Page images
PDF
EPUB

REPORT

OF THE

COMMITTEE ON BANKS.

The committee on Banks and other Corporations, to which was referred a resolution to inquire into the expediency of increasing the banking capital of Illinois to the amount of three millions of dollars, and of appropriating the dividends to arise therefrom to the payment of interest on our State debt,

REPORT:

That they are fully impressed with the great importance of the subject referred to them, and have consequently bestowed on it the most careful consideration. They are not surprised, at a time like the present, when the whole country is laboring under the oppressive weight of financial embarrassments, engendered by the visionary speculations of past years, that various schemes should be devised for recruiting our resources; nor is it a cause of wonder, that another inflation of the paper currency should be regarded as a sovereign panacea for all our financial evils, when we consider the fascinations of fictitious wealth with which the whole country has been so recently captivated, and which had produced in the minds of a large portion of the people a species of monetary delirium. Your committee cannot, however, participate in the opinion that an increase of paper money will extricate us from embarrassment. They know of no means of acquiring wealth or liquidating debts, but by productive industry. Should we succeed in maintaining our credit abroad and honor and reputation at home, it can only be done by the energies of our citizens

[ocr errors]

operating on the products of the soil. All other schemes of producing wealth, such as the multiplication of banks and paper money, and all connection of the government with the affairs of trade, will be found to end in disaster and disappointment. The whole State is well apprised that all our financial embarrassments-our State debts and increased taxation, commenced with increasing the capital stock of our bauks. Up to the period of 1836 and '37, when that capital was increased, our whole debt was only one hundred thousand dollars. Three years have since elapsed, and what is the history of that short period? Paper money multiplied-foreign debts created-visionary schemes of internal improvements commenced and abandoned-prodigality abounding in every department, till we now find ourselves burthened with a debt of thirteen millions of dollars. This has been the result of the State speculating in bank stocks and the expansion of paper money.

Your committee are now called on to inquire into the expediency of adding three millions more to our bank stock, on the assumption that the dividends will exceed six per cent.; the surplus to be a clear gain, applicable to the payment of interest on former debts. The same inducements were held out in 1836 and '37. The people were deluded by the idea of dividends of ten and twelve per cent., to be derived from that source, and nothing seemed wanting to complete our wealth and greatness but the creation and investment of a sufficient amount of stock. Time has dissipated that delusion. The baseless fabric has vanished and left nothing but the debt behind. Can we expect a different result should we add three millions to our present capital? Your committee think not. On the contrary, that it will add to our financial embarrassments. It would be difficult, if not impossible, to dispose of three millions of our bonds, for that purpose, unless at a ruinous sacrifice. To procure three millions of specie, at the present market prices of our stocks, would require four millions of bonds; and this, added to our present debt, would make the debt seventeen millions of dollars-a sum truly formidable for so small a population. Should the banks, on the other hand, take our bonds at par, as they did in 1837, they must inevitably sustain the same loss, which would tend considerably to cripple their resources and embar rass their healthy functions. This is evident, from the fact that our former bonds have been in the market for three years and remain yet unsold; and the banks, for a considerable portion of the time, derived no benefit from them, except the hypothecation of small parcels. Every additional bond thrown into market, must tend to depreciate their value; and it is evident that they could make but small dividends on them, so long as they remained unconverted into specie by sale or hypothecation. For it is a maxim, as true as any in political ethics, that no paper, no matter what may be its character, can form a stable basis for banking operations, unless it be at all times convertible into specie. Banking, on such a basis, has, perhaps, been one of the main causes of the repeated embarrassments and suspensions of these institutions. And judging from the past as well as the inductions of reason,we cannot expect other results, should we authorise a new issue of bonds.

Your committee are confirmed in these views by the fact that since the increase of our banking capital, in 1837, the dividends have been constantly diminishing, till we find them, for the last year, only equal to

the interest on our bonds. The State Bank dividends, have been, during that period:

Dividend declared in June, 1837, for three months, 2 per cent.

[blocks in formation]

June, 1840,

66

3

66

66

And in January, 1841, the dividends will not exceed 3
Dividends of the Bank of Illinois:

January 1, 1839, dividend 3 per cent.

66

July 1,
January 1, 1840,
July

1, 66

66

4

66

[blocks in formation]

And the dividend, January 1st, 1841, will not exceed 3 per cent. Should we, under these circumstances, increase our bank stock, in the manner proposed, we must reasonably expect that our dividends will not amount to the rate of interest to be paid, leaving the deficit an additional burthen on our resources. The committee are of opinion that our present bank capital is more than sufficient for the wants of our population. That capital amounts to about five millions of dollars, on which the banks are authorised to issue paper to the amount of thirteen millions. They have never been able, notwithstanding, to keep in circulation more than about one-third of that amount of paper.

The necessities of trade and the amount of our exchangeable productions, which uniformly regulate the quantum of currency, did not demand it, and, consequently, a large portion of the stock remained inoperative. All the banks in the Union, with a capital of about five hundred millions, have not been able to keep in circulation more than one hundred and fifty millions of paper, even at the most prosperous period; which is a sufficient proof that their capital is disproportioned to the wants of trade, and only tends to expansions and consequent depreciation. In some countries, one dollar circulation has been deemed sufficient for every thirty dollars of products. No political economist ever estimated a higher proportion than one dollar circulation to every five of exchangeable products. Should our banks issue paper to the full amount authorised by their charters it would, according to the latter ratio, be sufficient for trading operations to the yearly amount of sixty-five millions of dollars- a sum nearly equal to the value of all the real and personal property owned by the inhabitants in this State, and which is believed to be four or five times the amount of our annual exchangeable commodities. Any increase of our bank stock, therefore, will only be an augmentation of our debt, by an unproductive capital.

Another strong objection to the proposed measure rests in the character of the institutions themselves. They have been in operation but about four years, and during a large portion of that time they have been in a state of suspension, involving with one of them a forfeiture of its charter. Results so disastrous-so destructive to the credit of these institutions, occurring in a period of profound peace, while cherished and sustained by State patronage, must lead to a conviction that the managers are incom

petent to the discharge of their duties; or, that impelled by the illusions of the day, they embarked in schemes of speculation inconsistent with the nature of their duties, which brought them to the verge of bankruptcy. As these institutions, therefore, have been unable to manage a State investment of three millions of dollars, for a period of three years, but by expansions, contractions, and consequent suspensions, brought ruin and distress upon the State, your committee would submit whether it be the part of wisdom to intrust such agents with the control of an additional sum of three millions, more especially as they are totally irresponsible to the people, either for the amount of the capital or its proper management and distribution. Our directory, on the part of the State, constitutes no check on the proceedings of the private directors. They form but a minority of the board, and act without pay, and must always be overruled by directors stimulated by the keen appetite of avarice. Your committee cannot repose so much confidence in the integrity or fidelity of any board of directors whose trade is usury and whose idol is wealth, as to give them the unlimited control of six millions of State funds, to be used at their discretion, without security or responsibility. They are also opposed to all connexion of the government with the affairs of trade or individual speculation, confident that governments were not instituted for such purposes; that to secure to the people the enjoyment of life, liberty and property, was its legitimate end, and not to become a usurious broker, connected in shaving operations with her citizens; and that all such connexions tend to engender frauds and spoliations on the public interests.

The committee have not adverted to the influence which such an augmentation of bank capital would exercise over the political destinies of the State, although the present period affords the most copious illustrations of the malign influence of such institutions on the freedom of our citizens. But although they are convinced that such associations of wealth, endowed with exclusive privileges and immunities, are repugnant to our political institutions, and subversive of the equal rights secured to all, under our constitution; and although they believe that the proposed increase of our banking capital would be strengthening the aristocratic power, at the expense of the democracy, yet they have conceived that the reasons against such increase of bank capital, in a financial point of view, are so powerful, that they would prefer to submit them, without invoking any aid which might be derived from appeals to party feelings or political organization. Your committee would, therefore, submit the following resolution:

Resolved, That it is inexpedient to increase the banking capital of the State of Illinois.

LEGIS.

JANUARY 4, 1841.

Read, laid on the table, and 1000 copies ordered to be printed.

REPORT

OF THE

SELECT COMMITTEE,

IN RELATION TO

2d SESSION.

THE PUBLIC LANDS,

TOGETHER WITH THE

REPORT OF THE MINORITY OF THE COMMITTEE,

ON THE SAME SUBJECT.

SPRINGFIELD:

WM. WALTERS, PUBLIC PRINTER.

1841.

« PreviousContinue »