of the majority of the board. The State was pledged to make good all losses arising from deficiency of the funds of the bank, in proportion to the stock owned by the State. Notes under $5 were prohibited, and the aggregate circulation was limited to three times the capital stock. The bank paid annual dividends of 10% until September, 1839, when the sinking fund amounted to $800,000. The State, however, shortly after this transferred its interest to the Mississippi Railroad Co., and the most of the sinking fund was subsequently lost. Its notes in 1842 were worth but 70 cents on the dollar. During the most of its career the bank operated eight branches. The following table will give the amount of capital, circulation and loans and discounts, respectively, at various dates throughout the period of its existence : The next venture of the State of Mississippi in the business of banking was in connection with the Mississippi Union Bank. Its charter, granted in 1838, provided for a capital of $15,000,000, "to be raised by means of loans to be obtained by the directors." These loans were to be negotiated through bonds of the State, for the security of which the credit of the State was pledged. The stock, however, was to be subscribed by real estate owners alone, who were to give mortgages to secure their subscriptions. In 1838 the first $5,000,000 of these bonds were issued and put on the market. All were sold at par through Nicholas Biddle, president of the Bank of the United States, then operating under a Pennsylvania charter. The proceeds were paid in instalments of $1,000,000 each at intervals of two months. The other banks of the country at the time not being on a specie basis, the bank decided for the present to issue only post notes. On September 27, 1838, the Board of Managers commenced discounting, issuing post notes payable August 1st, 1839. By January 17, 1839, the notes discounted on personal security alone, or upon personal security and cotton, amounted to more than $4,000,000; and the post notes in circulation at the same date aggregated $2,228,150 and demand notes $51,000. A report of a legislative investigating committee in April, 1840, makes the total issue of parent bank and six branches outstanding on that date, $3,337,665. By December, 1841, this had been reduced to $1,872,366. The resources at this latter date included $4.868,158 of "suspended" debt. The management of the institution seems to have been not only visionary, but grossly negligent in scrutinizing the character of the paper offered for discount, and many loans were made where it afterwards transpired nothing could be collected. The proceeds of the $5,000,000 of State bonds, disposed of in 1838, had all been wasted in less than eighteen months after the bank commenced discounting in September of 1838. Nearly a million dollars was lost by advances on cotton alone. By 1842 the condition of the bank had become so hopeless that an assignment was had and preparations made to wind up the institution. In setting forth the situation to the Legislature in 1842, the Governor said: "The interest on those bonds has not been paid during the past year. The Mississippi Union Bank will not be able hereafter to pay any portion of the interest or prin cipal of those bonds. With good management the bank may possibly, under favorable circumstances, be enabled, at a day far distant, to take up all her circulation ($1,872,366)." The paper of the bank was then selling at 35 cents on the dollar. As early as 1841 the interest on all of the State bonds-both those issued in behalf of the Planters' Bank, amounting to $2,000,000, and the $5,000,000 which had actually been issued and sold for the Mississippi Union Bank-was in default. The State, after a protracted discussion, then denied all obligations to pay the bonds, for the reason that they were not issued in accordance with the constitutional requirements, and, finally, a constitutional amendment was passed forbidding the payment of any of them. ILLINOIS. The Constitution of 1818, upon the admission of Illinois as a State, prohibited the establishment of any new bank except a State bank and branches; and at the first session of the State Legislature a new bank was incorporated, by act approved March 22, 1819, by the name of the "President, Directors and Company of the State Bank of Illinois." This was to be the joint property of individuals and of the State. Half of its stock of four millions was to be subscribed by individuals, the rest by the State of Illinois, whenever the Legislature should deem it proper. Ten per cent. of such subscriptions as were made was to be paid down in specie or current bank notes; but as soon as fifteen thousand dollars had been actually received, directors were to be elected and business begin. The president and six directors were to be elected by joint convention of the Senate and House of Representatives and six directors by the stockholders. Branch banks could be established to the number of ten. So far as this new bank, incorporated in 1819 under the name of the State Bank of Illinois, was concerned, these provisions were not important, for no stock was ever subscribed, and the bank never existed, therefore, except on the statute books of the State. As neither the act incorporating this new bank nor the modification of it shortly after, allowing subscribers to pay for the stock in State warrants rather than in specie, was successful in inducing subscriptions, the Legislature, at its next session in 1821, repealed the law, and embarked the State of Illinois in a new banking project, wherein it acted officially and exclusively and without the co-operation of any private persons.* On February 3, 1821, there was passed an act entitled "An Act Establishing the State Bank of Illinois," which was to have a capital stock of half a million dollars, based entirely upon the credit of the State. Its headquarters were to be at Vandalia, the seat of Government, and it was to be owned entirely by the State. The State was divided into five districts, each to have a branch of the State Bank of Illinois. There were to be a president and six directors of the principal bank, and five directors for each branch bank, to be elected by the Legislature every two years. The bank was authorized to issue notes of the denominations of $1, $2, $3, $5, $10 and $20 bearing 2 per cent. annual interest and payable in ten years. The circulating notes were made receivable in payment of State and County taxes, and for costs and fees and salaries of public officers; and the refusal by a creditor to receive them in payment of a debt enabled the debtor, by giving personal security, to stay collection for three years. The law required the bank to lend to the people $100 on personal security, and in amounts not exceeding $1,000, upon notes secured by mortgage on real estate. The act further provided for the distribution of these bills, which, as is seen, were based entirely upon the credit and taxing power of the State, for no capital was ever invested in the bank. Indeed the capital is explicitly specified in the act referred to as the half-million dollars of bills which the bank was authorized to issue. As a matter of fact, but $300,000 of them were emitted. Each branch bank by the terms of the law was given that portionate share of this issue which the number of inhabitants in that district bore to all the inhabitants of the State. The law provided that as soon as the president and directors of the different branches were furnished with the several sums as specified, they were authorized and required to loan out the same, or so much thereof as might be applied for by citizens residing within the district, and that the president and directors of the principal bank and each of its branches, in the granting of loans to the several applicants, should make among the inhabitants composing each of their respective districts a distribution as nearly as practicable according to the relative population contained in the respective counties in such districts. The bank went into operation during the Summer of 1821. Everyone who could get an endorser borrowed his $100, and these loans, with those made on real estate security, soon amounted to the whole capital of the bank. The notes were to be renewed on payment of 10 per cent. of the principal annually. The law provided that each year one-tenth of the loans which were thus provided for should be called in, and one-tenth part of the whole amount of notes should be redeemed and withdrawn from circulation. Not long after, the circulation of the bank was quoted at seventy-five cents on the dollar, then at fifty cents, and finally at twenty-five cents, when it ceased to circulate. By the year 1824, it became impossible to pay the expenses of the State Government with the notes at their par value, and the State officers were paid in them at their real value-thus frequently receiving three dollars in bank notes in payment of one dollar in specie. A loan of the State of $100,000 was negotiated in these notes at par, and the notes subsequently paid out at fifty cents on the dollar. As the State finally redeemed the issues at par, it is estimated that the total loss through depreciation. and from worthless loans, amounted to about $400,000.† *Lyman J. Gage, in World's Congress of Bankers and Financiers. +J. J. Knox, in Rhodes' Journal of Banking, August, 1892. In the session of 1825, however, the Legislature did pass an act requiring the cashier of the bank to collect all the bank notes issued and which had come back to the bank, and all unsigned notes or notes never issued, and burn them in the presence of the Governor and the Judges of the Supreme Court in the public square in the town of Vandalia. It also provided that all notes which afterward came into the hands of the State Treasurer should have a stamp of re-issue placed upon them, and then should be paid out without adding interest, and should thereafter cease to bear interest; while all those which came into the hands of the cashiers of the different branch banks in payment of installments of the indebtedness should be each year burned during the session of the Supreme Court, in the presence of the judges thereof, and of the Governor and Secretary of State, and of the Auditor of Public Accounts, and of the State Treasurer. This act also did away with the presi dent and directors of the different banks; vested the entire power of the banks in the hands of the cashiers, and provided that the cashiers should be appointed by the Governor. By various reports of the Auditor, however, up to 1831, when the affairs of this bank were finally wound up, it appears that very few of the notes found thir way into the hands of the cashiers to be burned-in some years only three or four bills. The persons owing debts to the bank were apparently either unable or unwilling to pay them even in its depreciated currency. In 1831 the affairs of the State bank were practically closed, the State borrow. ing $100,000—the celebrated Wiggins loan-and redeeming all the notes of the bank then outstanding. From 1831 to 1835 the State was without banks of any kind. In February, 1835, the Legislature chartered a new State bank, with a capital of $1,500,000 with the privilege of increasing to $2,500,000. By the terms of the charter the State was to become a partner and hold $100,000 of the stock. Its charter to expire in 1860, conveyed the ordinary banking powers and privileges, and also required the institution to have a real estate fund of $1,000,000, to be loaned out on real estate mortgages for five years. It could issue bills of denomination not less than $5, to two and one-half times its capital stock, and loan and discount to three times its capital stock. The stock of the bank was eagerly taken, the subscriptions soon exceeding the limit; and the stock ran up to a premium of thirteen per cent. The provision securing small holders of stock proportionately more votes than larger ones, was ineffective, parties desiring a controlling interest procuring through agents powers of attorney to subscribe for stock and manage it. An effort made by a firm at Alton controlling a large amount of stock to boom Alton as a commercial rival of St. Louis failed and the bank lost heavily-nearly $1,000,000—and was not far from insolvency at the end of the second year of its existence, though this fact was not generally known. But not content with one bank, the Legislature, on the very day on which it chartered the State Bank, passed an act continuing in force for twenty years the charter of the Bank of Illinois at Shawneetown, originally incorporated by the Territorial Legislature. The authorized capital of the revived bank at Shawneetown was fixed at $300,000, of which one-third was reserved for the State. To all outward appearance the Bank at Shawneetown and the State Bank continued to be sound and in good repute till 1837. In connection with an extended scheme of internal improvement authorized in that year, the capital stock of the State Bank was increased by $2,000,000 additional subscription on the part of the State; and that of the Bank at Shawneetown by $1,000,000 on behalf of the State and $400,000 to be subscribed by individuals. A loan of $3,000,000 was authorized to pay the subscriptions by the State. It was expected that the State bonds would sell at a premium, but when offered in the market they could not be sold at par. The banks, however, to prevent the measure from falling through agreed to take the bonds at par, instead of money, as subscriptions for the stock. The Shawneetown bank sold bonds amounting to $900,000, but $1,765,000 of bonds turned over to the State Bank were never sold but held as capital. While the State was thus to hold a majority of the stock in each bank, yet the private stockholders were still to have a majority of the Directors. The State Bank had five branches when organized; and the Bank at Shawneetown was afterwards authorized to open branches. The two banks were made by law the agents of the State in the collection, receipt, transfer and disbursements of the internal improvement funds, and the State Bank of Illinois was made in effect the treasury of the State by an act requiring the Auditor to contract with it that it should receive upon deposit and disburse the State's revenue. The notes of the State Bank were, in 1836, made receivable for taxes and all public dues; and after the resuscitation of the Bank of Illinois at Shawneetown notes were given like currency in all payments to the State. In 1837 the banks of Illinois, in common with others throughout the United States, suspended specie payments, in which action they were sustained by the Legislature, which legalized the suspension and, in 1841, for the first time granted the State Bank the privilege of issuing one, two and three dollar notes. Both the State Bank and that at Shawneetown were compelled or induced to make loans to the State. In February, 1842, the State Bank with a circulation of $3,000,000, made a disastrous failure, and the following June, the Bank of Shawneetown also failed, with a circulation outstanding of $1,700,000. The circulation of the State at that time consisted almost entirely of the issues of these two banks. In 1842, Governor Ford estimated that the good money in the State in the hands of the people did not exceed one year's interest on the public debt. The paper of the two banks had been at a discount from the time the United States had refused to receive it in payment for the public lands and to make the banks depositories of public moneys. The discount at first was two or three per cent.; but during the two or three years previous to failure, it had increased to twelve and fifteen per cent. This large discount was not generally understood, for the reasons that the banks continued to make their notes the standard, and specie, when used, was received at a premium. In 1842, by virtue of discretionary power lodged in them by the Act of 1836, the governor, auditor and treasurer of the State prohibited the reception of State Bank paper for taxes, and warned collectors against accepting that of the Bank of Illinois at more than its current value. When the Legislature of the State met in 1842 and 1843, two plans were advocated for putting the banks in liquidation. One party, the minority, were in favor of repealing the charters and of the appointment of commissioners who should take possession of the property of the banks. The other party favored a compromise by which the State would at once be paid or nearly paid for the stock advanced by it. The State Bank held $1,750,000 of State bonds, and $290,000 in Auditor's warrants, together with scrip, amounting in all to $2,100,000—the amount of the stock subscribed by the State. The bank at Shawneetown was willing to pay $500,000 immediately, and the remainder shortly. It held $469,998 of Auditor's warrants, which it was to surrender as part of the first payment. After some opposition the moderate party prevailed and two Acts were passed-one to diminish the State debt and to put the State Bank in liquidation, and the other to diminish the State debt $1,000,000 and to put the Bank of Illinois, at Shawneetown, in liquidation. Of the $500,000 of circulation and certificates of deposit of the State Bank held by the public, about $410,000 were redeemed and destroyed, leaving about $90,000 unpaid. The two banks surrendered the stocks of the State issued to them, and by the direction of the Governor these stocks amounting to $3,050,000, were cancelled and burned in the presence of the Legislature in the capital square at Springfield. This experience seems to have been sufficient, for the people in the Constitution of 1848 provided that no State bank should thereafter be created, nor should the State own or be liable for any stock in any corporation or joint stock association for banking purposes to be thereafter created. TENNESSEE. The State of Tennessee was admitted into the Union in 1796. By 1819 its banking experience had been quite varied-commencing with the Nashville Bank in 1807, with several branches which were shortly afterwards wound up with some loss to billholders and stockholders; followed in 1811 by the Bank of the State of Tennessee, and in 1817 by a number of independent banks, most of which afterwards became branches of the Bank of the State of Tennessee; and ending in 1819 with the establishment of the Farmers' & Mechanics' Bank of Nashville which closed in insolvency within the year. "In 1820, the State Bank of Tennessee was incorporated with a capital of $1,000,000 on the basis of funds belonging to the State. It was located at Nashville with a branch at Knoxville. Agencies were created in every County to loan money to citizens not exceeding $500 in any single loan, on twelve months' credit, upon mortgage on real estate or personal property worth double the amount. The bank was authorized by its charter to issue bills to order or bearer, upon the security of the borrower, guaranteed by the State, the proceeds of certain lands and other securities being pledged by the law. No specie was required to be held, but State stocks to the amount of $250,000 were issued to it, which it was authorized to sell at par. There was afterwards some doubt as to the meaning of par-whether specie or specie-paying bank notes. $1,000,000 of inconvertible bills were thus distributed in loans of $500 among the community."† Previous to the passage of this Act, General Jackson wrote, and was first signer of a pungent memorial to the Legislature denouncing the provisions and passage of the law. He declared it to be a violation of the tenth section of the first article of the Constitution, which declares that "no State shall coin money or emit bills of credit, or make anything but gold and silver a legal tender in payment of debts." In this memorial he says: "To any intelligent man who has directed his attention to the operations of banking institutions, his own experience and reflection will at once convince him that bills issued on any other basis, save that of specie, must prove inefficient and abortive, owing to its having no other basis but that of property, and not being convertible into specie, it can never be estimated as an equivalent; it will not engross public confidence, but must depreciate, and if it passes as a medium of exchange at all, its value must, in a great degree be nominal. These propositions have been satisfactorily illustrated by the fate of Davis' financial Mississippi scheme, of the Mississippi stock, and Treasury notes issued by the United States, as well as by all those cases in which State authorities have undertaken to put in circulation bills of credit, having a corresponding foundation." The bill became a law notwithstanding this appeal, and General Jackson was censured by many of his friends for what was considered his indecorous interference and dictation to the Legislature of the State.* "The bank went into operation with a Board of Directors appointed by the Legislature. It was claimed that the lands pledged to its support were worth one or two millions, that interest-bearing claims worth $100,000, owned by the State, had been transferred to it, besides $250,000 in 6% stock. Its paper, however, went below par. Two of the oldest banks in the State refused to accept it, and as compared with the notes of the Bank of the United States it was at ten per cent. discount. From the sales of the land mentioned the bank finally secured a capital of $750,000, but in 1830 overdrafts to the amount of $100,000 were discovered and the principal cashier was removed. It was found that the books had not in certain accounts been posted for eighteen years, and it appeared that the irregularities were in the interests of some who were high in authority. This bank closed in 1832, with some loss to the State." + In October, 1832, the Union Bank, another institution based partly on State credit, was chartered with five branches, with a capital of $3,000,000, of which the State was to own and control one-third; $500,000 appears to have paid in by the State in 5% bonds, payable in equal installments, in 15, 20, 25 and 30 years. The notes of the bank were receivable for all dues to the State. In 1856 the stock of the State in this bank was transferred to the Bank of Tennessee. In November, 1833, the Planters' Bank was chartered upon the model of the Union Bank, with a capital of $2,000,000, located at Nashville, with six branches located at other points. The State had an interest in this bank also. Both of these institutions were in existence in 1863. In 1838 the Bank of Tennessee at Nashville was incorporated with a capital of $3,226,976, all owned by the State, derived from what was recovered from the old State Bank wound up in 1832, the school fund, the surplus revenue fund deposited with the State by the General Government in 1837, and the sale of State bonds to the amount of $1,000,000. Its capital was nominally $5,000,000, and it had several branches, located at Athens, Clarkesville, Columbia, Memphis, Rogersville, Shelbyville, Somerville, Sparta and Trenton. The school fund had originally been invested in the Planters' Bank, but was transferred to the new State institution. The bank and branches paid out each other's notes indiscriminately, and the mother bank was in the habit of redeeming the notes of its banches under an arrangement with the principal banks in Nashville, "made upon the suggestions of the other banks and always fulfilled strictly by this bank.’ It was required to pay annually to the State, for interest on internal improvement, bonds for school funds, interest and expenses ont State stocks, etc., $274,826. This heavy burden it could not carry, and in 1849 Governor Brown announced to the Legislature that its net annual profits were but $175,000; that the capital had already been reduced from $3,227,000 to $2,500,000, and that at this rate the whole capital wonld be sunk in sixteen years. He recommended that the demands on the bank should be lightened or the institution wound up. In 1855 Governor Johnston recommended the winding up of this bank, and the Legislature in 1853, in anticipation of this action, chartered seven stock banks to take its place.t At an investigation into the condition of the bank in 1858, it appears that its |