From the Desk of Q. David Bowers: An Overview of Collecting Obsolete Bank Notes 1782 to 1866, Part 2

Collecting State-Chartered Bank Notes

Written by Q. David Bowers, Chairman Emeritus

 

  

Last week I discussed colonial and other early American paper money including issues of the Continental Congress. This week I take up with notes issued by state-chartered banks beginning in 1782 and continuing through 1866.

After the Revolution the United States government realized that it could not issue paper money that would be accepted at par by the public. Recently, Continental Currency notes had depreciated to the point that they were worth only 1/40th of face value. Stepping into the void were the various state legislatures who chartered banks formed by companies and individuals. Those seeking to enter the banking business applied for a charter. This document stated the amount of capital to be paid in for stock, rules as to the number of directors and the meetings they should hold, and other regulations. Capital stock was to be paid for in specie -- hard money such as silver or gold coins. In actuality this was the exception, not the rule. Most stock holders gave IOUs or else paper notes from other banks already in existence. There were no state banking commissions until the 1830s and regulation was almost non-existent. Accordingly, there were many abuses. The Farmers Exchange Bank in Gloucester, Rhode Island was a sham operation conducted by a crook in Boston, Andrew Dexter. Vast amounts of paper money were issued without backing and placed into circulation. Dexter became very wealthy, was never prosecuted, later went to the South, and except for those who might have known his background, in his new surroundings he was viewed as a man of importance. Dexter Avenue in Montgomery, the capital of Alabama, honors his name.

Another fraud was the Hillsborough Bank of Amherst, New Hampshire. This began business as a legitimate enterprise, but soon ran into trouble by printing notes far in excess of those authorized. Messengers were sent to distant places such as Marietta, Ohio, to put notes into circulation there, with the hope that most would never find their way back to New Hampshire. At the time, this being the first decade of the 19th century, notes from different banks circulated widely and many merchants and others were unable to tell the good from the bad. The Hillsborough Bank of Amherst failed. Its president, Samuel Bell, was never prosecuted and, in fact, later was elected the governor of New Hampshire!

Today chartered bank notes from the early era, from 1782 to, say, 1815, are readily available in many instances, particularly those issued by banks that failed. Banks that were solidly formed and issued paper money worth face value typically later redeemed them at par in exchange for other notes. Such early notes can be rarities today.

The typical bank note from this era is found in grades from About Good to Very Good, evidence of their acceptance in trade and lengthy circulation. On the other hand, notes of the Farmers Exchange Bank of Gloucester and Hillsborough Bank of Amherst and others, can be found in Fine to Extremely Fine grade as they were recognized as being worthless and did not trade extensively.

More on early bank notes next week.