their nominal value. By these failures, the banking capital of the State was reduced from $7,281,935, in 1855, to $4,045,325, in 1856; the note circulation, from $8,165,856 to $4,516,422. Little was left but the State Bank. The whole safety-fund system gradually went out of existence; not, however, until the people had suffered enormous embarrassment and loss from its operation. The securities deposited, were those of States which were in default, or which speedily were to make default, and which either remained for a long time at a large discount, or proved wholly valueless. The manner in which these Banks were got up and managed is well shown by the following extract from the message of the Governor to the legislature, in 1853:

"The speculator comes to Indianapolis with a bundle of banknotes in one hand and the stock in the other; in twenty-four hours he is on the way to some distant point of the Union, to circulate what he denominates a legal currency authorized by the legislature of Indiana. He has nominally located his Bank in some remote part of the State, difficult of access, where he knows no banking facilities are required, and intends that his notes shall go into the hands of persons who will have no means of demanding their redemption.'

The State of Michigan had a similar system, to describe which would be only to repeat the description already given

of that of the State of Indiana. In reference to this, the Governor of that State, in his message to the legislature of 1853, says:

"At present we are giving charters to the issues of Banks about which we actually know nothing, in whose management we have no participation; and are thus literally paying a large tribute for what generally in the end proves to be a great curse."

The States of Illinois and Wisconsin, and in fact many others, had similar systems, followed by similar results. The country was for several years deluged with safety-fund money; which, from the inflations and consequent contractions which were caused, exerted a most potent influence in bringing about the panic in 1857, and the general suspension of the Banks throughout the country.

As the suspension of specie payments cut the government wholly off from its resources, other than the notes and credits of the deposit Banks, and as these might prove to be in a measure valueless, Congress was called together, with all practicable speed, to consider the situation and provide for the future. An issue of Treasury notes was ordered to be made receivable in payment of the revenues. The collectors and receivers were directed to hold their collections to be drawn against directly by the Treasury. Drafts upon the deposit Banks, in case of their non-payment, were also made receivable in the payment of the revenues. This provision made their negotiation, at a very small discount, comparatively easy. The whole community was in the same condition; and as creditors were, as a rule, willing to accept the money in circulation, government did not experience any considerable difficulty from the suspension. The third instalment of the public moneys to be deposited with the States, July 1, 1837, was paid in the notes of the suspended Banks. As soon as Congress assembled, the fourth payment, due in October, was directed to be withheld. The most singular feature of this great drama or farce was the instantaneous change of front by the government the moment suspension took place. For eight long years, the great theme which had engrossed its attention and labors was the "reformation of the currency," by measures which called into existence an immense number