The charter of the State Bank of Indiana, which dated from 1834, ran till January 1, 1859. The State was a part owner in that bank, but through the institution ranks well in our history as a reputable one, objections to it had sprung up. In the new constitution was inserted a section forbidding the State to be a stockholder in any bank after the expiration of the charter then existing. There was also the provision that no bank should be established otherwise than under a general banking law, except that there might also be chartered a bank with branches without collateral security, the branches to be mutually responsible for each other's liabilities upon all paper credit issued as money. If the General Assembly should enact a general law it was to "provide for the registry and countersigning, by an officer of State, of al paper credit designed to be circulated as money; and ample collateral security, readily convertible into specie, for the redemption of the same in gold or silver," was to be required, such collateral security to be under the control of the proper officers of the State.

The immediate result of this was a general law authorizing "free banks," passed by the first Legislature after the convention, and the "free bank era" that followed would seem to be one of the lessons of history. Within six months after the passage of the law fifteen banks had been organized and seventy-four others followed (Esarey). In spite of the constitutional safeguards to "ample collateral security" under the control of State officers many of the bankers were irresponsible adventurers and a goodly percentage of these seem to have been deliberate rascals and grafters. According to one writer, "a thousand or two of cash only was needed to start a bank in those halcyon days of paper currency. All that was needed was enough to pay for engraving the bills. An embryo banker would go to New York with a thousand or two dollars, order an engraver to make a plate and print him $50,000 in bills. He would then visit a broker and negotiate for $50,000 worth of the bonds of some State. The next step was to send the printed bills to the State Auditory of Indiana and instruct the broker to forward to the same place the bonds negotiated for, to be paid for on receipt at the Auditor's office. The Auditor would countersign the new money, pay for the bonds, and a new bank would be set going, and the enterprising banker would receive the inter5est on the $50,000 worth of bonds. Thus one man, with $10,000 in money, bought bonds and established banks until he had in circulation $600,000 of paper, and was drawing interest on that amount of bonds" (W. H. Smith).

This may be drawing it a little strong so far as the general conditions were concerned, but at any rate the "wildcat" banks and the speculators who made the most of them bought about a general derangement of money affairs and the distress that goes with an inflated, depreciated currency.