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MKIOCOfY nSOWTION TISI CHAn 
 
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 A .>1PPLIED \MA3E 
 
 1653 East Wa.r. St.. 
 f^ocnestar, Ne> York 
 ('16) *82 - OJOO - 
 (716) 268 ' 5989 - 
 
THE 
 
 HISrORY OF CANADIAN ClIRKEiNCY. HANKING 
 AND KXCHAN(}F 
 
 I ' Experiment anj) Inflatkin 
 
 ADAM SHORT I, M.A. 
 
 roKuNTO 
 
THE HISTORY OF CANADIAN CURRENCY, 
 BANKING AND EXCHANGE* 
 
 VI. EXPERIMENT AND INFLATION 
 
 "FHAT period in the history of Canadian currency and bank- 
 int; upon which we have now to enter is of a \ery varied 
 and complex character. For the first time in tlie development 
 of the colony, the real nature of money and the true function 
 of bankins had to be seriously coi.sidered by the exponents of 
 public opinion. The immediate result was the production of a 
 great variety of views and doctrines on the subject of money. 
 The zeal with which the various schemes were advocated and 
 defended was not always proportioned to the information or 
 insight of their respective champions. Elements of discord were 
 introduced by the growing bitterness of political faction. To 
 add to the difficulties of the period, the Home Government in 
 Its usual spirit of cheerful ignorance and bli, <! benevolence 
 attempted untimely interferences and suffered loss of prestige' 
 through awkward retreats, f-inally, the very active but bewilder- 
 ing influence of American commercial enterprise and monetary 
 experiment introduced into Canadian affairs elements of great 
 uncertainty. With all these influences operating at the same 
 
 'Chief sources : — 
 
 Journals of the Assembly and Lesislative Council, Upper Canada 
 bominion Archives, Slate Papers. Upper Canada ^'^ 
 Statutes o( Upper Canada. 
 Brllish Blue Book, .elating to Canada, 1834.36 
 Bill for establishing a Provincial Bank in Upper Canada |i8«l 
 Cri,,I.'"'"Ter'o'nro". Xf.'""" =^""" °' "^PP^^-ada, and 'o'n'U'e Presen. 
 
 N,Y,!^i?9r'^ °' ^'"'■'"^ '" "" ""'"^ ^""'- ^y Wm. Graham Sumner. 
 The Quebec Gatette, 1833-36. 
 
 The Palriol and Famer,- Monitor. York, V.C.. lS34-i< 
 The BmkvtlU Recorder, iSn-i^. ■"« iS- 
 
TIIF. HISTORY or CAX.tni.W CfRRf-XCV 
 
 time, there is little marvel that wf- should Hnil tlie exchanKe con- 
 ditions of Canada, during' the thirtits, soiiuwliat of a junjjic. 
 When unravelled, however, the period is l>()th interestinj,' in 
 itself and instructi\e for the future. 
 
 It may be remembered that McKenzie was strontjly opposed 
 to the granting of a charter to the ComnurLial .' lank, and that, 
 in his opposition to the cnlar^'ement of the capital of the I Sank of 
 Upper Canada, he iiad dramatically registered a vow (hat sliould 
 he not be able to defeat the bill before the Assembly, or the 
 Council, or the Governor, he wuild go to Britain and do his best 
 towards having the Home Government disallow the act. 
 
 He was as good as liis word, for, shortly after the acts were 
 passe'', he set out for London in .\pril, 1S32. He had, of course, 
 many other grievances to ventilate on behalf of hinisell aiul the 
 faction which he represented. Tlie gracious rect^ption which he 
 met with at the hai '^ of Lord Goderi-:h, who then presided over 
 the Colonial Offir nabled him to gain, for a time, the ear of 
 the Home Gove .ent. He had several interviews with the 
 Colonial Secretary, who seems to have recognized in him an 
 earnest but troublesf)me agitator, and, with the politician's 
 instinct, sought, tliough without success, to quench McKen- 
 zie's fire in the tranquil routine of a lucrative public ofiice. 
 
 Not being able to get a \cry coherent account of the Cana- 
 dian situation from McKenzie's empassioned declamation, that 
 eccentric gentleman was asked to put his case concisely in writing. 
 In response to this invitation he poured forth his soul in 
 grievances for the space of six days and six nights without inter- 
 mission. A transcript of the product fills a large folio volume in 
 our Canadian Archives. 
 
 A considerable portion of this screed is devoted to the sub- 
 ject of the chartered banks, and particularly the Bank of Upper 
 Canada, the malevolent influence of which, as there pictured, was 
 indeed alarming. McKenzie had much correspondence also 
 with the Board of Trade, and, .as a result, the Government, con- 
 tent as often with one side of the story, undertook to disallow 
 both the bank acts. 
 
 When rumors of McKenzie's doings reached Upper Canada, 
 there was consternation in the counsels of the Compact and more 
 serious results for the commerce of the country. When Hager- 
 
rilE lll>,TOKy 111- I A.SAIII.IX CI l/KEXCr 
 
 Mian ami Iloulto 
 
 we 
 
 'i<\ 
 
 (lisniisst'd 
 
 rralix.i.d what it was to liavc its u n ux i;„rfcl, tl.t-sc hilh'ert'o 
 devoted loyalists, who adored iiion; .lyand abliomd rtpuhlium. 
 ■sill, talked wildly of tyranny on the part of the Cuioiiial Office 
 and of rum, reliellion and appeals to the neinhbouriiiK l^epubhc 
 for rescue. McKenzie and the Uadi. als. on the other hand, in 
 unaccuslonied phrases extolled the heiielKenl connection with a 
 riKhteous monarchy, and hailul Lord Coderich as a Daniel conic 
 to judgment. !iut McKen/ie'.s triumph was, in most respects of 
 short duration. While he wa.s still in London, Lord Goderich 
 eft the Colonial Office, and w..., succeeded hv a potentate who 
 knew nut Joseph. The wrongs of the C.impact were righted, 
 the rights of the Radicals were disre^'.-.rde.i ; each Caiiadi.in parly 
 resumed its normal political clothin- and spoke its accustomed 
 dialect. 
 
 The bankins; matter, however, was not so ciuickly settled. 
 Rumors were current in both provinces, early in 1X33, to the 
 effect that the Home Government had .adopted a policy with 
 
 reference to colonial banking, liul it was not tul McKenzies 
 letter of May 31st was printed, th.at the public had any definite 
 idea of what had been done. In this letter McKenzie t.akes to 
 himself the credit of having induced the Home Government to 
 disallow the bank acts. The Lords of the Treasury, the Il.-iard 
 of Trade .and the Colonial Office were represented as at one on 
 the subject. He went on to explain that it was not intenCed to 
 destroy these banks, but to insure that in future the people should 
 be protected from mismanagement on t • part of the directors. 
 Instructions were expected to be sent to I, Governor of Upper 
 Canada, which would prevent in future all attempts to monopo- 
 lize for political and personal ends the currency of the country. 
 " That His Majesty in Council has dissolved these acts is a fact 
 jn which you m.iy place c most implicit dependence; the 
 people of Upper Canada oukIu to be for ever grateful tn the 
 Crown for this special mark of its wisdom and goodness." 
 
 Shortly after this, the Lieut. -Governor received the official 
 dispatches with reference to the banks, and communicated their 
 substance to the president of the Bank of Upper Can.ada. They 
 contained certain instruction;, for the regulation of the banks, 
 which had beeu suggested by the Committee of the Privy Council 
 
THg HISTOHr Of LANAtUAN ClKKKSCr 
 
 \l 
 
 lor Trade and Plantations, " with a view to the security of the 
 pubhc, and to prevent fluctuation in the amount and value of 
 paper money." It was e\pscted that the Home Government 
 would recommend to the Legislature, at its next session, an 
 amended act, containing the sui,'K<-sted improvements. The 
 Governor sought the opinion of the president and directors of the 
 Hank of Upper Canada on the subject. 
 
 As the result of the attitude of the Home Government, both 
 banks, but especially the Commercial Wank, whose whole busi- 
 ness depended upon tne threatened charter, be(,'an to curtail their 
 discounts ; the one with a view to falling back within its former 
 limits, and the other to face the possibility of having' to immedi- 
 ately wind up its afTairs. The effect upon businr-.s was very 
 severe, and several failur- - resulted. The consequences would 
 ha\e been more serious had not the Bank of Montreal come to 
 the rescue of the merchants and others deprived of their dis- 
 counts. 
 
 However, the alarm of the banks was soon allayed by letters 
 from Messrs. Hagerman and Houlton then in London, who, on 
 learning of the proposed action with reference to the bank 
 charters, protested against any hasty decision on the part of the 
 Government, .^s a result, Hagerman was given to understand 
 that nothing further would be done till a reply had been received 
 from Canada. The banks vere thus relieved from all immediate 
 anxiety, and encouraged to believe that, by a strong representa- 
 tion, ultimate interference might be avoided. They accordingly 
 resumed the'r usual discounting, and the crisis was over. 
 
 At the next session of the Legislature the matter was 
 brought up and referred to a select committee, to whom was sub- 
 mitted the dispatches on the subject. The special conditions 
 which the Home Government wished to have introduced into the 
 new darters may be summarized as follows ; — 
 
 1 Suspension of cash payments for sixty days to result in 
 forfeiture of the charter. 
 
 2 Notes issued at any branch to be redeemable both at the 
 branch and at the head office. 
 
 One-half of the capital of the bank to be immediately 
 
 f /, 
 
 I f > -.a 
 
ri.K HisroKy «/•■ i.i.v.uii.ix ci kki-xcv , 
 
 4 The aniouni of <lisc.,unts on p.iix-r bearing ihc nan.e of a 
 director or om.-.r of ih. l.ank to l,u |i„,i,,ci ,o „n,:.tl,ir,i of tl,o 
 wliuli; ihsiDtints. 
 
 5 Tl,,. bank must n,,t l.old its own .hares, or ,„ak,. advaiues 
 lo shartholJcTs on il„. security „f tla-ir shares. 
 
 f. A statement of the affairs of the bank, as prescribed in the 
 charter, to be prepared weekly, and from these st.itemenls a half. 
 yearly return to lie made. 
 
 7 The shareholders to ,. liahl, for double the a.nount of 
 tneir shares. 
 
 « The funds of the bank not to be loaned upon the security 
 of Land or olhe- property not easily disposed of. Nor should he 
 bank hold such properly beyond nh.at is neccss.lry for , irryinc' 
 on ,ts busmess. It should not own or be inte ested in n.rchan. 
 d.se further than m.iy be necessary to rea' securities The 
 business of b.ankint; should be conlined to leKitimale opera- 
 
 tions of bankini,'. namely, ad^ances upon coniniercial paper or 
 Government securities, .and ^-eneral dealin- in nione, , bills of 
 exchange, or bullion 
 
 .Ml these conditions were to apply to the Coniniercial H-. 
 but only the 2nd, 4th, fith and .Sth were to apply to the Hank 
 Lpper Canada .as a whole, and the jrd and 7th to the new shares. 
 Looked at from the point of view of our present banking 
 reRulations, there appears to be nothing very objectionable in 
 these conditions. Indeed several of them were not only admitted 
 at the time, but re-ularly acted upon ; such as the 3rd, .tli, 5th 
 and Sth. The ist was held to be sufficiently secured in the 
 charters as passed, and the bth was objected to merely as incon- 
 vement; quarterly or half-yearly reports be' 11,' held to be quite 
 sufficient. The and and 7th conditions, however, were stron-ly 
 opposed. The second was opposed because it would require e^ch 
 bank to keep on hand double the normal amount of specie to 
 meet the same notes at the branches and the central office 
 fc..xpense and difficulty of transport had also to be considered. 
 Double liability was strongly objected to on the ground that 
 those possesseo of considerable property would not invest in 
 bank stock on account of the risk involved, while those having 
 nothing to lose, beyond their bank shares, would remain the only 
 stockholders, and the very security aimed at would be made 
 
Tllil HISTORY OF CAX-iDFAX CmtiF.WCi 
 
 impossible. Even if wealthy men should take stock, they would 
 likely, as directors or through their ^'enerai business, know more 
 about the affairs of the bank than others, and if it were at all 
 liable to fail they could simply sell out their stock and cease to 
 be liable. Hence, it was urged that the result of this regulation 
 would be to render the banks less secure than at present. 
 
 However sincere those who advanced these arguments may 
 have been at the time, yet within the next three years we find 
 several of them successfully arguing for the incorporation uf this 
 latter condition in all new bank acts. 
 
 But whether the conditions were admissible or not, the 
 majority of the Legislature w^ere opposed to amending the 
 charters already passed. Again it was shown that, where their 
 own interests were at stake, none could be more radical than the 
 ultra loyalists. It was maintained by all parties that the Home 
 Government, while it had technically the right to disallow acts, 
 had, in reality, no right to interfere with matters of purely local 
 interest. Moreover, there was no reason why the bank acts of 
 Upper Canada should be specially interfered with, while similar 
 acts, passed at practically the same time in Lower Canada, had 
 not been questioned. 
 
 Though sharing these views, the president and directors of 
 the Commercial Bank were yet so fearful of their charter being 
 disallowed, should the proposed amendments be declined, that 
 they were prepared, as the lesser of two evils, to accept an 
 amended charter. A bill for this purpose was introduced into 
 the Assembly, but the majority were so strongly opposed to the 
 concession that it was thrown out. In the meantime, McKenzir, 
 through his paper, the Colonial Advocate, was steadily defending 
 the Home Government against the Tory loyalists as seeking to 
 maintain a vile American system of banking. In the issue of 
 February 6th, he threatened that unless the banks accepted the 
 prescribed amendments to prevent '* scandalous bank jobbing," 
 he would publish five thousand pamphlets urging the people to 
 make a run on the banks. 
 
 Notwithstanding these threats, strongly worded addresses were 
 sent by the Legislature to the King, protesting against tlie inter- 
 ference of the Home Government in the purely local affairs of 
 the colony, representing the inconvenience and commercial dis- 
 
THE HISTORY OF CAKADIAX CrUREKCr j 
 
 tress which would result from the disallowance of the bank acts 
 and praying, therefore, that they be not disallowed 
 
 The reply to this, dated May 28th, ,83+, was received 
 through Lieut..Governor Colborne at the next session of the 
 Legislature, January, 25th, 1835. In this Mr. Stanley, the 
 Colonial Secretary, makes his retreat, saying that in view of the 
 confusion and distress which would result from the disallowance 
 of the bank acts, the King will not disallow them. At the same 
 time he attempts to defend the constitutional right of the Crown 
 to interfere m such matters, and expresses surprise at the heat 
 with which the Assembly protests against the exercise uf that 
 right, even to the extent of casting doubt upon it. 
 
 In the meantime, efforts were being made to obtain from the 
 Legislature charters for banks in London, Hamilton, St. Catha- 
 rmes and Cobourg. Bills were also introduced to increase the 
 capital of the two banks already established. 
 
 In their report on these projects the select committee on 
 banking, following the suggestions of the last report of the bank 
 commissioners of the State of New York, considered it better to 
 increase the capital of the two banks already chartered than to 
 create new banks. With special reference to increasin" the 
 capital of the Bank of Upper Canada, they thought that a bank 
 with a large capital would be able, like the Bank of the United 
 States, to establish branches in all parts of the province, and 
 thus regulate the issues of any smaller banks and the internal 
 exchange ot the country. It could also manage properly the 
 foreign exchanges and import from abroad such specie as might 
 be necessary, while, at the same time, it would be able to give 
 more extended loans to those dealing in agricultural products 
 where returns were slow. To accomplish this, the capital of the 
 bank should be increased to at least .^500,000. 
 
 In the opinion of the committee, the unusual demand for new 
 banks, fol owing the example of the neighbouring States, proved 
 the need for more capital. But paper money was not capital- 
 hence specie must be obtained. This could be accomplished by 
 increasing the capital of the existing banks, while restricting their 
 note issues to denominations of one pound and over. Much of 
 he additional capital would then come into the country as specie 
 to replace the small notes. The committee was also in favour of 
 
8 
 
 THE HISTORY OF CANADIAN CVRRESCY 
 
 a special metallic currency, but of increased nominal value to 
 prevent it from leaving the country. In this recommendation 
 there is the usual confusion of the period between two distinct 
 needs. The first is the need for a fractional metallic currency to 
 supply the pocket change of retail trade, and the other is the need 
 for a concrete standard of value, as a medium for the redemption 
 of bank notes and the balancing of exchanges. Only the first want 
 could be supplied by the proposed measure, and that only in a 
 permanent way if the second was also supplied. Yet this report 
 reflected the wishes and ideas of the chartered banks and their 
 friends. 
 
 Throughout America, at this time, we find all the symptoms 
 of a rising speculative fever. The demand for accommodation 
 at the banks was steadily pressing upon their limited means. So 
 long as apparently adequate security was offered for the dis- 
 counts sought, it seemed reasonable that the needed money 
 should be forthcoming. Much of the security was indeed ade- 
 quate under ordinary circumstances. Yet the fact remained that 
 the investments being made were of a highly speculative charac- 
 ter, hence the paper currency was at once inadequate and inflated. 
 It is not the quantity of money in circulation, but the use to 
 which it is put, which determines the question as to security or 
 inflation. In no case is it to be expected that the greater part of 
 the possible security of a country should be pledged for the 
 raising of loans. Yet this aspect of the situation was steadily 
 ignored by all but a few under the insatiable fever which was 
 sweeping North America, and which, having devoured the 
 natural prosperity from which it started, was now feeding upon 
 itself. Canada was already responding to the infecting influences 
 of the neighbouring states, and the cry for more money was 
 fostering numerous devices for supplying it, invariably, however, 
 in the shape of paper. 
 
 One effect of the more rapid movement of trade, and the 
 increasing demand for banking accommodation, was the curtail- 
 ing of the period over which discounts had been extended. 
 Owing to the long credits which were usual between the mer- 
 chants and their customers, it had been the practice of the Cana- 
 dian banks in discounting, to require only one-fifth of the amount 
 to be repaid at the end of three months, a renewal being granted 
 
THE HISTORY OF CANADrA.V CLgKEKCy 
 
 itn""" '^T"^"- The period for the complete repayment cf a 
 oan was thus extended over fifteen months. However, after .he 
 estabhshmentofthe Commercial Bank, and the development of 
 more speculative and rapid methods, the banks began to insist 
 upon. he payment of at leas, one-third, and sometimes on h" 
 of the ongmal loan at the end of three months. The export 
 rades ,„ ,u„ber and grain, the .wo staples of .he country, owing 
 
 extended accommodation, thus locking up a considerable quantity 
 of bankmg capital. To meet these heavy charges, high profits 
 
 pT::i:;;T?-^" '"^ --'-- ^ '-^ -''--- "- 
 
 Though the committee on banking had reported in favour 
 
 e tabtsht' f "'""" °' "' ^^'"'"« ''^"'^^ -"■" '"an the 
 chant ,f "7°"==. yet the prevaihng opinion of the mer- 
 chants and people generally was in favo.r of at least one 
 
 irr A ^"^^r '''' "''"'" °' "-^ ^^°""«- The result was 
 that the Assembly, m ,834. passed bills tocharter two new banks, 
 
 reieced ^hlm °"h " "' °"" =" ^""""S' '^'" '"^ Council 
 reeced .hem, and m return, .he .Assembly refused .0 pass .he 
 bills enlarging .he capital of .he two chartered banks 
 
 Those interested in starting a bank at Cobourg, having 
 regard to the wishes of the Home Government, in the r pubuf 
 resolution of November, 1833. decided .0 petition for a charter 
 m which .he stockholders should be liable for double the amoun 
 of their stock. Thus the Home Government was gaining in a 
 roundabout manner what it could not directly force upon "h^ 
 
 An effort was also made, in 1834, to regulate the agencies of 
 fore^n banks ,n the Province. This was'chiefly aimed a he 
 banks of Lower Canada, whose notes enjoyed considerable cur- 
 rency in the upper Province yet were not under the control of its 
 Legislature. The real purpose of the measure seems to have 
 smli: r f""™ '" "'^'°^^' banks a monopoly of the issue of 
 
 hrolh r T "'""'^ '""''"^'^ '" ^'^'="'^''°"- ''"d '° secure 
 through the larger notes, which commonly passed into the hands 
 
 ^!n n^l.'" u T™'""' °" "'^ 'P^"' "f 'he outside banks, 
 especially the Bank of Montreal, without going beyond the com 
 mercal centres of the Province. Hence the bill required that 
 
lO THE HISTORY OF CANADIAN CURRENCY 
 
 the outside banks should redeem their notes in Upper Canada, 
 either at York or Kingston, and limit their issues in the Province 
 to notes of twenty shillings and upwards. 
 
 It was pointed out that in Lower Canada foreign banks were 
 prohibited from circulating notes under twenty-five shillings. 
 The strongest argument against the bill was that it would tend 
 to prevent the introduction of new capital, and this was quite 
 sufficient to defeat it. 
 
 In the r-eantime, the Bank of Upper Canada, having made 
 strong representations to the Home Government through its 
 president backed by the Lieut. -Governor, managed to wrest from 
 the Bank of Montreal, in 1833, the patronage of the British 
 Treasury in the upper Province. In consequence, the Bank of 
 Montreal determined to withdraw its agency from Kingston, its 
 ordinary business being taken over by the Commercial Bank. 
 
 In 1834 the Bank of Upper Canada had branches at Niagara, 
 Hamilton, Cobourg, Kingston and Brockville, and was doing a 
 large and profitable business. In its u|)erations the bank diu not 
 allow any interest on deposits, even to the' Government, though 
 it frequently held a large amount of public money. !n local ex- 
 change no charge was made for transferring money to the 1 ead 
 office when paid in at any of the branches. But for drafts on the 
 head office, or on any of the branches or agencies, a charge of 
 one-eighth to one-quarter per cent, was made. Foreign exchange 
 was sold at the same rate throughout the system. Exchange on 
 New York was sold at a profit to the bank of from one-half to one 
 per cent. On Montreal it ranged from nothing to one-quarter 
 per cent., and on London it wes as a rule one and one-half per 
 cent. 
 
 In 1835 the Hon. \Vm. Allan resigned the position of presi- 
 dent of the bank, and was succeeded by the Hon. Mr. Proudfoot. 
 Mr. Cawthra, a wealthy merchant of York, joined the directorate 
 at the same time. Opposition to the Bank of T' per Canada on 
 account of its political connection v.as still very strong. An 
 effort was once more made, in 1835, and renewed in 1836, to 
 sever the connection between the bank and the Government, by 
 having the provincial shares sold ; but the investment was too 
 profitable to make it a fair subject for attack, and not till the 
 economic and political crises were past, was an act for this pur- 
 pose finally carried. 
 
THE m^TORV Of CA.\ADl,l\ CIK/tExcy , , 
 
 r , '\'*^5 /mother attempt was made to have the capital stock 
 of the bank mcrcased, but the Assembly resolved briefly that it 
 was mexpediet,t. Yet at the same session, acts were passed to 
 mcrease the cap.tal of the Co„,mercial liank, and to establish the 
 Gore Bank at Hamilton. 
 
 The followins session, 1836, an attempt was made to draw 
 out the opponents of the bank, and test the feeling of the country 
 by ■equestmg the committee on bankin;< to consider what obiec- 
 t.on there m.ght be to increasing the capital of the Bank of 
 t pper Canada to /"soo.ooo, on certain terms. Among the condi- 
 t.ons suggested were the following. The subscribers to the new 
 stock were to pay .0 the Govern„,ent a ta.x of ten per cent, upon 
 the amount of stock subscribed, and a further annual tax of the 
 same amount was to bo levied upon the whole capital stock of the 
 bank, m consideration of the public moneys of the Province 
 bemg deposited with the bank. This suggestion evidently came 
 from current .American ideas ot tl, ■ .eriod and the experience of 
 the hank of the Lnited States. Again, as a sop to the men of 
 small means, it was suggested that while those who subscribed 
 for ten shares or under should not be required to pay immedi- 
 ately more than ten per .em. on each share, those subscribing 
 or larger amounts should pay in full. Further, following a new 
 law of New York State, to satisfy those who were anxious to have 
 an increased circulation of specie, it was suggested that after one 
 year the bank should cease to issue notes for less than four dollars 
 each. tor the convenience of internal exchange, the bank 
 agencies and the district branches were to redeem the notes of 
 the bank by draft upon the head office at par and sight. The 
 bank should also pay out the public moneys for the Government 
 m atiy part of the Province, free of charge, .\pparently to olTset 
 the demand for a Provincial Bank, then being agitated, it was 
 proposed that the Provincial stock might be increased to /■ioo,ooo. 
 Though these were merely tentative proposals, yet the fact of 
 their being made showed that the bank was willing to make con- 
 siderable concessions to the popular feeling to save itself from 
 such a possible fate as that which had just overtaken the Bank of 
 
 T K°'t .!'"'': "r""'"- '° ''■■™« ™= ""= '"'''"S against 
 he bank, that the Assembly refused, by a majority of twenty- 
 four to eleven, to even submit these proposals to the banking 
 committee. "" 
 
THE HISTORY OF CANADIAN < VRRENCV 
 
 Though the Commercial Bank was naturally opposed by 
 those who were hostile to the whole system of chartered banks, 
 yet it was not so closely identified with the Compact, and was 
 therefore not subject to bitter political opposition. When the 
 bank applied in 1835 to have its capital stock increased, petitions 
 were presented in its favour from every important District in the 
 Province. McKenzie and his supporters, though unable to pre- 
 vent the bill from passing, endeavoured to have the Hoard of 
 Trade conditions incorporated in the charter. That failing, he 
 sought to fasten upon the capital of the bank an annual tax of a 
 penny on the pound, but did not succeed. 
 
 The act, as passed, increased the authorized capital to 
 ^200,000, making it equal to that of the Bank of Upper Canada. 
 A couple of harmless clauses, with reference to discounts in 
 which directors were interested and the sources of dividends, 
 were added. So great was the faith in banks as sources of 
 wealth, and so difficult the obtaining of a charter owing to the 
 jealousies of political factions, that, when the books for subscrip- 
 tion to the new stock were opened, the amount subscribed on the 
 first day reached ^1,937,125. 
 
 In March, 1836, a branch of the Commercial Bank was 
 opened in Brockvilie with a local board of directors. 
 
 During the same month the parent bank in Kingston found 
 itself compelled to suspend discounting owing to circumstances 
 familiar enough in many parts of the United States and soon to 
 become so in Canad.,. The Canadian banks, as their cashiers 
 had repeatedly pointed out, depended almost entirely upon 
 American commercial centres for their supplies of specie. As a 
 means of obtaining specie and balancing exchi^ntres, American 
 bank notes, as well as American bills, were usually in demand. 
 Taking advantage of this fact, some Americans from the adjoin- 
 ing section of New York State, being in need of specie, collected 
 Commercial Bank notes on both sides of the border to the extent 
 of some thousands of pounds. They then presented the notes for 
 redemption at the bank in Kingston, which so alarmed the 
 management that discounting was entirely suspended for a short 
 time. The Canadian papers with ci.aracteristic loyalty denounced 
 the incident as a " foul transaction," and sarcastically referred to 
 the scheme as " the laudable and praiseworthy idea of plundering 
 a neighbouring province." The idea that banks should be pre- 
 
rUM HISTOSy OF CANADIAN CUKgEmr 13 
 
 pared to meet their notes in specie on demand, wlille admitted in 
 tlieory, was hardly regarded as coming within the scope of legiti- 
 mate practical banking. Specie, if wanted, was supposed to be 
 paid for at special rates. Those who asked for cash in any 
 quantity in return for notes, were looked upon with suspicion 
 and were apt to be regarded by the banks as infidel enemies of 
 the public welfare. 
 
 During the session of ,835, the Gore Bank of Hamilton, of 
 wh.ch Mr. A. McNab was the moving spirit, managed to obtain 
 a charter. During the previous session a bill to establish this 
 bank passed the Assembly but was rejected by the Council. This 
 rather sfrred Mr. McNab's highland blood, and, as he had been 
 assocated with the bank of Upper Canada and the members of 
 the Compact, he began to expose the methods and tl,e motives of 
 the Council in such matters, much to the delight of the enemies 
 of the Compact and the edification of the public in general. 
 However, the breach was soon repaired, and the following session 
 the Gore Bank bill, passing the Council, became law. It was 
 announced, in September, ,835, that the stock books of the new 
 bank would be open at the head office and the various branches 
 and agencies of the Bank of Upper Canada. 
 
 The authorized capital of the bank was fixed at ^100,000, 
 and the bank might begin business when ^"10,000 had been paid 
 in. The general conditions and regulations were practically the 
 same as those contained in the charter of the Commercial Bank 
 with the addition of a couple of features which appear for the first 
 time in a Canadian bank charter. The most important was the 
 introduction of the double liability of the stockholders, which was 
 regarded as so ruinous a feature when proposed by the Home 
 Government. It was also provided that no incorporated company 
 should hold stock in the bank, unless conveyed to the company 
 in payment of debts previously contr.icted. This feature was 
 alterwards repealed in 1839. 
 
 Early in 1836 the Gore Bank went into operation, and 
 shared in the mfiated prosperity of the country previous to the 
 cnsis of the following year. Under the influence of the growing 
 time the bank was hardly started before it applied for another act 
 authorizing an increase in its capital stock. A bill for this purpose 
 passed the Assembly, but got no further. The following session, 
 
THE HlSTORV OF CASMHA.S CVRRHSCY 
 
 ^836-7, just on the eve of the crisis, in common with the two 
 other cliartered banks, a bill to increase its capital passed both 
 houses, but was reserved by the Governor, under instructions 
 from t}ie Home Government. 
 
 We have seen that attempts had been made to obtain 
 charters for new banks in London and Cobourg. liut though 
 these were denied, additional claimants pressed every year. Dur- 
 ing tlie session of 1836 several new bank charters passed the 
 Assembly, but were eitlier rejected by the Council, or so amended 
 that they were dropped by the Assembly. However, during the 
 session of 1836-7, bills passed both houses for establishing banks 
 in iirockville, Cobourg. St. Catharines, Prescott, London, Prince 
 Edward District, and the Western District. Also to charter the 
 Erie and Ontario IJank, the Freeholders Hank, and to increase 
 the capital of the tliree chartered banks. Hut the Lieut. -Gover- 
 nor had received instructions from the Colonial Office to reserve 
 any further bills dealing with currency or banking. Consequently 
 these bills were all reserved, which led to further remonstrance 
 on the part of the Legislature. They admitted the expediency 
 of the Home Government regulating the metallic currency of the 
 colonies, but strongiy objected to its interference with banking. 
 They urged the withdrawal of the instructions to the Governor, 
 praying that in future the Home Government might not prevent 
 the Governor from assenting to bills of a purely local nature, at 
 his own discretion. Before the effect of this second claim to 
 independence in the matter of banks, could be ascertained, the 
 American bubble had burst, and no one thought of new bank 
 charters for a time. 
 
 Various other banking projects were brought before the 
 Legislature during this period, the most important of which was 
 that for the establishment of a Provincial Bank. This bank was 
 intended to combine the best features of those two semi-state 
 institutions, the Bank of the United States, and the Bank of Upper 
 Canada. But, by enlisting a larger popular interest, it was 
 hoped it might avoid the narrower political affinities which had 
 excited so much hostility to those institutions. 
 
 The most active promoter of this scheme was Mr. W. H. 
 Merritt of St. Catharines, intimately connected with the Welland 
 Canal and a member of the Assembly. 
 
THE HliTOHr OF CANADIAN CrSKimcr ij 
 
 In 1835, Mr.Merritt brought the project before the Assembly 
 and secured the appointment of a friendly select committee to 
 examme and report upon the expediency of establishing a Pro- 
 vmcial Bank. The committee found, on obtaininR the views of 
 the leading banking and business men of the Province, that tliere 
 was a great variety of opinions as to how best to incre.ise the 
 circulation of the country, by which most of them meant the 
 amount of loanable capital. Some recommended increasing the 
 capital of the Upper Canada and Commercial banks, putting a 
 check upon all private banking, and refusing additional charters. 
 Others, going to the opposite extreme, would leave banking 
 to be a matter of individual . nterprise, untrammeled by any other 
 regulations than those applying to ordinary business. Others 
 supported strongly the proposed Provincial Hank. There were 
 also various modifications and combinations of these three 
 phases. 
 
 The committee found the chief objection to the Provincial 
 Bank to be the fear of its becoming a political engine. They 
 venture the opinion, however, that there would have been less 
 criticism of the Bank of the United States and the Bank of Upper 
 Canada it the Government, in each case, had held the majority, 
 instead of the minority of the stock. 
 
 After considering the matter from all sides, the committee 
 outlined a plan, combining foreign capital guaranteed by the 
 Government, private capital in subscribed shares, and Provincial 
 credit. The central bank should start with a capital ot ^500,000, 
 made up of ^350,000 to be raised in Britain by loan on the 
 security of the Province, ;r25,ooo contributed by the Province 
 Itself, and £ili=„ooo of private capital. Branches were to be 
 provided for in each District, with a capital of /loo.ooo each 
 £75.000 of which were to be furnished by debentures of the 
 bank, bearing six per cent, interest, and the remainder to 
 be contributed by private subsciiptions from the District. 
 
 The issues of the bank were to be limited to three times the 
 paid-up capital. Its notes were to be received for all public dues 
 and It was to have the custody of all public funds. It was tj 
 conduct Its business on the Scotch system, allowing three per 
 cent, on deposits, and granting cash credits, or open accounts on 
 security given. It was not to charge a higher interest for loans 
 
i6 
 
 THR HISTORY OF CANADIAN CVHHBSCV 
 
 or discounts than at the rate of six per cent, per annum. It was 
 expected to pay five per cent, on the capital borrowed in 
 Britain, six per cent, on that borrowed in Canada, allow reason- 
 able dividends to the stockholders, and, out of the surplus profits, 
 pay off the Provincial debt in a few years, and provide a revenue 
 for public purposes for all future time. Such was the fattn of the 
 li^y in bank profits. A bill embodying these features was sub- 
 mitted to the Assembly, but as it involved the combination of 
 public credit with private interest, there prevailed a reasonable 
 fear that it might only exaggerate the evils already complained 
 of in the case of the Hank of Upper Canada and the Bank of the 
 United States, hence the bill was defeated. In the following 
 session it was revived by the committee on banking, but received 
 the six months' promotion, though by a majority of only one. 
 
 The idea, however, that the Government was in some way 
 directly responsible for the prosperity of the country and had 
 unlimited capacity to promote it, was as prevalent then as at 
 present. Thee was a widely spread conviction, especially in the 
 counties, that the Province could supply, on its own credit, an 
 indefinite amount of paper money, with all the vitalizing power of 
 real cd.i.ital, without any further basis of security than those 
 marvelous undeveloped natural resources which have been the 
 pride and comfort of the people of Canada for a century past. 
 
 During the session of 1835 these floating ideas took definite 
 shape. Petitions were presented from several Districts in the 
 Province praying for the establishment of Provincial loan offices, 
 or loan banks. The petition from the Home District, of which 
 York was the centre, is a fair representative. It referred to the 
 great distress throughout the country owing to the depressed 
 value of agricultural products, and the fact that the farmers were 
 heavily in debt and liable to be sold out at any time. There is 
 but one remedy, it is said, and that is a Provincial paper currency, 
 which may be called Provincial loan notes. These could be 
 issued to at least twice the amount of the Provincial debt. There 
 should be an agency in every county, and the notes should be 
 distributed on mortgage security according to population. Loans 
 should be made to the extent of half the value of the lands, and 
 repaid in annual instalments extending ovir fifteen years. 
 
 Under the magic spell of this proper money untrammeled by 
 
THE HISTOKV OF CANADIA.V CfKKBNCy 
 
 •7 
 
 specie, the numerous advocates of the scheme throuRliout the 
 Province saw foreign markets opening before them, the prices of 
 their produ rising, and such fountains of wealth opened as 
 should overflow the land, enriching the farmers and enabling the 
 Government to pay off its heavy debt, and have an aniplr surplus 
 for roads, schools, poorhouses, asylums, penetentiaries and other 
 evidences of a prosperous, heaithy and law-abiding people. 
 The scheme was vigorously supported in the Assembly, yet the 
 pessimistic element prevailed, and the friends of free paper were 
 left to marvel at the blindness and selfishness of their fellow men. 
 We have next to glance at the attempts tu introduce into 
 Canada the British system of joint-stock banks. 
 
 It was first announced, early in the year 1834, that a couple 
 of English gentlemen of capital had arrived in Upper Canada 
 with a view to establishing a bank in York on the joint-stock 
 principle, the partners being liable for all the obligations of the 
 bank as in other business enterprises. These gentlemen were 
 Capt. Geo. Truscott, of the Uoyal Navy, who had apparently been 
 interested in joint-stock banking in England, and John Cleveland 
 Green, a retired commissary-general. 
 
 The bank v/as organized and opened by Truscott, Green 
 & Co., in May, 1834, under the title of "The Agricultural Bank, 
 City of Toronto." The bank seems to have enjoyed a fairly 
 good business, for within ten months it had discounted paper 'o 
 the amount of ^32,500, had notes in circulation for ^28,500, and 
 deposits to the extent of ^11,697. They seem to have adopted 
 the Scotch system of granting cash credits, which, on security 
 given, permitted the customer to draw at his convenience up to 
 a certain amount. This obviated the necessity of providing 
 special security for every sum obtained, or having to pay interest 
 on the full amount discounted before it was really needed. In 
 Britain landed security was taken as a basis for these general 
 credits, and to a certain extent this method was followed by the 
 new bank in Canada, though Truscott admitted that it was not 
 so safe here owing to the instability of land values. 
 
 In its operations the Agricultural Bank received and held 
 the notes of the chartered banks, and particularly those of the 
 Bank of Upper Canada, as a reserve fund, employing them in 
 much the same manner as the banks now use Dominion notes, 
 
i8 
 
 THM ItlSTOItV OF CASADIAS CfMJfEycr 
 
 01 OS Bank of England notes were used in Britain. Tins the 
 Bank of Upper Canada seemed to regard at first as rather 
 complimentary. Then it was discovered that when the Agricul- 
 tural Dank wanted specie, it drew it from the vaults of the iiiink 
 of Upper Canada by presenting the accumulated notes. Accord- 
 ing to the Canadian banking ethics of the time, such methods 
 were deemed dishonourable, and war was declared upon the new 
 institution. Its credit was cried down, its methods condemned, 
 and its notes scornfully refused by the chartered banks. One of 
 the grievances .igainst the new bank was that it allowed interest 
 on deposits, a lead which the Commercial Hank felt itself com- 
 pelled to follow in July, 1S34. The refusal of its notes did not 
 trouble the Agricultural Hank, for that only aided in keeping 
 Ihem in circulation. Hut to vindicate its credit it was forced to 
 appeal to the Assembly to investigate its affairs. A committee 
 of the Assembly reported its credit good, and referred to the fact 
 that in Britain there were many similar institutions. 
 
 The new bank being vindicated, the Bank of Upper Canada 
 found it necessary to change its tactics. It now not only eagerly 
 accepted Agricultural Bank notes whenever tendered, but even 
 furnished certain parties with funds to buy up the notes with a 
 view to returning them upon the bank and paralyzing its opera- 
 tions. By these means §145,000 in notes were returned upon the 
 bank within three months, yet it managed to protect itself, and 
 the war went gaily forward to the benefit of some, and the annoy- 
 ance of others in the business world. 
 
 McKenzie of course took the side of the .-Vgricultural Bank 
 during this conflict, but, in the course of the summer of 1835, 
 falling out with Capt. Truscott over another banking venture, he 
 produced a three days' ruT upon the .-Vgricultural Bank by one of 
 his fiery newspaper attacks. However, th:- bank weathered the 
 stoim and shared in the general inflation tefore the crisis of 1837. 
 
 Another joint stock bank, in which for a time Capt. Truscott 
 was interested, was the Farmers' Bank. Tl: institution had been 
 outlined before the .\gricultural Bank was started, by a number 
 of Canadians, chiefly of the popular party, who advocated the 
 system of joint-stock banking, though none of them seems to 
 hs/e been familiar with the practical working of such an institu- 
 tion. When, however, Capt. Truscott had proved his experience 
 
THU llliTUKy or tA.X.IItl.lX lIKKtiMI- 
 
 ■9 
 
 and ability in this lint, Iw seems tu have been iiiipralid l.i, in 
 connection with the estahlishinj; ol the proposed bank. Tlie I Ion. 
 Jolm ICImsley was also pniniinently con.iected with it. 
 
 The prospectus of the b:nl< was published early in May, 
 itjj. It was to lie known as the Kirmers' Dankinj,- Company, 
 with the ambitious capital of ^ jm.ooo, in {tu sluires. .\ board 
 of twelve directors was to be clect.d by the sliareholders as soon 
 as i5,tx)o shares should have b<'en substiibed for -.r ^30,000 
 paid in. In order to enlist tlie mneral interest of thr privincea 
 provisional committee was appointed, to consist of the members 
 of the .Assembly, tlie postmasters .and the I)i.,lrict ofticials, to 
 receive and report upon applications for stock. The response 
 through these honorary channels not being very hearty, Capt. 
 Kingsmill, of Port Hope, and Mr. J. y, Ijoswell, of Cobour.;, 
 undertook to can\ass some of the chief towns of the Province. 
 Notwithstanding the fact that there was great faith in the profits 
 of banking and a great demand for the shares of the chartered 
 banks, yet people were a little timid about taking s>ock in a con- 
 cern for whose obligation each shareholder was indefmiliiy liable, 
 liesides, the opponents of the b.ank were strenuously warni- ;. the 
 public against it. It had even acjuired the reputation o( ..eing 
 a strongly partisan affair, owing to the suppor. vhich it received 
 from McKcnzie and other protninent radicals. Hut when Mc- 
 Kenzie and O'Grady, falling out with Truscott and others, with- 
 drew f.om the enterprise and denounced its promoters, the institu- 
 tion seemed to recover credit somewhat, and, though it failed of 
 its ambitious hopes, yet a number of more stable partners having 
 joined, its establishment was insured. 
 
 On September 1st, 1835, a meeting of the directors took 
 place at which th.e ofKcers of the bank were appointed. Mr. H. 
 Dupuy, formerly the first manager 01 the KingsKm branch of the 
 Hank of Montreal, was appointed manager. It was expected 
 that the bank would open within the month and on good terms 
 V .th the other banks. However, within a few weeks, Capt. 
 Truscott and one or two others had severed their connection with 
 the bank, owing to some friction among ll ■ promoters of the 
 enterprise. Still before the middle of October the bank was m 
 operation, and its notes were add-d to the rapidly incicasing 
 variety of Canadian paper currency. 
 
THE HISTORY OP CANADIAN CURRENCY 
 
 Another joint-stock bank, though it also applied for a charter, 
 was known as the People's Bank. After parting company with 
 Truscott and the other promoters of the Farmers' Hank, McKenzie 
 and his associates sought to establish a more or less partisan insti- 
 tution, which was to be called the People's Bank, apparently in 
 imitation of the Hanque du Peuple, lately established by the 
 popular party in Lower Canada. 
 
 In August, 1835, McKenzie thus introduced the new bank to 
 the public, through his newspaper the Advocate: "I long ago 
 wanted the reformers to quit Truscott and privately urged them 
 to join among themselves and form a bank upon fair and honor- 
 able principles. They are now prepared to do so — their means 
 are ample as their utmost wishes— and the bank will be speedily 
 established on a broad and substantial basis, which will place in 
 the pockets of the people themselves the ^"50,000 a year of taxes 
 they are now paying to the Aylmers, Strachans, Jonas Joneses, 
 Truscotts, Jarvises, Hagermen, Sherwoods, Boultons, Clarkes, 
 Crookses, Robinsons, McLeans — the mushroom aristocracy of 
 this fair but ill-governed colony." However, there were more 
 stable supporters than McKenzie behind the institution, and in 
 the course of a year it gradually took shape until, on November 
 2nd, 1835, the first annual meeting of the stockliolders took place 
 in Toronto, when the following directors were elected ; John 
 Rolph, Jas. Leslie, D. Gibson, Jas. Beatty, John Montgomery, 
 Thos. Elliot, Hon. M. S. Bidwell, T. D. Morrison, Geo. Barclay, 
 John Harper, John Doel, Jas. H. Price. Two days later the 
 board met and elected John Rolph president, Jas. Leslie cashier, 
 and Messrs. Bidwell and Price solicitors. 
 
 During the following session of the Legislature the bank 
 applied for a charter. The application was fa\ourably reported 
 upon by the committee on banking, and a bill to incorporate the 
 bank was duly passed by the Assembly, but was very naturally 
 thrown out by the Council. 
 
 The Council was, indeed, alarmed at the rapid increase of 
 banking institutions, and passed a series of resolutions on the 
 subject, which were sent to the Assembly for concurrence. In 
 essence these »esolutions urged the need for maintaining the 
 credit of the country, while acknowledging also the need for an 
 increase of capital. It is pointed out that the Legislature began 
 
THE HISTOKr OF CANADIAN CVKSEXCy j , 
 
 With tlie establishment of a single provincial bank, the Bank of 
 Lpper Canada, but had since ^^radually departed from that safe 
 position, and .s now on the dow;.iward grade towards a condition 
 of absolutely free banking on the basis of ordinary business 
 enterprises. 
 
 They urge the necessity of earnestly considering the situa- 
 tion to determine upon some definite course to be followed in 
 connection with this important matter, because with every 
 departure it is increasingly difficult to get back to a prudent 
 course. 
 
 A bill was afterwards sent down from the Council to protect 
 the public against injury from private banks, but the Assembly 
 took no definite action on it. 
 
 The following session the Assembly passed a measure of its 
 own, to afford protection to the public as well as to facilitate the 
 business of joint stock banking companies, but it failed to pass 
 the Council. The Council, however, managed to adapt its bill 
 to the majority of the Assembly, and it was passed in March 
 1837, just on the eve of the crisis. Its object was to check the 
 issue of notes by private or joint-stock banks. It therefore 
 declared illegal the issue of notes or other paper intended to pass 
 as money, except by legislative authority. The joint-stock banks 
 then in existence were exempted from the provisions of the Act. 
 The banks so exempted were, the Bank of British North 
 America, which had not yet gone into operation in the Province 
 the Farmers' Bank, the Agricultural Bank, the Bank of the 
 People, and the Niagara Suspension Bridge Bank, so far as the 
 latter and its affairs came under the jurisdiction of the Provincial 
 law. 
 
 Many other schemes for promoting the general prosperity, 
 through the expansion or regulation of the currency, were in the 
 air at this period, both within and without the Legislature but 
 most of tliem had little or no significance beyond indicating tlie 
 unstable condition of the period. 
 
 Adam Shortt 
 
 goEis's Univbhsitv. Kingston