ין History of State Banking in Maryland, 1790.-1864. HARVARD COLLEGE LISTARY CHAPTER I.JAN 21 1899 CA The Beginning oF BANKING IN MAVENADE, WOO-1810. 1. Introduction. In the following narrative we shall study the system of banking which existed in Maryland prior to the passage of the National Bank Act in 1863. The organization and line of development will be studied chiefly as they are reflected in the legislative regulations upon banking by the General Assembly of the State. Our history will be, however, more than a bare legislative history, for political, economic and industrial conditions will be constantly examined to afford the reason for legislative action, and also the close relationship between development in banking and industrial advancement will be constantly kept in view. The limits of our territory shall be observed, so far as the nature of the subject will permit. If the present paper were the place for it, material for a broad comparative study is not available. The period covered extends from the first grant of a charter for banking purposes, in 1790, to 1864, at which date State banking was almost entirely superseded by the establishment of a national banking system, in consequence of which nearly all the old banks reorganized as national banks, and the old system received little further development. The term "State banking" is used in the sense common in the United States as applicable to banks operating under State charters, as opposed to government or national banks. The study will be confined to "banks" in the ordinary sense, i. e., to those having the three functions of discount, deposit and issue. "Banks" in the early sense, implying simply the power of issue, under which class would fall land and other private banks, and also early government banks, will not be considered. Savings banks are also omitted from treatment, except in so far as they possessed the three func tions named. ', ་་་་ The year 1810 presents itself as a natural point of division. The period before this is concerned with the introduction of banks into Maryland, the economic conditions giving rise to their organization, and the source of Maryland banking ideas. The disappearance of the first Bank of the United States marks a period in the banking history of the country. Particular results of it in Maryland were the broad extension of banking facilities to the counties, in contrast to their previous confinement to Baltimore and Annapolis, and at the same time there occurred a decided change in the character of banking in the State, a period of experimentation follows, due to the withdrawal of the controlling influence of the United States Bank. 2. Economic Condition of Maryland. Banks in the modern sense, exercising functions of discount, deposit and issue, cannot be said to have existed in America until the last quarter of the eighteenth century. Their establishment was called for by the economic needs of the country. It is generally true that in a new and developing country profitable employment can be found for all obtainable capital. In addition to this, the English colonies were just emerging from a long period of war, in which their resources had been greatly exhausted. The revival of industry from the interruption of the war was quick and energetic, and capital was in demand for productive purposes. The value of banks in collecting free capital, in aiding the anticipation of funds, in increasing the medium of trade, was clearly seen.1 The condition of the circulating medium was also a source of inconvenience and confusion. Prolonged scarcity of money sooner or later drove all the colonies to paper issues. A proper limit was seldom observed, consequently depreciation resulted, and fresh issues became in the hands of a speculating and debtor class a means of release from their obligations. Maryland first issued paper money in 1733. Thereafter almost any object, war, State loans, roads, bridges, State buildings or what not, became a sufficient excuse for a new issue. The intervals between emissions varied from one to six years, and the amounts ranged from $150,000 to $1,500,000. After a term of years, usually about twelve, the notes were to be redeemed, but redemption was commonly made in new notes at fixed rates. The depreciation was usually about six or seven to one of specie. During the Revolutionary War this paper currency reached its floodtide. The Continental Congress issued at least $200,000,000, which distributed itself throughout the States. It did not, however, supersede State money in Maryland; both were made legal tender in 1777. The war expenses necessitated increased State issues to aid the State treasury. In 1777 Maryland issued $1,300,000; in 1780 another million followed, and in 1781, a third. The whole mass depreciated greatly, and continental bills became ' worthless. Maryland currency at this time was composed of various issues, known as continental bills, convention bills, provincial bills, State continental bills, State money, black money and red money. Such a quantity of paper in circulation was naturally calculated to drive out the specie, although in 1781 the considerable sum of £100,000 was esti 1 See pp. 17 and 21. 'Thomas Jefferson's estimate. Cf. H. Phillips, Amer. Paper Currency, 2d series, p. 199. mated to be still in the State, although it became more and more hoarded. It is difficult at this time to imagine the confusion inevitably resulting from such a mixture of paper and metal money. To relieve this condition of the circulating medium, and to assist in the industrial revival which was occurring immediately after the war, fresh paper, issues, superseding the old ones, and with better provision, against depreciation, were believed to be the remedy. Bills for new emissions were urged at every session of the Assembly, but unsuccessfully. The sound industrial classes preferred existing conditions to the probable perversion of the remedy by demagogues and speculators, and the virtual destruction of the effects of all money contracts. The numerous special bills for the relief of debtors at this time indicate also the class which was most clamorous for State issues. The industrial development of Maryland after the war was something phenomenal. In 1790 her total population was 320,000, distributed over eighteen counties, 9000 square miles in area. Baltimore numbered 13,500 people; Annapolis was the second city in importance. The population of the country districts was located chiefly along the river courses, and grain and tobacco culture were the most important pursuits. A keen rivalry for industrial supremacy existed between Maryland and her sister States. By 1794 she had become the second State in the Union in respect to her export trade. Baltimore became transformed from a large town to the first port of the United States for grain, grain 1 The coins were various and circulated according to weight: johannes, half-johannes, moidores, English guineas, French guineas, doubloons, Spanish pistoles, French milled pistoles, Arabian chequins, English milled crowns, other English milled silver, French silver crowns, Spanish milled pieces of eight, and other Spanish, French, German and Portuguese gold and silver coins. (Scharf, History of Maryland, Vol. II, p. 478.) Cf. Scharf, Western Maryland, p. 538. products and tobacco.1 The continental wars created an unusual demand for American breadstuffs, and likewise a large part of the European carrying trade devolved upon American boats. In this traffic Baltimore became a center, and the Baltimore "Clipper," through its superior sailing qualities, became the chief instrument. Baltimore was the natural entrepôt for the large extent of country embracing Maryland, Delaware, Western Pennsylvania, Southwestern New York, the Ohio region and parts of Virginia. To maintain this trade against her rivals, New York, Philadelphia and Alexandria, communication had to be made as easy and inexpensive as possible. This necessitated the improvement and extension of roads and the building of bridges. Each session of the Assembly was besieged with petitions for internal improvements of one sort or another, having for their object the development of the counties and the advancement of agricultural interests. In 1785, for example, there were thirteen State roads proposed, aggregating 504 miles, the estimated cost of which was £20,800. The activity along all lines of industry was intense, and the available resources of the State were being strenuously developed. It was at this time that the beneficial influence of banks in other places was brought prominently to the public attention, and this method was adopted to assist in Maryland's advancement. 3. Source of Maryland Banking Ideas. The idea of great national banks was a familiar one throughout the last century. The banks of Venice, Amster 1 Table showing growth of Maryland's export trade: |