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set forth; but without pledging any securities, paying in any money, or complying with any rules, with regard to the nature of the “
capital stock” of one hundred thousand dollars, required by the act.
Our readers well know, that by the notorious restraining act of the Legislature of New York, private banking had hitherto been forbidden, and the exclusive monopoly of this branch of commerce had been given to the incorporated banks. This odious restriction had been the chief object of attack on the part of the Democracy. They demanded the restoration, to each individual, of his natural right “to discount notes, receive deposites, deal in gold and silver bullion, foreign coins and bills of exchange, and loan money;" and it was supposed that this right was conferred by the general banking law. It has, moreover, been generally supposed, that the object of the new law was to furnish a paper currency for the purposes of commerce, the security for which should be perfect and unquestionable.
But the legislators had another and less honest design. The emission of a sound and convertible currency, which should supersede the doubtful issues of the incorporated banks,-a provision which was supposed to be the chief object of the act, and was so set forth and pretended,—is rendered entirely secondary and subservient to the restrictions intended to be laid upon the rights of the individual, in the legitimate use of his capital and enterprise.
The Democracy demanded an unqualified repeal of the restraining law, and perfect freedom in all the branches of money-dealing and banking, excepting, perhaps, the right to issue paper money. The Legislature have bound up and encumbered this right by a set of technical and troublesome regulations, affording no security to the public, but imposing every possible restraint upon individual freedom, and securing every possible preference and advantage to the old chartered monopolies.
Why should a man be compelled to accumulate capital to the amount of a hundred thousand dollars, before he can deal in exchange, receive deposites, and buy or sell bullion ?
Why should he be constrained to file formal certificates, and make burdensome returns to the Comptroller in this branch of commercial operations, more than any other? The only possible reason,
and the true and indisputable reason, is, that if private enterprise be left unfettered, it will compete with the cumbrous and oppressive operations of the banks.
It has been objected to free banking, that capitalists would asso. ciate, in enormous masses, for the oppression of the community, without those salutary checks imposed by legislative charters. This enactment is expressly devised to aid such oppressive associations. The capital must be a hundred thousand dollars. It must have the cumbrous apparatus of presidents, stockholders, cashiers, semi
annual returns, and certificates. Such restraints are thrown around it, that individuals of moderate means and averse to great establishments are precluded from turning their enterprise into this channel. It is cunningly devised to withdraw this branch of business from individual hands, and to place it in the hands of great monied associations, with formidable boards of directors, and all the imposing apparatus devised to wrap banking in mystery, deceive the public, and monopolize a control over a legitimate branch of commerce. Instead of being called “an act to authorize free banking," it may more properly be designated as "an act to encourage the accumulation of capital, so as to monopolize and control exchanges."
Accordingly we find that many of the associations organized under this law, from which it was expected that money would be plenty, have issued no bills, and do not contemplate depositing any securities with the Comptroller. The sole object of their association is speculation in real estate, and in stocks and exchange, which the fictitious name and style of a “Bank” enables them to do, to the detriment of the individual competitor and of the public. But of this we shall speak more fully in another place. If the law required one hundred thousand dollars capital, it should also have required that this amount should be paid in, and deposited with the comptroller, or be in some other way secured, so as to meet the liabilities of the association.
But to conceal the real object of the law, which is, as we have seen, to enable associations with an immense nominal capital to crush private enterprise, the law-makers prefixed to it certain provisions for enabling such associations to issue bank bills. The very sections of the act are transposed and inverted out of their natural order, for the purpose of creating an impression that this is a leading object of the bill, when in fact it was derised to assist stock-jobbing associations.
The first section of the act provides that the Comptroller shall procure bank bills of different denominations, which shall be countersigned and registered in his office.
In the second section, he is authorized to issue these notes to such persons or associations as shall deposit with him an equal amount of the stock of the United States, or of the State of New York, or of the States approved by him, bearing at least five per cent. interest.
By the third section, the association so receiving notes, to the amount of the stock pledged, is authorized to sign, “ loan, and circulate the same as money.”
By the fourth section, it is provided, that if the notes be not redeemed in gold or silver, they may be protested and sent to the Comptroller, who, after ten days' notice to the association, shall sell at auction the securities in his hands, and redeem the notes.
By section fifth, the persons depositing the stock are allowed to receive the interest upon it, until they fail to redeem their notes.
In the seventh and eighth sections, the Comptroller is authorized to receive, for half the amount of notes issued, bonds and mortgages, instead of stocks bearing at least six per cent. interest, on productive lands in the State, worth, independently of any building, double the amount of the mortgage.
By section ninth, a provision is made for exchanging or paying up their bonds and mortgages.
In section tenth, the depositor is allowed to receive the interest money on the bonds, unless he fails to redeem the bills issued.
There are some minor provisions, of no essential importance in discussing the principles of the system.
When the bills are repaid to the Comptroller, or specie deposited to the-same amount, the securities in his hands are to be reconveyed to the depositor. There is no provision made for lost bills, so that the stock corresponding to such losses will be retained by the Comptroller, and not enure to the benefit of the association. This was probably an oversight, as no small item in the profits of banks accrues from the destruction or loss of their bills, before they are returned for redemption.
After the passage of the act in April, 1838, the utmost activity prevailed among speculators and capitalists to form organizations under its provisions.
By the annual report of the Comptroller, rendered to the Legislature in January, 1839, it appears that, anterior to the third day of that month, fifty-four associations had already gone through the necessary formalities, and the total amount of capital actually subscribed in the State was $12,319,175. The amount of bills demanded by these associations, upon the pledge of stocks and securities, however, was only $1,592,990. The remaining portions of their capital, amounting to $10,716,185, was intended to be applied to other purposes than facilitating commerce by the issue of bills.
Several of these associations provided in their articles for the continuance of their operations for more than a century, and for the enlargement of their capital stock, at pleasure, to the extent of fifty millions of dollars.
As the formation of these immense associations was from time to time announced in the public prints, it was naturally expected by that portion of the community who were misled by the false aspect of the law, that money would be rendered plenty, and a paper circulation of unquestionable security produced to any desirable extent, so as to supply the curtailments of the chartered banks ; in this expectation, as we shall hereafter more fully show, the public was disappointed.
Since the date of the Comptroller's report, January 3, 1839, we have gathered notices from the public prints of twenty-three addi.
tional associations, with an aggregate capital of more than $18,000,000; so that, at the present time, we are safely within the truth in stating the number of associations, under the new banking law, at seventy-seven, and the aggregate of their capital paid in at $30,319,175.
According to the best data before us, the proposed capital of the twenty-three banks associated since the 30 January, 1839, is not less than
$300,000,000 Capital proposed by the fifty-four banks reported by
the Comptroller before January 3d, and of the existing State banks,
Total amount of capital which may be employed by
existing free and chartered banks in the State of New York,
Such an enormous amount of prospective capital stock secured by these associations is, of itself, a sufficient demonstration of the gambling facilities afforded by the law, and of the eagerness with which speculators and stock-jobbers have hastened to avail themselves of its benefits. *
And yet, with the immense aggregate of $860,000,000 possible capital, the mercantile community have received but little relief from the operations of the new system. On the contrary, the universal admissions of business men, and that sure test, the price of
*Since writing the above, we have collected more accurate information of the nunber and capital of the banks organized under the new law.
One hundred and nine certificates have been filed in the office of Secretary of State, since the 10th of July, 1838. The capital actually subscribed in these institutions amounts to $35,769,175. Their prospective capital—that is, the amount to which their capital may be increased at pleasure, by the articles of association-is $856,980,000.
Of these banks there are
1,000,000 Rochester, 5.
830,000 Troy, 3.
300,000 Albany, 2.
200,000 Utica, 1.
100,000 Brooklyn, 1.
100,000 Hudson, 1.
100,000 Schenectady, 1.
100,000 The remainder are distributed among the several counties, as follows: In Gennessee county, eight. In Oneida, Saratoga, and Tompkins, four each. In Niagara, three.
In Onondaga, Seneca, Wayne, Broomc, Steuben, Jefferson, and Herkimer, two in each.
In Richmond, Orleans, St. Lawrence, Columbia, Lewis, Orange, Monroe, Montgomery, Greene, Livingston, Ontario, Kings, Yates, Cayuga, Chenango, Chemung, Washington, Albany, Chatauque, Delaware, and Erie, onc each.
public stocks, evince that money has not been more difficult to be obtained at any time within the last five years, than during the first fifteen days of April, 1839, with all these associations in full operation. It has therefore become a matter of demonstration, that the act we are discussing, and most of these associations, have in view other
purposes than to aid the operations of commerce, or furnish the community with a sound paper currency.
To illustrate this view of the subject more fully, we shall briefly describe the usual modus operandi (for it is a technical art) in the formation of these associations.
In the first place, the stockholders in these institutions are generally persons in want of money themselves, and not capitalists able 10 loan money.
Foremost in the class are speculators in real estate, jobbers in fancy stocks, and merchants of questionable credit.
It would naturally be supposed that persons of this description should be excluded, by the restrictions of any sound banking law, from taking the lead in conducting money affairs; but the provisions of the act we are discussing seem to have been expressly contrived for the benefit and advantage of this suspicious class. The first step is, to settle upon articles of association
themselves, in which they generally provide for the continuance of the association for at least half a century, and for a prospective capital of from twenty-five to fifty millions of dollars.
When these particulars have been arranged, a certificate, according to the act, is filed with the county clerk, and another with the Secretary of State. The association then becomes a bank, in due form, under the provisions of the act, with every advantage except the right to issue its own notes as money. And here it is to be observed, that the issuing of its own notes is by no means a profitable or desirable branch of the business of such an association. as the certificate is duly filed, a pompous advertisement appears in the newspapers, setting forth the title and style of the new bank, its officers and directors, and such portions of its articles of association as may be calculated to attract public attention, and capitalists or owners of real estate are invited to subscribe to the stock. Here opens the field for the operation of speculators. It is not necessary that any money should be paid in by the stockholders. Bonds and mortgages, or over-valued real estate, fancy stocks, and securities of all sorts, come before the board of directors, to be transferred to the bank in exchange for certificates of stock, or the bonds of the association. Of the value of these securities, the directors are the sole judges. Neither the Comptroller, nor any other public officer, is entitled to exercise any supervision over the nature of the securities thus received. Moreover, it generally happens that the directors themselves have kindred interests with the applicants. They