sixty or ninety days, on an average, either by receiving them in payment of notes discounted, or by giving par funds for them. The daily current that flows into a bank must be equal to the daily current that flows out, in order that it may preserve its credit. All the operations of a bank, or at least all that exceed the amount of its bona fide capital actually paid in, must be confined to notes based on real transactions, and having but a few months to run. Loans for such short terms are of little or no use in an agricultural community. If a farmer or planter wishes to borrow, he wishes to borrow for at least a year. like is true of most merchants in newly settled countries. According to Adam Smith, the credits which English merchants used to grant to Anerican merchants, previous to the Revolutionary War, were usually from two to three years. The 5. If a bank make long loans, as all it can then lend will be but little more than its real capital actually paid in, all it receives in the way of discount, will not be equal to the common interest of money, and the expenses of management. 6. So far from issuing "three to one," the banks of the United States do not, on an average, issue one to three on the amount of capita! paid in. 7. If, by "the banking privilege of issuing three to one," the committee did not mean notes for circulation, but the aggregate of investments supposed to yield income, here too they erred. The aggregate of such investments, taking the banks throughout the Union, is but little more than two for one in the paid up capital. 8. So far from issuing notes in the proportion of three to one on the capital paid in, prudent bankers do not think it fit to issue more than three to one of the specie actually on hand. The laws of Louisiana require the banks of that State to have at all times on hand, an amount of specie equal to one-third of both their circulation and deposits. 9. The committee erred grossly in supposing that without banks there can be no lending on bond and mortgage. Long before banks were established in any part of the country, this was the favorite mode of lending. And, even to this day, but a small portion of the loans on bond and mortgage are made through the instrumentality of the banks. 10. Of all kinds of banks, those operating exclusively in government funds are the worst. It is the interest of the managers of such institutions to get as much out of them as they can for themselves and their favorites. Preventing losses to the State, is a secondary concern. Two of the banks that the committee set forth as examples, the State Bank of Alabama and the State Bank of Georgia have gone to destruction. The true condition of the third, the Bank of the State of South Carolina, cannot be known till the time comes for winding The principles laid down by the committee, were, however, received without examination, and in accordance therewith, a bill was brought in to establish a bank, with a capital of one million of dollars, to be raised by a sale of the bonds of the State, to which million should be added the State's share of the surplus revenue of the United States, the five per centum derived from the sale of the public land, the seminary and saline fund, and all the other funds of the State. At this very time the General Assembly had before it a report from Charles P. Bertrand, the treasurer, stating that the seminary fund amounted to $1,965 11, of which the amount of $1,807 22 had been lent. But, that, "finding it impossible, in most cases, to collect even the interest," he had deemed it expedient to renew the notes for both principal and interest, making them payable in twelve months, and bearing interest from date. With this fact staring them in the face, the General Assembly resolved to lend, not only all the money the State then possessed, or might thereafter possess, but all the money it might be able to borrow. On the 18th of October, this bill, so fraught with woe to the State and to the people, was passed in the Senate by a vote of 13 to 3. The yeas were, Messrs. Ball, Clark, Ferguson, Hill, Izard, McCamy, McKean, McLain, Ringgold, Smith, Saunders, Thornton and Williamson. The nays were, Messrs. Brown, Kuykendall and S. C. Roane. In the House it was passed on the 20th of the same month, without a formal division. On November the second, the bill was approved by the Governor, and on the same day, Jacob Brown was elected president of the principal bank, at Little Rock, and Messrs. Samuel M. Rutherford, Edward Cross, Wood Tucker, John McLain, William B. Wait, James De Baun, David G. Eller, David Fulton, William Field, Richard C. Byrd, Elijah A. Moore, and Chester Ashley were chosen directors. David W. Lowe was elected president of the branch at Batesville, and Daniel J. Chapman, John Miller, William More, Charles H. Pelham, John Robinson, J. Anthony, Robert Smith, Lawson Henderson, and Joseph Egner were made directors. James McKissick was elected president of the branch at Fayetteville, and William T. Larrimore, Lodowick Brodie James Byrnside, William Skelton, Alfred Wallace, Maurice Wright, John Henry, Alfred Henderson, and Philemon Williamson were chosen directors. When this General Assembly commenced its session, the debt of the State was less than nine thousand dollars, ($8,694 964.) Before it adjourned it passed acts to involve the State and the people in debt to the amount of three million and forty thousand dollars, namely: one million to establish the State Bank, two millions for the benefit of the Real Estate Bank, and forty thousand to pay the current expenses of the state government. On the 10th of November, 1836, the directors at Little Rock held their first meeting, and resolved to request the governor to have the bonds dated January 1, 1837. On the same day they appointed a committee of correspondence to open a negotiation with foreign capitalists for the disposal of the bonds; and requested the president to ascertain from the secretary of the treasury of the United States, on what conditions the deposits of the public money could be obtained for the bank. On the 12th of January, 1837, instructions were given to R. C. Byrd to contract for the engraving of suitable bank note plates. Every effort was thus made to bring the bank into operation at the earliest day possible. But owing to the state of the times, it was found impracticable to negotiate any large amount of bonds bearing only five per cent. interest. In the spring of the year an arrangement was entered into with the war department for the sale of bonds to the amount of $300,000, but before it could be fully carried into effect, the banks throughout the Union suspended specie payment, and $100,000 was all that was realized during the year from that source. This was not the only disappointment the directors were doomed to suffer. The first installment of the United States revenue was due on the first day of January. Early in February, the treasurer of the State (Mr. Woodruff.) received two transfer drafts from the secretary of the treasury of the United States, one for $45,583 83, on the Planter's Bank of Mississippi, and the other for $50,000 on the Agricultural Bank of the same State. The first mentioned draft he exchanged with the United States Receiver at Little Rock for an equal amount of specie. The latter, as he had no safe place in which to deposit the money, and as there was no probability of the bank's going into operation for several months, he deferred collecting till the second installment should fall due. On the 1st of April he received two other drafts for the like amount on the same banks, and in about two weeks afterwards he started for Natchez for the purpose of receiving payment of these drafts, and also of the $50,000 due on the first installment. He arrived at Natchez on the 23d of April, "just at the commencement of the run on the banks of Mississippi and Louisiana, when their counters were constantly crowded, during business hours, with throngs of traders and others, all clamorous for specie in exchange for the large roll of notes which they eagerly presented." Both the banks made very fair promises, but Mr. Woodruff found that if he made a peremptory demand for specie for the whole amount of the drafts, he would probably get nothing. He therefore deemed it advisable to accept from the Planter's Bank bills of exchange on New Orleans for $45,583 83, and to take from the Agricultural Bank her guarantee to deliver at Little Rock on the 1st of July $100,000 in specie, free of risk and expense. Proceeding to New Orleans, Mr. Woodruff presented the drafts which he had obtained from the Planter's Bank, and received specie for them, which specie he brought with him to Little Rock. In a few days after his return, the news came of the suspension of specie payment, by both the Planter's Bank and the Agricultural Bank. This induced Mr. Woodruff to pay a second visit to Natchez. The cashier of the Agricultural Bank promised to do the best he could; but the promises were of so indefinite a nature that Mr. W. could not confide in them. He, therefore, extended his journey to Washington City, and the secretary of the treasury, as the best he could do, gave him. drafts on banks in Cincinnati, Louisville and New Orleans, in exchange for the drafts on the Agricultural Bank of Mississippi. The third installment of the surplus revenue was due on the 1st of July, and drafts were received for it on the Planters Bank for $50,000, and on the Agricultural Bank for $45,583 83. Negotiations were entered into with these institutions in hopes of prevailing on them to pay at least a part of these drafts in specie or in New Orleans paper; but they both steadily refused to pay in any thing but their own notes; and such payment the Bank of the State of Arkansas was finally obliged to accept. As there was no longer an apparent surplus, but a real deficit in the United States treasury, Congress, by a special act, relieved the secretary of the treasury from the obligation of making a deposit of the fourth installment with the States. When the act was passed to establish the bank, it was confidently expected that one million dollars would easily be raised by the sale of bonds, and that $382,333 32 would be realized in specie or its equivalent from the State's share of the surplus revenue of the United States. Instead of a million, only one hundred thousand dollars were obtained in exchange for bonds, and instead of $382,333 32 from the United States surplus revenue, only $286,757 47. Of this last amount only $91,167 67 was in specie. The residue was in the notes of the non-specie paying banks of Ohio, Kentucky, Louisiana and Mississippi. The directors at Little Rock were not the men to be daunted by difficulties. On the 8th of August, 1837, they commenced discounting. At that time, all the funds actually on hand, were $90,000 in gold and silver, and $66,000 in Ohio and Kentucky bank notes. But they enlarged their ability to lend by the issue of post-notes payable twelve months after date, and the treasurer, by agreeing to receive such notes for all public dues, made them the official money of the State. This was an unfortunate proceeding. By it the bank stamped itself at the very beginning as a non-specie paying institution, and thereby prevented itself from acquiring credit abroad. As a consequence, even in the short period in which it actually paid specie, its notes were never at a less discount than 8 or 10 per cent. in New Orleans, and had not so much as the honor of a quotation in the prices current of New York and Philadelphia. It is true that if the bank had confined itself to issues of notes payable on demand, it could not have made loans and discounts beyond the amount of capital paid in. But as we shall see hereafter, even the contrivance of issuing inconvertible paper, did not, after the bank was brought into full operation, enable it to extend its loans and discounts much beyond the amount of its capital. It failed to add sound credit to its capital, and thereby was much restricted in its operations. In October and November, exchange on the east could not be procured at less than 8 to 10 per cent. premium, and specie bore a premium of 8 to 10 per cent. in "current paper." As this current paper, consisting chiefly of Arkansas bank postnotes, was the official money of the State, specie could not circulate concurrently with it. This led to the issue of "shinplasters" by individuals and municipal corporations. A special session of the General Assembly commenced at Little Rock on the 5th of November, 1837. On the 7th there was laid before the Senate, a report from Major Jacob Brown, the president of the State Bank, accompanied by sundry documents, showing the difficulties the directors had encountered, and the extent of their operations. From these it appeared that the amount of capital paid in, up to November 6, 1837, was $413,106 29, and that it had been derived from the following sources: Sale of State bonds.. United States surplus revenue Seminary fund .... Saline or salt spring fund. . $100,000 00 286,156 49 26,725 00 96 30 127 50 Of the total, $216,725 00, consisted of specie and United States treasury drafts, and $196,381 29 of the paper of nonspecie paying banks in Ohio, Kentucky, Louisiana and Mississippi. As was observed by the committee on banks, in their report to the legislature in 1857: "One of the objects professedly in view in establishing this bank, was that of supplying the State with a sound circulating medium, and it commenced operations by circulating the notes of distant and non-specie paying banks, some of which proved to be ultimately worthless, and by issue of its own, which, as they increased the mass of notes not redeemable in specie, served still further to depreciate the currency and increase the difficulty of resuming specie payments." So rapidly did the bank proceed in lending, that it had on hand on the 6th of November only $916 00 in the inconvertible |