The other and more important new development was free banking. By action of the state legislatures of bank was held to be not a corporation, which then and for many years required a special charter from the state, but a voluntary association of individuals and thus, like blacksmithing or rope making, open to anyone.There were rules, notably as to the hard money reserves to be held against Notes and deposits. In some states these were enforced with considerable firmness, usually after a saddening experience with no enforcement at all. But frequently failure to abide by regulations was discovered only after the failure of the bank had made the question academic.
In these years in the by then conservative Commonwealth of Massachusetts, a bank with a note circulation of $500,000 was discovered after its demise to be holding a specie reserve of only $86.48. A modest backing. Perhaps because the history was better preserved their then elsewhere, the annals of Michigan banking in the 1830s are especially engaging. The law required a 30% reserve of gold and silver again this note circulation (a very solid foundation). And commissioners were put in circulation to inspect the banks and enforce the requirement.
Also puts in circulation, just in advance of the commissioners, was the gold and silver that served as the reserve. This was moved in boxes from bank to bank; when required, the amount was extended by putting a ballast of lead, broken glass and (appropriately) 10 penny nails in the box under a center covering of gold coins. One of the enforcing commissioners, with the ever present gift for metaphor of the age, complained that;
“gold and silver flew about the country with the celerity of magic; it’s sound was heard in the depths of the forest, yet like the wind, one knew not whence it came or whether it was going.”
On occasion, the depth of the forest, the middle of the swamp or, more plausibly, a desolate country trading Post was considered an especially excellence site for a bank. For from there the bank could issue notes to a borrower (the seas who in turn would pass them on) and hope that no eventual recipient would know where to send them for redemption. However, began it must be emphasized that it is the worst in history that has survived.
Spiro Agnew’s place among vice presidents is secure. So with the banks. Many banks of the era, including several of the publicly owned state banks, were carefully and responsibly managed. And even among those that failed, there were many that did so after honest and useful effort that left worthy man established on farms or in business and making a living.
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