13. Banking in other history of banks in which the various states were part owners was gen erally disastrous. Kentucky tried the experiment in 1806 and again in 1820. Alabama, in 1820, sub scribed tWo-fifths of the capital of the Bank of Ala bama, issuing bonds in payment. The original re strictions on loans were ample but they were con stantly violated. Loans were made freely to mem bers of the legislature and their friends, and in ten years the discounts increased from $500,000 to $20, 000,000. The panic of 1837 found a large amount of these loans worthless and confidence in the notes disappeared. A period of business stagnation fol lowed, and, in 1845, the charter expired and was not renewed.
Mississippi, Arkansas, Florida and Louisiana had similar experiences. The Union Bank of Louisiana was established in 1832 with a capital of $7,000,000 raised by a sale of state bonds. It failed ten years later, and was followed by the establishment of pri vately owned banks under sound laws. Missouri's experience was not so calamitous, altho the Bank of Missouri was never a great success, and the state's connection with it was severed in 1866.
As a rule the state banks did not fail for the same reason that caused the downfall of the First and Sec ond Banks of the United States. While, in some in stances, the banks became involved in politics, the failure was generally due to defects in organization and management.
14. George Smith's Smith came to America from Scotland about the time the State Bank of Indiana was started. After buying some real estate in Chicago, he returned to Scotland and persuaded some friends to come to this country. In 1838, he conceived the idea of establishing a bank. Being unable to get a bank charter of the prejudice in the Northwestern states against banks, he devised a scheme to get one indirectly. In 1839, he obtained from the legislature of Wisconsin a charter for an insurance company. The charter ex
pressly excluded banking privileges, which meant the right to issue circulating notes. But Smith soon be gan to issue certificates of deposit payable to bearer, made similar to bank notes in appearance. These certificates attained a wide circulation under the name of "George Smith's money." The charter contained no regulations for this kind of business and the legislature was forced to take no tice of the fact that Smith was "wildcatting." A com mittee investigated the company and found it to be in sound condition, but recommended that the char ter be repealed. This was done in 1846, but Smith continued to do business as before on the ground that the legislature could not repeal the charter. The cir culation of his certificates rose to $1,470,000 and sev eral runs for specie were met successfully. Smith also bought and sold exchange on New York at the various branches which he established thruout the West.
"George Smith's money" was an excellent illustra tion of currency issued according to the banking prin ciple. The weakness of the plan lay in the failure of the state to regulate it properly. Its success was due to the remarkable qualities of the man who controlled the system.
In 1853, Wisconsin passed a law requiring a de posit of bonds against circulating notes. As this kind of banking did not suit Smith, he sold out his interest in the Wisconsin Marine and Fire Insurance Com pany and established a bank at Chicago. He then bought up two banks in Georgia, the notes of which he paid out in Chicago. The notes were redeemed in drafts on New York. The approach of the Civil War warned Smith to give up operations in the South. He then retired to London, where he died in 1900, leav ing one of the largest fortunes in Great Britain. The Wisconsin corporation later became a national bank.