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CHAPTER II.

THE PRODUCTION OF THE SOUTH-WESTERN STATES-THE MONOPOLY OF THE BANK OF THE UNITED STATES.

THE production of cotton on the North American continent, north and east of Mexico, beginning in Virginia, was tried in South Carolina, New Jersey, Delaware, and Maryland. The three last States soon abandoned its cultivation; South Carolina continued it; Georgia engaged in its culture in 1791; Tennessee, North Carolina, and Louisiana, in 1811; Alabama and Mississippi, in 1821; Arkansas, in 1826; and, lastly, Florida. and Texas. Its cultivation was confined chiefly to the Atlantic States until about the year 1830, when the discovery that the bottom lands of the valley of the Mississippi could grow cotton much cheaper than any yet tried, caused a great speculative excitement in the south-west, and created a corresponding land mania in the north-west, inducing persons to lay out farms and project cities in tracts still covered by primeval woods or inhabited only by the aborigines. Almost every State in the Union became thus infatuated, and plunged itself into debt for the cost of internal improvements to transport this anticipated augmentation of commerce. Large numbers of new banks were incorporated to assist the financial arrangements in 1833, 1834, 1835, and 1836-their capital based principally on the issue of State bonds, in the delusive hope that the quantity of money would be increased. As well might an extra number of flour mills be expected to increase the extent of the wheat crops. Yet charters were hurried through the Legislatures: the greatest wildness ensued. In the space of five or six years the nominal banking capital had risen from $110,000,000 to $378,000,000. Ohio had increased from $1,400,000 to $12,000,000; New York, from $20,000,000 to $37,000,000; Pennsylvania, from $14,000,000 to $56,000,000; and Mississippi, from $1,000,000 to $21,000,000!

These speculations were very much fostered by the Bank of the United States, whose Federal charter expired on March 3, 1836, when its concerns were continued by a new bank of the same name and capital, that had been created by the Legislature of Pennsylvania on the preceding 18th February. The bank engaged in these enterprises in order to obtain popularity in the South, so as to overcome, in the minds of the people, the constitutional objections to its recharter urged by President Jackson. It succeeded in its desires in the Halls of Congress, but the President's veto deprived it of national life,' and it had to resort to the State of Pennsylvania for fresh privileges. On the day named the Bill passed the Legislature of that State, and was entitled 'An Act to repeal the State Tax on Real and 'Personal Property, and to continue and extend the improve'ments of the State by Railroads and Canals, and to charter a 'State Bank, to be called the Bank of the United States.' The bank, by its acceptance of the charter, came under an obligation to pay, as a bonus to the State, $2,000,000 as soon as required, $500,000 on March 3, 1837, and $2,000,000 in instalments of $100,000 per annum for twenty years; also, to loan the State $6,000,000, payable in 1868, at par if the interest should be 4 per cent., or 10 per cent. premium if the interest was fixed at 5 per cent. In addition to these sums, the bank agreed to subscribe to various railroad and turnpike companies in Pennsylvania to the extent of $675,000; and the charge has been made that some $500,000 or $600,000 were squandered among newspaper editors and members of the Legislature to secure their support to the measure. This sum,

it has been alleged, was covered up by the profits on the old circulation account.' These items, although costly, enabled the old bank to wind up by merging its affairs into the new concern; its dividends had been large, and the stockholders were tempted to retain their shares. With the vast sums locked up in the form of loans to the new States, the fresh obligations it had just entered into, and the $7,000,000 (made nearly $8,000,000 by overvaluing the assets) of Government stock which it had to pay off, the new institution commenced business with little or no actual capital. It, however, took advantage of a clause in the original charter, which gave it two years

to settle with its stockholders, and in the meanwhile purchased the Federal stock, at the exaggerated value, on a credit of two and three years; it continued making large dividends which it never earned, and availed itself of the accommodation afforded by the reissue of the notes of the old bank, which passed as currency in the distant States of the South and West.* Its nominal capital was large - $35,000,000 –

The annexed extracts from the messages of Presidents Jackson and Van Buren to Congress give some insight into the manner in which the new bank 'stepped into the shoes' of the old concern.

President Jackson in his eighth annual message, on December 6, 1836, said: "The conduct and present condition of that bank, and the 'great amount of capital invested in it by the United States, require your 'careful attention. Its charter expired on the 3rd day of March last, and it 'has now no power but that given in the 21st section, to use "the corporate 6.66 name, style, and capacity, for the purpose of suits for the final settlement "" and liquidation of the affairs and accounts of the corporation, and for the ""sale and disposition of their estate, real, personal, and mixed, but not for 6.66 any other purpose or in any other manner whatsoever, nor for a period ex""ceeding two years after the expiration of the said term of incorporation." 'Before the expiration of the charter, the stockholders of the bank obtained 'an Act of incorporation from the Legislature of Pennsylvania, excluding only the United States. Instead of proceeding to wind up their concerns, and pay over to the United States the amount due on account of the stock 'held by them, the President and directors of the old bank appear to have 'transferred the books, papers, notes, obligations, and most or all of its pro'perty, to this new corporation, which entered upon business as a continu'ation of the old concern. Among other acts of questionable validity, the 'notes of the expired corporation are known to have been used as its own, and again put in circulation. That the old bank had no right to issue or ' reissue its notes after the expiration of its charter, cannot be denied; and 'that it could not confer any such right on its substitute any more than 'exercise it itself, is very plain. In law and in honesty, the notes of the 'bank in circulation at the expiration of its charter should have been called in by public advertisement, paid up as presented, and, together with those ' in hand, cancelled and destroyed. Their reissue is sanctioned by no law, and warranted by no necessity. If the United States be responsible in their stock for the payment of their notes, their reissue by the new corpo'ration for their own profit is a fraud upon the Government. If the United 'States is not responsible, then there is no legal responsibility in any quarter, and it is a fraud on the country. They are the redeemed notes of a dis'solved partnership, but, contrary to the wishes of the retiring partner, and 'without his consent, are again reissued and circulated.'

President Van Buren, in his first annual message, on the 4th day of December 1837, said:

'Just before the banking privileges ceased, its effects were transferred by

and its credit, all over the world, almost unlimited. As a State bank it could not, in its own name, carry on business in other States, New York excepted, where it opened a branch under the general Banking Law of that State. It managed, however, in various ways to avoid this difficulty. For instance, it had become the owner of the bonds of the State of Mississippi, which were issued to form the stock of the Planters' Bank in 1831 and 1833; it also, in 1838, became the proprietor, in a similar manner, of the Mississippi Union Bank, furnishing its whole capital, $5,000,000, excepting $8,000, the organisation of which corporation involved a fraud upon the State, by a supplement smuggled through the Legislature, contrary to law, and which nullified the provisions of its charter, in order to serve the purposes of the Philadelphia institution, and violated the constitution of the State of Mississippi.

The Constitution adopted by the people of the State of Mississippi in 1832 contains the following article:

No law shall ever be passed to raise a loan of money upon 'the credit of the State, or to pledge the faith of the State for 'the payment or redemption of any loan or debt, unless such law be proposed in the Senate or House of Representatives,

'the bank to a new institution then recently incorporated, in trust for the 'discharge of its debts and the settlement of its affairs.

'With this trustee, by authority of Congress, an adjustment was subse'quently made of the large interest which the Government had in stock of 'the institution. The manner in which a trust unexpectedly created upon 'the Act granting the charter, and involving such great public interests, had 'been executed, would, under any circumstances, be a fit subject of inquiry ; 'but much more does it deserve your attention when it embraces the re'demption of obligations to which the authority and credit of the United 'States have given value. The two years allowed are now nearly at an end. 'It is well understood that the trustee has not redeemed and cancelled the 'outstanding notes of the bank, but has reissued and is actually reissuing, 'since the 3rd of March, 1836, the notes which have been received by it to a vast amount.

'According to its own official statement, so late as the 1st of October 'last, 1837, nineteen months after the banking privileges given by the 'charter had expired, it had under its control uncancelled notes of the 'late Bank of the United States to the amount of $27,561,866, of which $6,175,861 were in actual circulation, $1,468,627 at State bank agencies, ' and $3,002,390 in transitu; thus showing that upwards of $10,500,000 of 'the notes of the old bank were then still kept outstanding.'

and be agreed to by a majority of the members of each House, and entered in their journals, with the yeas and nays taken 'thereon, and be referred to the next succeeding Legislature, and published for three months previous to the next regular ' election in three newspapers of the State, and unless a ma'jority of each branch of the Legislature so elected after such publication, shall agree to and pass such law; and in such case the yeas and nays shall be taken and entered on the 'journals of each House: Provided that nothing in this section shall be so construed as to prevent the Legislature from negotiating $1,500,000, and vesting the same in Stock reserved to 'the State by the charter of the Planters' Bank of the State of 'Mississippi.'

The bank had two objects in continuing these transactions: one, to keep up its credit by a system of kiting;' the other, to retain, as it were, influence in all the States, until the Whig or Bank party should attain power, when it hoped to be able to revert from a State to a Federal charter. Its operations were intimately connected with the cotton trade, which, with the India, China, South American, and West Indian trades, conducted by its credits, threw into its coffers large sums of money, and enabled it to select as agents in Europe the most powerful and wealthy banking and mercantile houses. The commissions it was thus enabled to influence to these firms amounted annually to large sums. Partly with a view to benefit the immediate relatives and friends of some of its officers, but, it is believed, principally to extend its sphere of financial accommodation, it opened a house of its own' in London and Liverpool.

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The cotton planters, who migrated to the south-west from Virginia and the Carolinas, with gangs of hands from their paternal estates, entered largely into agricultural operations through bank aid, which was extended to them from year to year. The magnificent profits of the first few seasons induced them to go beyond their depth; their contemporaries in the West became solely speculators, and not producers. This state of affairs, with short crops of cereals, brought about great distress, which culminated in the panic of 1837. The banks of New Orleans first gave way in March of that year, and by May every monied institution in the Union had suspended specie