A sailcloth were again allowed. Some attempt was made to propitiate the South by a duty of 15 per cent on leaf tobacco and by revival of the war duty of 50 cents a pound on indigo; but protective duties failed to raise the price of either product just as the price of cotton had not been advanced by the 3 per cent impost. The duty on salt was lowered from 20 cents to 15 cents a bushel, but since the selling price, 50 cents a bushel, was still four times the cost of production, consumers were not reconciled. states rights and free-trade convention, held at Charleston in July, declared that the protective policy meant "a steady discrimination of fifty per cent on southern and a bounty of fifty per cent on northern industry." In November following, the recently enacted tariff was declared null and void within the state of South Carolina, and steps were taken to prevent the collection of duties at the ports. The convention stated the tariff policy of South Carolina in unmistakable terms. "The whole list of protected articles should be admitted free of all duty, the revenue being derived from imposts on noncompeting articles only." Armed conflict was averted by concessions on both sides. The Compromise Tariff of 1833 gave "a lease of nine years to protection." The obnoxious duties were to be gradually scaled down by one tenth of the excess each year, until, in 1842, a horizontal rate of twenty per cent ad valorem should be attained. Coffee, tea, spices, and linens were placed on the free list, in order that the redundant revenues might be decreased; but none of the raw materials produced by the western farmers were so listed. Financial Difficulties Ch. II. The failure of Congress to recharter the national bank Bolles, had greatly embarrassed the government in the financing of II, Bk. III, the war and deprived the country of its most reliable cur- Dewey, rency. Five million dollars in national bank notes were 144-168. Sumner, withdrawn from circulation. The $7,000,000 in specie that had been contributed by foreign stockholders was sent back to Europe. The coin remaining in the country was thereafter withheld from circulation. This was the oppor tunity for which the private banks had contended. Hundreds of banks immediately secured charters from the state governments and proceeded to issue notes with no adequate provision for redemption. The older and wealthier sections of the country had learned the lessons of depreciation and undertook to avert the disasters consequent on excessive issue of credit money. The banks of Massachusetts and of New York were restricted as to the proportion between issues and assets and were managed on sound business principles. In the South and West, however, where land was abundant but capital with which to develop its resources scarce, men still hankered for cheap money III, 466, 535; and plenty of it. The state authorities and the bankers Bullock, 74-78. Hildreth, IV, 25; V, 415. Am. State II, 872; III, 57-61. sympathized with this predilection. Between 1811 and 1816 the number of state banks was trebled, and the circulation increased from $45,000,000 to $100,000,000. The purchasing power of the notes declined with increased issues. The notes of the Washington and Baltimore banks were 22 per cent below par, those of Philadelphia 18 per cent, those of New York 10 per cent. Finally, in 1814, all the banks outside of Massachusetts suspended specie payment. From Maine to New Orleans, and from Philadelphia to Missouri, these "wild-cat" banks declined to redeem their notes, and the government itself could not require specie in payment of taxes. Business men began to petition for a second national bank. The Second National Bank. - The Secretary of the Treasury urged upon Congress the necessity of recourse to a national bank as the only means of enabling the government to meet its obligations, provide the country with a stable currency, and force the state banks to resume specie payThe measure was deferred until 1816, when a bank was chartered upon substantially Hamilton's plan, but on a scale befitting the expansion of business in the twenty ment. five years' interval. The capital stock was $35,000,000, of which $7,000,000 was to be subscribed by the government and $28,000,000 by private parties. Three fourths of the private subscription was to be in government bonds and one fourth in specie. The bank was authorized to issue convertible notes to the full amount of its capital. The national bank currency could not be legal tender, but it was receivable at par in all payments to the United States Treasury. Five of the twenty-five directors were appointed by the President of the United States, and Congress was empowered to order an inspection of the bank management whenever it fell under suspicion. The central bank was opened at Philadelphia in January, 1817, and twenty-five branches were established in other business centers. The successes of the first national bank were repeated only in part. The extraordinary demand for government bonds brought this paper up to par and relieved the Treasury of serious embarrassment. The national bank notes proved a welcome addition to the currency, especially in the South, where there was no specie and where the local issues were thoroughly discredited; but the task of forcing the state banks back to a specie basis proved too great for an institution organized with undue haste and financed with criminal tolerance. The National Bank was mismanaged from the start. Of the $7,000,000 specie required in the charter, but $2,000,000 was actually contributed. Of the $21,000,000 bond subscriptions, but $9,000,000 was actually made good in government bonds, the personal notes of subscribers being accepted in lieu of the stipulated payment. Undeterred by the fact that a considerable portion of its capital stock was but dubious assets, the management awarded dividends to subscribers whose stock was not paid in, loaned freely and with inadequate security to the struggling state banks, discounted heavily the business paper presented by stockholders, and issued currency in excess of the normal financial needs of the country. Am. State Carey, Wages and Prices, 243-247. Mismanagement and speculation brought the institution. to the verge of bankruptcy in 1818. The Baltimore branch failed for $3,000,000. An investigation of its affairs was ordered by Congress and a vigorous reform prescribed. The original management was obliged to resign. Langdon Cheves of Charleston was elected president, and under his conservative administration the National Bank retrieved its financial standing. But reform administration could not avert the business crisis which years of speculation and wild-cat banking had engendered. The sudden contraction of credit, following upon a period of reckless financiering, jeopardized banks and business enterprises everywhere outside of New England. The Crisis of 1819. Not the banks only but business men of all classes had been mortgaging the future beyond warrant. Manufacturers, encouraged by the prospect of adequate protection, enlarged their plants and doubled. their output. Land companies invested borrowed money in property that could not be sold at a profit. Farmers mortgaged their lands for the wherewithal to make improvements. Large sums were sunk in transportation facilities that could not pay dividends on the investment, much less make good the obligations incurred. Confidence in the resources of the country and its ultimate prosperity led men to anticipate industrial development by a generation and to risk too much upon the immediate future. The contraction of the currency from $110,000,000 in 1816 to $65,000,000 in 1819, and the refusal of the National Bank to discount any but well-secured paper, called a sudden halt in this mad career of speculation. Hundreds of business enterprises were prostrated and thousands of apparently prosperous men were ruined. The closing of factories threw workmen out of employment, and the streets of Philadelphia, Baltimore, New York, Pittsburg, and many lesser manufacturing and commercial centers were thronged with destitute men and women seeking work. Prices fell, and the value of real estate shrank to one third the level of the speculative period. Ch. VI, XI Failure to Recharter.- The National Bank was thence- Dewey, Ch. IX. forth managed on sound business principles, but it never recovered prestige; and the animosity of the men whose interests were involved with the private banks grew more bitter year by year. When the petition for recharter came before Congress in 1832, the proposition was vigorously opposed. The bill secured a majority in both Houses, but it was vetoed by President Jackson on the ground that the bank had "failed in the great end of establishing a sound and uniform currency." Jackson came from the new Sumner, West, where wild-cat banking had gone to unprecedented Andrew Jackson, extremes, and where the ruin wrought by the restrictive measures enforced by the National Bank was keenly felt. Silver sufficient to serve as the medium of exchange came into the country through the New Orleans trade with the West Indies and Mexico, but the demand for capital with which to develop the country could only be met by credit agencies. In 1817-1818 forty banks of issue had been chartered in Kentucky. Tennessee and Ohio were not slow to adopt the same alluring expedient. The banks issued. money without stint and loaned to speculators on easy terms. Prices rose, and though the silver went over the mountains to New York and Philadelphia, the Mississippi Valley seemed to be in the heyday of prosperity. Then suddenly, in 1819, the National Bank presented an accumulation of notes for redemption; the state banks, unable to meet their obligations, were forced to suspend specie payment, and the boom collapsed. To mitigate the general distress the state legislatures passed relief laws, staying proceedings against debtors. Kentucky undertook to meet the situation by establishing the Bank of the Commonwealth, authorized to issue notes on the basis of the state revenues and to loan the same to needy persons on land security. The remedy was worse than the disease. In 1822 the notes of the bank were worth fifty cents on a dollar, and its beneficiaries were ruined. The farmers lost their land and left the state by hundreds and thousands. Jackson derived from this experience a profound distrust of the |