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Home , 1830s, Banking in Canada, Bank of the People, Bank of Upper Canada

Notes on free banking in in the 1830s

Ronald A Shearer

Vancouver 1994

Adam Shortt referred to the mid to late 1830s as "one of the most exciting and abnormal periods in Canadian political and financial history." (Shortt, 1986, 830). It may also have been decisive in setting the course of Canadian banking policy for decades. There were several important developments: the chartering of new and increases in the capital of existing chartered banks; attempts to obtain charters for new banks on different principles than those of the existing institutions; the establishment of non-chartered banks with a substantial presence in the banking system; and deliberate measures taken by the provincial legislatures and the Imperial government to suppress significant banking innovations including non-chartered banks. These notes are an attempt to assemble the historical record on one of these developments. We review and consolidate the available evidence concerning non-chartered banks, including evidence on their quantitative importance.

The literature on the non-chartered banks of this period is scanty. The most extensive discussion, largely anecdotal, is by Adam Shortt (Shortt, 1986,295-337). By contrast, Breckenridge's exposition is very brief (Breckenridge, 1910, 36), and they are given but passing mention in the two standard modern histories (McIvor, 37-38; Neufeld, 39-40). Although the non-chartered banks had a short existence, they had quantitative importance and the fact that they represented a plausible alternative form of banking organization that has been much touted in recent years suggests that they merit more careful attention (White, 1984; Selgin, 1988). Unfortunately, there is little evidence; they left more shadows than records.

I. The private banks of

Upper Canada was a much more fertile ground for banking experiments than , although few of the attempted innovations were long lasting. At the time that the first non-chartered was established, banking in Upper Canada was divided between two chartered banks. The "Old Lady," the established in 1822, accounted for 73% of the reported bank assets of the Province, and the relatively new Commercial Bank of the Midland District, established in 1832, held the remaining 27%.

A. The Agricultural Bank. Undoubtedly there were earlier ventures, but the first important non-chartered bank in Upper Canada, and the first one for which there is some documentation, was the firm of Truscott, Green & Co., commonly called the Agricultural Bank. It opened in in June 1834,1 allegedly to operate "on the Scottish system" -- a proposition that one editorial writer pronounced "good news indeed if it be true."2

1. Scottish Banking The "Scottish system" of banking is a vaguely defined concept that had an almost mystical attraction for Canadian banking reformers of the period.3 It was alleged to provide safe, stable banks (in contrast to those of and the United States) and a stable currency while vigorously promoting economic progress and prosperity. Conceptually, the system had three separable but interrelated components, of which the second two received particular but varying emphasis by Canadian reformers.

First, the banks were to be free to open branches and agencies throughout the province. This is not emphasized by Canadian reformers, perhaps because in the Canadian context it was a privilege that was taken for granted. The chartered banks already operated on this principle.

Second, it implied competitive banking with freedom of entry and minimal regulation.4 Freedom of entry required banks operating without legislative charters and hence with unlimited liability of partners or shareholders, which was thought to ensure responsibility in management and enhanced security for note holders and depositors.5 The prospects of strong competition for the entrenched chartered banks, and

1 Truscott (1838). Shortt states both "in May, 1834" (311) and "shortly after the middle of June" (832). It was certainly open on June 17, the date on which the Common Council of Toronto applied to it for (and was granted) a œ1000 loan.(Grady, 1834a). The Correspondent noted the arrival of "three gentlemen" (probably only Captain Truscott and Mr. Green) who were about to establish a "new banking house" in its issue for , 1834, and the Patriot reported the plans to establish the new bank in its issue. In a petition to the Legislative Assembly in 1835 Truscott and Green stated that the bank opened in May 1834 (Truscott 1835b). 2 Hallowell, 1834. 3 For example, one of the questions asked by an 1835 Legislative Committee investigating a proposal for a provincial bank with joint private and government ownership was "Do you understand the Scotch system of Banking." (followed by whether the witness was in favour of requiring banks to pay interest on deposits) [Upper Canada, 1835c]. Another 1835 enquiry into the state of the currency of Upper Canada reported being strongly impressed with the merits of the banking system of Scotland, although its review of the system was very incomplete [Upper Canada, 1835b]. A succinct contemporary account of the Scottish system from Chambers' Edinburgh Journal, received some circulation in Canada, reprinted in the Mercury and the Kingston Chronicle. This article contains a clear statement of the nature and benefits of the Scottish system, arguing that the banking system was almost solely responsible for the superior performance of the Scottish economy. The same notions are echoed in other contemporary Canadian commentaries. See for example, Upper Canada, 1835b; Anon., 1837; Young, 1837. While more cautious in his claims, Adam Smith provided strong authority for the proposition that "... the banks have contributed a good deal to ... [the very considerable increase of] ... the and industry of Scotland." (Smith, 1776, p 262). For a recent statement to the same effect see White, 1984. 4 An editorial writer stated: ... we wish to see Banking free to all, under proper regulations and restrictions. ... (L)et any five individuals who may wish, commence Banking, and issue their notes, provided that such notes never extend more than a certain fixed amount beyond that capital which they have invested (Hallowell, 1834). The restriction to five partners is not a Scottish principle. Indeed, the opposite is true. What distinguished early Scottish banking organization was the dominance of unchartered joint stock banks with many shareholders. Apart from this and the (unspecified) linkage of the note issue to capital, the editor did not specify the "proper regulations and restrictions." 5 Thus, one editor:..." Private Bankers are answerable to the Public to the whole extent of their fortunes, and are therefore more trustworthy that the United States institutions, which are legalized not to pay their debts in case of failure ...." [Hallowell, 1834] An 1835 legislative committee on the currency (which included the radical reformer W.L. MacKenzie) strongly endorsed the joint stock principle for banking in the province. The report included a sketchy proposal for a joint stock bank, an almost literal copy of the prospectus for the Plymouth and Devonport Banking Company which, along with material on several other British joint stock banks. This was probably provided to the committee by George Truscott. He appears in the documentation attached to the report as chairman of a June, 1831 meeting in Exeter of "Gentlemen favourable to the principle of Joint Stock Companies" for the purpose of selecting a provisional committee for the creation of a joint stock bank for the County of Devon. This was probably the Plymouth and Devonport Bank whose prospectus was issued in October (Upper Canada, 1835b). particularly the Bank of Upper Canada, was one of the powerful attractions of Scottish banking to Canadian reformers.

Third, it implied adoption of the Scottish practices of paying interest on deposits and lending on cash accounts instead of discounting bills for fixed periods.6 While these practices were apparently invented in Scotland, by the early 1830s they had been widely adopted, with variations, in England (Watt, 1836). A cash account involved a line of credit that could be drawn upon at any time without the explicit discounting of a note. The size and timing of loans could be tailored to the needs of the borrower. It also meant that outstanding loans could be repaid, in whole or in part, at any time and not just on scheduled repayment dates or on maturity of the bill.7 The payment of interest on deposits meant that excess funds would be deposited in the bank, not hoarded as banknotes. This, it was argued, discouraged excess borrowing and limited the danger of excess note issues, adapting the note issue to the actual needs of the economy (Hallowell, 1834).

Canadian reformers were particularly concerned about finance for agriculture and the attraction of the cash loan system for farmers is obvious. Funds could be made available at the beginning of the agricultural season before there was any saleable output to secure a discountable bill and the advances repaid as the crop was sold. The farmer would no longer be dependent upon a merchant for credit. Surplus funds, to be used over the winter, could be lodged in the presumed safety of an interest bearing account, reducing the risk of holding banknotes and providing a source of income not available from normal bank deposits.

The crucial issue, however, was security for the line of credit. The "Scottish principle" seems to have required either the surety of other people of known wealth8or the collateral of other assets, perhaps financial assets, perhaps real property.9 For a frontier farmer to find two wealthy persons to stand surety

6 The clearest contrast between the "Scottish" practice and then conventional bank lending is in Young (1838). See also Smith, 269-70. An 1835 Committee exploring a proposal for a Provincial Bank posed the question "Do you under stand the Scotch system of banking?" Truscott (along with Ridout, the cashier of the Bank of Upper Canada) replied "not thoroughly." However, his partner, Green, offered a substantial statement emphasizing the system's potential for more effective financing of agriculture ("not merely the Commercial and Manufacturing classes") through the system of cash credits and interest on deposits. Upper Canada (1835c). 7 However, Smith emphasized the importance of regular payments on cash account loans as a method by which banks could monitor the loans and hence the performance of the debtor. Smith, 270-271. 8 It is interesting that Young is deeply critical of demands for personal sureties on conventional bank discounts of personal bills but does not comment on them as security for cash advances. Indeed, he implies that the unneccessariness of personal sureties is one of the advantages of cash accounts. His criticism of personal sureties is pointed: "In its very inception ... [a discount] ... was thus made a matter of delicacy and embarrassment. It compelled ... [the borrower] ... to disclose his plans to others. It involved him in contracts and engagements other than his own. He was forced to assume heavy obligations. He had to return, at the same or some short period after, similar favours to those he had received. It led to a complex and universal system of accommodation. It involved the fortune of every man too deeply in the general circumstances of the community. It stood in many cases as an insuperable barrier to enterprise ...." (Young, 1838, p. 25) 9 Thus, Chambers states: "Cash credits are guaranteed by two sufficient securities, or the applicants give infeftment to heritable property in caution of the contingent debt -- a special act of Parliament having been passed to allow this to be done -- and when any such debt is liquidated, the deed is cancelled (Chambers, 1834). [infeftment: "in Scots law, the act of giving symbolic possession of heritable property." Webster.] The report of the 1835 Committee on the Currency included documents from three Scottish Banks, of which two revealed some information about cash accounts. The Bank of Scotland (a chartered bank) required security of "... personal co-obligants conjunctly and severally; or Bank of Scotland stock, or both; or such other security as may be specially agreed upon" (p.33).The Aberdeen Town and Country Bank called for "security, real or personal": either a personal must have been both difficult and demeaning (Watt, 1836; Young, 1838). For most farmers, the only available security would be their land. In bad times, however, that implied the loss of the land to the bank. This was anathema to banking reformers; a major root of their discontent with the existing banking system.

2. The Agricultural Bank10 Although reference was made to an unidentified third party, the Agricultural Bank appears to have been a partnership between Truscott and Green who, in 1835, claimed to have net assets beyond the actual capital of the bank, of "at least £40,000" -- a sum about equal to the gross liabilities of the bank at this time.11 Because it had only two owners (we do not know if the shares were transferable), it was not what would normally be called a joint stock company but is better referred to as a private bank. In any case, as copartners Truscott and Green each had unlimited liability. The bank had one office for the issue of notes, making loans and discounts and accepting deposits, but employed agents in a other locations who discounted notes and dealt in exchange.12 Particularly important were the firms of Brown, Buckland & Co. in Buffalo and Green, Brown & Co. in , co-partnerships with Truscott and Green, described as brokers in discounts and exchange, that acted as agents in those cities (Truscott, 1838).

That the Agricultural Bank was attractive to political reformers of both extreme and moderate varieties is not surprising. The Bank of Upper Canada, with its entrenched market position and strong ties with the , had long been a touchstone for political and economic discontent. Like the Commercial Bank, chartered two years earlier, the Agricultural Bank offered competition for the Old Lady. However, it offered more; if successful, it promised to introduce the principle of free banking to Canada. As a private bank owned by individuals of modest but significant reported wealth, it was not in the

bond of "two securities or cautioners, besides the principal party" or "heritable security" either on a mortgage or with title transferred to the bank accompanied by a "back bond" (a commitment to return the title to the borrower when appropriate) (p. 92). It seems likely that all of this information was brought to Canada by Truscott for guidance in establishing his own bank and provided by him to the Committee. Certainly, between the times when they were appointed (, 1835) and they reported (April 11, 1835) the committee could not have obtained the information from Britain. It is perhaps not by accident that the report of the committee well suited Truscott's personal objectives. 10 Our primary sources of information are the undocumented summary by Shortt, reports in contemporary newspapers and self- justifying letters and pamphlets of protagonists. It is difficult to separate fact from fiction in the highly partisan and politically charged press of the 1830s. However, most of the sketchy facts are verified by both sides of the banking controversies. Particularly valuable are the papers associated with the radical W.L MacKenzie who had an intense interest in banking and money. While many of his interpretations are bizarre, his reporting and his editorials provoked responses in the more conservative press. The combination provides rich insights. One of the minor side effects of MacKenzie's rebellion and banishment at the end of 1837 was the cessation of his newspaper and a sharp decline in the volume and quality of reporting on banking developments in Upper Canada. His American paper contained some information but not a great deal and it seldom provoked responses in Canadian papers. Partly as a result, the stories of private banks that followed the Agricultural are much less well documented. 11 At the 1835 enquiry into the solvency of the bank, George Truscott stated that he had one partner, John Cleveland Green; "... the 3rd Partner, who was to have joined the Firm, was detained in England by the sudden illness of his brother-in-law -- since dead. We are now in treaty with a gentleman of large property in this country, who is expected to join the Firm." Apparently the "gentleman of large property" did not join the firm. When asked by the 1837 Committee to list the shareholders in the bank, Green replied "George Truscott and John Cleveland Green, partners." Upper Canada (1835a).The assertion of £40,000 of external assets backing the bank was made under oath but was not (and probably could not be) verified. 12 Upper Canada, 1837a. Woodward, 1835. We have no evidence whether the agents accepted deposits for the bank. Scottish pattern,13but it satisfied one of Gouge's14 criteria for an ideal bank: a bank backed by substantial private wealth that was at risk to insure the claims of depositors and note holders.15 It was, however, a note issuing bank, contrary to Gouge's prescription. Despite this, even the Gouge disciple and radical critic of banks, W.L. MacKenzie, initially welcomed the new institution, although he and other reformers expressed concern about the lack of information on the financial positions of the bank and its sponsors. Thus, the Correspondent pointedly refused to endorse the new bank until it "... will come out and show its title to confidence ...." (Grady, 1834b) Perhaps the clinching benefit from the reformers perspective, was that the bank was not to be exclusively for merchants but was to cater to farmers as well.

The new Bank was not a trivial competitor. Nine months after it opened and despite the persistent attempts of the Bank of Upper Canada to strangle it, the bank reported note circulation of about 10% of that of the two chartered banks combined; 15% of that of the Bank of Upper Canada and 32% of that of the Commercial Bank (Table 1).16 The Agricultural Bank was somewhat less successful in attracting deposits. On the same date it held about 6% of total deposits, almost 2/3 of which were interest bearing (as opposed to about 10% for the Commercial Bank and less than 1% for the Bank of Upper Canada).17The slower growth of deposits probably reflects the wariness of leading merchants and wealthy residents who, along with the government, would have been the major bank depositors. They remained customers of the established institutions, either because of suspicion of the viability of the new institution or because of their other banking ties, particularly dependence on them for large amounts of credit and for efficient arrangements for foreign payments.18The Bank of Upper Canada appears to have refused to continue banking arrangements with customers who also dealt with the Agricultural Bank.

13 Banking in Scotland at this time was dominated by joint stock banks with large numbers of shareholders and some analysts identified this form of organization as the distinguishing feature of Scottish banking (Watt, 1836). However, the Scottish banking system also had a solid core of old chartered banks and some closely held private banks. 14 W.M. Gouge was an American political economist, author of a classic work on free banking that provided intellectual justification for 's monetary policies (Gouge, 1833). His book was the monetary bible of W.L MacKenzie, the most radical of Canadian reformers, who reprinted sections of the book in his newspaper and expressed the desire: "If I were able to afford the expense I would bring from New York ten thousand copies of the stereotyped edition of ... [Gouge's A Short History of Paper Money and Banking in the United States] ... and spread them among you ... from one end of the Province to the other." (Mackenzie, 1835b). Mackenzie published at least five excerpts from Gouge in the Advocate under the general heading "The American Banking System." (Mackenzie, 1834a). 15 How much wealth there was -- or better, how much protection was provided by the putative wealth -- is doubtful. While Truscott claimed £40,000, its form and location were unspecified. It is not clear that it was in realizable form and what there was probably in England beyond effective access by Canadian note holders. The British Colonist later asserted that Truscott and Green had failed to show that they had "any capital at all" when they started the bank (Scobie, 1838). 16 It should be noted, however, that the observations for the chartered banks are two months earlier than those for the Agricultural Bank. 17 The Agricultural Bank apparently paid 3% on deposits from he outset but we do not know the other terms. Responding to the challenge, the Commercial Bank announced the payment of interest of 2 1/2% for six month and 3% for twelve month deposits in August 1834 (Daalton, 1834). The only interest bearing deposits reported by the Bank of Upper Canada were those of the Home District Savings Bank. 18 For example, in a letter to the Correspondent, at this time a moderately radical paper with strong sympathies for MacKenzie, Amicus expressed strong reservations about the Bank of Upper Canada having come "too much under the control of political mountebanks" but noted that,... "the moral character of the President and its well known solvency must give it superior claim to the confidence of men who can distinguish between commercial and political concerns.... A man with Woolly Allan's bills in his pocket is morally sure of his cash, in exchange wherever he goes. [By contrast] ... the proprietors of the Agricultural Bank be unknown strangers amongst us, without visible capital .... [W]hat security can the public have in their stability?" (Amicus, 1834). 3. The Specie War. Shortt has described the Agricultural Bank's tumultuous early months of struggle for survival with the Bank of Upper Canada (Shortt, 311-13; 832-41). Truscott and Green arrived in Toronto in May 1834. Given the speed with which they began banking operations they must have arrived with banknotes printed and ready to be circulated. They came with an unspecified amount of capital in the form of lines of credit and bills of exchange on but little or no specie and, after depositing £2,000 - 3,000 in bills of exchange on New York and London with the Bank of Upper Canada, they withdrew some portion in silver specie to begin their banking operations (Observer, 1835). The importation of specie from London on New York was both risky and costly and not practical on a large scale in the winter season. Hence, it was reported, banks in Canada and the United States had developed the "acknowledged custom" of not drawing specie from each other in this way but of "furnish(ing) their own vaults" (Allen 1835). Strangers to Canada, Truscott and Allen were presumably ignorant of any such custom so they may have been surprised that the Bank of Upper Canada considered their demands as at worst a hostile act and at best an unacceptable burden ("As there was no evidence of their procuring any supply from abroad").19 Whether this was the real reason, or some deeper concern for the implied aggressive competition, they soon demanded that the Agricultural Bank close its account.

In the next phase of the specie war the Bank of Upper Canada, apparently in concert with the Commercial Bank, refused to accept the notes of the new bank whether presented for deposit, in payment of debts or for the purchase of exchange. In defending the policy, the Bank of Upper Canada echoed the concerns of radical newspaper editors that there was insufficient authenticated information about the financial resources of the Agricultural Bank. Lacking confidence in its solvency, the BUC would be irresponsible to expose it's shareholders to the risk of loss by accepting the new bank's notes (Allan, 1835).20 It was alleged that the Agricultural Bank then employed agents to tour the province to collect Bank of Upper Canada banknotes, substituting Agricultural Bank banknotes for them, sometimes, it was alleged, at a premium (Observer, 1835a), both to establish their circulation and to obtain ready cash for the bank's vaults. The exact amount is in dispute, but there is no doubt that they used some of the acquired notes to draw specie from the Bank of Upper Canada. The BUC said £30,000-40,000 (Allan, 1835); Truscott said no more than £3,000 or £4,000. The balance of the BUC notes obtained by the Agricultural Bank were held as cash reserves and apparently paid out to customers who insisted on

19 Shortt offers the plausible hypothesis that Truscott had the London model in mind, with the Bank of Upper Canada playing the same role in the Canadian financial market as the Bank of England played in England, holding the central gold reserves for the system, available at all times to other banks (Shortt, 833-4). Baskerville has published a fascinating letter from the President of the Bank of Upper Canada to the Lieutenant Governor describing his attitudes toward specie reserves. It suggests that the Bank of Upper Canada only held large specie reserves because of the requirements for publication of a balance sheet from time to time. Their purpose was to maintain public confidence. The requirements for specie to meet over the counter cash drains was trivial. However, he also expressed concern about the potential need for larger reserves should new banks appear in order to meet potential demands from them. Written before the establishment of the Agricultural Bank (it was dated in May 2, 1834), this letter suggests that the reaction of the Bank of Upper Canada to the initial specie drains was based on legitimate concerns about the costs of its own operations and not on specific hostility to the Agricultural Bank. 20 Allan presented this as a general policy, refusing "to receive any notes that might be put forth by any private individual or individuals constituting themselves a Banking Company, and of course operating against those legally authorized." (Allan, 1835) something other than Agricultural Bank notes. The new bank also must have discounted vigorously and it violated a long standing policy of Canadian banks by paying interest (at 3% per annum) on deposits.

In spite of the Bank of Upper Canada boycott, the Agricultural Bank established itself and grew rapidly. The lack of a note exchange with the Bank of Upper Canada must have been an inconvenience, restricting the acceptability of Agricultural Bank notes in certain transactions and reducing the efficiency of the payments system. However, the inconvenience must have been greatest for customers of the Bank of Upper Canada who, if they accepted Agricultural Bank notes in the course of business, would have to pay them out again because they could not deposit them in their bank (and the Bank of Upper Canada discouraged customers from also holding accounts at the Agricultural Bank). Customers of the Agricultural Bank did not face this problem; their bank would accept the Upper Canada notes, which it would pay out on demand or return to the issuer for specie. Allen claimed that by November 1835 the Agricultural Bank had thus drawn almost £40,000 in specie. If it was intended to discredit and hence strangle the new bank, the Bank of Upper Canada's passive policy failed; the BUC then shifted to an aggressive policy of attempting to bankrupt it.

In the third phase of the war, the Old Lady prepared to go for the banking jugular. It did not attempt to compete with the Agricultural Bank in normal banking business. Thus, there is no evidence that it changed its lending practices and it did not explicitly pay interest on deposits.21Rather, it altered its policy on Agricultural Bank notes, the focus of the battle.

Arguing that it was a convenience to its customers, the Bank of Upper Canada began to accept its rival's notes, returning them daily for specie. But it did more. Sometime before late January, 183522it began aggressively collecting Agricultural Bank notes in exchange for its own, allegedly in response to urgent and repeated pleas from stockholders and others that

Notes of the Bank of Upper Canada would entirely disappear in a very short time, and give place to the Agricultural Bank notes, which are fast becoming the circulating medium of the country (Allan, 1835). The Bank admitted to employing four special agents for this purpose, but critics asserted that every postmaster was in fact an "outscout" of the Bank. It was also reported that when the Agricultural Bank notes were presented to it for payment, the BUC refused to accept its own notes, insisting instead on specie. Apparently, customers who did business with the Agricultural Bank were blackballed.23 The

21 The question of interest on deposits is less clear-cut than it appears. Observer states that depositors "have always been told" that the Home Savings Bank, an informal affiliate of the Bank of Upper Canada organized in 1832, would pay 5% on sums under £100 and for larger sums the bank would sell them government debentures paying 6% with a forward repurchase contract "on the same terms and without charge." If so, the actual payment of interest on deposits was an empty issue (Observer, 1835a). 22 Woodward's letter to the Correspondent, which seems to have been the first public outcry in Toronto, is dated (Woodward, 1835). 23 Observer, someone close to the Bank of Upper Canada, possibly a director, noted that "only active partizans of their opponents" who might use accounts at both banks to make BUC notes available to the Agricultural Bank "were desired to withdraw their accounts" (Observer, 1835b). Baskerville provides a letter from the cashier of the Bank of Upper Canada to the President of the Welland Canal Company, complaining about the negotiation through the Agricultural Bank of a cheque drawn on the Bank of Upper Canada "which enables them to substitute their own notes, and to call upon us for specie." He asks for advance notice of such events, but the letter might be read as a veiled threat (Baskerville, p. 93). Truscott alleged that after images of agents of the two banks competitively scouring the countryside for each others notes and of runners from the two banks passing each other on the street as they scuttled between the institutions, with bundles of notes in one direction and bags of specie in the other, is fitting of a Monty Python skit. The intended strategy of the Bank of Upper Canada is not certain. The editor of the Correspondent and Advocate, a bitter critic of the Bank, characterized the policy as follows:

It was agreed upon ... to receive and even to purchase all the issues of the new Bank, as far as practicable, by their agencies and outscouts ... with the wicked view of taking it by surprise and making one grand run for specie at a moment when there would be least reason to expect it ..., when the roads would be almost impracticable -- when the navigation of the and Erie Canada would be closed, and ... it would be impossible to get funds from or New York (C & A, 1835)24 The BUC denied any aggressive intent, denied accumulating notes for one grand, mid-winter death blow and denied that they had ... ever taken any means that the most captious person would say was unwarrantable conduct towards the Agricultural Bank ...; (Allen, 1835) or that their policies were anything but defensive. In any case, the final confrontation, if one was intended, was forestalled. As the fourth phase, Truscott and Green moved the matter into the political arena. Alleging that their by the Bank of Upper Canada was politically motivated, rooted in a serious misunderstanding of political involvement by the bank, they appealed to both the Lieutenant Governor and to the House of Assembly.

There is no doubt that the Bank of Upper Canada regarded the Agricultural Bank as being aligned with the radical political faction of MacKenzie. As evidence of the political connection, considerable emphasis was placed on the loan to the City of Toronto that Truscott and Green had used to dramatically announce their presence in the city (Correspondent, 1835 [33502.25]; Truscott, 3503.25). The loan to the radical-dominated council had been refused by the two chartered banks (Correspondent, 1834). Ridout, cashier of the Bank of Upper Canada, required nothing so subtle. He considered the support and encouragement given by the editor of the Correspondent and Advocate as sufficient to imply "... a probability of some tender political sympathy between the parties (Ridout, 1835).

The subsequent appeal to the Legislature was particularly interesting. It was not an appeal for intervention in the struggle but for an official investigation of the bank, its "capital and operation ... from its

transferred his account to the Agricultural Bank, the BUC not only refused to discount notes for him but stated "'that they would never again discount any bill with his name on it'" (Truscott, 1835c). Hincks publicly denied that he had attempted to discount bills at the BUC but acknowledged that the BUC had refused to discount one of his notes drawn in favour of a third party who was a depositor and supporter of the bank (Hincks 1835). Observer states that Hincks deposited in the Agricultural Bank public funds for which he was responsible but was forced by his superiors to return them to the BUC and then commented that Hincks' "private account was too trifling to notice" (Observer 1835b). 24 The Correspondent and Advocate, by then in league with MacKenzie having added the name of his previous paper, the Advocate, to its masthead, was hardly an impartial observer. Although it had stopped short of endorsing the Agricultural Bank, it was a bitter critic of the Bank of Upper Canada. first commencement." (Truscott, 1835b). The objective was to confirm for the public the soundness of the institution,

... to inspire confidence by furnishing satisfactory evidence of their solvency (Truscott, 1835b). This was an unusual, but, in a business in which reputation was everything, a not implausible strategy; an imitation of the 's 1829 response to the complaints of the Quebec merchants about its operations. That investigation, conducted by the Committee on Trade, dominated by reformers, including Alexander MacKenzie, provides our first quantitative glimpse into the operations of the Bank. It is the data from this enquiry that are reported in Table 1.

Although four of fifteen directors were appointed by the Government and it was the government's banker, the Lieutenant Governor denied any ability to control or influence the Bank of Upper Canada, asserting that it was a "Private Commercial Establishment," not an arm of government. He directed the letter to the Bank and a long, informative reply was forthcoming from Allen, the President (and a short one from Ridout, the cashier, on behalf of the Board). While the Lieutenant Governor refused to act publicly, he may have intervened privately or through the government-appointed directors to moderate the actions of the Bank.25 In any case, Allen could not obtain the full support of his board for the ruthless course.26 The Agricultural Bank was not broken that winter, even though the BUC must have been capable of so doing, and the specie war disappeared from the newspapers as an issue of the moment. The conservative press expressed outrage at the approach to the Governor and satisfaction with the response of Allen (Patriot); they had nothing but scorn for the approach to the legislature and for what was seen, with considerable merit, as the sycophantic report of the committee. The radical press, not surprisingly, heaped scorn and praise in the opposite pairings (even though, by this time, MacKenzie was souring in his attitude toward the Agricultural Bank, approval was a useful strategy in the continuing attack on the Bank of Upper Canada).

4. The US Agencies That the Agricultural Bank also became less aggressive is suggested by Figure 1. Although the figures are too sparse to permit precise identification of turning points, the Agricultural Bank's circulation appears to have reached a peak in early 1835 when the struggle with the Bank of Upper Canada was at its most intense. While the banking system continued to expand vigorously through 1836, the Agricultural Bank stagnated. In effect, its place was taken by new banks: the Gore (a chartered bank), the Farmers,

25 As an interesting aside, in 1836 a Mr. J.H. Dunn made advances "of his own free will" to the Buffalo or New York agency of the Agricultural Bank, secured by Truscott and Green 12 month promissory notes and shares in the Bank of Washtenaw. Subsequently, Dunn remitted almost $18,000 to the agency to purchase exchange on London (Truscott, 1838). The exchange was not purchased but the funds were retained by the agency. J.H. Dunn is not further identified, but the emphasis given to his name suggests that it was John H. Dunn, the Receiver General of Upper Canada, long time government appointee to the Board of the Bank of Upper Canada and in 1835 a contender for the Presidency of the Bank (Baskerville, 10, 100). Presumably the funds lent to Truscott and Green were his own; it is conceivable, but unlikely, that the funds to purchase exchange were of the government. In any case, Dunn ended up as one of the important creditors of the bank at its failure. 26 Truscott reports: "... some honorable members of that Board declined lending themselves to the infamy, shame and disgrace ... which usually attends dishonorable actions" (Truscott, ). This is consistent with the fact that one government-appointee to the Board, J.H. Dunn, made a large loan to the Agricultural Bank. Truscott also notes that the Commercial Bank refused to agree to join the effort to crush the new bank. the Niagara Suspension Bridge, the Peoples, and the . Thus the stagnation of the Agricultural Bank in 1836 and 1837 may have been in part a result of more intense competition in the Upper Canadian market limiting the circulation of their notes. However, given the increase in the circulation of every other bank, the stagnation was more likely a matter of deliberate restraint by Truscott and Green necessitated by a significant expansion of their Buffalo and New York business.

Table 2 shows the balances due to the bank in Toronto from the US agencies, Buckland, Brown & Co. in Buffalo and Green, Brown & Co. in New York. Between April 1835 and April 1836 the bank advanced £30,000 to their US agencies, a sum larger than their total Canadian note circulation. Apparently all but £5,000 was in specie (or Bank of Upper Canada notes) (Truscott, 1838).27 Over this period the note circulation did not increase, and while we have no data, it seems likely that deposits fell. Although in November 1835 they borrowed an unspecified amount in England, the US operations were displacing Canadian assets and coming to dominate the banking activities. The data are not provided, but Truscott acknowledged that Canadian discounts were reduced and that

... the Bank sustained much inconvenience at the time and was afterwards subject to vacillating and injudicious operations .... (Truscott, 1838) Although the US agencies were described as exchange and discount brokers, most of the funds advanced from Toronto were not used for normal banking activities. A substantial portion was employed in speculation on US bank stocks, perhaps an attractive speculation in the early stages of the boom but in the disturbed banking conditions that followed, an unfortunate investment. Moreover, when they tried to use them as collateral for loans, Truscott and Green found that some of the bank shares were tied up by legal proceedings. Another substantial portion of the funds had in been advanced, without the knowledge and consent of Truscott and Green, to Brown and another of his partnerships, and used for investment in real estate. Brown could not repay the debt and his other partner refused to permit the assignment of the property to Truscott and Green. The US funds were not only in speculative assets, whatever value they represented was inaccessible. As the banking crisis deepened in Upper Canada, the Agricultural Bank could not call on their balances at the US agencies to meet their obligations.

5. Failure of the Agricultural Bank The Agricultural Bank failed in late November, 1837. There was no public enquiry so the reasons for the failure have not been formally established. However, two sets of factors seem important. It occurred during a period of severe monetary contraction and, as revealed by Truscott and Green's 1838 apologia, there were serious management problems within the firm (Truscott, 1838).

a. The General Credit Contraction The macroeconomic context of the failure is important. 1835 and 1836 were boom years in North America, including Upper Canada, with the cycle reaching a speculative peak in the spring of 1837. Word

27 This is subsequent to the drain of specie to Buffalo that Allen complained of (Allen, 1835). Truscott acknowledged that some of the funds were sent to Buffalo to purchase "Canada money," probably Bank of Upper Canada notes, but noted that when the funds reached Buffalo the money had disappeared from the market (Truscott, 1838, 4). on credit tightness in England spreading to New York began to appear in Upper Canada papers in early April (e.g. Patriot, 1837a) and in mid-May word of the suspension of specie payments by all banks in New York and other major eastern American cities on was published in Upper Canadian papers (e.g., Patriot, 1837b). Canadian bills as well as gold were reported at a substantial premium in New York so the external threat to the Canadian gold stock was probably small. Nonetheless, the Canadian banks lost specie and there was apprehension of even more substantial gold drains. Merchants mounted pressure to suspend. Supported by resolutions from meetings of merchants, banks in Lower Canada suspended almost immediately, in Quebec on May 16 (Simpson, 1837) and in Montreal on May 17 (Holmes, 1837; Castle, 1837; LeMoine, 1837), suspensions that were subsequently ratified by legislation (Lower Canada, 1838). Upper Canada chose a different course.

Asserting that

Whatever may be the fluctuations in the Money Market, the commercial integrity of the rests on the fixed immutable basis of faithfully liquidating so long as it has the power do so, whatever it has promised to pay (BUC 1837a) the Lieutenant Governor offered what support he could muster from the Imperial funds at Quebec ... provided he clearly understands that the Bank of Upper Canada has positively determined, under no circumstances whatever, to suspend cash payments, but on the contrary, honorably to pay out their specie (if necessary,) to the very last shilling. The principle of is honor .... (BUC 1837a).28 The Acts under which the chartered banks operated required that all banking operations be discontinued and offices closed "on pain of forfeiture of their charter" (Upper Canada, 1821; 1832) if there was a suspension of specie convertibility and the Lieutenant-Governor would not guarantee that this provision would be waived if they suspended before their specie reserves were exhausted. In effect, the banks were denied permission to suspend. The authority of the Lieutenant Governor-in-Council to make such a decision was formalized in subsequent (July) legislation (Upper Canada, 1837c) and the Lieutenant Governor then reaffirmed the requirement that a bank pay out all of its specie before suspending and added the penalty that the notes of any suspended bank could not be used in government transactions (Head, 1837).

There followed a period of severe credit and monetary contraction, evident in the behaviour of the circulation of banknote in Figure 1. Under the best of circumstances, this would have created difficult times for a small bank. However, all other Canadian banks survived; the Agricultural Bank did not. In the best of the British tradition cited by Head, Truscott was proud that the Agricultural Bank maintained specie convertibility to the end -- although he ignored the bank's resort to the devious device of issuing notes payable in Montreal rather than Toronto (Truscott 1838). Refusal to suspend may have hastened the end by laying the basis for a liquidity crisis. Moreover, suspension would not have made the

28 This was the Governor's May 17 response to the Bank of Upper Canada's May 16 appeal for assistance. For another statement see Baskerville, 119-20. Baskerville also provides a revealing letter on the state of the Bank of Upper Canada's specie reserve (115-17). Agricultural Bank unique and hence destroyed its reputation in the community. The Commercial Bank had already suspended, with permission, on , and the Farmer's Bank, without official sanction, in mid-October.29

b. The Legacy of Mr. Brown. The US operations had been disastrous. Truscott and Green argued this was a result of the devious practices of their US partner, Russell Brown. Shortt clearly accepts this characterization of Brown, and we have no reason to question it. However, there is another revealing aspect of the bank's American adventure. It is clear that the Canadian bankers had not used due diligence in monitoring the activities of the American agencies. Indeed, at one point they note that

... it never occurred to them, either prior to this date [October 1836] or subsequently, to enter upon any examination of the books at Buffalo for the purpose of verifying the statements of profit and loss occasionally submitted to them (Truscott, 1838,p. 6). Granted, travel and communications were slow, making effective monitoring difficult and multiplying the opportunities for misappropriation of funds. However, the management of a branch banking operation involved more than providing money and having ... unlimited confidence on the good faith and integrity of the parties with whom they were connected, and whose interests seemed so indissolubly blended with their own (Truscott, 1838, p. 6). The overwhelming impression from Truscott and Green's pamphlet is of very naive bankers -- naive to the point of incompetence. We know that Green had many years experience in the British Commissariat service, and that Truscott had been involved in the organization of joint stock banks in England. However, there is no evidence that either had practical experience as a banker, particularly experience in managing branch banks. While their motives may have been pure, their ambitions outreached their abilities.

c. A Matter of Reputation. It was important that the bank show a good face to the Legislative enquiry in June 1837. Truscott was concerned that the small value of discounts in Upper Canada and the large balances due by the US agencies would generate protests and dangerous publicity. He engaged in window dressing, transferring a substantial (but unstated) value of bills from the books of Buffalo agency to the books of the Toronto bank, reducing the apparent debt due by the US agencies. The resulting Canadian balance sheet is on Table 3. Of course, we have no way of checking the accuracy of the various entries and the balance sheet may not be complete (it was compiled from answers to questions about the various items). It is interesting, however, that the apparent nominal capital of the bank ( the difference between the book value of assets and liabilities) was somewhat less than the amount of capital that Truscott and Green reported having subscribed to the enterprise. What is important, however, is that the reported capital of the bank was purely nominal, based on unrealizable values of assets. The bills transferred to the Toronto

29 Because the Farmer's was not chartered the Governor's sanctions were not relevant. books, whatever their underlying value, had been left in Buffalo in the custody of attorneys. They were soon reacquired by Brown.30

Truscott and Green seem to have obscured the bank's real status in the June hearings, but when they returned to Toronto on November 1, 1837, they were arrested by the Sheriff on a warrant sworn by the City Bank of Buffalo, alleging default on more than $10,000 of loans. They posted bail, using debentures they did not own but were holding in safekeeping for English friends. While they were soon released, the damage to the reputation of the bank must have been severe.31 Both left the country.

Apparently the bank experienced severe liquidity pressures in November 1837. In an attempt to relieve these pressures, they began to issue notes payable at their Montreal agents rather than in Toronto. But this was nothing more than a temporary palliative. On November 15, MacKenzie reported that

A bundle of Messrs., Truscott & Co.'s notes, payable in Montreal in other bank notes, have been refused payment there and returned. (MacKenzie, 1837a) A week later he reported that he had taken some Agricultural Bank notes payable in Montreal to the bank where payment was refused, even at a discount or in Montreal bank notes (MacKenzie, 1837b) and the Kingston Chronicle reported that

The notes of the Agricultural Bank continue to be refused both here and at Toronto (Kingston Chronicle, , 1837). The notice of the closing of the bank was dated November 24 (Truscott, 1837). We have no information on what was lost and by whom. At the time of the failure, Truscott and Green were both out of the country32and apparently they had no assets in Canada. We do not know if they had any assets in the United States or Britain that were not tied up in the bank and its agencies (although at the outset they protested that the bank was backed by substantial independent wealth), but if they had, location would have made pursuit and recovery very difficult, if not impossible, particularly for the small note holders. It seems likely that note holders lost everything. Indeed, Truscott expressed a plan to use the bank's remaining resources first to pay off the depositors because they had shown confidence in the bank and to pay note holders only if funds were left because the notes were

probably dispersed in many hands, and not held from motives of favour to the Bank, but of convenience to the parties (Truscott, 1938, p. 25). The bank's Canadian assets, of unknown magnitude, remained if they could be collected upon. That collection was attempted is suggested by the fact that a special law was passed to permit use of

30 Truscott's convoluted story of this incident does not ring true. It is possible that the bills recorded on the Toronto books were spurious. In any case, they were not available to pay off the debts of the institution. 31 It is interesting, however, that we have found no mention of the incident in the newspapers. When they appeared in Buffalo in 1838, to publish their apologia, they were again arrested, apparently on the same claim. MacKenzie reports that they were soon released by the "generous Buffalo people." (MacKenzie, 1838a). 32 Green had taken up residence in New York in 1836 (Truscott, 1838). Agricultural Bank notes to pay judgements in favour of Truscott and Green on debts due to the Bank (Upper Canada, 1838). This legitimatized a practice that had been very controversial in the liquidation of the pretended bank of Upper Canada (Kingston) that had failed in 1823, of the bank's debtors buying banknotes at a discount to retire their debts. The effect was to give partial compensation to some note holders but nothing to others. It is interesting to note that an advertisement subsequently appeared in the Montreal Gazette offering to purchase one thousand dollars of Agricultural Bank notes (MG, 1838). This was presumably someone seeking to pay off debts to the bank.

6. Was the Agricultural Bank a "Scottish Bank"? In light of the reverence paid to "Scottish Banking" by the banking reformers of the day, it is interesting to ask if the Agricultural Bank was an example of such an institution. Little information is available on the lending practices of the Agricultural Bank and in particular on the extent to which it made cash advances. That it made loans to farmers is documented but the reported loans were for 90 days, secured by a transfer of title to farm land, with a "bond" to return title when the loan was repaid (Upper Canada, 1835a).33 Thus, they appear to have been for fixed term rather than cash loans. When farmers could not repay, foreclosures followed. Within a year of its opening, MacKenzie was complaining bitterly about the many lawsuits that the bank was prosecuting; about the

... glorious harvest they reap from the poverty and misery of their fellow creatures .... The farmer's harvest comes but once a year -- the Bank Attorney's lasts the whole year round (MacKenzie, 1835a). He concluded that the

...ejectments and the cognovits, and the lawsuits and the writs, and the mortgages and the per cents, of Truscott & Co (MacKenzie, 1835b) were inducing reformers like himself "to part company with the old veteran" (i.e. Captain Truscott). The Agricultural Bank had a strong impact on banking practice. It was the Canadian pioneer in paying interest on deposits and, while not the first private bank, in attempting to establish private banking as a legitimate form o organization for a province-wide enterprise. It may also have pioneered cash accounts, but that is less certain. However, from the reformer's perspective, in its lending policies, the new bank seems not to have been a significant improvement on the existing banks. It induced some improvements in the system, but in organization and in spirit it was not the promised "Scottish bank."

7. Implications The Agricultural Bank was a very small institution with a very short life. In this sense, it was insignificant in the history of Canadian banking. Yet it had an importance greater than size and duration alone would suggest. It initiated Canada's first serious venture into free banking and, while that concept of

33 In his testimony to the 1835 investigation Truscott confirmed this policy (Upper Canada, 1835). Amicus alleged that farmers were required to transfer title to land of value of five times the amount of the loan (Amicus, 1834). banking policy might not have put down roots and survived in any case, the failure of the Agricultural Bank probably sealed its fate.

By the time that the Agricultural Bank failed, the establishment of new note-issuing private banks had been outlawed (Upper Canada, 1837b, 1837c), but that measure was not without strong opposition in the Upper Canadian Assembly.34 The failure must have convinced many of the wisdom of the prohibition. There were no further serious attempts to repeal it, the discussion of the glories of joint stock banking in the Scottish tradition disappeared from the newspapers and imaginative schemes to create new banks, except a provincial bank with a monopoly over currency, seemed to drop off the reform agenda.

The entry of the Agricultural Bank demonstrated that a small but aggressive bank could find a niche in a sheltered banking industry with the competitive power to change established banking practices. Attempts to charter new banks were frustrated in the regulatory process. Those charters that jumped the legislative hurdle were reserved "for the signification of Her Majesty's pleasure," and lost. The entry of the Agricultural Bank showed that free banking could bypass regulatory restrictions and open the banking system to new competition.

At the same time, the Agricultural Bank demonstrated some of the problems of free banking in the nineteenth century Canadian context. Some contemporary critics implied that Truscott and Green were scoundrels who engaged in banking with the intention of profiting from fraud and deceit. That is possible, but seems unlikely -- an attribution of motives on the basis of results which had other causes. However, the incident does raise the questions of the financial responsibility of bankers and the protection of essentially innocent recipients of bank notes and perhaps of depositors.

According to the free banking litany, protection for creditors is supposed to reside in the self interest of the owners of the bank and the fact that their entire personal wealth is at risk. In this case, the protection so provided was uncertain and possibly spurious. The true wealth of the owners was not revealed to the public and when a statement was presented to the a committee of the legislature, the full capital of the bank was deliberately not disclosed and the wealth of the partners, as reported in a supplementary sworn statement, was vague, not authenticated and its nature (stocks and bonds; liquid assets; real estate; etc) not examined. Moreover, the relevant assets were offshore, not easily recoverable, and the international border made flight a simple defence for the bankers who were in fact or in spirit non-residents. The capital that provided implicit insurance for creditors of chartered banks was strictly limited but, subject to the serious vagaries of reporting, accounting and market valuations of assets, relatively certain. The capital that provided the insurance for creditors of the private banks was subject to the same accounting and market vagaries, but even in nominal terms was uncertain.

But what the Agricultural Bank illustrates more than anything is the risk inherent in close control of banking institutions, with no restrictions on the scope of banking activities and no requirement for audited

34 However, the decisive word ultimately might have come from the Imperial government who were strongly in favour of a banking system closely regulated according to a very restrictive set of principles that had no room for free banking. public reporting. The owners had a free hand to arrange the affairs of the bank as they saw fit. They made staggeringly bad judgements, either about assets or about people, and the bank collapsed as a result, with losses to note holders, depositors and probably other creditors. It is frequently said that bad management is the primary cause of bank failure. Frequently, this assertion has the appearance of a tautology; the primary evidence of bad management is the failure! However, in this case, the evidence of managerial incompetence is documented by the principals themselves. The decisions that they made -- unknown to and unknowable by their creditors -- were ex ante unreasonable by normal standards of bank management. The image presented to the Canadian community was of a brash institution that could aggressively challenge the dominant bank in the province and survive, a clear index of skill and competence. Inside, however, the bank was rotten.

B. The Farmers Bank. The Farmers Bank was an offshoot of the Agricultural Bank. Captain Truscott's motive in assisting with the establishment of a new, competitive bank is not apparent. Perhaps it was a desire to have an ally in his struggle with the Bank of Upper Canada; perhaps it was a zeal to spread the gospel of "Scottish banking"; perhaps it was a political alignment with the radical faction who wanted a bank of their own. However, Mackenzie's theory is most plausible (Mackenzie, 1835a). That Truscott found he did not have sufficient capital; that a new joint stock company was a vehicle for raising new capital. The presumption is that he would have merged the institutions had he gained control of the Farmers. In any case, Truscott offered the services of his bank in handling subscriptions to the stock of the new venture, offered technical advice, recruited an experienced manager, purchased stock and stood for election to the Board of Directors.

Unlike the Agricultural Bank, the Farmers Bank was a true joint stock company. Many shareholders, each of which had unlimited liability.

Truscott's plans were not to be. The bank was born in a political maelstrom, which saw Truscott eased out, failing to win election to the Board; his choice of manager rejected; and the bank deserted by the radicals who not only lost control but also attempted to sell their shares, proposing to try again with a bank of their own, what was to become the .35

Like the other non-chartered banks, it was not organized under any specific Canadian Act; indeed, it may have been illegal. The Act that repealed the relevant parts of the Bubble Act (U.K. 1719, 1825) made no mention of the 1741 Act that had extended its prohibition of unchartered joint stock companies to the North American Plantations and (U.K. 1741).36

35 Although he later stated: "I never connected myself in any way with the new concern, never attended its meetings, nor subscribed a farthing towards it, for I had no confidence in its stability." (MacKenzie, 1835a) 36 This seems to have been the reference in at least one contemporary suggestion that private banks were illegal. Cf. Observer (1835). C. The Bank of the People. The Bank of the People was the reformers' answer to the fiasco that surrounded the organization of the Farmers Bank. Thus, in the midst of the controversy over the Elmsley group's grasp of control over the Farmers Bank, MacKenzie announced

D. The Niagara Suspension Bridge Bank.

II. The private banks of Lower Canada

Young (1838) list "Commercial Bank, Mills & Co... A private partnership" and the "St. Hyacinthe Bank ... A Societie en commendite" as banking institutions of Lower Canada in 1838. Apart from noting that the St. Hyacinthe was established in 1837 he provides no other information: "No statements published." The financial statement for June 1837 published by the Bank of Montreal gives a classification of the "Bank Notes and Checks of other Banks on hand" on that date. Among the œ22,190 of banknotes, œ138 were of "Mills & Co. Bank." (BM 1837)

III. Bank of British North America

We have monthly data on the note circulation of the whole bank from June 1840 onwards and for the Canadian branches from November 1841 through October 1848. We have used the statistical relationship between these series to estimate the note circulation of Canadian branches in later years. For 1840 and 1841, however, this procedure does not seem reasonable. The relationship between the Canadian branches and the whole bank must have been changing rapidly through 1841. The Toronto branch opened in 1838 but by June 1841 it had issued only $21,294 of bank notes, about 16% of those issued by the Quebec branch. A note accompanying the 1841 financial statement reported that

The branch has not been issuing its own paper for a considerable time -- the form of Note not being adapted for the Province, which accounts for its circulation being limited.(Montreal Gazette, 4107.30) By contrast, the deposits of the Toronto branch amounted to $99,981, about 38% of those at the Quebec branch. What was true of Toronto was probably also true on a smaller scale of Kingston. We don't know when the Upper Canada branches began issuing notes, but it was probably in early 1841 or late 1840.37 Subsequently, the note circulation jumped from a minor factor in the bank in 1840 to a major factor by mid-1842. This change should have produced a rising trend in the ratio of note circulation from Canadian branches to that of the whole bank; the tail end of such a trend seems apparent in the first few observations of Figure . For this reason we have not used a more sophisticated estimation procedure but have simply made a linear interpolation between bench mark observations (or estimates), allocating

37 For some reason, the Bank of British North America -- like the banks of Lower Canada -- paid no banknote tax in December 1841, for any of its branches. By contrast, the Banks of Upper Canada paid tax on their notes outstanding on October 31, 1841. The banknote tax should provide an indication of the starting law required a statement of notes outstanding at month ends for the periods May - October and November - April, with the tax payable on . the Canadian circulation between Upper and Lower Canada on the basis of evidence for benchmark dates.

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"An Act to Afford Relief to Certain Banking Institutions Heretofore Carrying On Business in the Province, by Enabling them more Conveniently to Settle Their Affairs and For Protecting the Interests of Persons Holding Their Notes." 7 & 8 Wm.IV., c.1 Upper Canada (1837b). "An Act to Protect the Public Against Injury from Private Banks." 7 Wm.IV. c.13. Upper Canada (1837c). "An Act to Authorize the Chartered Banks in this Province to suspend the redemption of their Notes in Specie, under Certain Regulations, for a Limited Time, and for Other Purposes therein Mentioned." 7 & 8 Wm.IV. c. . Upper Canada (1838). "An Act to Repeal Part of an Act Passed in the Seventh Year of His late Majesty's Reign, Entitled, 'An Act to Protect the Public Against Injury from Private Banks and For Other Purposes Therein Mentioned.'" 1 Vic., c. 23. Watt, P. (1836). The Theory and Practice of Joint Stock Banking. Edinburgh: John Anderson. White, Lawrence H. (1984). Free Banking in Britain: Theory, Experience and Debate, 1800-1845. New York: Cambridge University Press. Woodward, J.K. (1835). "Mr Editor, Sir." Correspondent and Advocate. 3502.12 Young, G.R. (1838). Upon the History, Principles, and Prospects of the Bank of British North America and of the Colonial Bank. London: Wm. S. Orr & Co. [CIHM 43094]. Table 1 The Agricultural Bank and the Two Chartered Banks, 1835

Agricultural Bank of Upper Commercial Bank 3 Bank 1 Canada 2 Thousands of Dollars Banknotes in circulation 151.1 975.4 468.4 Deposits Demand or non-interest 16.9 722.9 84.8 bearing Time or interest bearing 29.8 7.2 8.9

Notes: 1 March 16, 1835. 2 January 23, 1835 3 , 1835

Table 2

Agricultural Bank: Balances Due from US Agencies, 1834-1837

Due from Agencies Note Circulation '000 '000 '000 $ £ £ October 1834 0.5 December 1834 2.9 April 1835 30.0 7.5 26.0 October 1835 80.0 20.0 24.0 April 1836 131.6 32.9 18.4 April 1837 Bank 129.0 32.2 20.0 Dunn 56.0 14.0 Total 185.0 46.2 20.0 Table 3

Agricultural Bank: Balance Sheet, June 1837

Assets Liabilities £'000 £'000 Specie 8.3 Notes 18.6 Due from Agents 17.3 Deposits 3.5 Discounts 33.9 Loans 14.2

Assets 59.5 Liabilities 36.3 Apparent Capital 23.2

Assets 59.5 Liabilities & Capital 59.5

Reported Capital 25.5 Liabilities & Reported Capital 61.8

Sources: Upper Canada, 183x