# A History of Banking in the United States/Chapter 8

CHAPTER VIII.
The Crisis in the Mississippi Valley.
The popular temper in those days went through oscillations of mania for banks and rage against banks. Within a year or two, two Legislatures would be elected which might represent the extremes of these two feelings. Governor Slaughter opened the session of the Kentucky Legislature of 1818-19 ​with a message in which he expressed fear of banks and of a moneyed aristocracy founded on them. He proposed to the Legislature that they should propose an amendment to the federal Constitution, providing that after a certain time no incorporated banks should exist in the United States. Resolutions were introduced in the Kentucky Legislature, January 4, 1819, that banks with private stockholders were "moneyed monopolies tending to make profit to those who do not labor out of the means of those who do, * * * tending to tax the many for the benefit of the few," and that the federal and State governments ought "to abolish all banks and moneyed monopolies and, if a paper medium is necessary, to substitute the impartial and disinterested medium of the credit of the Nation or of the States."
As the Bank had paid no attention to the tax law of the previous session, another act was passed, January 28, 1819, which showed a different temper. A tax of $60,000 per annum was laid on the Branches or offices of any bank doing business in Kentucky and not incorporated by that State, to be paid monthly, commencing March 4, 1820. The Sergeant of the Court of Appeals was authorized to break open and enter the Bank and distrain for the tax. If the Bank of the United States would promise, within six months, to withdraw its branches, the tax would not be collected. This law of Kentucky was passed just at the time that the Supreme Court of the United States decided the case of McCulloch vs. Maryland. In December following, the case of the Commonwealth against Morrison came on before the Court of Appeals of Kentucky. Judge Rowan delivered a long opinion on the tax of the Bank of the United States. If the States cannot tax any such institution doing business within their borders, they are petty and insignificant. Banks are not necessary to collect the revenue. "Their location in a State is as if done by a foreign nation." The taxing power is concurrent; neither federal nor State government should interfere each with the other. If the government uses its funds for stock jobbing or traffic in a State, it is liable to taxation. Although the Court believes that the Bank is unconstitutional, yet it must bow to the decision of the Supreme Court of the United States. Such was the decision of the Court, but it is said that Rowan thought that they ought to stand out for a further struggle in the interest of State rights.
The Bank found it necessary to very much contract its business in Kentucky. Its circulation there, in 1819, was over $630,000. It was gradually reduced until in 1825 it was only $170,000; then it began to increase again, and in 1828, was $1.3 millions. This was the ground of the charge which was brought against it in the bank war, of having discontinued business during a period of seven or eight years. This conflict between the Bank of the United States and the local banks, with all the reasons for the same, are completely set forth in a letter by Crawford, in 1823. The Bank agreed to accept, in trust for the Treasurer of the United States, all notes of banks selected by itself as depositories where it had no office, and of such others ​as it might agree to credit. This arrangement could not be maintained in 1818, when the crisis came on. The Bank could not receive notes of banks which would not redeem. The banks complained of its demands. The Bank refrained from issuing its own notes and refused to receive for the credit of the Treasurer of the United States anything but specie or its own notes. Thus the debtors for the public lands became liable to pay specie for all their debt. Crawford regarded this state of things as creating a political peril which the Executive was bound to avert, if possible, and this is his defense of his interference to favor banks with the use of the public money, that they might favor the debtors to the Treasury for public lands.
The Bank of England through this period and long afterwards, received country bank notes for revenue, but did not become responsible to the Exchequer for the amounts until the notes were converted into coin or Bank of England notes.
February 6th, 1819, the charter of the Bank of Kentucky was extended to 1841. No more branches were to be established except by a vote of two-thirds of the State directors and two-thirds of the stockholders' directors, with the assent of the Legislature. The stockholders were to appoint one visitor and the Legislature another, to inspect and examine the bank. The present stockholders may withdraw after December 3, 1821. After May, 1819, no bank was to issue any note for less than $1.
"In the early part of 1819, the price of all articles produced in the Western States fell so low as scarcely to defray the expense of transportation to the ports from whence they were usually exported to foreign markets. This condition of things, which had not been anticipated when the debt for the public lands was contracted, produced the most serious distress at the moment, and excited alarming apprehensions for the future."
* ↑ See page 80.
* ↑ Senator White, of Tennessee, in a speech in 1838, said that the Bank of the United State, after establishing its branches in Kentucky, exacted payment for its loans when they became due. "To this the people had not been accustomed, and, as is always the case, although the Bank had been popular when making loans, it soon became very unpopular when trying to collect its debts."
* ↑ 15 Niles, 417.
* ↑ See page 100.
* ↑ 2 Marshall, 75.
* ↑ Kendall's Autobiography, 205.
* ↑ 4 Folio Finance, 262.
* ↑ Quin, in Raguet's Register, 35.
* ↑ Crawford's Letter of February 15, 1822, 3 Folio Finance, 718.