§§§ §§ Ş. § º § §§ Q § §§§ - § Bºº. & º Nº. #: §§§ § - Fº § § sº : §º § º § tºº § - § : §§ § § § §§ §§ § § §§ & 3Nº. º §§ º §§ § §§ º §§§ §§§ §§ §§§ - º §§§ § § º - § - Š § & §§ º º Nº. §§ § §§ § Sº º & G º º § §§ § r §§ § § §§ §§§ º § º § §§ º §§ § § & § & § - :S § § §§ - §§§ § Nº § & §§ §§ § Š § & º - Sºğ W §: §§ § º N sº §§ § sº §§§ º º º º § § º § & §§ s & §§ & §§§ º §§ º §§ § § § Nº §§ º & & sº º & º - §§§ * § §§ º § § § § 2 §§ §§ º - º tºº º tºº - §§ § §§§ sº º Kº: - § § §§ § sº § §§§ ---------------- --~~~~*~~~~ ~~~*~~~~ ~~~~ ~~**-.•••••• --~~~~ ~~~~••••••• • -… ~~~~--~~~ Ë!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!\!}}}}}}}ĮĮĶĶĹĹĻĻĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪİ =#############################ѧ§ģŒŒÆ }ĚĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĘ\\$\\ŔŕšķiļļļļĪİIĮĮIIIIIII||I||I||I||I||I||I||I||I||||Ė |||ſſilſ ** ºº: ºº º ºxº.º.º.º. §: - immiſſi ~ ！！！！！！！！！！！！！--~~~~ ~~~~*~*~~~~--~~~~*~*~*~*~*=~~~~ ~~~~*~~~~*~*~*=.**…--~~~~<>.*~******* Ïï t Hăá?ſíſſiſſīĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪſā ÎÎÎÎÎÎÎÎÎÎÎÎÎÎÎÎÎÎÎÎÎÎÎÎÎÏÏĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪİİİİİİİĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪĪ ÎÎÎÎÎÎÎÎÎÎÎÎÎÏÏĪĪĪĪĪİ !，:，:::：::::：：:::：:...*.**... ********. :::: ********-->:）！！！！！！！--* | •）: *aerae，，，.，，.，:.，.）.::：::-:ºrrº ș:： -*.w.::：:：:::：：:[[[[[[[[[[[]]ÎÏļĪ HARPER'S HALF-HOUR SERIES. 1. The Turks in Europe. By Edw. A. Freeman.80 15 2, 3. Tales from Shakespeare. Iły Chas. and Mary Lamb. Comedies, 25 cts. Tragedies, 25 cts. 4. Thompson Hall. By Anthony Trollope. Ill's. 5. When the Ship Comes Home. By Walter Be- Sant and James Itice. . . . . . . . . . . . . . . . . . . . . . . . . . . 6. The Life, Times, and Character of Oliver Cromwell. By E. H. Knatchbull-Hugessen . . . . 7. Early England. By F. York-Powell... . . . . . . . 8. England a Continental Power. By Louise 9. Rise of the People, and Growth of Parliament. By James Rowley, M.A. . . . . . . . . . . . . . . . . . . . . . . . 10. The Tudors and the JReformation. By M. Creighton, M.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11. The Struggle Against Absolute Monarchy. By Bertha M. Cordery. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. The Settlement of the Constitution. By Jas. Rowley, M.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13. England during the American and European Wars. By O.W. Tancock, M.A. . . . . . . . . . . . . . . . . 14. Modern England. By Oscar Browning, M.A. it. University Life in Ancient Athens. By W. W. 'apes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18. Dieudonnée. By Geraldine Butt............. 19. The Time of Iłoses. By Geraldine Butt...... 20. The Jilt. By Charles Reade. Illustrated. . . . 21. The Mill of St. Herbot. By Mrs. Macquoid... 22. The House on the Beach. By George Meredith 23. Kate Cronin's Dowry. By Mrs. Cashel Hoey. 24. Peter the Great. By John Lothrop Motley... 25. Percy and the Prophet. By Wilkie Collins... 26. Cooking Receipts. From Harper's Bazar. ... 27. Virginia. A Roman Sketch.................. 28. The Jews and their Persecutors. By Eugene Lawrence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29. The Sad Fortunes of the Rev. Amos Barton. By George Eliot............................... 30. Mr. Gilfil's Love Story. By George Eliot..... 20 25 20 25 25 25 25 25 25 25 25 0 20 2 Harper’s Half-Hour Series. 31. Janet's Repentance. By George Eliot. . . . . . $0.20 32. The A B C of Finance. By Simon Newcomb.. 25 33. A Primer of Mediaeval Literature. Iły Eugene Lawrence... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34. Warren Hastings. By Lord Macaulay. . . . . . . . 25 35. Addison. By Lord Macaulay. . . . . . . . . . . . . . . . 25 36. Lord Clive. By Lord Macaulay. . . . . . . . . . . . . . 25 37. Frederic the Great. By Lord Macaulay...... 25 38. The Earl of Chatham. By Lord Macaulay.... 25 39. William Pitt. By Lord Macaulay............ 25 40. Samuel Johnson, LL.D. By Lord Macaulay... 25 41. Hampden.—Burleigh. By Lord Macaulay.... 25 42. Sir William Temple. By Lord Macaulay...... 25 43. Machiavelli.-Walpole. By Lord Macaulay... 25 44. Milton.—Byron. By Lord Macaulay......... 25 45. My Lady’s Money. Related by Wilkie Collins 25 46. Poor Zeph . By F. W. Robinson. . . . . . . . . . . . . 20 47. Shepherds All and Maidens Fair. By Walter Besant and James Rice. . . . . . . . . . . . . . . . . . . . . . . . 25 48. Back to Back. By Edward Everett Hale..... 25 49. The Spanish Armada for the Invasion of Eng- land. 1587–1588. By Alfred II. Guernsey... . . . 20 50. Da Capo. By Anne Isabella Thackeray..... . 20 51. The Bride of Landeck. By G. P. R. James... 20 52. Brother Jacob.—The Lifted Veil. By Geo. Eliot 20 53. A Shadow on the Threshold. By Mary Cecil Hay 20 54. David's Little Lad. By L. T. Meade......... . 25 55. Count Moltke's Letters from Russia. . . . . . . . . 25 56. Constantinople. By James Bryce............ 15 57-59. English Literature Primers. By Eugene Lawrence: 57. Romance Period.—58, Classical Period.—59. Modern Period. . . . . . . . . . . . . . . each 25 60. Tender Recollections of Irene Macgillicuddy. 15 61. Georgie's Wooer. By Mrs. Leith-Adams..... 20 62. Seven Years and Mair. By Anna T. Sadlier... 20 63. A Sussex Idyl. By Clementina Black......... 25 64. Goldsmith-Bunyan. —Madame D'Arblay. By Lord Macaulay.......................... ...... 25 65. The Youth's Health-Book................... 25 66. Reaping the Whirlwind. By Mary Cecil Hay... 20 67. A Year of American Travel. By Jessie Bén- ton Frémont................................... 25 68. A. Primer of German Literature. By Helen S. Conant..... * e a tº e s e s a s a s a s e a & e º ºs e e s tº e º e º e s a e > 25 Harper’s Half-Hour Series. 69. The Coming Man. By Charles Reade....... $0 20 70. Hints to Women on the Care of Property.... 71. The Curate of Orsières. By Otto Roquette.... 72. The Canoe and the Flying Proa. By W. L. Alden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73. Back to the Old Home. By Mary Cecil Hay.. 74. The Lady of Launay. By Anthony Trollope. 75. Sir Roger de Coverley. From The Spectator.. 76. Pottery Painting. By John C. L. Sparkes.... 77. Squire Paul. By Hans Warring. . . . . . . . . . . . . . 78. Professor Pressensee. By John Esten Cooke. 79. The Romance of a Back Street. By F. W. Robinson. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S0. Behind Blue Glasses. By F.W. Hackländer.. 81. Recollections of Rufus Choate. E. P. Whipple. S2. Daisy Miller. By Henry James, Jr.......... © 83. A Primer of Spanish Literature. By Helen S. Conant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84. A Dark Inheritance. By Mary Cecil Hay..... 85. The Vicar of Wakefield. By Oliver Goldsmith. 86. Stories from Virgil. By A. J. Church........ 87. Our Professor. By Mrs. E. Lynn Linton..... SS. The Sorrow of a Secret. By Mary Cecil Hay.. 89. Lady Carmichael's Will and other Christmas Stories. . By Mary Cecil Hay and others....... 90. 'Twas in Trafalgar's Bay. By Walter Besant and James Itice............. * * * * * * * * * * * * * * * * * * * 91. An International Episode. By H. James, Jr. 92. The Adventures of Ulysses. By Charles Lamb. 93. Oliver Goldsmith's Plays.................... s 94. Oliver Goldsmith's Poems... . . . . . . . . . . . . . . . . e 95. Modern France. By George M. Towle........ 96. Our Village. By Miss Mitford................ 97. Afghanistan. By A. G. Constable............ 98. John. By Thomas W. Knox................. 99. The Awakening. By Mrs. Macquoid......... 100. Ballads of Battle and Bravery. .............. 101. Six Months on a Slaver. By E. Manning.... 102. Healthy Houses, By , Fleeming Jenkin. Adapted by George E. Waring, Jr...... ........ 103. Mr. Grantley's Idea. By John Esten Cooke. 104. The Four Georges. By W. M. Thackeray.... 105,106. The English Humorists. By W. M. Thack- eray. In Two Numbers................... each 4. Aarper’s Half-Hour Series. 107. Half-Hour History of England. By Mandell Creighton, M.A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0 108. Jord Bacon. By Lord Macaulay. . . . . . . . . . . 109. My Sister's Keeper. By Laura M. Lane. . . . . 110. Gaspard de Coligny. By Walter Besant, M.A. 111. Tales from Euripides. By Vincent K. Cooper 112. The Task. By William Cowper... . . . . . . . . . . 113. History. — Hallam's Constitutional History. By Lord Macaulay. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114. The Lay of the Last Minstrel. By Sir Wal- ter Scott... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115. Marmion. By Sir Walter Scott... . . . . . . . . . . . 116. The Lady of the Lake. By Sir Walter Scott. 117. The Lover's Tale. By Alfred Tennyson..... 118. Wassail. By Colonel Charles Hamley....... 119. Modern Whist. By Fisher Ames... . . . . . . . . 120. The Rivals and the School for Scandal. By Richard Brinsley Sheridan. . . . . . . . . . . . . . . . . . . . . 121. Holidays in Eastern France. By M. Betham- Edwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122. Labor and Capital Allies—Not Enemies. By Edward Atkinson. . . . . . . . . . . . . . . . . . . . . . dº º º ſº tº $ tº 123. Chapters on Ants. By Mary Treat.......... 124. The Bar-Maid at Battleton. By F.W. Robinson. 125. Burning their Ships. By Barnet Phillips.... 126. Food and Feeding. By Sir Henry Thompson. 127. The Origin of the English Nation. By Ed- ward A. Freeman, D.C.I., LL.D. . . . . . . . . . . . . . . . 128. The Sunken Rock. By George Cupples..... 129. American Ballads. By Thos. Dunn English. *130. Golden-Rod. An Idyl of Mount Desert...... 131. Tales from the Odyssey for Boys and Girls. 132. Othello the Second. By F. W. Robinson.... 133. A Primer of American Literature. By Eu- gene Lawrence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134. Life of Charlemagne. By Eginhard. Trans- lated by Samuel Epes Turner, A.M............. 135. The Diary of a Man of Fifty and a Bundle of Letters. By Henry James, Jr.................. 136. Fellow-Townsmen. By Thomas Hardy..... 137. William Ewart Gladstone. By Henry W. Lucy. 138. British and American Education. By Mayo W. Hazeltine. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — /2 3 4: THE NATIONAL BANKS BY H. W. RICHARDSON AUTHOR OF “PAPER MONEY” NEW YORK HARPER & BROTHERS, FRANKLIN SQUARE 1880 Entered according to Act of Congress, in the year 1880, by HARPER & BROTHERS, In the Office of the Librarian of Congress, at Washington. PREFA CE. THIS review is, primarily, a collection from offi- cial sources of the main facts concerning the origin and practical working of the National Banking System. These facts appear to estab- lish the following propositions: 1. The bank act was not an empirical measure, but a compilation of the best results of a series of legislative experiments carried on by the States for three-quarters of a century. 2. The law conferred some new privileges upon the banks, but so restricted their exercise of these, and of all privileges previously enjoyed by them, as to excite their almost unanimous op- position. 3. These restrictions, intended to protect the community at large, have proved so wholesome that the banks, with few exceptions, have become / Ş. > & Y. 8 PREFACE. reconciled to them, perceiving that their own in- terest, in the long-run, is identified with the in- terest of the community. 4. Under this law bill-holders are absolutely secured; the losses to all other creditors have been less than one-tenth of one per cent, of their claims annually; and this inconsiderable loss has been incurred by neglect or violation of the re- quirements of the statute. 5. The large profits of the banks prior to 1873 were not secured to them by the law, but were the consequence of the general inflation of prices, including the price of money, or rate of interest. Since 1873, the law remaining substantially un- changed, the net earnings of the banks have declined from 11 per cent. per annum to 5 per Cent. 6. The banks have been and are of great ser- vice in the management of the public debt. By their assistance the burden of interest has been reduced from $150,000,000 to $83,000,000 a year, and specie payments have been resumed. Without their aid the treasury would be obliged to employ other and more expensive agencies for PREFACE, 9 the reception and disbursement of a revenue of $23,000,000 a month. 7. The plan to substitute treasury notes for bank-notes is a plan to withdraw the chief con- sideration which the banks have received in re- turn for their services to the government. It is a plan, therefore, to break up the National Bank- ing System, and to make Congress permanently responsible for the issue of a credit currency, and the maintenance of proper reserves. No economist or statesman of repute has ever fa- vored such a scheme, and no country committing itself to such a policy has kept its currency at par. C O N T E N T S. I. AMERICAN CURRENCY BEFORE THE CIVIL PAG WAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 II. THE BANK ACT OF 1863................... 33 III. CONGRESS AND THE STATE BANKS......... 47 IV. THE ACT OF 1864. . . . . . . . . . . . . . . . . . . . . . . . . 60 W. ANALYSIS OF THE NATIONAL BANKING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 VI. 12 CONTENTS. VII. PAGE FUNDING OPERATIONS OF THE TREASURY.. 98 VIII. THE LEGAL TENDER CASES................ 118 IX. DRIFT OF PUBLIC OPINION................ 135 X. l MR. THURMAN'S SPEECH AT HAMILTON ... +68- YI. PROFIT ON CIRCULATION.................. 178 XII. TAX ON CIRCULATION. . . . . . . . . . . . . . . . . . . . . 193 XIII. CONDITION OF THE NATIONAL BANKS IN THE NATIONAL BANKS. I. AMERICAN CURRENCY BEFORE THE CIVIL WAR. THE history of American currency falls naturally into three periods: 1. The era of government paper, ending with the rati- fication of the federal constitution in 1788. 2. The era of bank paper, from 1789 until 1862. 3. The era of contemporaneous bank and government paper, beginning in 1862 and not yet completed. The government currencies issued by the colonies and by the Continental Congress went down in such frightful ruin, that the power to issue bills of credit was discarded by the States under the national constitu- tion, and was assumed by the general gov- ernment only after the lapse of three-quar- ters of a century, and in the heat and exi- gency of civil war. 14 THE NATIONAL BANKS. The first of the colonial bills of credit were issued by Massachusetts in 1690, to pay the soldiers engaged in the disastrous expedition of that year against the French in Canada. In the equally disastrous expe- dition of 1711, New Hampshire Rhode Isl- and, Connecticut, New York, and New Jer- sey took part with Massachusetts, and/all issued paper-money. Pennsylvania began to issue bills in 1723. In 1729 Benjamin Franklin, then twenty-three years old, pub- lished a tract advocating a scheme for a new issue of Pennsylvania bills, to be loan- ed on mortgages of real estate for terms of sixteen years. The plan was adopted, and Franklin got the contract for printing the bills, which he calls “a very profitable job, and a great help to me.” In 1734 Mary- land issued bills for £90,600 sterling. Del- aware followed the example of her neigh- bors in 1739. Virginia issued bills for £20,000 in 1755 to meet the expenses of the Braddock expedition, and £40,000 more the same year to pay the bounties for kill- * Franklin’s Autobiography, Bigelow's first edit, p. 1S6. AMERICAN CURRENCY. 15 ing or capturing hostile Indians. The pa- per-money of North Carolina was at a dis- count, in 1748, of 10 to 1. In the course of sixty-eight years South Carolina issued bills amounting to £605,000, of which more than two-thirds were loaned on mortgage of real and personal property. In 1760 Georgia authorized an emission of bills of credit, to be let out in the same way. Some of these bills were payable in ster- ling at a future date, and consequently de- preciated in proportion to the time which must elapse before they could be presented. Others were interest-bearing notes, and their value depended upon the amount of the is- sue. Others were legitimate treasury notes, issued in anticipation of taxes and receiv- able for taxes. These, if the taxes were levied and collected for an equivalent amount, were as good as coin unless they had too long to run; and that difficulty was sometimes overcome by offering, in lieu of interest, a premium of 5 per cent. on the notes at the treasury. In no case, however, were the taxes uniformly assigned to pro- tect the notes, and in no case were the notes 16 TEIE NATIONAL BANKS. permanently maintained at par. The Penn- sylvania plan was tried in most of the other colonies—in Rhode Island as early as 1715, when what was known as a “bank” of £10,000 was issued on mortgages of real estate, for ten years, at 5 per cent." In Rhode Island the debtor party were soon in a majority, and dictated extensions and terms of settlement. In Pennsylvania the loan-office was managed with more discre- tion, but the plan was not carried out ac- cording to the original intention. In New Jersey a harsher system was adopted; fail- ure to make payment on the day appointed was taken to be a confession of judgment, and only thirty days were allowed for re- demption of the mortgage. Prior to 1751 the bills of credit were generally, though * It is less than a century since the word bank be- came restricted to its present meaning. Its original signification was an aggregate, sometimes of particles, as in a bank of earth ; or of persons, as in the case of a court sitting in banc : or of capital, as Bacon, in his essay on Usury, speaks of a “bank or common stock.” Our ancestors called any loan fund by this name, whether issued by the government or contributed by individuals. AMERICAN CURRENCY, 17 not always, made a tender for private debts; but this provision had no perceptible effect to prevent their depreciation. The result of all these experiments is ex- hibited in the following table," showing the price of £100 sterling in the colonial cur- rencies of 1748: New England..................... . . .91100 New York... . . . . . . . . . . . . . . . . . . . . . . . . 190 Pennsylvania....................... 180(3) 190 Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . * 200 North Carolina..... . . . . . . . . . . . . . . . . . 1000 South Carolina. . . . . . . . . . . . . . . . . . . . . . 750 Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120(3) 125 The paper of Massachusetts was redeem- ed in 1750, by the payment of coin, in the proportion here indicated, of 1 to 11. In 1752 Connecticut offered silver for bills in the proportion of 1 to 83, at the expira- tion of three years; but new issues were made before the process was completed. In Rhode Island the currency grew worse 1 This table is given in Jonathan Elliot’s compila- tion, called “The Funding System of the United States,” p. 16. Where he found it does not appear. The paper currency of Virginia at this time consisted of warehouse receipts for tobacco, and so had a real, . though very unstable, value. - J. Yºy...” “ſlº. ') Wö. , N *, * - - * \,\! yº'ſ wº. ". . . \º ... . . . " -v. 2*, * * * tº' g - § 3. - ! - * \ ! , ', ; .# & Z. ') \ºw. " - Wºº ºf . tºo Sv% % yºkº 18 THE NATIONAL BANKS. and worse until, in 1770,6 shillings were of. fered for £8 in old tenor bills, and so the bills were retired at the rate of 263 for 1 in coin. During the eight years of the Revolu- tionary war, from 1775 to 1783, the colonies issued $209,000,000 in bills of credit, and the Continental Congress $242,000,000. The deluge of government paper rose to $451,000,000 for a population of three mil- lions—a hundred and fifty dollars a head." In 1780 the Congress authorized an issue of 5 per cent. certificates, payable in specie in six years, for which the Continental bills were to be taken at the rate of 40 for 1. The certificates, in turn, dropped to one- eighth of their nominal value, and the ex- change was never accomplished. The Con- tinental currency became utterly worthless, and has remained a type of worthlessness ever since.” * This is the amount authorized by Congress and by the colonies. It is probable that the issues of Continental money were much larger. See Elliot's Funding System, p. 11. 2 Professor F. A. Walker's sketch of the colonial paper issues, in his treatise on “Money,” includes a good account of the literature of the subject, See AMERICAN CURRENCY. 19 In the spring of 1780 the army at Valley Forge was reduced by the failure of the currency to great destitution, and was on the verge of mutiny. To relieve the neces- sities of the troops a company of citizens of Philadelphia subscribed £300,000, Penn- sylvania currency, “in real money,” and formed a bank for the collection and dis- bursement of this sum. The Congress, ac- cepting this timely aid, promised that the subscribers should be fully reimbursed and indemnified, and in 1781 the company was incorporated under the title of the Bank of North America. The bank went into oper- ation under its charter on the 1st of Janu- ary, 1782, and before the month of July fol- lowing had loaned the government $400,000. A large proportion of its capital stock was taken in Holland. The notes were redeem- able in Spanish dollars. The bank is still in operation under the national law. In 1784 the Bank of Massachusetts was chartered, and in the same year the Bank of New York began business without a also Sumner's American Currency, and Story on the Constitution,” S 1367, note. 20 THE NATIONAL BANKS. charter. The Continental currency had ceased to circulate, and values were once more measured by real money. To most people these changes had brought loss; to many, ruin; to many more, great hardship. Stay laws were passed, to postpone the col- lection of debts; a party arose which de- manded new issues of depreciated paper, in order to facilitate the settlement of out- standing obligations. In Massachusetts, Daniel Shay, who had been a captain in the Revolutionary army, headed an open insur- rection against the authority of the courts. This was in 1786. Rhode Island issued a new “bank” of £100,000 the same year, and subsequently determined to pay off her whole debt, except the 4 per cents., in pa- per-money, which was rated at 6 to 1 in gold within three months, 8 to 1 in a year, and 18 to 1 in three years, when it ceased to be a legal tender." - Shay's rebellion was put down by an army of 4000 men under General Lincoln; but this incident disclosed the weakness of * Sumner's American Currency, p. 53. AMERICAN CURRENCY. 21 the confederation then existing, and in 1787 a convention was summoned to meet in Philadelphia for the purpose of framing a general government of the United States. The convention had a wholesome distrust of paper-money. As originally reported, the constitution contained a clause, bor- rowed from the previous articles of con- federation, authorizing the federal govern- ment “to borrow money and emit bills on the credit of the United States.” Mr. Gouv. erneur Morris moved to strike out the words “and emit bills.” Mr. Ellsworth said it was a favorable moment “to shut and bar the door against paper-money.” After a sharp debate, the motion prevailed by a majority of nine States to two : Ayes—New Hampshire, Massachusetts, Connecti- cut, Pennsylvania, Delaware, Virginia, North Caro- lina, South Carolina, Georgia—9. Noes—New Jersey, Maryland—2. Mr. Madison, referring to this vote after- ward, said he was satisfied that striking out the words would not disable the gov- ernment from the safe and proper use of public notes, but “would only cut off the 22 THE NATIONAL BANKS. pretext for a paper currency, and particu- larly for making the bills a tender either for public or private debts.” The first Congress under the constitution provided, in 1789, that the revenues of the United States should be collected in gold and silver. Two years later the bills of the first Bank of the United States were made receivable at the treasury, and under the shadow of this permission the bills of the State banks afterward crept in, with such disastrous consequences that in 1840 the old rule was re-established. Even in the stress of the war of 1861 the rule was steadily maintained, so far as the customs were concerned. For seventy-three years, from 1789 to 1862, the only legal tender for private debts in the United States was coin, and the only paper currency was issued by private corporations, and payable on de- mand in coin.” Nobody imagined that 1 Madison Papers, vol. iii. p. 1346. Elliot's Debates on the Federal Constitution, vol. i. p. 276. 2 Treasury notes were issued during the war of 1812, and again during the crises of 1837 and 1857; but these issues were made for the convenience of the treasury, AMERICAN CURRENCY. 23 the general government would or could return to paper issues. Franklin, in 1783, had recanted his boyish opinions, and la- mented “the many mischiefs, the injustice, the corruption of manners, etc., that attend a depreciated currency,” Jefferson, during the war of 1812, when the State banks fail- ed miserably, declared that “the circulating medium ought to be restored to the nation;” but his plan contemplated only an issue of treasury notes as a war measure, bottomed on taxes, and barely sufficient to displace temporarily the gold and silver, which, in that case, would flow out into other coun- tries. “I am not without a hope,” he said, “that this great, this sole resource for loans in an agricultural country, might yet be re- covered for the use of the nation during war; and if obtained in perpetuum, it would always be sufficient to carry us through any and were not intended for general circulation. The greatest amount outstanding at any one time was about $10,000,000. The notes were mostly of large denominations, bearing interest, and none of them were receivable for private debts except at the option of the creditor. 1 Franklin's Works, vol. x. p. 9. 24 THE NATIONAL BANKS. war, provided that in the interval between war and war all the outstanding paper should be called in, coin be permitted to flow in again, and to hold the field of cir- culation until another war should require its yielding place again to the national me- dium.” This is a foreshadowing of the plan actually adopted by Secretary Chase; but Jefferson's language shows that in his time “this great resource” was commonly regarded as unavailable. Albert Gallatin, Secretary of the Treasury under Jefferson and Madison, from 1801 to 1813, said, in 1831, of Congress, “As this body has no au- thority to make anything whatever a tender in payment of private debts, it necessarily follows that nothing but gold and silver coin can be made a legal tender for that purpose, and that Congress cannot authorize the payment, in any species of paper curren- cy, of any other debts than those due to the United States.” Webster said, in 1832, “No State, not even Congress itself, can make anything a tender but gold and sil- * Writings of Thomas Jefferson, vol. vi. p. 141. * Quoted by Sumner, w.8., p. 58. AMERICAN CURRENCY, 25 ver in payment of debts;” and again, in 1836, “The States are expressly prohibited from making anything but gold and silver a tender in payment of debts; and although no such express prohibition is applied to Congress, yet, as Congress has no power granted to 'it in this respect but to coin money and to regulate the value of foreign coins, it clearly has no power to substitute paper or anything else for coin as a tender in payment of debts and discharge of con- tracts.” Webster, in 1832, was contending for an extension of the charter of the Second Na- tional Bank. The first Bank of the United States had been chartered in 1791, to aid the treasury in the collection and disburse- ment of the revenue, and in funding the pub- lic debt. There were then only three State banks, already mentioned. Before the ex- piration of the charter of the Bank of the United States, in 1811, eighty-eight State banks had been organized, and were able to prevent a renewal of its privileges. The 1 Webster's Works, vol iii. p. 395. 2 Ibid., vol. iv. p. 271. “ 26 THE NATIONAL BANKS. failure of the national bank to secure a new charter was the signal for a rapid increase in the number of State banks, but the war which began in 1812 and ended in 1815 forced them all into suspension except the New England banks. The treasury was supplied by loans and by thre issue of United States notes. The loans were placed at 80 to 88, and this fraction was paid in bank paper worth 10 to 20 per cent. less than par.” The interest-bearing treasury notes were depreciated from 8 to 10 per cent., and those which bore no in- terest, being convertible into 7 per cent. securities, came back as soon as they were issued.” Some of the banks received and others rejected the treasury notes, but all increased their own issues. The only way to bring order out of this confusion was by the establishment of a powerful national bank, and the second Bank of the United States was chartered in 1816 and went into operation in 1817, but too late to pre- vent the crash which followed. Specie * Treasury Report, Sept. 23, 1814. See also Finance *Report, 1876, p. 199. 2 Finance Report, 1875, p. 193. AMERICAN CURRENCY, 27 payments were resumed, but the State banks began to fail in 1818, and in 1819 there was another general suspension, last- ing for two years. The national bank it- self was very nearly carried down, but final- ly weathered the storm. Its command- ing influence repressed the excessive issues of the State banks. Ten years of almost unbroken prosperity followed. The na- tional debt was paid, and the stock of the Bank of the United States rose to a pre- mium of 20 per cent. In 1832 a bill granting a new charter to the national bank passed both houses of Congress, but was vetoed by President Jackson, whose election the bank had im- prudently opposed. Other attempts were made to prolong the existenje of the bank, but they all failed, and on the last day of 1836 the charter expired. The second Bank of the United States 1ad become a political machine, and deserved to perish ; nevertheless, it had rendered important ser- vices to the country, and the government lost not a dollar by either of these institu- tions, but received from the bank of 1791 28 THE NATIONAL BANKS. a net profit of $1,137,152, and from the bank of 1817, a net profit of $6,098,167.' The government deposits had been re- moved from the Bank of the United States in 1833, and were distributed among the State banks, which proved to be less faith- ful custodians. In 1836 the signs of an ap- proaching crisis were already visible. Con- fidence, excited by a long course of success- ful adventure, had grown too bold. The controlling influence of the national bank had been removed at the very moment when it was once more needed. A gigan- tic land speculation was in progress, and the cotton trade was expanding. The speculation in real estate exploded in 1837, but the banks escaped by a general suspen- sion of specie payments. The South want- ed more money for the cotton trade, and in 1838 Mississippi issued bonds for $5,000,000 to found a new bank. In 1839 came the second shock, which the banks were no longer able to resist. Out of 850 banks, 343 closed entirely and 62 partially.” The Finance Report, 1876, pp. 122,127. : ... 2 Sumner's American Currency, p. 152. Many of AMERICAN CURRENCY, 29 Mississippi debt was repudiated. The gov- ernment lost two millions of its deposits. In 1840 Congress passed an act establishing a sub-treasury in New York, providing that the officers of the government should keep the public funds in their own custody, and declaring that coin alone should be received in payments to the United States. Bank- notes were no longer to be received or paid out at the treasury. - The State banks, prior to 1839, for the most part, justified Benton's graphic de- scription: “Banks of moonshine, built upon each other's paper, and the whole ready to fly sky-high the moment any one of the concern becomes sufficiently inflated to burst.” They were not found- ed on real capital, but upon the notes of the share-holders, who in turn borrowed the notes of the banks. They kept no adequate reserves of coin. There was no general sys- the banks which escaped in 1839 went down after- ward. In 1841 fifty-five banks failed, with an aggre- gate capital of $67,000,000, which was almost wholly lost. Elliot's Funding System, p. 1176. -- 1 Thirty Years in the United States Senate, vol. ii. p. 51. - - 30 THE NATIONAL BANKS. tem of redemption. Their plan of opera- tions was to issue as many notes as possi- ble, and to prevent them from returning for payment, by every device that could be contrived. In point of fact, the curren- cy which they issued was not convertible, though it professed to be. There was no proper supervision by State officers, no col- lection even of authentic statistics. Several of the Western States owned State banks, and it was decided by the Supreme Court that, although no State could emit bills of credit, a State might own all the stock of a bank, appoint the directors, authorize the emission of notes, and make them receiva- ble for public dues, provided that the capi- tal should be paid in and the bank be held to answer all complaints in the courts.” How indispensable banking facilities were to the business of the country, was shown by the patience with which these make- shifts were endured, although they failed in every emergency. They were, at least, better than nothing—like the log which is 1 Supreme Court Reports, 11 Peters, 257. Briscoe vs. The Bank of the Commonwealth of Kentucky. . . AMERICAN CURRENCY. 31 felled across a stream and serves for a bridge until the freshet comes. - After the collapse of the banks in 1839 industry was prostrated for four years. The machinery of traffic had broken down, and had to be reconstructed. Gradually the banks were re-established on a better basis. In New England the Suffolk Bank, by punctually sending home for redemp- tion all the bills which came to its counter, and refusing to take those which were not promptly redeemed, had already created the feeling of responsibility which is the beginning of sound banking. In New York the Legislature, in 1840, required the banks to redeem their notes at agencies in New York city, Albany, or Troy. The New York banks were required also to secure their circulation by deposits of stocks; but as it was found that many of them deposit- ed cheap and worthless bonds, the law was amended in 1849 so as to require at least half the securities to be New York State bonds and the rest. United States bonds. TJnder these conditions, any persons who chose could engage in banking in New 32 THE NATIONAL BANKS. York. As the banks recovered, business re- vived, and speculation presently took a new direction. A rapid absorption of capital in railroads began in 1849. In that year, 1369 miles of railroads were built. The annual increase did not again fall below 1000 miles until 1861. In 1853 it was 2452 miles; in 1856 it was 3647. In 1857 the Ohio Life and Trust Company went down in August, with liabilities of $7,000,000. The company had borrowed largely on call in New York, and had placed the funds where they were not immediately available. A panic ensued, and in October the banks throughout the country were compelled to suspend pay- ments. They should have been able to re- lieve the pressure for money by expansion, but they were found to be already employ- ing their utmost resources, and increased the alarm by closing their doors. The sus- pension lasted only about two months; but the country had not fully recovered from the consequent depression when the civil War broke out in 1861. - - THE BANK ACT OF 1863. 33 II. THE BANES ACT OF 1863. IN January, 1861, the paper currency of the United States was furnished by six- teen hundred private corporations, or- ganized under thirty-four different State laws. The circulation of the banks amount- ed to $202,000,000, of which only about $50,000,000 were issued in the States which in April, 1861, undertook to set up an independent government. About $150,000,000 were in circulation in the loy- al States, including West Virginia. When Congress met in extraordinary session on the 4th of July, the three-months volunteers, who had hastened to the de- fence of the capital, were confronting the rebel army on the line of the Potomac, and the first great battle at Bull Run was im- pending. President Lincoln called upon Congress to provide for the enlistment of 3 34 THE NATIONAL BANIKS. 400,000 men, and Secretary Chase submit- ted estimates for probable expenditures amounting to $318,000,000. The treasury was empty, and the expenses of the govern- ment were rapidly approaching a million dollars a day. . The ordinary expenses of the govern- ment, during the year ending on the 30th of June, 1861, had been $62,000,000, and even this sum had not been supplied by the revenue, which amounted to only $41,000,000. The rest had been borrowed. It was now necessary to provide for an ex- penditure increased fivefold, and amounting to eight times the income of the country. Secretary Chase advised that $80,000,000 be provided by taxation, and $240,000,000 by loans; and that, in anticipation of rev- enue, provision be made for the issue of $50,000,000 of treasury notes, redeemable on demand in coin. “The greatest care will, however, be requisite,” he said, “to prevent the degradation of such issues into an irredeemable paper currency, than which no more certainly fatal expedient for im- poverishing the masses and discrediting the THE BANK ACT OF 1863. 35 government of any country can well be de- vised.” The desired authority was granted by Congress. The Secretary was authorized to borrow, on the credit of the United States, not exceeding $250,000,000, and “as a part of the above loan,” to issue in ex- change for coin, or pay for salaries or oth- er dues from the United States, not over $50,000,000 of treasury notes, bearing no interest, but payable on demand at Phila- delphia, New York, or Boston. The act does not say, “payable in coin,” for nobody had then imagined that any other form of payment was possible. - Congress adjourned on the 6th of August, after passing an act to provide an increased revenue from imports, and laying a direct tax of $20,000,000 upon the States, and a tax of 3 per cent. upon the excess of all private incomes above $800. The Secre- tary immediately invited the banks of Phil- adelphia, New York, and Boston to assist in the negotiation of the proposed loans, . 1 Congressional Globe, 1861. Appendix, p. 6. 36 THE NATIONAL BANKS. and they loyally responded. On the 19th of August they took $50,000,000 of three years 7.30 bonds at par; on the 1st of Oc- tober, $50,000,000 more of the same securi- ties at par; and on the 16th of November, $50,000,000 of twenty years 6 per cents., at a rate making the interest equivalent to 7 per cent. These advances relieved the temporary necessities of the treasury, and, when Con- gress reassembled in December, Secretary Chase was prepared to recommend a per- manent financial policy. The solid basis of this policy was to be taxation. All the ordinary expenses of the government, the Secretary urged, should be paid by the an- nual revenue, together with the interest on the public debt, and a sinking fund should be provided for the gradual extinction of the principal. For these purposes, it was estimated, a revenue of $90,000,000 would be needed; and to secure that sum, the Secretary advised that the duties on tea, coffee, and sugar be increased; that a direct tax of $20,000,000 be assessed on the States; that the income tax be modified so as to THE BANK ACT OF 1863. 37 produce $10,000,000, and that duties be laid on liquors, tobacco, Carriages, legacies, bank- notes, bills payable, and conveyances. For the extraordinary expenses of the war it was necessary to depend upon loans, and the authority to be granted for this pur- pose the Secretary left “to the better judg- ment of Congress,” only suggesting that the rate of interest should be regulated by law, and that the time had come when the government might properly claim a part, at least, of the advantage of the paper cir- culation, then constituting a loan without interest from the people to the banks. There were two ways, Secretary Chase said, in which this advantage might be se- cured: 1. By increasing the issue of United States notes, and taxing the bank-notes out of existence. 2. By providing a national currency, to be issued by the banks but se- cured by the pledge of United States bonds. The former plan the Secretary did not rec- ommend, regarding the hazard of a depre- ciating and finally worthless currency as far outweighing the probable benefits of the measure. The second plan, he said, would 38 , THE NATIONAL BANKS. create a large demand for government se- curities, affording increased facilities for procuring means for the prosecution of the war, and keeping down the rate of interest on the public debt; and at the same time would give the people a safe and uniform paper currency, without disturbing the ex- isting organization of business. He ex- pressed a favorable opinion of this plan with the greater confidence because it was no untried theory, but had been subjected in New York, and in one or two other States, to the test of experiment, and had been found practicable and useful. Congress had hardly begun to consider these recommendations, when the situation was completely changed by the suspension of specie payments, on the 28th of Decem- ber, by the banks of New York, followed by the suspension of the other banks in the country, and compelling the treasury also to suspend. This suspension was the re- sult of a panic occasioned by the shadow of war with England, then impending dark- ly over the sufficiently gloomy prospect of the civil war. The British government, on THE BANK ACT of 1863. 39 the 30th of November, had demanded the liberation of the Confederate ambassadors, Mason and Slidell, taken forcibly from a British steamer by Captain Wilkes, of the United States Navy, and had also demand- ed an apology for the act. This despatch arrived in December, after the publication of the annual report of the Secretary of the Navy expressly commending CaptainWilkes for his prompt and decisive action, and as- serting that his generous forbearance, in not capturing the vessel conveying these public enemies, must not be considered a precedent for the treatment of neutrals subsequently offending in the same way. The press and the people of the United States had gener- ally justified the seizure of the ambassadors, and it was believed that the British gov- ernment was resolved to force a quarrel by making demands which could not be com- plied with. Mr. Seward skilfully evaded the difficulty. He surrendered the prison- ers, who were not worth fighting about, and without any formal apology, made the truthful explanation that Captain Wilkes had acted for himself, without instructions 40 THE NATIONAL BANKS. and without wrongful motive. Mr. Sew- ard's note was written on the 27th of De- cember and acknowledged by Earl Rus- sell on the 10th of January, but meanwhile a general suspension of specie payments had taken place, and the notes of the govern- ment had gone to protest. To provide for the pressing wants of the treasury, Congress, on the 12th of February, 1862, authorized the issue of $10,000,000 more of demand notes. Before the end of the session further issues were provided for, making the aggregate of United States notes $300,000,000, besides fractional cur- rency. There was a long debate upon the propriety of making these notes a legal tender for private debts, and it seemed for a time that the measure would be defeated by this dispute. Secretary Chase finally advised the concession of this point;" * This reluctant concession was a grave mistake, as Chief justice Chase afterward confessed. In his dis- senting opinion on the Legal Tender cases (12 Wal- lace, 576), he says that the Secretary “was extremely and avowedly averse to this clause, but was very 80- licitous for the passage of the bill,” and was finally persuaded that it was better to take the risk of mak- THE BANK ACT OF 1863. 41 nevertheless, 55 votes in the House of Representatives, including those of Mr. Conkling of New York, Mr. Lovejoy of Illinois, and Mr. Morrill of Vermont, and in the Senate 17 votes, including those of Mr. Anthony, Mr. Collamer, Mr. Bayard, and Mr. Fessenden, were recorded against the provision making the notes a tender for private debts. Congress also empowered the Secretary to borrow $500,000,000 on 5-20 year 6 per cent. bonds, besides a tem- porary loan of $100,000,000, and provided that the interest on the bonds should be paid in coin, and that the customs should be collected in coin for that purpose. Nothing was said about the principal, for it was taken for granted that specie pay- ments would be resumed before the pay- ment of the principal of the debt would bo undertaken. ing the notes a legal tender than to lose the use of them in the emergency then existing. “Examination and reflection under more propitious circumstances," he continues, “have satisfied him that this opinion was erroneous, and he does not hesitate to declare it.” 42 THE NATIONAL BANKS. Congress had thus adopted the plan which the Secretary of the Treasury did not recommend, and neglected the propo- sition which he preferred. During the dis- cussion of the loan bill, in February, Mr. Hooper, of Massachusetts, had spoken of three measures, which formed a comprehen- sive system of financial legislation, to wit, the loan bill providing for an issue of legal tender notes convertible into 6 per cent. bonds, the tax bill providing for a reve- nue of $150,000,000, and the banking law providing for a national currency secured by the deposit of United States bonds; but Mr. Stevens made haste to say that this last proposition had not been approved by the committee on ways and means, and Mr. Conkling deprecated the policy of preach- ing a crusade against the State banks, and arraying prejudices and votes on that ques- tion. Toward the close of the session, in July, Mr. Hooper introduced a bill to pro- vide a national currency secured by a pledge of United States bonds, but the bill was not reported from the committee to which it was sent, and a motion to print extra cop- THE BANK ACT OF 1863. 43 ies for the information of the House was laid on the table.” When Congress met in December, 1862, the magnitude of the war had become ful- ly apparent. Farragut had forced the Mis- sissippi from the south; New Orleans had fallen; the river was open to Wicksburg from the Gulf; Grant had broken the Con- federate lines on the north, and Foote, with his fleet of gun-boats, had moved down the river to Memphis; the whole Atlantic coast of the Confederacy was blockaded by the Federal navy; McClellan had been driven back from Richmond, but had defeated Lee in turn at Antietam; on every side the Con- federacy was beleaguered by an immense cordon of armies and fleets. The enormous demands upon the treas- ury for these operations had exhausted the resources provided by Congress. The dis- bursements in November amounted to $59,847,077—two millions a day. Unpaid requisitions had accumulated amounting to $46,000,000. The total receipts for the year * Congressional Globe, July 15, 1862, p. 3362. 44 THE NATIONAI, BANKS. then current, ending June 30, 1863, were es- timated at $511,000,000; the expenditures at $788,000,000; leaving $277,000,000 to be provided for. There were only two ways to obtain this sum—by a fresh issue of United States notes, or by new interest-bearing loans. But the gold premium had advanced in October to 34; the notes were already at a discount of 25 per cent. The consequences of an addition of $277,000,000 to the volume of currency, the Secretary said, would be “in- flation of prices, increase of expenditures, augmentation of debt, and, ultimately, dis- astrous defeat of the very purposes sought to be obtained by it.” He therefore rec- ommended an increase in the amount au- thorized to be borrowed on the 5-20 bonds; and in order to facilitate the negotiation of the bonds, he advised the repeal of the provisions requiring them to be sold at par, and making United States notes converti- ble into bonds at the will of the holder. The latter provision, he said, prevented the bonds from rising above par in currency, and the former left no margin of profit for \ THE BANK ACT OF 1863. 45 buyers of large amounts. In order to cre- ate a market for the bonds, he again rec- ommended the creation of banking associ- ations under a national law requiring them to secure their circulation by a deposit of government bonds. The suggestion thus renewed was not re- ceived with favor by Congress. It seemed a high-handed proceeding to seize upon the capital of the banks and compel them to invest it in government bonds, as the sole condition on which they should be permitted to retain their circulation. Con- gress at this session had to provide for the conscription of recruits for the armies, but hesitated to order a conscription of bank capital. On the 7th of January Mr. Hoop- er offered again his bill to provide a na- tional currency, secured by a pledge of United States bonds, but the next day Mr. Stevens, of Pennsylvania, submitted the bill with an adverse report from the committee on ways and means. On the 14th of Jan- uary Mr. Stevens reported a resolution au- thorizing the Secretary of the Treasury to is- sue $100,000,000 more of United States notes 46 THE NATIONAL BANKS. for the immediate payment of the army and navy. The resolution passed the House at once, and the Senate the next day. It was so much easier to authorize an issue of notes than to levy upon the capital of the nation 1 The choice was then to be made, as Secre- tary Chase had distinctly pointed out, be- tween an irredeemable paper currency and a series of measures looking to a safe and gradual return to gold and silver as the only constitutional measure of values; and at this critical moment Congress was about to take the wrong course. On the 19th of January President Lin- coln sent a special message to the House, announcing that he had signed the joint resolution authorizing a new issue of Uni- ted States notes, but adding that he con- sidered it his duty to express his sincere regret that it had been found necessary to add such a sum to an already redundant currency, while the suspended banks were still left free to increase their circulation at will." He warned Congress that such a * Congressional Globe, January 19, 1863, p. 392. CONGRESS AND THE STATE BANKS. 47. policy must soon produce disastrous con- sequences, and the warning was effective. On the 25th of January Senator Sherman offered a bill to provide a national curren- cy, différing in some respects from Mr. Hooper's in the House. The bill passed the Senate on the 12th of February, 23 to 21, and the House on the 20th, 78 to 64. It was by such small majorities, under the pressure of public necessity and at the ur- gent and repeated solicitation of the Secre- tary of the Treasury, supported by a special message from the President, that the bill became a law. It was signed by the Pres- ident on the 25th of February, 1863. III. CONGRESS AND THE STATE BANKS. IN spite of the hesitation of a reluctant Congress, Secretary Chase had at last se- cured the organization of banking associa- tions under a national law. The necessity was imperative. Under the act of 1840, \ 48 THE NATIONAL BANKS. creating the sub-treasury, it was required that all payments to or from the United States should be made in coin, and no money belonging to the government could be deposited in any bank. After the sus- pension of specie payments, in 1861, it had been necessary to provide some substitute for the coin, which had disappeared from circulation, and United States notes had been issued for that purpose. These notes were receivable for all taxes except customs, and for United States bonds, but they had speedily depreciated; the premium on gold in February, 1863, was over 50 per cent. ; it was perceived also that the suspended banks were increasing their issues. The banks had applied to Secretary Chase in January, 1862, to receive their notes in payment for the bonds which he was compelled to sell. To have accepted this proposition would have been to repeat the error of 1812, and invite an immense inflation of bank curren- cy. The Secretary declined to recommend this course; nevertheless the circulation of the banks increased from $130,000,000 in November, 1861, to $167,000,000 a year CONGRESS AND THE STATE BANKS. 49 later." It was plain that this dangerous tendency must be checked, and that the banks, instead of rivals, must be made co- adjutors of the government. The banks had generally aided the gov- ernment as liberally as could have been expected. They had furnished means for the equipment of troops by the States, and had negotiated United States bonds to the amount of $150,000,000 in the outset. But in February, 1862, upon the failure of the negotiation with Secretary Chase, some of the New York banks had refused to receive the demand notes of the govern- ment at the clearing-house, and this unwise demonstration had been used as an argu- ment in favor of the clause in the loan bill of 1862, making the treasury notes a legal tender. A bill to provide for the organization of national banking associations had been printed in January, 1862, for the use of the committee on ways and means, but did not get beyond the committee at that session. 1 Finance Report, 1862, p. 14. 4 50 THE NATIONAL BANKS. Mr. Spaulding, of New York, said that the committee had concluded that the measure, if adopted, could not be made available in season for the immediate necessities of the government. Mr. Roscoe Conkling, then in the House, asked whether it was expe- dient to make war upon the twelve hun- dred banks in the free States, and whether it was right, even if the stock and assets of those banks were not largely owned by orphans and widows. Mr. Conkling pro- posed to issue $250,000,000 of 7 per cent. bonds, payable in thirty-one years, to be exchanged for the bills of the suspended banks of New York, Boston and Philadel- phia, and $200,000,000 of United States notes payable in coin in one year. How the coin was to be obtained he did not ex- plain. Mr. Bingham, of Ohio, made a vigorous rejoinder, protesting against Mr. Conkling's attempt to lay the power of the American people over their currency at the feet of brokers and city bankers; and Mr. Kellogg, of Illinois, expressed some contempt for talk about the sacredness of capital when CONGRESS AND THE STATE BANKS. 51 600,000 of the flower of American youth had been summoned to service in the army. These, however, were merely passing al- lusions to the Secretary's recommendation. The serious debate began a year later, in February, 1863. Senator Sherman's bill was then maturely considered in both Houses. Senator Harris, of New York, predicted that no New York bank would surrender its State charter in order to avail itself of the provisions of the national act. Sena- tor Collamer, of Vermont, declared that the people would not break up their system of banking, interwoven with all their transac- tions, to establish national banks, nor would they buy United States bonds for that pur- pose. At that very moment the banks of New York held United States securities amounting to $148,000,000–$40,000,000 more than their entire capital.” Senator Powell said that the people of Kentucky preferred their State banks, and that intel- ligent merchants and bankers everywhere 1 Mr. Fenton, of New York, made this statement in the House. Cong. Globe, Feb. 19, 1863, p. 1118. 52 THE NATIONAL BANKS. were opposed to the new scheme. He had met no business man, he said, who favored the bill, and he had talked with many. For his part, he preferred to allow the bills of solvent banks to be received and paid out at the treasury. A substantial part of the measure was a section in the revenue bill, then pending, proposing to levy a tax of 2 per cent. on the circulation of the State banks. Mr. Conk- ling made a vehement argument against this section in the House, contending that Congress had no power, under color of tax- ation, to destroy franchises lawfully granted by the States. The New York Superintend- ent of Banks, in his report then newly pub- lished, threatened to meet any attempt to override the State law by an injunction; but the State court, when the question came up, sustained the authority of Con- gress in the premises." The constitutional question was raised by a number of speak- ers in both houses, and Representative 1 Superintendent Van Dyck’s report is reprinted in the treasury report on the condition of the banks in 1863, where see p. 88. CONGRESS AND THE STATE BANKS. 53 Noell, of Missouri, moved a reference of the bill to the committee on the judiciary, with instructions to investigate this point, but the majority thought the inquiry unneces- sary, and the matter was left to the courts with the result just mentioned. The project was derided as impracticable for various reasons. Senator Henderson, of Missouri, thought the government bonds might depreciate, so as to afford insufficient Security for the circulation. Senator Davis, of Kentucky, objected to the depreciated basis of the system, the United States notes in which the bank-bills were to be redeem- ed. Representative Harrison, of Ohio, fear- ed that the supervision of the banks, at Washington, would be inefficient. Repre- sentative Baker, of New York, found no provision for redemption of the notes, ex- cept at the counters of the banks, and thought this circumstance would produce a crop of out-of-the-way banks, with a cir- culation not intended to be redeemed. On the other hand, he was sure that the banks could make no profits under the proposed law, and so the measure would fail. In this 54 THE NATIONAL BANKS. opinion he was sustained by several others, including Senator Collamer, who neverthe- less pronounced the scheme a “pecuniary revolution.” On the other hand, Mr. Stevens, of Penn- sylvania, a year before, had objected that the banks would earn a double interest on their capital; and Senator Carlile, of Vir- ginia, now made an ingenious estimate, showing how a banking association, with $6000 in gold, by investing and reinvesting their bills in bonds, might get back $6000 in gold interest in a year without lending a dollar to the public." Senator Collamer * This idea was afterward elaborately worked up in a letter published in the Seymour (Indiana) Times in 187S. The letter purported to be written by one James O'Neal, who said that, beginning with a capi- tal of $100,000, he had started ten banks in as many States during the ten years from 1865 to 1874, buying bonds for each new bank with the bills issued upon his previous deposit, and had realized a profit of $2,000,000 from the interest upon the bonds so ac- quired. Such a series of transactions would have been unlawful, and in fact, impossible; but the letter was widely copied, and was finally brought to the no- tice of the Comptroller of the Currency, who reported that the name of James O'Neal did not appear upon the list of stockholders of any bank in any of the ten States named. CONGRESS AND THE STATE BANKS. 55 also pointed out the comparative advantage of issuing United States notes for nothing, instead of paying the banks 6 per cent. in- terest, less 2 per cent. tax, for issuing their notes. Senators Collamer and Davis agreed that the Secretary of the Treasury would acquire a formidable political influence by his control over an organization so power- ful and so widely distributed. Some of these objections are contradic- tory; some are specious inventions to cover the one predominant motive—the natural reluctance of many members to incur the displeasure of the moneyed institutions of their own States and districts. Senator Powell was undoubtedly right in his opin- ion that the bankers and merchants were generally opposed to the scheme. “I op- pose the bill,” said Senator Howard, frank- ly, “because it is likely to wage a very un- necessary, and, I fear, dangerous war upon the State institutions; and I oppose it be- cause I deplore the contest which will prob- ably arise out of it in our local politics.” The opposition of most bankers was nev- ertheless tempered by the patriotic feeling 56 THE NATIONAL BANKS. expressed in this admirable letter, read by Mr. Fenton, of New York, during the dis- cussion in the House:* Regarding the banking system of this State [New York] as in all respects the best of which I have any knowledge, I would much regret the necessity for any radical change of it. I think the scheme proposed by Secretary Chase would inevitably destroy the local banks, and of course mine would share the common fate. Nevertheless, if, in the judgment of our law-giv-_ ers, that, or some other scheme kindred to it, is nec- essary to meet the wants of the government in crush- ing out the rebellion, I will endeavor to submit to it with becoming spirit. These are times of trial for us all, and I trust I should not be found so selfish as to Oppose any measure demanded by the public good, merely because its operation involved a personal hard- Ship. The argument in reply to this and other misapprehensions, was threefold: 1. That the government needed the market which would thus be created for the bonds, and must pro- tect itself against inflation. 2. That the banks were not to be injured but bene- fited by receiving a currency which could be used in transactions with the government instead of one which could not, and would enjoy the additional advantage of government deposits. 3. That the people would secure a uniform and safe currency. * Congressional Globe, Feb. 19, 1863, p. 1119, CONGRESS AND THE STATE BANKS. 57 Senator Chandler pointed out the fact that the proposed transaction with the banks was not paying them 4 per cent, for furnishing a circulating medium, but bor- rowing $300,000,000 of them at 4 per cent. Senator Sherman added, that the creation of a demand for $300,000,000 in bonds would raise the market value of all the bonds. Mr. Sherman also showed that the time had come to decide finally between a permanent system of finance or a volume of paper-money limited only by the exi- gencies of the war. Gold and silver had disappeared. The danger of an excessive issue of United States notes was empha- sized, he said, by the pending proposition of the House to print $300,000,000 more— a proposition which had sent the premium on gold flying upward 30 per cent. The danger was heightened by the natural dis- position of the suspended banks to increase their circulation. The plain remedy was to limit the volume of United States notes resolutely, and to take control of the bank issues, and keep them within bounds. Representative Hooper repeated the finan- 58. THE NATIONAL BANKS. cial history of the war of 1812, when the government used the bills of suspended banks, selling bonds as low as 80, and tak- ing, at this rate, bank bills 20 or 25 per cent. below par. A great part of the argument in favor of the bill was intended to remove the im- pression that the measure was conceived in a spirit of hostility to the banks. Mr. Spaulding said that his chief reason for supporting the bill was because it pro- posed to provide a permanently improved bank currency. Mr. Fenton called atten- tion to the superiority of a currency whol- ly secured by United States bonds, to any currency before known. In 1861, he said, only $30,000,000 were secured out of $200,000,000 of bank circulation. In 1862, only $40,000,000 were secured out of a vol- ume of $167,000,000 in the loyal States. It was an easy matter to show the Superi- ority of notes circulating everywhere at a uniform value to bills resting solely on lo- cal corporate credit, and circulating only in the neighborhood of the makers. Sen- ator Sherman also called attention to the CONGRESS" AND THE STATE BANKS. , 59 fact that the notes of all but 463 banks out of 1409 in 1856, and all but 253 out of 1500 in 1862, had been counterfeited. The great variety of devices made it difficult to de- tect counterfeits. The adoption of a uni- form series of national notes would be a great help in this respect. After all was said, the choice was made of a uniform national currency, based upon public credit in tangible form, strictly lim- ited in amount, and subject to the closest supervision, for the protection of the com- munity. The bill passed; the proposed is- sue of United States notes was cut down one-half; and Congress adjourned. 1.This made $450,000,000; but $50,000,000 were in- tended and used as a reserve for the payment of the temporary loan on demand. The amount outstand- ing was limited to $400,000,000. See p. 72. sº 60 THE NATIONAL BANKS. IV. THE ACT OF 1864. THE effect of the bank act of 1863 upon the public credit was speedily apparent. Within a week after its passage the bonds of the United States, for which a new mar- ket had thus been created, advanced from 93 to par in currency. The sale of the 5-20 bonds proceeded so rapidly that, within two months after the adjournment of Congress, the whole mass of suspended requisitions had been paid, all current demands had been promptly met, and full provision had been made for the payment of the army and navy. During the remainder of the year no serious difficulty was found in providing for the enormous expenditures of the government. The treasury report in December declared that the bank act hād “at once inspired faith in the securi- ties of the government, and, more than any other one cause, enabled the Secretary to *, THE ACT OF 1864. 61 provide for the prompt payment of the sol- diers and the public creditors.” The financial policy of the government was at last established in all its main feat- ures. Nothing more was needed, except the correction of some matters of detail. The revenue from customs was all that had been expected. The machinery for collect- ing internal revenue was still new ; the re- sults were not satisfactory; and the law needed revision. No change was desired in the character of the loans authorized by Congress, unless perhaps permission should be granted to borrow money for forty years instead of twenty. The Secretary thought it clearly inexpedient to increase the amount of United States notes beyond the limit of $400,000,000, already established. “Addi- tional loans in this mode,” he said, “would almost certainly prove illusory; for dimin- ished value could hardly fail to neutralize increased amount.” If proper means should be adopted to induce the prompt conversion of the State banks into national banking associations, the Secretary thought that all the money needed for the prosecution of 62 THE NATIONAL BANKS. the war could be borrowed on reasonable terms, while the ordinary expenses and in- terest on the public debt would be more than covered by the revenue. The bank act had not gone into full op- eration. The printing of the bills had only just begun in November, and none had been delivered. The whole number of associa- tions organized under the act prior to the 29th of November was only 134, with a lit- tle over $16,000,000 capital, though many others were in process of organization. But credit is confidence, and confidence is only another word for faith—the evidence of things not seen. The government had shown a purpose to put a limit to the pa- per inflation, and to call upon the banks to support the treasury with their collective capital; and the manifestation of this pur- pose had instantly strengthened the public credit. p ' The Comptroller of the Currency, Mr. Mc- Culloch;afterward Secretary of the Treasury, found the act of 1863 not altogether sym- metrical in its arrangement, and obscure if not inconsistent in some of its provisions. THE ACT OF 1864. 63 He therefore recommended many changes in detail, and to this work of revision Con- gress, in March, 1864, addressed itself. The result, after more than two months of de- liberation, was the act of June 3d, 1864, which remains upon the statute book sub- stantially unchanged since that date. Many of the banks were still unreconciled to the change. The New York bankers, be- longing to the Clearing-house Association, had a long hearing before the committee on ways and means. They were opposed to the law from the beginning, they said, but if it was to stand, they wanted it as free from objection as possible. They thought, in the first place, that the office of the comp- troller of the currency should be removed from Washington to New York, and that the comptroller, instead of remaining a subordinate officer under the secretary of the treasury, should be made the head of an independent department. Mr. Pruyn, of New York, afterward made the same suggestion in the House, but it was disre- garded. The bankers also desired to have the law so modified as to admit existing 64 THE NATIONAL BANKS. banks, with their outstanding circulation, and no others. When this plan was men- tioned in the Senate, Mr. Sherman showed that it was practically a proposition to give the existing banks a monopoly of the bank- ing business. It was also a proposition to recognize and authorize their extravagant issues of suspended paper. Mr. Hooper, in the House, gave a list of 25 banks in New York, New Jersey, Pennsylvania, Delaware, Indiana and Ohio, with a com- bined capital of $1,932,968, and a circula- tion of $5,998,688. Under the national law, this circulation would have to come down to less than $1,800,000. Mr. James Gallatin brought the influence of an honored name to the support of these propositions. His father, Albert Gallatin, had been secretary of the treasury under the third and fourth Presidents, and the son had inherited a reputation for financial wis- dom. He had suggested, when Secretary Chase offered the 7.30 bonds to the New York banks, in 1861, that Congress should be called together to authorize a higher rate of interest. It was by his advice' that THE ACT OF 1864. 65 the New York banks suspended specie pay- ments, in order, as he argued, to save the specie which would otherwise be borrowed and spent by the government. He had af. terward endeavored to persuade Secretary Chase to receive for government loans the depreciated paper of the suspended banks. Failing in this attempt, he had thrown himself into opposition to the whole policy of the government, and had written a pam- phlet contending that it would have been possible, if the finances had been wisely ad- ministered, to have carried on the war on a specie basis. This was, no doubt, true; but the die had then been cast, and the banks themselves had set the example of suspen- sion. - The most strenuous opposition was made to the .imposition of a national tax upon the circulation of the State banks. The protest of Mr. Andrews, President of the State Bank of Ohio, was read in the House. Mr. Andrews argued that the tax was un- just and oppressive, since it imposed a pen- alty for doing what was lawful to be done, and could not be undone save by the slow 5 66 THE NATIONAL BANKS. process of retiring the notes in the course of business. He therefore asked that the tax should be imposed only on notes issued under State authority after the passage of the law, or at least be postponed, so as to allow them to be withdrawn from circula- tion. The subject of taxation was, in fact, the principal matter of debate. Mr. Brooks, of New York, explained with sufficient frank- ness the wishes of the minority. “What we desire,” he said, “is to do away with the $300,000,000 of bank currency, and that if the government desires more currency, it be legal tender currency.” Mr. Stevens, of Pennsylvania, responded, “I myself would prefer legal tender to the circulation of these banks, either State or national.” In the same spirit Senator Henderson, of Mis- souri, inquired, “Why not permit the sec- retary of the treasury to go on and issue legal tender notes?” One reason was, be- Cause all the channels of circulation were full of suspended bank paper. The ordi- mary limit to bank issues, convertibility into coin on demand, had been taken away, and THE ACT OF 1864. 67 no other had been established, except the limit proposed by the national bank act and by taxation of the circulation of the State banks. On the 18th of April two test votes were taken in the House. A resolution offered by Mr. Holman, of Indiana, instructing the committee on ways and means to report a bill to repeal the bank act of 1863, was de- feated, 40 to 60; and a resolution affirming that the expansion of bank currency should be repressed, by taxing the issues of the State banks, was adopted, 62 to 46. This was a logical consequence of the bank act, as Senator Fessenden had shown a year be- fore, in his reply to Senator Harris, of New York, who voted for the act of 1863 but argued against the taxation of the State banks. “He is willing to establish the new system,” said Mr. Fessenden, “because it is Inecessary to support the government; but he is not willing to put it in operation, for fear it will injuriously affect private inter- ests.” Another question arose concerning the taxation of the national banks by the States. 68 THE NATIONAL BANKS. Secretary Chase thought the banks should be exempted from State taxation, not in or- der to relieve them from their share of the public burdens, but in order to secure to the general government all the revenue from this source, for the benefit of the na- tional credit. Mr. Kernan, of New York, Mr. Eldridge, of Wisconsin, and Mr. Hol- man, of Indiana, rather unfairly denounced this feature of the bill as a monstrous prop- osition to exempt the banks from any taxa- tion. Mr. Stevens, of Pennsylvania, went quite as far the other way, declaring that the faith of the country was pledged to the immunity of the bonds from local taxation, and that as the bank capital was to be in- vested in bonds, the real estate of the banks and the investments of the share-holders should be protected by the government. Mr. Sumner made an elaborate argument in the Senate, to show that the decision of the Supreme Court, denying to the State of Maryland the right to tax the bank of the United States without authority from Con- gress, would go to the length of prohibiting Congress itself from granting such author- THE ACT OF 1864. 69 ity. Senator Chandler gave his opinion, as a practical banker and practical business man, that every national bank in Michigan would wind up its affairs in thirty days if they were required to pay local taxes. In spite of these arguments, and in opposition to the weighty opinion of Secretary Chase, the better judgment of Congress decreed that the national banks should be, as the State banks had been, subject to taxation at home. - Other features of the bill were criticised. Mr. Brooks declared that the scheme con- templated a return to the pet bank system of 1836–37. Mr. Pruyn regarded the act as a great stride toward despotic power. Mr. Boutwell offered an amendment to prevent the secretary of the treasury from making the banks depositories of public money. Mr. Steele, of New York, thought the law contemplated a dangerous association of capital. Senator Davis avowed the deepest hostility to this Briarean paper monster. Senator Henderson declared that John Law's plan was infinitely better, since that had at least a basis of 20 per cent, in coin; 70 THE NATIONAL BANKS. and that in less than ten years this system would be less tolerable in the eyes of Amer- icans than the Mississippi bubble in the eyes of the French. - It was no longer contended that the banks would not organize under the na- tional law. They had so organized, and were organizing in every Northern State, and there was one even in New Orleans. This fact was a new source of alarm to some gentlemen. Mr. Mallory, of Kentucky, reckoned up a double profit of 6 per cent. on bonds, and 12 per cent. on loans, with other pickings, giving the banks an annual return of 20 or 22 per cent. on their capital stock. Mr. Ward, of New York, was afraid that these advantages would attract capi- tal into banking, and that a superabun- dance of bank funds would stimulate spec- ulation. Mr. Law, of Indiana, offered an amendment requiring the banks, after ac- cumulating a surplus of 20 per cent., to turn all their profits over 8 per cent. per annum into the treasury for the benefit of the pension fund. Senator Cowan, of Penn- sylvania, rehearsed the calculation of Sen- THE ACT OF 1864. 71 ator Carlile, a year before, showing how a so-called bank might invest its capital in bonds, draw out 90 per cent. in bills, rein- vest the bills in bonds, increasing its circu- lation pro rata, and so continue, obtaining an income of 30 per cent. without perform- ing any service to the community as a bank. Mr. Cowan himself, however, replied to this suggestion, admitting that the oper- ation could not go on without the knowl- edge and guilty consent of the comptroller of the currency. The bill passed the House on the 18th of April, 78 to 63, and the Senate on the 10th of May, 30 to 9. There was a disagreement on some of the amendments, and a commit- tee of conference was appointed, who finally secured an agreement on the 31st of May. The act was approved on the 3d of June. Congress, at this session, also imposed a tax of # per cent. per annum on the depos- its, # per cent. on the capital, and 1 per cent. on the circulation of all State banks, and 2 per cent. additional on the excess of their circulation above 90 per cent. of their capital. It was provided in the loan bill 72 THE NATIONAL BANKS. that the interest-bearing notes of the gov- ernment should not be legal tender for the redemption of bank-notes. Finally it was solemnly declared, in the same act, that the total amount of United States notes, is- sued or to be issued, should never exceed $400,000,000, and such additional sum, not exceeding $50,000,000, as might be tran- siently required for the redemption of the temporary loan. It was fourteen years before any serious attempt was made to repeal this wise re- striction and unsettle the system thus es- tablished. -º- V. ANALYSIS OF THE NATIONAL BANKING - LAW.1 - THE business of the national banks, as defined by the statute, is discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; buying and selling exchange, coin and bull- 1 Revised Statutes of the United States, §§ 5133–5243. THE NATIONAL BANKING LAW. 73 ion; loaning money on personal security; receiving deposits; and issuing and circu- lating notes. They may also be designated as depositories of the public moneys, except receipts from customs, or employed as finan- cial agents of the government; and in such cases they are to furnish security by depos- iting United States bonds and otherwise, Every association organized for these pur- poses is permitted to continue its business for twenty years from the date of its organ- ization, but no such association may engage in general trade or commerce, or hold real estate, except a banking-house, or real prop- erty taken for debt, which must be sold with- in five years. - The business is to be managed by a board of not less than five directors, who must own at least ten shares apiece of the stock, un- encumbered by debt, and three-fourths of them must be residents of the State in which the bank is established. The di- rectors are personally liable for all losses to share-holders, or to the public, through any violation of law occurring with their knowl- edge and consent; and the share-holders 74 THE NATIONAL BANKS. are liable, individually, for all debts of the bank, to an amount equal to the par value of their shares, and in addition to their shares. As the number of directors is not less than five, the number of share-holders must be five or more. In order to provide a suitable basis for the business, the law fixes the minimum of capital stock at $50,000 in places contain- ing a population not over 6000; $100,000 in places containing a population between 6000 and 50,000; and $200,000 for cities containing over 50,000 inhabitants. Half of the capital stock must be paid in before the bank begins business, and the rest within five months afterward; and if the capital should be increased, the additional amount must all be paid in before the in- crease is authorized. If the capital be- comes impaired, it must be made good by an assessment upon the shares. With the cash thus subscribed and paid in, the banks were originally required to purchase and deposit with the treasurer of the United States not less than the amount of one-third of their capital stock in regis- THE NATIONAL BANKING LAW. 75 tered bonds of the United States, and in no case less than $30,000 in bonds. Instead of one-third of the capital stock, $50,000 is now the maximum required. If the bonds should at any time become depreciated, the law requires an additional deposit to make the security good. - The banks were entitled, under the act of 1864, to receive notes to the amount of 90 per cent. of the market value of the bonds, not exceeding 90 per cent. of the par value, if bearing interest at a rate not less than 5 per cent, and in no case to ex- ceed the amount of the stock. This provi- sion was qualified the next year, so that banks with a capital from $50,000 to $500,000 should receive in notes only 90 per cent., from $500,000 to $1,000,000 only 80 per cent., from $1,000,000 to $3,000,000 only 75 per cent., and from $3,000,000 up- ward only 60 per cent. of their capital. Payment of the notes so issued is guaran- teed by the United States, and the notes are receivable for all dues to the United States except customs, and for all debts. and liabilities of the United States except, 76 THE NATIONAL BANKS, interest, and redemption of the national currency. The notes of any bank are also to be taken at par by all others; and if any bank fails to redeem its notes at par in law- ful money on demand, its bonds are forfeit- ed, and the proceeds are applied to the pay- ment of the notes by the United States.” 1 The Maine banking law of 1857, though belonging to the better class of State laws, furnishes a striking contrast to the strict regulations of the National Bank Act. The Maine banks were required to keep only 5 per cent. of their capital in specie. Upon this reserve they might issue bills to the amount of half their cap- ital. After reaching this limit, they were required to keep one dollar in specie for three dollars in bills, and might increase their issues indefinitely, provided that the whole amount should never exceed the sum of the capital stock and specie on hand, and provided also that all debts, exclusive of deposits, should never ex- ceed twice the capital stock. That is to say, a bank having on hand the cash paid in by the share-holders, might issue twice that amountin bills, without regard to its liability at the same time for deposits; and no provision was made for the ultimate payment of either bills or deposits, except by recourse to the share-hold- ers, who were individually held for amounts equal and additional to their stock at par. This law still re- mains upon the Maine statute - book. All that is needed to give it effect, is to repeal the United States tax of 10 per cent. imposed upon State bank-bills in 1865, when Congress had finally determined to drive them out of the market. THE NATIONAL BANKING LAW. 77 For the current redemption of the notes, every bank is required to deposit with the treasurer of the United States a special fund at all times equal to 5 per cent. of its circulation; but this fund may be counted as a part of the general reserves, which are based upon the deposits. The banks of St. Louis, Louisville, Chicago, Detroit, Mil- waukee, New Orleans, Cincinnati, Cleve- land, Pittsburg, Baltimore, Philadelphia, New York, Boston, Albany, San Francisco and Washington are required to maintain reserves of lawful money equal to 25 per cent. of their deposits; and all other banks are to keep in reserve at least 15 per cent. of their deposits. Three-fifths of the 15 per cent, reserves, however, may be kept on deposit as a redemption fund at any of the financial centres named ; and one-half of the 25 per cent. Teserves may be kept, in the same way, at New York. The actual reserves have usually been considerably above the requirement. On the 1st of Octo- ber, 1878, the country banks held 36.7 per cent. of their deposits, and the city banks 31.3 per cent.; the average reserves for the 78 | THE NATIONAL BANKS. whole country being 33.6 per cent. of the aggregate deposits.” No bank is permitted to become indebt- ed or in any way liable for an amount ex- ceeding its capital stock, except for notes in circulation and deposits. Notes and de- posits, if not on hand, are represented by commercial paper or other evidences of debt. But for greater security, it is re- quired that one-tenth of the net profits, ev- ery half year, shall be carried to a surplus fund, until the surplus amounts to 20 per cent. of the capital, and that no dividend shall be declared until after this deduc- tion is made. Net profits are to be esti- mated by deducting all losses and bad debts, and all debts are to be considered bad on which the interest is overdue six months. No bank is permitted to make loans on its own stock; or to any one person or firm, except in the way of ordinary dis- counts, to an amount exceeding one-tenth of its capital stock. It was the violation * Finance Report, 1878, p. 228. THE NATIONAL BANKING LAW. 79 of this latter rule that ruined the City of Glasgow Bank in 1878.* Finally, there is the safeguard of publi- city. Quarterly reports of the condition of the banks were originally required to be published in the newspapers of the towns or cities where the banks were doing business. . In 1869 this requirement was changed, so that five reports may be called for annually, at such times as may be spec- ified by the comptroller of the currency, and these reports also are made public. A powerful motive is furnished for keep- ing within the limits of prudent and le- gitimate banking, when a transgression of 1 When the City of Glasgow Bank failed, three firms were indebted to it as follows: Morton & Co...................... £2,173,000 Smith, Fleming & Co.............. 1,968,000 James Nicol Fleming.. . . . . . . . . . . . . 1,238,000 425,379,000 Mr. James Fleming was a director of the bank, and John Fleming, of Smith, Fleming & Co., was his broth- er (British Quarterly Review, July, 1879, Am. ed., p. 90). The advances to the Flemings were secured on real estate, which is not admissible under the United States law. -- 80 THE NATIONAL BANKS. those limits may any day be exposed in the home newspapers. The cost of this publication is paid by the banks, and they are liable also for the compensation and ex- penses of a special examiner, whenever the comptroller may think it necessary to em- ploy one. The banks have paid from the beginning a United States tax of 1 per cent. per an- num on their circulation, # per cent. on their deposits, and # per cent. on their capital not invested in United States bonds. The shares are taxed by the States, like other personal property, and the real estate of the banking associations is subject to lo- cal taxation like other real property. The immediate object of Secretary Chase was to secure the revenue from the taxes on circulation and deposits, and to dispose of the bonds which he was compelled to sell. Fortunately, in perfecting the law, he had the assistance of an experienced bank- er, Mr. Hugh McCulloch, who was comp- troller of the currency in 1863 and 1864.' 1 Mr. McCulloch was president, until 1863, of the Bank of the State of Indiana. THE NATIONAL BANKING LAW. 81 The act of 1864 was a compilation from the best State laws. It was not a theoreti- cal system, but the outgrowth of practical experience. The New York law furnish- ed the example of a currency secured upon public funds. The prompt payment of stock subscriptions was required to pre- vent a repetition of the bad practice which had prevailed, in Pennsylvania and else- where, of beginning business upon the notes of the stockholders instead of a cash capital. If the bank prospered, the notes were good; otherwise, not. The circu- lation was based not upon the amount of bonds deposited, but upon the capital stock; because it had been found that bor- rowed bonds were sometimes deposited in the Western States, so that the notes issued upon them represented debt instead of credit. The directors were required to be residents of the State or Territory in which their banks were established, in order to prevent the organization of institutions in- tended to accommodate non-resident spec- ulators instead of the community to which they belonged. The personal liability of 6 f 82 THE NATIONAL BANKS. directors and stockholders was one of the best features of the New York law. The provision for the redemption of the notes at the financial centres was taken from the Suffolk system, which had grown up in New England, and in spite of much opposition by the country banks, had maintained itself by reason of its evident usefulness in promoting a regular and healthy circulation. The act of 1864 was thus guarded at all the points of danger indicated by pre- vious experience; but a new peril was sub- sequently disclosed by the “lock up " of United States notes in New York, in No- wenber, 1868. Occasional runs had been made upon the bank reserves before, and so long as the reports were made quarter- ly, there was always an artificial scarcity of legal tenders at about the time when they were especially wanted by the banks. But in the fall of 1868 three “bears” at the stock board put in operation a scheme which produced an unprecedented panic. Having deposits amounting together to about $10,000,000, they presented their checks one morning and drew out this sum THE NATIONAL BANKING LAW. 83 in legal-tender notes. The city banks were then required to hold reserves equal to 25 per cent. of their entire circulation and deposits. The subtraction of $10,000,000 from the reserves, therefore, compelled the banks at once to contract their loans to the amount of $40,000,000. The withdrawal of Such a sum from the commercial business in which it was employed was enough to unsettle values; but there was still another blow to fall. Taking their $10,000,000 in legal tenders, these three men deposited them as collateral security for loans, and then, presenting their checks again, drew out the whole amount of the loans in United States notes. They had thus lock- ed up between $12,000,000 and $16,000,000 in United States notes, and deprived the com- munity of the use of between $48,000,000 and $64,000,000 in bank-notes." This ope- 1 This was an incident of the speculation at that time in the stock of the Erie railroad. The three men concerned were Jay Gould, James Fisk, and Daniel Drew. The exact sum locked up cannot be deter- mined. Mr. C. F. Adams, Jr., in his Chapter of Erie, p. 67, sets the amount at $12,000,000, which is a minimum. Other estimates run from $12,000,000 to $16,000,000. S4 THE NATIONAL BANKS. ration caused a decline of 25 cents a bush- el in the price of wheat throughout the West; it caused a decline of from 3 to 4 cents a pound on the cotton crop of the country; vessels stopped loading at the wharves, and freight trains came empty from the West; the rate of interest ran up to 50 and even 150 per cent. per annum. Stocks came tumbling down, and the street was full of ruined brokers. It was a gold- sen opportunity for the men who had con- trived all this disturbance, and they im- proved it. But when Congress met again, the committee on banking and currency brought in a bill which was passed in Feb- ruary, 1869, forbidding future loans upon Dnited States notes as collateral. At the same session Congress forbade the danger- ous practice of certifying checks upon im- aginary deposits, whereby in New York over $100,000,000 of fictitious capital had sometimes been created for speculation, and in 1874 the reserves were made to depend upon deposits alone, so that a repetition of the “lock up" of 1868 is now practically impossible. THE NATIONAL BANKING IAW. 85. In 1870 Congress authorized the organ- ization of gold banks under the national law. In the same year the limit of the amount of national currency was changed from $300,000,000 to $354,000,000. The secretary of the treasury had been charged in 1865 to see that $150,000,000 were ap- portioned to the States and Territories in the ratio of their capital, and $150,000,000 in the ratio of their population. It was now found that the limit had been reached, and that certain States and Territories were not sufficiently supplied with currency. It was estimated that $54,000,000 would make good this deficiency; but, if not, $25,000,000 were to be withdrawn from the States hav- ing more than their proportional share. Finally, in 1875, the limit was abolished; and since that time the only restriction upon the supply of bank currency has been the lack of capital, or the absence of any demand for more. 86 THE NATIONAL BANKS. WI. PRACTICAL WORKING OF THE SYSTEM. UNDER the bank act of 1863, 139 banking associations were formed, with a capital of about $15,000,000. Under the act of 1864, this number increased within a year to 638 banks, with an aggregate capital of $135,000,000. The national bank-notes out- standing were about $67,000,000. It appear- ed, however, that an equal amount of the State bank circulation had not been retired. That circulation, in the Northern States, was $173,000,000 in 1863, $170,000,000 in 1864, and $137,000,000 in 1865.” The whole reduction had been only $36,000,000. In many cases the State banks had reorgan- ized under the national law, but continued to issue currency under their State char- ters. To this extent the act was a failure, for its purpose had been, in part, to relieve 1 Report from the Treasury Department to the Fi- nance Committee of the Senate. Cong. Globe, Feb. 28, 1865, p. 1195. PRACTICAL WORKING OF THE SYSTEM. 87 the country of the uncertainties and em- barrassments arising from a currency over which the national government had no con- trol. Before the meeting of Congress in De- cember, 1864, Secretary Chase had retired from the treasury department, and the chair- man of the Senate committee on finance had been appointed his successor. In his report to Congress, Secretary Fessenden said that he was not among the first to approve the bank law adopted by Congress. Time and observation of its effects, however, had eonvinced him that the system, if not with- ‘out defects, was based on sound principles and entitled to a fair trial, which it could not have so long as a conflicting system should be allowed to continue unchecked and uncontrolled. He was, therefore, of the opinion that such discriminating legisla- tion should be had as would induce the withdrawal of all other circulation than that issued under national authority, at the earliest practicable moment. Congress acted upon this recommenda- tion by providing in the internal revenue 88 THE NATIONAL BANKS. -- bill for a tax of 10 per cent. upon State bank-notes paid out by any bank, State or national, after July 1, 1866. The bill was passed on the last day of the session, March 3, 1865. The section levying this 10 per cent. tax passed the House 68 to 67, and Mr. Brooks, of New York, who had voted with the majority in order to move a reconsid- eration, made that motion. The yeas and nays on the motion to reconsider stood 71 to 71, and the motion was lost by the Speak- er's casting vote." In the Senate the op- position to the tax was equally strong, and was only overcome by the energetic remon- strance of Mr. Sherman, who had charge of the bill. “It is far better,” he said, “to abandon the national banking system than to leave it as a cloak for outstanding State issues. If the State banks have power enough in this Congress to prolong their existence beyond the present year, we had better suspend the organization of national banks. As the first friend of this measure in the Senate, I would vote to-day for its 1 Mr. Colfax was then Speaker. PRACTICAL workING OF THE SYSTEM, 89 repeal, rather than allow it to be the agen: cy under which State banks can inflate our currency.” Upon these representations the section was adopted by the Senate, 22 to 20. The development of the system, after the ground was cleared for it by the legislation of 1865, appears in the following table, which gives the number of banks and their aggregate capital, as shown in the first re- port for each year: Date. Number of Banks. Capital. Jan'y, 1866 ........ 1582 . . . . . . . . . . . $400,357,346 Jan'y, 1867 . . . . . . . . 1648 . . . . . . . . . . . 420,229,739 Jan'y, 1868 . . . . . . . . 1642 . . . . . . . . . . . 420,260,790 Jan'y, 1869 . . . . . . . . 1628 . . . . . . . . . . . 419,040,931 Jan'y, 1870 . . . . . . . . 1615 . . . . . . . . . . . 426,074,954 March, 1871 . . . . . . . . 1688 . . . . . . . . . . . 444,232,771 Feb'y, 1872 . . . . . . . . 1814. . . . . . . . . . . . 464,081,744 Feb'y, 1873 ........ 1947 . . . . . . . . . . . 484,551,811 Feb'y, 1874 ........ 1975 ........ ... 490,859,901 March, 1875 ........ 2029 . . . . . . . . . . . 496,272,901 March, 1876 . . . . . . . . 2091 . . . . . . . . . . . 504,818,666 Jan'y, 1877 ........ 2083 . . . . . . . . . ... 493,634,611 March, 1878 . . . . . . . . 2063 . . . . . . . . . . . 473,952,541 Jan'y, 1879 . . . . . . . . 2051 . . . . . . . . . . . 462,031,396- The slight decrease in the number of banks and amount of capital in 1868, 1869, and 1870 was an unexpected result of the 1 Congressional Globe, Feb. 27, 1865, p. 1139. 90 THE NATIONAL BANKS. universal acceptance of the notes. It was found that nobody cared to have them redeemed, and so quite a number of the banks went into voluntary liquidation, giv- ing proper notice to the bill-holders (who paid no attention to it), and then enjoying the income from their bonds, and diverting the funds received for their notes to what- ever purpose best suited the managers. At the suggestion of the comptroller of the currency, Congress thereupon passed the act approved July 14, 1870, requiring na- tional banks going into liquidation to take up their bonds and deposit with the treas- urer of the United States legal tender notes for the redemption of their outstanding bills. After the passage of this act, a steady increase of numbers and capital began and continued until 1876. g To the original capital given above should be added the accumulated surplus, in order to exhibit the complete solvency of the system. This surplus has been made. a matter of reproach to the banks, as if it were an extra profit which they had sur- reptitiously concealed under this title. It PRACTICAL WORKING OF THE SYSTEM. 91 is, in fact, a reserve, which they have been commanded to put aside for the bet- ter security of their creditors. It was $43,000,000 in 1866, $133,000,000 in 1876, and $121,000,000 in 1878. The heavy loss- es of 1876, 1877, and 1878 were charged to this surplus account, leaving the capital unimpaired, and thus illustrating the wis- dom of the provision forbidding the banks to divide their whole earnings. - Taking the capital of the national banks in 1870, $426,000,000, with the surplus fund of $90,000,000, and the capital of the State banks then in operation, about $120,000,000, we have for the entire banking capital of the country in that year $636,000,000; which brings us to this rather surprising result, tak- ing the valuation of the United States from the census reports, and expressing both val- uation and bank capital in millions. Years. Valuation. Bank capital. Per cent. 1850 . . . . . . . . $ 7,136 ........ $227 ........ . 3.2 1860 . . . . . . . . 16,160 . . . . . . . . 422 . . . . . . . . . 2.6 1870 . . . . . . . . 30,068 . . . . . . . . 636 . . . . . . . . . 2.1 While the wealth of the country has nearly doubled in each decade, the amount 92 THE NATIONAL BANKS. of capital invested in banking has not kept up to the proportion of 1850, but has de- clined from 3.2 per cent. of the valuation in that year to 2.1 per cent. of the valuation in 1870. - This fact indicates that the profits of the banks have not been so large as has been supposed. An extravagantly profitable business would have attracted a larger pro- portion of capital; or, at least, would have kept its original proportion. The matter of profits, however, is not a subject for in- ference, for the exact statistics are at hand. In 1869 Congress directed the national banks to make returns of their dividends and net earnings, and the ratios are here given to capital and surplus, year by year for nine years: Years. Earnings. Dividends. - 1870 . . . . . . . . . . . . . 10.9 per cent. ... 8.3 per cent. 1871 . . . . . . . . . . . . . 10.2 “ “ . . . . S.3 “ “ . 1872 . . . . . . . . . . . . . 10.4 ** “. . . . . 8.3 ** ** 1873 . . . . . . . . . . . . . 10.9 “ “ .... S.3 “ “ 1874 . . . . . . . . . . . . . 9.7 “ “ . ... 7.8 “ “ 1st ............. 9.3 “ “ . ... 7.7 “ “ ” 1876 . . . . . . . . . . . . . 6.8 “ “ . . . . 7.5 “ . “ . . 1877 ............. 5.6 “ “ .... 7.1 “ “ 1878 . . . . . . . . . . . . . 5.1 “ “ . ... 6.2 * : * : PRACTICAL WORKING OF THE SYSTEM. .93 It will be seen that during the last three years of this series the dividends exceeded the net earnings. These dividends were paid, in part, out of previously undivided profits, which amounted to $51,000,000 in 1876, and had been reduced to $45,000,000 in 1878. These profits form an addition- al reserve, established by the banks them- 'selves for the benefit of their share-holders. The capital cannot be impaired; the sur- plus cannot be touched; the only provis- ion for an unfavorable turn of business is the reserve of undivided profits. The losses of the banks during the last three years before the resumption of spe- cie payments amounted to $64,000,000– $13,000,000 more than the aggregate of un- divided profits in 1876. Within the eigh- teen months, ending December 31, 1878, over $36,000,000 of losses were charged off, and of this amount over $5,000,000 were charged off on account of depreciation of l'Inited States bonds held by the banks. This is the result, to the banks, of resump- tion of specie payments. The aggregate of these losses for three years is nearly-14 94 THE NATIONAL BANKS. per cent. of the capital of the banks. The average number of banks passing their semi-annual dividends during the same period was 288—one-seventh of the whole number. On the last dividend day of 1878 357 banks, with an aggregate capital of $59,000,000, paid no dividend. The banks have borne their full share of public burdens as well as losses. So long as the income and license taxes were gen- erally maintained, the banks paid to the United States annually 5 per cent. of their net earnings, and $2 on each $1000 of capital for a license. These taxes were repealed in 1871. Prior to the repeal, the combined State and national taxes levied upon the national banks amounted to about 44 per cent. upon their capital; the rate has since been about 3% per cent. It is fair, however, to estimate the taxes upon the capital and surplus, as the profits are estimated. Taking, therefore, the average capital for 1877—the last year for which complete returns of taxes have been pub- lished—we find $485,000,000 of capital and an average surplus of $125,000,000, mak- PRACTICAL WORKING OF THE SYSTEM. 95 ing $610,000,000, upon which the United States collected $6,900,000 and the States $8,830,000, making an aggregate tax of $15,730,000, or 2.6 per cent. upon the gross investment of $610,000,000 — that is $26 upon every $1000 belonging to the share- holders, at a full valuation. It will hardly be denied that the banks have borne their share of the public burdens. They are, in fact, the only bond-holders who are or can be taxed upon their investments in United States bonds. The note circulation of the national banks reached the maximum of $324,000,000 in 1875; it afterward declined to $301,000,000 in 1878. Not one dollar of these issues has been discredited. There has been no bank panic to increase the distress attending the general liquidation following the collapse of railroad and other speculative invest- ments in 1873. The strength and solven- cy of the national banking system has alone prevented a general disaster like that of 1839. Out of the whole number of banks or- ganized under the national law, only 69 96 THE NATIONAL BANKS. have failed in fourteen years. The notes of these 69 have been paid, or provided for, dollar for dollar. On the other claims, payments have been made ranging from 15 to 100 per cent., and averaging 60 per cent. The whole loss is but little over $6,000,000. The average number of fail- ures has been less than five annually, and the average annual loss to creditors has been less than $430,000. The average loss by the failure of 22 savings-banks in the single State of New York, during the sev- en years ending with 1878, amounted to $1,230,000 a year. Five State banks in Chicago failed in 1877 and 1878, with a loss to creditors of $3,819,500–$764,000 apiece.” The losses of the savings-banks were losses of money invested for a profit. They were incurred, mainly, by seeking for too large a profit. Suppose a series of sim- ilar disasters had happened to the banks which were carrying loans amounting to $850,000,000 or $900,000,000 for the mer- chants and manufacturers of the whole Eighty-nine banks failed in Illinois in 1861 and 1862, before the organization of the national-banks. PRACTICAL WORKING OF THE SYSTEM. 97 country. Business would have ceased. Bankruptcy would have been universal. Instead of depression, we should have had ruin. This misfortune has been averted mainly by the influence of a law which, by whole- some prohibitions and restrictions, enforced by constant supervision and publicity, has restrained such banks as might otherwise have yielded to the current of speculation, and held them to their duty toward the legitimate business of the country. The law was not framed to please the bankers. It did not please them. If it pleases them now, it is not because it affords them spe- cial advantages, but because they perceive that its regulations are for the general ben- efit, and for theirs as a part of the commu- nity. Mr. McCulloch said, in a letter writ- ten a few years ago, that he was at first strenuously opposed to the plan, because he foresaw that, if it went into operation, the large and prosperous bank of which He was the head must go out of business, or surrender its privilege of issuing two dollars for one of capital. He explains why - 7 98 THE NATIONAL BANKS. he afterward consented to take the office of comptroller of the currency, and goes on to say: “The system grew into favor with me day by day; and I have now no hesitation in saying that, for the United States, it is not only vastly superior to the system which it superseded, but that it is the best system which has been or is like- ly to be devised.” - - Cº- VII. FUNDING OPERATIONS OF THE TREASURY. MR. McCULLoCH might well say that the new system was vastly superior to that which it superseded. It is computed that the loss by bills of broken banks averaged, under the State bank system, 5 per cent. of the total circulation annually, so that in twenty years the whole amount of the cir- , 1 Quoted by Comptroller Knox in Finance Report, 1875, p. 202. The Bank of the State of Indiana, in 1S62, had a capital of $3,353,050, and a circulation of $5,872,767. - FUNDING OPERATIONS. culation was lost in the hands of the peo- ple." So loose were the regulations restrain- ing the issue of circulating notes forty years ago, that it was difficult to distinguish coun- terfeits from lawfully authorized bills. Pro- fessor Sumner tells a story of some counter- feiters who were arrested in a New York garret in 1836, with $20,000 in bills of the “Ottawa Bank” and $800 in specie. They affected the utmost indignation, declaring that they were a “bank,” and were printing their own notes to save expense; and they came so nearly within the definition then current of a bank, that they escaped on this impudent plea.” Nothing of this kind has been known in the United States since 1864. The cost of exchange, formerly a heavy tax upon the business of the country, has been reduced to a nominal rate by the creation of a uni- form and indubitably solvent currency. It is estimated that not less than $4,000,000,000 are annually drawn in exchange by the 1 Finance Report, 1875, p. 208. * Scribner's Monthly, March, 1879, p. 684. . . . & & 4. o : • º se * * * * * e * , * e ** a ‘. ** * te º e º rº- º 100 THE NATIONAL BANKS. West and South, upon the East. In 1859 the average cost of Southern and Western exchange upon New York was not less than 1 to 1% per cent. At the lower rate, the an- nual cost of exchange would be $40,000,000. Exchange between Chicago, Cincinnati, or St. Louis, and New York is now frequently at par, and rarely exceeds the trifling charge of 80 cents on $1000, instead of $10 or $15, as formerly.” Five per cent. of the bank currency now in circulation would be over $15,000,000; and if to this be added from $40,000,000 to $60,000,000 for domestic exchange, we have between $55,000,000 and $75,000,000 saved to bill-holders annually under the new sys- tem. The $17,000,000 of interest on the bonds by which this currency is secured may, therefore, be regarded as a premium for insurance against direct losses amount- ing to three or four times as much, besides indirect losses, which cannot be measured, from the disturbance of credit and inter- ruption of business. ... • , , * Finance Report, 1878, p. 150. 2 * * * • * * FUNDING OPERATIONS. 101 Depositors have been protected at the same time. The deposits in the national banks for the last ten years have averaged a little over $600,000,000. The losses by failure during that time have been about $6,000,000—1 percent. of the whole amount; not 1 per cent. per annum, but one-tenth of 1 per cent. per annum, which is less than half the cost of insuring property against the single risk of fire. During the panic of 1873 five banking houses and two trust companies, doing business in New York un- der the State law, went down, but only one national bank failed, and that afterward paid all its creditors in full, and has return- ed 35 per cent. to the share-holders. In the country at large the national banks were able to discount freely to solvent firms in the face of the panic, and by so do- ing greatly mitigated the disaster. A year after the shock their loans were $10,000,000 above the mark at which they stood in Sep- tember, 1873, and did not recede to the old figures until the spring of 1876. But the national banks were not intend- ed merely to do what the State banks had 102 THE NATIONAL BANKS. previously done, and do it better. They were created to aid the general govern- ment directly, first in raising the immense sums needed during the war, and afterward in funding the public debt at lower rates of interest. To appreciate the magnitude of these negotiations, the consequent neces- sity for a net-work of fiscal agencies cover- ing the whole country, and the actual ser- vice rendered by the banks to the treasury, it is necessary to review the financial ad- ministration of the government since 1861. A simple statement of the debt, in the order in which the liabilities were incurred, ex- hibits the whole series of transactions in a striking panorama. The following table gives, under the years in which the various securities were authorized, the total issues of the several classes, and the amount out- standing at the beginning of the financial year 1878–79: Securities. Issued. Outstanding. 1861. Old debt................... $134,086,726 $19,816,595 6's of 1881.................. 189,321,350 189,321,350 Demand notes.............. . 60,000,000 62,298 7-30's of 1861............. ... 140,094,750 16,800 IFUNDING OPERATIONS. 103. Securities. 1862. 5-20's of 1862................ Temporary loan............ Certificates of indebtedness. Fractional currency........ 1863. 6's of 1881....... tº e s tº e º gº * tº ºt One-year 5's........ tº tº e º ſº º g ∈ Two-year 5's........... • * * g. Coin certificates....... * * * * * Compound interest notes... * 1864. 10-40 year 5's.............. * 5-20's of 1864............... e 1S70. Funded loans. 5's of 1881.............. 44's of 1891............ & 4's of 1907. . . . . . . . . . . . . . 1872. Certificates of deposit...... 1S78. Silver certificates.... e e e s is a º Outstanding July 1, 1878, Issued. 314,771,600 449,338,902 150,000,000 561,753,242 49,102,660 75,000,000 44,520,000 166,480,000 57,883,400 266,595,440 196,117,300 125.561,300 830,000,000 14,000,000 203,327,250 332,998,950 379,018,000 42,539,350 85,155,000 517,494,150 240,000,000 98,850,000 64,780,000 1,462,600 Outstanding. 430,800 346,781,016 3,060 5,000 16,547,769 75,000,000 51,535 38,950 44,367,000 274,920 194,566,300 98,300 157,150 14,000,000 346,200 110,826,300 310,616,300 37,465,300 5,000 508,440,350 240,000,000 98,850,000 46,755,000 1,462,600 $2,256,205,893 104 THE NATIONAL BANKS. Hardly any form of indebtedness resorted to during the war is here missing, but even these figures give a wholly inadequate idea of the shifting volume of the temporary loan, payable on ten days' notice; of the certifi- cates of indebtedness, issued in default of money to impatient creditors, and bearing 6 per cent. interest; of the coin certificates, available for customs; and of notes, with and without interest, flowing into the treas- ury and out in ceaseless currents. The re- ported issue in these cases represents the greatest volume at any one time. Here is first the old debt, contracted under laws which Secretary Chase found in force on the 4th of March, 1861. Secre- tary Cobb, in October, 1860, with authority to borrow $21,000,000, had been able to obtain only $7,022,000. Secretary Dix, in February, 1861, with authority to borrow $25,000,000, had disposed of $8,006,000 in bonds at 90 to 96, receiving $7,243,500 in money. Mr. Chase, in April, had been obliged to sell 6 per cent. bonds at 85 to 94, and had availed himself of the privilege of issuing 6 per cent. notes to creditors at FUNDING OPERATIONS. 105 par. The debt was $90,000,000 when Con- gress met on the 4th of July, 1861. The securities issued under the old laws during the next year swelled the aggregate to $134,000,000. Then follows the legislation during the administration of Secretary Chase, from 1861 to 1864. First, the demand notes, in- tended to relieve the urgent necessities of the government; the 20-year 6's of 1861, taken by the associated banks of Philadel- phia, New York, and Boston, just in time to restore the sinking credit of the govern- ment; the 7.30 per cent, three years notes, a still more attractive investment. Then, in 1862, the legal tender notes and frac- tional currency, the temporary loan and certificates of indebtedness—all the make- shifts of a great emergency; and the $500,000,000 of 5-20 year 6's, sold in 1863 by Jay Cooke, through the agency of the banks and by the help of the newspapers all over the country. Then, in 1863, the 17-year 6's, taken by the national banks to secure their circulation; the 5 per cent. notes, of which $800,000,000 were author- 106 THE NATIONAL BANKS. ized and only about $200,000,000 could be marketed; and the 6 per cent. compound interest notes, to which the secretary was obliged to resort. Before Secretary Chase's time the bonds of the United States had always been issued for a definite time, and usually at 6 per cent. It is due to his foresight and firmness that, for the first time in the history of public loans, the option expressed in the 5-20 and 10-40 year bonds was secured by the gov- ernment. The current rate of interest, he said in 1861, was greater than the govern- ment ought to pay. In 1862 he declared that no prudent legislator would venture to impose on the labor and business of the people a fixed interest of 6 per cent. on a great debt for twenty years, unless the necessity was far more urgent than then appeared. In 1863 he asked for author- ity to issue 5 per cent. notes, and over $200,000,000 of them were found even then to be available. In spite of earnest re- monstrance, he insisted that all loans at 5 per cent. or over should be redeemable at the option of the government after five, or, FUNDING OPERATIONS: 107 at the utmost, after ten years. The 10-40 year 5's were authorized by the last act passed while Mr. Chase was secretary of the treasury. He resigned in June, 1864, and six months afterward was appointed Chief-justice of the Supreme Court of the |United States. Secretary Fessenden's administration, from July 1, 1864, to March 3, 1865, is mem- orable for the courage with which, even when the treasury was overdrawn, he re- fused to avail himself of the facile but dan- gerous aid of a new issue of legal tender notes, and for the brilliant negotiation of the popular 7-30 loan under the skilful management of Jay Cooke. Mr. Cooke had liberal commissions, but they were wholly contingent upon the success of his opera- tions, which involved a large preliminary outlay at his own risk. Not a note was de- livered to him until the cash was actually paid into the treasury. Before Mr. Fessen- den returned to the Senate he recommend- ed and secured the passage of the act of March 3, 1865, authorizing an issue of 6 per cent. bonds, amounting to $600,000,000 in 108 THE NATIONAL BANKS. addition to amounts previously authorized, and permitting the conversion of any obli- gations of the United States, whether bear- ing interest or not, into such bonds, pro- vided that the public debt should not there- by be increased. - The consolidation of the debt and retire- ment of the legal tenders was thus provided for, in pursuance of the original intention of Congress and of the executive. Secre- tary McCulloch, if he had retained the con- fidence of Congress, had ample power to fund the entire debt in 5-20 year 6 per cent. bonds. The consols of 1865, 1867, and 1868 were issued under this authority, to take up the maturing notes, the certificates of indebtedness, and the temporary loan. The legal tenders might have been absorb- ed in the same way, if the secretary had not conceived it to be his duty to call special attention to this process, and at the same time to allow himself to become involved in the controversy about the reconstruction of the South. By this course he needlessly alarmed the country, at the same time giv- ing mortal offence to the majority in Con- FUNDING OPERATIONS. 109 gress; and the result was the peremptory mandate which, in 1868, forbade the further retirement of the superfluous currency. The 3 per cent. certificates of deposit were is- sued in 1867 and 1868, to take up the re- mainder of the compound interest notes. The administration of Secretary Bout- well, from 1869 to 1873, is marked by the passage of the funding act of 1870. That act authorized the issue of bonds amount- ing to $200,000,000, afterward increased to $500,000,000, at 5 per cent., payable in ten years; $300,000,000 at 44 per cent., pay- able in fifteen years; and $1,000,000,000 at 4 per cent., payable in thirty years. In 1875 Senator Sherman secured the passage of an act requiring a resumption of specie pay- ments in 1879, and authorizing the sale of any of these bonds to provide for the re- demption of the fractional currency and of the legal tenders. There has been no sub- sequent legislation on this subject except the act of 1878, requiring the legal tenders, after redemption, to be reissued and kept in circulation. The certificates of deposit, authorized in 1872 and 1878, bear no inter- 110 THE NATIONAL BANKS. est, and do not affect the amount of the debt. In 1871 $200,000,000 of the 5 per cent. loan of 1870 were sold, of which amount about one-half was taken by the national banks and one-half was sold to Jay Cooke & Co., representing bankers in Europe and in the United States. In 1873 $100,000,000 more of 5 per cents. were sold by Secretary Richardson. In 1874 Secretary Bristow disposed of the rest of the 5 per cent. loan, mainly in Europe. The 6 per cent. bonds were called in and paid as fast as the new 5's were issued. The commission on this exchange was 4 of 1 per cent. In 1876 Secretary Morrill sold $90,000,000 of the 44 per cent. loan to August Belmont & Co., allowing # of 1 per cent. commission on condition that the buyers should assume the expense of preparing, printing, trans- porting, and issuing the bonds, and make payment therefor at the treasury without cost to the government. In 1877 Secretary Sherman, sold $150,000,000 more of the same securities to Belmont & Co., and in June the 4 per cents were offered to the FUNDING OPERATIONS. 111 public. Within thirty days the subscrip- tions ran up to $75,000,000. The further Sale was then suspended, on account of the agitation concerning the repeal of the re- sumption act and the coinage of deprecia- ted silver dollars. In 1878 $100,000,000 more were sold to the public, and heavy importations of United States bonds from Europe were absorbed at the same time. In December, 1878, Secretary Sherman es- timated the amount of United States bonds still held abroad at not more than $200,000,000. - It is hardly too much to say that the as- sistance of the banks in these operations was indispensable." After the Revolution, and again, after the war of 1812, the treas- ury was compelled to avail itself of the 1 “The ease and facility with which such vast re- funding operations have been conducted by the gov- ernment,” says Secretary Sherman, “is due largely to the co-operation of the banks.”—Letter July 12, 1879, declining an invitation to attend the Saratoga meet- ing of the Bankers’ Association. He adds that these operations were far larger than any previous financial transactions of the government, even during the time of War. - - 112 THE NATIONAL BANKS. aid of banks holding close relations to the government. The same necessity had once more arisen. The first Bank of the United States absorbed nearly one-fifth of the pub- lic debt in 1791. The second Bank of the United States carried about the same pro- portion of the debt of 1816. When the civil war closed, in April, 1865, the newly organized national banks had aided the treasury in placing and carrying the im- mense loans required to maintain the ar- mies and fleets in active service for four years, and held themselves government pa- per to the amount of $390,000,000. They have since assisted in the negotiations by which the interest on the public debt has been reduced from $150,000,000 a year to $83,000,000. Their co-operation alone has made the resumption of specie payments possible. The banks held on the 1st of January, 1879, nearly one - third of the whole issue of legal tender notes. If they had presented these notes for redemption, the example would have been followed by other holders, and the treasury would have been forced to suspend payments. FUNDING OPERATIONS. 113 Before the resumption of specie pay- ments, the funding operations under the act of 1870 could only be effected at the financial centres. The secretary of the treasury was required to sell the bonds is- sued under that act at not less than their par value, for coin; and so long as there was a difference between coin and United States notes, the inconvenience of obtain- ing coin outside of the large cities forbade any direct appeal to the great body of the people. Without the machinery of the banks, the currency of the people could not be transmuted into the currency of the government. That difficulty vanished on the 1st of January, 1879, and on that day there were still outstanding and redeema- ble $569,000,000 of 6 per cent. and 5 per cent. bonds: Consols of 1865.................. $ 26,085,550 Consols of 1867.................. 310,614,000 Consols of 1868.................. 37,465,300 6 per cents. . . . . . . . . . . . . . . . . . . $374,164,S50 Ten-forties of 1864............... $194,566,300 Loan of 1858..................... 260,000 6 per cents... . . . . . . . . . . . . . . . . $194,826,300 114 THE NATIONAL BANKS. In a little more than ninety days 4 per cents were sold to the public to take up all the 6's; and the remainder of the loan, to pay off the 5's, was eagerly sought at a pre- mium of # of 1 per cent., with an allowance of # of 1 per cent. commission. A few New York and Boston banks bid off the whole amount at this price, but were only allowed to take $150,000,000, the remainder being reserved for private purchasers, by whom it was speedily taken up in sums of $100. In July, 1861, Secretary Chase had no means of negotiating a popular loan, Save by the employment of postmasters and oth- er designated persons, and this suggestion is actually made in his report of that date.” It was the urgent need of skilled financial agents which compelled him to insist upon the passage of the bank act, and, before its passage, to depend upon the State banks for such aid as he required. The support which he received was fully acknowledged in his report for 1862. “They ventured largely, and boldly, and patriotically,” as 1 Congressional Globe, 1861. Appendix, p. 6. FUNDING OPERATIONS. 115 he says, “on the side of the Union and the constitutional supremacy of the Nation over States and citizens.” But after all, it was v. the business of the State banks to buy gov- ernment bonds low. It became the duty of the national banks to sustain the credit of the government. “Public utility,” says Hamilton, “is more truly the object of pub- lic banks than private profit; and it is the business of government to constitute them on such principles that, while the latter will result in a sufficient degree to afford com- petent motives to engage in them, the for- mer be not made subservient to it.” How well this sound rule was observed in the constitution of the national banks under the statutes of 1863 and 1864 has been demonstrated by the immediate improve- ment of the public credit while the war was still flagrant; by the moderate and safe policy of the banks during the period of general expansion from 1868 to 1873; by the steady support which they gave to the funding process, though their own prof- * Reports on the Finances, vol. i. p. 67. 116 THE NATIONAL BANKS. its were thereby curtailed; and, finally, by their co-operation in the resumption of spe- cie payments, although, as has just been shown, the first result was to enable the secretary of the treasury to complete the funding operations of 1879 without their assistance. There remain $264,000,000 in 6 per cent. bonds, and $508,000,000 in 5 per cents, to be funded at 4 per cent. in 1881, when the government option becomes available. It is not merely in these large transactions, however, that the treasury needs to some extent still the aid of the banks; but chiefly in the daily business of collecting and disbursing a revenue amounting to $275,000,000 a year. These are the figures of Secretary Sherman's estimates for 1880. In 1860 the expenditures of the govern- ment, as reported by Secretary Cobb, were $77,000,000, of which $17,000,000 were pay- ments on account of the public debt, leav- ing $60,000,000 for ordinary expenses. The population of the United States was then thirty-one millions, so that the cost of main- taining the government was about $2 for FUNDING OPERATIONS. 117 each inhabitant. In fact, the ordinary ex- penses in the year ending June 30, 1861, were $62,000,000, or precisely $2 for each inhabitant. The population in 1880 will be over fifty millions, and the ordinary ex- penses of the government, at the same rate, will be about $100,000,000. Then there are $138,000,000 estimated for payments on ac- count of the public debt, $29,000,000 for pensions, and a special appropriation of $12,000,000 for the completion of the treas- ury building and construction of a new building for the war department at Wash- ington, making up the sum of $275,000,000. This is $23,000,000 a month, almost a mill- ion dollars for each business day in the year, gathered from the custom-houses, post-of- fices, and collectors of internal revenue, and disbursed to pensioners, creditors, and offi- cers of the government in every hamlet. In this immense business the banks are con- stantly employed, receiving and forwarding collections, cashing interest coupons and the checks of disbursing officers, and them- selves selling the stamps affixed to checks and drafts, and seeing that they are prop- 118 THE NATIONAL BANKS. erly cancelled. These unobtrusive services attract but little attention; the man who collects a coupon clipped from a $100 bond, or a pension agent's check, at his village bank, free of cost, hardly knows that he has received a favor; but the aggregate of such transactions is enormous, and the saving, both to the treasury and to the public, is very great. If these convenient agencies should be discarded, Secretary Boutwell says, the government “would require a, large incréase in the number of designated depositories, and a proportionate increase of the public expenses, without the least appreciable advantage.” -Q- VIII. THE LEGAL TENDER CASES. CHIEF-JUSTICE CHASE had hardly, taken his seat upon the supreme bench, when he was called upon to interpret, as judge, the * Finance Report, 1872, p. xix./ THE LEGAL TENDER CASES, 119 series of laws which he had recommended and put in execution as finance minister. And this was a great gain for the country, since no man then or since was so thor- oughly acquainted with the whole history of that legislation, and with its practical operation in general and in detail. In 1863 and 1864 the assessors of New York had levied a tax upon the capital stock of the banks doing business under the laws of that State. Some of these banks resisted the tax, on the ground that it was in fact imposed upon the United States bonds in which a large proportion of their capital was invested, and that the bonds, under the constitution and laws of the United States, were exempt from local taxation. The Court of Appeals sustained the assessments, but the Supreme Court of the United States, at the December term of 1864, adjudged the tax contrary to the national constitution, and so the judgment of the Court of Appeals was reversed. In 1866 the legislature of New York provided by law for refunding to the banks the taxes of 1863 and 1864, collected upon that part 120 THE NATIONAL BANKS. of their capital invested in United States securities, and the board of supervisors of the county of New York was subsequent- ly charged with the duty of auditing the claims of banks in that county for reim- bursement under the law. The supervi- sors refused to allow the claim of exemption upon United States notes; the Court of Appeals sustained the supervisors; and the Bank of New York carried the case to the Supreme Court at Washington.” - At the hearing, during the December term of 1868, the corporation counsel, Messrs. O'Conor and O'Gorman, contend- ed that the United States notes were not securities, and so exempt from local taxa- tion, but a new kind of money. “Instead of borrowing money,” they argued, “Con- gress made money, and rendered borrowing unnecessary.” The opinion of the court, delivered by the Chief-justice, affirmed that while these notes were intended to circulate as money, and with the national bank-notes to constitute the credit circula- 1 Supreme Court Reports. 7 Wallace, 26. Bank versus Supervisors. THE LEGAL TENDER CASES. 121 tion of the country, they were nevertheless obligations of the United States, each ex- pressing upon its face an engagement to pay a certain number of dollars. “The dollar intended,” said the court, “is the coined dollar of the United States; a cer- tain quantity in weight and fineness of gold or silver, authenticated as such by the stamp of the government.” These obliga- tions, it was held, were strictly securities, and under this general description were exempted from local taxation by the acts of February and July, 1862, and expressly by the act of March, 1863. The judgment of the Court of Appeals was therefore re- versed. The character of the United States notes, as obligations to be paid in real money, was thus determined. Their legal tender quality was next to be considered—indeed, was already before the court, brought there by Mrs. Hepburn, of Kentucky, and by five other plaintiffs in as many suits." Mrs. Hepburn had given a note for $11,250 to 1 Supreme Court Reports. 8 Wallace, 603. Hepburn versus Griswold. - 122 THE NATIONAL BANKS. Henry Griswold on the 20th of June, 1860, payable on the 20th of February, 1862. The note was not paid at maturity, and in March, 1864, suit having been brought by Griswold in the Louisville Chancery Court, Mrs. Hepburn tendered $12,720 in United States notes for principal, interest, and costs. Gold was then at a premium of about 60 per cent., and the tender was re- fused. Mrs. Hepburn then tendered the notes to the court, and the chancellor, “re- solving all doubts in favor of the United States,” declared the tender good, received the notes, and adjudged the debt to be sat- isfied. Griswold carried the case to the Kentucky Court of Errors, which reversed the chancellor's judgment, and Mrs. Hep- burn appealed from the Court of Errors to the Supreme Court of the United States. Mrs. Hepburn's note was a contract made before the war, to pay $11,250 in coin or its equivalent, and the sum of $11,250 in legal tender notes was worth in March, 1864, only about $7000 in coin. This was not what the contract required, and thus the question was directly raised, whether Congress, un- THE LEGAL TENDER CASES. 123 der the constitution, could exercise a pow- er forbidden to the States, and enact a valid law impairing the obligation of con- tracts. The cause was first argued at the Decem- ber term, 1867. At the request of Mr. Stan- bery, then attorney-general, the court post- poned this and other cases, involving inci- dentally the same question, until December, 1868, when Attorney-general Evarts argued for the government in favor of the legal tender provision of the law, and Mr. Clark- son N. Potter against it. At different times counsel were heard in the other five cases, —seven, including Mr. B. R. Curtis, for the law, and six, including Mr. Bradley, against it. Finally, four of the cases were decided on other grounds; the fifth and sixth were found to turn upon the legal tender acts; and on the 27th of November, 1869, the court decided the case of Hepburn versus Griswold in conference. On the 7th of February, 1870, the opinion prepared by the Chief justice was read from the bench, and the judgment of the Court of Errors of Kentucky was affirmed. In this opin- 124 THE NATIONAL BANKS. ion Justices Nelson, Clifford, Field, and Grier concurred. Justices Miller, Swayne, and Davis dissented. The conclusion of the court, as stated by the Chief-justice, was, “that an act mak- ing mere promises to pay dollars a legal tender in payment of debts previously con- tracted, is not a means appropriate, plainly adapted, really calculated to carry into ef- fect any express power vested in Congress; that such an act is inconsistent with the spirit of the constitution; and that it is prohibited by the constitution.” It was upon the receivability of the notes for gov- ernment dues, and not upon the quality of legal tender, that reliance for circulation was originally placed; for the legal tender clause was an after-thought, and did not ap- pear in the original draft of the bill. All the useful purposes of the notes would have been fully answered, and were answered by the national bank-notes, without making them a legal tender for pre-existing debts. The application of the law to such debts impairs the obligation of contracts, and is therefore inconsistent with the spirit of the THE LEGAL TENDER CASES. 125 constitution. Finally, it is a direct viola- tion of the provisions declaring that private property shall not be taken for public use without due compensation, and that no per- son shall be deprived of property without due process of law. Justice Miller, who delivered the dissent- ing opinion, took issue with the majority of the court on the question whether the notes would have served the purpose for which they were issued without the qual- ity of legal tender. The power to make anything but gold and silver a tender in payment of debts, he said, was expressly forbidden to the States; if it existed at all, it was confided to Congress, as an auxiliary to the power to borrow money, to raise and support armies, and to suppressinsurrection. When by law the notes were made to dis- charge the function of paying debts, they had a perpetual credit or value, equal to the amount of all the debts, public and pri- wate, in the country. Without this provi- sion, they would have fallen to the dead level of worthless paper. If this is true, Congress acted under the stress of absolute 126 THE NATIONAL BANKS. necessity; and if it is only partly true, the degree of necessity is for the legislature and not for the court to determine. So the court divided on a purely eco- nomical question, whether the value of an inconvertible paper currency is enhanced by making it a legal tender. That the is- sue of United States notes was within the scope of Congressional authority, was con- ceded on both sides. The weight of eco- nomical opinion is undoubtedly with the majority of the court, and the premium on gold shows conclusively that the legal tender clause did not prevent a serious depreciation of the notes. Justice Miller gives no substantial reason for his theory that the relief which they afforded to the treasury would not equally have been af- forded if the United States notes, like the national bank-notes, had been allowed to pass current by common consent at their market value. In April, 1869, while this case was pend- ing, Congress had passed an act increasing the number of judges of the Supreme Court from eight to nine. On the 1st of THE LEGAL TENDER CASES. 127 February, 1870, after the decision of the case, but before the judgment was entered, Justice Grier resigned. On the 18th of February, Justice Strong was appointed, and Justice Bradley on the 21st of March; making up the full bench of nine." It is not disputed that these appointments were made for the purpose of overruling the de- cision of the court in the case of Hepburn versus Griswold;” for although that deci- sion applied strictly to such contracts only as were outstanding on the 25th of Febru- ary, 1862, when the legal tender act was approved, it was seen that the entire prin- ciple of the law was involved, and it was feared that with gold still at 120 the notes, by some subsequent decision, might be de- prived of their forced currency. If this had happened, the only consequence would have been that instead of reckoning gold at 120 and the notes at par, people would 1 Supreme Court Reports. 12 Wallace, 528, note. 2 Judge Strong had previously sustained the tender laws in an elaborate opinion, delivered from the Su- preme bench of Pennsylvania, in the case of Shollen- berger versus Brinton. 52 Penn. State, 9. 128 THE NATIONAL BANKS. have quoted the notes at 83 and gold at par; for it would also have been held that outstanding contracts must be regarded as obligations to pay notes and not coin. The court, as reconstituted, ordered a hearing, at the December term of 1870, of two causes involving the application of the legal tender act to contracts both before and after its date.” The first case was brought from the Cir- cuit Court of the western district of Texas by one Knox, who in 1863 had bought of the Confederate authorities a flock of sheep belonging to Mrs. Lee, of Pennsylvania, and confiscated as the property of an alien ene- my. Mrs. Lee, in 1867, brought suit for damages, and the judge in his charge re- minded the jury that whatever award they might make could be discharged by the payment of United States notes. The plain- tiff in the Supreme Court complained that this suggestion had led the jury improperly to increase the damages, which were fixed at $7368. It was contended that this in- 1 Supreme Court Reports; 12 Wallace, 457. The Le- gal Tender Cases. - - THE LEGAL TENDER CASES. 129 struction made a distinction between coin and paper tenders, after the passage of the legal tender act. The second case came from the Supreme Court of Massachusetts. One Parker had agreed, before the legal tender legislation was had, to convey a lot of land to one Davis, on the payment of a certain sum of money. Parker refusing to perform his ob- ligation, the Massachusetts court, in 1867, ordered Davis to pay the money to the court, and Parker to execute the deed, in pursuance of the agreement. Davis there- upon paid the stipulated sum in legal ten- der notes, but Parker objected that he was entitled to payment in coin, and the objec- tion being overruled, appealed to the Su- preme Court at Washington. Mr. B. F. Thomas appeared for Parker, and General B. F. Butler for Davis. The court also or- dered that Mr. Clarkson N. Potter, who had argued the case of Hepburn versus Gris- wold, should be heard against the consti- tutionality of the law, and Attorney-general Akerman in its support. The argument, which was very elaborate, was heard in 9 130 THE NATIONAL BANKS. April, 1871, and on the 1st of May the judg- ment of the courts below, in both cases, was affirmed; Justices Strong, Bradley, Miller, Swayne, and Davis concurring in the deci- sion, and the Chief justice and Justices Nel- son, Clifford, and Field dissenting. By a majority of one, without any change of opinion on the part of the members of the court in 1869, the prior decision was over- ruled, and the court was made to declare that the legal tender acts are constitutional when applied to contracts made before their passage, and valid as applicable to contracts made since. On the 15th of January, 1872, the opin- ion of the court was delivered by Justice Strong, and a concurring opinion was de- livered by Justice Bradley. Dissenting opinions were read by Chief justice Chase and by Justices Clifford and Field. The point of difference was still the question whether the legal tender acts had been in any degree essential to the maintenance of the credit of the government, at the time and under the circumstances when they were enacted. THE LEGAL TENDER CASES. 131 Said Justice Strong: Plainly, to this inquiry, a consideration of the time when they were enacted, and of the circumstances in which the government then stood, is important. It is not to be denied that acts may be adapted to the exercise of lawful power, and appropriate to it, in Seasons of exigency, which would be inappropriate at Other times. In the same way Justice Miller, in his dissenting opinion delivered in 1870, had admitted that in the extraordinary circum- stances under which the legal tender acts were passed, must be found the vindication of the exercise of powers so extraordinary. His words were: The legal tender clauses of the statutes under con- sideration were placed emphatically, by those who enacted them, upon their necessity to the further bor- rowing of money and maintaining the army and navy. The debates of the two houses of Congress show that on this necessity alone could this clause of the bill have been carried; and they also prove, as I think, very clearly, the existence of the necessity. The his- tory of that gloomy time, not to be readily forgotten by the lover of his country, will forever remain the full, clear, and ample vindication of the exercise of this power by Congress. Justice Bradley went farther. After de- scribing the power to give to bills of cred- 132 THE NATIONAL BANKS. it the quality of legal tender as an inci- dent, following almost as a matter of course from the power to issue such bills, he pro- ceeded : I do not say that it is a war power, or that it is only to be called into exercise in time of war; for other public exigencies may arise in the history of a ma- tion which may make it expedient and imperative to exercise it. But of the occasions when, and of the times how long, it shall be exercised and in force, it is for the legislative department of the government to judge. If Justice Bradley has not changed his mind, he has already settled, for himself, the new phase of the question which has been presented to the court by the suit of Juilliard versus Greenman. This case grows out of a sale of cotton by the plaintiff, who is a citizen of New York, to the defendant, who is a citizen of Connecticut, in April, 1879, for $512290, payable on delivery of the goods. Greenman tendered in pay- ment $5100 in United States notes of the series of 1878, which had been redeemed and reissued under the act of May 31, 1878, and $22.90 in gold and silver coin. The coin was accepted on account, but the THE LEGAL TENDER CASES. 133 tender of United States notes was rejected, and Juilliard now claims judgment for $5100 with interest and costs. The case was sub- mitted in the United States Circuit Court at New York in June, without argument, and a pro forma decision was rendered for the defendant, whereupon the plaintiff ap- pealed to the Supreme Court. Mr. William Allen Butler appeared for Juilliard, and Mr. James McKeen for Greenman. It is under- stood that Senator Edmunds of Vermont will also argue for the plaintiff, and Gen- eral B. F. Butler for the defendant at the hearing before the Supreme Court. This case raises the distinct question whether Congress may properly authorize the issue of a forced currency in time of peace. Justice Bradley holds this to be a matter wholly within the discretion of Con- gress. Justices Miller and Strong seem to regard it as the exercise of a power which could only be properly invoked in time of war; but it is hard to find a logical foot- hold anywhere between a total denial of this power and the admission that it may be exercised at the discretion of Congress; 134 THE NATIONAL BANKS. and they, with Justice Swayne, will not improbably be driven to the conclusion of Justice Bradley. Justices Clifford and Field are committed against the constitutionality of this legislation under any circumstances. What the three new judges, Chief justice Waite and Justices Hunt and Harlan, may think, cannot be so easily inferred. It is safe to say, however, that when the ques- tion comes to be argued again, it will be greatly simplified by the disappearance of the premium on gold and by the previous discussions. There will be no longer any pretence that the power claimed is neces- sary to maintain armies or suppress rebel- lion, but it will be presented as an incident to the power to borrow money. The pre- cise proposition will be, that it is expedient to declare notes which are convertible into coin on demand, a legal tender, in order to keep them in circulation. This assertion so contradicts everybody's experience, that it cannot be maintained; and the only re- maining pretext will be the theory first pro- pounded by Justice Strong, that a power which has been exercised by other nations IXRIFT OF PUBLIC OPINION. 135 must somehow belong to this. But if that be admitted, and the legislature be consti- tuted the sole judge of the necessity for the exercise of such vague powers, it follows, as Chief justice Chase pointed out, that the government becomes practically absolute and unlimited. IX. DRIFT OF PUBLIC OPINION. WHILE the Supreme Court was thus busy, like Penelope with her web, patiently un- doing the work which it had as patiently done, public opinion concerning the cur- rency drifted far away from the safe moor- ings where it had rested from the founda- tion of the government. During the discussion which preceded the passage of the national bank acts of 1863 and 1864, it was invariably and clearly set forth, in executive documents and Con- gressional debates, that the issue of United States notes was a temporary and doubtful measure, only justified by the controlling 136 THE NATIONAL BANKS. necessity of the times, while the bank act was a permanent provision for a sound, uniform, and convenient paper currency. The act, which was finally passed in 1863, was submitted to the committee on ways and means by Secretary Chase in December, 1861, and then contained a provision for a temporary issue of United States notes, to relieve the treasury during the interval be- fore the organization of the national banks, which were expected to furnish both a mar- ket for the bonds and a currency which could be safely received for taxes. This transformation of the banking system, as has been shown, encountered the unani- mous opposition of the State banks, and Congress dared not then proceed with it. The section providing that “for temporary purposes” the secretary should be author- ized to issue United States notes, was pre- sented and passed as an independent pro- position,” and the notes were made a legal tender. Yet, during the discussion of this 1 The bill, as reported, expressly affirmed that the notes were to be issued “for temporary purposes.”— Congressional Globe, January 28, 1862, p. 522. DRIFT OF PUBLIC OPINION. 137 bill, Mr. Hooper, of Massachusetts, took oc- casion elaborately to explain the proposed banking system, which was “designed to be more permanent” in its character, and upon the expected results of which, he said, the pending measure was in some degree based. “We all know,” said Mr. Fessen- den, when the bill came to the Senate, “that it was resorted to as a temporary measure.” The opponents of the bill con- tended that it was the inauguration of a new and ruinous policy, and must therefore be rejected; but the majority replied, in the language of Mr. Sherman, that it was “a mere temporary expedient.” “We dare not repeat this experiment a second time,” he added; “if we do, we enter on the same course that was followed in the French rev- olution, and also by our American ances- tors.” Mr. Sumner, as he reluctantly gave his vote for the bill, uttered the warning which has passed into a proverb, that “The medicine of the constitution must not be- come its daily bread.” The attention of Congress was recalled to the proposed bank act by Secretary Chase 138 THE NATIONAL BANKS. in December, 1862. “The issue of United States notes,” he wrote, “if exclusive, is hazardous and temporary; the security by national bonds of similar notes furnished to banking associations is comparatively safe and permanent.” In his message to Congress, of the same date, President Lin- coln expressed great doubt whether a cir- culation of United States notes, payable in coin and sufficiently large for the wants of the people, could be “permanently, useful- ly, and safely maintained,” and recommend- ed the organization of banking associations under a well-guarded national law. When the bill for the organization of such asso- ciations came up in the Senate, Mr. Sher- man commended it expressly because as soon as the war should be over and the national bonds at par with gold and silver, the banks would become specie-paying banks. “During the war,” he said, “the greenbacks are necessary to carry on the government.” “It will be toward the close of the war,” said Mr. Spaulding in the House, “that this measure will be most valuable in providing a way for funding DRIFT OF PUBLIC OPINION. 139 the public debt and establishing a perma- ºnent system of national currency.” In his report for December, 1863, Secre- tary Chase announced that “the great work of introducing a permanent national cur- rency,” in distinction from the temporary legal tender currency, had been “entered upon in a spirit and with an energy prom- ising perfect success.” Except through the national banking system, he said, “no sure way is seen to the complete and perma- nent establishment of a uniform currency.” When Congress entered upon the revision of the bank act recommended by the secre- tary in this report, a few members express- ed a preference for the legal tender curren- cy, to which the country was then becom- ing accustomed. To them Mr. Hooper re- plied, that “To confine the right of issuing paper for currency to the treasury depart- ment would seem to be a permanent ar- rangement for an irredeemable currency. When the act was passed authorizing the issue of legal tender notes,” he continued, “no one advocated it as a permanent meas- ure, but only as a temporary expedient to 140 THE NATIONAL BANKS. meet the emergency that existed after the banks suspended specie payments at the close of the year 1861.” He proceeded to show that the government could not get its bills into circulation, in time of peace, “without assuming the functions of a bank by loaning its notes,” and the objection to this expedient he considered too manifest to need any discussion. “If this bill is a success,” said Mr. Sherman in the Senate, “I have no doubt that, within a very few years after the war is over, there will be no currency but national currency and gold and silver coin.” This, Mr. Sherman said, was also the expectation of Secretary Chase —that the notes of the United States would be funded and retired, and nothing would be left but the national bank currency and coin. In December, 1864, President Lincoln, in his annual message to Congress, expressed the hope that very soon there might be no bank-note circulation in the United States not secured by the government; and Con- gress, acting upon the suggestion of Secre- tary Fessenden, proceeded to lay a 10 per DRIFT OF PUBLIC OPINION. 141 cent, tax upon the bills of State banks. It had previously been decreed that the issue of United States notes should never exceed $400,000,000. It was now determined that the bank currency should be limited to the $300,000,000 authorized by the nation- al government. In December, 1885, Secretary McCulloch, who had been comptroller of the currency under Secretary Chase, pursuing the policy of the author of the bank act, and of all its advocates, advised, as the first step to- ward a resumption of specie payments, that provision should be made for the re- demption of the United States notes by the sale of interest-bearing bonds; in other words, that the notes should be funded. He had already ample authority of law for this purpose, provided by the judicious foresight of Secretary Fessenden; but, be- fore using this power, he seems to have de- sired the special sanction of Congress. His advice was re-enforced by the recommen- dation of President Johnson. “The grad- ual reduction of the currency,” said the President, “is the only measure that can 142 THE NATIONAL BANKS. save the business of the country from dis- astrous calamities; and this can be almost imperceptibly accomplished by gradually funding the national circulation in securi- ties that may be made redeemable at the pleasure of the government.” So unani- mous was public opinion at this time, that on the 18th of December the House of Representatives adopted, by a vote of 144 to 6, the following resolution, offered by Mr. Alley, of Massachusetts: Resolved, That this House cordially concurs in the views of the secretary of the treasury in relation to the necessity of a contraction of the currency, with a view to as early a resumption of specie payments as the business interests of the country will permit; and we hereby pledge co-operative action to this end as Speedily as practicable. This pledge was redeemed by an act approved April 12, 1866, permitting the secretary to retire United States notes to the amount of $10,000,000 during the six months ending October 12, 1866, and $4,000,000 a month thereafter. The vol- ume of United States notes on the 30th of June, 1866, stood very nearly at the limit of $400,000,000. Under the authority DRIFT OF PUBLIC OPINION. 143 granted him, Secretary McCulloch called in and cancelled, during the next nineteen months, $44,000,000. On the 4th of Feb- ruary, 1868, the authority to make any fur- ther reduction of the currency was sus- pended, and has never been renewed. The loan bill of 1866 passed the House of Representatives by a vote of 83 to 53; and the Senate, 32 to 7. There was no vote by yeas and nays on the section authorizing a contraction of the currency. The bill re- voking that authority in 1868 passed the House, 127 to 32, and the Senate, 33 to 4. This extraordinary change of opinion with- in two years was due to three concurrent Call SeS. In the first place, although Secretary Mc- Culloch executed his trust with great dis- cretion, and no serious financial disturbance occurred, the spectacle of a shrinking vol- ume of currency insensibly affected the im- agination of the beholders, and caused a curtailment of credit. Mr. McCulloch said in his speech at Woodstock, in 1878, that “no business interest in the United States suffered while this withdrawal was going 144 THE NATIONAL BANKS. on; and nobody but the officers of the treasury would have known that it was going on, had it not been for the publica- tion of the monthly treasury reports.” But, through that monthly publication, every- body did know what was going on; and the scarcity of money, which might other- wise have been correctly explained by the high prices absorbing the currency, was al- most universally attributed to the operations of the treasury. This impression caused a real contraction of credit, which was un- doubtedly hard to bear, but could better have been borne then than when it came after an intervening period of feverish speculation, as the inevitable sequel of the crisis of 1873. In the second place, it was Secretary Mc- Culloch's misfortune to hold a seat in the cabinet of a President at odds with the majority in both houses of Congress, and to find himself, on the precise point of dif- ference, in sympathy with the President and not with Congress. In his report for 1866 he had laid great stress upon the impor- tance to the finances of a rehabilitation of DRIFT OF PUBLIC OPINION. 145 the States then lately in insurrection, and in December, 1867, he recurred to this dangerous topic. As an economist, he was doubtless right; but as a politician, he was wholly wrong. It was folly to expect in- telligent attention to a suggestion of this kind from a Congress already clamorous for the impeachment of the President, on the express ground that he had publicly accused the Congress of perpetuating dis- union, and preventing the restoration of peace and harmony. The act of February 4, 1868, was intended in part as a rebuke to Secretary McCulloch for meddling with this subject. If a President like Lincoln, and a Secretary like Chase, possessing the full confidence of the dominant party in Congress, had adhered, as President John- son and Secretary McCulloch unquestiona- bly did, to the financial policy adopted at the beginning of the war and faithfully executed until that time, their recommen- dations would have been heeded, and the country would have been spared the long misery which has followed the crisis of 1873; for the inflation which prepared the 10 146 THE NATIONAL BANKS. way for that crisis would have been steadi- ly and firmly repressed, and long before that fatal year our currency would have been restored to its normal value. Finally, it was at this juncture that the mirage appeared which always rises from the shimmering surface of a fluctuating currency—a vision of unsubstantial splen- dor, wherein the images of real things were seen floating upside down in the heated air. Men began to say, “The cheap dollar is good enough. Business goes on the same as ever. A rising market makes good trade. If the working-men can't live at these prices, raise their wages. Why in- terrupt this prosperity ?” As if a dollar varying in value from day to day would “not surely gravitate to zero, unless some pains were taken to bring it back to par! Others, regardless of the advance of prices, began to assert that the paper dollar was stationary; it was gold that varied. And just at this time a man appeared in Con- gress who was capable of weaving these flimsy notions into a symmetrical theory. General Butler took his seat as a represen- DRIFT OF PUBLIC OPINION. 147 tative from Massachusetts in March, 1867. During his first session he proposed to substitute United States notes for the cir- culation of the national banks; to raise the whole issue of government paper to $1,000,000,000; to pay off $600,000,000 of the interest-bearing debt; and to fund the $1,500,000,000 remaining in a 5 per cent. taxable bond. Specie payments, he Said, were for the time out of the ques- tion. In 1869 he developed his whole scheme in a speech,” which became a text- book for the advocates of a permanently in- convertible currency. He had then reached the conclusion that specie payments were not only temporarily out of the question, but that they ought never to be restored. He proposed to call in the United States notes promising to pay dollars, and to is- sue, instead, “certificates of value,” which should be dollars. These certificates were to be issued to anybody in exchange for 6 per cent. bonds, to the amount of 90 per cent. of the par value of the bonds, and on 1 Congressional Globe, Jan. 12, 1869, p. 303, 148 THE NATIONAL IBANKS. returning the certificates, with interest at the rate of 3.65 per cent. per annum, the owner should be entitled to receive his bonds again. The bank circulation was to be retired to make room for the certifi- cates of value, which would constitute a cur- rency “uniform, sound, cheap, stable, and elastic.” This scheme, in 1869, excited only laugh- ter. Two months after it was explained, Congress solemnly pledged the faith of the United States to make provision at the ear- liest practicable period for the redemption of the legal tender notes in coin. The Pres- idential election of 1872 settled a long con- troversy about the payment of the bonds in coin, but nothing was really done about the payment of the notes until the explo- sion of 1873; and the depression which fol- lowed recalled the national legislature to its senses. The first impulse of Congress, then, as it had been in 1863, was toward expansion. The $44,000,000 of United States notes retired by Secretary McCul- loch had not been destroyed; the law fix- ing the limit of such notes at $400,000,000 IXRIFT OF PUBLIC OPINION. 149 had not been repealed; the $44,000,000 had been regarded in the treasury depart- ment as a reserve, and Secretary Richard- son, without specific authority, had reis- sued $26,000,000 of this reserve. It was contended in debate that these notes were improperly issued; but the Senate finally passed a bill authorizing the issue of treas- ury notes to the amount of $400,000,000, and of national bank-notes to the amount of $410,000,000. The bill passed the Sen- ate in April, 1874, by a vote of 29 to 24, and the House, 140 to 102. There was no discussion in the House; but General But- ler found an opportunity to intimate that this addition of $100,000,000 to the paper currency was, in his estimation, only a be- ginning. “I think,” he said, “we had bet- ter pawl, as the sailors say in my country— that is, put down the catch and hold what we have got; and then we can spit upon our hands and try another heave.” But the catch did not hold. President Grant returned the bill to the Senate unsigned, with a message in which he characterized it as a departure from the true principles 150 THE NATIONAL BANKS, of finance, and a violation of national obli- gations to creditors, of Congressional prom- ises, and of public pledges on the part of both political parties. Upon the question, Shall the bill pass, notwithstanding the ob- jections of the President? there were 34 yeas and 30 nays, and so the bill, not re- ceiving a two-thirds vote, failed. Later in the session the issue of United States notes was fixed at $382,000,000, the amount then outstanding. Then a new Congress was elected, and at last, in 1875, the resumption act was passed, to take effect on the 1st of January, 1879. - This long delay had given time for the ripening of a plentiful crop of monetary fallacies. There were many men in busi- ness, in 1875, who had never known any other than a depreciated and fluctuating currency, and were unable to see why there should be any other. The times were hard, and they were inclined to think that the effort to resume specie payments had some- thing to do with the difficulties under which they were laboring. In some strange way the act of 1875 was conceived to be re- DRIFT OF PUBLIC OPINION. 151 troactive, and to have caused the panic of 1873. Gradually their hostility was con- centrated upon the banks, which always seemed to have plenty of money, and to be unwilling to part with it except on good security. The banks have money as the ship-chandlers have cordage, because that is a commodity in which they deal; but this did not, at first, appear. When it be- came plain, the situation was suddenly il- luminated. The banks, being dealers in money, had contrived to bring about a re- sumption of specie payments in order to enhance the value of their goods at the ex- pense of their neighbors. This conclusion flows from a confusion of ideas not alto- gether unnatural. The “value of money” may mean either its value in relation to gold, or its market value, the rate of inter- est. The banks have no special concern about the gold value of their currency; but they are directly affected by the rate of in- terest, and the return to specie payments has depressed the rate of interest. So far as their trade is concerned, therefore, the bankers should have been opposed to a res- 152 THE NATIONAL BANKS, toration of specie payments; and many of them were. Not all who shared this feeling against the banks were prepared to adopt the wild vagaries of which General Butler is the chief exponent. The Prohibition party, which nominated Green Clay Smith for President in 1876, adopted this resolution: The national government only should enjoy the high prerogative of issuing paper-money; and that should be subject to prompt redemption, on demand, in gold and silver, the only equal standards of value recog- nized by the civilized world. The Greenback convention, which nomi- mated Peter Cooper at Indianapolis, issued this declaration: We believe that a United States note, issued direct- ly by the government and convertible on demand into United States obligations bearing a rate of interest not exceeding one cent a day on each $100, and ex- changeable for United States notes at par, will af- ford the best circulating medium ever devised. Such United States notes should be full legal tenders for all purposes except for the payment of such obligations as are, by existing contracts, especially made payable in coin; and we hold that it is the duty of the govern- ment to provide such circulating medium, and insist, in the language of Thomas Jefferson, that “bank pa- per must be suppressed, and the circulation restored to the nation, to whom it belongs.” DRIFT OF PUBLIC OPINION, 153 At the Toledo convention of the same party, in 1878, the name “National” was adopted, and the currency theory was set forth in these words: It is the exclusive function of the general govern- ment to coin and create money, and regulate its value. All bank issues designed to circulate as money should be suppressed. The circulating medium, whether of metal or paper, shall be issued by the government, and made a full legal tender for all debts, duties, and taxes in the United States at its stamped value. These extravagant theories found ex- pression not only in the professions of polit- ical parties, but in legislative measures. In the Forty-fifth Congress two bills were of. fered in the Senate and fourteen in the House to repeal the resumption act, and the House, in November, 1877, passed a fifteenth bill for the same purpose, matured and report- ed by the committee on banking and cur- rency. The premium on gold had then de- clined to 3 per cent., and yet the House voted, 133 to 120, to abandon the attempt to return to specie payments. The bill went to the Senate, and was pigeon-holed by the committee on finance. Nine bills were offered in the same Con- 154 THE NATIONAL BANKS. gress, to repeal the tax on the circulation of State banks. One of these bills was of. fered by Representative Tipton, of Illinois; all the rest by senators and representatives from the Southern States. Mr. John Jay Knox, comptroller of the currency, says' he made careful inquiry at the time, and satis- fied himself that this was the favorite proj- ect of those members who desired to abol- ish the national banking system. “There were not six members,” he says, “from the Eastern and Middle States, who were in favor of the issue of the greenback as the only paper currency of the country; and in the Southern States, so far as I could learn, there was not one member in favor of such substitution.” This latter suggestion came from the West. Mr. Townshend, of Illinois, offered a resolution instructing the committee on banking and currency to inquire into the expediency of withdrawing the national bank circulation, “and winding up the na- * In his speech at Saratoga, August 7, 1879. Pro- Ceedings of the American Bankers’ Association, 1879, p. 35. - - DRIFT OF PUBLIC OPINION. 155 tional banks,” and providing the country with “greenbacks or other currency of sim- ilar character.” Mr. Cobb, of Indiana, of. fered a bill for the withdrawal of the na- tional bank currency, and the issue of $500,000,000 of legal tender treasury notes. Mr. Hunter, of the same State, proposed to reissue all the greenbacks redeemed under the resumption act and pay them out on the public debt. Mr. Hartzell, of Illinois, offered a bill, “to substitute greenbacks for the issues of the national banking asso- ciations,” and his colleague, Mr. Fort, pro- posed a measure to accomplish the same re- sult gradually. Mr. Riddle, of Tennessee, wanted to forbid the organization of new national banks and to prohibit the rechar- ter of those then in operation. Mr. Buck- ner, of Missouri, offered a bill to retire the national bank-notes; which was perfected, reported from the committee on banking and currency, and made a special order for April 23, 1878, but was not then reached for action. In May, 1878, an act was passed forbidding any further retirement of United States notes, and instructing the secretary 156 THE NATIONAL BANKS. of the treasury to reissue them when re- deemed, or received into the treasury from any source whatever, and keep them in cir- culation. By the third section of the re- sumption act the limit to the volume of bank-notes had been removed, but United States notes were to be retired to the amount of 80 per cent. of the new currency issued to the banks, and under the oper- ation of that provision the amount of treasury notes had been reduced from $382,000,000 to $346,681,016, at which fig- ure they remain. The bill forbidding any further reduc- tion of the amount of United States notes was offered in the House by Mr. Fort, of Illinois, and passed under a suspension of the rules, without debate, 177 to 35. In the Senate Mr. Cockrell, of Missouri, pro- posed to take up the measure at once, with- out allowing it to go to the committee on finance; but objection was made, and the bill finally followed the usual course. Mr. Bayard, of Delaware, and one or two other Senators, called attention to the fact that a proposition to reissue notes which had DRIFT OF PUBLIC OPINION. 157 4./ been redeemed was evidently a proposition to issue legal tender paper in time of peace, and reminded the Senate that no such pow- er had been claimed by Congress before, and that no such power had been conceded by the Supreme Court, even in the decision by a bare majority affirming the validity of the legal tender act of 1862. Neverthe- less the Senate passed the bill, 41 to 18. In 1862 everybody expected that the legal tender currency would be retired as soon as the war was over. In 1878, thirteen years after the close of the war, $346,000,000 of that currency was still outstanding, and two-thirds of the Senate and five-sixths of the House agreed that its volume should not be diminished. It is only necessary to add that in Feb- ruary, 1879, two months after the resump- tion of specie payments, Mr. Ewing, of Ohio, from the committee on banking and currency, reported a bill to the House of Representatives, forbidding the sale of bonds for the purpose of maintaining spe- cie payments, and directing the secretary of the treasury to reissue the United States 158 THE NATIONAL BANKS. notes not only to the amount but in the denominations received into the treasury. On motion of Mr. Garfield the bill was laid on the table, 141 to 110. “The experience we are having in this House from day to day,” said Mr. Garfield, “makes me fear there will never be any permanent safety to business so long as there is a greenback in circulation.” X. MR. THURMAN'S SPEECH AT HAMILTON. SENATOR THURMAN voted with the ma- jority for the act of May 31, 1878, directing the greenbacks to be reissued and kept in circulation. In his speech at Hamilton, Ohio, in August, 1878, he announced his adhesion to the resolutions of the Demo- cratic State convention, and particularly to the resolution proposing a substitution of United States notes for national bank- 1 Congressional Record, Feb. 23, 1879. MR. THURMAN'S SPEECH AT HAMILTON. 159 notes. “The question,” he said, “is nar- rowed down to this: Shall our paper mon- ey be national bank-notes or greenbacks?” This question, it will be seen, cannot be affected by any decision concerning the legal tender quality of the United States notes. Nobody disputes the right of Con- gress to borrow money, with or without interest, on time or on call; and if the notes are payable on demand in coin, they will be as good as coin, whether they are expressly declared a legal tender or not. The question turns wholly on considera- tions of public economy and reasonable prudence. That the paper currency of the United States will ultimately be issued by the government alone, or exclusively by the banks, state or national, cannot be doubted. Until recently it was common- ly expected that the government paper would gradually disappear; yet the dis- placement of the national bank-notes by treasury notes was proposed as long ago as 1867, by no less a personage than Mr. Randall, of Pennsylvania, since speaker of 160 THE NATIONAL BANKS. the national House of Representatives." Mr. Thurman's reasons for adopting this scheme are here given in his own words: For every greenback it has issued the government has received value. That greenback has paid for ser- vices rendered, or materials furnished, or it has dis- charged a portion of the interest-bearing public debt. There is thus a saving to the government, or to the people, of an amount equal to interest upon the out- standing greenback circulation; for, had the green- back not been issued, the government would have had to raise the money, by loan or taxation, to meet its expenditures. If it raised it by loan, it would, of course, have to pay interest upon the loan. If it raised it by taxation, the tax-payers lose the interest their money would have earned had they not been compelled to give it to the government. The greenbacks now outstanding amount to $346,681,016. Computing interest upon this sum at the lowest rate at which the government can borrow money, 4 per cent., and we have an annual saving to the people, resulting from the use of the greenback, of $13,867,240. But if the greenbacks were substi- tuted for the $322,000,000 of national bank notes now outstanding, there would be a further saving to the people of 4 per cent. annually on that sum—namely, $12,880,000—making a total annual saving, by the use 1 Congressional Globe, Jan. 7, 1867, p. 325. Mr. Ran- dall's bill was described in the title as “A bill to au- thorize the issue of treasury notes not bearing inter- est, to be used in providing a sinking fund for the ex- tinguishment of the public debt.” MR. THURMAN'S SPEECH AT HAMILTON. 161 of the greenback, of $26,747,240. From this, howev- er, deduct the taxes on their circulation paid by the banks, amounting to about $3,000,000 annually, and the net saving would be about $23,750,000. Perhaps, in strictness, this deduction for taxes ought not to be. made, for it is probable that the banks throw the bur- den of the taxation upon their customers, who in turn shift it to the shoulders of those with whom they deal, until, like all other taxation, it finally falls upon the great body of consumers, the people. This is at least an intelligible statement of the case. The banks have since surren- dered $20,000,000 of their circulation, leav- ing about $300,000,000 outstanding. The volume of United States notes is about $350,000,000. Shall the United States, or the banks, hereafter issue these $650,000,- 000 of currency? Presented in this form, the question involves the assumption that the addition of $332,000,000 of gold and silver to the stock of money in the coun- try, by the resumption of specie payments, will displace no part of the paper curren- cy; but let that pass. The rate of interest is fairly taken at 4 1 This was the amount of gold and silver in the country June 30, 1878, as estimated by the director of the Mint. Finance Report, 1878, p. 260. 11 - 162 THE NATIONAL BANICS. per cent. Every dollar of the public debt payable at the option of the government has been called in and refunded at that rate. The saving, therefore, is rightly set at 4 per cent., and on $650,000,000 amounts to $26,000,000 annually. The bank tax, however, is not correctly stated. $3,000,000 a year is the tax on a cir- culation of $300,000,000. But the alterna- tive here presented is the issue of $650,000,- 000 of currency by the United States or by the banks; and 1 per cent. of $650,000,000 would be $6,500,000. The treasury now loses a revenue of $3,500,000 a year by issuing its own notes to the amount of $350,000,000, and would lose $6,500,000 by issuing the whole volume of paper curren- cy. Making this deduction, the apparent saving stands at $19,500,000 instead of $23,750,000, as estimated by Mr. Thurman. The tax on circulation is properly de- ducted, for we are considering simply the effect of the proposed change upon the na- tional treasury. For the same reason, the taxes on capital and deposits, and the local taxes, which are sometimes brought into MR. THURMAN's SPEECH AT HAMILTON. 163 the discussion, may be excluded, though if the national banks should be “wound up,” as has been proposed,' or go into voluntary liquidation, the share-holders would have the bonds, in which their capital is mostly invested, left upon their hands, and this portion of their property would no longer be subject to local taxation. The national taxes on capital not invested in United States bonds and on deposits are collected from the 3,709 State banks, trust compa- nies, and private bankers, as well as from the 2,056 national banks; besides, the tax on deposits is a war measure, which ought long since to have been repealed, and can- not be regarded as a permanent source of revenue. The justice and propriety of the tax on circulation, however, is admitted by the banks themselves,” and every dollar of 1 By Mr. Townshend. See p. 154. 2 This was conceded in terms at a hearing before the committee on ways and means at Washington, in January, 187S. “We will admit,” said Mr. Gould, of Maine, “that if the government grants a right to issue a substitute for money, a proper royalty should be paid for the privilege.” Addresses on the Repeal of the Federal Taxes on Deposits. Published by the 164 THE NATIONAL BANKS. it is collected without cost to the govern- ment. We have, then, a saving of $19,500,000 a year, provided that the government can issue the $650,000,000 of currency and sub- stitute the full amount of its demand notes for interest-bearing obligations. Can that be done? Is it done, with the United States notes now outstanding? Mr. Thurman appears to have overlooked the necessity, as imperative upon the gov- ernment as upon any private debtor, of keeping a cash reserve to provide for de- mand liabilities. Secretary Sherman re- sumed specie payments with a fund of $138,000,000 for the redemption of the notes outstanding in January, 1879. This fund had been accumulated, as Mr. Thur- man says, by loan or taxation. The coun- try is losing on this sum, at 4 per cent., by Mr. Thurman's own showing, $5,500,000 a year. This is on a reserve of 40 per cent. American Bankers’ Association, p. 34. On the other hand, Mr. Blaine, in 1866, proposed to levy the bank tax exclusively on deposits. –Congressional Globe, May 23, 1866, p. 2780. MR. THURMAN'S SPEECH AT HAMILTON. 165 of the circulation. If a similar reserve should be considered sufficient for the $300,000,000 more which it is proposed to send out, the total redemption fund would be $260,000,000, and the annual loss of interest would be $10,500,000. Mr. Thur- man's saving of $23,000,000 a year must accordingly be reduced to $9,000,000, which barely equals the probable loss of local tax- es; and this small and doubtful economy depends on the supposition that 40 per cent, is an adequate reserve to protect a national currency issued from a single bu- reau and payable from a single fund. But it is not adequate. The resumption which we have reached is only a state of equilibrium, which will last so long as there is no demand for specie for exporta- tion. When such a demand sets in, as some time it will, the secretary of the treasury, if he has a note circulation to protect, will have to strengthen his re- serves by selling bonds for coin. He will have to provide for his call loans, like any other debtor, by borrowing on time. The Bank of England, which supplies nearly 166 THE NATIONAL BANKS. two-thirds of the paper currency of Great Britain, had in November, 1878, a circu- lation of $145,000,000 in notes, and held a reserve of $131,000,000 in coin and bul- lion. The Bank of France, which issues all the paper-money in that country, had in circulation $445,000,000 in notes, and held a reserve of $414,000,000 in specie. The specie reserve of the Bank of England was 90 per cent. of its liability for notes; the Bank of France had a reserve of 93 per cent." Assuming that at least 75 per cent. would be needed in the United States, we should have, on $650,000,000 of circula- tion, a reserve of $487,000,000, and the an- nual interest on that sum, at 4 per cent., would be $19,500,000, wiping out the last vestige of the imaginary saving. On a reserve of 90 per cent, the annual interest would be $23,500,000, and there would be an absolute loss of $4,000,000. It is a mistake to apply banking rules to the reserves for a government circulation. The reserve which will answer for a bank 1 American Almanac, 1879, p. 242. MR. THURMAN'S SPEECH AT HAMILTON. 167 continually receiving deposits, and pay- ment on its loans, will be found totally insufficient for a public treasury without these resources. The national banks held in October, 1878, just before the resumption of specie payments, 30 per cent. of all their liabilities to the public in cash or its equiv- alent,42 per cent, in United States and other bonds, and 78 per cent. in loans and other debts due them and daily maturing—in all, $150 of available assets for every $100 owed to bill-holders, depositors, and all other creditors except the share-holders. The treasury, on the 1st of January, 1879, had in cash 40 per cent. of its liabilities for notes and the whole $24,000,000 of deposits —for the treasury is a bank of deposit as well as a bank of issue—making 45 per cent. of its liabilities to bill-holders and depositors. For this deficit of 55 per cent. the government has no resource except the power of taxation and the power to borrow money. But taxation is too slow a process for payment on demand. Practically, the treasury relies upon its power to borrow at a pinch; and this, as Mr. George S. Coe re- 168 THE NATIONAL BANKS. marks, is “a kind of banking which the government would arrest, as criminal, if done by its subjects.” . The supposed economy of a convertible treasury note circulation is therefore whol- ly imaginary and delusive. The reserve must be not less than 75 per cent. of the nominal value of the paper; the loss of in- terest at 4 per cent. on this sum is equal to 3 per cent. upon the whole issue; and the loss of the bank tax on circulation is 1 per cent. more, making 4 per cent. upon the entire amount. There is no way in which a government can honestly get money, or any other valuable possession, without pay- ing for it. But the attempt is not merely unprofit- able; it is dangerous. There is no record of any government attempting to maintain a convertible paper currency and keeping * Proceedings of the American Bankers’ Associa- tion, 1879, p. 44. Mr. Dexter A. Hawkins, in a pam- phlet issued in January, 1879, proposed to remove this reproach by accumulating in the treasury a coin reserve equal to the whole amount of treasury notes outstanding. This would give us a sound but costly Currency. MR. THURMAN's SPEECH AT HAMILTON. 169 its promise. Russian paper-money was at a discount for seventy years, and was final- ly paid off in 1839 at about 30 per cent. in silver. Subsequent issues were again dis- honored, and it is said that the imperial government does not now know how much paper has been issued. Austria, since 1848, and Italy, since 1866, have been unable to redeem their treasury notes. Spain and Turkey are in the same condition. For- midable riots have been provoked in Con- stantinople by the worthlessness of the government paper, and consequent misery of the people. The governments of San Domingo and of the Argentine Republic have issued paper-money which is quoted at a discount of 96 or 99 per cent. One would suppose that this experiment had been often enough tried, with one uniform result, to indicate the wisdom and prudence of retiring this dangerous currency, now that we have succeeded in bringing it to par. That is a feat which has never been accom- plished before; the paper-money of France during the late war, and of England during the suspension at the beginning of the pres- 170 THE NATIONAL BANKS. ent century, was not issued by the govern- ment directly, but by private corporations. The United States alone, so far, have suc- ceeded in restoring a purely government currency from the depreciation into which it had fallen. It is not well to tempt fate by subjecting the treasury to the constant strain of a large debt payable on demand. The mere presence of a large reserve in the treasury is a temptation to public ex- travagance. The existence of the national government does not depend, like the ex- istence of a bank, upon the maintenance of its credit. Members of Congress are not swayed by the motives which control the directors of banks. If the balance in the treasury had been simply enough for the ordinary expenses of the government, the appropriations would not have run up from $114,000,000 for 1878, to $146,000,000 for 1879, and $162,000,000 for 1880." This is only one warning sign. Not only 1 These are Mr. Garfield's figures, in an article on “National Appropriations and Misappropriations,” published in the North American Review, June, 1879, p. 580. - MR. THURMAN'S SPEECH AT HAMILTON. 171 have the regular and customary appropria- tions been rapidly increased, but new out- lets have been sought for the public mon- eys. In June, 1878, and again in Febru- ary, 1879, the Senate voted a subsidy of $3,000,000 for mail service between the United States and Brazil. In June, 1879, Senator Blaine said he was prepared to support a general law awarding $25 a. mile annually to every monthly line of American steamers of 3000 tons, sailing regularly to any foreign port, for the sail- ing distance; $45 a mile for every semi- monthly line; and $75 a mile for every weekly line; and proportional subsidies for steamers greater or less than the stand- ard of 3000 tons.” The Brazilian subsidy was estimated at the rate of $30 a mile for monthly service by steamers of 3000 tons. Fortunately this project, though twice passed by the Senate, was twice defeated by the House of Representatives. Three national conventions in 1876 denounced 1 Letter to the business men of the city of New York, on the decay of American commerce, and the means of promoting its revival, June 17, 1879. 172 THE NATIONAL BANKS. the policy of subsidizing railroads. A na- tion encumbered by a heavy debt can no better afford to be generous to builders of steamships than to builders of railroads; but the free-handed senators and represen- tatives have not stopped at steamships. Bills are now before Congress authorizing the secretary of the treasury to endorse the 4 per cent. bonds of a railroad from San Antonio to Laredo to the amount of $15,000 a mile ; granting a subsidy of $2,625,000 in bonds to a railroad between Galveston and Rio Grande City; authorizing the secretary of the treasury to invest $870,000 in a mort- gage on the Corpus Christi, San Diego and Rio Grande Railroad, and to guarantee the interest for fifty years on $15,000,000 of 5 per cent. bonds issued by the Great South- ern Railway Company, on a railroad in Georgia and Florida; granting alternate blocks of six sections of land on the line of the New Orleans, Texas and Colorado Railroad; granting $10,000 a mile in cash to five roads between the Lower Missis- sippi ports, the Gulf and the Pacific—the whole system making 1515 miles, and call- MR. THURMAN'S SPEECH AT HAMILTON. 173 ing for $15,150,000, to be repaid in twenty years if the roads are then able, and if not, after twenty years more. Another bill calls for $15,000 a mile, in cash, to aid in the construction of a Southern Pacific railroad, and to be repaid likewise in twenty or forty years, as the case may be. The dangerous character of these schemes was illustrated in 1878 by the vigorous resistance of the Central Pacific and Union Pacific Railroad Companies to the legislation compelling them to provide sinking-funds for the pay- ment of their debts to the United States in- stead of dividing their entire profits from year to year, and leaving the claim of the United States to take care of itself. There is also a plan to have the United States en- dorse the bonds of the Dismal Swamp Canal Company to the amount of $400,000 for forty years; and another to procure the same en- dorsement for the coupons of $4,000,000 in 5 per cent. bonds of the Maryland and Del- aware Ship Canal for fifty years. A lot of old State claims have been dug up. Texas wants $7,750,000 for creditors of the Re- public of Texas before its admission to the 174 THE NATIONAL BANKS. Tnion, and $1,629,615 for expenditures for the defence of the frontier; Virginia wants a recomputation of the accounts of the war of 1812; and Georgia wants $35,555 for sup- plies furnished to the Continental army in 1777. If these enormous sums were to be raised by taxation, no Congress would venture to entertain projects so ruinous. Such extrav- agant schemes are bred of the fancy that in some way money can be created by the government. Mr. J. W. Singleton, of Illi- nois, proposes to issue United States notes, to be paid out indefinitely, upon “any ap- propriation authorized by law that the or- dinary revenue of the government may be insufficient to meet;” and in order that the revenue may be insufficient, another section of the bill proposes to repeal all the inter- nal revenue laws. Mr. Muldrow, of Missis- sippi, wants to add $500,000,000, and Mr. Weaver, of Iowa, $600,000,000 to the vol- ume of legal tender currency. Mr. Wright, of Pennsylvania, wants to issue $400,000,000 of legal tenders, to be spent on public build- ings and in the improvement of rivers and MR. THURMAN'S SPEECH AT HAMILTON. 175 harbors. Mr. Cox, of New York, has a bill to retire the national bank-notes, when re- ceived at the treasury for redemption with the funds provided by the banks, and to can- cel a proportionate amount of the bonds de- posited as collateral security, issuing Unit- ed States notes instead. This proposition to seize and confiscate trust funds held by the government is duplicated by Mr. De la Matyr, of Indiana, and triplicated by Mr. Gillette, of Iowa. Mr. De la Matyr has, be- sides, two magnificent plans—one to fund the entire municipal indebtedness of the country in 2 per cent. 50-year municipal bonds, to be taken by the United States at par for legal tender notes; the other, to is- sue a loan fund of $1,000,000,000, to be lent for fifty years to any corporations that apply, in such sums as may be wanted, without in- terest for five years, and afterward at 3 per cent. annually. To these statesmen a reserve is merely so much idle money. It has even been pro- posed to suspend the sinking-fund for the payment of the interest-bearing debt. If that fund is not safe, what must be the dan- 176 TIIE NATIONAL BANKS. ger which besets the reserve for the pay- ment of the notes bearing no interest ? In February, 1879, the chairman of the com- mittee on ways and means, Mr. Wood, of New York, seeing that the treasury had a cash balance held as a reserve, required by the resumption law, “which reserve,” he said, “does not appear to be needed to maintain resumption,” proposed to direct the secretary of the treasury to use so much of the reserve as might be needed to pay the appropriation for arrears of pensions. A few days later Mr. Ewing brought in the bill, already mentioned, forbidding the sale of bonds for the purpose of maintaining specie payments. Mr. Wood's proposition did not come to a vote. Mr. Ewing's was laid on the table, 141 to 110. But if the misappropriation and subversion of a fund which should be held in trust for every note-holder in the country, can be even talked about in less than two months after the resumption of specie payments, by men holding positions on the most important committees of the House, and not only talked about but supported by the votes MR. THURMAN'S SPEECH AT HAMILTON. 177 of nearly half the members, it is easy to see that the day will come when some dema- gogue will lead a successful attack upon the treasury, scatter the reserves in some wild scheme of public improvements, and leave the currency to sink once more into an insolvency from which there will be no recovery. A change of sixteen votes would have carried Mr. Ewing's bill through the House. The value of the dollar of account ought not to depend upon an accidental majority: it should represent invariably a certain weight and fineness of the precious metals, and Congress should have nothing to do with it except to see that the makers of a credit currency redeem their promises in coin or go out of business. That is the duty of the government, and there its duty ends. 12 178 THE NATIONAL BANKS. XI. PROFIT ON CIRCULATION. THE profit of the national banks, by rea- Son of their circulation, is about 2 per cent. on the capital employed. If a company of men, for example, should invest $100,000 in 4 per cent. bonds of the United States, the annual income would be $4000, from which no deduction is to be made for taxation. If the same men should invest their cap- ital in a State bank, and lend it during the year at an average rate of 6 per cent., they would receive a gross income of $6000, but they would be obliged to pay a State tax of 1% per cent. and a national tax of # per cent. on their capital, amounting to $2000, and reducing their net earnings to $4000, as before. If the company should form a banking association under the national law, invest- IPROFIT ON CIRCULATION. 179 ing their whole capital in 4 per cent. bonds, they would receive in interest on their bonds $4000. They would also receive $90,000 in bank-bills, of which they would be obliged to invest 5 per cent. in United States notes to be kept at Washington, and 10 per cent. more in United States notes to be kept at home, for the redemption of their bills, leaving $76,500 which might be lent during the year at an average rate of 6 per cent., as before, bringing in $4590. Here is a gross income of $8590, but the shares of bank-stock are subject to a State tax of 1% per cent, amounting to $1500, and so the income is reduced to $7090. The total advantage from the circulation is, therefore, the difference between $7090 and $4000—namely, $3090, or 3.09 per cent. on $100,000; but this margin has to be divided with the United States government, which levies a tax of 1 per cent. on the total cir- culation, amounting in this case to $900, and reducing the net profit to 2.19 per cent. - This comparison may be stated more clearly, perhaps, in two accounts, thus: 180 THE NATIONAL BANKS.. . State Bank. Income from loans: $100,000 (3) 6 per cent...... $6000 Taxes: U. S. tax, 3 per cent. On capital............... $ 500 State tax, 1+ per cent, on capital.............. 1500 Balance... . . . . . . . . . . * * * * * * * * * * * * * * * * * * * 4000 $6000 National Bank. Income from bonds: $100,000 (2) 4 per cent..... $4000 Iucome from loans: $76,500 (2)6 per cent....... 4590 $8590 Taxes: U. S. tax, 1 per cent. On circulation........... $ 900 State tax, 13 per cent. On shares.............. 1500 Balance........ tº e º ſº & G & e g º gº tº tº e º E tº e º 'º e º e e 61.90 $S590 Expenses and losses would affect these margins equally, leaving the constant dif- ference of $2.190, or 2.19 per cent., in favor of the national bank. Now, why should this advantage be giv- en to the national banks 3 There are two reasons, one relating to the treasury, the other to the business of the country. The treasury gets from the State bank a tax, in the case supposed, of $500 a year. From the national bank it gets a loan of PROFIT ON CIRCULATION. 181 $100,000 at 4 per cent. and a tax besides of $900. Furthermore, the shares of the national bank are subject, like the cap- ital of the State bank, to local taxation, and herein is a reason for placing the bonds of the United States with national banks rather than with private holders. But the principal benefit accrues after all to the business community. The use of circulating notes enables the banks to lend not only their actual capital to the govern- ment, but their corporate credit to the pub- lic. The margin of 2 per cent. goes in the end to help the active business men who know how to use money. The bank rate of interest, to regular customers of approved credit, is always lower than the rates of out- side bill-brokers and note-shavers. Consider the movement, for instance, of a single cargo of wheat, from the time it leaves the Western granaries until it is shipped abroad from New York." A buyer 1 This illustration is borrowed, substantially, from the remarks of Dr. Marsland before the committee on ways and means in 1878. Addresses on the Repeal of the Federal Taxes on Deposits, p. 12. 182 THE NATIONAL BANKS. in St. Paul makes a note for $1000, paya- ble in thirty days, gets it discounted at a St. Paul bank, and goes out on the North- western Railroad to buy wheat. He buys to sell again, and the understanding is that when he sells his wheat the note shall be paid. His credit is good; he understands his business; he could get credit of the farmers until the wheat is sold, if they knew him; but he would have to give his note for every separate lot, and he would have to make a second tour to pay his notes; besides, the farmers do not know him, but they know the St. Paul National Bank. The bank simplifies the whole transaction. The bank takes his note in exchange for bank- notes; the exchange is equivalent to an endorsement of his paper; it is the credit of the bank which he borrows. The bank makes all inquiries about his solvency, his capacity and integrity, and charges for this trouble, and for the loan of its credit to the extent of $1000 for thirty days, the moder- ate sum of six or seven dollars. As soon as the buyer has collected a few car-loads he ships his grain to Chicago, drawing upon PROFIT ON CIRCULATION. 183. his consignee there for the proceeds, and the St. Paul bank takes the draft and cred- its him for the amount on notice that the draft has been accepted. The Chicago buy- er stores the wheat in an elevator, and when he has collected a cargo of 50,000 bushels, ships it to Buffalo, making a short draft on his Buffalo consignee. The proceeds of this draft go to pay the accepted drafts of the original shippers, forwarded to Chica- go banks for collection. The Buffalo con- signee forwards the grain to New York by canal, drawing on New York for each boat- load of 7000 or 8000 bushels, and these drafts are negotiated by the Buffalo banks. The New York buyer sells the grain for ex- port, taking a sixty days bill of exchange to cover delay in making up a cargo, the time of the voyage, and time for unloading and delivery in Europe, and this bill of ex- change is cashed by a New York banker, enabling the merchant to go on buying of Buffalo. At every step the banks intervene to fa- cilitate these transactions, and always in the same way—by lending their credit to 184 THE NATIONAL BANKS. the customer during the interval before he can receive returns from his consignees. The Minnesota buyer, if he had been obliged to use his own money, must have waited for returns from Chicago before he could have begun buying again. The Chicago consignee, if unable to use his Buffalo draft, would have been obliged to stop buying by the car-load until the draft matured and the proceeds were received by express. The Buffalo shipper would have been equally embarrassed, and so would the New York merchant. In the same way a shipment of rice might be traced from South Carolina, of cotton from Georgia, of boots and shoes from Mas- sachusetts, or of imported goods from the seaboard. All this mechanism of credit has been devised under the pressure of competition, in order to cheapen the cost of forwarding goods from the producer to the consumer. To modern traffic it is as indispensable as the railroad and the steam- ship—so indispensable that even a poor banking system is better than none; and the country endured patiently for nearly half a PROFIT ON CIRCULATION. 185 century a mode of banking which involved losses to the public in worthless and coun- terfeit bills, high rates of exchange and needless failures, amounting to more than $50,000,000 a year. It is the duty of the government to pre- vent these needless disasters by inspecting the banks, as it inspects steam-boilers; and for the first time in the history of the United States the government is performing that duty. The national banks are required to conduct their business safely and prudent- ly; they are compelled to secure their en- tire credit circulation, and the government holds the security as trustee and guarantor. The notes are simply a form of credit. When the St. Paul bank issues its notes in exchange for the private note of the wheat buyer, the transaction is substantially the same as when the Chicago bank takes the Chicago seller's draft on Buffalo, and enters the proceeds to his credit on the books. The only difference is, that the book credit is a matter between the bank and the cus- tomer, who has every opportunity to know the condition of the bank, while the note 186 THE NATIONAL BANKS. credit becomes a matter between the bank and the community at large, which is not so well qualified to protect itself. For this reason the government properly requires the notes to be secured. The privilege of using their credit in this form enables the banks to aid in a larger number of transactions than could other- wise be performed. The profit upon their circulation enables them to furnish this ac- commodation at a lower rate than would otherwise be possible. The volume of their circulation rises or falls with the tide of business. It has been contended that this form of credit is peculiarly liable to a dan- gerous expansion under the stimulus of speculation, and even that the banks have the power to create an epoch of specula- tion by efforts to extend their loans of cur- rency. Whatever element of truth may be found in these theories applies also to book credits and loans of capital, or deposits. The argument, pursued to its logical con- clusion, lies against every form of credit. That credit involves risk, is no new discov- ery. The practical question is to reduce PROFIT ON CIRCULATION. 187 the risk to a minimum without impairing the efficiency of this powerful factor of civ- ilization. If the national bank act can be still fur- ther improved, amended, and qualified, to secure not only note-holders but depositors and share-holders, any proposition looking in that direction will deserve careful con- sideration. It is certain, however, that we cannot afford to go back to the clumsy State laws; and it is equally certain that the government cannot properly undertake to furnish a credit currency. In the first place, no government cur- rency would answer for the village banks, which have light deposits, and depend mainly upon their circulation for means to accommodate their customers. The treas- ury notes would find their way into the vaults of the city banks. The country banks, restricted to their capital and for- bidden to use their credit, would be com- pelled to raise the rate of interest on their loans, or close their doors. Either alterna- tive would be injurious to the communities which they serve. Their separate transac- 188 THE NATIONAL BANKS. tions are small, but the number of these banks is large, and the aggregate of their business is an important part of the busi- ness of the country. The village pension- er gets his quarterly check cashed at the bank; the trader gets a cashier's check to pay his debt in the city; the drover gets his note discounted until he can collect a herd of cattle and drive them to market. It is for these and similar services to the public that banks were invented, and will be maintained in spite of all the speculations of all the currency theorists. To propose to dispense with the country banks is like pro- posing to abandon the way-stations on the railroads, and to run only through trains. This is a fatal objection to the scheme; but there is still another, inherent in the character of the treasury notes. A curren- cy representing a part of the public debt, gathered up for taxes and paid out for the expenses of the government, would be to- tally unlike a bank currency expanding and contracting in strict conformity to the de- mands of traffic. Banks are expressly con- trived to collect and lend money for the PROFIT ON CIRCULATION. 189 transaction of private business. ments are established to 'money for public uses. Govern- collect and spend The machinery, which is fitted for one of these purposes is: necessarily unfit for the other. |can best be shown by a How unfit, comparison of the operations of the treasury for the last ten years, so far as they affect the amount of money in circulation, with the fluctuations of the bank-note currency during the same period. The following table gives the cash balances on the books of the treasury, as they appear on the 1st of July for each year, and the circulation of the banks in June, as reported by the comptroller of the currency; both in millions: Treasury Date. Balances. 1868 . . . . . . . . . . $160.6 1869 . . . . . . . . . . 1S5.1 1870 . . . . . . . . . . 17S.7 1871 . . . . . . . . . . 13S.6 1872 . . . . . . . . . . 135.4 1873 . . . . . . . . . . . 160.3 1874 . . . . . . . . . . 179.6 1875 . . . . . . . . . . 173.6 1876 . . . . . . . . . . 150.7 1877 . . . . . . . . . . 215.5 1878 . . . . . . . . . . 286.9 Bank Circulation. e e s s a e e i s e gº e & e º s ºr e g tº tº E 4 e º 'º ºf & © * † & © e º e º a º tº s º & © tº º e º ºs © tº gº tº tº $ tº $ tº tº * * * * * * * * * * © g º e º 'º e e e e s = * * * * * * 190 THE NATIONAL BANKS. During the years 1869 and 1870, it will be seen, the banks were contracting their circulation. The process of retiring the United States notes had been stopped, but Congress had solemnly pledged the faith of the nation to provide for their payment, and the business of the country was ad- justing itself to a specie basis. The treas- ury, during the fiscal year 1869, withdrew from active circulation $25,000,000. But in 1870 the treasury began to expand, and dur- ing the next three years paid out $50,000,000 more than the revenue for the same time. The era of speculation set in, which ended in 1873. The banks responded to the de- mand for money. Their circulation ran up to $340,000,000. In 1873 the treasury sud- denly drew in $25,000,000. The explosion followed. In 1874 the treasury absorbed $20,000,000 more. The banks, on the con- trary, kept up the volume of their circula- tion until the panic had spent itself. Then they began gradually to contract their is- sues. During the next four years their circulation declined to $300,000,000. The treasury, in 1875 and 1876, threw upon the PROFIT ON CIRCULATION. 191 market $29,000,000, and then, turning an- other sharp corner, drew in $65,000,000 in 1877, and $71,000,000 in 1878. The varia- tion in the volume of bank currency, run- ning smoothly through a series of years, is $46,000,000. The spasmodic expansions and contractions of the treasury balance amount in extreme cases to 50 per cent. more than this sum in a single year. In 1879 the banks, answering the call for money consequent upon a partial revival of business, increased their circulation by $7,000,000. The treasury collected at the same time nearly $100,000,000 more than the current expenditures, but prevented a serious disturbance of the money market by largely increasing the sum of United States deposits with the banks. This is precisely what might be expected. Between the revenue of the government and the aggregate of private business some faint and uncertain relations may be traced; but the interest payments, the pensions, the cost of Indian wars, the expenditures for public buildings, for harbor improvements, and for official salaries, bear no relation whatever to 192 THE NATIONAL BANKS. the business of the country. Yet a treas- ury note currency can only be issued in the course of such payments—unless the gov- ernment should undertake to lend money on good names and collateral security, for which purpose the banks would have to be employed as government agencies. With- out some such contrivance it is impossible to harmonize the varying demands of busi- ness with the movements of a currency representing a portion of the public debt. The national banks have performed that office in a degree; and they have been en- abled to do it by the law which permits them to receive public deposits and to is- sue an elastic currency of their own. It appears, then, that the maintenance of a treasury note currency is unprofitable to the government; it involves the constant danger of a misappropriation of the re- serves by Congress; and if it were both profitable and safe, the treasury is never- theless wholly unfit to take the place and perform the service of banks of issue. TAX ON CIRCULATION: 193 XII. TAX ON CIRCULATION. THE privilege of issuing notes to be used as money is granted, of course, because it is for the general advantage that the supply of loanable funds shall be as large as possi- ble, in order that the rate of interest may be low; but a valuable privilege ought only to be conceded by the government, representing the whole people, on certain conditions. It should not be a monopoly, but should be bestowed upon all citizens who desire it, on equal terms. It should not be abused to the injury of the people, and the government should make efficient regulations to prevent such abuse. Final- ly, the government is entitled to a share of the profits in the form of taxes. The two latter principles, in their appli- cation to the privilege of issuing a credit currency, have commanded the general as- sent of prudent statesmen and of writers 13 194 THE NATIONAL BANIKS. of repute on political economy. Some the- orists have held that the public is no more concerned in the issue of a bank-note than in the negotiation of an ordinary promis- sory note; but the opinion is nearly uni- versal that the government, in the interest of the community, is bound to regulate such issues, and to require a part of the gains therefrom to be paid into the public treasury. The question has often arisen, as it arises now in the United States, whether the gov- ernment should not itself issue whatever paper currency is needed, and so secure whatever profit is to be obtained, for the people at large; but the suggestion has never been adopted except under the press- ure of some great exigency, and then with reluctance and well-grounded apprehen- sion. At the meeting of the first Congress of the United States, in 1789, Alexander Ham- ilton, the first secretary of the treasury, was directed to report a plan for the Sup- port of the public credit, and in Janu- ary, 1790, he submitted a comprehensive TAX ON CIRCULATION. 195 scheme for funding the national debt, then amounting to $54,124,465, and for securing a revenue to provide for the interest on this sum, and for the gradual extinction of the principal. In this report he said that he contemplated the management of these transactions through the medium of a na- tional bank, and in December, 1790, he pre- sented to Congress an elaborate report on this special subject. In the report on the bank he asserted broadly and clearly the right of the government to regulate paper issues. “If the paper of a bank,” he said, “is to be permitted to insinuate itself into all the revenues and receipts of a country; if it is even to be tolerated as the substi- tute for gold and silver in all the trans- actions of business; it becomes, in either view, a national concern of the first mag- nitude.” But he rejected, with even more decision and emphasis, the idea of a gov- ernment currency. On this point he said: The emitting of paper-money by the authority of the government is wisely prohibited to the individual States by the national constitution; and the spirit of that prohibition ought not to be disregarded by the government of the United States. Though paper 196 THE NATIONAL BANKS. emissions under a general authority might have some advantages not applicable, and be free from some disadvantages which are applicable to the like emissions by the States, separately, yet they are of a nature so liable to abuse—and, it may even be af- firmed, so certain of being abused—that the wisdom of the government will be shown in never trusting itself with the use of so seducing and dangerous an expedient. In times of tranquillity it might have no ill consequences; it might even, perhaps, be managed in a way productive of good; but in great and trying emergencies there is almost a moral certainty of its becoming mischievous. The stamping of paper is an operation so much easier than the laying of taxes, that a government, in the practice of paper emis- Sions, would rarely fail in any such emergency to in- dulge itself too far in the employment of that re- Source, to avoid as much as possible one less auspi- cious to present popularity. If it should not even be carried so far as to be rendered an absolute bubble, it would at least be likely to be extended to a degree which would occasion an inflated and artificial state of things, incompatible with the regular and prosper- ous course of the political economy.” The same question which Alexander Hamilton considered in 1790, came up in England during the long discussion of the means of regulating a paper currency, pre- cipitated by the bank failures of 1825, and culminating in Sir Robert Peel's famous act * Reports on the Finances, vol. i. p. 64. TAX ON CIRCULATION, 197 of 1844. Touching this question, the Eng- lish statesman said, in summing up the ar- gument in favor of the act: Another point for consideration is, whether the profits which must necessarily be derived from the circulating medium of the country should be pre- served by government, or should be allowed to re- main in private hands. Now the advantages, the only advantages which I have been enabled to discover in a government bank, as compared with a private come pany, are those which result from having responsible persons to manage the concern, the public deriving the benefit; but then, on the other hand, I think these benefits are much more than counterbalanced by the political evils which would inevitably result from placing this bank under the control of the government. I think the effect of the State having the complete control of the circulating medium in its own hands would be most mischievous.” Under the charter of 1844 the capital of the Bank of England, about £15,000,000 sterling, is all invested in the government 3 per cents, and the bank is authorized to issue notes to this full amount without any reserve, but can issue none beyond that sum except in exchange for deposits of gold coin or bullion, and must exchange 1 These are Lord Althorp's words, in 1832, repeated and adopted by Sir Robert Peel. - 198 THE NATIONAL BANKS. notes for coin, or coin for notes, on demand. The operation of the issue department is thus made strictly automatic. For the privilege of issuing notes on the £15,000,000 of government Securities the bank pays about £135,000, and in lieu of stamp duties £60,000—in all £195,000—or about 1.3 per cent. On the circulation not covered by gold. The gross circulation in November, 1878, was £29,000,000 sterling, and on this amount the government receives seven-tenths of 1 per cent. In 1848 the charters of the nine depart- mental banks of issue in France were re- voked, and the privilege of issuing notes was reserved exclusively to the Bank of France. In the same year the bank was compelled to suspend specie payments in consequence of the political disturbances of that time, and the notes were made a legal tender on condition that the whole issue should not exceed 350,000,000 francs. The maximum was raised, in 1849, to 525,000,000 francs, and during the debate in the Corps Legislatif on this proposition, it was suggested that the government might as TAX ON CIRCULATION. 199 well issue the currency itself. To this sug- gestion the veteran finance minister, M. Achille Fould, replied with much warmth; You are asked if you will give the bank the power to emit paper-money, and yet refuse to exercise it yourselves. It would be a most dangerous power, and you would not find a prudent man who would be willing to accept it. If you were to give us the power to make paper-money, it would be a sure step to the creation of assignats. When once you had armed us with this machine, you would every day present a pistol at our heads and compel us to make use of it on One pretext or another, till at last nobody would accept your paper.” * But although M. Fould declined this dangerous responsibility, he took care that the government should secure a share of the profits of the Bank of France. From 1848 to 1871 the bank paid a stamp duty of half a mill on its notes, and since 1871 the tax has been doubled. In the United States, the civil war of 1861 found the government without any machinery for the negotiation of loans. Gold and silver, the only currency in which taxes could lawfully be paid, disappeared. 1 Quoted by George Walker in Proceedings of the American Bankers' Association, 1878, p. 32. 200 THE NATIONAL BANKS. The State bank currency had been tried in the war of 1812, and had failed. In this emergency, Secretary Chase was compelled to consider the alternative of an issue of government notes or the creation of a sys- tem of national banks. The former project he deliberately condemned in these words: The plan is not without serious inconveniences and hazards. The temptation, especially great in times of pressure and danger, to issue notes without ade- quate provision for redemption; the ever-present lia- bility to be called on for redemption beyond means, however carefully provided and managed; the hazard of panics, precipitating demands for coin concentrated on a few points and a single fund; the risk of a de- preciated, depreciating, and finally worthless paper- money; the immeasurable evils of dishonored public faith and national bankruptcy; all these are possible consequences of the adoption of a system of govern- ment circulation. It may be said, and perhaps truly, that they are less deplorable than those of an irre- deemable bank circulation. Without entering into that comparison, the secretary contents himself with observing that, in his judgment, these possible disas- ters so far outweigh the probable benefits of the plan, that he feels himself constrained to forbear recom- mending its adoption.” Out of this decision, made in concurrence with the weighty opinions already cited, 4 Finance Report, 1861, p. 18. , TAX ON CIRCULATION. 201 grew the national banking system of the United States. To that system we owe the negotiation of the later war loans, the re- funding of the debt at 4 per cent., and the restoration of specie payments. For the first time since the expiration of the chara ter of the second national bank the gov- ernment of the United States is provided with suitable agencies for the management of important financial operations. And “in the fact of a uniform law for all the issuing banks of the United States,” as Professor F. A. Walker remarks, “is found, for the first time in our history, the possibility of regulating the paper-money circulation of the country.” If the automatic regulation of the paper currency of Great Britain is to be preferred, as some people think, it may any day be established by Congress, with- out assuming that mischievous control of the circulating medium which Sir Robert Peel deprecated and the British Parliament de- clined. . Meanwhile it should be observed that the United States get a larger proportion * Money, p. 508. 202 TIIE NATIONAL BANKS. of the profits on bank circulation than is secured by the government of England or of France. The tax here is 1 per cent., in England, seven-tenths of 1 per cent., in France, one-tenth of 1 per cent. on the cir- culation. A still more important advan- tage in the American system is its entire freedom from monopoly. The national bank recommended by Hamilton, like the public banks of Europe and most of the State banks in this country, was open to this grave objection. We have now a sys- tem which furnishes a national currency under the control of the general govern- ment, pays a liberal duty for the privilege, aids the treasury efficiently in the manage- ment of the public debt, and, besides, is absolutely free to all citizens who choose to comply with the regulations of a general law. This fact makes it impossible that the profits of banking should rule perma- nently above the ordinary gains in other pursuits, and so removes the last excuse for incurring now the risks from which Secre- tary Chase shrunk when called upon to provide means for a great war. THE NATIONAL BANKS IN 1878, 203 XIII. CONDITION OF THE National BANKS IN 87S. - THE net result of the national bank act is to be found in the annual statement of the condition of the banks, compiled and published by the comptroller of the curren- cy. No statement so complete and authen- tic was ever before made in this country or any other. It exhibits the actual condition of the banks on five different days selected by the comptroller, without previous no- tice; and the fact that these returns may any day be called for, is a powerful incen- tive to the banks to keep within the pru- dent restrictions of the law. If these re- quirements have tended to restrain specu- lation, to prevent a declaration of dividends not earned, to provide ample security not only for bill-holders but for depositors and share-holders—in a word, to create a body of solvent banks upon which the commu- 204 THE NATIONAL BANKS.. nity may safely rely—then we ought to find evidence of their solvency in the comptrol- ler's reports. Here is the last report before the resump- tion of specie payments, showing the con- dition of the 2053 national banks in opera- tion on the 1st of October, 1878: Liabilities. Capital stock.................. $466,147,436 00 Surplus fund.................. 116,897,779 98 TJndivided profits............. 40,936,213 58 Dividends unpaid............. 3,118,38991 National bank notes.......... 301,888,092 00 State bank notes. . . . . . . . . . . . . . 413,913 00 Private deposits....... º e s a s & tº º 620,236,176 82 United States deposits........ 44,997,606 81 Due to other banks............ 165,133,217 34 Bills payable. . . . . . . . . . . . . . . . . . 7,510,307 77 $1,767,279,133 21 Re80tºrces. Loans and discounts......... $833,988,450 59 Bonds for circulation......... 347,556,650 00 Bonds for deposits........... 47,936,850 00 U.S. bonds on hand...... .... 46,785,600 00 Other stocks and bonds...... 36,859,531 82 Due from other banks........ 53,807,616.86 Due from reserve agents..... 85,083,418 51 Cash items................... 10,982,43289 Carried forward.......S1,463,000,553 67 THE NATIONAL BANKS IN 1878. 205 Brought forward.....{1,463,000,553 67 Clearing-house exchanges.... 82,372,537 88 Bills of other banks......... . 16,929,721 00 Fractional currency...... tº e º & 515,661 04 Specie. . . . . . . . . . . . . . . . . . . . . . . . 30,688,606 59 Legal tender notes.......... . . 64,428,600 00 |U.S. certificates of deposit.... 32,690,000 00 Due from U.S. Treasurer..... 16,543,674.36 Real estate, furniture, etc..... 46,702,476 26 Current expenses............ gº 6,272,566 73 Premiums paid............... 7,134,735 68 $1,767,279,133 21 Analyzing these, accounts, we find the following liabilities of the banks to the public: Circulating notes.............. $302,302,005 Private deposits............... 620,236,177 Public deposits................ 44,997,607 Other liabilities....... * u, e s is is a s is 172,643,525 Total.................. $1,140,179,314 The circulating notes and the public de- posits are amply secured by United States bonds deposited with the treasurer of the United States; but for the purpose of this comparison, let these items also stand as if they were unsecured. The immediately available resources are these; 206 THE NATIONAL BANKS, Due from reserve agents..... ... . $85,083,418 Cash items....... * * * * * * * * * * * * * * * . 10,982,433 Clearing-house exchanges...... ... 82,372,538 Bills of other banks............ ... 16,929,721 Fractional currency.......... a • * * 515,661 Specie . . . . . . . . . . . * * * * * * * * * * * * * * * e 30,6SS,607 Legal tender notes............... 64,428,600 U. S. certificates of deposit....... 32,690,090 Due from U. S. Treasurer......... 16,543,674 Total ........... tº - e º º ſº s ºn tº $340,234,652 Here are one-third of the gross liabilities of the banks in cash or its equivalent. To this sum must be added as available though not instantly available resources, the stocks and bonds: Bonds for circulation....... ..... $347,556,650 Bonds for deposits ............. . 47,936,850 U.S. bonds on hand............. 46,785,000 Other stocks and bonds ........ . 36,859,535 Total. . . . . . . . . . . . . . . . . . . . $479,138,635 With these resources should be placed the balances due from other banks, so that, without counting upon the loans, the banks can rely upon Cash, or its equivalent........... $340,234,652 Stocks and bonds........ . . . . . . . 479,138,635 Due from other banks........... 53,807,617 - Total.................... $873,186,904 THE NATIONAL BANKS IN 1878. 207 The total liabilities to the public are $1,140,000,000, and the available resources of the banks are $873,000,000—more than three-fourths of the whole amount, not reckoning $834,000,000 of loans falling due in from thirty to ninety days, and the per- sonal liability of the share-holders to the amount of $466,000,000 more. Failure of such banks as these would seem to be im- possible, and, in fact, it is stated that the few failures which have occurred have been occasioned either by criminal mismanage- ment on the part of the officers, or by neg- lect or violation of the law on the part of the directors.” It is to be observed, furthermore, that the liabilities to depositors and all outside cred- itors except bill-holders, amount to $838,- 000,000, and this amount is absolutely cov- ered by cash and other available resources amounting to $873,000,000. The condi- tion of the banks is precisely what it would have been if they had kept all de- posits either on hand or safely invested in 1 Finance Reports, 1867, p. 4; 1873, p. 99. 208 THE NATIONAL BANKS.. " the public funds, and had loaned only their own capital and their credit in notes to the amount of about three-fourths of their cap- ital. In other words, they are banking on their own funds, and not on borrowed money. The proportion of capital to liabilities is much greater in this country than else- where—and this, no doubt, is owing to the strict requirement that the authorized cap- ital shall be paid in. In England, as a rule, only a portion of the capital is paid in, though the stockholders are liable in every case for the full amount of their sub- scriptions, and, except in the limited banks, for all debts of the corporations. The Lon- don Economist of October 19, 1878, gives the following figures for the capital, reserve, and liabilities of 3417 banks in the United King- dom, including the Bank of England: Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . £90,649,370 Reserve fund and undivided profits....... 33,969,122 Total. . . . . . . . . . . . . . . . . . . . . . . . . ... 4:124,618,492 Liabilities. . . . . . . . . . . . . . . . . . . ............ 540,253,501 The corresponding statistics for the na- THE NATIONAL BANKS IN 1878. 209 tional banks of the United States appear above, as follows: Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $466,147,436 Surplus and undivided profits...... ..... 157,833,993 Total. . . . . . . . . . . ........ . . . . . . . . . . $623,981,429 Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 1,140,179,314 It will be seen that the capital of the 2053 American banks is about equal to the capital of the 3417 British banks, while the liabilities of the British banks are consider- ably more than double the liabilities of the national banks. The ratio of the aggre- gate capital and reserve to liabilities is 55 per cent. in this country and 23 per cent. in Great Britain. The unexampled solidity of the national banks attracted the intelligent attention of the London Economist as long ago as 1866. After a thorough examination of the then comparatively new system, the Economist said, February 24, 1866: We find that the banks of America are in a very sound state; we find that they have a larger availa- ble reserve against their liabilities than any Euro- pean banks; we find that they depend far more on their own capital, which cannot be taken from them, than any European banks. In former times—in 1837 and 1857—the State banks of America kept very small 14 210 THE NATIONAL BANKS. reserves, and ſailed by wholesale; but this is not the case with the new national banks. If America were now subjected to the difficulties of 1837 or 1857, prob- ably her banks would be able to resist the strain. Of course America must pass through the trying change from war to peace ; she ought to pass through the trying change from an inconvertible currency to a convertible. But we now see that in both changes she will be assisted by a sound system of banking, and therefore we need be much less fearful of a mo- mentous crash than if, as in former periods of dan- ger and difficulty, her central institutions of credit had been, even when not insolvent, at least grossly deficient in available resources, - The trying change from an inconvertible to a convertible currency has now been ac- complished. “Resumption was made cer- tain on the 1st day of January, 1879,” says Comptroller Knox, “by the cheerful co-op- eration of the banks.” Their own notes are redeemable in coin the moment the legal tenders are withdrawn from circula- tion. In the execution of every measure intended to restore the national credit and lighten the public burdens, the government has been able to rely securely upon the in- telligent and powerful aid of the national * Proceedings of the American Bankers’ Associa- tion, 1879, p. 29. -: THE NATIONAL BANKS IN 1878. 211 banks. These advantages have been se- cured to the public under a law which is not irksome to prudent, well-managed banks, but has proved exceedingly vexa- tious to those associations which would prefer to do a speculative business with insufficient capital, no reserves to speak of, and an excessive circulation. The sole privilege which the law grants in com- pensation for its many restrictions, is the right to issue circulating notes. That the banks value this privilege is shown by the fact that they generally abandoned the State system as soon as a prohibitive tax was laid upon the notes authorized by State law. That they do not value it in- ordinately is also plain; for, although their capital entitles them to over $400,000,000 of notes, and they hold nearly bonds enough to secure that amount of circulation, they have called for only about $300,000,000. The banks themselves are not specially interested in the proposition to repeal the act of 1864. The national law gives them no such opportunities as they enjoyed un- der their State charters. . The question is, 212 THE NATIONAL BANKS. as it should be, whether the public will be better served by institutions held to the strictest accountability, subject in all their dealings to the control of the national gov- ernment, or by associations released from all responsibility toward a government from which they receive no privileges. The case is not complicated. It is admitted that the composite system of bank and government paper, established during the war of 1861, cannot long endure. It is pro- posed to adopt the government paper alone. 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THE WICAR OF WAKEFIELD. - By OLIVER GOLDSMITH. 18mo, Cloth, 50 cents. 32mo, Paper, 25 cents ; Cloth, 40 cents, GOLDSMITH. By WILLIAM BI.Aok. - A Critical and Biographical Sketch. (In the series entitled “English Men of Letters.”) 12mo, Cloth, 75 cents. GOLDSMITH.—BUNYAN.—MADAME D'ARBLAY. By Lord MACAULAY. 32mo, Paper, 25 cents; Cloth, 40 cents. HISTORY OF GREECE. By OLIVER GOLDSMITH. Abridged. 18mo, Cloth, 75 cents. HISTORY OF ROME. By OLIVER GOLDSMITH. Abridged. 18mo, Cloth, 75 cents. OLIVER GOLDSMITH. By WASHINGTON Irving. With Selections from his Writings. 2 vols., 18mo, Cloth, $1 50. Published by HARPER & BROTHERs, New York. tº Any of the above works will be sent by mail, postage prepaid, to any part of the United States, on receipt of the price. || || |||||}} English Synonymes Explained in Alphabetical Order. With Copious Illustrations and Ex- amples drawn from the Best Writers. To which is now added an Index to the Words. By GEORGE CRABB, A.M. New Edition, with Additions and Corrections. 12mo, 856 pp., Cloth, $250. It surpasses any dictionary; for when one word is needed a number is supplied, the meanings of which are so thoroughly described that there is no possible need of adopting any but the right one. The writer who abides by Mr. Crabb's directions is sure of expressing his thoughts accurately and elegantly.—N. Y. Times. It furnishes definitions of words with accuracy en- forced with a wealth of illustration drawn from the great masters of English thought and style, that rem- ders the work attractive and useful. * * * The work is one of permanent interest and value. * * * The new edition is a very useful and convenient part of the equipment of the literary workman. And not only those whose business is writing or speaking will find it a valuable assistant in their labors: it ought to have a place among the books of every leading household. —Boston Transcript. A work of established reputation for its fulness, the aptness and judicious character of its illustrative ex- amples of usage, and for its convenience of arrange- ment.—N. Y. Evening Post. PUBLISHED BY HARPER & BROTHERS, NEW YORK. &T Sent by mail, postage prepaid, to any part of the United States, on receipt of the price. £ （4，8%ſae“ ，-·& §%： ،ºž §©®£ -.tº * £ |-%;&2，2%¿} -،----·---- ׺，· }…Praeg∞∞∞? № ∞∞∞¿ §2ż ſaeae№ x，ſ，ſºſ，%%Paeſ， §§Ķ%%%%%%%%%%، %%%%%%%%%%%-………-ģģ· ſººſ:·|-%%%%%%$§$%%%%%-*ģț¢ſaežģ%· &#ęXae¿??¿¿?ģ%¿≡ſ}∞ *****）،、、。:}，ſae×，[]· ſaeº， 2%ſ，%%*¿·№|－-！€∞∞∞ Ę------ ،-----ſaeae%șae●*Ģ |-'，، ،№s，*ae ſae7.-%%%%%%$$$$$$$%%%%%%%%%;}}ģ%%%%%%$%%%%%%%%%§$%33.3%; -●3，∞º，·）;-ſae·-º§，įžº|-W，¿¿.* Ģ?!?!?!！?！！?！!）;aerºpº·ſae- ſae• 。ķ·。،。§§∞∞∞ -·，,，，**-|-|-،ae %%%%%%%%;#32;!}!”Ź%%%%%%$$$$$$$$$$§$%$&#%§§%%،* --3，2×∞§§§§§3，8（ºº），* --！|- -…-…--%?&&\;}，·&&，¿¿? --șaeae， ſae%%%%%!2 …%ź ?%%%%%%%%%%%%%% &· mae، （) ，^^^•¿ºſº，º ģºź%--*·%ģ$- ģ%% 。8%Ř%、ſae%%%%%$$$ ģ;§§2∞∞∞∞- ·- -·ſrael- ¿·≡£ſae -*， %%%% ģ;ſae �� źģ $ſ;%$· ſä ģ}%;ģ✉ &&&&&¿8%ğģ w:*，*;，& ·ģ*