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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 3d 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,

$800,000,000

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 number 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

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66 Schenectady, 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, Broome, Steuben, Jefferson, and Herkimer, two in each.

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$16,028,175 1,000,000

830,000

300,000

200,000

100,000

100,000

100,000

100,000

In Richmond, Orleans, St. Lawrence, Columbia, Lewis, Orange, Monroe, Montgomery, Greene, Livingston, Ontario, Kings, Yates, Cayuga, Chenango, Chemung, Washington, Albany, Chatauque, Delaware, and Erie, one 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 to 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 among 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 soon 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

are all common owners of the fancy lots in some village, or some section of a city, and have a common interest in exaggerating the nominal price of the mortgaged lands proposed. Again, they are not confined to lands in the State of New York, but are allowed to embrace village lots, or wild lands, from Maine to Florida. In this way the capital stock is soon distributed. The holders of the stock then take it into market, and either borrow money upon it, or sell it on speculation, holding out the most extravagant promises of enormous profits and dividends to the unsuspecting purchasers. The certificates of stock and the bonds of the association go into the stock exchange, and are subjected to the operations of all those cunning devices which have rendered stock-jobbing odious in Europe and in this country.

Meantime the association, with its mortgages and other securities received in exchange for its certificates of stock and bonds, is carrying on another and parallel course of operation. It borrows money, when needed, upon its securities. This money it employs in exchanges and discounts. It must be miserably deficient in credit, if it do not receive considerable amounts on deposit. With this fund also it operates. Possibly some of its bonds, payable at long dates, may suffice to raise temporary loans. It becomes the centre and engine of every kind of speculation and illegitimate money operation, and the ingenuity of its directors must be small indeed, if a sufficient amount be not derived, either from the credulity of the public, or the necessities of its customers, to afford respectable dividends to the holders of its stocks.

All these operations may be conducted under the much praised banking law of 1838, without pledging a dollar with the Comptroller, or issuing a single bank bill. And, as we have seen, of the $12,319,175 capital, reported by the Comptroller on the 3d of Janu ary last, $10,716,185 is employed in this manner, and only $1,592,990 applied to the ostensible purposes of the act, to wit, a paper circulation.

We know among these associations there are honorable exceptions, not coming within the scope of these strictures, but organized and conducted by honorable men, in accordance with the professed intentions of the law, and for the benefit of commerce. But such is the general bad character of the new associations, and so fatal are the facilities afforded to rotten speculators by the legal provisions we have detailed, that the sound associations have hitherto not been able to command public confidence, or essentially to relieve the commercial community.

Some few of the associations have deposited securities with the Comptroller, and thus qualified themselves to issue notes to the extent of a small proportion of their capital. But by far the greater part have regarded this part of their privileges as not worth atten

tion, and have not, indeed, had the power, to furnish either State stocks, or bonds and mortgages, which the Comptroller could approve. The banks in the western part of the State have much greater inducements to avail themselves of the right to issue notes, than those in the city of New York. We subjoin, from the Comptroller's report of January 3d, an account of the bills proposed to be circulated by some of these banks.

The Bank of Western New York, at Rochester, with a capital of $500,000, has ordered $93,000 of bills.

The Lockport Bank, with the same capital, had ordered $200,000. The Bank of Gennessee, at Batavia, capital $100,000, ordered $20,000 of bills.

The Merchants' and Exchange Bank, at Buffalo, capital $200,000, ordered $50,000 bills.

These proportions are much larger than the proportions of the city banks, many of whom have deposited no securities at all, and others not more than one hundred thousand dollars, on capitals of from two to twenty-five millions.

It is even well understood and announced, that some of the most sound associations in the city of New York, like the North American Trust and Banking Company, never intend to issue any more bills than their own convenience or necessity requires, but will confine their operations to the other departments of banking, and especially to the establishment of such a credit in England as may enable them to borrow money on their stock or bonds in that market at low rates of interest, and for long periods, and reloan the same, at home, at higher rates, and for shorter periods.

It will have been seen that no portion of the bonds and mortgages, or other securities, received and held by these associations, passes under the inspection of the Comptroller, except that part which may be tendered to him to obtain bills for circulation. Hence the bondholder, or stockholder, of the association, is left entirely at the mercy of the board of directors, as the fund for which he looks depends for its value entirely on their discretion; the law providing that all securities transferred to the Comptroller shall be exclusively applied to the payment of the bank bills issued by the association.

Such is a rapid outline of the stupendous system devised by the Whigs, under the name of free banking, to aid broken-down speculators in real estate, and desperate gamblers in fancy stocks, in associating to defraud the community.

Let us now briefly consider the act in the aspect it is intended at first view to bear, namely—a plan to furnish a safe paper substitute for money.

The first and most obvious benefit of the law in this respect is, that its privileges, whatever they may be, are equally open to the whole community. It will put an end to the granting of close

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