Money and Banking in Canada 9780773560536

Table of contents :
CONTENTS
INTRODUCTION
PART ONE: PRE-CONFEDERATION PERIOD
1. Playing-Card Currency of French Canada
2. Currency Regulations, 1796
3. The Canadian Banking Company
4. In Support of Establishing a Bank in 1808
5. Army Bills
6. Canada's First Chartered Bank
7. Charter of the Bank of Montreal
8. Establishing a Bank in the 1830's
9. Origin of the Canadian Banking System
10. Imperial Regulation of Colonial Bank Charters
11. Commercial Crisis of 1837-38
12. Lord Sydenham's Proposal For a Provincial Bank of Issue
13. Hincks on Canadian Currency
14. History of Canadian Metallic Currency
15. Currency and Banking 1840-1867
PART TWO: FROM CONFEDERATION TO THE FIRST WORLD WAR
1. The First Bank Act of the Dominion
2. The Canadian Banks and Wall Street
3. Canadian Banks in New York
4. Reminiscences of Bankers
Campbell Sweeny
Robert Gill
D. Hughes Charles
5. The Government Currency: The Monetary Times
6. The Government Currency: Reply
7. Bank Reserves
8. Fewer and Larger Banks
PART THREE: FIRST WORLD WAR TO SECOND WORLD WAR
1. The Canadian Banks and War Finance
2. The Canadian Monetary Situation
3. Currency Management in Canada
4. The Existing Canadian Financial System and the Establishment of a Central Bank
5. Constitution of the Bank of Canada
6. Functions, Structure, and Operations of the Bank in Canada
PART FOUR: AFTER THE SECOND WORLD WAR
1. Review of Post-War Monetary Policy
2. Bank of Canada Policy Appraised
3. The Bank Act Revision of 1954
4. Economic Policy Views of James E. Coyne
5. The Economic Policy Proposals of the Governor of The Bank of Canada
6. Statement of James E. Coyne Regarding a Bill Declaring the Position of Governor of the Bank of Canada to be Vacant
7. Conditions Outlined by Louis Rasminsky on Assuming the Position of Governor of the Bank of Canada
8. The Objectives of Canadian Monetary Policy, 1949-61
PART FIVE: GENERAL REVIEW
1. Banking Legislation 1822 to 1967
Note on the Contributors

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MONEY AND BANKING IN CANADA

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MONEY AND BANKING IN CANADA HISTORICAL DOCUMENTS AND COMMENTARY EDITED AND WITH AN INTRODUCTION BY

E. P . N E U F E L D

The Carleton Library No. 17/ McClelland and Stewart Limited

© McClelland and Stewart Limited, 1964 Reprinted 1967

The Canadian Publishers McClelland and Stewart Limited 25 Hollinger Road, Toronto 16

PRINTED AND BOUND IN CANADA BY

T. H. BEST PRINTING COMPANY LIMITED

THE CARLETON LIBRARY

A series of Canadian reprints and new collections of source material relating to Canada, issued under the editorial supervision of the Institute of Canadian Studies of Carleton University, Ottawa.

GENERAL EDITOR

Robert L. McDougall EDITORIAL BOARD

David M. L. Farr (History) Pauline Jewett (Political Science) H. Edward English (Economics) Muni Frumhartz (Sociology) Gordon C. Merrill (Geography) Wilfrid Eggleston (Journalism)

TO

Dwight, Anna Marie, and Derek

CONTENTS

INTRODUCTION — E. P. Neufeld, 1

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

1. 2. 3. 4. 5. 6. 7. 8.

PART ONE: PRE-CONFEDERATION PERIOD Playing-Card Currency of French Canada -Richard A. Lester, 9 Currency Regulations, 1796, 24 The Canadian Banking Company - James Stevenson, 28 In Support of Establishing a Bank in 1808 - John Richardson, 30 Army Bills, 41 Canada's First Chartered Bank, 45 Charter of the Bank of Montreal, 53 Establishing a Bank in the 1830's, 68 Origin of the Canadian Banking System - A dam Shortt, 77 Imperial Regulation of Colonial Bank Charters R.M. Breckenridge, 87 Commercial Crisis of 1837-38 - Adam Shortt, 91 Lord Sydenham's Proposal For a Provincial Bank of Issue H. T. Davoud, 95 Hincks on Canadian Currency - Francis Hincks, 106 History of Canadian Metallic Currency - Adam Shortt, 116 Currency and Banking 1840-1867 - Adam Shortt, 132

PART TWo: FROM CONFEDERATION TO THE FIRST WORLD WAR The First Bank Act of the Dominion - R. M. Breckenridge, 149 The Canadian Banks and Wall Street, 163 Canadian Banks in New York, 167 Reminiscences of Bankers, 170 Campbell Sweeny Robert Gill D. Hughes Charles The Government Currency: The Monetary Times, 183 The Government Currency: Reply - Sir Francis Hincks, 187 Bank Reserves - George Hague, 192 Fewer and Larger Banks - B. H. Beckhart, 196

1. 2. 3. 4. 5. 6.

1. 2. 3. 4. 5. 6. 7. 8.

PART THREE: FIRST WORLD WAR TO SECOND WORLD WAR The Canadian Banks and War Finance - C. A. Curtis, 206 The Canadian Monetary Situation - C. A. Curtis, 218 Currency Management in Canada -A.F.W. Plumptre, 223 The Existing Canadian Financial System and the Establishment of a Central Bank, 234 Constitution of the Bank of Canada -A.F.W. Plumptre, 247 Functions, Structure, and Operations of the Bank in Canada Graham F. Towers, 253

PART FOUR: AFTER THE SECOND WORLD WAR Review of Post-War Monetary Policy - Graham F. Towers, 259 Bank of Canada Policy Appraised - E. P. Neufeld, 275 The Bank Act Revision of 1954 - R. M. Macintosh, 299 Economic Policy Views of James E. Coyne, 308 The Economic Policy Proposals of the Governor of The Bank of Canada - David C, Smith and David W. Slater, 318 Statement of James E. Coyne Regarding a Bill Declaring the Position of Governor of the Bank of Canada to be Vacant, 333 Conditions Outlined by Louis Rasminsky on Assuming the Position of Governor of the Bank of Canada, 346 The Objectives of Canadian Monetary Policy, 1949-61 G. L. Reuber, 349

PART FIVE: GENERAL REVIEW 1. Banking Legislation 1822 to 1967, 360 Note on the Contributors, 371

Preface Ever since the first chartered banks appeared in British North America in the early nineteenth century the development of Canadian chartered banks and the development of Canadian money, or medium of exchange, have been closely intertwined. Indeed in most respects it is best to consider their respective development as one process since the chartered banks have always depended heavily on the demand for medium of exchange to provide them with funds to make loans and buy securities. The notes of the early chartered banks soon became the dominant form of medium of exchange in Canada and when, beginning in 1866, government permanently took unto itself the function of issuing notes to the public, historical processes obligingly had already transformed another chartered bank liability — the deposit — into the dominant form of money in Canada. It is therefore not merely convenient but also appropriate that a single volume should encompass, as this book does, both the fields of chartered banking and of money. The approach which I have taken has been first to decide what in my view constitute the major developments in the history of Canadian banking and money and then to compile a selection of documents, review articles, and contemporary comments which seem best to illustrate these developments. The placing individual selections in historical perspective. We hope that the selections included tell the story of money and banking in Canada in a more effective and more interesting fashion than would a book which attempted to summarize a rather large volume of source material. I wish to acknowledge my appreciation to Mr. David M. Nowlan for assisting me in locating articles and for arranging to have them duplicated. I am also grateful to Mr. E. M. Saunders and A. H. Cameron whose research grant made available to me through the University of Toronto helped to defray the cost of the project. My wife, Myrtle, has had to endure many hours of proofreading and by doing so has kept me wonderfully on schedule. E. P. NEUFELD

University of Toronto, September, 1964

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Introduction E. P. NEUFELD

Canada's earliest monetary history repeatedly reveals a woeful scarcity of a medium of exchange for settling transactions in ordinary domestic trade, and it also reveals varied attempts of government to resolve the problem. The use of playing-card money in French Canada, serving both fiscal and currency purposes, was important for about sixty-five years until 1763, and was remarkably successful in peacetime - as Lester's article (p. 9) clearly shows. Yet for decades Canadian bankers used that experiment as an example of the results to expect when government interfered with management of the currency. After 1763 acute scarcity of reliable currency continued, Many money substitutes in the form of private notes appeared, and thoughts were directed toward seeking a solution through the formation of banks (p. 28). Government attempted to retain specie coin in the country by officially over-valuing it in domestic trade and sought to reduce the general confusion resulting from the circulation of a great variety of foreign coin by establishing rates of exchange for the various coins. Such were the purposes of various acts of Parliament, including one passed in Lower Canada in 1796 (p. 24) and a similar one in Upper Canada, which in addition were significant in that they officially rated the American dollar for the first time. A few years before, in 1792, an attempt had been made to form a bank, and the close connection between the state of the currency and the need for banks is argued in the preamble to the relevant agreement (The Canadian Banking Company, p. 28). The attempt was not successful, nor was the next one, in 1808, but the latter attempt prompted Mr. John Richardson, a prominent Montreal businessman, to present a most interesting address to the House of Assembly on the subject of banking (In Support of Establishing a Bank in 1808, p. 30).

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The War of 1812 interrupted further efforts to establish banks, but it led to a successful experiment with government paper money - The Army Bills (Army Bills, p. 41). The redemption of these bills after they had provided a muchneeded medium of exchange provided also new confidence hi paper money and so made it easier for the chartered banks to become established. The first of these, the Bank of New Brunswick, appeared in 1820 (Canada's First Chartered Bank, p. 45) but the Bank of Montreal had begun operations under private articles of association in 1817, receiving its charter in 1822 (Charter of the Bank of Montreal, p. 53). An impression of the way in which banks became established and how they operated in the 1830's can be gained from Establishing a Bank inthe!830's(p.68). The question of the formative influences on early Canadian banking legislation has been carefully investigated by Adam Shortt (Origin of the Canadian Banking System, p. 77) who traces them directly to Alexander Hamilton's bank, but it is also worthwhile noting the impact of the Imperial connection (Imperial Regulation of Colonial Bank Charters, p. 87) on banking practices in Canada. Within two decades of becoming established the chartered banks faced a severe commercial crisis, and the way they survived it, involving as it did the only instance prior to World War One when they suspended specie payment, forms an interesting episode in Canadian banking history (Commercial Crisis of 1837-38, p. 91). The next significant threat to the dominant position of the chartered banks emanated from political sources. In 1841 Lord Sydenham proposed a government bank with a monopoly of the note issue (Lord Sydenham's Proposal for a Provincial Bank of Issue, p. 95). This proposal, it should be noted, since Mr. Davoud's article omits the point, came almost two decades before chartered bank deposits began to increase in importance as a source of funds for the banks; therefore by denying the banks the right to issue notes, the proposal, had it been adopted, would have constituted a severe blow to the development of chartered banking in Canada. It however correctly emphasized the hardship emanating from periodic contraction of chartered bank credit. While the development of chartered banking was making giant strides, this was not the case with the development either of a monetary unit based on the decimal system or of Canadian coinage. There were of course numerous attempts at bringing

INTRODUCTION - 3

some order out of the hodge-podge of circulating foreign coinage by officially rating them, and by an Act of 1821 Halifax currency finally replaced York currency as the unit of account. The Imperial government in 1825 attempted unsuccessfully to introduce British sterling currency both as the standard of value and medium of exchange. In 1841 an act of the first provincial parliament of Canada introduced uniform currency rates into Upper and Lower Canada. The next step was to introduce a system of decimal coinage and of Canadian coins. By 1850 the Imperial authorities had reluctantly conceded that decimal coinage should perhaps be permitted, but they disallowed the Currency Act of 1850 on various grounds, including the fact that local coinage of money represented "... an uncalled for and most objectionable interference with the prerogative of the Crown." Francis Hincks, the Inspector General, answered the objection contained in a letter from Sir C. E. Trevelyan of the Treasury to the Governor General Earl Grey, with devastating logic (Hincks on Canadian Currency, p, 106), and in 1853 the Currency Act was passed. Canada adopted the mono-metallic gold standard in that year. The Act provided for a Canadian decimal currency unit and for Canadian coins based on dollars and cents; but since it was not until 1857 that an act was passed requiring government accounts to be kept in dollars and cents the actual official adoption of the decimal system in Canada occurred on January 1, 1858, when the latter Act came into force. Adam Shortt has reviewed the history of Canadian currency referred to in this paragraph in his typically thorough manner {History of Canadian Metallic Currency, p. 116). We have already referred to the banking crisis of 1837-38, when the banks suspended specie payment, and to the threat posed to them by Lord Sydenham's proposal for a government bank of issue. From that time until Confederation total banking assets increased greatly, the government continued in its efforts to introduce government paper currency, of which the Free Banking Act of 1850 was in fact one aspect, and with the shrinkage of jiote circulation during the commercial crisis of 1857 a new proposal for a government bank of issue (this time sponsored by Galt) was put forward. Finally, the banking system was shaken somewhat by several severe bank failures all of which is discussed by Adam Shortt in Currency and Banking, 1840-1867 (p. 132). Just before Confederation, in 1866, the Provincial Notes Act sponsored by Galt was passed, and it is of considerable historic importance, though it has not been possible to include this

4 - MONEY AND BANKING IN CANADA

document here for reasons of space. It permanently introduced a limited quantity of government notes, which later became Dominion Notes, and since those notes were payable in specie on demand it enabled the chartered banks to exchange specie for them and hold them as reserves. Just as the growth of bank notes had conserved specie by reducing the need for it for circulating purposes, so this Act conserved it by reducing the need for it for bank reserves. Not till the Bank of Canada began operations in 1935 did the government begin to introduce measures which materially reduced and eventually eliminated the chartered banks' share of the note circulation of the country. After Confederation the Dominion Notes Act succeeded the Provincial Notes Act and periodic amendments to it permitted additional issues of Dominion Notes - but this did no more than maintain the government's share of the total note circulation established just after Confederation. The British North America Act gave the federal government authority over money and banking. A new comprehensive bank act was therefore required. John Rose succeeded Gait as Minister of Finance several months after Confederation, and soon, strongly supported by E. H. King of the Bank of Montreal, he sponsored a scheme which would among other things have given the government a monopoly of the note issue. Opposition to the scheme proved overwhelming, and it was left to Francis Hincks, who succeeded Rose in the Finance Ministry, to introduce the Dominion's first bank act (The First Bank Act of the Dominion,}). 149). The chartered banks before long began to occupy a remarkably prominent position in Wall Street {The Canadian Banks and Wall Street, p. 163 and Canadian Banks in New York, p. 167). Personal reminiscences of bankers give some lively impressions of banking in Canada before the turn of the century. They also refer to the displacement of the amateur banker by the professional, the development of branch auditing, and the introduction of uniform branch practices. (Reminiscences of Bankers, p. 170). The question of the soundness of government paper money did not die with the successful introduction of such money in 1866 and after, while the use of government notes for reserves raised the matter of the mechanism of control of the chartered banks - in effect, control of the supply of money under gold standard conditions but with reserves partially of a fiduciary nature. Was the Dominion Note Issue system working well or badly? Was the government caused embarrassment by the

INTRODUCTION - 5

demand for gold in exchange for notes? Did the Canadian government truly copy Sir Robert Peel's system of 1844, when the latter included Bank of England supervision of the foreign exchanges by use of bank rate, while no such provision existed in Canada? The Monetary Times argued that (a) a government note issue would lead to excess circulation during periods of fiscal stringency, (b) a government note issue, being unrelated to commerce and the exchanges, would not be properly supervised, (c) the system of the Dominion Note Issue differs from Sir Robert Peel's system of 1844 in that the latter is protected by bank rate of the Bank of England while the former is not officially supervised in that way and (d) the system of the Dominion Note Issue had already experienced difficulties. Sir Francis Hincks denied all this. He correctly pointed out that the difficulties encountered had been minor and that the Canadian government issue had not become excessive; he was wrong in arguing that Peel's system did not require supervision, but right in pointing out that with chartered bank notes forming the bulk of the notes in circulation in Canada the circulation was in fact closely tied to seasonal swings in trade in Canada. On the matter of supervision of the issue Hincks alluded to the fact, but should have made much more of it, that what mattered was that by carrying large balances in New York the chartered banks could supplement their gold reserves if an internal or external drain existed, and that to maintain their cash reserves credit restriction would then follow if the aforementioned drains persisted. The debate between Sir Francis Hincks and The Monetary Times is too lengthy to be included in its entirety, but the one exchange of views included here relates to most of the points raised above (The Government Currency: The Monetary Times, p. 183 and The Government Currency: Reply, p. 187). While the Dominion Note Issue system settled down and functioned until 1914, as described in the preceding paragraph, it did not involve banks keeping specific minimum reserves and so did not guard against instability arising from a changing cash ratio. The bankers strenuously opposed such a ratio (George Hague on Bank Reserves, p. 192) and it was not introduced until 1934. Since there is no evidence that advocates of such a ratio actually favoured it for purposes of monetary stabilization, the bankers' view that such a minimum would not be useful for guarding against unsound 'banking was a convincing one. The decenniel revisions of the Bank Act which appeared in 1880, 1890, 1913, 1923, 1934, 1944, and 1954, introduced a

6 - MONEY AND BANKING IN CANADA

number of minor and a few major changes in Canadian banking, and these may be traced in several articles (pp. 360-369). But one important feature of the development of the banking system was the trend toward fewer banks (Fewer and Larger Banks, p. 196) which has persisted almost to the present. It was in 1913 that the Central Gold Reserve of the federal government was established — a minor move toward a central bank. Then came suspension of the gold standard. In August, 1914, orders-in-council prompted by the fear of the consequences of the war declared chartered bank notes to be legal tender. Also, Dominion Notes could now be issued to the banks against government securities, and redemption of Dominion Notes was suspended. All this became part of the Finance Act of 1914. These measures paved the way for financing a large portion of the war through monetary expansion (The Canadian Banks and War Finance, p. 206). Return to the gold standard occurred in 1926, but it was a largely fictitious return since the provisions of the Finance Act permitting banks to obtain Dominion Notes (i.e. cash reserves) against government and other securities was retained. By 1929 Canada was again unofficially off the gold standard and the need for a central bank became increasingly obvious (The Canadian Monetary Situation^. 218). Growing awareness of the concept of central banking and managed money is evident in the discussion of the 1920's, but complete disillusionment with the gold standard and the conscious introduction of managed money did not come until the depression of the 1930's had settled in. Disillusionment with the gold standard, however, did not immediately displace reservations over the effectiveness of central banking within the Canadian environment (Currency Management in Canada, p. 223). The bankers strongly opposed formation of a central bank, but a Royal Commission appointed to investigate the matter recommended it (The Existing Canadian Financial System and the Establishment of a Central Bank, p. 234). On March 11, 1935, the Bank of Canada began operations with a constitution that provided for its being privately owned, but strange as if may seem by 1938 it had twice been nationalized; and by the beginning of World War Two it had earned considerable respect (Constitution of the Bank of Canada, p. 247). The first Governor, Mr. Graham F. Towers, explained the operations of the Bank to a parliamentary committee in 1939 (Function, Structure, and Operations of the Bank of Canada, p. 253) and revealed a confident central bank policy of modest

INTRODUCTION - 7

monetary expansion. This policy of expansion was soon greatly accelerated as war finance demanded central bank accommodation; and the Bank's work during the war was widely praised. Much of the discussion of monetary affairs in Canada during the 1930's revealed the lingering impact of gold standard mentalities. The case for managed money had to be argued and a Royal Commission seemed necessary to give approval to the formation of a central bank. Finally the Bank appeared and discussion subsided. The discussion of monetary matters in Canada in the post-war period was quite different. It was directed toward appraising critically the managed money policies of the Bank of Canada as well as toward defining the objectives of stabilization policy, examining the techniques of managed money and appraising the effectiveness of monetary policy in general. Mr. Graham F. Towers appeared before the Banking and Commerce Committee of the House of Commons in 1954, several months before his retirement, and reviewed Bank policy to that date (Review of Post-War Monetary Policy, p. 259). Outside observers tended to be critical of the policy pursued by the Bank over those years, with its emphasis on low interest rates. (Bank of Canada Policy Appraised, p. 275). The Bank Act of 1954 introduced several interesting changes in Canadian banking, including provisions which permitted the banks to engage in certain types of mortgage financing (The Bank Act Revision-of 1954, p. 299). After 1956 Canada entered a period of slow growth and high unemployment. The new Governor of the Bank of Canada was soon engaged in public debate over economic and other matters and addressed many audiences across Canada. His policy views are briefly sketched in a presentation to the Senate Special Committee on Manpower and Employment (p. 308). Most academic economists seemed opposed to the policy of the Bank and of the government, and one critical appraisal is included here (p. 318). Then there occurred an open break between the Governor and the government, followed by an avalanche of statements and counter-statements. Those statements cannot be included here for reasons of space but it may be said that by failing to establish clearly that it had been opposed to Bank of Canada policy and had wanted to change it, the government in attempting to remove the Governor left itself open to a charge of improper conduct. The discussion unfortunately shifted away from bank policy to government conduct, and the Governor's statement to a Committee of the Senate followed (p. 333). The

8 - MONEY AND BANKING IN CANADA

Bill declaring the position of Governor to be vacant was not passed by the Senate and the Governor then resigned. A new Governor was appointed and he issued a press release dated July 31, 1961 outlining the general rules under which he proposed to operate (p. 346). Meanwhile reservations over the record of monetary policy in general, and in Canada, Bank of Canada policy in particular, have refused to disappear, and research in this area will no doubt continue. An article by G. L. Reuber (p. 349) specifically raises the issue of conflicts between various policy objectives, attempts to determine how those conflicts have been resolved by the Bank of Canada, and appraises the cost to the economy of the various combinations of objectives that could be chosen.

PART ONE PRE-CONFEDERATION PERIOD

Playing-Card Currency of French Canada RICHARD A. LESTER

Like the English colonies to the South, the French colony in Canada early used both farm produce for money and the expedient of rawing the official rating of silver coins above their rating in the mother country. At various times wheat and moose skins were legal tender for the payment of debts in Canada.1 Payments were also made in beaver skins, wildcat skins, and in liquor. Among traders in some outlying districts, accounts were even kept in terms of wildcat skins, a blanket being priced at eight cafs. As late as 1740, for example, the accounts of the storekeeper at Niagara showed a "deficit by 127,842 cats" (p. 689). Shortly after Nova Scotia was ceded by France to England in 1713, the garrison of soldiers stationed there, who normally were paid in liquor, petitioned the authorities in England: "That they be payd in money, or Bills, & not in Rum or other Liquors, that cause them to be Drunk every days, and Blaspheme the name of God...."2 Like the English colonists, the colonists in Canada continually complained of the scarcity of coins - "our great inconvenience being the lack of money" (p. 13). Most of the coins that were sent to Canada to pay the salaries of the soldiers stationed there Source: Richard A, Lester, Monetary Experiments, Princeton University Press, Princeton, 1939, Chapter 11. Reprinted by permission of the publisher. 1

Documents Relating to Canadian Currency, Exchange and Finance during the French Period, edited by Adam Shortt, Vol. I, 1925, pp. 15, 25, 39. Unless otherwise indicated, this work is the source of all quoted material referred to in this essay, and the relevant page numbers have been inserted in the text in all further references. 2 Documents Relating to Currency, Exchange and Finance in Nova. Scotia, selected by Adam Shortt, 1933, p. 117.

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returned to France, often by the same boat that brought them, to pay bills the Canadian merchants owed in France or to buy more French goods. In order "to cause coins to remain in the colonies," the government of France decreed in 1672, "that all the coins of the money of France which might find their way to America, should be current [there] for one-third more than their face value, and that articles of agreement, contracts, purchases, and payments should be made in money on the same basis of one-third increase" (pp. 5, 57, 379). Thus, from 1672 to 1717 a livre of "money of France" contained one-quarter more silver than a livre of "money of the country." But this device proved unsuccessful, prices in Canada having risen in proportion to the increased rating of the coins (p. 381). As a consequence of the lack of coins, notes and orders drawn by Quebec merchants on themselves, which were "good for" the purchase of merchandise in their shops, began to circulate as money. Some colonists complained that merchants took advantage of this practice by redeeming their notes in merchandise "at any rate that suits them (pp. 61,581). THE FIRST PERIOD, 1685-1720

In 1685 the colonial authorities were faced with an emergency which forced them to issue paper money made out of ordinary playing cards. Previously the French government had allotted and sent funds six months in advance to meet civil and military expenses in the colony for the coming year, but for some reason this practice was changed beginning in 1685. The funds for that year were only allotted in January and did not reach Quebec until early in September, 1685. Consequently, the troops and the colonial officials stationed in Canada were left without funds or supplies during the first eight months of 1685. To meet this gap, the King's Intendant in Canada drew upon his own private funds and received some assistance from his friends. By April the Colonial General was forced to give all the soldiers in the ten companies there permission "to work and hire themselves out to the inhabitants, in order in that way to help them to obtain certain means of living until His Majesty sends us new funds" (p. 69). However, most of the soldiers failed to obtain work, because the inhabitants had "already done their seeding" and because "several of the said soldiers were not in a condition to gain their livelihood on account of their age" (p. 71). The Intendant had observed the circulating notes of the Quebec merchants, so, finding his friends unable to render him

PART I: PRE-CONFEDERATION PERIOD - 11

"further assistance, and not knowing to what saint to pay [his] vows, money being extremely scarce," he decided early in June to issue "instead of money, notes on cards" (pp. 61, 75). He was forced to use packs of playing cards for this purpose because of the lack of suitable paper or printing facilities (p. xlix). Ordering "all the inhabitants to receive this money in payments," he pledged himself to redeem "the said notes" when the yearly appropriation of funds arrived from France (p. 75). The vessels bringing the annual appropriation arrived early in September, 1685, and all "said card money" was redeemed within a short period of time, after which it was "no longer received" (p. 73). In a report to the home government of this experiment with card money, the Indendant stated: "No person has refused them, and so good has been the effect that by this means the troops have lived as usual" (p. 75). Although the King "strongly disapproved on the expedient of circulating card notes, instead of money" iti order to pay "the troops and other expenses, between the commencement of each year and the arrival of the vessels" in August or September, the Intendent was forced to issue them again in 1686 and in each of the three years, 1690, 1691, and 1692, because of losses at sea of government supplies destined for the colony in all of those years (pp. 79, 97, 109). The playing cards were cut in a different way — into quarters and other shapes - for each different denomination of the money. Because of the general illiteracy of the people, it was necessary for them to be able to recognize the denomination of the money by its shape and colour. The denomination was written on each side in the hand of the colonial agent of the Treasurer, and all of the cards were signed by the Governor General, the Intendant, and the agent of the Treasurer (p. 381). Any inhabitants refusing to accept the card money were subject to a fine (p. 77). When the vessels from France arrived in the fall with funds and supplies, the card money was redeemed in cash or in bills of exchange drawn on colonial funds in France, which bills the Canadian merchants used to pay for imports from France. The redeemed playing-card money was withdrawn from circulation and burned. Again and again the King forbade the issuance of card money in the colony, but the practice did not cease, for it seems to have been issued every year from 1690 to 1719 (pp. li, liii, 79, 97, 107, 111). The King apparently feared that this easy method of raising temporary funds would lead to extravagant

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expenditure of funds in the colonies, for which he later would have to pay when the issues of card money were withdrawn from circulation (p. 155), Also he feared that the card money would be counterfeited, in which case the counterfeit card money might have to be redeemed from the annual appropriations to the colony for civil and military expenses (p. 79). Counterfeiting did occur. Even the first issue of card money was counterfeited. In 1690 a "Surgeon" was convicted of counterfeiting and condemned "to be beaten and flogged on the naked shoulders by the King's executioner," receiving "6 lashes of the whip" in each "customary square and place" in Quebec, after which he was to be sold into bondage for three years of "compulsory service" (p. 87), Later the penalty for counterfeiting, as in the English colonies, was usually death by hanging, often "without benefit of clergy" (pp. 93, 679). In 1689, war was declared between England and France. Massachusetts in 1690 sent an expedition of soldiers to capture Quebec. But the expedition failed and the soldiers, who were to be rewarded from the plunder of Quebec, clamoured for their pay upon return to Boston. They were paid off by the first issue of paper money in the English colonies. Apparently the Massachusetts authorities knew of the playing-card money in Canada, even believing it to be one of the reasons for the defeat of their expedition. Two pamphlets published in Massachusetts in 1691 refer to the facility with which the Intendant at Quebec floated his card money, one Writer saying: "The French (I hear) at Canada pass such Paper mony without the least scruple."3 It is not unlikely that the English colonists learned to issue paper money from the example of playing-card money in French Canada. During the war, which is called King William's War in highschool history books, the French authorities did not wish to risk shipping coin to the colony for fear that it would be seized in mid-ocean by the enemy, so they ordered that the funds be kept in Paris and that card money to the amount of the annual appropriation of funds be issued and spent in Canada. Then, on the arrival of the ships in the fall notifying the colonial authorities of the appropriation, the Intendant could draw bills of exchange on the funds with the Treasurer in Paris to the amount of the appropriation, and the colonial merchants would buy from the Intendant with card money these bills of exchange on funds in Paris. The colonial merchants, of course, needed funds to pay for merchandise purchased and imported from the 3

Colonial Currency Reprints, Vol. 1, Prince Society, 1910, p. 29.

PART I: PRE-CONFEDERATION PERIOD - 13

mother country. The card money, paid in by the colonial merchants for bills of exchange on France, was to be withdrawn and burned each year as it had been previously (p. 321). These measures really put the colony of Canada on a silverexchange standard. The card money, instead of being redeemed in coin in Quebec, was redeemed in silver coin in France. This arrangement was to operate much as the gold-exchange standard operated in the Philippines, the Straits Settlements, and to a degree in various countries after World War One. As the colonial funds in France were used up, card money was to be withdrawn from circulation in Canada. In 1699 even the export of gold and silver from France to America was forbidden (p. 109). As some of the colonists pointed out, this device of card money redeemed in bills of exchange had much in its favour. It eliminated the loss of gold and silver in transit either by shipwreck or capture by the enemy (p. 157). It did away with the folly and cost of shipping coin both ways, as much of the coin coming into Canada frequently returned to France on the same boat that brought it. Under this silver-exchange standard, there were less abrupt changes in the supply of money circulating in the colony and certainly fewer complaints were voiced about the scarcity of money there. The card money, of course, did not leave the colony as coins did, since, unlike gold and silver, it could not be used for payment nor for other purposes outside the colony. With the card money, there was no loss from clipping, and the colonial authorities gained to the extent that the cards were lost "either by fire or by the upsetting of canoes" (pp. 177,277,875). This system of playing-card money, redeemed each year by bills of exchange on funds in France, seems to have worked fairly well for a decade, despite extraordinary expenditures for fighting the English and Iroquois and for presents to loyal Indian groups, all of which caused expenditures in the colony to exceed the sum allotted for the year and resulted in unauthorized issues of card money. "As long as the bills of exchange were faithfully paid [by the Treasurer in France], these cards were preferred to hard cash" (p. 495). They were so popular that local holders failed to turn all of them in each year for redemption in bills of exchange. But between 1700 and 1717 the French currency was debased a number of times (p. Ixv) .4 At the same time, colonial military expenditures began to increase considerably with the declaration 4

Elgin Groseclose, Money: the Human Conflict, 1934, p. 124.

14 - MONEY AND BANKING IN CANADA

of war in 1702 - called Queen Anne's War in the colonies. With France undergoing serious financial difficulties, the volume of supplies sent to Canada dwindled rapidly. By 1706, the bills of exchange drawn on the Treasurer in Paris were not being met so promptly and some were not paid at all, since only a portion of the appropriation for the colony was turned over to the Treasurer. By 1709 France was really in a desperate financial condition. In that year the allotment of funds for the colony was reduced from the usual 180,000 livres to 40,000 livres, and some of the bills of exchange due in 1703,1705,1707, and 1708 were still unpaid (pp. 197, 215). The King "strongly disapproved the expedient of issuing cards to pay the expenditures of 1703 and 1704, and of making thereby His Majesty creditor to the colony for 160,000 livres for a matter which does not concern him" (p. 155). The lack of control over colonial expenditures when they were paid for directly with playing-card money was the chief reason the King opposed the issue of cards. Because of the demoralization of finances in France, the Canadian silver-exchange standard broke down. It was absolutely necessary, if the system was to operate successfully: (1) that the bills of exchange bought in Canada with the card money be promptly paid by the French Treasurer in silver coin or its equivalent; (2) that the colonial appropriations to redeem and withdraw the cards not be abruptly reduced; and (3) that the issuance of card money and its redemption correspond fairly closely with the annual appropriations to the colony, that not much more be spent in Canada by issuing card money than was appropriated in France for colonial expenditures. None of these three provisions was followed after 1700 or 1701. Most of the bills of exchange were not promptly paid by the French Treasurer, for he lacked the funds to pay them and, after 1708, the bills that were met, were paid in French paper money, which was at a heavy discount in terms of silver coin (p. 589). With the over-issue and severe depreciation of paper money in France, coins were no longer in circulation there after 1708 (p. lix).5 As prices went up, silver became more and more valuable as a commodity, so that the silver coins were either hoarded or sent abroad to buy goods where prices in terms of silver were lower. Instead of increasing the yearly appropriations for colonial expenses, which mounted as the colonists fought Queen Anne's War, the colonial appropriations had to be drastically reduced 5

James Breck Perkins, France under the Regency, 1892, p, 283.

PART I: PRE-CONFEDERATION PERIOD - 15

because French finances were going from bad to bankruptcy. Consequently, the yearly issues of playing-card money increased in size, and a considerable portion of each year's issue could not be redeemed by bills of exchange drawn on the annual appropriation. The colonial appropriations were not large enough to meet the general expenses of the war, the soldiers' pay, and the cost of constructing fortifications in Canada. The difference between actual expenses incurred in the colony and the annual appropriation had to be met by issues of playing cards which were not retired (pp. 321,385,663). For this reason, the playing-card money in circulation in Canada increased from "at most only 120,000 livres" in 1702, when the war began, to 1,300,000 livres in 1712, and to more than 2,000,000 livres in 1714, one year after the end of the war (pp. 327, 329, 339). As there were then about 30,000 inhabitants in Canada, the amount of playing-card money increased from about 4 livres per capita in 1702 to about 70 livres per inhabitant in 1714 (p. 495). Even by 1705, there was so much of this card money outstanding that the Governor of Montreal felt it "necessary ... to give . . . notice, that there are here many more cards than there appear to be funds to retire them, which some day will cause much trouble and confusion. More than one hundred thousand livres have been declined, the Treasury refusing to give bills of exchange for them" (p. 141). By 1709 all the silver coin in Canada, as in France, had left circulation, having been crowded out by the cheaper card money (pp. 185, 385). This elimination of metallic money from circulation partly offset the large increase in card money, so that prices by 1712 had only risen fourfold (p. 221). A sharper rise in prices might have been expected, especially since the velocity of circulation of the card money seems to have increased, people spending it before prices rose further (p. 651). Though the card money in Canada declined in purchasing power, it did not depreciate so fast and far as did paper money in France (p. 589). Consequently, from 1711 on, Canadian merchants preferred card money to bills of exchange drawn on the French Treasury (p. 211). In 1712, the Governor and Intendant in Canada reported: There will be very few who are willing to take bills of exchange, which may enable you to fudge how very much they are depreciated since these rrierchants prefer the cards to the bills, notwithstanding the extreme need they have of making

16 - MONEY AND BANKING IN CANADA

remittances to France, without which it is impossible to maintain their trade (p. 233). In short, the playing-card money did not depreciate as much as its backing did, and its depreciation was primarily due to the excessive expenditures occasioned by the war. The national credit having virtually disappeared by the end of the war in 1713, the government of France began to draw upon the credit of the larger cities. The King offered to redeem the colonial card money at par in 4 per cent securities of the city of Paris. But the colonists preferred the cards, which were ready money, to the Paris securities; only 81,000 livres out of more than 2,000,000 livres of card money were turned in for such securities (pp. 247, 263). Finally in 1714, the King offered to redeem all the card money circulating in Canada at one-half of its face value in silver coins. This redemption was to be at the rate of 213,333 livres "money of the colony" each year for five years. There was some delay, however, because of financial difficulties in France, so that not all the playing-card money in Canada was redeemed and retired (burned) until 1720. Thereafter all card money was declared worthless. The King forbade anyone to receive it or to issue any card money "in the future for whatever cause or under any pretext whatsoever" (p. 399). The distinction between "money of the colony" and "money of France" was abolished. The metallic or coined money of the mother country became the money in circulation in Canada (pp. 401, 451). During the decade of 1720 to 1730, no card money was issued in Canada and, in the words of Herbert Heaton, "circumstances forced the Canadians to look back on the cards as symbols of the 'good old times.' "6 There were repeated complaints during this decade about the "frightful scarcity" of money (pp. 575, 579, 581). In 1727 the Intendant stated that "the colony and all its trade [were] under extreme depression from lack of money" (p. 579). A year later the merchants in Canada presented a petition to the colonial authorities requesting the re-establishment of a card money (pp. 583, 589). At that time the Governor and acting Intendant reported that they were "very much embarrassed by the scarcity of money existing in Canada. The public have all made representations to us, by means of petitions, to issue card money, which could be withdrawn on the arrival of the King's vessel; the trafficking in « "Playing Card Currency of French Canada," American Economic Review, December 1928, p. 657.

PART I: PRE-CONFEDERATION PERIOD - 17

personal notes is very dangerous and gives rise to frightful usury, the ill effects of which are only too visible" (581). During this period, as was the case before the first issue of playing-card money in 1685, merchants' notes and orders payable in their own merchandise seem to have circulated as money. A Canadian writer, referring to this period, says: "domestic trade suffered very much, as also the settler, who was always forced to sell his provisions to his disadvantage - on credit or in barter for other goods" (p. 667). There were various reasons for this shortage of coins in Canada. Most of the reasons given in the Introduction for the scarcity of coins in the English colonies likewise apply to Canada at the same time. Furthermore, the French Canadians tended to hoard money rather than to loan it at interest, which was contrary to their religious scruples (p. 589). Hoarding, of course, caused the coins to disappear from circulation. The colonists had another complaint to make against the use of metallic money there besides its tendency to disappear into hoards or on vessels destined for France. A metallic money tied their price level and money supply up to monetary and financial circumstances in Europe, and especially in France. During this period prices were falling all over the world and France was repeatedly raising or lowering the metal or bullion content of her money by recoinage edicts. The colonists wanted to eliminate the effects of such changes on their economy by having a "currency indigenous to the country." They wanted to establish "in the colony a currency which [would] be employed only in its interior trade" and would thereby "place the colony out of reach of injury from the reductions and other changes in the currency which are going on in France, and which, coming only to the colony out of the seasons and circumstances which caused them to be adopted, will never produce here the same effects as were looked for in France in putting them into operation" (pp. 579, 581, 583). This tendency of a metallic money standard to transmit to the domestic economy the price level changes and economic misfortunes occurring abroad was one of the reasons that so many countries abandoned the gold standard after 1929. THE SECOND PERIOD, 1730-1763

In 1729 the King, after "having caused a report to be made to him of the situation in the colony of Canada since the abolition of card money, and being informed that the gold and silver coin which for ten years he had sent, for the expenses of

18 - MONEY AND BANKING IN CANADA

the country, had returned each successive year to France," causing "the destruction of the domestic trade of the colony," issued a royal ordinance re-establishing card money in Canada beginning in 1730 (p. 589). The King considered several suggestions for remedying the "inconveniences" to domestic trade from lack of money, but none "appeared adequate except that of the establishment of a card money" (p. 589). In the King's, opinion "this money [will] be regarded in the country in the same manner as gold and silver coin, by the constant application which he [the King] will make of the funds to be devoted to the expenses of the colony, to the retirement each year of all or the greater part of this money, either by the sale of munitions and merchandise, which he will have sent out [from France to the colony], or by the bills of exchange which shall be drawn on each [annual] appropriation and which shall be paid regularly in France in cash" (p. 583). In this way the silver-exchange standard with card money in Canada was re-established. The King authorized an issue of 400,000 livres of card money, stating that the colonial authorities "must confine themselves within the exact scope he prescribed for them and observe great economy" (p. 587). At the same time the King "ordered that there should be furnished each year, beginning with 1730, the sum of 250,000 livres of bills of exchange payable in money by the Treasurer at Paris. The Intendant at the same time was ordered to deliver these bills of exchange only to those who brought cards to the [colonial] Treasury to an equivalent value" (p. 669). Bills of exchange on Paris were to be sold for cards each fall when the vessels arrived from France. Except for the first issue in 1730, part of which consisted of playing cards, plain blank cards were used, so that the card currency of this second period lacked the picturesqueness of its predecessors (p. 599). In 1730 cards to the extent of 250,000 livres were turned in for bills of exchange on Paris, but in 1731 only 136,500 livres of cards were so turned in, and in 1732 only 63,000 livres of cards, which indicated that some of the cards were being hoarded (p. 625, 669). In order to have bills of exchange on France for the colonial merchants, the Intendant accepted, in payment for bills of exchange, orders on the colonial Treasury. These "orders" were issued by officers in command at forts and outlying posts in order to pay local expenses for labour and supplies. Even the engineer could issue them (p. 701). Frequently such orders circulated by endorsement, sometimes passing through many hands before reaching

PART I: PRE-CONFEDERATION PERIOD - 19

Quebec, a year or so later. The King approved of acceptance of this "army-made" paper money for bills of exchange on Paris, and issued an ordinance in 1733 to that effect, at the same time making these "orders" or "army-made" money legal tender (pp. 627, 639). There was no absolute limit to, and very inadequate control of, the issue of these "orders." The card money was preferred to "orders" because the majority of the inhabitants who could not read found it difficult to recognize the exact value written on each "order," whereas they could tell at a glance from the shape of the card money what its face value was (p. 707). In fact, the card money was regarded "as hard cash," some people even preferring it to cash at times (pp. 623, 633). It was also hoarded to a considerable extent, which led to demands for a larger issue of cards. During the period of peace until 1744, the card money enjoyed as excellent a credit as gold or silver coin, and "Canada enjoyed a period of exceptional prosperity" (pp. Ixxi, 605). With the first issue of cards in 1730, the colonists became "more and more sensible of the advantage of card money (p. 611). In 1733 the King was very satisfied to learn that "it had produced there the benefits expected of it" and recognized that 400,000 livres was "not sufficient" because of hoarding and the increased trade of the colony. He, therefore, judged "it necessary for the well-being of the country in general and for the benefit of trades in particular to order a new issue of card money" of 200,000 livres (p. 643). Just before this additional issue of 200,000 livres was ordered, the Intendant had written to his superiors in France expressing anxiety about the credit of the card money in case anyone should discover that only 250,000 livres of bills of exchange could be drawn in any year, yet there were 400,000 livres of card money and 200,000 livres of "orders" outstanding (p. 653). Word came back from the authorities in France that he had absolutely no cause for his fear in this matter (p. 653). In using paper-money issues to pay for expenditures in excess of annual appropriations, the colonial authorities were only doing what private banks have done for centuries - incur much larger liabilities than they have cash funds on hand to meet demands when a run occurs. Such a pyramiding of claims on a small cash base works perfectly as long as the people use the claims or liabilities — card currency or checking accounts - as money and do not try to convert them into cash all at once. The next increase in the amount of card money was ordered in 1742. The year before Canada had had, for the first time in its

20 - MONEY AND BANKING IN CANADA

history, an excess of commodity exports over imports from France (pp. Ixxvii, 695). This resulted in an excess of bills of exchange on France. The thrifty colonists used this excess to increase their savings, which, by virtue of their religious scruples, were hoarded rather than loaned (p. Ixxvii). There was, therefore, an increased demand for card money to hoard, and the colonists began, "with a certain anxiety," to change bills of exchange for card money, preferring the cards to their backing (pp. 395, 693). The Intendant and Governor reported in 1741 "that of the 600,000 livres of [card] money in Canada there is only about 200,000 livres in circulation," the rest being carefully hoarded in the strong-boxes of the inhabitants (p. 695). After the merchants of Quebec had petitioned the home government for an additional issue of card money, the King in 1742 raised the total issue of card money to 720,000 livres, and in 1749 he raised it to 1,000,000 livres "for the benefit of the service and trade in Canada" as well as the benefit of the local Treasury (pp. 693, 705, 707, 711, 775). Actually, long before then, "orders" or "army-made" money had completely overshadowed the card money in amount. It may seem surprising that all sorts of paper - "orders," bills of exchange, and even uncertified claims against the government - circulated so readily as money in Canada. The Intendant himself was surprised, for he wrote in 1741: The confidence of the people in every kind of paper is so great here that it suffices for it to be signed by any official of the Treasury [in Canada] whatever, in order to have people respect it, I say it in spite of myself, as a document, payment for which may be demanded (and which the merchants will accept as] ready money (pp. 699, 701). The amount of "orders" or "army-made" money constantly increased, for the largest and most uncontrollable expenditures, even in peace times, were made to keep the Indians favourably disposed toward the French and ready to attack the English (p. 717). The military authorities also spent "orders" money for many new and costly projects in the wilderness extending from Quebec to the Mississippi River and down the Mississippi to Louisiana. An excess of colonial expenditures over annual appropriations occurred every year for seven or eight years prior to 1743 (pp. 697, 713, 729). By 1740, "orders" money had been issued for excess expenditures to such an extent that the Treasurer in Canada found it difficult to redeem all the orders that were pre-

PART I: PRE-CONFEDERATION PERIOD - 21

sented for conversion into bills of exchange on France (p. 697). By 1744, France had again declared war against England, and by 1745, so much "orders" money had been issued and redeemed in bills of exchange and the Treasury of France was in such a state, that many of the bills of exchange drawn on the French Treasury and issued to Canadians that year were not redeemed in French coin until some years later (p. 759). The rapid expansion in "orders" money after 1743, and the hoarding of more reputable card money is indicated by the following table of the quantity of cards and "orders" money presented to the Intendant for the purchase of bills of exchange on France (pp. 691,725,751): Year 1741 1743 1747

Cards 176,000 livres 200,000 " 55,000 "

"Orders" Money 464,000 livres 430,000 " 2,669,000 "

The Intendant pointed out that military operations, over which he had no control, were the cause of such large expenditures and issues of "orders" money. "It is not my fault," he said, "if they are so prodigious. I must, my lord, repeat it to you, it is not I who order military operations" (p. 751). There was a temporary restoration of peace in 1748, but during this nominal peace the French military authorities in America continued to spend money lavishly in preparation for further warfare. In 1751, as much as 2,400,000 livres of orders or "hand-written notes" were issued to pay colonial expenditures (p. 825). Therefore, when France was again at war with England in 1755, the Canadian Treasury had been under financial strain for a number of years. As early as 1753, the "Treasury of the Colonies" in Paris was in such a "state of exhaustion" that the authorities ordered bills of exchange drawn on it to be paid in instalments over a period of three years rather than redeeming them promptly in coin (pp. 805, 873). From 1755 on, the issues of paper money "orders" and bills of exchange on France, which circulated as money - increased rapidly as France and England waged the so-called Seven Years' War. A constant force of 10,000 troops on foot had to be maintained in America, and at times the French had as many as 20,000 men under arms there, though the whole colonial population only amounted to 80,000 or 100,000 "souls" (pp. 893, 909,1011,1059). By 1759 "orders" were "circulating in the market to the extent of thirty millions" of livres (pp. 891, 893). In that year,

22 - MONEY AND BANKING IN CANADA

"His Majesty" found "that in the present condition of finances and with the other expenditures which the war renders unavoidable, it would be absolutely impossible to pay the bills of exchange" on the Treasury in France, so he suspended all and any payment of such bills of exchange during the war (p. 929). When peace was declared in 1763, and Canada was ceded to England, there were 49 million livres in bills of exchange circulating in Canada (p. 1005). Adam Shortt, editor of two volumes of Documents Relating to Canadian Currency, Exchange and Finance during the French Period, comments as follows on the effect of suspension of payments in France: There would have been no serious congestion of so-called money in Canada, had the French government met its financial obligations. The greater part of the reputed money consisted simply of unpaid, and it was increasingly feared unpayable bills of exchange drawn on the French treasury for expenditures in Canada. Fears as to the possible failure to redeem the paper issues being confirmed, their values rapidly declined (p. 911). Prices were certain to rise by leaps and bounds with the amount of paper money in circulation increasing as much as 100 per cent from one year to the next (p. 909). A contemporary writer claims "that the mass of paper circulating in [Canada] had become in 1760 fifteen times as large as it was in 1750" (p. 1023). As early as 1755 there was complaint of the "excessive prices to which every thing has risen in Canada for some time" (p. 829). In that year a colonial official wrote to the Intendant as follows: . .. it makes little difference whether this money be in metal or in cards.. .. It is by no means the card which enhances the price of commodities, but the delay in the payment of the bills of exchange on France. The volume of paper distributed throughout the colony is also a cause of its enhancement, but it is not because it is paper. It is because it makes a surplus of money in trade; if all the paper and cards were converted into specie an equal quantity of specie would give rise to the same enhancement [of prices] (pp. 845,847). This writer was correct. The increase in the money supply was the chief cause of the rapid rise in prices. Another less important cause was the scarcity of goods that resulted with the diversion of man power and economic resources from industrial

PART I: PRE-CONFEDERATION PERIOD - 23

to military pursuits (p. 889). By 1759, prices in general had risen in Canada from five to ten times their 1751 figures (pp. 905, 1025). In that year three livres of paper money were paid for two livres "in hard cash, and some colonists [were] beginning to offer double" (p. 891). After the Treaty of Peace in 1763, when Canada became English territory, the English merchants trading there acquired most of the paper money at a ratio of six or seven of paper to one of coin (pp. 995, 1057). Attached to the Treaty of Peace was a declaration by the French authorities that the cards, "orders," and bills of exchange in Canada "shall be punctually paid, agreeably to a liquidation made in a convenient time" by France (p. 973). However, after long and occasionally heated discussions between the authorities in England and France, most of the bills of exchange were redeemed in coin at one-half of their face value, although some of them were met in full; the cards and "orders" were redeemed at only a quarter of their face value, with an additional indemnification of 3,000,000 livres for British subjects holding cards or "orders" (pp. 1051, 1057). With the passing of French rule in Canada, card money became a thing of the past. After 1763 metal coins served as the chief money in Canada, a case of a dearer money taking the place of a less costly one. Playing cards had circulated as money in Canada in 1685, 1686, and from 1690 to 1720. Blank card money had been in circulation from 1730 to 1763. Card money, therefore, circulated in Canada for a total period of sixty-five years, with a remarkable degree of success in peace time, considering the ocean transportation facilities of that period. During those sixty-five years, the system of card money broke down only twice - both times during a period of warfare, when the French Treasury was too hard up to pay the bills of exchange promptly in cash. A similar system of card money redeemable in bills of exchange on the French Treasury was in operation for many years in the colony of Louisiana. There too the "war of 1744 multiplied expenses" so that the "quantity of paper spread in the place exceeded the sums destined by the government for the colony"; the bills of exchange were not redeemed and prices rose rapidly.7 It was simply another instance of war and poor financial conditions in the mother country leading to inflation in a colony. ' Historical Memoirs of Louisiana, edited by B. F. French, 1853, pp. 27-8, 134-5.

Currency Regulations, 1796 An Act for better regulating the Weight and Rates at which certain Coins shall pass Current in this Province, for preventing the falsifying, counterfeiting or impairing the same, and for repealing the Act or Ordinance therein mentioned. [7th May, 1796] Whereas it will tend to prevent the diminution of the Specie circulating in this Province, that the same be regulated according to a Standard that shall not present an Advantage by carrying it to the neighbouring Countries, and whereas by the Ordinance now in force for regulating the Currency of this Province, an Advantage does arise by carrying Gold Coin out of the same, be it therefore enacted by the King's most excellent Majesty, by and with the advice and consent of the Legislative Council and Assembly of the Province of Lower-Canada, constituted and assembled by virtue of and under the authority of an Act passed in the Parliament of Great Britain, intituled, "An Act to repeal certain parts of an Act passed in the fourteenth year of His Majesty's Reign," intituled "An Act for making more effectual Provision for the Government of the Province of Quebec in North America, and to make further Provision for the Government of the said Province," that the Gold and Silver Coins hereafter mentioned, shall pass current and be deemed a legal tender in payment of all Debts and Demands whatsoever in this Province, at the weights and rates following, that is to say, of Gold Coins; the British Guinea weighing five penny weight and six grains Troy, at one pound three Shillings and four pence; the Johannes of Portugal, weighing eighteen penny weight Troy, at four pounds; the Moidore of Portugal weighing six penny weight and eighteen grains Troy, at one pound ten shillings; the milled doubloon of four pistole piece of Spain, weighing seventeen penny weight Troy, at three pounds and fourteen shillings; the French Louis d'Or coined before the year one thousand seven hundred and ninety three, weighing five penny weight and four grains Troy at one pound two Source: The Provincial Statutes of Lower Canada, 1 Geo. Ill cap V, May 7th, 1796. Title supplied by editor.

ART I: PRE-CONFEDERAT1ON PERIOD - 25

shillings and six pence; the French Pistole piece, coined before the same period, weighing four penny weight and four grains, at eighteen shillings; the American Eagle piece, weighing eleven penny weight and six grains Troy, at two pounds and ten shillings. And of Silver Coins, the British Crown at five shillings and six pence; the British shilling at one shilling and one-penny; the Spanish milled dollar at five shillings equal to four shillings and six pence sterling money of Great Britain; the Spanish Pistereen at one shilling; the French Crown coined before the year one thousand seven hundred and ninety three, at five shillings and six pence; the French piece of four Livres and ten Sols tournois at four shillings and two pence; the French piece of thirty six Sols Tournois, at one shilling and eight pence; the French piece of twenty four Sols Tournois, at one shilling and one penny; the American Dollar at five shillings; and all the higher and lower denominations of the said Gold and Silver Coins, shall also pass current and be deemed a legal tender in payment of all debts and demands whatsoever in this Province, in the same proportions respectively. II. And be it further enacted by the authority aforesaid, that for every grain which any piece of the aforesaid Gold Coins shall respectively weigh; more than the standard aforesaid, there shall be allowed and added in all payments made in pieces of Gold coin by detail, two-pence and one farthing currency; and for every grain which any piece of the same shall respectively weigh less than the standard aforesaid, there shall be deducted in all such payments, two-pence and one farthing currency. III. And be it further enacted by the authority aforesaid, that if any person whatsoever shall, after the passing of this Act, utter or tender in payment to any person or persons, any false or counterfeit money, counterfeit to any of the Gold or Silver coin of Great Britain, Portugal, the United States of America, Spain or France, as herein before specified, or to any of the higher or lower denominations thereof, knowing the same to be false or counterfeit and shall be thereof convicted, such person so offending, shall suffer one year's imprisonment, and shall also be set in and upon the Pillory for the space of one hour, in some market place, and if the same person shall afterwards offend a second time, in uttering or tendering in payment any such false or counterfeit money as aforesaid, knowing the same to be so, and shall be convicted of such second offence, he or she shall be and in hereby adjudged to be guilty of Felony, without benefit of Clergy. IV. And be it further enacted by the authority aforesaid,

26 - MONEY AND BANKING IN CANADA

that any person or persons, who shall after the passing of this Act, import or bring, or cause to be imported or brought into this Province, any false or counterfeit brass or copper money, in order to sell or pass away the same, knowing the same to be false and counterfeit, every such person shall for every such offence, besides forfeiting such false and counterfeit money, suffer imprisonment at the discretion of the Court of King's Bench of the District wherein such person shall be tried and convicted. Provided always, that such Imprisonment shall not exceed twelve Calendar Months. And provided also, that the prosecution for such offence shall be commenced in six Months after the fact committed, and not afterwards. V. And be it further enacted by the authority aforesaid, that all such false or counterfeit brass or copper Money may be seized by any person having a Warrant from a Justice of the Peace for that purpose, and shall be broken or defaced in open Court after being found to be false or counterfeit, or in preference of a Justice of the Peace; and one moiety thereof shall then belong to His Majesty, his heirs and successors, to be applied to the public uses of this Province, and the support of the civil Government thereof, the due application of which, shall be accounted for to His Majesty, his heirs and successors, through the Commissioners of His Majesty's Treasury for the time being, in such manner and form as His Majesty shall direct; and the other moiety thereof shall belong to the person who shall have seized and prosecuted for the same. VI. And be it further enacted by the authority aforesaid, that no person shall be obliged to receive at any one payment more than the sum of one shilling currency of this Province in copper money. VII. And whereas it would be a great facility in making payments if Gold coin was weighed in bulk, and not in single pieces, as heretofore has been customary, be it therefore enacted by the authority aforesaid, that in every payment exceeding the sum of fifty pounds currency, which shall be made in Gold coin, after the first day of June, which will be in the year of our Lord one thousand seven hundred and ninety seven, where one of the parties making or receiving the same shall require it, such Gold shall be weight in bulk, and not in single pieces, that is to say; the Gold coin of Great Britain, Portugal and America together, and that of Spain and France together, from the weight of which a deduction shall be made of two thirds of a grain Troy for each piece of Gold coin so weighed, as a compensation for the loss that may accrue by paying away the

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same in detail. And in all payments so made, the Gold coin of Great Britain, Portugal and America, shall be computed at the rate of eighty-nine shillings currency for each ounce Troy, and that of Spain and France at the rate of eighty-seven shillings currency for each ounce Troy therein contained, after such deduction made, and so in proportion for a greater or lesser quantity. VIII. And be it further enacted by the authority aforesaid, that any person or persons to whom any Gold, Silver or Copper money shall be tendered in payment, any piece whereof shall by the stamp, impression, colour or weight thereof afford reason to suspect that the same or any piece thereof is false and counterfeit such person or persons to whom the same is presented, may cut, break or deface every such piece, and if any piece so cut, broken or defaced, shall be found to be false and counterfeit, the person tendering the same, shall bear the loss thereof; but if the same shall be found to be good and lawful money, the person that cut, broke or defaced the same, shall receive the same at the rate it was coined for, and if any question shall arise, whether any piece so cut, broke or defaced be false or counterfeit, it shall be determined by a Justice of the peace, who, if he shall have any doubts touching the same, may summon three indifferent persons to give their opinion thereon, whose opinions, or the majority thereof shall be final. IX. And be it further enacted by the authority aforesaid, that if any false or counterfeit Gold or Silver coin shall be produced in any Court of Justice in this Province, the Judges shall cause the same to be cut in pieces in open Court, or in the presence of a Justice of the Peace, and then to be delivered to or for the person or persons to whom it belongs. X. And be it further enacted by the authority aforesaid, that from and after the passing of this Act, the Act or Ordinance made in the seventeenth year of His Majesty's Reign, intituled "An ordinance for regulating the Currency of the Province," be, and the same is hereby repealed.

The Canadian Banking Company JAMES STEVENSON

Although the city of Quebec possessed all the honours and advantages to which it was entitled as the capital of Canada, Montreal became, commercially, the most prosperous of the two Cities. Situated at the head of navigation, and at the foot of all the channels of communication with the upper country, the lion's share of the growing trade with the West fell to the merchants of Montreal. As their commerce increased, greater financial facilities, than existing arrangements afforded, were called for: in short, they wanted a Bank to enable them to carry on the operations of trade conveniently and successfully. It is not therefore surprising to find that merchants in Montreal took the initiative in proposing to establish the business of Banking in the Colony. On the 18th of October, 1792, a circular on the subject appeared in the columns of the Official Gazette. As it refers to the currency of the country, I take leave to quote from it. No other document that I have come across in the annals of the times, conveys a more correct account of the state of the circulation. The undersigned, having experienced great inconvenience in Canada from the deficiency of specie or some other medium to represent the increasing circulation of the Country, as well as from the variety of the money now current, and knowing the frequent loss and general difficulty attending receipts and payments, have formed the resolution of establishing a Bank at Montreal, under the name of the "Canada Banking Company." The business proposed by the Company, and usually done by similar establishments, is: To receive deposits in cash. To issue notes in exchange for such deposits. To discount Bills and notes of hand. To facilitate business by keeping Cash accounts with those who choose to employ the medium of the Bank in their receipts and payments. Source: Excerpt from James Stevenson, "The Currency of Canada After the Capitulation," Transactions of the Literary and Historical Society of Quebec, Sessions of 1876-7, pp. 105-134. Title supplied by editor.

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It is proposed to extend the operations of the Bank to every part of the two Provinces where an agent may be judged necessary; and it is presumed that the Institution will be particularly beneficial to the commerce of and intercourse with the Upper Province. The circular was signed by: Phyn, Ellice & Inglis; Todd, McGill & Co.; and Forsyth, Richardson & Co. The population of all Canada numbered then about 200,000 souls; and doubtless, not only Merchants engaged in extensive trade, but the people generally were suffering inconvenience from an insufficiency of currency to carry on the daily transactions of common life. If the firms referred to had succeeded in realizing their intentions, much benefit would unquestionably have accrued to the Province from a monetary institution, under the control of men of such a high standard of personal honour; but they succeeded in forming a private Bank only - chiefly of Deposit, not of Issue. The unsettled state of Europe, political apprehensions, combined with the actual obstructions of war, no doubt prevented the establishment of a regular Bank of Issue and Deposit. The scheme in its integrity appears to have been abandoned, and the field for circulation was left open to future enterprise, fortunately perhaps - for at a critical period in our history, later on, Government found themselves in a position to supply a trustworthy substitute for a metallic Currency, by the aid of which, our forces were kept in the field, and our gun-boats on the Lakes, to repel invasion, and save the colony a second time from the fangs of the neighbouring Republic.

In Support of Establishing a Bank in 1808 JOHN RICHARDSON

MR. SPEAKER: As the approaching prorogation leaves no prospect of being able to get through the Bank Bill, this session, I have no wish to take up time unnecessarily, by going into a committee of the whole house upon it, as amended by the special committee, to whom it was referred. Before, however, moving to discharge the order of the day, for the purpose of following it up with a motion to print the Bill, that it may be maturely considered, with a view to the resumption of the measure, at the meeting of next Provincial Parliament, I shall endeavour to explain the general principles of Banking, with the application thereof to this country and give the outlines of the system, contemplated to be introduced here by the Bill before the house. The detail of the clauses thereof will be best understood by a perusal of them when printed. In the early stages of society, money as such is unknown and indeed considered useless as the wants of mankind, being very limited, are supplied by the exchange of one article of necessity for another. This continues through the hunting and pastoral state, and even in the agricultural, until it arrives at such a stage of progression and improvement as to induce the conversion of raw produce into some kind of manufacture. From manufacturers supported by agriculture spring division of employments and subdivision of labour, with commerce in all its gradations and varieties, internal and foreign. Barter is a natural, money only an acquired or factitious, appendage to industry. In proportion as the produce of the labour of mankind exceeds the limits of immediate wants or enjoyments, the surplus becomes a kind of burthen instead of an advantage; and from the bulky and in many cases perishable nature of that surplus the conveniency of substituting something more portable and less perishable in its nature, to serve as a common standard or measure of value, whereby to represent commodities and to Source: "Speech of Mr. Richardson, in the House of Assembly, on the 12th of April, 1808, previous to moving for printing the Bill for establishing a Bank in Lower Canada," The Quebec Mercury, May 2, 1808. Title supplied by editor.

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compare one with another, becomes manifest. Hence the origin of money. The question then naturally arises what that substitute or standard so to be established by a kind of common consent should be. In establishing it various considerations would immediately suggest themselves - viz., utility, durability, rarity and portability. Could the first-mentioned property have alone sufficed, there can be no doubt that iron would have been adopted as the universal standard of value; for in point of intrinsic worth, in so far as applicable to the domestic purposes of mankind, it stands unrivalled. But it wanted the other essential requisites of durability, rarity and portability — indeed the two latter properties may be considered as the same, the one necessarily resulting from the other; without these, it could only remove a part of the inconveniences attendant on barter. Hence gold and silver, being the most pure, durable, and most rare of metals, became the best adapted to the purpose of a general common measure of value, or medium of circulation. These metals when pure are alike in value to the like quantities of them respectively, whatsoever the countries may be where they are found, and they do not consume by length of time. In proportion as industry advanced and the fruits of it, through the means of manufactures and commerce, became more conspicuous in the increased intercourse of mankind, the advantages of a circulating medium would become more and more apparent; and consequently the idea of artificially multiplying that medium for useful purposes would naturally arise. Hence the origin of paper money, which is the offspring of increased and increasing industry, confidence and credit. For if by any contrivance the person having a commodity to sell or exchange for gold and silver (which by general consent was to be considered as the sign of wealth, or means of procuring hereafter what the wants or luxuries of mankind might require) could obtain a something to represent the precious metals in so far as to give a reasonable assurance of his procuring them when wanted, every purpose of their immediate possession was attained; and hence the origin of banks or associations created for the express purpose of increasing the circulating medium, by furnishing a substitute for gold and silver. Dr. Adam Smith, who upon the subject of political economy has written with an intelligence and profundity of observation beyond any other person, says that bank notes issued by people of undoubted credit, payable upon demand in gold and silver without any condition, and in fact readily so paid, become in every respect, as a circulating medium, equal to gold and silver,

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since gold and silver can at any time be had for them. But far otherwise would it be with paper money payable only after a certain number of years or upon a certain condition. He therefore decidedly expresses his opinion that if bank notes are restrained from being issued for less than a certain sum (but that sum he does not fiXj as it must depend upon various circumstances) and are made liable to immediate and unconditional payment when presented, the trade in them may with safety to the public be left in all other respects free. Here then is the grand standard or criterion of public safety in all issues of paper, to which even the capital invested in such undertakings is as a security to that public, in a certain degree, only secondary although important. Societies or co-partnerships for banking are divisible into two distinct heads - those where the whole of the individuals are responsible each for the whole, and those where each individual associated is bound only to the extent of his subscription or stock. The former are denominated private banks, the latter corporate banks. Of the latter description is the bank contemplated by the Bill now before the house, of which I shall have occasion to speak more particularly by and by. At first view it will strike the uninformed in such questions that private banks are safer for ttie public, and corporate banks are safer for the stockholders; but the fact is not so - security to the public and the individual partners are so closely interwoven that the one cannot materially suffer without affecting deeply the other. Corporate banks are safer assuredly for the stockholder than private banks, as the possible loss of each is limited to the amount of his stock; but the public derives a security from a corporation in this essential particular, that a positive stock is required to be deposited, and that stock prohibited from being applied to purposes or speculations foreign to the business of banking. Private banks are under no legal obligation to deposit stock or to restrain the application of it, if deposited, to the real business of a bank. Hence the public are at the mercy of their discretion in those essential respects. But I may be answered, all this may be theoretically true but practically fallacious - therefore shew us wherein safety to the public arises when the corporate bank issues paper to an extent beyond the value of its actual funds in specie. To this the answer is ready, but will be more easily comprehended after a short explanation of the business oi banks and wherein their profits arise. It will at once be admitted that if a bank keeps locked up in its coffers a sum in gold and

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silver, equal in amount to the notes it issues, there must arise thereto a certain loss of the whole expense of its establishment and contingencies, because the interest lost by the unemployed or unproductive gold and silver, equals the interest received upon the employed or productive notes. The profits of a bank therefore necessarily depend upon an issue of paper or notes exceeding in value that of the actual funds deposited for their redemption. The question then is reduced to this: What disproportion may safely be admitted between such paper and such gold and silver? This is a question to which no precise answer can be given, as the disproportion must fluctuate according to a great variety of circumstances; but this may safely be avowed, that the interest of the bank, from a principle of self-preservation, is most decidedly to issue Only as much paper or bank notes, and no more, as will assure them that no greater proportion thereof will come back upon them at one time for payment than their funds will be able to meet, else their credit and consequent confidence therein are gone for ever, as credit, like the sensitive plant, cannot be touched without shrinking. Time only can beget confidence in new undertakings, and I am not sanguine in the hope of immediate benefit to the stockholders from the contemplated bank - it may require some years to convince the bulk of the community in this province that they can safely take bank notes and until such conviction arises the business will be a losing one; but that should not deter the proprietors from perseverance even under a lengthy disappointment. It will from local circumstances require great caution in the directors at the outset and probably for some years, but in the end success must ensue unless the people of this province be composed of other materials than mankind are in other countries, which none can have the folly seriously to believe. The quantity of paper or bank notes which can circulate in any country must depend upon the quantity of exchangeable commodities therein, and will regulate itself by finding its own level. Circulation is like a sponge, which can imbibe only a certain quantity of water and, when full, any excess must immediately return to the reservoir from whence it was drawn. So it is with paper. The moment the circulation is full the excess will return upon the bank and be exchanged for specie; and the apprehension of this return will necessitate them rather to issue too little than too much paper. Indeed, the risk is that for some years they will not venture to circulate so much paper as would be convenient for the public or beneficial to themselves. After

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these preliminary observations it is time to point out wherein the possible profits of a bank consist, and how the public are secure under the operation of the issues in paper, indispensable to the production of such profits. In the Bill before the house the maximum of issues or debts in any shape that the bank can own is restricted to three times the amount of specie in its coffers; and I shall put the argument in the extreme, for the sake of more forcibly illustrating the safety of the public, even should the bank go to that extent. Let it always be held in mind that the bank never issues notes without value received therefor in some shape; and consequently that value is a security to the extent of the whole notes issued, and over and above that security the public have the whole stock of the bank. For example, I shall suppose £50,000 in gold and silver deposited in the bank when it commences its operation, and that it shall issue thrice that amount, or £150,000, in notes. How is that issue effected? Let A, B and C represent any number of individuals wishing to obtain bank notes. They go to the directors in succession as their business renders expedient, and each produces £ 50,000 in promissory notes payable at the utmost 90 days afterwards, with D, E and F etc. as endorsers to each note, of whose solvability as well as that of the drawers of the notes the directors are satisfied. The bank then receives such promissory notes, and pays to A, B and C the amount of them in bank notes, first deducting the 90 days' interest, which makes on the £150,000 about £2,250. On receipt of such bank notes, A, B and C go and pay the same away for wheat, flour, potash, cattle, and other articles, whereby the notes get into general circulation. What security then have the inhabitants with such notes in their pockets, that they will really receive the value they represent? That security consists in the first place of the promissory notes of A, B and C endorsed or guaranteed by D, E and F etc., to an amount equal to that of the bank notes in circulation; and further the £50,000 in specie deposited in the coffers of the bank, with the above said profit in the shape of interest, of about £2,250. In other words, unless the bank shall sustain a loss exceeding the whole amount of its stock and nett previous profits, no creditor of the bank can lose by it one shilling: and therefore it may safely be considered as certain that without some unforeseen general calamity that would destroy all property in whatsoever shape it may be (and consequently not affecting the friends of the bank more than those of others) the holders of bank notes could not suffer. The bank derives its security against bad debts

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from the essential principle of discounting paper due at periods so short that no material difference is likely to arise in the circumstances of its debtors before such paper becomes payable; and further, to every note discounted there is required an endorser of good credit. It will readily occur to every person of common understanding that the extreme case above assumed for the sake of argument, viz., the discounting of £ 150,000 in promissory notes all payable at 90 days thereafter, cannot happen in practice; for as the business of the bank will be done gradually, and by discounting notes for any number of days to run between 3 and 90, there will always be a succession or revolving wheel of receipts and payments, in such manner that no very heavy sum can fall due at one time. The utility of banks cannot perhaps be better illustrated than by a reference to Scotland (at the time of introducing the first bank there, and since), a country poor in comparison with England, of warlike habits, where the feudal tenures (since modified) prevailing in all their rigour, and its industry requiring a stimulus. In the year 1695 (being the year after the Bank of England was first established) which it will be recollected was many years before the Union, a charter or corporate bank was established at Edinburgh called the Bank of Scotland, with a capital of £1,200,000 Scots' money equal to £100,000 sterling, divided into shares of £1,000 Scots or £83-6-3 sterling each, which let it be observed is little more than two-fifths of the stock proposed for the Bank of Canada or, if government take an interest therein, about one-third of its stock. With this trifling resource they began and prosecuted their operations without an attempt at increasing their stock, until the year 1774 when upon application to parliament for an extension of their capital an Act was passed to authorize such extension to, in all, £ 200,000 sterling. In 1784 another Act extended it to £ 300,000 In 1792 another Act extended it to 600,000 In 1794 another Act extended it to 1,000,000 The Royal Bank of Scotland, another corporate bank, was first instituted at Edinburgh in 1729, when its capital was £111,000 sterling. In 1738 by Act P. was extended to £ 151,000 In 1783 by Act P. was extended to 300,000 In 1788 by Act P. was extended to 600,000 In 1793 by Act P. was extended to 1,000,000

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In 1746, another charter bank was instituted at Edinburgh, called the British Linen Company, for the purpose of facilitating the linen manufacture, with a capital of £ 100,000 sterling, which has since, I believe, been extended to about half a million but the precise amount of its present capital I cannot aver. These three charter banks have hi all, in the different towns of Scotland, above thirty branches or establishments where they carry on business. Exclusive of those charter banks, there exist, at this moment, in Glasgow, Aberdeen, Perth, Dundee, Leith, Paisley, Greenock, etc., about twenty private banks, all of which are flourishing and do business to a great extent. By reference to the above dates they will furnish matter of surprise that until the close of the American war the aggregate capital of those charter banks did not exceed half a million sterling, whereas they now are five times that amount, exclusive of all the capital of private banks. The languid state of improvements in Scotland up to that time must have been extreme, which is accounted for partly by the occurrence of two rebellions in that period and the consequent insecurity of property, with other causes operating to repress that patient and persevering spirit oi industry which the natives of that country are allowed to possess. It is also a most remarkable circumstance and well deserves consideration, that an event which short-sighted politicians had considered as the setting of the sun of Great Britain's glory - I mean the independence of America - should have proved the very reverse, for from that moment the nation began to look to the improvement of its great internal resources, and hence the rising of a new sun, which I trust has many ages yet to run before arriving at meridian splendour. The rapidity of improvement in Great Britain, and especially in Scotland, since the independence of America is unexampled; and so far from a declension of strength and resources being thereby occasioned the United Kingdom has now become the Atlas upon whose shoulders the whole of the world, yet independent, is supported. This immense .power results from a security to property, superiority in industry, and honourable dealing, with consequent wealth over other nations; and that industry has been most materially stimulated and aided by the application of a paper circulation truly representing gold and silver, of which the surest proof is that in exchanges therefor it has not depreciated. The Bank of England is the only charter bank in that Kingdom, and its capital is immense - perhaps ten million sterling - but, being increased at various times and by complicated operations, I do not vouch for the perfect accuracy of

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that sum. Exclusive of that, there are numbers of private banks and bankers in England. It is a most striking confirmation of the strength and solidity of public confidence and credit in England that at this moment, although the Bank by a temporary law is exempted from the payment of its notes in specie, yet they continue equal in value with gold and silver. It is also a fact well-known that in Scotland bank notes are preferred by the people to gold and silver, as being more portable and not subjecting them to loss by deficiency from the standard weight. In England the business of banking is, I believe, chiefly confined to the discount of promissory notes and bills of exchange, and to the issue of bank notes; but in Scotland the banks, exclusive of those operations, are accustomed to grant bank credits or to lend money to a limited extent upon personal security with guarantees. Thus if A wishes to obtain a bank credit for £, 1,000 he gets C and D to be his guarantees. He then draws out at pleasure such sum or sums as he sees fit, replacing or repaying the same in any sum or sums, but taking care that he never owes at any one time a balance upon such amount beyond the £1,000. On the sums drawn out, A pays interest from the day of receipt at five per cent per annum, and on repayments is allowed four per cent per annum. At the end of the year the amount is settled and the balance is then invariably required to be paid up, and a new undertaking entered into if meant to be resumed. The Scots banks borrow money (the Bank of England does not) and allow three per cent therefor, if repayable on demand, and four per cent if assured to remain with them for six months or more. There is no instance that I recollect of any bank in Scotland failing but the Bank of Ayr; and that from the absurd principle upon which it was established. Instead of lending money upon personal security payable at short periods, it lent its funds upon land redeemable at long periods; and the consequence was that it became utterly impossible for them to pay their notes on demand, as the lands pledged to them could not be converted into money in time to meet their engagements. In other words, it borrowed at short dates, and lent at long ones. Its credit once shaken by impunctuality, a run was made upon the Bank by all its creditors or persons holding its notes; and although its proprietors taken in the aggregate were possessed of immense property, yet the Bank became bankrupt and involved thousands of its stockholders, as well as of its debtors, in ruin.

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During this convulsion all the other banks, founded upon rational principles, were going prosperously on and increasing in wealth. It is, however, a fact worthy of remark that the country at large benefited by the Ayr Bank, although its proprietors and numbers of its debtors met their ruin, because the money lent by them on land, being expended on improvements thereon, the land became in increased value although transferred to other hands, and the face of the country was greatly improved. Thus a kind of paradox seems deducible, that banks, even when unsuccessful, do good — that is to say, the portion of public benefit generally over-balances the individual misfortune. To this there must no doubt, as to all general rules, be exceptions; but to argue against any human institution because of its being incapable of producing good, free from possible evil, is unfair. Among the objections I have heard to a bank in Canada, none seems deserving of much notice excepting the following: that the people are illiterate and therefore will be liable to imposition, that it will encourage a gambling spirit of speculation founded upon false capitals, and that it will occasion the little specie we have to disappear. As to the first objection - namely, the people being illiterate - it has some force but is capable of being surmounted by devices upon the bank notes which shall point out to them on view thereof the relative value, and forgeries may be guarded against, or at least rendered difficult, by additional precautions in the paper whereon and the plates wherewith the impressions are made. Also, on this head there is this further security which our neighbours do not possess, that persons convicted of forging or of knowingly uttering forged notes will suffer death. But seriously to urge this as an insurmountable objection is as absurd as it would be to reject all food because some of it may contain a latent poison. Besides, gold and silver coin may be counterfeited but it would be very strange from thence to argue that the use of coin ought to be abandoned. Secondly. As to speculating or gambling upon false capital, it may do so in a certain degree but not to such extent as to counter balance the other benefits fairly deducible from the introduction of a bank. And it is to be recollected that all credit, whether given by a bank or individuals, is a species of false capital and may be misapplied, but still credit is as essential to commerce as air is to existence - indeed debts due to individuals, from the length of credit usually given, are liable to a greater facility of misapplication than those due to a bank

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because the latter require strict punctuality in the performance of engagements and it is one of the advantages attendant on banking that the operation of that punctuality gradually extends itself to all other dealings. At all events it is false reasoning to argue against the use of any thing because of its possible abuse. The third objection, in respect to occasioning specie to disappear, has foundation only in appearance, not in fact. As long as the intercourse with our neighbours in the States leaves a oalance of trade against us, a consequent drain of our specie cannot be avoided. And this drain is only to be repaired by importations of specie by government or individuals. Whensoever bills of exchange arrive at that point of depression as to be greatly disproportionate to the rate of exchange in the States, the vendors of bills here will send them to the States and bring back specie; but this they never will do but from necessity, on account of the risk of conveyance, which in case of loss would fall heavily upon such individuals. Whereas a bank, from its funds being the property of a great variety of individuals, would feel a greater confidence in risking the conveyance of money, as in case of loss it would fall light upon each proprietor, and also from being under the necessity of having at all times specie in its vaults, would take early precautions to assure supply and probably make such arrangements in point of reciprocal intercourse with some bank in the States, as by an interchange of paper, to avoid at least a part of that constant efflux of specie hitherto experienced. Upon the whole I conceive that I run no risk in maintaining this position: that such benefits have resulted from the establishment of banks in the mother country, by stimulating and promoting industry and improvement, as to make it a duty incumbent upon the legislature of this province to give a bank in Canada a fair trial. The leading features of the Bill before the house which has this salutary object in contemplation are these: The stock is not to exceed £250,000 currency unless the government of the province see fit to take an interest therein, in which case it may be £ 50,000 more. This stock is to consist of shares of £25 each. There are to be 24 directors who are to choose out of their number a president and vice-president, whereof half are to be for Quebec and half for Montreal, at which cities the two superior branches of the bank are to be held, with a power of erecting offices of deposit and discount in other parts of the Canadas when found advisable. If government take an interest, they are to appoint two directors. The

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dividends are to be payable half-yearly. A deposit of ten per cent is to be paid down for each share on subscribing, which will be forfeited if the first instalment thereafter of ten per cent be not paid in due season. The shares are put at a low rate that they may be more generally diffused over the province. Foreigners may hold shares, but cannot be directors. They may however vote at general meetings by proxy if the proxy be one of His Majesty's subjects. The votes are endeavoured to be established upon such a scale of proportion as shall exclude an overbearing preponderance in those who shall hold a large interest in the concern, and yet assure to property therein, that influence which it ought to possess in every well-regulated institution. It is proposed that there shall be no other corporate bank in Canada during the continuance of the contemplated one, but there is a power of revocation thereof, under certain limitations and formalities, if found to be hurtful in practice. The stock of the bank may be increased when requisite, and its notes are proposed to be receivable in payment of duties imposed or to be imposed by the Provincial Legislature. For subordinate points I must again refer to the Bill in detail, and close my remarks by now moving that the order of the day for going into a committee of the whole house upon the Bill be discharged, and I further move that 400 copies of the Bill, as amended by the special committee, be printed for the use of the members of the Legislature.

Army Bills A Message from His Excellency the Governor in Chief, signed by his Excellency, was presented by the Honorable Mr. Mure, to Mr. Speaker, which Message was read, all the Members being uncovered, and the same is as followeth, videlicet: (Private and Confidential.) (Signed) GEORGE PREVOST. The expence of the Militia, and of the ordinary Military Establishments of the Province, having greatly increased, and daily increasing in consequence of the unexpected Declaration of War on the part of the United States of America, the necessity of providing for the additional expenditure to be incurred on account of the Regular Forces lately arrived, and shortly to be expected, and the impossibility of procuring money for Government Bills to the extent required, having induced the Governor in Chief to apprehend the want of an adequate supply of specie, to answer the exigencies of the public service, he called upon His Majesty's Executive Council for their opinion and advice as to the most effectual mode of resource, from which a deficiency in the circulating medium, necessary for the purposes of Government could be supplied. The Governor in Chief having received from that Board a report upon the subject, in which they recommended that Army Bills should be issued as a circulating medium, to supply the present deficiency of Cash, under certain terms and conditions, and having concurred with them in opinion, has ordered Army Bills to the extent of two hundred and fifty thousand pounds currency, to be prepared and issued, upon the terms and conditions contained in the said Report, an extract from which report, he has directed to be laid before the House of Assembly. As the Provincial Parliament can most materially facilitate the circulation of these Bills, by providing funds for the regular payment of the Interest to arise upon them, the Governor in Chief does not hesitate to call upon the House of Assembly for Source: "Journals of the House of Assembly of Lower Canada." From the 16th July, to the 1st August, 1812, both days inclusive. Title supplied by editor.

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that aid, which may be deemed expedient for the accomplishment of an object, rendered more peculiarly important by the present extraordinary crisis of public affairs: He therefore, most strongly recommends to them, the immediate adoption of such measures, as shall inspire confidence in the persons taking these Bills, as shall guard both the Public and Individuals, against the possibility of any loss to arise from them, and shall serve to remove the prejudices which may have prevailed from the failure of any former plans of a similar nature. The good faith and the resources of the British Government which constitute the foundation of these Bills, will prove the surest guarantee for the full discharge of them in Cash at a future period, whilst the present holders of them, will at all times be entitled to receive Government Bills of Exchange for them, at the current rate of Exchange. With the assurance of this pledge, and the conviction that the House of Assembly must feel of the difficulty, not to say impossibility of supporting the new contest in which we are now engaged, without the substitution of some circulating medium, in lieu of specie, no longer to be obtained, the Governor in Chief is satisfied that they will not withold any aid iri their power, which can give efficacy to the measures he has adopted for supplying the present wants, and the growing necessities of His Majesty's service in this Province; and he will look to the readiness, as well as chearfulness with which they shall be disposed to second his wishes, on this occasion, as the most certain proof of their loyalty, their zeal for the public good, and of their desire to promote the important interests committed to their and his charge. (Signed) G.P. Castle of St. Lewis, 17th July, 1812. The Extract referred to in the said Message, is as followeth, viziExtract of a Report from the Executive Council, to His Excellency the Governor in Chief, dated 6th July, 1812. It is therefore declared to be the unanimous opinion of the Board, that for the purpose of maintaining the means of circulation, and answering the exigencies of the pub lie service at this important conjuncture, it is adviseable: 1st. That His Excellency the Governor, as the Commander of His Majesty's Forces, from time to time should

PART i: PRE-CONFEDERATION PERIOD - 43 prepare and make, or cause to be prepared and made, any number of Bills, to be denominated "Army Bills" containing one common sum, or different sums in the principal monies, so that all the principal sums to be contained ia the said Army Bills, so to be made, do not exceed two hundred and fifty thousand pounds Currency, 2d. That such Army Bills shall be issued from an Office, to be established for that purpose, to be called the Army Bill Office. 3d. That the said Army Bills of Twenty-five Dollars each and upwards, should bear Interest at the rate of Four-pence per centum, per diem, upon or in respect of the several amounts of each, 4th. That the principal sums of the said Army Bills of Twenty-five Dollars each and upwards, should, at the option of the Commander of the Forces, be payable on demand to the holders of such Army Bills in Cash, or in Government Bills of Exchange, in London, at Thirty Days Sight, at the current rate of Exchange. 5th. That the Interest of all such Army Bills, of Twentyfive Dollars each and upwards, upon the payment thereof in Cash, or in Bills of Exchange as aforesaid, should be paid in Army Bills, or in Cash, at the Army Bill Office, at the option of the holders of such Army Bills. 6th. That the principal sums of all such Army Bills of Twenty-five Dollars each, and upwards, if paid Cash, should be paid at the Army Bill Office, but if paid in Government Bills of Exchange, should be paid at the Office of the Commissary General, upon a deposit in Army Bills of the amount of the Bills of Exchange to be so paid, and a certificate of such deposit under the hand of the Superintendant of the Army Bill Office, to the Commissary General. 7th. That it will be adviseable for His Excellency the Governor, as Commander of the Forces, from time to time, to prepare and make, or cause to be prepared and made, such number of Army Bills of the value of Four Dollars each, as he shall see fit. Provided the said Army Bills of Four Dollars each, and the said Army Bills of Twenty-five Dollars each and upwards, do not together exceed the aforesaid sum of Two hundred and fifty thousand pounds Currency. 8th. That the said Army Bills of Four Dollars each, should be payable at the Army Bill Office in Cash, to the Bearer, on demand. 9th. That all Army Bills whatever, should be issued as

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Cash, upon the warrants of His Excellency the Commander of the Forces, to such person or persons, as he, by such warrants, shall see fit to direct such payments to be made. 10th. That the current rate of Exchange should be established on Oath, once in every fortnight, by five persons to be named by His Excellency, and publicly notified, before any Army Bills whatever shall be issued. 11th. That if any Army Bills shall be filled up by indorsements, or be by accident defaced, the same on application being delivered up, should be cancelled and new Army Bills should be issued, in lieu of such Army Bills so cancelled, and such new Army Bills should bear the same numbers, dates, and principal sums, and carry the like Interest as the Army Bills so cancelled. 12th. That no Army Bills should be re-issued, those of Four Dollars each excepted, and that all Army Bills whatever, should at all times be redeemable by being called in, and paid both principal and Interest in Cash.

Canada's First Chartered Bank It is scarcely surprising that by the year 1820 banking facilities were needed in the city of Saint John. Lumbering, which had begun with the cutting of masts for. the British navy about the time that the coming of the Loyalists in 1783 had given New Brunswick its first substantial influx of population, was spreading to every part of the Province. The trade in square timber, which had been enormously stimulated by the elimination of Baltic supplies during the Napoleonic wars and by the big preference which colonial timber had come to enjoy in the British market, was large and expanding rapidly. Sawmilling for export was soon to become important: in 1822 the first steam mill was built. The same year saw the shipment of the first cargo of "deals" - large softwood planks three or four inches thick. Another rising industry, already well-established, was the building of ships for transporting timber for sale in England. Moreover, the first wave of immigration was now gathering force. This inflow raised the population of New Brunswick, which had been estimated at 35,000 in 1817, to 74,000 in 1824, to 119,500 in 1834, and to 156,200 in 1840. "In June 1819 about 3,200 immigrants, mostly disbanded soldiers, landed in Saint John," says the historian of the city. "It was the beginning of a period of great commercial prosperity In October, 1820, there were about one hundred square-rigged vessels in Saint John Harbour." Much of the shipbuilding, the export trade and the financing of lumber operations concentrated in Saint John. From the wharfs of its merchants the timber ships set sail, and through their warehouses flowed most of the imports. And imports, in an economy where lumbering engaged the population to the detriment of agriculture, included most of the food supply of the colony as well as the other necessities of life and of industry. "The merchant community of Saint John . . . was anxious to import everything the province consumed as well as to export everything it produced. . . . Such a condition made the calling of 'store-keeper' a highly lucrative one; and the men who came Source: The Bank of Nova Scotia, Monthly Review, Toronto, May, 1956.

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to the fore in New Brunswick during this period, if they were not of the legal profession, were of this calling."1 Men like these were the sponsors of the institution ever afterwards familiarly known as "the Old Bank," but at this time the new Bank of New Brunswick. They were merchants and lawyers - and every merchant family seems to have produced a lawyer and every legal family a merchant — many of them members of the House of Assembly or of the highest legislative body, the Council. Their names made an impressive list at the head of the Act of Incorporation passed on March 25, 1820. The stock holders assembled on June 12, 1820, three months after the Charter had been granted, to elect the Board of Directors. They met in the familiar environs of the Exchange Coffee House, that centre of social, political and business gatherings whose "Subscription Room" was the club of Saint John's leading citizens. A description of the Hon. Samuel Denny Street, one of the incorporators of the Bank, though not elected a Director, helps to picture the meeting. Mr. Street, an eminent lawyer then aged about seventy, who had been elevated to the Council in the previous year, was "short in stature, thick set, wore a queue, knee breeches and gaiters, a blue cloth coat, full skirted flaps over the pockets and adorned with brass buttons; the waistcoat buff, necktie white and of large proportions ... a gentleman of the old school, among the last in dress and style in New Brunswick." Probably more modern in appearance and outlook, but equally confident of their present and future positions in the expanding New Brunswick community, were the thirteen Directors elected that day. The first President was the Hon. John Robinson, a Loyalist from Virginia then in his late fifties, who was Mayor of Saint John, a member of the Council and Provincial Treasurer, and still active in mercantile affairs. Prominent among the other newly-elected Directors was Ward Chipman, Jr., lawyer and graduate of Harvard, member of the House of Assembly and soon to become its Speaker. He, the clever "Little Chip" of his father's letters still preserved in the New Brunswick Museum, was to succeed Ward Chipman, Sr. on the latter's death in 1824 as a judge of the Supreme Court with a seat in the Council, and to become Chief Justice in 1834. Also elected Director and first Solicitor of the Bank was another future Chief Justice, Robert Parker, Jr., who was soon to become a member of the Assembly, and later Solicitor General and a Supreme Court Justice. 1

W. S. MacNutt in The Canadian Historical Review, March 1949.

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The merchants elected to the Board of Directors also had among them a member of the Council - the Hon. William Black. He was a native of Scotland, representative in Saint John of his family firm engaged in the mast, timber and importing trades, with branches in Halifax, Greenock and London. In 1828 he succeeded John Robinson as Mayor of Saint John and became President of Council a year later. Also associated with the Black firm was another Director, Lewis Bliss, second son of Chief Justice Jonathan Bliss. Other merchants elected to the Board included Hugh Johnston, owner of several deep-sea vessels trading out of the port of Saint John, part-owner of the first steamboat to ply the river between Saint John and Fredericton, and long-time Alderman of the City; Nehemiah Merritt, merchant and agent for a number of vessels, who became so wealthy that a reference to him as "The Rothschild of New Brunswick" in a parliamentary debate of the 1830's apparently occasioned no surprise; Thomas Millidge, prominent shipbuilder from whose yards at Millidgeville over one hundred square-rigged ships were launched before the end of the days of sail; Ezekiel Barlow, grocer and tea merchant of "Barlow's Corner," King Street and Market Square; Henry Gilbert who later became the Bank's second President, leaving it to assume the same office for the rival Commercial Bank of New Brunswick in 1834; and Zalmon Wheeler, a Director who became the Bank of New Brunswick's second Cashier. THE CHARTER

Sponsored and directed by men such as these, and as yet with no signs of rival banks appearing in the Province, the Bank of New Brunswick experienced no difficulty in getting its Act of Incorporation passed by the Provincial legislature and given Royal assent by the King's representative. This was far from the case for the charters of the early banks in the more complex political situation in Upper and Lower Canada. The Acts of Incorporation of the three earliest Lower Canada Banks were not passed until 1821 and did not become law until 1822. In that year Royal assent was proclaimed for one in July, when the "Montreal Bank" which had been carrying on a limited-liability banking business since 18172 under private articles of associa3

According to the centenary booklet of the Bank of Montreal: "There is little room for doubt that the Bank, operating under the Articles of 1817, was technically not fully legalized to do business, inasmuch as it had not received the sanction either of an Act of British Parliament or of a Royal Charter."

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tion became the "President, Directors and Company of the Bank of Montreal," and for the other two in November. In Upper Canada the first bank charter also suffered delay, but was proclaimed in April, 1821. Pride of place as the first bank in British North America to conduct its business under a legally constituted body of rights and obligations is thus undoubtedly held by the Bank of New Brunswick. What were the rights and obligations conferred by this first piece of banking legislation? It would be tedious to discuss in detail each provision of the Charter but some interest attaches to the similarities and differences between it and the .early banking charters of the other Provinces. Students of banking long ago pointed out that the origins of banking law and practice in Canada were to be found in the charters of the early banks in the United States, and particularly in those of the two "Alexander Hamilton banks," the Bank of New York and the first Bank of the United States, to which the first bank charters in Lower and Upper Canada are remarkably similar. There is, however, clear evidence that banking in New Brunswick developed independently, with strong American influences of its own, particularly from the New England states. Indeed, it could scarcely be otherwise in view of the Loyalist origins of many of the Saint John merchants and legal community, and the many remaining strong family ties with relatives in the States, particularly Massachusetts, which made for much coming and going between the two areas. At the same time commercial relations were close with Boston and New York3 and, in the then state of communications, practically non-existent with Montreal. Thus the charters of the Bank of New Brunswick and of Lower Canada banks exhibit differences, and in some respects the New Brunswick charter seemed to provide greater security for the public. For example, in it the debts of the Bank were limited to twice the paid-in capital (the common rule in Massachusetts) while those of the Lower Canada banks, even excluding deposits, could be three times capital — a less effective brake on excessive note issues, particularly if capitals were large; moreover, if an excess did occur, the New Brunswick charter rendered the Directors involved personally liable for the excess, without the escape clauses embodied in the Lower Canada charters. Requirements for paying capital were stricter: the capital of £50,000 had to be fully paid "in current Gold and a

The "Subscription Room" at the Coffee House was provided with New York and Boston daily newspapers, Ooyd's List, a tri-weekly London paper, a Halifax weekly and a Saint John weekly.

PART I: PRE-CONFEDERATION PERIOD - 49

Silver Coins of the Province" a year and a half after incorporation; the Lower Canada charters called only for the capital to be paid up, in instalments of 10 per cent, within nine years, with no requirement that it be in specie. (On the other hand, they did require payment of notes in specie, a matter on which the New Brunswick charter is silent though it contains the unusual provision that any counterfeited notes must be paid by the Bank.) One further contrast may be mentioned: the requirement that regular yearly statements of the Bank's affairs be sent to the government and that any joint committee of the Legislature might have "free access to all books and vaults" (also frequent in Massachusetts bank charters); Quebec and Montreal banks needed only to provide statements when required by the Governor or the Legislature to do so. On the whole, however, the similarities in the charters are greater than the differences, bearing witness to their common though independent origin below the border. Thus they have such similar provisions as: limitations on the number of votes by stockholders (in New Brunswick ten votes was the maximum, regardless of the number of shares held), a feature often found in United States' charters and designed to encourage participation in bank ownership by persons of small means; prohibitions against the payment of Directors, except the President and, in Lower Canada, the Vice President as well; the requirements that the Cashier must give substantial bond "as a condition of his good and faithful behaviour" and that clerks, too, be bonded; limitations on the investment of funds in real estate;4 a general definition of banking powers, i.e. "The company shall not directly or indirectly deal in anything excepting Bills of Exchange, Gold or Silver Bullion, or in the sale of Goods really and truly pledged for money lent and not redeemed in due time, or in the sale of Stock pledged for money lent and not so redeemed"; and the prohibition, a constant feature of Canadian banking law until recently, against lending money upon mortgages, land or real property except as additional security. These early banking charters are also similar not only in what they include but in what they omit - in their general simplicity and lack of the safeguards later embodied in banking law as new banks were chartered and old charters renewed and revised. But 4

The limit imposed on the Bank of New Brunswick was £3,000. Luckily when it elected to build its new banking house in 1824 it was able to buy a fine lot on Prince William Street for £550 and to obtain a contract for the building at £2,210.5.0. This building, almost destroyed in the great fire of 1877, was replaced by the present building which houses The Bank of Nova Scotia's main office in Saint John.

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this belongs to the future, for not until 1832 were new banks to be established in any of the provinces with the exception of the small Charlotte County Bank established in St. Andrews in 1825.5 ORGANIZING FOR BUSINESS

Following their election in June the Directors spent busy months of organization. Premises were rented: the fifth item in the "Bank Expences" account, reproduced here from the first ledger, reads "six months Rent of the Bank - £40," and the first item records £ 154.3.3V2. for building the vault. Staff was appointed: the Cashier, H. H. Carmichael, at a salary of £250 a year payable half-yearly; Simeon Lugrin, the clerk, at £ 100; and, for £75, Charles McCardel as a Porter and Messenger whose duties were to include cleaning the banking house, making the fires, moving the "trunks and boxes of money," and refraining from calling any Director from the Directors' Room "after the Discount sheet has been brought in and the Board is in session." At the same time rules and regulations were adopted by the Directors - rules which shed light on early banking practice and on the circumstances of the time. Clearly, though provision was made for loans on "notes payable to the Bank on such personal pledges as the Directors may deem expedient," it was anticipated that the Bank's funds, in the largely merchant economy of the time, would be almost entirely employed in the discounting of commercial paper. Thus "the day of discount shall be Thursday of each week, and the Directors shall assemble this day for the purpose of deciding on the applications." The bills and notes offered had to be delivered at the Bank before discount day, "with an account of the same setting forth the Promisor, Acceptor and Endorsers." Except by unanimous vote of the Board, none was to run more than ninety days,-be under the sum of £10 or over £2,000, nor bear fewer than "two satisfactory names" unless "property be deposited and pledged to an amount sufficient to secure the payment with all damages and expenses." As was natural in a situation where long transportation routes made exporting and importing a slow business, renewals of 5

The Directors' Minute Book records that the Bank of New Brunswick was requested by the Chamber of Commerce of St. Andrews to establish a branch there as early as 1823. Perhaps because its charter did not authorize branches, the Bank did not comply. On the other hand, the Upper and Lower Canadian banks early began to establish branches.

PART I: PRE-CONFEDERATION PERIOD - 51

discounts were clearly anticipated, but none was to be renewed "by a larger proportion of the amount than ninety percent, unless by an unanimous vote of the Board." The Directors were to vote by ballot on the discounts, three negative votes being sufficient to reject a note or bill. Voting was by black beans and white beans. According to evidence later produced in a public enquiry, a Director interested in a particular discount would sometimes "threaten his brother Directors with the Black Bean" on discounts in which they "were interested. The Bank would also undertake a collection business; "notes and accepted bills may be left at the Bank for collection, not however lower than Ten pounds." Interest-bearing deposits were not anticipated — they came later in banking history — but both chequeing accounts and a standard cheque form were provided for. "Every person or firm residing in the City of Saint John who shall open an account with the bank shall write his or their names in the book of signatures, in the same manner as they intended signing all drafts or orders they shall afterwards draw on the bank." Even more important in the work of preliminary organization than rules and regulations was the accumulation of capital, and there is a good deal of evidence that it was difficult to find sizable capital funds in the infant New Brunswick economy of 1820. Indeed, by the beginning of the next year it became necessary to petition the Legislature to reduce the required capital to £30,000, "the whole number of shares subscribed being only Three Hundred Eighty-two and... under existing circumstances there does not appear the smallest probability of the remainder, or any considerable part thereof, being called for." The required Act was passed. In better times, 1825, the capital was again raised to £50,000. However, by mid-November of 1820, as is shown by an entry in the Bank's Capital Stock ledger sheet, £15,000 had been obtained through full payment, at £ 50 per share, of 224 shares and half payment for 152 shares. The Bank told the public, in an advertisement in the City Gazette, that it was ready to do business as soon as its notes were received from England. Finally, to quote the Minutes of December 21, "the paper being in a vessel which had put into Shepody the President was authorized to employ a man and sleigh to go by land to Shepody to secure it, provided the expense did not exceed £7.10." On Boxing Day the President and Cashier began to sign 23,100 notes, in denominations of 5 shillings to £ 20, for which a part payment of one hundred Doubloons was promptly shipped to

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London.6 And on January 4, 1821, discounting began.- the first banking transactions of any sort in the Atlantic Provinces, and the first of any legally constituted public banking corporation in the whole of what is now Canada. In the years that followed, the Bank of New Brunswick played a major role in the economic development of the Province of its birth. At the same time, it contributed to the growth of financial institutions in the whole Maritime area, and not least to The Bank of Nova Scotia itself. In 1832, when The Bank of Nova Scotia began, its charter was modelled on that of the Bank of New Brunswick and its first Cashier travelled to Saint John in order, as the letter to the President of the older institution put it, to "attend at the Bank for a few days during the hours of business to witness the practical operations of the Establishment." As decade succeeded decade the Old Bank participated in the development of the distinctive Canadian system of banking. In fact, after Confederation, its then President, Mr. James Lewin, was one of the bankers who did much to shape the Bank Act of 1871 which laid the cornerstone of the present system. In the early 1900's it began to establish a fairly substantial system of branches, though still largely confined to the Maritime area. Indeed, up until the time it became part of The Bank of Nova Scotia it remained the very symbol of that now-vanished institution- the strong, sturdy bank whose interests were bound up with a particular area of Canada.

8

One 5 shilling note of this date, made out to "John Bull or bearer" as were all this Bank's early notes, is in the archives of The Bank of Nova Scotia.

Charter of the Bank of Montreal "At the Provincial Parliament begun and holden at Quebec, the Fourteenth day of December Anno Domini, one thousand eight hundred and twenty, in the first year of the Reign of Our Sovereign Lord, GEORGE the Fourth, by the Grace of GOD, of the United Kingdom of Great Britain and Ireland KING, Defender of the Faith, &c. Being the first Session of the Eleventh Provincial Parliament of Lower Canada."

CAP. xxv. An Act for incorporating certain persons therein-named, under the name of "President, Directors and Company of the Bank of Montreal" 17th March, 1821. Presented for His Majesty's Assent, and reserved "for the signification of His Majesty's pleasure thereon." 18th May, 1822. Assented to by His Majesty, in His Privy Council. 22d July, 1822. The Royal Assent signified by Proclamation of His excellency the Governor in Chief. Whereas the establishment of a Bank at the City of Montreal, by Legislative authority, would be conducive to the advancement of Agriculture and Commerce, and promote the prosperity of this Province; and whereas divers loyal subjects of His Majesty in this Province, by their humble petition in this behalf, have represented, that an association has been formed in which they have become Subscribers and Stockholders for the purpose of establishing a Bank at the said City of Montreal, under certain articles of agreement, by which the Capital Stock of the said association is limited to Two Hundred and Fifty Thousand Pounds, current money of this Province, divided into five thousand shares of fifty pounds each, and provisions made for the conduct and management of the said Bank; that the said Capital Stock has been subscribed, is in part paid, and is held by them; Source: Provincial Statute of Lower Canada, 1 Geo. IV, cap. 25, 1821. Title supplied by editor.

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and that the said Bank is now engaged in carrying on tne business for which it was instituted, and have prayed that for the better effecting of the purposes of their association, they, their successors and assigns, may be incorporated under regulations and provisions as nearly corresponding with the terms of their original association as may be; Be it therefore enacted by the King's Most Excellent Majesty, by and with the advice and consent of the Legislative Council and Assembly of the Province of Lower-Canada, constituted and assembled by virtue of and under the authority of an Act passed in the Parliament of GreatBritain, intituled, "An Act to repeal certain parts of an Act passed in the fourteenth year of His Majesty's Reign, intituled, An Act for making more effectual provision for the Government of the Province of Quebec in North America;" and to make further Provision for the Government of the "said Province;" And it is hereby enacted by the authority of the same, that [these persons here named] their several and respective heirs, executors, curators, administrators, successors, and assigns, shall be, and are hereby ordained, constituted and declared, to be a Corporation, Body Corporate and Politic, by the name of "The President, Directors and Company of the Bank of Montreal," and shall so continue and have succession till the first day of June, which will be in the year of our lord one thousand eight hundred and thirtyone, and shall and may by the said name be persons able and capable in Law to sue, be sued, implead, and be impleaded, answer and be answered, defend and be defended, in all Courts and places whatsoever; and shall also be able and capable in Law to purchase, acquire, hold and enjoy, and retain to them, and their successors, lands and tenements, real or immoveable estate, for the convenient conduct and management of the business of the said Bank, not exceeding the yearly value of one thousand pounds, current money of this province, and for no other purpose; and may sell, alienate, and dispose of such lands, tenements, real or immoveable estate, and purchase and acquire others in their stead, for the same purpose, not exceeding the yearly value aforesaid, and may have a common seal, and may change and alter the same at their pleasure; and may also ordain, establish and put in execution such bye-laws, ordinances and regulations, (the same not being contrary to the present Act or any Laws in force in this Province) as may appear to them necessary or expedient for the management of the said Bank; which bye-laws, ordinances and regulations shall be made by the Directors already appointed or who may hereafter be appointed, which bye-laws, ordinances and regulations shall be

PART I: PRE-CONFEDERATION PERIOD - 55

submitted to the Stockholders in the said Bank for their approval and confirmation, at a general meeting called for that purpose, to be held in the manner herein-after mentioned; and shall and may do and execute by the name aforesaid, all and singular other the matters and things touching the management of the business of the said Corporation, which to them shall or may appertain to do, subject nevertheless to the rules, regulations, limitations and provisions herein-after prescribed and established. II. And be it further enacted by the authority aforesaid, that the capital stock of the said Montreal Bank, hereby incorporated and established, shall not exceed the said sum of two hundred and fifty thousand pounds, current money aforesaid, divided into five thousand shares of fifty pounds each; which shares shall be, and the same are hereby vested in the said several persons herein-before named, their successors and assigns, according to the shares and interest which they may respectively have subscribed, purchased, or acquired, and may now have in the same; and that such part of the capital sum of two hundred and fifty thousand pounds, as may not yet have been paid in, shall be paid by the Stockholders respectively, by whom the same is due, by instalments not exceeding ten per centum on the capital stock of each Stock-holder, at such time and times and place as the Directors of the said Montreal Bank shall appoint, after notice of not less than thirty days in this behalf to be previously given, in one or more of the public Newspapers published at the said city of Montreal. Provided always, that the whole of the said capital stock shall be called in and paid by the said Stock-holders in manner aforesaid, within nine years from and after the passing of this Act; and all executors, curators and administrators, who shall pay up the Instalments due by the estate or succession which they respectively represent in obedience to any call made for that purpose in the manner aforesaid, shall be and they are hereby respectively indemnified. III. And be it further enacted by the authority aforesaid, that for the management of the affairs of the said Corporation, there shall be thirteen Directors who shall be annually elected by the Proprietors of the capital stock of the said Bank, at a general meeting of them to be annually held on the first Monday of June; at which annual meeting, the said Stock-holders shall vote according to the rule herein after established, as to the manner of voting at General Meetings; and the Directors so chosen by a majority, in conformity to such rule, shall be capable of serving as Directors for the then next ensuing twelve months;

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(unless removed for mal-administration before that period, by the Stock-holders, at a General Meeting to be held by them, or unless suspended as herein-after provided) and at their first Meeting after such election, shall choose out of their number a President, and Vice-President, who shall hold their offices respectively during the same period, for which the said Directors shall have been elected, as aforesaid; and it shall be lawful for the said Directors, from time to time, in case of death, resignation, absence from the Province, or removal of the persons so chosen to be President and Vice-President, or either of them, to choose in their of his stead, from among them the said Directors, another person or persons to be President and Vice-President respectively; and in case of the death, resignation, absence from .the Province for three months at a time, or the removal of a Director by the Stock-holders as aforesaid, his place, in case of such removal, shall be filled up by the said Stock-holders at any one of their General Meetings, and in the other cases last mentioned by the remaining Directors, or a majority of them; and the person so appointed, in the place and stead of such Director, shall serve till the next General Meeting for the election of Directors. IV. Provided, and it is hereby expressly enacted, that no Stock-holder who shall not be a natural born subject of His Majesty or a subject of His Majesty naturalized by the Act of the British Parliament, or a subject of His Majesty by the effect of the conquest and cession of this Province, or being a subject of any Foreign Prince or State, shall either in person or by proxy vote for the election of any Director to be elected in the manner herein before directed, nor shall vote at any Meeting of the said Stock-holders, for the purpose of ordaining, establishing or putting in execution, any by-laws, ordinances or regulations to be made under the authority of this Act, or shall assist in the calling of any meeting of such Stock-holders, or shall vote for any other purpose or purposes whatsoever, herein-before authorized, any thing herein before contained to the contrary notwithstanding. V. And be it further enacted by the authority aforesaid, that the persons who have been elected Directors, President and Vice-President of the said association, under the said articles of agreement, and shall be Directors, President and Vice-President respectively of the said association, at the time of passing this Act, shall be and continue Directors, President and VicePresident of the said Corporation, until the first Monday of June next, being the day herein before appointed for the annual

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Election of Directors of the said Corporation; Provided always, that any of the said Directors in the mean time may be removed by the said Stock-holders at a general meeting for mal-administration; and that in case of death, resignation, absence from the Province, or removal of any of the said Directors so appointed to continue in office as aforesaid, it shall be lawful for the said Stock-holders at a general meeting, to fill up the vacancy or vacancies, in case of removal, and in the other cases by the remaining Directors or a majority of them, and the said Director or Directors so appointed to be and continue in office, until the first Monday in June next, shall have the same power as to the appointment of a President and Vice-President, case of the death, resignation, absence from the Province or removal of the President or Vice-President before that period, that is hereinbefore given to the Directors to be chosen at the period fixed for the annual meeting as aforesaid. Provided always that the said Directors shall not, during the period of their services as Directors of the said Bank, act as private Bankers. VI. And be it further enacted by the authority aforesaid, that if, at any time, it shall happen that an Election of Directors shall not be made or take effect on the day when, in pursuance of this Act, it ought to be made and take effect, the said Corporation shall not be deemed or taken to be dissolved, but it shall be lawful, at any other time, to make such Election at a general meeting of the Stockholders, to be called in the manner herein-after prescribed. VII. And be it further enacted by the authority aforesaid, that the Directors for the time being, shall have power to appoint such Officers, Clerks and Servants under them as shall be necessary for conducting the business of the said Corporation, and to allow them such compensation for their services respectively, as shall be reasonable and proper, and the said Directors shall be capable of exercising such other powers and authority for the well governing and ordering of the affairs of the said Corporation, as shall be prescribed by the Bye-Laws, Ordinances and Regulations of the said Corporation. VIII. And be it further enacted by the authority aforesaid, that in all and every Suit or Suits at Law, which, at any time hereafter, may be instituted by or on the part and behalf of any person or persons against the said Bank, service of Process upon the President or Vice-President of the same, for the time being, or at the Office of the said Bank, shall, to all intents and purposes, be sufficient to compel the said Bank or Corporation to appear and to plead to such Suit or Suits at Law, any law, usage

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or custom to the contrary in any wise notwithstanding; and all and every Suit or Suits at Law, which, at any time, may be instituted by or on the behalf of the said Bank, against any person or persons, body or bodies politic or corporate, shall be instituted and prosecuted by the President and Directors of the said Bank for the time being, for and in the name of the said Bank. IX. And be it further enacted by the authority aforesaid, that the following Rules, restrictions, and provisions, shall form and be deemed and held to be fundamental Articles of the said Corporation, that is to say, First, The number of votes to which each Stock-holder or Stock-holders, Co-partnership, Body Politic, or Corporate, holding Stock in the said Corporation shall be entitled on every occasion, when in conformity, to the provisions of this Act, the votes of the Members of the said Corporation are to be given, shall be in the proportions following, that is to say, for one share, and not more than two, one vote; for every two shares above two and not exceeding ten, one vote, making five votes for ten shares; for every four shares above ten, and not exceeding thirty, one vote, making ten votes for thirty shares; for every six shares above thirty, and not exceeding sixty, one vote making fifteen votes for sixty shares; and for every eight shares above sixty, and not exceeding one hundred, one vote, making twenty votes for one hundred shares, but no one person or persons, Co-partnership, Body Politic or Corporate, being a Member or Members of the said Corporation, shall be entitled to a greater number than twenty votes; and all Stock-holders resident within the Province or elsewhere may vote by Proxy, if he, she or they shall see fit; Provided, that such Proxy be a Stock-holder and do produce an authority from his constituent or constituents for so representing and voting for him, her or them, according to the form A. annexed to this Act; and Provided also, that after the first Election of Directors, to be made after the passing of this Act, no share or shares of the Capital Stock of the said Corporation shall confer a right of voting either in person or by proxy which shall not have been held during three Calendar months at-the least, prior to the day of Election, or of the general meeting when the votes of the Stock-holders are to be given; and where two or more persons are the joint owners of any part of the said Stock, it shall be lawful that one person only be empowered by letter of attorney from the other owners or a majority of them, to represent the said Stock, and to vote accordingly. Second - No person other than a Stock-holder actually resident in the city of Montreal,

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and holding at least ten shares of the capital stock of the said Corporation, and being a natural born subject of His Majesty, or a subject of His Majesty naturalized, by Act of the British Parliament, or a subject of His Majesty, by the effect of the conquest and cession of this Province; or who shall have resided seven years in this Province - and in any of the above cases, who shall have resided three years in the city of Montreal, shall be capable of being elected or chosen a Director of the said Corporation, or shall serve as such. Third - Nine of the Directors in office at the period of each annual election, shall be reelected for the next succeeding twelve months; and the President and Vice-President shall always be two, of the number to be re-elected. Fourth - No Director shall be entitled to any salary or emolument, unless the same shall have been allowed to him by a General Meeting of the Stock-holders; but the Stockholders may make such compensation to the President or VicePresident, for their extraordinary attendance at the Bank, or other services, as shall appear to them to be reasonable and proper. Fifth - Not less than five Directors shall constitute a Board for the transaction of Business, of which number the President or Vice-President shall always be one, except in case of sickness, and necessary absence; in which case, their places may be supplied by any other Director whom the President or Vice-President shall respectively by writing under his hand, appoint for that purpose. The President and Vice-President shall shall vote at the Board as Directors; and in any case of there being an equal number of votes for and against any question before them, the President, and in his absence the Vice-President, shall have a casting vote. Sixth - Any number of Stock-holders, not less than fifty, who together, shall be Proprietors of two hundred and fifty shares of the capital stock of the said Corporation, shall have power at any time, by themselves or their proxies to call a General Meeting of the Stock-holders, for purposes relating to the said Corporation, giving at least six week's notice thereof, in at least one of the Newspapers published in the city of Montreal; and specifying in such Notice, the time and place of such Meetings with the object, or the objects thereof. And the Directors of the said Corporation, for the time being, or any seven of them, shall have the like power at any time (upon their observing the like formalities) to call a General Meeting, as above-said; and if the object of such Meeting to be called by the Stock-holders, or Directors, as aforesaid, shall be to consider of the proposed removal of the President or Vice-President, or a Director or Directors for mal-administration, then, and in such

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case, the person or persons whom it shall be so proposed to remove, shall, from the day which such Notice shall be first published, be suspended from the execution of the duties of his or their office; and if it be the President or Vice-President, whose removal shall be proposed as aforesaid, his place shall be filled up by the remaining Directors, who shall appoint a Director to serve as such President or Vice-President, during the time such suspension shall continue. Seventh — Every Cashier and Clerk of the Bank, before he enters upon the duties of his office, shall give Bond, with two or more Sureties, to the satisfaction of the Directors: that is to say, every Cashier in a sum not less than five thousand pounds; and every Clerk in such sum as the Directors shall consider adequate to the trust to be reposed in him, with condition for his good and faithful behaviour. Eighth - The Lands and Tenements which it shall be lawful for the said Corporation to hold, shall be such only as are herein-before permitted to be held by it; Provided always, that the said Corporation may take and hold Mortgages, hypotheques on real property, according to the Law of this Province, by way of additional security for Debts contracted to the said Corporation in the course of its dealings; but on no account shall money be lent on Mortgage, hypotheque, or upon Land, or other fixed Property; nor shall such be purchased by the Corporation, upon any pretext, except as above-mentioned. Ninth - The total amount of the Debts which the said Corporation shall at any time owe, whether by Bond, Bill or Note, or other Contract whatsoever, shall not exceed treble the amount of the capital stock actually paid in (over and above a sum equal in amount to such money as may be deposited in the Bank for safe keeping) and in case of excess, the Directors under whose administration it shall happen, shall be liable for the same in their private capacities; as well to the Stock-holders as to holders of Bank Notes, and an action in this behalf may be brought against them, or any of them, their, or any of their Heirs, Executors, Administrators and Curators, and be prosecuted to judgment and execution, according to the Laws of this Province; but this shall not exempt the said Corporation, or the lands, tenements, goods or chattels thereof, from being also liable for such excess. Provided always, that such Directors, as shall have been absent when the said excess was contracted or incurred, or shall have entered their Protest against it upon the book, or books of the said Corporation, may respectively exonerate and discharge themselves therefrom, by publishing such protest in the public

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papers, within eight days. Tenth — The Stock of the said Corporation shall be assignable and transferable according to the form B. annexed to this Act; but no assignment or transfer shall be valid or effectual, unless such transfer or assignment be entered or registered in a book or books to be kept by the Directors for that purpose; nor until the person or persons making the same shall previously discharge all debts actually due by him, her or them, to the said Corporation, which may exceed in amount the remaining Stock belonging to such person or persons; and in no case shall any fractional part of a share or shares, or other than a complete share or shares, be assignable or transferable. Eleventh - Bank Obligations, Bank Bonds, Bank Bills, obligatory, and of credit, under the common seal of the said Corporation, signed by the President or Vice-President, and countersigned by a Cashier, which shall be made to any person or persons, shall be assignable by indorsements thereupon, without signification thereof, any law or usage to the contrary nothwithstanding; and Bank Bills or Bank Notes, which shall be issued by order of the said Corporation, signed and countersigned as aforesaid, promising the payment of money to any person or persons, his, her or their order, or to bearer, although not under the seal of the said Corporation, shall be binding and obligatory upon the same, and shall be assignable and negotiable by blank or other indorsement or otherwise, in like manner as if they were made and issued by private persons, that is to say: those which shall be payable to any person or persons, his, her or their order, shall be assignable by blank or other indorsement, in like manner, and with the like effect as foreign Bills of Exchange now are; and those which shall be payable to bearer, shall be negotiable by delivery only. Twelfth - The Books, Papers, Correspondence, and Funds of the said Corporation shall at all times be subject to the inspection of the Directors; but no Stock-holder, not being a Director, shall inspect the account of any individual or individuals, with the said Corporation. Thirteenth - Half-yearly Dividends shall be made of so much of the profits of the said Corporation as shall appear to the Directors for the time being, adviseable, and shall be payable at such place or places as the said Directors shall appoint, of which they shall give public notice thirty days previously, in at least two Newspapers, published at the said city of Montreal, which Dividends shall not in any manner whatsoever lessen or impair the Capital Stock of the said Corporation; and the said Directors shall every year at the General Meeting held for the

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election of Directors, lay before the Stock-holders for their information, as exact and particular statement of the amount of the Debts due to, and by the said Corporation, specifying the amount of the Bank Notes then in circulation, and the amount of such Debts as in their opinion are bad or doubtful; also stating the surplus or profit (if any remaining) after deduction of losses, and provision for dividends, Provided, that the making and rendering of such statements shall not give, or be construed to give any right to the Stock-holders, not being Directors, to inspect the Account of any individual or individuals, with the said Corporation. Fourteenth - If there shall be a failure by, 01 on the part of any person or persons, copartnership, body politic or corporate, to pay the amount of any instalment, required to be paid on account of his, her, or their shares, in the said capital stock of the said Corporation, the person or persons failing to pay the amount of such instalment, shall incur a forfeiture to and for the use of the said Corporation of 5 per centum on the amount of his or their affairs in the said corporation, and of the dividends due to him, her or them, at the time appointed for the payment of such instalments, and also of all dividends which may afterwards accrue, and become due to him, her or them, until the payment of the amount of such instalment. Fifteenth The said Corporation shall not directly or indirectly deal in any thing except Bills of Exchange, Discounting on Notes of hand or promissory Notes, and to receive the Discount at the time of negociating; gold or silver bullion, or in the sale of stock pledged for money lent, and not redeemed; which said stock so pledged, and not redeemed, shall be sold by the said Corporation at public sale, at any time not less than ten days after the period for redemption, without any judgment first obtained, and without any previous suit or proceedings at law — any law, usage, or custom to the contrary notwithstanding. And if upon the sale of such stock, there shall be a surplus, after deducting the expenses of sale, over and above the money lent, such surplus shall be paid to the Proprietors of such stock respectively. X. And be it further enacted by the authority aforesaid, that the Notes of the Corporation shall be payable in gold or silver coin, current by the laws of this Province. And that the said Corporation shall not demand, receive and require upon its loans or discounts, or upon any other pretext whatsoever, any interest exceeding the lawful interest of six per centum per Annum, as fixed by the Laws of this Province. XI. And be it further enacted by the authority aforesaid, that the share and shares, and dividends of the Stock-holders in

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the said Corporation, shall be held, considered and adjudged to be personal property, and as such be liable to bona fide creditors for debts, and may be attached and sold under Writs or Attachment and Execution, issued out of His Majesty's Courts of this Province, in like manner as other personal property may be attached and sold under such Writs of Attachment and Execution. And in cases where an Attachment may issue for attaching the said share and shares, and dividends, the same shall be served on the Cashier of the said Corporation, who shall be held to appear in Court, and answer upon such Writ of Attachment according to the Laws of this Province, and to declare the number of shares of stock, and the amount of dividends belonging and due to the person or persons against whom such Attachment shall have been obtained; and that when the said share or shares may have been sold, under a Writ or Writs of Execution, the Sheriff by whom such Writ or Writs shall be executed, shall within thirty days after such sale, leave with the Cashier of the said Corporation, an attached copy of the said Writ of Writs of Execution, with the Certificate of such Sheriff indorsed thereon, certifying to whom the sale of the said share or shares, under the said Writ or Writs of Execution, has been by him made; and the person or persons who shall have purchased such share or shares, so sold under such Writ or Writs of Execution, shall be held and considered as Stock-holder, or Stock-holders of the said share or shares, and have the same rights, and be under the same obligations as if he or they had purchased the said share or shares from the Proprietor or Proprietors thereof. XII. And be it further enacted by the authority aforesaid, that no Stock-holder or Stock-holders, shall be answerable in his, her, or their private or natural capacity or capacities for the debts of the said Corporation, excepting Directors, who may be liable as herein-before mentioned, in cases where the total amount of debts contracted by the said Corporation, shall, during their administration, exceed the limitation by this Act prescribed. XIII. And for the better security of the public, be it further enacted, that it shall and may be lawful for the Governor, Lieutenant Governor, or the person administering the Government of this Province for the time being, or for any or either Branch of the Provincial Parliament, from time to time, to require from the President, Vice-President and Directors of the said Corporation, Statements of the amount of the Capital Stock of the said Corporation, and of the debts due to the same, of the

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monies deposited in the Bank, of the Notes in circulation, and of the Cash in hand, which Statements the said President, VicePresident and Directors shall be bound to furnish, when required as aforesaid, under oath. Provided always, that nothing herein contained, shall extend to compel or authorize the said President, Vice-President and Directors in such Statements, to particularize the private account of any person or persons with the said Corporation. XIV. And be it further enacted by the authority aforesaid, that if afly Officer, Cashier, Clerk or Servant of the said Corporation, entrusted with any Bond, Obligation, Bill obligatory, or of credit, or of any other bill or note, or any security, money or effects belonging to the said Corporation, or having any bond, obligation, or bill obligatory, or of credit, or any other bill or note, or any security, money, or effects of any other person or persons, lodged or deposited with the said Corporation, or with him, as an Officer, Cashier, Clerk or Servant of the said Corporation, shall secrete, embezzle, or run away with any such bill, bond, obligation, bill obligatory, or of credit, or any such other bill or note, security, money or effects, or any of them, or any part of them, every such Officer, Cashier, Clerk or Servant so offending, and being thereof convicted in due form of Law, shall be deemed guilty of felony, and shall suffer death as a felon, without benefit of the clergy. XV. And be it further enacted by the authority aforesaid, that if any person or persons shall forge or counterfeit the common Seal of the said Bank, or shall forge or counterfeit, or alter any bond, obligation, bill obligatory, or of credit, or any other bill or note of the said Corporation, or any indorsement thereon, with an intention to defraud the said Corporation, or any person or persons whomsoever: or shall alter or pass any forged, counterfeit, or altered Bond, Obligation, Bill obligatory, or of credit, or any other bill or note of the said Corporation, or indorsement or indorsements thereon; or shall demand the money therein mentioned and contained, knowing the same to be forged, counterfeit or altered, every such person, for every such offence, upon conviction thereof, in due form of Law, for the first offence, shall be deemed and adjudged to be guilty of a misdemeanor, and on being lawfully convicted thereof, shall be liable for such offence to be imprisoned for a time, which shall not be less than six months, nor more than six years, and to be kept at hard labour, or be publicly whipped, or to stand in the pillory, or undergo one or more of the said punishments, at the discretion of the Court before which such conviction shall take

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place; and shall for a second offence, be deemed and adjudged to be guilty of felony. XVI. And be it further enacted by the authority aforesaid, that if any person shall engrave, form, make or mend any plate or plates, paper, rolling press, or other tool, instrument or material devised, adapted and designed for stamping, forging, or making any false and counterfeit Bill of Exchange, Promissory Note, undertaking or order, for the payment of money, purporting to be the Bill of Exchange, Promissory Note, undertaking or order of the said Corporation, or of any of the officers or persons engaged in the management of the concerns of the said Corporation, in the name and on the behalf of the said Corporation; or shall have in his possession any such plate or plates engraven in any part, or any paper, rolling-press, or other tool, instrument, or material devised, adapted or designed as aforesaid, with the intent to use and employ the same, or to cause or permit the same to be used and employed in forging and making any such false and counterfeit Bills of Exchange, Promissory Notes, undertakings or orders, every person so offending, shall be deemed and taken to be guilty of felony, and being thereof convicted, shall suffer death as a felon, without benefit of clergy. XVII. And be it further enacted by the authority aforesaid, that it shall and may be lawful to, and for any one Justice of the Peace, on complaint made before him, upon the oath of one credible person, that there is just cause to suspect that any one or more person or persons, is or are, or hath or have been concerned in making or counterfeiting any such Bills of Exchange, promissory Notes, undertakings, or orders as aforesaid, by Warrant under the hand of such Justice, to cause the dwelling-house, room, workshop, out-house, or other buildings, yard, garden or other place belonging to such suspected person or persons, or where any such person or persons shall be suspected to carry on any such making, or counterfeiting, to be searched for any such false Bills of Exchange, Promissory Notes, undertakings or orders; and if any such false Bills of Exchange, Promissory Notes, Undertakings or orders, or any such plates, rolling-presses, or other tools, instruments, or materials shall be found in the, custody of possession of any person or persons whomsoever, not having the same by some lawful authority, it shall and may be lawful to and for any person or persons whomsoever discovering the same, to seize, and he and they are hereby authorized and required to seize such false or counterfeit Bills of Exchange, Promissory Notes,

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undertaking or orders, and such plates, rolling-presses, or other tools, instruments or materials, and to carry the same forthwith before a Justice of the Peace of the county or district in which the same shall be seized, who shall cause the same to be secured, and produced in evidence against any person or persons who shall or may be prosecuted for any the offences aforesaid, in some Court of Justice proper for the determination thereof; and the same after being so produced in evidence, shall by order of the Court before which such offender or offenders shall be tried, be defaced or destroyed, or otherwise disposed of, as such Court shall direct XVIII. And be it further enacted by the authority aforesaid, that nothing in the present Act contained, shall affect or be construed to affect in any manner or way whatsoever, the rights of His Majesty, His Heirs or Successors, or of any person or persons, or of any Bodies Politic or Corporate, such only excepted as are herein mentioned. XIX. And be it further enacted by the authority aforesaid, that this Act shall be deemed and taken to be a Public Act, and as such shall be judicially taken notice of by all Judges, Justices, and other persons whomsoever, without specially pleading the same. XX. And be it further enacted by the authority aforesaid, that it shall not be lawful for the said Corporation, at any time whatever, directly or indirectly, to advance or lend to, or for the use or on account of any foreign Prince or State, any sum or sums of money whatever, and if any such unlawful advance or loan be made, then and from thenceforth, the said Corporation shall be dissolved, and also the powers, authorities, rights and advantages hereby granted to the said Corporation, shall from thenceforth cease and determine, any thing in the present Act contained to the contrary thereof in any wise notwithstanding. And provided also, that the said Corporation shall not raise loans of money, nor increase its capital, XXI. And be it further enacted by the authority aforesaid, that this Act shall continue and be in force till the first day of June, in the year of our Lord one thousand eight hundred and thirty-one, and no longer, Provided that if before the expiration of that period, it shall at any time be found expedient to establish a Provincial Bank in this Province, and that the same be so established by an Act of the Legislature thereof, then and in that case the said Corporation hereby created under the name of the President, Directors and Company of the Bank of Montreal,

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shall from and after the expiration of seven years from the passing of such Act, be dissolved, and all and every the powers, rights, privileges and benefits hereby given and granted to the said Corporation, shall from thenceforth wholly and utterly cease and determine, any thing in the present Act contained to the contrary in any wise notwithstanding.

Establishing a Bank in the 1830's Whereas, the establishment of a public Bank at Halifax will be greatly advantageous to trade and commerce. . . .: A spirit of enterprise was abroad in Nova Scotia as the third decade of the nineteenth century began. The last great wave of immigration to the colony was approaching its crest: by 1837 the population was almost 200,000, having more than doubled in twenty years. Pioneer agriculture and the catching and curing of fish still formed the base of the economy, but lumbering had expanded rapidly - stimulated by British demand for square timber and by a growing West Indies trade in lumber and staves - and shipbuilding in Halifax and many little outports was an established and growing industry. There had been recent import tant developments in coal mining and in transportation. In 1827 the General Mining Corporation, an English company, took over the Duke of York's exclusive rights to mining in Nova Scotia, and by 1830 "extensive installations" at Pictou and Sydney were well under way, including the first stationary steam engines in Canada, short-line railroads, steamboats, and "an iron foundry (at Sydney) with fitting shops, laths and everything necessary for repairing mining machinery." In shipping circles, the idea of regular steam packet service was in the air. An unsuccessful attempt had been made to establish steam service between Halifax and Quebec with the Royal William, and in 1833 this little boat made her famous trip from Pictou to London by steam, using coal from the Pictou mines. Only a few years later - at the end of the decade - Samuel Cunard founded his company to carry the British mails across the Atlantic. Important as these new developments were to prove, the dominant mercantile activities were the export of fish, and other foods to the West Indies, in return for rum, sugar, molasses and tobacco - as well as for doubloons, Spanish dollars and a host of other strange coins - together with the big import trade in British manufactures, and a growing export and import trade Source: Bank of Nova Scotia, Monthly Review, Aug.-Sept. 1951. 1

Preamble to the Charter of The Bank of Nova Scotia passed March 30, 1832.

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with the United States. In these, Halifax-at this time, according to a contemporary record, a town of "nearly 2,000 houses and a population not far short, including strangers, of 20,000" was the centre of activity. Here, says John MacGregor's British America (1833): "The commerce is, at the present time, in as prosperous a condition as that of any town in America. ... The merchants of Halifax, generally speaking, connect prudence and perseverance with enterprise. They are by no means backward in undertaking whatever affords a fair prospect of gain." Among the questions long agitating the merchants and government of the colony was the scarcity of cash and the lack of an adequate circulating medium of exchange. The basic problem, of course, was that all the young and expanding colonies - the heavy import needs which tended to drain off cash as rapidly as it was earned - but it was complicated in Nova Scotia by the bewildering array of gold and silver coins of various weights, fineness, and degrees of debasement. Though various attempts to remedy the situation had brought some improvement, it is clear that the "defective state of the currency," from which banks might provide some relief, and the rapid expansion of the economy, were combining to make the need for increased banking facilities widely apparent. Accordingly a new bank began to be projected in Halifax. It is difficult, over a century later, to identify many of the people connected with the Bank's establishment. However, judging by the names on the subscription list - which was opened at the beginning of February 1832 - and on the first Board of Directors, they certainly included a good many of the rising merchants of the day, together with a number of lawyers and professional men. Three of the original directors - William Bliss, a lawyer and later a judge of the Supreme Court of Nova Scotia, William Lawson, the first President, a prominent Halifax merchant, and James B. Uniacke, a lawyer and later attorneygeneral of the Province — were members of the House of Assembly, and sponsored the Bill of Incorporation in that body. Of one of the most active of the Bank's sponsors and its President from 1837 to 1870, Mr. (later the Hon.) Mather B. Almon, considerable information is available from extensive personal letter files in the Bank's archives. These reveal him as a merchant active in West India trade, agent for a number of British, American and Quebec firms and receiving from them constant "advices and lists of prices current," and acting in 1827 as agent for the General Mining Corporation. The new bank, sponsored by such men as these, was not the

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first in Nova Scotia. The Halifax Banking Company, a private partnership of wealthy merchants, well-established in the government of the colony, had begun business in 1825. During the seven years of its existence considerable feeling against its "monopoly" had been aroused. Clearly it was a formidable rival, and there were well-grounded fears that the new bank would never receive its charter. "I pay particular attention to what you say respecting the establishment of a public Bank at Halifax which I have no doubt will prove a useful and profitable establishment from the names I see connected with its establishment," writes Rupert Cochran of New York, who was to be the Bank of Nova Scotia's first agent there, to Mr. Almon. "But," he adds, "I should suppose this would be very doubtful from the powerful representation which the present Institution has in the Upper House." It is not necessary to discuss here the protracted struggle in the legislature to obtain a charter, the provisions of the charter, or the early controversy with the Halifax Banking Company about redemption of the older bank's notes in specie - which was required of the Bank of Nova Scotia by its Act of Incorporation.2 This Act, finally passed on March 30, 1832, established the Bank of Nova Scotia as "one Body Politic and Corporate," with an authorized capital of £100,000 of which £50,000 had to be paid up before business could begin — the first chartered bank in Nova Scotia. The charter was closely modelled on that of the first chartered bank in the Maritimes, the Bank of New Brunswick established in .1820. That bank, in 1913, was amalgamated with the Bank of Nova Scotia, which thus comprises the two oldest chartered banks hi the Maritime Provinces. Halifax, Thursday, 10th August 1832. The Directors this day met and transacted business for the first time.3 As soon as the Bank's charter was passed vigorous preparations for establishing the Bank began. Following the "call" of the capital subscribed, the first meeting of the shareholders was held in the Exchange Coffee House, early in May. Thirteen directors were elected and they elected William Lawson as President. Now the practical details of organization could begin. An immediate necessity was a connection in New York, 2

See this bank's histories (1832-1900, and 1832-1932), History of the Canadian Bank of Commerce, Vol. 1, and R. M. Breckinrldge, The Canadian Banking system. 3 Minutes of the Board of Directors.

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tne most important exchange and specie market on the continent, and the nearest source of supply for engraved notes and other banking equipment. Rupert Cochran was promptly established as agent for the Bank's affairs and requested to procure notes for the Bank, "We should like them to be of a superior kind to those generally in circulation in the United States and as difficult of imitation as possible." He was also told that "it may be necessary for us to import specie from the United States" and was requested to inform of "the price of Doubloons and the rate of Exchange for Bills on London." A week later he was asked to "purchase and ship to us two wrought Iron Doors for Vaults." It had also been decided that Mr. S. N. Binney, one of the Directors, should proceed to Boston and New York by way of Saint John, N.B., "to ascertain all the information necessary relative to Banking business in those places" and to procure, with the assistance of the agent, "the Plates, Notes, Scales and Weights and such other articles as may be thought advisable." At the same time, the Bank's cash reserves had to be accumulated. The busy Mr. Cochran, by a letter in the middle of June, was instructed to purchase immediately "from New York or Boston as you may deem best the sum of $40,000 in Patriot Doubloons" and impressed with "the absolute necessity of this money being at Halifax before the Bank can commence operations." The Halifax merchants of the day, so well represented on the Board of Directors, were certainly no strangers to bills of exchange and various credit instruments. Nevertheless, there had been little experience with banking as such in the colony up to this time, and detailed knowledge of methods must have been rather scanty. Even before the passage of the Bank's charter it is clear that its sponsors were studying banking practice. On January 26th, Mr. Cochran had written to Mr. Almon: "I have been able only to procure Goddard's publications on Banking ... as well as the charter of the Bank of New York, but it is not an easy matter to get at the particular management of Institutions of this nature. I think I shall be able however to get some account of the direction and management of one or two of our most respectable Banks." Now that the charter was enacted, more practical knowledge than "Goddard's publication" was needed. Accordingly, early in June the newly-appointed Cashier, Mr. James Forman, was sent to Saint John to visit the Bank of New Brunswick. The President of that bank was asked "as far as may be consistent with your rules and regulations that

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you will afford him the opportunity of acquiring such knowledge as may be useful in his capacity of Cashier." Thus the Bank of Nova Scotia's business methods, like its charter, appear to have owed much to the old bank in the neighbouring province. Meanwhile, the Directors were seeking "banking chambers." Because of the outbreak of cholera - a major disaster affecting the port cities of North America in 1832 - the first quarters obtained, in Dalhousie College, were needed for a hospital. By the end of June it was an urgent matter to find accommodation, for specie was arriving from New York, the Bank's new notes were nearing completion at the engravers, and Mr. Cochran had written that he had despatched the Bank's safes. Finally, early in July a "committee appointed to look for a suitable place for the Bank" reported that a stone building on Granville Street belonging to Mr. John Romans "would answer the purpose in every respect." This was the scene of the Bank's operations until its own building was completed early in 1838. At the same time staff was being appointed. James Maxwell was "elected messenger by ballot," and "the oath was administered" to the tellers, James Carlile and Alexander Paul, each of whom was to receive £125 per annum. These three, together with the Cashier, comprised the Bank's staff, but the President and Directors were, clearly, to be very active in the Bank's management. It was to be the duty of the President "to attend daily with one Director of the week, and the Directors shall take their duty in alphabetical order." Further, "the days of discount shall be Tuesdays and Fridays of each week and the Directors shall assemble on those days for the purpose of deciding on the applications made for discount." At this time, too, the Directors were preparing for business by establishing rules for discounting procedure. Credit policies were prudent: "No Bill or Note shall be discounted . . . which has more than 90 days to run, unless by unanimous vote of the Board and no discount shall be made without two satisfactory names, but if property as shall be approved of by the Board be deposited and pledged to an amount sufficient to secure the payment with all damages and expenses then one responsible name may be taken." Credit limits were relatively modest: "No advance by discount shall be made at any time to any Individual or Co-partnership to a larger amount than two thousand pounds, nor shall any Individual or Co-partnership be a Promissor or first Endorser for a sum exceeding seven thousand pounds unless by an unanimous vote of the Board."

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Finally all preparations were completed. On August 1st a notice appeared in the Royal Gazette that the required capital had been paid in and that "the Bank will be opened for business as soon as the necessary arrangements are completed." On August 10th discounting began and on August 29th business with the public started. In all matters connected with the interests of the institution 1 shall exercise the greatest prudence and caution, while at the same time I shall endeavour vigorously to carry out the intentions of the Company,* The first seven or eight years after the Bank began business were clearly years of further organization. ... In this period, connections with other banks at home and abroad were established, experiments were conducted in the foreign exchange and specie markets, agencies were set up to introduce banking facilities into Nova-Scotian centres outside of Halifax and, as the Bank's business expanded, additional capital was obtained. In these early years, too, the new bank encountered, and weathered in good shape, its first major trial — the financial crisis of 1837. It also met additional competition, for the Bank of British North America, a new institution with its head office in England, began business in Nova Scotia in 1837. It may be noted that the banking experience already obtained in establishing the Bank of Nova Scotia appears to have contributed something to the new bank, for Mr. Binney, already mentioned as having been one of the active directors, became the first manager of the Bank of British North America at Halifax. Perhaps the most interesting of these developments was the establishment of local agencies5 of the Bank, for it is the correspondence between them and Head Office which' gives the clearest picture of the nature of banking operations at the time. The first agency was established at Windsor in 1837, but it was apparently not until 1839 — when branches were established at Pictou, Yarmouth, Annapolis and Liverpool — that branches began to perform complete banking functions, including loaning to the public. The agency at Pictou, for example, was established chiefly to facilitate the operations of the General »Letter of 26th Feb. 1839, from James Primrose, Agent at Pictou from 1839 to 1872. Early branches of the banks were conducted by managers who were not, as today, solely paid officers of the bank. They frequently conducted other businesses. They were usually paid a fixed sum for providing offices and their own and their clerk's services, together with commissions.

s

7* - MONEY AND BANKING IN CANADA

Mining Association but, because it was in sharp local competition with the Bank of British North America and, in those days, remote from Halifax, it was set up to do a complete banking business from the first. From the correspondence with Pictou it appears that banking in the 1830*s was, in general, not very different from that of today either in its relations between the central management and the branches or between the local managers and the customers. The circumstances of the time, however, put a marked emphasis on note circulation and on obtaining specie. Thus the instructions to Mr. Primrose, establishing his branch, begin: "The extensive and permanent circulation of the Notes of the Bank ... is of much moment. To effect it you will retain ... for transmission to Halifax the notes of other Banks of this and the neighbouring Province." (Mr. Primrose writes at the end of his first year of operations: "My statement does not show all the advantages by a long way which the Bank has derived from the business of this Agency. I have sent you over twelve thousand pounds of the enemy's ammunition and will send you more by and by.") "Equally desirable" was the procuring of specie. "To assist in this branch of your business yoii are authorized to value on the Cashier at sight free of cost to the parties requiring drafts, taking in payment all notes and specie but with great caution." The loaning business of the branch was, as today, a very important part of its operations. Loans took two forms. First was the still familiar one of loans on notes "with two good and sufficient names." The other, no longer in use in Canadian banking, was the "cash credit" - a type of overdraft, secured by bonds upon the customer and his "two sureties." The general instructions to Mr. Primrose included a warning note about loaning policy at Ms branch, because of the competitive situation there: "the accommodation afforded by each Bank contending against the other may lead to general unsoundness. The too easy facility for obtaining money will tempt the most prudent man to embark in hazardous speculation." Moreover, loans were to be "moneys frequently received and paid - dead loans are avoided by all well-regulated banks." Finally, the agent was asked to "make the sole interest of the Bank, I entreat, your Polar star," and "on all matters involving much responsibility" to "refer first to this Board for advice." It should be noted, however, that in the existing state of communications reference to Head Office was apt to be slow and cumbersome. Mr. Primrose continually notes that he is put

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at a disadvantage with his competitor, particularly in operations in bills of exchange for which he must send to Halifax. Similarly, transport difficulties and expensive postage impeded shipments of notes and specie, and opportunities to send them by private hands were continuously sought. "You will have an opportunity soon by the Lawyers coming up to court to send me some Agency notes" writes Mr. Primrose. Again, "Gather all the sterling money you can for me and I will make some person going down with a sled call for it as soon as sleighing's good." This last brings out a constant problem of the time - the shortage of small coins and bills needed for change. (The banks, in 1833, were prohibited from issuing notes of under