From its organization in 1816 down to 1834, the year in which the second Bank of the United States was refused an extension of its charter, the state banks grew in number. Good statistics are not available as to their number, for no general reporting system existed and, moreover, through a peculiar policy of secrecy, several states concealed the operations of their banks. The avail able records, however, indicate that in 1829 there were 329 banks, the character of which varied greatly, depending upon state law, local conditions, and individual management.
After Jackson's re-election in 1832 he became more deter mined in his opposition to the second Bank of the United States and decided to sever relations between the government and the institution, removing the public deposits and putting them in state banks. These state banks, although selected with reason able care and subjected to fairly strict conditions, were called Jackson's "pets," and political motives were alleged to have entered into their selection. The entire period from 1816 to 1837 was one of rapid development and speculative prosperity. Land speculation, internal improvements, and the development of cotton farming were particularly active features of finance, and banks in consequence sprang into existence in great numbers. The hope of procuring some of the redistributed public surplus during Jackson's administration was a further stimulus. By 1836 the number of state depository banks increased to 89 and by 1837 the state banks increased to 788, with a circulation of $149,000,000.
Causes of Panic of 1837 In 1836 the Treasury issued the "specie circular," an order to its public land agents to receive for the sale of public lands only specie, and to refuse the notes issued by the banks. The order aimed to repress land frauds, to discourage the extension of bank notes and bank credits, and to protect the Treasury. The circu lar restricted particularly the activities of western banks and their eastern agents. This restriction, in conjunction with the failure of a number of foreign banks and the failure of the crops between 1835 and 1837, precipitated a panic which had been brewing for some time. When the transfer of public deposits was suddenly halted, banks and projects founded on the expectation of receiving these funds failed straightway and the government lost heavily. Dur ing the long period of depression that followed, the number of banks, after increasing to 901 in 1840, declined to 691 in 1843, and their circulation contracted from $149,000,00o in 1837 to $59,000,00o in 1843.
The Independent Treasury System After the crisis of 1837 many projects were advanced to sub stitute for the banks some other form of financial institution as public depositories. Two national banks had failed for political reasons, and losses had been sustained by the Treasury during the intervening periods, 1812-1816 and 1832-1836, when it had used the state banks. After a long legislative struggle an inde pendent treasury was created in 1840, the law having a "specie clause" to the effect that the government would accept only specie in payments to itself. The Whigs in 1842 repealed the Independent Treasury Act and attempted in vain to establish a national bank. The Democrats in 1846 re-established the Inde pendent Treasury by legislation which permitted only specie and treasury notes to be received by the government, and public funds to be kept only in the Treasury, sub-treasuries, the mints, and the custom-houses. The Independent Treasury system worked fairly well during the period before the Civil War. The inauguration of the system was plainly forced by the abuses and failure of the banking system of the day, and was a protest both against the central national bank and the state bank systems. Before the Civil War the state banks had increased in number from 691 in 1843, to 1,601 in 1861; in circulation from 000, to $202,000,000; and in deposits from $56,000,000, to Some states had developed a body of sound banking laws and methods of supervising their banks, thereby increasing their utility as commercial and public institutions.
Bases of Note Issue Before the Civil War The period between 1790 and 1861 was one of experimental banking in a new country rich in natural resources and settled with an energetic, inventive, and independent people who worked things out for themselves locally. But the country was poor in specie, in loanable capital, in financial institutions, and in experi ence. Such a combination led to a wide variety of experiments which always sought a maximum of benefit from a minimum of specie. Banks of many kinds were developed, and four types of note. issue stand out, based upon or protected by: 1. General assets.