70 
Indiana University 
having a capital of $2,000,000 which was to belong exclusive- 
ly to the state, was issued a charter for twenty years. Its 
president and twelve directors were to be chosen annually on 
joint ballot by both houses of the legislature. The main bank 
was to be at Frankfort, and it might have a branch in each 
judicial district. The notes of this bank were virtually a legal 
tender for all debts.^^ 
Since the Bank of the Commonwealth had pledged to it all 
funds received for state lands west of the Tennessee River, 
all the income from the stock of the Bank of Kentucky owned 
by the state, and any unexpended balances in the state treas- 
ury at the end of the year, it was thought by many that it 
would be a safe experiment. Loans were to be made on mort- 
gage security; the president and directors might have dis- 
counts for $2,000, but all others were not to exceed $1,000; 
and all borrowers were required to make oath that they 
would use the amount procured from the bank during 1821 in 
payment of their just debts or to purchase for exportation the 
produce of the country.®^ The bank’s chief function at the 
beginning was to issue plenty of paper money.®^ It was al- 
lowed to issue $3,000,000 in paper notes, but the state would 
be responsible for only the $2,000,000 which was its legally 
authorized capital. It seems the bank’s capital was scarcely 
more than nominal.^^ The legislature appropriated $7,000 to 
buy books, and paper and plates for printing notes. Sumner 
says that this was all the real capital the bank ever had, and 
that it was just one more of the grand swindling concerns 
common at that period.®^ It must be remembered that this bank 
was created as a relief measure, thus showing that a strong 
motive in the minds of the legislators was undoubtedly to 
allow debtors to pay their obligations in cheap money, altho it 
clearly meant that creditors would be defrauded.®® It was 
foreseen by some members of the legislature that the notes 
of the Bank of the Commonwealth would soon depreciate, 
and they opposed the project vigorously, but the debtor classes 
desired depreciation, and the legislature, listening to public 
Durrett, op. cit., 18 ; Shaler, Kentucky a Pioneer Commomvealth, 177, 178. 
National Intelligencer, November 28, 1820. 
Charles B. Elliott, in Political Science Quarterly, V, 251. 
Sophonisba Preston Breckinridge, “Administration of Justice in Kentucky”. Type- 
written thesis in the University of Chicago Library, 1897. 
Sumner, Andrew Jackson, 162. 
McElroy, Kentucky in the Nation’s History, 385. 
