The Life of John Marshall Volume IV Part 20

A careful and accurate Scotch traveler thus describes their methods: "By lending, and otherwise emitting their engravings, they have contrived to mortgage and buy much of the property of their neighbours, and to appropriate to themselves the labour of less moneyed citizens....

Bankers gave in exchange for their paper, that of _other banks, equally good with their own_.... The holder of the paper may comply in the barter, or keep the notes ...; but he finds it too late to be delivered from the snare. The people committed the lapsus, when they accepted of the gew-gaws clean from the press.... The deluded mult.i.tude have been basely duped."[507] Yet, says Flint, "every one is afraid of bursting the bubble."[508]

As settlers penetrated the Ohio and Indiana forests and spread over the Illinois prairies, the banks went with them and "levied their contributions on the first stroke of the axe."[509] Kentucky was comparatively well settled and furnished many emigrants to the newer regions north of the Ohio River. Rough log cabins were the abodes of nearly all of the people[510] who, for the most part, lived roughly,[511] drank heavily,[512] were poorly educated.[513] They were, however, hospitable, generous, and brave; but most of them preferred to speculate rather than to work.[514] Illness was general, sound health rare.[515] "I hate the prairies.... I would not have any of them of a gift, if I must be compelled to live on them," avowed an English emigrant.[516]

In short, the settlers reproduced most of the features of the same movement in the preceding generation.[517] There was the same squalor, suspicion, credulity, and the same combativeness,[518] the same a.s.sertion of superiority over every other people on earth,[519] the same impatience of control, particularly from a source so remote as the National Government.[520] "The people speak and seem as if they were without a government, and name it only as a bugbear," wrote William Faux.[521]

Moreover, the inhabitants of one section knew little or nothing of what those in another were doing. "We are as ignorant of the temper prevailing in the Eastern States as the people of New Holland can be,"

testifies John Randolph in 1812.[522] Even a generation after Randolph made this statement, Frederick Marryat records that "the United States ... comprehend an immense extent of territory, with a population running from a state of refinement down to one of positive barbarism....

The inhabitants of the cities ... know as little of what is pa.s.sing in Arkansas and Alabama as a c.o.c.kney does of the manners and customs of ...

the Isle of Man."[523] Communities were still almost as segregated as were those of a half-century earlier.[524] Marryat observes, a few years later, that "to write upon America _as a nation_ would be absurd, for nation ... it is not."[525] Again, he notes in his journal that "the ma.s.s of the citizens of the United States have ... a very great dislike to all law except ... the decision of the majority."[526]

These qualities furnished rich soil for cultivation by demagogues, and small was the husbandry required to produce a st.u.r.dy and bellicose sentiment of Localism. Although the bills of the Bank of the United States were sought for,[527] the hostility to that National inst.i.tution was increased rather than diminished by the superiority of its notes over those of the local money mills. No town was too small for a bank.

The fact that specie payments were not exacted "indicated every village in the United States, where there was a 'church, a tavern and a blacksmith's shop,' as a suitable site for a _bank_, and justified any persons in establis.h.i.+ng one who could raise enough to pay the _paper maker_ and _engraver_."[528]

Not only did these chartered manufactories of currency multiply, but private banks sprang up and did business without any restraint whatever.

Niles was entirely within the truth when he declared that nothing more was necessary to start a banking business than plates, presses, and paper.[529] Often the notes of the banks, private or incorporated, circulated only in the region where they were issued.[530] In 1818 the "currency" of the local banks of Cincinnati was "mere waste paper ...

out of the city."[531] The people had to take this local "money" or go without any medium of exchange. When the notes of distant banks were to be had, the people did not know the value of them. "Notes current in one part, are either refused, or taken at a large discount, in another,"

wrote Flint in 1818.[532]

In the cities firms dealing with bank bills printed lists of them with the market values, which changed from day to day.[533] Sometimes the county courts fixed rates of exchange; for instance, the County Court of Norfolk County, Virginia, in March, 1816, decreed that the notes of the Bank of Virginia and the Bank of South Carolina were worth their face value, while the bills of Baltimore and Philadelphia and the District of Columbia were below par.[534] Merchants had to keep lists on which was estimated the value of bank bills and to take chances on the constant fluctuations of them.[535] "Of upwards of a hundred banks that lately figured in Indiana, Ohio, Kentucky, and Tennessee, the money of two is now only received in the land-office, in payment for public lands,"

testifies Flint, writing from Jeffersonville, Indiana, in March, 1820.

"Discount," he adds, "varies from thirty to one hundred per cent."[536]

By September, 1818, two thirds of the bank bills sent to Niles in payment for the _Register_ could not "be pa.s.sed for money."[537]

"Chains" of banks were formed by which one member of the conspiracy would redeem its notes only by paying out the bills of another. Thus, if a man presented at the counter of a certain bank the bills issued by it, he was given in exchange those of another bank; when these were taken to this second inst.i.tution, they were exchanged for the bills of a third bank, which redeemed them with notes of the first.[538] For instance, Bigelow's bank at Jeffersonville, Indiana, redeemed its notes with those of Piatt's bank at Cincinnati, Ohio; this, in turn, paid its bills with those of a Vincennes sawmill and the sawmill exchanged its paper for that of Bigelow's bank.[539]

The redemption of their bills by the payment of specie was refused even by the best State banks, and this when the law positively required it.

Niles estimated in April, 1818, that, although many banks were sound and honestly conducted, there were not "half a dozen banks in the United States that are able to pay their debts _as they are payable_."[540]

All this John Marshall saw and experienced. In 1815, George Fisher[541]

presented to the Bank of Virginia ten of its one-hundred-dollar notes for redemption, which was refused. After several months' delay, during which the bank officials ignored a summons to appear in court, a distringas[542] was secured. The President of the bank, Dr.

Brockenbrough, resisted service of the writ, and the "Sheriff then called upon the by-standers, as a _posse comitatus_," to a.s.sist him.

Among these was the Chief Justice of the United States. Fisher had hard work in finding a lawyer to take his case; for months no member of the bar would act as his attorney.[543] For in Virginia as elsewhere--even less than in many States--the local banks were the most lucrative clients and the strongest political influence; and they controlled the lawyers as well as the press.

In June, 1818, for instance, a business man in Pennsylvania had acc.u.mulated several hundred dollars in bills of a local bank which refused to redeem them in specie or better bills. Three justices of the peace declined to entertain suit against the bank and no notary public would protest the bills. In Maryland, at the same time, a man succeeded in bringing an action against a bank for the redemption of some of its bills; but the cas.h.i.+er, while admitting his own signature on the notes, swore that he could not identify that of the bank's president, who had absented himself.[544]

Counterfeiting was widely practiced and, for a time, almost unpunished; a favorite device was the raising of notes, usually from five to fifty dollars. Bills were put in circulation purporting to have been issued by distant banks that did not exist, and never had existed. In a single week of June, 1818, the country newspapers contained accounts of twenty-eight cases of these and similar criminal operations.[545]

Sometimes a forger or counterfeiter was caught; at Plattsburg, New York, one of these had twenty different kinds of fraudulent notes, "well executed."[546] In August, 1818, Niles estimates that "the notes of at least ONE HUNDRED banks in the United States are counterfeited."[547] By the end of the year an organized gang of counterfeiters, forgers, and distributors of their products covered the whole country.[548]

Counterfeits of the Marine Bank of Baltimore alone were estimated at $1,000,000;[549] one-hundred-dollar notes of the Bank of Louisiana were scattered far and wide.[550] Scarcely an issue of any newspaper appeared without notices of these depredations;[551] one half of the remittances sent Niles from the West were counterfeit.[552]

Into this chaos of speculation, fraud, and financial fiction came the second Bank of the United States. The management of it, at the beginning, was adventurous, erratic, corrupt; its officers and directors countenanced the most shameful manipulation of the Bank's stock; some of them partic.i.p.ated in the incredible jobbery.[553] Nothing of this, however, was known to the country at large for many months,[554] nor did the knowledge of it, when revealed, afford the occasion for the popular wrath that soon came to be directed against the National Bank. This public hostility, indeed, was largely produced by measures which the Bank took to retrieve the early business blunders of its managers.

These blunders were appalling. As soon as it opened in 1817, the Bank began to do business on the inflated scale which the State banks had established; by over-issue of its notes it increased the inflation, already blown to the bursting point. Except in New England, where its loans were moderate and well secured, it accommodated borrowers lavishly. The branches were not required to limit their business to a fixed capital; in many cases, the branch officers and directors, incompetent and swayed by local interest and feeling,[555] issued notes as recklessly as did some of the State banks. In the West particularly, and also in the South, the loans made were enormous. The borrowers had no expectation of paying them when due, but of renewing them from time to time, as had been the practice under State banking.

The National branches in these regions showed a faint gleam of prudence by refusing to accept bills of notoriously unsound local banks. This undemocratic partiality, although timidly exercised, aroused to activity the never-slumbering hostility of these local concerns. In the course of business, however, bills of most State banks acc.u.mulated to an immense amount in the vaults of the branches of the Bank of the United States.

When, in spite of the disposition of the branch officers to extend unending and unlimited indulgence to the State banks and to borrowers generally, the branches finally were compelled by the parent Bank to demand payment of loans and redemption of bills of local banks held by it; and when, in consequence, the State banks were forced to collect debts due them, the catastrophe, so long preparing, fell upon sections where the vices of State banking had been practiced most flagrantly.

Suits upon promissory notes, bonds and mortgages, already frequent, now became incessant; sheriffs were never idle. In the autumn of 1818, in a single small county[556] of Delaware, one hundred and fifty such actions were brought by the banks. In addition to this, records the financial chronicler of the period, "their vaults are loaded with bonds, mortgages and other securities, held _in terrorem_ over the heads of several hundreds more."[557] At Harrisburg, Pennsylvania, one bank brought more than one hundred suits during May, 1818;[558] a few months later a single issue of one country newspaper in Pennsylvania contained advertis.e.m.e.nts of eighteen farms and mills at sheriff's sale; a village newspaper in New York advertised sixty-three farms and lots to be sold under the sheriff's hammer.[559] "Currency" decreased in quant.i.ty; unemployment was amazing; scores of thousands of men begged for work; throngs of the idle camped near cities and subsisted on charity.[560]

All this the people laid at the doors of the National Bank, while the State banks,[561] of course, encouraged the popular animosity. Another order of the National concern increased the anger of the people and of the State banks against it. For more than a year the parent inst.i.tution and its branches had redeemed all notes issued by them wherever presented. Since the notes from the West and South flowed to the North and East[562] in payment for the manufactures and merchandise of these sections, this universal redemption became impossible. So, on August 28, 1818, the branches were directed to refuse all notes except their own.[563]

Thus the Bank, "like an _abandoned_ mother, ... b.a.s.t.a.r.dIZED its offspring,"[564] said the enemies of the National Bank, among them all State banks and most of the people. The enforcement of redemption of State bank bills, the reduction of the volume of "currency," were the real causes of the fury with which the Bank of the United States and its branches was now a.s.sailed. That inst.i.tution was the monster, said local orators and editors; its branches were the tentacles of the Octopus, heads of the Hydra.[565] "The 'branches' are execrated on all hands,"

wrote an Ohio man. "We _feel_ that to the policy pursued by them, we are indebted for all the evils we experience for want of a circulating medium."[566]

The popular cry was for relief. More money, not less, was needed, it was said; and more banks that could and would loan funds with which to pay debts. If the creditor would not accept the currency thus procured, let laws be pa.s.sed that would compel him to do so, or prevent him from collecting what his contract called for. Thus, with such demands upon their lips, and in the midst of a storm of lawsuits, the people entered at last that inevitable period of bankruptcy to which for years they had been drawing nearer and for which they were themselves largely responsible.

Bankruptcy laws had already been enacted by some States; and if these acts had not been drawn for the benefit of speculators in antic.i.p.ation of the possible evil day, the "insolvency" statutes certainly had been administered for the protection of rich and dishonest men who wished to escape their liabilities, and yet to preserve their a.s.sets. In New York[567] the debtor was enabled to discharge all accounts by turning over such property as he had; if he owed ten thousand dollars, and possessed but fifty dollars, his debt was cancelled by the surrender of that sum. For the honest and prudent man the law was just, since no great discrepancy usually existed between his reported a.s.sets and his liabilities. But lax administration of it afforded to the dishonest adventurer a s.h.i.+eld from the righteous consequences of his wrongdoing.

The "bankruptcies" of knavish men were common operations. One merchant in an Eastern city "failed," but contrived to go on living in a house for which he "was offered $200,000 in real money."[568] Another in Philadelphia became "insolvent," yet had $7000 worth of wine in his cellar at the very time he was going through "bankruptcy."[569] A merchant tailor in the little town of York, Pennsylvania, resorted to bankruptcy to clear himself of eighty-four thousand dollars of debt.[570]

In their speculations adventurous men counted on the aid of these legislative acts for the relief of debtors. "Never ... have any ... laws been more productive of crime than the insolvent laws of Maryland,"

testifies Niles.[571] One issue of the _Federal Gazette_ contained six columns of bankruptcy notices, and these were only about "one-third of the persons" then "'going through our mill.'" Several "bankrupts" had been millionaires, and continued to "_live in splendid affluence_, ...

their wives and children, or some kind relative, having been made rich through their swindlings of the people."[572] Many "insolvents" were bankers; and this led Niles to propose that the following law be adopted:

"'Whereas certain persons ... _unknown_, have pet.i.tioned for the establishment of a bank at ----:

"'Be it enacted, that ... these persons, ... shall have liberty to become BANKRUPTS, and may legally swindle as much as they can.'"[573]

In a Senate debate in March, 1820, for a proposed new National Bankruptcy Act,[574] Senator Harrison Gray Otis of Ma.s.sachusetts moderately stated the results of the State insolvency laws. "Merchants and traders ... are hara.s.sed and perplexed by twenty different systems of munic.i.p.al laws, often repugnant to each other and themselves; always defective; seldom executed in good faith; prolific in endless frauds, perjuries, and evasions; and never productive of ... any sort of justice, to the creditor. Nothing could be ... comparable to their pernicious effects upon the public morals."[575] Senator Prentiss Mellen, of the same State, described the operation of the bankruptcy mill thus: "We frequently witness transactions, poisoned throughout with fraud ... in which _all_ creditors are deceived and defrauded.... The man _pretends_ to be a bankrupt; and having converted a large portion of his property into money ... he ... closes his doors; ... goes through the form of offering to give up all his property, (though secretly retaining thousands,) on condition of receiving a discharge from his creditors.... In a few months, or perhaps weeks, he recommences business, and finds himself ... with a handsome property at command."[576]

Senator James Burrill, Jr., of Rhode Island was equally specific and convincing. He pictured the career of a dishonest merchant, who transfers property to relatives, secures a discharge from the State bankruptcy courts, and "in a few days ... resumes his career of folly, extravagance, and rashness.... Thus the creditors are defrauded, and the debtor, in many cases, lives in affluence and splendor."[577] Flint records that "mutual credit and confidence are almost torn up by the roots."[578]

It was soon to be the good fortune of John Marshall to declare such State legislation null and void because in violation of the National Const.i.tution. Never did common honesty, good faith, and fair dealing need such a stabilizing power as at the moment Marshall furnished to the American people. In most parts of the country even insolvency laws did not satisfy debtors; they were trying to avoid the results of their own acts by securing the enactment of local statutes that repealed the natural laws of human intercourse--of statutes that expressed the momentary wish of the uncomfortable, if honest, mult.i.tude, but that represented no less the devices of the clever and unscrupulous.

Fortunate, indeed, was it for the United States, at this critical time in its development, that one department of the Government could not be swayed by the pa.s.sion of the hour, and thrice happy that the head of that department was John Marshall.

The impression made directly on Marshall by what took place under his very eyes in Virginia was strengthened by events that occurred in Kentucky. All his brothers and sisters, except two, besides numerous cousins and relatives by marriage, lived there. Thus he was advised in an intimate and personal way of what went forward in that State.[579]

The indebtedness of Kentucky State banks, and of individual borrowers to the branches of the National Bank located in that Commonwealth, amounted to more than two and one half millions of dollars.[580] "This is the _trifling_ sum which the people of Kentucky are called upon to pay in _specie_!"[581] exclaimed a Kentucky paper. The people of that State owed the local banks about $7,000,000 more, while the total indebtedness to all financial inst.i.tutions within Kentucky was not far from $10,000,000.[582] The sacrifice of property for the satisfaction of mortgages grew ever more distressing. At Lexington, a house and lot, for which the owner had refused $15,000, brought but $1300 at sheriff's sale; another costing $10,000 sold under the hammer for $1500.[583] Even slaves could be sold only at a small fraction of their ordinary market price.

It was the same in other States. Within Marshall's personal observation in Virginia the people were forced to eat the fruits of their folly.

"Lands in this State cannot now be sold for a year's rent," wrote Jefferson.[584] A farm near Easton, Pennsylvania, worth $12,500, mortgaged to secure a debt of $2500, was taken by the lender on foreclosure for the amount of the loan. A druggist's stock of the retail value of $10,000 was seized for rent by the landlord and sold for $400.[585] In Virginia a little later a farm of three hundred acres with improvements worth, at the lowest estimate, $1500, sold for $300; two wagon horses costing $200 were sacrificed for $40.

Mines were shut down, shops closed, taxes unpaid. "The debtor ... gives up his land, and, ruined and undone, seeks a home for himself and his family in the western wilderness."[586] John Quincy Adams records in his diary: "Staple productions ... are falling to ... less than half the prices which they have lately borne, the merchants are crumbling to ruin, the manufactures peris.h.i.+ng, agriculture stagnating, and distress universal in every part of the country."[587]

During the summer and autumn of 1818, the popular demand for legislation that would suspend contracts, postpone the payment of debts, and stay the judgment of courts, became strident and peremptory. "Our greatest real evil is the question between debtor and creditor, into which the banks have plunged us deeper than would have been possible without them," testifies Adams. "The bank debtors are everywhere so numerous and powerful that they control the newspapers throughout the Union, and give the discussion a turn extremely erroneous, and prostrate every principle of political economy."[588]

This was especially true of Kentucky. Throughout the State great a.s.semblages were harangued by oratorical "friends of the people." "The reign of political quackery was in its glory."[589] Why the scarcity of money when that commodity was most needed? Why the lawsuits for the collection of debts, the enforcement of bonds, the foreclosure of mortgages, instead of the renewal of loans, to which debtors had been accustomed? Financial manipulation had done it all. The money power was responsible for the misery of the people. Let that author and contriver of human suffering be suppressed.

What could be easier or more just than to enact legislation that would lift the burden of debt that was crus.h.i.+ng the people? The State banks would not resist--were they not under the control of the people's Legislature? But they were also at the mercy of that remorseless creature of the National Government, the Bank of the United States. That malign Thing was the real cause of all the trouble.[590] Let the law by which Congress had given illegitimate life to that destroyer of the people's well-being be repealed. If that could not be done because so many of the National Legislature were corruptly interested in the Bank, the States had a sure weapon with which to destroy it--or at least to drive it out of business in every member of the Union.

That weapon was taxation. Let each Legislature, by special taxes, strangle the branches of the National Bank operating in the States. So came a popular determination to exterminate, by State action, the second Bank of the United States. National power should be brought to its knees by local authority! National agencies should be made helpless and be dispatched by State prohibition and State taxation! The arm of the National Government should be paralyzed by the blows showered on it when thrusting itself into the affairs of "sovereign" States! Already this process was well under way.

The first Const.i.tution of Indiana, adopted soon after Congress had authorized the second Bank of the United States, prohibited any bank chartered outside the State from doing business within its borders.[591]

During the very month that the National Bank opened its doors in 1817, the Legislature of Maryland pa.s.sed an act taxing the Baltimore branch $15,000 annually. Seven months afterward the Legislature of Tennessee enacted a law that any bank not chartered under its authority should pay $50,000 each year for the privilege of banking in that State. A month later Georgia placed a special tax on branches of the Bank of the United States.

The Const.i.tution of Illinois, adopted in August, 1818, forbade the establishment of any but State banks. In December of that year North Carolina taxed the branch of the National Bank in that State $5000 per annum. A few weeks later Kentucky laid an annual tax of $60,000 on each of the two branches of the Bank of the United States located at Lexington and Frankfort. Three weeks before John Marshall delivered his opinion in M'Culloch _vs._ Maryland, Ohio enacted a statute placing a yearly tax of $50,000 on each of the two National Bank branches then doing business in that State.[592]

Thus the extinction of the second Bank of the United States by State legislation appeared to be inevitable. The past management of it had well deserved this fate; but earnest efforts were now in operation to recover it from former blunders and to retrieve its fortunes. The period of corruption was over, and a new, able, and honest management was about to take charge. If, however, the States could destroy this National fiscal agency, it mattered not how well it might thereafter be conducted, for nothing could be more certain than that the local influence of State banks always would be great enough to induce State Legislatures to lay impossible burdens on the National Bank.