An early history of Columbus and central Ohio noted that “the development of trade bears such an intimate relation to public finance that one cannot be comprehensively considered without taking some account of the other.”

Columbus was created by the Ohio General Assembly to be the new capital city of Ohio in 1812. The frontier village of a few hundred people grew slowly at first. With the arrival of the Ohio and Erie Canal and the National Road, the borough of Columbus became the city of Columbus, reaching a population of 5,000 in 1834.

Commerce and trade increased, as well – and so did the need for banks.

But banking in frontier Ohio was not like the banking of today. Our earlier history reminds us that “prior to the year 1838, and for the most part down to the legislation incident to the Civil War (1861-65), local banking was regulated by the states, and was practically free. Under prescribed rules, any individual or corporation might issue notes on a pledge that they would be redeemed when presented. ... Speculators and brokers were for a time enriched, but labor was impoverished. And business, particularly on the frontier, degenerated into a condition little better than that of the barter of nomads and savages.”

Our early author, perhaps because of personal experience, overstates the case a bit – but not by much.

Early banking in Ohio could be a rough-and-tumble affair. Any person or corporation who wished to print their own money legally could do so. These notes were promises to pay when presented to their creators in goods or services, as if the piece of paper were a piece of gold or silver – called “specie” in those days.

Banks similarly were a bit loose in their creation and operation. In the early days, anyone who wanted to open a bank simply hung a sign that said “bank” by their door and stood by, confident that friends and neighbors would leave their money there. Sometimes people did just that, and the local bank now had funds to invest.

Banks could and did print their own money, as well. This was possible in an era when banks – if regulated at all – were overseen by the states, not the federal government.

This open and virtually unlimited ability to print money meant prosperity was based on proximity.

For example, if I printed a note saying I would give you $1 when the note was presented, it might be accepted at face value if you lived on the same street or in the same town as I did.

But if you tried to spend that note in Newark or Delaware or Circleville, it would be viewed with less confidence by the locals. Because of a lack of confidence in easy collection, a local redeemer of the note might “discount the note.” That means the person cashing the note would deduct 10%, 20% or more from the face value of the note and give you what remained.

What followed after the 1820s was a period of “tolerable though fluctuating prosperity, due almost entirely to the unlimited resources of the country, and the equally unlimited industrial energy and enterprise of the American people.”

The good times did not last. Eventually, for a number of reasons – one of which was the virtually unlimited printing of private paper money – the country fell into economic difficulties in the Panic of 1837.

Similar periods of “boom and bust” would resurface in the 1850s, 1870s and 1890s. It wasn’t until the 20th century that economists and scholars would begin to call economic panics by the new terms of recession and depression. The new euphemisms perhaps made a period of economic decline sound more like a weather change.

In time, regulation at the state and local level would come. In Ohio, a lot of the energy to make this happen came from a formidable economic conservative state senator named Alfred Kelley.

Kelley earned a reputation as the “Father of Ohio’s Canal System” and had at one point pledged his Greek Revival mansion in Columbus as collateral to pay the interest on canal debt. He had reason to want a stronger and more reliable banking system.

So did local merchants. One of them, William Dunn, noted in 1889 the success of a stronger financial system: “There are nearly, perhaps quite, fifty dry goods stores in this city today. ... The expense of carrying on the business is much greater than it was twenty years ago, and especially so in the heart of the city. The people are wealthier and require more attention.”

Another historian concluded: “New modes of life have produced new wants and new methods of supplying them which, less than a generation ago, were unknown and scarcely thought of.”

Local historian and author Ed Lentz writes the As It Were column for ThisWeek Community News.