The Whelps of the Tigress; 
 A Resume of the 
 National Banking System 
 
 By 
 R. M. Smith
 
 AT LOS ANGELES
 
 FHE WHELPS... 
 )F THE TIGRESS. 
 
 
 > ) 
 
 II " J " " ] 
 
 -■"I .'. t , a *«« w 11 •• 
 
 A RESUME 
 
 -OF- 
 
 The National Banking System, 
 
 By R. M. SHITH. 
 
 " We have driven the tigress to the jungles, but I fear thai 
 ome day she will return, bringing her whelps with het 
 
 Thomas 
 
 I HOMAS H. KEN'TON. 
 
 Copyright 1894, by R. M. Smitm. \ '^V ' -1
 
 A RESUME OF THE 
 
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 UR F'ATHERJ'v, wfeej* »they «forbade entail, and provided 
 for the dVs-trtbfltSoa fti •estates, thought they had erected a 
 barrier against the money power that ruled England. 
 
 ^r 
 
 They forgot that money could combine; that a moneyed 
 corporation is like the Papac3', a succession of persons with a 
 unity of purpose. Now as the land of England in the hands of 
 thirty thousand land-owning families has ruled it for six hun- 
 dred years, so the corporations of America mean to govern. The 
 survival of Republican institutions here depends upon a success- 
 ful resistance of this tendencj 7 . The only hope of any effectual 
 grapple with the danger lies in rousing the masses, whose inter- 
 ests lie permanent^' in the opposite direction." 
 
 - From Wendell Phillip's speech at Music Hall, Boston, 
 October 31, 1871.
 
 NATIONAL BANKING SYSTEM. 
 
 Crs 
 
 
 PRE 
 
 FACE. J^V Co- 
 
 7i JL % 
 
 In the following- pages the writer has sought simply to s 
 \ offer a sketch of the origin and development of the na* 
 tional banking system, and a brief review of certain ob- 
 jections which in the light of experience with its practical 
 workings, and with the operation of former kindred sys- 
 terns, may be urged against it. 
 
 In the execution of this purpose/ it- has settled advisable 
 to use, as far as possible, the language of such authorities 
 as would be recognized as worthy of respectful considera- 
 ^ tion. 
 
 Believing that the policy of permitting the control over 
 * the circulating medium of the country to be vested to any 
 K) considerable extent iu banks of issue is unalterably op- 
 posed to the equitable distribution of wealth, the writer 
 sends forth this little treatise in the hope that it may help 
 some of his countrymen to understand that " the best 
 banking system the world ever saw " is "a cunningly de- 
 vised scheme to fertilize the rich man's field^br~the^sweat 
 
 of the poor man's brow." 
 
 -"" Rial M. Smith. 
 
 Akron, O., October 10, 1894. 
 
 389269
 
 4 A RESUME OF THE 
 
 CHAPTER I. 
 
 The Origin of the National Banking System. 
 
 The national banking- system had its origin in the civil 
 war. 
 
 At the beginning- of the war the currency of the country 
 consisted in the gold and silver coinage of the United 
 States, and the bank note issues of State banks. The 
 amount of money in the country was manifestly inadequate 
 to the needs of war. The financial condition of affairs at 
 this time is thus described in Hay and Nicolay's "Abraham 
 Iyincoln, a History," vol. 6, page 230: 
 
 "It was apparent that the volume of currency in the 
 country was not sufficient for the enormous requirements of 
 the public expenditure. The banks could neither pay coin 
 to the Government for bonds, nor dispose of them to their 
 customers for specie. The weaker institutions were already 
 tottering, and the stronger ones feared a crisis which would 
 result in universal disaster. They met in convention on the 
 27th day of December, 1861, and agreed upon a suspension 
 of specie payments which took place the following day. 
 The Government necessarily followed the example of the 
 banks. * * * In the world of finance, as well as in the 
 world of politics, it was generally agreed that the only re- 
 sort of the Government was paper money." 
 
 Congress had been called in extra session in July, 1861, 
 for the purpose of devising ways and means of carrying on 
 the war. During- this session of Congress two loan acts 
 were passed, one of which was approved on the 17th day of 
 July, and the other on the 5th day of August. 
 
 J3erkey in his work on the "Money Question," describes 
 these acts as follows : 
 
 "By the act of July 17th, the Secretary of the Treasury 
 was authorized to borrow 5250,000,000, for which he was au- 
 thorized to issue coupon bonds or registered bonds or Treas- 
 ur} r notes in such proportions of each as he might deem 
 advisable. The bonds were to bear interest not exceeding-
 
 NATIONAL BANKING SYSTEM. 5 
 
 seven per cent, per annum, payable semi-annually, and to 
 run for 20 years, when they would be redeemable at the 
 pleasure of the United States ; and the Treasury notes were 
 to be issued in denominations of not le-s than $50, payable 
 three years after date, with interest at 7 3-10 per cent., pay- 
 able semi-annually, and exchangeable at any time for 
 twenty-year six per cent, bonds. Or at his option the Sec- 
 retary of the Treasury might issue $50,000,000 of the above 
 loan in Treasury notes, payable on demand, in denomina- 
 tions of not less than ten dollars each, without interest, and 
 made payable for salaries and other dues from the United 
 States Treasury (afterwards known as old demand notes) ; 
 or he might issue Treasury notes payable in one year from 
 date, bearing interest at 3 65-100 per cent., exchangeable at 
 any time in sums of $100 or upwards for three-year Treas- 
 ury notes bearing 7 3-10 per cent, interest. 
 
 "By the act of August 5th, which was supplementary to 
 the act of July 17th, the Secretary of the Treasury was au- 
 thorized to issue bonds bearing interest at six per cent, per 
 annum, payable after 20 years, which, in denominations of 
 not less than $500, might be exchanged for Treasury notes 
 bearing 7 3-10 per cent, interest. The act of July 17th, fix- 
 ing the denomination of Treasury notes without interest 
 (demand notes) at not less than ten dollars was modified so 
 as to fix the limit at not less than five dollars, and these 
 (demand) notes were made receivable in payment of public 
 dues. By the sixth section of this act the Sub-Treasury act 
 of 1846 was ' suspended so far as to allow the Secretary of 
 the Treasury to deposit any of the moneys obtained on any 
 of the loans now authorized by law to the credit of the 
 Treasurer of the United States in such solvent specie-pay- 
 ing banks as he may select.' " 
 
 Ten million dollars more of the demand notes were au- 
 thorized to be issued by an act of Congress approved Febru- 
 ary 12, 1862 ; and by act of March 17, 1862, these demand 
 notes, $60,000,000 in all, in addition to " being receivable in 
 payment of duties on imports,'''' were made "lawful money 
 and a legal tender in like manner and for the same pur- 
 poses as the notes authorized by the act approved Febru- 
 ary 25, 1862." 
 
 It may be worth while at this point to call the reader's at-
 
 6 A RESUME OF THE 
 
 tention to the fact that these demand notes after they were 
 made a full legal tender circulated at par with g-old even 
 when gold had reached a premium of 185 per cent, over 
 other paper issues of the Government. The reason for the 
 depreciation in other currency issues will be found in the 
 laws providing- for such issues, and will be discussed 
 later on. 
 
 In his first report to Congress in December, 1861, Secre- 
 tary of the Treasury Chase recommended the establishment 
 of a national banking system upon substantially the same 
 plan as that afterward adopted. His avowed purpose in 
 making this recommendation was to establish a currency of 
 uniform value throughout the country to take the place of 
 the varying and uncertain State bank currency then in ex- 
 istence. He lived, however, to express his regrets at having- 
 been instrumental in establishing the present system. 
 
 At the opening of the regular session of Congress in De- 
 cember, 1861, a sub-committee of the Committee of Ways 
 and Means was appointed to consider the recommendations 
 of Secretary Chase in regard to the "proposed national 
 bank currency, the issue of Treasury notes and bonds, and 
 the mode of raising means to carry on the war." This sub- 
 committee, consisting of Messrs. Spaulding, Hooper and 
 Corning, at once went to work and prepared a national 
 bank currency bill of sixty sections, one section of which 
 provided for an issue of legal tender Treasury notes. The 
 bill as prepared was not introduced at this time, however. 
 
 Mr. Spaulding says in his "Financial History of the 
 War" that, upon more mature consideration and exami- 
 nation, he came to the conclusion that the bank bill of sixty 
 sections could not, with the State banks opposed to it, be 
 passed through both houses of Congress for several months, 
 and that so long a delay would be fatal to the Union cause. 
 He therefore changed the legal tender section intended origi- 
 nally to accompany the bank bill into a separate bill, with
 
 NATIONAL BANKING SYSTEM. 7 
 
 alterations and additions, and on his own motion introduced 
 it into the House by unanimous consent on the 30th of De- 
 cember, 1861. 
 
 This bill authorized the Secretary of the Treasury " to is- 
 sue on the credit of the United States $100,000,000 of Treas- 
 ury notes, not bearing- interest, payable g-enerally, without 
 specifying- any place or time of payment, and of such de- 
 nominations as he may deem expedient, not less than five 
 dollars each ; and such notes and all other Treasury notes 
 payable on demand not bearing interest, that have been 
 heretofore authorized to be issued, shall be receivable for all 
 debts and demands due to the United States, and for all sal- 
 aries, dues, debts and demands owing- by the United States 
 to individuals, corporations and associations within the 
 United States ; and shall also be lawful money, and a leg-al 
 tender in payment of all debts, public and private, within 
 the United States, and shall be exchangeable in sums not 
 less than $100 at any time at their par value at the Treasury 
 of the United States for any of the six per cent, twenty- 
 year coupon or registered bonds which the Secretary of the 
 Treasury is now, or may hereafter be authorized to issue ; 
 and such Treasury notes shall be received the same as coin, 
 at their par value, in payment for any bonds that may be 
 hereafter negotiated by the Secretary of the Treasury ; and 
 such Treasury notes may be reissued from time to time as 
 the exigency of the public service may require." 
 
 Active opposition to this bill on the part of the bankers of 
 New York, Boston and Philadelphia was at once manifested. 
 They sent representatives to Washington and on the 11th 
 of January, 1862, a conference was held at the office of the 
 Secretary of the Treasury between these representatives of 
 the banks and the Committee of Ways and Means of the 
 House. At this meeting a plan of raising money was sub- 
 mitted by the banks, which contained the following pro- 
 visions :
 
 8 A RESUME OF THE 
 
 1. A bill to raise $125,000,000, over and above duties on 
 imports, by taxation. 
 
 2. Not to issue any demand Treasury notes except those 
 already authorized. 
 
 3. Issue $100,000,000 Treasury notes at two years, in sums 
 of five dollars and upwards, to be receivable for public 
 dues to the Government, except duties on imports. 
 
 4. A suspension of the Sub-Treasury act so as to allow 
 the banks to become depositaries of the Government of all 
 loans, and to check on the banks from time to time as the 
 Government may want money. 
 
 5. Issue six per cent, twenty-year bonds to be negotiated 
 by the Secretary of the Treasury, and without any limita- 
 tion as to the price he may obtain for them in the market. 
 
 6. That the Secretary of the Treasury be empowered to 
 make temporary loans to the extent of any portion of the 
 funded stock authorized by Congress, with power to hy- 
 pothecate such stock, and if such loans are not paid at ma- 
 turity to sell the stock hypothecated for the best market price 
 that can be obtained. 
 
 The conference adjourned without coming- to any under- 
 standing. 
 
 On the 15th of January another conference was held " by 
 the bank delegates and other persons connected with Mr. 
 Chase," and the result was an approval of the secretary's 
 plan for raising money and launching the national bank 
 system. The following plan was matured and adopted.* 
 
 1. The banks will receive and pay out the United States 
 notes authorized by act of July last freely, and sustain in 
 all proper ways the credit of the Government. 
 
 2. The Secretary of the Treasury will within the next 
 two weeks, in addition to the current daily payments of 
 $15,000,000 in United States notes, pay the further sum of 
 
 * See Bolle's "Financial History of the United States, lSW-lSSS," pp. 
 48, 49. As frequent mention will be made of this authority it may be 
 worth while to state that the author of this most exhaustive work is an 
 ardent supporter of the national banking- system. He describes himself 
 as the "editor of the Ba?il-ers' Magazine," and dedicates the above vol- 
 ume to "George D. Baker, President of the First National Bank of the 
 City of New York."
 
 NATIONAL BANKING SYSTEM. 9 
 
 at least $20,000,000 in seven-thirty bonds to such public 
 creditors as desire to receive them, and thus relieve the ex- 
 isting pressure upon the community. 
 
 3. The issues of United States demand notes not to be in- 
 creased beyond the $50,000,000 authorized by the act of last 
 July, but it is desired that Congress should extend the pro- 
 visions of the existing loan acts passed at the extra session 
 in July, so as to enable the Secretary to issue in exchange 
 for United States demand notes, or in payment of creditors, 
 notes payable in one year bearing 3 65-100 per cent, inter- 
 est, and convertible into seven-thirty three year bonds ; or 
 to borrow under the existing provisions to the amount of 
 $250,000,000 or $300,000,000. 
 
 4. It is thought desirable that Congress should enact the 
 National currency bank bill, embracing the general pro- 
 visions recommended by the Secretary in his annual re- 
 port. 
 
 5. It is expected that this action and liquidation will ren- 
 der the making of the United States demand notes a legal 
 tender, or their increase beyond the $50,000,000 authorized in 
 July last unnecessary. 
 
 On the 22d of January an additional section of the legal 
 tender bill was reported to the House by the Ways and 
 Means Committee. This section authorized the Secretary 
 of the Treasury to issue, on the credit of the United States, 
 coupon or registered bonds to an amount not exceeding 
 $500,000,000, and redeemable at the pleasure of the Govern- 
 ment after twenty years from date, and bearing interest at 
 six per cent, per annum, payable semi-annually, to enable 
 the Secretary of the Treasury to fund the Treasury notes 
 and floating debt. The amended bill containing this addi- 
 tional section passed the House on the 6th day of Febru- 
 ary. Before passing, however, the amount was increased 
 to $150,000,000, and it was provided that $50,000,000 of said 
 notes were to be in lieu of the demand notes issued under 
 the act of July 17th, "which said demand notes shall be 
 taken up as fast as practicable, and the notes herein pro- 
 vided for substituted for them." Thaddeus Stevens, who
 
 10 A RESUME OF THE 
 
 was chairman of the Ways and Means Committee, closed 
 the debate in the House on this bill in a speech from which 
 the following extract is taken : 
 
 "The Secretary of the Treasury, in his report recom- 
 mended a scheme to produce a uniform national currency 
 and furnish a market for Government bonds. It proposes 
 that the banks shall receive their circulation from the Gov- 
 ernment to the amount of Government bonds pledged with 
 the Treasury for their security, and that no more notes 
 should be issued than the par value of such bonds, and 
 should be redeemed by the banks. * * * How would 
 that be any better than the Government's own notes ? The 
 security of the Government is equal to that of the banks, 
 and would give as much currency. To the banks I can see 
 its advantage. They would have the whole benefit of the 
 circulation without interest, and at the same time would 
 draw interest on the Government bonds from the time they 
 got the notes. Now it is very plain that if the United 
 States issued those notes direct, they (the United States) 
 would have the benefit of the whole circulation. * * 
 
 I flatter myself that I have demonstrated that such notes 
 made a legal tender and not issued in excess of the demand 
 will remain at par and pass in all transactions, great and 
 small, at the full value of- their face ; that we shall have 
 one currency for all sections of the country, and for every 
 class of people, the poor as well as the rich. * * * Mr. 
 Chairman, let me say in conclusion that unless this bill is 
 to pass with the legal tender clause in it, it is not desirable 
 to its friends, or to the administration, that it should pass 
 at all. * * * If this bill shall pass, I shall hail it as the 
 most auspicious measure of this Congress; if it should fail, 
 the result will be more deplorable than any disaster which 
 could befall us." 
 
 This bill passed the House, and was reported from the 
 Finance Committee to the Senate on the 10th day of Febru- 
 ary, 1862, with the following amendments thereto: 
 
 1. That the legal tender notes should be receivable for 
 all claims and demands against the United States of every 
 kind whatever, " except for interest on bonds and notes which 
 shall be paid in coin.'''' 
 
 2. That the Secretary might dispose of United States
 
 NATIONAL BANKING SYSTEM. 11 
 
 bonds at the market value thereof for coin or Treasury 
 notes. 
 
 3. Authorizing- deposits in the sub-treasuries at five per 
 cent, for not less than thirty days to the amount of $25,- 
 000,000, for which certificates of deposit might be issued. 
 
 4. An additional section providing- that all duties on im- 
 ported goods, and proceeds of the sale of public lands be 
 set apart to pay coin interest on the debt of the United 
 States, and providing for a sinking fund. 
 
 On the 14th of February the bill as amended was passed 
 by the Senate by a vote of 30 to 7, and was returned to the 
 House. On the 19th the bill as amended by the Senate be- 
 ing again before the House for consideration, Mr. Spauld- 
 ing opened the debate thereon in a speech in the course of 
 which he said: 
 
 "Mr. Chairman, I desire especially to oppose the amend- 
 ments of the Senate which require the interest on bonds 
 and notes to be paid in coin semi-annually, and which 
 authorizes the Secretary of the Treasury to sell six per 
 cent, bonds at the market price for coin to pay the in- 
 terest. The Treasury note bill as reported first from the 
 Committee of Ways and Means as a necessary war meas- 
 ure was simple and perspicuous in its terms and easily un- 
 derstood. It was so plain, that everybody could understand 
 that it authorized the issue of $150,000,000 of legal tender 
 notes to circulate as a national currency among the people 
 in all parts of the United States, and that they might at any 
 time be funded in six per cent, twenty-year bonds. The 
 passage of the measure in this House was hailed with satis- 
 faction by the great mass of the people all over the country. 
 I have never known a measure receive a more hearty ap- 
 proval from the people. Nearly every amendment to the 
 bill since it was matured has rendered it more complex and 
 difficult of execution. I regret to say that some of the 
 amendments of the Senate render the bill incongruous, and 
 tend to defeat its great object, namely, to prevent all forcing 
 of the Government to sell its bonds in the market to the 
 highest bidder for coin. It might be very pleasant for the 
 holders of the 7 3-10 per cent. Treasury notes and 6 per cent, 
 bonds to receive their interest in coin semi-annually, but 
 very disastrous to the Government to sell its bonds at ruin-
 
 12 A RESUME OF THE 
 
 ous rates of discount every six months to pay them g"old 
 and silver, while it would pay only Treasury notes to the 
 soldier, sailor and all other creditors of the Government. 
 Why make this discrimination? Who asks to have one 
 class of creditors placed on a better footing- than another 
 class ? Does the sailor, the farmer, the mechanic, the mer- 
 chant ask to have any such discrimination made in their 
 favor? No, sir; no such unjust preference is asked for by 
 this class of men. They ask for the legal tender note pure 
 and simple. They ask for a national currency which shall 
 be of equal value in all parts of the country. They want a 
 currency that shall pass from hand to hand among all the 
 people in every state, county, city, town and village in the 
 United States. They want a currency secured by adequate 
 taxation upon the whole property of the country which will 
 pay the soldier, the farmer, the mechanic and the banker 
 alike for all debt due. They ask that the Government shall 
 stand upon its own responsibility, its own rights, and exert 
 its vast powers, preserve its own credit, and carry us safely 
 through this gigantic rebellion in the shortest time and with 
 the least possible sacrifice." 
 
 Mr. Pendleton, of Ohio, offered an amendment to the 
 Senate amendment requiring the interest on bonds and 
 notes to be paid in coin, which provided "that the officers, 
 soldiers, seamen and marines engaged in the military serv- 
 ice of the United States shall also be paid in coin ; " but it 
 was not agreed to. 
 
 On the 20th of February Thaddeus Stevens closed the de- 
 bate on the amended bill with a speech in which he said : 
 
 "Mr. Speaker, I have but few words to say. I approach 
 the subject with more depression of spirits than I ever be- 
 fore approached any question. No personal motive or feel- 
 ing influences me. I hope not at least. I have a melan- 
 choly foreboding that we are about to consummate a cun- 
 ningly devised scheme which will carry great injury and 
 great loss to all classes of people throughout the Union, 
 except one. With my colleague, I believe that no act of 
 legislation of this Government was ever hailed with as 
 much delight throughout the whole length and breadth of 
 this Union by every class of people as the bill we passed 
 and sent to the Senate. Congratulations from all classes —
 
 NATIONAL BANKING SYSTEM. 13 
 
 merchants, traders, manufacturers, mechanics and labor- 
 ers — poured in upon us from all quarters. 
 
 "It is true there was a doleful sound came up from the 
 caverns of bullion brokers, and from the saloons of the as- 
 sociated banks. Their cashiers and agents were soon on 
 the ground, and persuaded the Senate with but little delib- 
 eration to mangle and destroy what it had cost the House 
 months to digest, consider and pass. They fell upon the 
 bill in hot haste, and so disfigured and deformed it that its 
 very father would not know it. Instead of being a benefi- 
 cent and invigorating measure, it is now positively mis- 
 chievous. It now creates money and by its very terms de- 
 clares it a depreciated currency. It makes two classes of 
 money, one for the banks and brokers, and another for the 
 people. It discriminates between the rights of different 
 classes of creditors, allowing the rich capitalist to demand 
 gold, and compelling the ordinary lender of money on in- 
 dividual security to receive notes which the Government 
 had purposely discredited." 
 
 The House refused to agree to certain of the Senate 
 amendments, and a conference committee was appointed 
 consisting of Messrs. Fessenden, Sherman and Carlisle of 
 the Senate,' and Messrs. Stevens, Horton and Sedgwick of 
 the House. This committee made some alterations in the 
 bill, among which was the insertion of a provision that 
 " duties on imports should be paid in coin." The insertion 
 of this provision was secured by Mr. Stevens for the pur- 
 pose of preventing the Government from being forced to 
 sell its bonds in open market for coin with which to pay 
 the interest on the public debt. The bill having been re- 
 ferred back to the House and Senate passed both, and was 
 approved by the President on the 25th of February, 1862.* 
 
 Judge Kelley, in a speech delivered at Philadelphia on 
 the 15th of January, 1876, in referring to the passage of 
 this act, said : " I remember the grand old commoner 
 
 * An additional issue of $150,000,000 of such Treasury notes was au- 
 thorized by an act passed Jul}- 1L, 1862.
 
 14 A RESUME OF THE 
 
 (Thaddeus Stevens) with his hat in his hand, and his cane 
 under his arm, when he returned to the House after the 
 final conference and shedding- bitter tears over the result. 
 'Yes,' said he, 'we have had to yield. The Senate was 
 stubborn. We did not yield until we found that the coun- 
 try must be lost or the banks be gratified, and we have 
 soug-ht to save the country in spite of the cupidity of its 
 wealthier citizens.' " 
 
 Although the moneyed classes did not succeed in forcing 
 the sale of Government bonds in the market every six 
 months, as they sought to do, in order that they might buy 
 the bonds at immense discounts, they nevertheless accom- 
 plished the same purpose by thus depreciating the value of 
 the currency with which these bonds were purchasable at 
 par. The Treasury notes issued under this, and other sim- 
 ilar acts depreciated in value for the simple reason that 
 they were not receivable in payment of duties upon im- 
 ports. The fact that the demand notes (of which $60,000,- 
 000 were issued as before stated), did not depreciate, but 
 remained always at par with gold, was due solely to 
 the fact that the demand notes were receivable for such 
 duties, in addition to their legal tender qualities in other 
 respects. 
 
 The evidence upon this point is conclusive, if any evi- 
 dence were needed. 
 
 Mr. George S. Coe, president of the American Exchange 
 Bank of New York, in describing at a meeting of the 
 American Bankers' Association in 1877, the consequences 
 of Secretary Chase's action in issuing these demand notes, 
 said: "These notes were irredeemable from the start. 
 The Treasurer had no money except that which the banks 
 furnished, and of course it was impossible for him to issue 
 a redeemable note." * 
 
 *Bolle's "Financial History," p. 34.
 
 NATIONAL BANKING SYSTEM. 15 
 
 The following- illustration from the same authority is 
 worth reproducing- :* 
 
 "About the time of the suspension of coin payments, a 
 wealthy New Yorker came into the possession of a larg-e 
 sum, approximating to one million of dollars, in demand 
 notes. He offered them for deposit in a leading bank in 
 New York, the officers of which, however, refused to re- 
 ceive them in the ordinary course of their business, or in 
 any other way than as a special deposit. Having no alter- 
 native, the gentleman reluctantly consented. The demand 
 notes being receivable for customs, the same as coin, kept 
 pace pari passu with the advance in the price of coin; and 
 when the depositor in the bank withdrew his deposit, demand 
 notes were worth nearly or quite one hundred and fifty per 
 cent, premium, measured in legal tenders.'''' 
 
 That the currency of the Government was purposely de- 
 preciated to the utmost possible extent by the bankers and 
 gold g-amblers, is further evidenced by the following state- 
 ments of Hug-h McCulloch in his Second Report as Comp- 
 troller of the Currency : 
 
 "Hostility to the Government has been as decidedly man- 
 ifested in the effort that has been made in the commercial 
 metropolis of the Nation to depreciate the currency as it 
 has been by the enemy. Immense interests have been at 
 work all over, and concentrated in New York to raise the 
 price of coin." 
 
 The attitude of the banks in this respect is thus described 
 in Bolle's " Financial History," pag-e 37 : 
 
 "Many banks doubtless desired to furnish the paper cir- 
 culation needed by the country, and looked with disfavor 
 on any attempt of the secretary to invade their field, and 
 declined to receive the Government notes in order to main- 
 tain their position more securely." 
 
 The hostility of the banks to the demand notes is indi- 
 cated by the following extract from a letter from Albert 
 Gallatin to Secretary Chase, bearing date Sept. 12, 1861, 
 
 * Bolle's "Financial History," p. 30.
 
 16 A RESUME OF THE 
 
 and published in vol. 16 of the Bankers' 1 Magazine, pag-e 
 354: 
 
 "When the proposed system of raising- means by the 
 banks was reported by a committee of ten, they were al- 
 most unanimously in favor of affixing- to it a condition that 
 the Government should not issue demand notes. That 
 condition was only yielded from a reluctance to endang-er 
 or embarrass your appeal in so solemn a crisis, and be- 
 cause of your remonstrance ag-ainst being- compelled to 
 g-ive an official pledg-e ag-ainst the use of a leg-al enactment, 
 and still further because of your assurance that it would 
 only be resorted to when other means of raising- money 
 should fail. The banks therefore feel the most implicit 
 confidence that these issues will be confined to a very in- 
 considerable sum, and not be extended beyond a small 
 amount for which a specific sum will be pledged." 
 
 CHAPTER II. 
 
 The Origin of the National Banking System.— Continued. 
 
 About this time a circular known as the "Hazzard circu- 
 lar" was distributed among- the bankers and capitalists of 
 the country by an ag-ent of I>ondon capitalists. 
 
 This circular contained the following- statements: 
 
 "Slavery is likely to be abolished by the war power and 
 chattel slavery destroyed. This, I and my European friends 
 are in favor of for slavery is but the owning of labor and 
 carries with it the care of the laborer. While the Euro- 
 pean plan led on by England is for capital to control labor by 
 controlling wages. This can be done by controlling the money. 
 The great debt that capitalists will see to it, is made out of 
 the war must be used as a means to control the volume of 
 money. To accomplish this the bonds must be used as a bank- 
 ing basis. We are now waiting for the Secretary of the 
 Treasury to make the recommendation to Congress. It will 
 not do to alio*' the greenback as it is called, to circulate as 
 money any length of time, as we cannot cotitrol that.'"
 
 NATIONAL BANKING SYSTEM. 1" 
 
 On December 4th, 1862, Sec. Chase submitted his second 
 annual report in which he again recommended the establish- 
 ment of a national banking- system. In concluding- this 
 report, the Secretary said: " The g-eneral views of the Sec- 
 retary may therefore be thus briefly summed : He recom- 
 mends that whatever amount may be needed beyond the 
 sum supplied by revenue and through other indicated modes, 
 be obtained by loans, without increasing- the issue of United 
 States notes beyond the amount fixed by law, unless a clear 
 public exigency shall demand it. He recommends also the 
 organization of banking associations for the improvement 
 of the public credit, and for the supply to the people of a 
 safe and uniform currency, and he recommends no change 
 in the law providing for the negotiation of bonds except the 
 necessary increase of amount, and the repeal of the absolute 
 restriction to market value, and of the clauses authorizing 
 convertibility at will." 
 
 On the 8th day of January 1863 a bill "To provide ways 
 and means for the support of the Government " (afterwards 
 known as the $900,000,000 loan act) was reported from the 
 Committee of Ways and Means to the House. 
 
 After various amendments the bill passed both branches 
 of Congress, and became a law on the 3d day of March 1863. 
 Mr. Spaulding in his " Financial History of the War," page 
 186, describes this act as follows : 
 
 "1. The first section authorizes a loan of $300,000,000 for 
 the then current year, and $600,000,000 for the then next 
 fiscal year, and to issue bonds therefor at not less than ten 
 nor more than forty years, at not exceeding six per cent, 
 interest in coin, not exceeding in all $600,000,000. 
 
 "2. By section second of the same act the secretary in 
 lieu of an equal amount of said bonds, was authorized to 
 issue $400,000,000 of Treasury notes, bearing interest not 
 exceeding six per cent., ^payable in lawful money, which 
 notes, payable at periods expressed on their f»e, might be 
 made a legal tender at their face value.
 
 18 A RESUME OF THE 
 
 "3. By the third section $150,000,000 in amount of United 
 States notes made a legal tender, might be issued. The 
 restriction in the sale of bonds to market value was re- 
 pealed. And the holders of United States notes issued un- 
 der former acts were required 'to present them for the pur- 
 pose of exchanging them for bonds as therein provided on 
 or before the 1st of July, 1863, and thereafter the right to 
 exchange the same shall cease and determine.' 
 
 "4. This section imposed a tax of one per cent, each half 
 year on a graduated scale of State bank circulation accord- 
 ing to the capital stock of each bank." 
 
 The way having been thus prepared for the successful 
 inauguration of the national banking scheme by legisla- 
 tion tending to make the bonds needed for its basis easily 
 and cheaply obtainable, the national bank bill drawn by 
 Mr. Spaulding in December, 1861, was reported with cer- 
 tain alterations from the Finance Committee to the Senate 
 by Mr. Sherman on the 2d day of February, 1863. The 
 text of this bill, consisting of more than sixty sections, is 
 too long for insertion here. 
 
 The following were the more important provisions: 
 Any five or more persons could form an association hav- 
 ing a capital stock of not less than $50,000, nor less than 
 $100,000 in cities of a certain population, and upon deliver- 
 ing to the Treasurer of the United States interest-bearing 
 bonds to an amount not less than one-third of the capital 
 stock paid in, which must be not less than thirty per cent, 
 of the entire capital stock, were entitled to receive circulat- 
 ing notes equal in amount to 90 per cent, of the current 
 market (afterwards changed to par) value of the bonds de- 
 posited. These notes were to be receivable for all Govern- 
 ment dues, except duties on imports, .and payable on Gov- 
 ernment debts, except for interest on bonds. In lieu of all 
 taxes on circulation or bonds, the banks were to pay one 
 per cent. p£r annum semi-annually on their circulation. 
 They were to conform to the laws of the States in fixing
 
 NATIONAL BANKING SYSTEM. 19 
 
 their rates of interest. They were to keep on hand in law- 
 ful money of the United States at least 25 percent, of their 
 notes and deposits and were to redeem their circulation at 
 the place of issue. The amount to be issued was fixed at 
 $300,000,000, one-half of which was to be issued to banks in 
 States and territories according- to their population, the 
 other half to be distributed with regard to the existing 
 bank capital, business and resources of each State. A 
 bureau of currency was to be established in the Treasury 
 Department and administered by a Comptroller and proper 
 subordinate officers. The Comptroller was to be appointed 
 by the President with the consent of the- Senate, and hold 
 office five years. The banks were to make quarter yearly 
 reports of their condition to the Comptroller. The Secre- 
 tary of the Treasury was authorized "to employ any of 
 such associations doing business under this act as deposi- 
 tories of the public moneys, except receipts from, customs, 
 whenever in his judgment the public interest will be pro- 
 moted thereby." 
 
 The debate on this bill was very brief. In the House the 
 subject had been fully discussed when the $900,000,000 loan 
 act was pending. 
 
 In the Senate Mr. Collamer, of Vermont, made the prin- 
 cipal speech in opposition to the bill. In the course of his 
 remarks he especially insisted that the objection which had 
 been urged against the continuance of the United States 
 Bank that it furnished too powerful a political agency in 
 the hands of unscrupulous and designing politicians, ap- 
 plied with tenfold greater force to the system proposed in 
 the bill. The bill passed the Senate by a vote of 23 to 21, 
 and the House by a vote of 78 to 64. It was signed by the 
 President and became a law on the 25th of February, 1863. 
 
 The principal acts afterward passed supplementary to 
 and amendatory of this act are the following:
 
 20 A RESUME OF THE 
 
 At the next session of Congress it was enacted that for 
 the purpose of securing- their circulation and deposits na- 
 tional banks outside of nineteen of the principal cities of 
 the Union named in the act, and known as " reserve cities," 
 should keep 15 per cent, of their circulation and deposits on 
 hand, three-fifths of which, however, might be deposited 
 with designated banks in the reserve cities, which latter 
 banks should redeem the circulation of country banks de- 
 positing with them ; that banks in the reserve cities (out- 
 side New York) should keep 25 per cent, of their circulation 
 and deposits on hand, one-half of which might, however, 
 be deposited with designated banks in New York, which 
 New York banks should in turn redeem the circulation of 
 the banks in the reserve cities depositing with them, and 
 that banks in New York should keep 25 per cent, of their 
 circulation and deposits on hand. 
 
 March 3, 1865, it was enacted that in forming national 
 banks a preference should be given to those State banks 
 not having over $75,000 capital which applied before the 1st 
 of the following July ; and that a tax of ten per cent, should 
 be imposed on all State bank notes after July 1, 1866. 
 
 In 1874 a law was passed which provided that the bank 
 circulation should be redeemed by the United States Treas- 
 urer at Washington. For this purpose banks were required 
 to deposit with the Treasurer five per cent, of their circula- 
 tion in lawful money of the United States, which was to be 
 counted a part of their lawful reserve. The satne law also 
 provided that the banks might withdraw their notes from 
 circulation in whole or in part by depositing them in sums 
 of not less than $9,000 with the United States Treasurer, 
 when they would be allowed to take up the bonds deposited 
 to secure them. 
 
 In 1875 the restriction on the amount of bank notes which 
 might be issued was removed, and the Secretary of the
 
 NATIONAL BANKING SYSTEM. 21 
 
 Treasury was required to retire legal tender notes to the 
 amount of 80 per cent, of the amount of national bank 
 notes thereafter issued, until the amount of legal tender 
 notes should be reduced to $300,000,000. This latter pro- 
 vision for the retirement of the greenbacks was repealed in 
 1878, leaving the amount of greenbacks then and now out- 
 standing at $346,681,016. 
 
 Under the act of 1863 national banks were authorised to 
 do business for a period of twenty years only, so that in 
 1883, without further legislation, those banks organized in 
 1863 would have been obliged to reorganize or retire from 
 business. In 1882, therefore, an act was passed authorizing 
 the extension of the bank charters for another period of 
 twenty years. In speaking of this act Bolles says in his 
 "Financial History," pages 308, 309: 
 
 "The first provision of the bill authorized the banks to 
 continue for another period of twenty years provided the 
 shareholders owning not less than two-thirds of the capital 
 stock consented. The opponents of the banks maintained 
 that the proposed legislation was unnecessary because the 
 banks when their charters expired could liquidate and re- 
 organize. This was so, but if they had, their undivided 
 surplus and profits, which amounted to $184,000,000, would 
 have been divided, and the reorganized banks would have 
 had only their capital. It was very desirable to retain this 
 reserve of earnings. The national banking law had wisely 
 provided that every bank before declaring a dividend 
 ' should carry one-tenth part of its net profits of the pre- 
 ceding half year to its surplus fund, until the same should 
 amount to 20 per cent, of its capital stock.' The banks 
 having obeyed the law had the above sum after paying 
 $85,845,169 of losses between 1876 and 1879." 
 
 Note. — Prior to 1883 a tax of one per cent, was collected on the de- 
 posits of national banks and also on that portion of their capital not in- 
 vested in Government bonds. By an act passed in March, 1883, the 
 banks were released from further payment of this tax. See Finance 
 Report for 1883, page 512.
 
 22 A RESUME OF THE 
 
 CHAPTER III. 
 
 National Bank Notes Not Money. 
 
 Having- thus traced the general outlines of its structure, 
 let us to proceed to the consideration of the more impor- 
 tant objections to this banking system, which, in the light 
 of reason and experience, seem to challenge our attention. 
 
 The first objection to this system of furnishing a circu- 
 lating medium to be noted is that national bank notes lack 
 one of the essential qualities of money. They are not a 
 legal tender, and can not be used as such in the payment of 
 debts. If one desires to make a lawful tender in discharge 
 of a debt, he must tender lawful money of the United 
 States — either gold, silver or greenbacks. 
 
 In other words, he must tender that which the law has 
 declared to be a legal tender, or he cannot be heard to 
 plead in any court that he has made a tender of payment 
 of his debt. The fact that the Government stands ready to 
 redeem and guarantees the redemption of national bank 
 notes in lawful money of the United States, causes them to 
 be very generally accepted in lieu of such lawful money, 
 although they are not such in reality. Attorneys are often 
 obliged to exchange national bank notes for lawful money 
 of the United States in order to make a legal tender. 
 
 A national bank note is nothing more than the written, 
 or rather printed, promise of the bank to pay money. If 
 the reader have a bank note in his possession he can verify 
 this statement in a moment by examining the note. The 
 bank note differs in no important respect from the promis- 
 sory note which the borrower gives the bank in exchange 
 for it, except in this, — that the people of the United States 
 guarantee the payment of the bank note, and thereby en- 
 able the banker to draw interest on his promissory note, 
 while the borrower must pay interest on his !
 
 NATIONAL, BANKING SYSTEM. 23 
 
 In order that the reader may more clearly see that such 
 is the essential character of these notes, the following ex- 
 tracts from the law are given verbatim : 
 
 "SEC. 20. And be it further enacted, that after any such 
 association shall have caused its promise to pay such notes 
 on demand to be signed by the president or vice-president 
 and cashier thereof in such manner as to make them obliga- 
 tory promissory notes payable on demand at its place of busi- 
 ness, such association is hereby authorized to issue and cir- 
 culate the same as money. And the same shall be received 
 at par in all parts of the United States in payment of taxes, 
 excises, public lands and all other dues to the United States, 
 except for duties on imports, and also for all salaries and 
 other debts and demands owing- by the United States to in- 
 dividuals, corporations and associations within the United 
 States, except interest on the public debt." 
 
 Section 25 provides that if notes of any bank be not paid 
 on demand they may be protested by a notary public, etc. — 
 just as other promissory notes are protested. 
 
 In a speech delivered in the Senate, February 3, 1873, 
 Judge Allen G. Thurman gave his opinion upon this point 
 in the following language : 
 
 "Now which of the two is the best currency,— the bank 
 notes or the Government greenbacks ? In the estimation 
 of the people, the greenbacks are the best ; in the estima- 
 tion of the law, the greenbacks are the best, because it is 
 provided that the bank note may be redeemed by the green- 
 back. Why then should you compel the retiring of the 
 greenbacks to make room for just an equal amount of na- 
 tional bank currency? Why should you retire all the 
 greenbacks to make room for just an equivalent amount of 
 the notes of private individuals, upon which they draw in- 
 terest, although they are their debts? I know this goes 
 very deep. It goes to the question whether or not a bank 
 note circulation is an advisable thing. I know very well 
 that a bank paper circulation is a means by which the an- 
 nual products of the country are distributed in a most un- 
 equal manner. I know that it is a monopoly and a favor- 
 itism which enables one class of men to draw interest upon 
 what they owe, while all other men have to pay interest
 
 24 A RESUME OF THK 
 
 upon what they owe; and I never, therefore, have been 
 much in favor of such a currency." 
 
 Soon after the national bank law went into effect, a com- 
 mittee of the New York clearing- house said in a report:* 
 
 "If more currency is required for the legitimate business 
 of the country, why should not the Government avail itself 
 of the opportunity to issue a further amount of legal ten- 
 der notes? They furnish a currency of uniform value in 
 every part of the Union. Whereas the national bank cur- 
 rency is not lawful money. Why should the Government 
 be willing- to g"ive the people an inferior currency when it 
 commands a superior one?" 
 
 What advocate of the banks will furnish a sufficient an- 
 swer to this question asked by the committee thirty years 
 ag-o: "Why should the Government be willing- to g"ive the 
 people an inferior currency when it c&mmands a superior 
 one ?" 
 
 CHAPTER IV. 
 
 The National Banking System Costs Too Much. 
 
 The next objection to be noted to the national banking 
 system is that it costs too much. 
 
 Someone has said that a thing- may be a g-ood thing- and 
 yet cost too much. It may, therefore, be worth while for 
 those who believe that the "national banking- system is a 
 g-ood thing- — in and of itself — to examine the evidence, and 
 see whether, after all, this banking system is not costing 
 the American people more than it is worth. 
 
 As bearing upon this, and other questions, the writer 
 feels warranted in making the following somewhat ex- 
 tended quotation from a speech delivered by Gen. B. F. 
 Butler in Congress in 1867 on the bill to change the law 
 
 * Bolle's "Financial History," p. 220.
 
 NATIONAL BANKING SYSTEM. 25 
 
 and make the 5-20 bonds payable in coin:* 
 
 "It is said the banks furnish the best currency this 
 country ever saw, because it is the same in New Orleans, 
 Boston, New York and Chicago. But what is the currency ? 
 It is the notes of the bank. What makes them equal all 
 over this country ? It is the endorsement of the United 
 States. Therefore, as the United States is primarily re- 
 sponsible for all the circulation, we ought to supply the 
 currency to the people, and receive the profit of doing it. 
 
 "Again it is said that this banking system is a better one 
 than we ever had. For some purposes, so it is. And it is 
 said further, that if we do not encourage it, we shall go 
 back to the old State bank system. No, Mr. Chairman, 
 never, never ! The day of State banks has gone by. They 
 were always, in my poor judgment, unconstitutional. But 
 they got themselves fastened on the country, and there was 
 never power enough until the necessities of the country re- 
 quired a new system of finance, to break off their hold. 
 We have rid the country of them, and the Congress of the 
 United States, ay, and the good judgment of the people, 
 will never permit that system again to be imposed upon the 
 country. 
 
 "What is the next proposition? Why it is said we must 
 not interfere with the national banks, because they patrioti- 
 cally helped us during the war. Upon that I take issue with 
 each and every advocate of the banks. On the contrary, 
 they helped themselves, not us. It is said they loaned mon- 
 ey to the Government. How did they do it ? L,et me state 
 the way a national bank got itself into existence in New 
 England during the war when gold was 200 and the 5-20 
 bonds were at par in currency, or nearly so. A company of 
 men got together $300,000 in national bank bills and went to 
 the Register of the Treasury with gold at 200 and bought 
 United States bonds at par. They stepped into the office of 
 the Comptroller of the Currency and asked to be established 
 as a national bank, and received from him $270,000 in cur- 
 rency with interest upon pledging these bonds of the United 
 States they had just bought with their $300,000 of the same 
 kind of money. Now let us balance the books, and how 
 does the account stand ? Why the United States Govern- 
 ment receives $30,000 in national bank bills more from the 
 
 * Butler's Book, p. 943.
 
 26 A RESUME OF THE 
 
 banks than it gave them in bills ; in other words, it bor- 
 rowed of the bank $30,000 in currency, for which in fact it 
 paid $18,000 a year in gold interest, equal to $36,000 in cur- 
 rency, for the use of this $30,000. But the thing did not 
 stop there. The gentlemen were shrewd financiers. Their 
 bank was a good one. They went to the Secretary of the 
 Treasury and said : ' L,et our bank be made a public deposi- 
 tory.' Very well, it was a good bank ; the managers were 
 good men ; there was no objection to the bank. It was 
 made a public depository, and thereupon the commissaries, 
 the quartermasters, the medical director and purveyor were 
 all directed to deposit their public funds in this bank. Very 
 soon the bank found that they had a line of steady deposits 
 belonging to the Government of about a million dollars, and 
 that the $270,000 they had received from the Comptroller of 
 the currency would substantially carry on their daily busi- 
 ness, and as the Government gives three days on all its 
 drafts, if the bank were pressed, it was easy enough to go 
 on the street if they had good security. They took the mil- 
 lion of Government money deposited with them, and loaned 
 it to the Government for the Government's own bonds, and 
 received therefore $60,000 more interest in gold for the loan 
 to the Government of its own money, which in currency was 
 equal to $120,000. So that when we come finally to balance 
 the books, the Government is paying $156,000 a year for the 
 loan of $30,000 ! And this is the system which is to be fas- 
 tened forever on the country as a means of furnishing a 
 circulating medium? This only using round numbers for 
 the purpose of illustration is an actual and not a feigned 
 occurrence. * * * Sir, am I slandering these institu- 
 tions ? Are they not making money at a rate which is be- 
 yond all precedent ? * * * I^et us take the banks' own 
 exhibit of themselves. I hold in my hand the abstract of 
 reports of national banking associations for the 1st of Octo- 
 ber last. Let us see their condition. They have $419,000,- 
 000 capital stock paid in. They have been in operation on 
 an average of less than four years. They have divided 
 from 12 to 20 per cent., about 12 in New England, and from 
 15 to 20 where money is scarcer and the rate of interest rules 
 higher. In addition to these dividends take their own state- 
 ments : " Surplus fund, $66,000,000 ; undivided profits, $33,- 
 000,000 ;" showing that they have got after all these divi- 
 dends nearly 25 per cent, of surplus of that capital stock 
 laid away. What other business will allow a yearly divi-
 
 NATIONAL BANKING SYSTEM. 27 
 
 dend of from 15 to 25 per cent, and a surplus accumulation 
 in four years of 25 per cent, on the capital ? And from 
 whom and from where do all these profits come ? They 
 come ultimately from where all taxation, all profits, all pro- 
 ductions must come, the laborers of the country, and no- 
 where else. And we are asked here to perpetuate a system 
 which takes these immense profits from the labor of the 
 country and puts them into the hands of capitalists, with- 
 out a pretense of adequate benefit received by the people." 
 
 In the above speech General Butler shows what the na- 
 tional banking- system was costing- the Government and the 
 people during-, and immediately after, the war. L,et us now 
 see what the expense has been in recent years. In the New 
 York World Almanac for 1894, a table compiled from the 
 reports of the Comptroller of the currency is given, showing 
 the profits of the national banks of the United States for a 
 series of years. According- to this table, in the year 1880 
 there were in existence 2,072 national banks, with a capital 
 of $454,215,062, a surplus fund of $120,145,649, and total net 
 earnings for the fiscal year of $45,186,034. 
 
 In like manner the number of banks in existence, the 
 capital, the surplus, dividends and total net earnings of the 
 banks are given for each year from and including 1881 to 
 and including 1890 — a period of ten years. 
 
 The total net earnings of the national banks for this pe- 
 riod as certified in their own reports to the Comptroller, 
 were $629,831,828.98. During this period the number of 
 banks increased to 3,353 ; the capital to $625,089,645, and the 
 surplus fund to $208,707,786. The above-named amount, 
 $629,831,828.98, represents only the net earnings of these 
 banks, or the profits remaining after the payment of all ex- 
 penses and losses connected with the business.* 
 
 In order to ascertain therefore how much tribute these 
 banks have drawn from the producing classes of the nation, 
 
 * See Comptroller's Report for 1888 p. 73.
 
 28 A RESUME OF THE 
 
 we must add to the above sum whatever amount they have 
 expended during- this period in carrying- on their banking 
 business, and also the losses they have sustained. 
 
 Their expenses consist chiefly of the salariespaid to their 
 presidents, cashiers, tellers, bookkeepers, clerks, etc. 
 
 Their losses are due larg-ely to the embezzlements, defal- 
 cations, etc., of their officers. 
 
 A table given in the Report of the Comptroller for 1893, 
 pages 264-273, shows that the current expenses of the banks 
 for these ten years amounted to $421,575,895.41. 
 
 From the Finance Report for 1885, pag-e 130, we find that 
 the losses of the banks for the five years from 1880 to 1885 
 amounted to more than $60,000,000, — an average yearly loss 
 of $12,000,000. This is much less than the losses from 1876 
 to 1879, when they amounted in three years to $85,845,169.* 
 
 Assuming-, however, that the average yearly loss for these 
 ten years from 1881 to 1890 was no greater than for the five 
 years from 1880 to 1885,— namely, $12,000,000 per year, we 
 have as the amount of losses for the period the sum of $120,- 
 000,000. 
 
 Adding- together the losses of the banks, $120,000,000 ; the 
 expenses of the banks, $421,575,895.41, and the net earnings 
 of the banks, $629,831,828.98, we find that the gross or en- 
 tire earnings of the banks during these ten years amounted 
 to $1,171,407,724.39. 
 
 Ivet us try to get some conception of what these figures 
 signify. The distance from New York to San Francisco is 
 about 2,500 miles. At a cost of $20,000 per mile for con- 
 struction, a railroad built from New York to San Fransisco 
 would cost $50,000,000. 
 
 At this estimate of cost, the amount of tribute paid to na- 
 tional banks by the people in the decade from 1880 to 1890 would 
 
 See Bolle's "Financial History," p. 303, 309.
 
 NATIONAL BANKING SYSTEM. 29 
 
 have built twenty-three such railroads across the continent, 
 and left a surplus of more than twenty million dollars ! 
 
 Now what have the producers of the United States received 
 in return for this enormous sum paid to the banks ? 
 
 In the first place, they have received the use of a quantity 
 of bank notes varying in amount at different times during 
 this period from $332,398,922 in 1882 at the maximum to 
 $124,958,736 in 1890 at the minimum.* The circulating- me- 
 dium was not increased to the full extent of the amount of 
 notes issued by the banks, however, inasmuch as the issues 
 of the banks drove five per cent, of their amount in legal 
 tender notes out of circulation, and locked them up in the 
 Treasury at Washington, as a redemption fund. 
 
 In the second place, as a further consideration, the people 
 of the United States, have been allowed to deposit their sav- 
 ings in these institutions. These deposits however, having 
 no other security than that of the banks themselves, have 
 been frequently lost by the depositors. The Comptroller's 
 Report for 1889 shows that depositors in national banks 
 had at that date, lost deposits amounting to $14,844,988, an 
 average yearly loss of more than half a million dollars !f 
 
 The following statements taken from the Report of the 
 Comptroller for 1884 further indicate that the privilege of 
 making deposits in these institutions, is of somewhat doubt- 
 ful value : 
 
 "The most notable national bank failure of the year (1884) 
 was that of the Marine National Bank of the City of New 
 York which closed its doors about 11 a.m. on the 6th of May. 
 The Bank Examiners of the City of New York immediate^' 
 took possession of the bank, and found that it had been in- 
 debted to the clearing house that day in the sum of $55,500. 
 The examiners also found the account of one firm overdrawn 
 on the books of the bank to the amount of $766,570.14. Upon 
 
 * Comptroller's Report for 1893, pages 83, 84. 
 t Finance Report, 1889, page 395.
 
 30 A RESUME OF THE 
 
 further examination it was found that this firm owed a total 
 of about $2,430,500, being- more than six times the capital 
 of the bank. A portion of this indebtedness was in the name 
 of other parties, clerks in their office, and relations of the 
 firm. An examination of the minutes of the board of di- 
 rectors of the bank shows that on the 11th of April, 1884, 
 twenty-five days before the failure of the bank, the com- 
 mittee of examiners appointed by the board of directors re- 
 ported that they had examined the securities, counted the 
 bills and specie, and examined the balances on the ledgers 
 of the bank, and found the recorded statement of the 7th 
 of April, 1884, to be correct." 
 
 Another statement made by the Comptroller in the same 
 report is as follows: "The trouble at the Second National 
 Bank grew out of a defalcation, amounting to $3,185,000, by 
 the president of the bank." 
 
 Any number of instances similar to the above might be 
 
 given, if space permitted. It is unnecessary, however, as 
 
 the facts are matters of common notoriety. 
 
 The above described are the benefits which the national 
 banks have conferred upon the people of the United States 
 for a period of ten years in consideration for the sum of 
 $1,171,407,724.39 duly received of said people of the United 
 States to the satisfaction of said national banks ! 
 
 Is more testimony needed to show that this system of 
 supplying a circulating medium costs too much ? 
 
 Would it not have been fortunate for the people if Con- 
 gress had acted in accordance with the advice of Thaddeus 
 Stevens, when he said : 
 
 "How would national bank notes be any better than the 
 Government's own notes? The security of the Govern- 
 ment is equal to that of the banks, and would give as much 
 currency. To the banks I can see its advantage. They would 
 have the whole benefit of the circulation without interest, 
 and at the same time would draw interest on the Govern- 
 ment bonds from the time they got the notes. Now, it is 
 very plain that if the United States issued those notes di- 
 rect, they (the United States) would have the benefit of the 
 whole circulation."
 
 NATIONAL BANKING SYSTEM. 31 
 
 CHAPTER V. 
 
 The National Banking System Fosters and Supports the Gambling 
 
 Operations of Wall Street. 
 
 Another objection to the national banking system is that 
 it encourages and promotes speculation. It furnishes the 
 means whereby the brokers and operators of Wall Street 
 gamble in grain and stocks, "bull v and "bear" and "corner" 
 the markets, raise and lower the price of wheat, corn, 
 sugar, securities, etc., and play havoc with the legitimate 
 business of the country. 
 
 As the reader has observed, the law provides for the de- 
 posit by country banks of two-fifths of the reserve fund re- 
 quired to be kept by them to secure deposits, with the banks 
 in the reserve cities. It also provides for the deposit by the 
 banks in the reserve cities of one-half of the reserve fund 
 required to be kept by them to secure deposits (including 
 the deposits of country banks) with the banks in New York 
 City; and that banks in New York City shall keep on hand 25 
 per cent, of all deposits made with them to secure such de- . 
 "posits. This necessarily makes New York the center, and 
 the banks of New York the custodians of a very large por- 
 tion of the entire bank reserves of the country. 
 
 This immense fund concentrated in the City of New York 
 cannot be safely loaned by the New York banks upon time, 
 however short. It can only be loaned upon "call." In 
 other words, it can only be loaned to the speculators. With 
 this money the speculator buys stock upon the "stock ex- 
 change," and pledges it with the .bank as security for his 
 loan, and relies upon his ability to sell again whenever 
 called upon by the bank to pay the loan. 
 
 Bolles says in his "Financial History," page 349 : 
 
 "The reserves which the banks outside of New York City 
 were required to keep were sent in large amounts, though
 
 32 A RESUME OF THE 
 
 irregularly, to New York. The banks in New York, having 
 no legitimate way for employing the money at such times, 
 and threatened with the loss of interest which they htd 
 promised to pay thereon, loaned it to stockbrokers. A bank 
 would not have paid interest on ' 'country balances," as they 
 were called, if they could not be used, and the banks would 
 not have dared to loan a considerable portion of them on 
 time. All loans on call were to speculators. No merchant 
 or manufacturer would borrow in that way. This striking 
 fact, therefore, appears — while the banking law wisely pro- 
 vided for the maintenance of an adequate reserve, a very 
 large portion of it was actually used by New York specula- 
 tors. Though this fact was well known and caused much 
 comment, no legislation was attempted." 
 
 The Comptroller in his Report for 1873, page 92, says : 
 
 "The present financial crisis may in a great degree be at- 
 tributable to the intimate relations of the banks of the City 
 of New York with the transactions of the Stock Board, more 
 than one-fourth, and in many instances nearly one-third, of 
 the bills receivable of the banks since the late civil war hav- 
 ing consisted of demand loans to brokers and members of 
 the Stock Board, which transactions have a tendency to im- 
 pede and unsettle instead of facilitating the legitimate busi- 
 ness interests of the whole country." 
 
 The following incident is related in Bolle's "Financial 
 
 History," page 364 : 
 
 "An eminent merchant of New York, and for several 
 years a member of Congress, related the following story, 
 which illustrated the discrimination made between the two 
 classes of borrowers : 'A pet firm of brokers who went down 
 in the crash of 1873 were found to be in debt nearly $15,000,- 
 000. That firm had reorganized only a month or two before 
 with a capital of one or two hundred thousand dollars; but 
 it was able to borrow of banks and others on stock held only 
 for speculation about $14,000,000. At the same time a com- 
 mercial firm of long standing, and having more than half a 
 million of capital, applied to one of the largest national 
 banks for a discount of $24,000 of business paper having less 
 than thirty days to run, and was politely put off with one- 
 half the amount. The broker for gamblers got $14,000,000. 
 The merchant for honest business got $12,000, or less than a 
 thousand for a million."
 
 NATIONAL, BANKING SYSTEM. 33 
 
 This money furnished for speculative purposes is loaned 
 by the banks at a much lower rate of interest than is 
 charged merchants and others engaged in legitimate busi- 
 ness enterprises. If the reader will consult the New York 
 Finance Report of his daily newspaper, he will probably 
 find money to loan on "call" quoted as "easy" at rates not 
 more than one-third or one-fourth as high as those quoted 
 for loans on "prime mercantile paper." 
 
 A table in the Comptroller's Report for 1893, pages 117, 
 118, classifies the loans made by the banks of the reserve 
 cities on a certain day in each year from 1889 to 1894 inclu- 
 sive. This table shows that 45 national banks in New 
 York City had loans "on call" outstanding on Sept. 30, 
 1889, with stocks, bonds, etc., as collateral security, 
 amounting to $109,579,495 ; on Oct. 2, 1890, $102,372,932 ; on 
 Sept. 25, 1891, $113,787,196; on Sept. 30, 1892, $117,796,025, 
 and on Oct. 3, 1893, $94,897,446. 
 
 The "call" loans of the Chicago banks on the above 
 dates ranged from $12,000,000 to $18,000,000, in round num- 
 bers. 
 
 Thus an average of at least $100,000,000 is by this bank- 
 ing system constantly filtered into the banks of New York, 
 and through them into the hands of the gamblers of Wall 
 Street, to be used at merely nominal rates of interest, in 
 "cornering" the markets, raising and depressing prices, 
 and making wreck and ruin of honest enterprise. 
 
 Note.— In 1887 the banks of the cities of Chicag-o and St. Louis were 
 added to those of New York as depositories for the reserves of the 
 banks of the reserve cities, but are used as such to a very limited extent 
 only, as appears from the reports of the Comptroller.
 
 34 A RESUME OF THE 
 
 CHAPTER VI. 
 
 National Banks Inflate and Contract the Currency, and 
 
 Produce Panics. 
 
 The next and perhaps the most serious objection to this 
 banking- system is that it permits of no stability in the vol- 
 ume of the circulating- medium. Under its operation the 
 supply of currency is continually subject to expansions 
 and contractions. 
 
 By the advocates of the banks this elasticity, as it is 
 Called, is lauded as one of the most beneficent features of 
 the system. On the contrary, however, its effect upon the 
 business interests of the country is pernicious in the ex- 
 treme. 
 
 As we have seen, the volume of bank notes issued during- 
 the period of ten years from 1880 to 1890 varied from $332,- 
 398,922 in 1882, to $124,958,736 in 1890. 
 
 And inasmuch as the banks are not required to issue any 
 bank notes, it follows that the amount of bank notes which 
 the banks may issue has a possible variation of from noth- 
 ing up to ninety per cent, of the par value of the aggregate 
 of United States bonds. 
 
 But aside from the power to increase or decrease in this 
 way the sum total of the volume of the circulating- medium, 
 the banks have a still greater and more pernicious power in 
 their ability to suddenly contract the volume of money in 
 actual circulation by the withdrawal from circulation of 
 their note issues. All bank notes are loaned into circulation. 
 They get into circulation in no other way. These loans are 
 made on the average for not longer than sixty days. By 
 simply refusing to renew their loans, therefore, compelling 
 creditors to pay, and locking up the money, the banks may, 
 within a short period of time, withdraw from circulation an 
 amount of currency equal to their entire note issues. In
 
 NATIONAL BANKING SYSTEM. 35 
 
 this fact lies the explanation mainly of the constantly re- 
 curring- panics to which this conntry, in common with oth- 
 ers using- the British system of bank issues as a substitute 
 for money, has been subject. 
 
 This power of suddenly contracting the currency is in- 
 herent in all banks of issue, and has been repeatedly exer- 
 cised by all such banks, evidence of which will be hereafter 
 furnished. 
 
 In order to understand the effect of a contraction of the 
 currency, it is necessary to have a clear conception of the 
 nature and functions of money. A brief consideration, 
 therefore, seems to be demanded of the question, 
 
 What Is Money? 
 
 Money is a Creation of Law. 
 
 There is no money other than fiat money. The Constitu- 
 tion of the United States provides that Congress shall have 
 the power "to coin money and regulate the value thereof." 
 In its decision of the legal tender case brought to test the 
 question of the constitutionality of the greenback, the Su- 
 preme Court has said :* "If the power to declare what is 
 money be not in Congress, it is annihilated," thus holding 
 in the strongest possible language that Congress alone has 
 the power to make or create money, and that it can not del- 
 egate this power to any other agency. In pursuance of this 
 power Congress has by law declared that the dollar shall be 
 the unit of accounts, the unit of value; that the dime shall 
 be the one-tenth part of a dollar ; that the cent shall be the 
 one-hundredth part of a dollar, etc. 
 
 Money as money, has no intrinsic value. Its value is 
 wholly representative, being, as the Supreme Court has 
 said, a creation of law. 
 
 * See 12th of Wallace Reports, page 545.
 
 36 A RESUME OF THE 
 
 The value of a dollar depends in no respect upon the ma- 
 terial upon which the stamp evidencing- the fiat of the Gov- 
 ernment is fixed. Place a gold dollar upon the anvil, strike 
 it with a sledge hammer and entirely efface the stamp of 
 the Government which declares it to be a dollar, and you 
 have left only a mass of metal which has no monetary pow- 
 er or function whatever, and which no man would take, or 
 could be compelled to take, as money. The stroke of the 
 hammer, which destroyed no particle of gold, and took from 
 the metal no atom of "intrinsic" value, obliterated all evi- 
 dence of the fiat of the Government which alone makes 
 money. 
 
 A hundred copper cents is coined from metal worth in the 
 market but a few cents, and yet a hundred copper cents is 
 the full and exact equivalent in monetary value of a gold 
 dollar. The function of money is to represent and exchange 
 values, and not to contain them. Money is never redeemed, 
 except when exchanged for something of real value. The 
 possession of millions of gold dollars would in no way bene- 
 fit a man unless he could exchange them for those things 
 which minister to his wants. 
 
 Of what use would the possession of such millions be to a 
 man shipwrecked upon a desert island? 
 
 The value to him of these or any other dollars arises 
 from the fact that by operation of law he is enabled to ex- 
 change them for things of real value. 
 
 This fact is recognized even by those who for selfish pur- 
 poses would mislead the people into the belief that paper 
 money must be established upon a gold basis in order to be 
 of any value. Thus Hugh McCulloch, an ardent advocate 
 of the gold basis theory, said in one of his reports as Comp- 
 troller of the Currency: 
 
 "Money, whether it be in the form of the precious metals 
 or of bank paper, is created by law. Gold and silver are
 
 NATIONAL BANKING SYSTEM. 37 
 
 not money until coined and made such by the authority of 
 the Government. It is not, like merchandise or other per- 
 sonal property, the result of man's industry, but a creation 
 of the Government."* 
 
 Money, then, is a creation of law, the only functions of 
 which are to represent and to effect the exchange of real 
 values. If then the value of a dollar does not depend upon 
 the material upon which the stamp of the Government is 
 placed, upon what does it depend ? 
 
 The value of a dollar consists in its purchasing and debt- 
 paying power, which is determined by the number of dollars 
 in circulation available for the purchase of property, and the 
 payment of debts, as compared with the total amount of prop- 
 erty {the purchase and sale of which is to be effected), and the 
 aggregate of debts due. 
 
 To use an illustration, let us suppose that at a certain 
 time, there being- no debts to liquidate, the entire amount 
 of property for sale consists of ten thousand bushels of 
 wheat, and that the entire amount of money in circulation 
 available for the purchase of this property is ten thousand 
 dollars. 
 
 What would be the purchasing power or value of each 
 dollar ? Evidently one bushel of wheat. Thus the price of 
 wheat, determined by the ratio between the number of dol- 
 lars and the number of bushels would be one dollar per 
 bushel. 
 
 Now let us suppose that instead of ten thousand dollars, 
 there are only five thousand dollars available for the pur- 
 chase of these commodities, the ten thousand bushels of 
 wheat, what then is the purchasing power or value of each 
 dollar? Evidently two bushels of wheat, or, in other 
 words, wheat is worth but fifty cents per bushel. 
 
 Thus a contraction of the currency increases the purchas- 
 
 '■ See Finance Report for 1863, pag-e 54.
 
 38 A RESUME OF THE 
 
 ing power of each dollar, and decreases the price of all 
 purchasable commodities. A contraction of the currency, 
 therefore, adds to the burden of every debtor by compelling 
 him to part with a greater quantity of real values in order 
 to obtain the dollars with which alone he can discharge his 
 debt. But aside from this, a contraction of the currency 
 has the yet more serious effect of stopping business. Money 
 being the only recognized medium for the exchange of 
 commodities, is "the life blood of trade," and whenever its 
 volume is reduced so that not enough is flowing in the 
 channels of trade to effect the exchanges of the people, 
 those exchanges must necessarily be curtailed to an extent 
 corresponding to the diminution in the volume of the circu- 
 lating medium. 
 
 The effect of a gradual contraction of the currency is a 
 gradual prostration of business, while a sudden and se- 
 vere contraction causes a correspondingly sudden derange- 
 ment of business, the result of which is almost inevitably 
 a panic. 
 
 The disastrous results following any general contraction 
 of the currency, however produced, have been so often de- 
 scribed that it seems scarcely necessary to marshal the au- 
 thorities upon the question. A Congressional committee 
 made a thorough investigation of the subject in 1877, and 
 in their report said : 
 
 "Money is the great instrument of association, the very 
 fibre of social organism, the vitalizing force of industry, 
 the protoplasm of civilization and as essential to its exist- 
 ence as oxygen is to animal life. Without money civiliza- 
 tion could not have had a beginning, and with a diminish- 
 ing supply it must languish and, unless relieved, finally 
 perish. Falling prices and misery and destitution are in- 
 separable companions. It is universally conceded that 
 falling prices result from the contraction of the money 
 volume."* 
 
 *See Report U. S. Monetary Commission, 1877, vol. 1, page 50.
 
 NATIONAL BANKING SYSTEM. 39 
 
 For a few years during- and immediately after the war, 
 the Government furnished directly to the people a volume 
 of money sufficient to make them practically independent 
 of bank issues. These years were the most prosperous in 
 the history of the Republic. 
 
 John Sherman, the most pliant and effective tool the 
 money power has ever had in any country or in any ag-e, in 
 letters written to his brother, General Sherman, during- the 
 war, bears witness to this fact. In one of these letters he 
 says : 
 
 "The wonderful prosperity of all classes, especially of 
 laborers, has a tendency to secure acquiescence in all meas- 
 ures demanded to carry on the war. We are only another 
 example of a people growing rich in a great war. And this 
 is not shown simply by inflated prices, but by increased 
 productions, new manufacturing establishments, new rail- 
 roads, houses, etc. Indeed, every branch of business is ac- 
 tive and hopeful."* 
 
 Bolles says in his "Financial History," page 110. that 
 "the individual indebtedness at the close of the war in 1865 
 was small. Everyone was comparatively free from debt." 
 The testimony of Secretary McCulloch is recorded to the 
 same effect. 
 
 The cause of this prosperity is thus tersely expressed in 
 an article entitled "Wall Street in War Times," published 
 in 1865 in Harper's Magazine: 
 
 "Paper money circulated like fertilizing dew throughout 
 the land, generating enterprise, facilitating industry, de- 
 veloping internal trade. "f 
 
 With the exception of these few years, the people of the 
 United States have ever been dependent to a large extent 
 for their monetary supply upon bank issues, as the follow- 
 ing brief historical resume will show : 
 
 * See Century Mag-azine for March, 1893. 
 t See Harper's Magazine, vol. 30, page 615.
 
 40 A RESUME OF THE 
 
 The first offspring- of the Bank of England to obtain a 
 footing- upon American soil was the Bank of North 
 America. This bank was org-anlzed at Philadelphia in 
 1782. It received charters both from the United States and 
 from the State of Pennsylvania. This bank continued in 
 existence as a State bank under successive charters from 
 the State of Pennsylvania until 1864, when it reorganized 
 as a national bank, retaining- its original name, with a 
 capital of a million dollars, and a surplus of nearly the 
 same amount. The annual dividends of this bank from 
 1792 to 1875, 84 years, averaged within a small fraction of 
 eleven per cent. The amount of its outstanding State 
 bank circulation in 1862 was $687,000.* Other States fol- 
 lowed the example of Pennsylvania in establishing banks. 
 Jefferson estimated the number of such banks in existence 
 in 1815 at 100. f 
 
 The first Bank of the United States was granted a char- 
 ter by Congress in 1791. Its incorporation was urged by 
 Alexander Hamilton, then Secretary of the Treasury, while 
 it was opposed by Thomas Jefferson, Secretary of State, 
 and Edmund Randolph, Attorney General, in written opin- 
 ions furnished at the request of the President. 
 
 The charter of this bank expired by limitation in 1811. 
 An attempt was made to renew the charter, but it was un- 
 successful. 
 
 In 1816 the second Bank of the United States was char- 
 tered with a capital stock of $35,000,000. Its charter ex- 
 pired in 1836. The story of the tremendous struggle of 
 this bank for a renewal of its charter, and of its complete 
 overthrow, forms one of the most interesting and instruc- 
 tive chapters in American history. 
 
 After the overthrow of this bank and until the establish- 
 
 *See Comptroller's Report for 1876. 
 tBerke3 T \s " Monej- Question," page 122.
 
 NATIONAL BANKING SYSTEM. 41 
 
 ment of the national banking system in 1863, State banks 
 held undisputed possession of the field. In 1840 their num- 
 ber had increased to 900. 
 
 In 1860 their bank note "promises to pay" in circulation 
 amounted to $207,100,000, an amount nearly identical with 
 that of the present national bank issues. 
 
 The above described were all of them specie basis banks 
 of issue. They were supposed to issue about three dollars 
 in bank notes for every dollar of specie in their vaults. In 
 reality, however, the proportion of bank notes issued was 
 generally much greater. Calhoun, in his works, vol. 3, 
 pages 255, 256, speaking of the years 1834-35, says: 
 
 "There was then not more than one dollar in specie on 
 an average in the banks, including the United States Bank 
 and all for ten of bank notes in circulation, and not more 
 than one in eleven compared with the liabilities of the 
 banks." 
 
 During the entire period in which these note-issuing off- 
 springs of the Bank of England have been in operation the 
 country has been subjected to a constant succession of 
 "suspensions of payments," or panics. These have oc- 
 curred in greater or less degree in the years 1809, 1814, 1819, 
 1825, 1834, 1837, 1839, 1841, 1857, 1861, 1873, 1884 and 1893. 
 
 Inasmuch as it would be impossible within the limits of 
 this work to examine in detail into the causes of each of 
 the above panics, the writer will limit his discussion of the 
 proposition that 
 
 BANKS OF ISSUE PRODUCE PANICS 
 
 mainly to an examination of four of the most severe and 
 disastrous of these crises, namely, the panics of 1837, 1857, 
 1873 and 1893. If it be demonstrated to the satisfaction of 
 the reader that banks of issue have the power to produce 
 panics, and that on certain occasions they have exercised 
 this power, the question as to how often and to what extent
 
 42 A RESUME OF THE 
 
 they have exercised such power on other occasions may be 
 left for the reader to determine. 
 
 Before proceeding - , however, to a discussion of the panic 
 of 1837, it may be advisable to consider briefly some au- 
 thorities which indicate that at a comparatively early pe- 
 riod in our history it was recognized that banks possessed, 
 to some extent at least, this power. 
 
 This sufficiently appears from the writings of Jefferson 
 and others. 
 
 In 1814 Jefferson wrote as follows : 
 
 "Everything predicted by the enemies of the banks in 
 the beginning is now coming to pass. It is cruel that such 
 revolutions in private fortunes should be at the mercy of 
 avaricious adventurers, who, instead of employing their 
 capital, if any they have, in manufactures, commerce and 
 other useful pursuits, make it an instrument to burthen all 
 the interchanges of property with their swindling profits, 
 profits which are the price of no useful industry of theirs." 
 
 At another time he wrote : 
 
 "Put down the banks and if this country could not be 
 carried through the longest war against her most powerful 
 enemy without ever knowing the want of a dollar, without 
 dependence on the traitorous class of our citizens, without 
 bearing hard on the resources of our people or loading the 
 public with an indefinite burden of debt, I know nothing 
 of my countrymen." 
 
 Again he said : " I sincerely believe that banking estab- 
 lishments are more dangerous than standing armies." 
 
 And again: "Bank paper must be suppressed and the 
 circulation restored to the Nation, to which it belongs." 
 
 A fuller statement of his views in this regard is given in 
 vol. 7, page 147, of his works, as follows: 
 
 "Certainly no nation ever before abandoned to the avar- 
 ice and juggling of private individuals to regulate, accord- 
 ing to their own interests, the quantum of circulating me- 
 dium for the nation, to inflate by deluges of paper the nom-
 
 NATIONAL BANKING SYSTEM. 43 
 
 inal prices of property, and then to buy that property at 
 one shilling- on the pound, first having- withdrawn their 
 floating medium, which might endanger a competition in 
 the purchase. Yet this is what has been done, and will 
 continue to be done, unless sta3 - ed by the protecting- hand 
 of our legislatures. The evil has been produced by the er- 
 ror of their sanction of this ruinous machinery of banks; 
 and justice, wisdom, duty, all require that they interpose 
 and arrest it before the schemes of plunder and spoliation 
 desolate our country. If we suffer the moral of the present 
 lesson to pass away without improvement, by the eternal 
 suppression of bank paper, then, indeed, is the condition of 
 our country desperate. Interdict forever to both state and 
 national government the power of establishing any paper 
 bank, for without this interdiction we shall have the same 
 ebbs and flows of medium, and the same revolutions of prop- 
 erty to go through every twenty or thirty years.' 1 '' 
 
 A legislative committee of the State of New York in 1818 
 submitted a report from which the following- extract is 
 taken : 
 
 "Of all aristocracies, none more completely enslave a 
 people than that of money; and, in the opinion of your 
 committee, no system was ever better devised so perfectly 
 to enslave a community as that of the present mode of con- 
 ducting banking establishments. Like the siren of the 
 fable, they entice to destroy. They hold the purse strings 
 of society, and by monopolizing the circulating- medium of 
 the country, they form a precarious standard by which all 
 property in the country— homes, lands, debts and credits, 
 personal and real estate of all descriptions — are valued, 
 thus rendering- the whole community dependent upon them ; 
 proscribing- every man who dares to oppose their practices. 
 If he happens to be out of their reach, so as to require no 
 favors from them, his friends are made the victims; so no 
 one dares complain. The committee, on taking- a general 
 view of our State, and comparing those parts where banks 
 have been for some time established, with those that have 
 none, are astonished at the alarming- disparity. They see, 
 in the one case, the desolation they have made in societies 
 that were before prosperous and happy ; the ruin they have 
 wrought on an immense number of the more wealthy 
 farmers, and they and their families suddenly hurled from
 
 44 A RESUME OF THE 
 
 wealth and independence into the abyss of ruin and despair. 
 ■* * * Unless some judicious remedy is provided by leg- 
 islative wisdom, we shall soon witness attempts to control 
 all selections to office in our counties — nay, the elections to 
 the very legislature. Senators and members of assembly 
 will be indebted to the banks for their seat in this capitol; 
 and thus the wise end of our civil institutions will be pros- 
 trated in the dust of corporations of their own raising." 
 
 In a speech against the rechartering of the second United 
 States Bank, Thomas H. Benton, for thirty years an hon- 
 ored member of the United States Senate, said:* 
 
 " I object to the continuance of this bank because its ten- 
 dencies are dangerous and pernicious to the Government 
 and the people. It tends to aggravate the inequality of 
 fortunes; to make the rich, richer, and the poor, poorer; 
 to multiply nabobs and paupers, and to deepen and widen 
 the gulf which separates Dives from I^azurus. It tends to 
 make and break fortunes by the flux and reflux of paper. 
 Profuse issues and sudden contractions perform this opera- 
 tion, which can be repeated in every cycle of so many 
 years, at every periodical turn transferring millions from 
 the actual possessors of property to the Neptunes who pre- 
 side over the flux and reflux of paper. The last operation 
 -of this kind performed by the Bank of England about five 
 years ago was described by Mr. Alexander Baring in the 
 House of Commons in terms which are entitled to the 
 knowledge and remembrance of the American people. 
 After describing the profuse issues of 1823-24, Mr. Baring 
 said : ' They, therefore, all at once gave a jerk to the horse 
 on whose neck they had before suffered the reins to hang 
 loose. They contracted their issues to a considerable ex- 
 tent. The change was at once felt throughout the country. 
 A few days before that no one knew what to do with his 
 money. Now, no one knew where to get it. The London 
 bankers found it necessary to follow the same course 
 toward their country correspondents, and these again 
 toward their customers, and each individual toward his 
 debtor. The consequence was obvious in the late panic' 
 This is what was done in England five years ago, and it is 
 what may be done here in every five years to come if the 
 
 * See Benton's "Thirty Years in U. S. Senate,'' pag-e 190.
 
 NATIONAL BANKING SYSTEM. 45 
 
 bank charter is renewed. Sole dispenser of moneys, the 
 game will be in its own hands, and the only answer to be 
 g-iven is that to which I have alluded — 'The Sultan is too 
 just and merciful to abuse his powers.' " 
 
 Other citations from equally reliable authorities might 
 be given if space permitted. The opinion of President 
 Jackson is sufficiently indicated by the extracts given from 
 the speeches of Mr. Benton, who was the active and ardent 
 champion of the President in the memorable contest be- 
 tween the forces of the Administration and the United 
 States Bank. 
 
 CHAPTER VII. 
 
 The Panic of 1837. 
 
 Coming now to the examination of the evidence bearing- 
 upon the question as to whether banks of issue were in any 
 degree responsible for the disastrous crisis of 1837, Senator 
 Benton is again cited as a witness. 
 
 In 1838 in discussing the panic of the preceeding year, Mr. 
 Benton used the following language :* 
 
 " Banks of circulation are banks of hazard and failure. It 
 is an incident of their nature. The Bank of Kngland, the 
 great mother of banks of circulation, besides an actual stopp- 
 age of a quarter of a century, has had her crisis and convul- 
 sion in average periods of seven or eight years for the last 
 half century— in 1783, '93, '97, 1814, '19, '25, '36— and has only 
 been saved from repeated failure by the powerful support of 
 the British government, and profuse supplies of exchequer 
 bills. Her numerous progeny of private and joint stock 
 banks of circulation have had the same convulsions : and not 
 being supported by the government, have sunk hundreds at 
 a time. All the banks of the United States are banks of 
 circulation. They are all subject to the inherent dangers of 
 that class of banks, and are, besides, subject to new dangers 
 peculiar to themselves. Prom the quantity of their stock 
 
 *See Benton's thirty years in the U. S. Senate, vol. 2, p. 58.
 
 46 A RESUME OF THE 
 
 held by foreigners, the quantity of other stocks in their 
 hands, and the current foreign balance against the United 
 States, our paper system has become an appendage of that 
 of England. The power of a few banks over the whole pre- 
 sents a feature of danger in our system. It consolidates the 
 banks of the whole Union into one mass, and subjects 
 them to one fate, and that fate to be decided by a few with- 
 out even knowledge of the re^t. An unknown divan of 
 bankers sends forth an edict which sweeps over the empire, 
 crosses the lines of the states with the facility of a firman, 
 prostrating all state institutions, breaking up all engage- 
 ments, and leveling all laws before it. This is a kind of con- 
 solidation which the genius of Patrick Henry had not even 
 conceived. But while this firman is potent and irresistable 
 for prostration, it is impotent and powerless for resurrection. 
 * * This is our system, if system it can be called, which has 
 no feature of consistency, no principle of safety, and which 
 is nothing but the floating appendage of a foreign and over- 
 powering system." 
 
 Again in 1841 in a speech on the repeal of the sub-treasury 
 
 act, Mr. Benton said : 
 
 "The architects of mischief, the political, gambling and 
 rotten parts of the banks, headed by the Bank of the United 
 States, and aided by a political party, set to work to make 
 panic and distress, to make suspensions and revulsions, to 
 destroy trade and business, to degrade and poison currency, 
 to harrass the country until it would give them another na- 
 tional bank, and to charge all the mischief they created upon 
 the Democratic administration. This has been their conduct; 
 and having succeeded in the last presidential election, they 
 now come forward to seize the spoils of victory in creating 
 another national bank to devour the substance of the people, 
 and to rule the government of their country. Sir : the sus- 
 pension of 1837 on the part of the Bank of the United States, 
 and its confederate banks and politicians, was a conspiracy 
 and a revolt against the government. The present suspen- 
 sion is a continuation of the same revolt by the same parties. 
 Sir, it is now nightfall. We are at the end of a long day 
 when the sun is more than fourteen hours above the horizon, 
 and when a suffocating heat oppresses and overpowers the 
 Senate. My friends have moved adjournments. They have 
 been refused. I have been compelled to speak now or never; 
 and from this commencement, we may see the conclusion.
 
 NATIONAL BANKING SYSTEM. 47 
 
 Discussion is to be stifled. Measures are to be driven through ; 
 and a mutilated congress, hastily assembled, imperfectly 
 formed, and representing- the census of 1830 not of 1840, is 
 to manacle posterity with institutions as abhorrent to the 
 constitution as they are dangerous to the liberties, the mor- 
 als and the property of the people. A national bank is to be 
 established, not even a simple and strong bank like that of 
 Gen. Hamilton, but some monstrous compound, born of hell 
 and chaos, more odious, dangerous and terrible than any 
 simple bank could be. But enough for the present. The 
 question now before us is the death of the sub-treasury. My 
 present purpose is to vindicate the present treasury system 
 — to free it from a false character, to show it to be what it 
 is, nothing but a revival of two great acts of Sept. 1st and 
 2d, 1789, for the collection, safe keeping and disbursement 
 of the public moneys under which this Government went 
 into operation, and under which it operated safely and suc- 
 cessfully until Gen. Hamilton overthrew it to substitute the 
 bank and state system of Sir Robert Walpole which has been 
 the curse of England, and toward which we are now hurry- 
 ing again with headlong steps and blindfold eyes."* 
 
 Another witness whose testimony in relation to the panic 
 of 1837, seems worth recording, is Martin VanBuren, eighth 
 President of the United States. In his message to the first 
 session of the 26th Congress Mr. VanBuren said : 
 
 "The suspension at New York in 1837 was everywhere 
 with very few exceptions, followed as soon as it was known: 
 that recently at Philadelphia immediately affected the banks 
 of the South and West in a similar manner. This depend- 
 ence of our whole banking system on the institutions in a 
 few large cities, is not found in the laws of their organiza- 
 tion, but in those of trade and exchange. The banks at that 
 center to which currency flows, and where it is required in 
 payment for merchandise, hold the power of controlling 
 those in regions whence it comes, while the latter possess no 
 means of restraining them so that the value of individual 
 
 *See Benton's 30 jears in U. S. Senate, vol. 2, p. 228. 
 
 Note. — At another tinie, speaking- of the overthrow of the United States 
 Bank, Mr. Benton prophesied the establishing- of the present banking 
 system in these words: " We have driven the tigress to the jiaig/es, but I fear 
 that some day she zvill return, bringing her whelps with her."
 
 48 A RESUME OF THE 
 
 property and the prosperity of trade through the whole inte- 
 rior of the country, are made to depend on the good or bad 
 management of the banking - institutions in the great seats 
 of trade on the sea board. But this chain of dependence 
 does not stop here. It reaches across the ocean and ends in 
 L<ondon, the center of the credit system. The same laws of 
 trade which give to the banks in our principal cities, power 
 over the whole banking system of the United States, subject 
 the former in their turn, to the money power of Great Brit- 
 ain. It is not denied that the suspension of the New York 
 banks in 1837 was partly produced by an application of that 
 power; and it is now alleged in extenuation of the present 
 condition of so large a proportion of our banks, that their em- 
 barrassments have arisen from the same cause. From this 
 influence they cannot now entirely escape, for it has its origin 
 in the credit currencies of the two countries : it is strength- 
 ened by the current of trade and exchange which centers in 
 London, and is rendered almost irresistible by the large 
 debts contracted there by our merchants, our bankers, and 
 our States. It is thus that an introduction of a new bank into 
 the most distant of our villages, places the business of that 
 village within the influence of the money power of England. 
 It is thus that every new debt which we contract in that 
 country, seriously affects our own currency, and extends 
 over the pursuits of our citizens its powerful influence. We 
 can not escape this by making new banks, great or small, state 
 or national. The same chains which bind those now existing 
 to the center of this system of paper credit, must equally fetter 
 every similar institution we create. It is only by the extent 
 to which this system has been pushed of late, that we have 
 been made fully aware of its irresistable tendency to subject 
 our own banks and currency to a vast controlling power in 
 a foreign land, and it adds a new argument to those which 
 illustrate their precarious situation. Engendered in the first 
 place by their own mismanagement, and again by the con- 
 duct of every institution which connects them with the 
 center of trade in our own country, they are yet subjected 
 beyond all this, to the effect of whatever measures, policy, 
 necessity or caprice may induce those who control the 
 credits of England to resort to." 
 
 In discussing the panic of 1837, Von Hoist in his Constitu- 
 tional History, pages 176 et seq., says: 
 
 " The compromise tariff of 1833 had not yet come into force
 
 NATIONAL BANKING SYSTEM. 49 
 
 when the United States Bank began to contract its giving 
 of credits. The withdrawal of deposits served as a pretext 
 for this. The most essential, if not the only reason, was 
 evidently the hope of exerting a pressure on Congress in the 
 matter of the renewal of the bank charter. The effect of 
 this sudden change of its policies was severe enough. * * * 
 At the beginning of 1830 the aggregate of the State debts is 
 said to have amounted to $13,000,000, and in May 1836, Web- 
 ster estimated the European capital invested in the securities 
 of the States of the Union at $50,000,000. Two years later 
 he thought that not less than $100,000,000 of European money 
 had been loaned in the United States to States, corporations 
 and individuals to be used in internal improvements. Bank 
 notes had been issued in enormous quantities.. Speculation 
 in Spanish and Portugese goods had made great demands in 
 1834 on the resources of the Bank of England. It had not 
 yet regained its normal condition when speculation in the 
 United States began in earnest. Up to the summer of 1836 
 bills of exchange to the amount of ^2,600,000 had been 
 drawn on the bank. Its reserve of gold was greatly reduced, 
 and on the ist of July it began to contract its credits. A rapid 
 fall of prices followed, and great anxiety prevailed in all 
 business. In November some English banks were greatly 
 embarrassed, and the Bank of England came to their assist- 
 ance only on condition that they would go into liquidation. 
 This blow caused the ruin of three large houses which did 
 business with the United States. This s' one was set rolling-, 
 and it had scarcely begun to move when its rolling changed 
 into a precipitous headlong fall. Bankruptcies came in ava- 
 lanches. One manufactory after another stopped, and the 
 number of those who could find neither bread nor work in- 
 creased by thousands and tens of thousands." 
 
 CHAPTER VIII. 
 
 The Panic of 1857. 
 
 The panic of 1857 was one of the most disastrous which 
 this country has ever experienced. 
 
 In 1858, the year following the inception of this panic, 
 J. S. Gibbons published a book entitled "The Banks of 
 New York." In Chapter XIX of this work, the author
 
 50 A RESUME OF THE 
 
 gives a clear and graphic description of this panic, and of 
 
 its cause. The following- extracts are taken from this 
 
 work : 
 
 "Up to August, 1857, our commercial affairs were gener- 
 ally prosperous. The local journals throughout the coun- 
 try represented business as in a wholesome condition. 
 High prices were said to have enriched the farmer, the 
 stock grower and the planter. Trade and mechanical in- 
 dustry flourished with corresponding success. * * * The 
 banks beijan to contract their loans about the 8th of Au- 
 gust. Securities immediately fell in price at the stock 
 board. The failure of a heavy produce house was ex- 
 plained by a depression of that particular interest in the 
 market. A report of dishonest jobbing and the misuse of 
 funds in a leading railway company caused partial excite- 
 ment without seriously disturbing confidence in mercantile 
 credit. On the 24th of August the suspension of the Ohio 
 L,ife and Trust Company was announced. It struck on the 
 public mind like a cannon shot. An intense excitement 
 was manifested in all financial circles. The holders of 
 stock and commercial paper hurried to the broker and were 
 eager to make what a week before they would have 
 shunned as a ruinous sacrifice. The most substantial se- 
 curities of the market fell rapidly in price at publx sale. 
 The regular discount of bills by the banks had mostly been 
 suspended, and the street rates for money even on unques- 
 tionable securities rose to three, four, and five per cent, a 
 month. On the ordinary securities of merchants, such as 
 promissory notes and bills of exchange, money was not to 
 be had at any rate. House after house of high commercial 
 standing succumbed to the panic, and several heavy bank- 
 ing firms were added to the list of failures. The settle- 
 ment of the New York City banks for the week ending 
 Sept. 5th showed a further reduction in the loans of more 
 than $4,000,000. From this period there was nothing want- 
 ing to aggravate the common distress for money. Com- 
 mercial business was everywhere suspended. The ava- 
 lanche of discredit swept down merchants, bankers, mon- 
 eyed corporations and manufacturing companies without 
 distinction. Old houses of accumulated capital which had 
 withstood the violence of all former panics, were prostrat- 
 ed in a day ; and when they believed themselves to be per- 
 fectly safe against misfortune. Such is the outline of the
 
 NATIONAL BANKING SYSTEM. 
 
 51 
 
 most extraordinary, violent and destructive financial panic 
 ever experienced in this country. What caused it ? To 
 what source or sources can it be traced? Where lies the 
 responsibility for it? What lessons does it teach? What 
 preventatives are indicated against the recurrence of sim- 
 ilar disaster ? These are questions which ag-itate the pub- 
 lic mind and which oug-ht to be answered, if possible, for 
 our instruction and future guidance." 
 
 In discussing- the cause of this panic, the same author 
 
 proceeds as follows: 
 
 "It is remarkable that there was no interval of pressure 
 between the plentiful money market which lasted until the 
 22d day of August, and the panic with which the month 
 closed. There was no treaty between commerce and money 
 as to the common interest. The panic was an explosion 
 without notice or premonition. It was not as in former 
 cases, the result of gradually increasing- embarrassment 
 after vain strug-g-les to prevent it. This is demonstrated by 
 the following- figures : 
 
 Weekly Fluctuation of Loans, Deposits, Circulation 
 and Specie from Aug. 22 to Sept. 26, 1857. 
 
 August 29 
 Sept'r 5 
 Sept'r 12 
 Sept'r 19 
 Sept'r 26 
 
 Loans. 
 
 dec. 
 dec. 
 dec. 
 dec. 
 dec. 
 
 $3,550,663 
 
 4,367,554 
 
 2,235,792 
 
 1,208,152 
 
 989,988 
 
 dec. $12,348,149 
 
 Dbposits. 
 
 dec. S3,380,670 
 dec. 3,600,190 
 inc. 73,512 
 inc. 51.7,844 
 dec. 933,102 
 
 dec. $7,322,608 
 
 Circulation, 
 
 dec. 
 inc. 
 dec. 
 dec. 
 dec. 
 
 $22,951 
 2,132 
 350,876 
 248,515 
 235,493 
 
 dec. $855,703 
 
 Specie. 
 
 dec. 
 inc. 
 inc. 
 inc. 
 dec. 
 
 $855,802 
 
 986,588 
 
 1,953,893 
 
 1.374,329 
 
 229,091 
 
 inc. $3,229,917 
 
 "The loans were reduced during this term $12,348,149. 
 The increase of specie reserved from the liquidation makes 
 the true relative decrease $15,578,066. The most violent ac- 
 tion was between Sept. 5th and Sept. 19th, when the loans 
 were reduced $3,443,944, in the face of an increase of deposits 
 of nearly six hundred thousand dollars. The true relative 
 change in the latter period is represented by a reduction of 
 $6,172,772 in the loans, while the deposits actually increased
 
 52 A RESUME OF THE 
 
 $591,356. There ean be no escape from these figures. They 
 show beyond cavil that the banks, not the depositors, took the 
 lead in forcing liquidation. "When dealers are denied the 
 usual facilities by discount, they have no recourse for their 
 payments but to their deposits, but they did not use these 
 to the full extent of their loan reduction in any single week 
 from the 22d of August to the 19th of September. * * * 
 The history of the panic is clearly divisible into these two 
 periods ; the former when the banks took the initiative in 
 forcing down their loans, and the latter in which the de- 
 positors seized it and brought on the closing acts of sus- 
 pension. * * The gradual expansion of bank credits 
 through the several previous years not only on a fictitious 
 home basis, but on country deposits which had been al- 
 lured by competing rates of interest made sufficient ground 
 for an extraordinary pressure when a reduction was to be 
 effected ; and thus the banks were doubly responsible for 
 the pending issue. There is no evidence in the records of 
 the clearing house, nor in the experience of past years, nor 
 in any events which have transpired since the suspension, 
 to prove that the panic was inevitable. The foregoing 
 facts indicate that it was directly caused by the violent 
 contraction of bank loans." 
 
 The following extract is taken from an article written by 
 Edward Kellogg, which appeared in the New York Daily 
 Tribune on Nov. 27, 1857 :* 
 
 "Sir: A few months ago this country was enjoying a 
 prosperity unsurpassed in its history. The crops more 
 abundant than ever before, were sufficient to supply not 
 only our own wants, but to admit of large exportations. 
 Manufacturing establishments and railroads employed a 
 large number of persons. The merchants were conducting 
 their business with as much prudence as at any former pe- 
 riod. Houses were being built in the cities and villages, 
 and in the farming districts, and labor was in good de- 
 mand. 
 
 "Now, affairs are in a very different condition. The busi- 
 ness of the merchants is broken up ; the manufacturers 
 have suspended their operations ; hundreds of thousands of 
 laborers are thrown out of employment and are in danger 
 
 See Kellog-g's work on "Labor and Capital," page 338.
 
 NATIONAL BANKING SYSTEM. S3 
 
 of starvation ; the farmers cannot get their abundant crops 
 to market, and if they could, they would be obliged to sell 
 them at greatly reduced prices. Business stands still. 
 
 "This great change is rightly said to be owing to the diffi- 
 culties in finances, to the crisis in the money market. All 
 the money of the nation, bank notes included, amounts to 
 about five hundred millions of dollars. Probably when the 
 circulation of the banks has been the most expanded the 
 whole currency has never reached six hundred millions. 
 But the productions of labor for the last year are estimated 
 at three billions, five hundred millions of dollars— about 
 seven times as much as all the currency of the nation, and 
 these productions, or a large portion of them, will change 
 hands through the process of manufacture and otherwise, 
 from three to eight or ten times before they reach the ac- 
 tual consumers. Now, this comparatively small sum of 
 money must pay for every one of these exchanges, or for 
 every debt contracted in making these exchanges. The 
 same money must also pay all the debts contracted by bor- 
 rowing money from banks, or upon bond and mortgage or 
 otherwise. It must pay for all the lands that are sold by 
 the Government and by individuals ; for all the bonds is- 
 sued by railroads, cities, states and the United States ; for 
 all the stocks and securities that are sold at private sale, at 
 auction and by the various boards of brokers and for all 
 the bills of exchange sold from one part of the country to 
 another, as well as for all bills of exchange upon foreign 
 nations. It is evident that this comparatively small sum 
 of money must change hands a great number of times to 
 effect the needful exchanges of this immense amount of 
 property, and that any obstruction to its movement, or 
 withdrawal of a portion of it from circulation must serious- 
 ly embarrass the business of the whole country. The im- 
 portance of this free circulation may perhaps be more fully 
 appreciated when we state that all the money we possess — 
 gold, silver and paper— would not suffice to pay the board 
 of this nation for four months at $1 per week for each indi- 
 vidual. The City of New York is the financial center of 
 the country. If the banks in this city keep up their lines 
 of discount so as to supply the business community with 
 money, the banks in all other parts of the country will also 
 discount and supply the people in their neighborhoods. Of 
 course there must be at times balances greater or less 
 against one part of the country in favor of another, but all
 
 54 A RESUME OF THE 
 
 ♦ 
 
 these will be easily adjusted, and business will go on pros- 
 perously. 
 
 "In the latter part of August last the Ohio L,ife and 
 Trust Company, with a capital of two million dollars, sus- 
 pended payment, with debts against the company to the 
 amount of six or seven millions of dollars. This failure 
 was the apparent occasion of distrust, and of contraction 
 in bank issues to the amount of some eight millions of dol- 
 lars in the course of two weeks ; and to the 24th of October 
 of about twenty-six million dollars. This contraction of 
 discounts for the first two weeks only was doubtless a much 
 greater loss to the business men of this city than the en- 
 tire capital and liabilities of the Ohio Iyife and Trust Com- 
 pany. 
 
 "The news of this curtailment rushed with lightning 
 speed to all parts of the country, and carried consternation 
 into every city and town where a bank existed ; and the 
 banks in this city and throughout the country called upon 
 each other to pay up their balances in specie. Many of the 
 banks in this State were obliged not only to stop discount- 
 ing, but had to send their State stocks to this city and sell 
 them at from 15 to 30 per cent, loss to redeem their bank 
 notes and take them out of circulation in order to save 
 themselves from suspension. But this was not the worst 
 of the evil. Merchants unable to get their notes discount- 
 ed at bank, were driven into Wall Street, and compelled to 
 borrow at exorbitant rates of interest to meet their pay- 
 ments, thus rapidly increasing their indebtedness and ren- 
 dering it inevitable that in the end a large proportion of 
 them should be made bankrupt. Many of them paid to 
 usurers for the use of money one, two, three, four, five and 
 six per cent, a month, and from these rates to a quarter, a 
 half, and sometimes one per cent, or more a day, and were 
 compelled to leave double, treble and quadruple securities 
 to obtain the money at all. The banks, by curtailing their 
 discounts so that money is not to be had to meet the mer- 
 cantile engagements, remove the foundation upon which 
 the contracts were based ; and the merchants can no more 
 stand up under such an event than a house can stand sup- 
 ported by the air, if the foundation be removed from under 
 it. Money is the only thing recognized by our laws as a 
 tender, and all the property of debtors becomes mere collat- 
 eral security for the payment of money for their obliga-
 
 NATIONAL BANKING SYSTEM. 55 
 
 tions. Hence, in a crisis like this, the wealth of the nation 
 seems to be concentrated in the money. * * * 
 
 "When the Ohio L^ife and Trust Company suspended pay- 
 ment, had the banks in the City of New York discounted 
 every note offered that was considered safe, in less than 
 three weeks, and probably in one week, money would have 
 been as plenty in the City of New York and throughout the 
 country as it has been at any time during- the past ten 
 years ; and all undoubted securities that were bearing seven 
 per cent, interest would have commanded money at their 
 par value. The business of the whole nation would doubt- 
 less have been as prosperous as it has been at any time dur- 
 ing the last ten years. The agricultural productions of the 
 South and West would have been rapidly sent to market, 
 and would have sold at prices that would have remunerated 
 the producer. Now, if they are freely sent into the market, 
 they will be sold at ruinous sacrifices. * * * 
 
 "In the present crisis the same means must be used to re- 
 lieve us from our financial difficulties that ought to have 
 been used to prevent their occurrence. L,et the banks in the 
 City of New York discount every piece of paper offered 
 which they consider safe and good. I^et them discount pa- 
 per that has four, five or six months to run, as well as short 
 paper. They can do this as well now as they ever could at 
 any previous time. Let them discount thus liberally and 
 the business of the nation will revive. * * * Whether 
 business shall revive now, our manufacturers resume their 
 operations, our laborers be employed ; or whether the pres- 
 ent condition of the money market shall continue until the 
 country is completely prostrate, and the wealth of the na- 
 tion for the greater part accumulated in the hands of the 
 usurers, is at the option of the banks in the City of New 
 York."
 
 56 A RESUME OF THE 
 
 CHAPTER IX. 
 
 The Panic of 1873. 
 
 The next severe panic and the first after the inauguration 
 of the present system of bank issues, was that of 1873. 
 While this panic was the result undoubtedly of a contrac- 
 tion of the currency, it was not wholly, and perhaps not 
 mainly, due to a contraction of bank issues, although such 
 contraction did occur and did materially hasten and pro- 
 mote the crash. 
 
 There can be no doubt that the withdrawal from circula- 
 tion and destruction of the various issues of Treasury 
 notes, which had been steadily going- on for j'ears, in pur- 
 suance of the contraction act of 1866, was one of the primal 
 and chief causes of this panic. Neither can there be any 
 doubt that the demonitization of silver in 1873 assisted 
 materially in producing the distress which followed. Both 
 these acts were passed by Congress at the dictation of the 
 money power for the purpose of removing as far as possible 
 Government issues either of coin or paper from circulation 
 in order that their place might be supplied by bank issues. 
 
 The culminating acts, however, which precipitated the 
 panic, were those of the banks in suddenly contracting 
 their loans. In support of this statement, the following is 
 quoted from Bolle's " Financial History," page 363: 
 
 "Opposition to the banks was now at its height. Many 
 things had happened to inflame the feeling against them. 
 The year before (1873) a financial storm had swept over the 
 country, and the suffering therefrom was keen and univer- 
 sal. The event was largely attributed to the intimate rela- 
 tions *existing between the banks of New York City and the 
 members of the Stock Exchange, whereby the currency was 
 suddenly contracted, or "locked up" in the language of the 
 day, and brokers were preferred to merchants by the banks 
 as borrowers of money. One of these "lock-ups" had been 
 a matter of Congressional investigation in 1872. A direc-
 
 NATIONAL BANKING SYSTEM. 57 
 
 tor of the Tenth National Bank of New York was a special 
 partner in three firms with whom he left his money to be 
 loaned. On a day specified, he directed them to call in his 
 money, which they did. In the afternoon he went to his 
 bank with the checks received from the three firms, amount- 
 ing- to $4,100,000. He requested the president to put them 
 through the clearing house the next morning. This was 
 done. The money was paid; but instead of putting it into 
 the bank on deposit, he carried it away. The whole trans- 
 action was simply an arrangement by which it withdrew 
 over $4,000,000 of legal tender notes from circulation for a 
 director of the concern, whose avowed object in having it 
 done, as he himself testified before the investigating com- 
 mittee, 'was to cause a stringency in the money market for 
 the purpose of bringing about a decline in the price of 
 stocks' of which he was 'short.' It affected not only the 
 banks and the business community of the City of New 
 York, but that city being the principal center of the mone- 
 tary operations of the whole country, the stringency pro- 
 duced there in the money market extended to other cities, 
 and affected more or less injuriously every branch of busi- 
 ness requiring the use of money throughout the coun- 
 try. These operations were repeated more than once, and 
 were strongly condemned in every quarter outside of Wall 
 Street."* 
 
 Another financial crisis occurred in 1884. Comptroller 
 Cannon, although lauding the banking system, as must be 
 expected of one occupying his position, is compelled, never- 
 theless, to make the following admissions in regard to the 
 causes of the panics of 1873 and 1884 :f 
 
 "The crisis of 1884 seems to have been even more unex- 
 pected to the country than that of September, 1873. Al- 
 though many conservative people had predicted that the 
 large increase in railroad and other securities and the gen- 
 eral inflation which had been going on for a number of 
 years would bring financial troubles and disasters to the 
 country, it was nevertheless generally believed that the de- 
 preciation of values and the liquidation which had already 
 
 * See House Report No. 5, 42J Congress, 3d session. See also the ex- 
 tract from Comptroller's Report, Chapter V. 
 t See Comptroller's Report for 1884, page 34.
 
 58 A RESUME OF THE 
 
 been going on for many months, and the further fact that 
 the country was doing business on a gold basis, that the 
 prices of all commodities were already very low, that an 
 increased area of territory was under cultivation, and that 
 the prospects were excellent for good crops, together with 
 the larger distribution of wealth throughout the Union, 
 would prevent a repetition of the panic of 1873. * * * 
 The most profound students of political economy have for 
 many years endeavored to explain the causes which have 
 led to financial troubles similar to those of 1857, 1873 and 
 1884, and it is not to be expected that the Comptroller can 
 obtain sufficient data to enter into a complete and satisfac- 
 tory explanation of the causes of the financial disturbances 
 of the present year. It is apparent, however, that a repeti- 
 tion of some of the same circumstances which brought 
 about the monetary crisis of 1873 has been largely influen- 
 tial in causing the present crisis. Property of all kinds 
 had been capitalized, as it is called, bonds and stocks had 
 been issued for the purpose of building railroads, carrying 
 on manufacturing and other business. Municipal and oth- 
 er bonds had been issued for public improvements. These 
 bonds and stocks were put upon the market, and commer- 
 cial credit was extended, until a poi?it was reached where 
 capitalists of this and other countries questioned the intrinsic 
 value of these securities, and the earning power of the prop- 
 erties on which they were based, and also doubted the solvency 
 of many firms in commercial business. This lack of confi- 
 dence induced them to decline to make further advances or 
 investments. A decrease in the earnings of railroads, manu- 
 facturing and other enterprises followed, and the entire busi- 
 ness of the country has consequently been restricted and dead- 
 ened." 
 
 The above statements of Comptroller Cannon are worthy 
 of careful study. Coming from such a source, they con- 
 tain a remarkably full and complete admission of the 
 charge that banks of issue were largely instrumental in 
 producing the panics of 1873 and 1884. 
 
 "It is apparent," he says, "that a repetition of some of 
 the same circumstances which brought about the panic of 
 1873 has been largely influential in causing the present 
 panic." * * * "Bonds had been issued for the purpose
 
 NATIONAL BANKING SYSTEM. 59 
 
 of" — borrowing - money to be used in — "building railroads, 
 carrying - on manufacturing - and other business." "Com- 
 mercial credit" — in other words, bank credits — "had been 
 extended until a point was reached where capitalists of this 
 and other countries" — composed of bankers and their sa- 
 tellites — "questioned the intrinsic value of these securities 
 and the earning - power of the properties on which they 
 were based, and also doubted the solvency of many firms 
 in commercial business." "This lack of confidence'''' — on the 
 part of the capitalists — "induced them to decline to make 
 further advances" — i. e. loans — "or investments" — in other 
 words, to lock up their money and take it entirely out of 
 circulation. "A decrease in the earnings of railroads, manu- 
 facturing and other enterprises followed, and the efitire busi- 
 ness of the country has consequently been restricted and 
 deadened.'''' 
 
 CHAPTER X. 
 
 The Panic of 1893. 
 
 In his report for 1893, Comptroller Eckels labors to show 
 that the panic of 1893 was precipitated by the action of de- 
 positors in national banks in withdrawing - their deposits. 
 
 A careful analysis of certain tables given in this report, 
 however, proves most conclusively that Mr. Eckels' position 
 is untenable. 
 
 An examination of tables found on pages 280 et seq. of the 
 report (which show the condition of all national banks at 
 the times of their periodical reports in each year for several 
 years prior to, and including, 1893) reveals the fact that the 
 aggregate amount of the deposits in national banks is con- 
 stantly changing, rising and falling, and that these fluctu- 
 ations are exceedingly irregular. Variations in the volume 
 of deposits from one report to the next succeeding report of 
 five, ten, twenty or even forty millions of dollars, are seen
 
 60 A RESUME OF THE 
 
 to have been by no means uncommon. For instance between 
 the 4th day of May and the 9th day of July, 1891, there was 
 a decrease in the amount of deposits in the national banks 
 of more than $40,000,000. This large decrease, however, ex- 
 cited no comment and occasioned no alarm. These deposits 
 were withdrawn from the banks for use in business, and 
 instead of contracting - the currency, tended to make its cir- 
 culation more active. The effect of such withdrawals is quite 
 different from that produced by the withdrawal on the part 
 of the banks of their loans. Banks use money in no other 
 way than to loan it ; and when they refuse to make such 
 loans, the money remains locked in their vaults, and is un- 
 able to perform any of its functions. Now let us examine 
 the facts disclosed by the Comptroller's report which show 
 the connection of the banks with the panic of 1893. A table 
 given on page 4 of the report shows that the aggregate 
 amount of individual deposits in all national banks on the 
 6th day of March, 1893, was $1,751,439,371.14; and that on the 
 4th of May following, such deposits amounted to $1,749,930,- 
 817.51, showing a decrease in deposits of about 1% million 
 dollars, a very slight decrease, and one which in view of the 
 facts above stated, could have occasioned no alarm or even 
 comment in financial circles. It is evident, therefore, that 
 up to the 4th day of May, 1893, depositors generally through- 
 out the country, were pursuing the "even tenor of their 
 waj'-," and that so far as they were concerned, no such thing 
 as a panic had been thought of. 
 
 But let us see what the banks in the money centers of 
 New York and Chicago were doing during this same period. 
 
 A table given on page 282 of the report shows that the 
 individual deposits in the national banks of the City of New 
 York on March 6, 1893, amounted to $284,898,089.33, and that 
 on the 4th day of May, 1893, such deposits amounted to $286,- 
 985,310.15, an increase in deposits during the two months of 
 $2,087,220.82.
 
 NATIONAL BANKING SYSTEM. 61 
 
 The same table shows that the loans and discounts of 
 these same banks on March 6, 1893, amounted to $323,445,- 
 104.33 (which is almost exactly the same amount as that of 
 their loans outstanding at the time of the previous report 
 on December 9, 1892) and that on the 4th day of May, 1893, 
 their loans and discounts amounted to only $307,372,242.62, 
 showing- a decrease in loans of $16,072,861.71. 
 
 A similar table given on paf e 304 shows that the individual 
 deposits in the national banks of the City of Chicago on the 
 6th day of March, 1893, amounted to $69,552,834.78, and that 
 on May 4th, 1893, such deposits amounted to $75,781,073.65, 
 an increase in deposits of $6,228,238.87. In spite of this large 
 increase in their deposits however, their loans and discounts 
 were reduced from $100,414,204.64 on March 6th, 1893, to 
 $96,824,856.96 on May 4th, 1893, a decrease of $3,589,347.68. 
 
 The above figures show beyond the possibility of doubt 
 that the national banks of New York and Chicago precipi- 
 tated the panic of 1893. 
 
 By the increase in their deposits of over eight million dol- 
 lars, and the contraction of their loans to the amount of 
 nearly twenty million dollars, they took out of circulation 
 between the 6th day of March and the 4th day of May, 1893, 
 nearly thirty million dollars ! 
 
 When we remember that New York and Chicago are the 
 money centers of the country, and that a money stringency 
 created in these centers must of necessity extend through- 
 out the country, we can readily see that a general panic must 
 inevitably have followed this action of the New York and 
 Chicago banks. It is true that after the panic was thus 
 started, the people became frightened and following the 
 example of the banks, withdrew and hoarded their deposits, 
 thereby adding fuel to the flames which the bankers had 
 kindled. The result has been that some of the weaker banks 
 have themselves gone down in the general shipwreck. 
 
 But what motive, the reader asks, could the banks have
 
 62 A RESUME OF THE 
 
 had for such action ? In the first place, a motive always 
 exists in the fact that times of panic furnish to capitalists 
 their most abundant harvests. In times of panic prices of 
 all kinds of property are forced down to the lowest point. 
 The capitalist is then enabled to invest his money in proper- 
 ties which cost him but a fraction of their real value. These 
 properties he holds until "confidence" has been " restored," 
 and prices have again reached a normal level, when they 
 are unloaded upon an unsuspecting- public. "These opera- 
 tions" said Benton, "may be repeated in every cycle of so 
 many years, at every periodical turn of the wheel transfer- 
 ring - millions from the actual possessors of property to the 
 Neptunes who preside over the flux and reflux of paper." 
 
 But the banks had a still deeper purpose in view in pre- 
 cipitating the panic of 1893. 
 
 The Sherman law then in force provided for the purchase 
 by the Government of 4,500,000 ounces of silver bullion per 
 month at the market price, and the payment therefor in 
 treasury notes issued for this purpose. This law, therefore, 
 was adding to the circulating medium of the country a cer- 
 tain amount of currency each month, and this currency was 
 being paid directly into circulation by the Government with- 
 out reference to banks. 
 
 Under the operation of this law about $150,000,000 of such 
 Treasury notes had been issued and were circulating in the 
 channels of trade. From this circulation however the banks 
 derived no profit. But if they could secure the repeal of this 
 law, the banks would be in position to supply the place of 
 the currency cut off by such repeal, with bank notes, provid- 
 ed they could also secure the issue by the Government of bonds 
 sufficient for the basis of such an increase of bank paper. 
 
 The holders of our bonds in Europe, as well as in America, 
 were also interested in the repeal of this law. For the law 
 provided that the Secretary of the Treasury should coin so 
 much of the bullion so purchased into standard silver dol-
 
 NATIONAL BANKING SYSTEM. 63 
 
 lars, as might be necessary to provide for the redemption of 
 the Treasury notes issued in purchase of the bullion. This 
 was the only existing- statute which in any way provided 
 for the further coinage of silver. The money power of Eu- 
 rope and America had consented to the enactment of this 
 law, as appears from the statements of John Sherman, only 
 to prevent the passage of an act providing for the free coin- 
 age of silver as it existed prior to the demonetization act of 
 1873. 
 
 If this law were repealed, therefore, the increased demand 
 for gold coin with which to supply the place before occupied 
 by silver, would necessarily largely enhance ils value. 
 Thus the bonds of the United States payable in coin, in the 
 hands of the bondholders, would be increased in value. 
 
 The banking and moneyed interests of the world com- 
 bined, therefore, to secure the repeal of the purchasing 
 clause — the vital portion — of this law. 
 
 In order to obtain the desired legislation a plan of action 
 was adopted and put into execution. 
 
 A money stringency was created in the money centers of 
 the country as above described. At the same time an on- 
 slaught was made upon the gold in the Treasury. Treasury 
 notes issued in payment for silver bullion were presented at 
 the Treasury and it was demanded that they be redeemed in 
 gold. Under the provisions of the Sherman law, they were 
 redeemable in either gold or silver, at the discretion of the 
 Secretary of the Treasury. But in this instance, as always, 
 the Secretary's discretion was exercised in favor of the capi- 
 talists and against the people. The excuse offered for re- 
 deeming these notes only in gold was that it was absolutely 
 necessary to do so in order to maintain parity between the 
 two metals. As if parity between the two would be promot- 
 ed by dishonoring the one ! 
 
 The gold thus drawn from the Treasury by Ickelheimer, 
 Heidelbach & Co., hazard, Freres & Co., and others, in pur-
 
 64 A RESUME OF THE 
 
 suance of the commands of the Rothschilds and their allied 
 
 money kings of the world, was shipped across the ocean. 
 
 The manner in which this was accomplished is indicated 
 
 in the following- extract, from the Report of Comptroller 
 
 Trenholm for the year 1888, page 10 : 
 
 "Another feature of the present foreign exchange busi- 
 ness should not be overlooked in tracing the relations be- 
 tween that business and our monetary system, namely, the 
 existence of banking houses on both sides of the Atlantic, 
 and employing a great money capital. Formerly capital 
 was seldom transferred from one country to another for 
 long periods of time without either a change in i's owner- 
 ship, or a change of domicile on the part of its owner. 
 Whereas now there are masses of capital that really belong 
 to no particular country. * * * This capital, supple- 
 mented by the almost unlimited credit of the bankers who di- 
 rect its employment, substantially controls the course of inter- 
 nalioual exchanges, but its movements are as noiseless as 
 those of the electric current by which they are guided, and as 
 secret as the cipher language in which they are alone re- 
 corded. ' ' 
 
 Having thus drained the Treasury of a large portion of 
 its gold, the cry was set up by the bankers and capitali&ts 
 that the outflow of gold and the money stringency were oc- 
 casioned by the purchasing clause of the Sherman law, and 
 that relief could only be obtained through its repeal. In 
 this position the bankers received the invaluable aid of the 
 Administration. President Cleveland, since the expiration 
 of his first term, had been a zealous student in the Wall 
 Street school of finance, and his known sympathy with 
 banking and financ ! al interests had secured for him in his 
 contest for a second term the all-powerful support of the 
 money power. Acting now in accordance with the wishes 
 of this money power, he called an extra session of Congress 
 which met on the 7th day of August, 1893. Elected upon a 
 platform which declared that tariff reform was the su- 
 preme iisue before the people, President Cleveland, never- 
 theless, said in his message to this extra session of Con-
 
 NATIONAL BANKING SYSTEM. 65 
 
 gress that it was called for the purpose, and only for the 
 purpose, of effecting- the repeal of the purchase clause of 
 the Sherman law. He echoed the cry of thebankers that 
 this law was the cause of the outflow of gold and of the dis- 
 tress occasioned by the money famine. John Sherman, 
 Tom Reed, Daniel Voorhees, Secretary Carlisle and the 
 leaders generally of both the Republican and Democratic 
 parties took the same position. The metropolitan papers, 
 owned by the money power, threw their immense influence 
 in favor of the repeal of the law. It was iterated and reiter- 
 ated by all these minions of plutocracy that the Sherman 
 law was the cause of the trouble, and that as soon as it 
 should be repealed "confidence" would be "restored'' and 
 prosperity would immediately follow. No means were left 
 unused which might in any way assist in forcing Congress 
 to repeal the law. Patronage was given or withheld by the 
 President with reference solely to this end. History will 
 record the fact that never before had any President ven- 
 tured to invade the legislative department of the Govern- 
 ment to such an extent as did President Cleveland in his ef- 
 forts to secure the repeal of this law. As an instance of 
 the way in which the leading papers of the county, with- 
 out distinction as to party, were used to manufacture public 
 sentiment in favor of the repeal of the law, the following 
 editorial is quoted from the New York World's issue of Oct. 
 3. 1393. Read it carefully. 
 
 " If there is anybody who has sincerely believed that what 
 we need for prosperity is more money, the present situation 
 should undeceive him. There is a real gorge of money now 
 in the banks. The surplus reserve was swelled during the 
 last week to $28,481,800, the total reserve being $128,677,700. 
 In the meanwhile business remains stagnant, and the banks 
 are still more than reluctant to lend their surplus holdings 
 upon time paper, the only lending that brings relief to mer- 
 chants, manufacturers and other employers of men. So long 
 as any shadow of uncertainty remains as to the repeal of the 
 silver law, the holders of money prefer to keep it unprofitably
 
 66 A RESUME OF THE 
 
 idle rather than put it out in doubt as to the kind of dollars 
 they arc to receive in return for it." 
 
 This editorial admits the fact that the immediate cause of 
 the distressed condition of affairs was the locking- up in 
 bank vaults of the circulating- medium, but protests that the 
 banks were compelled to do this through fear — all at once 
 engendered — that the loans of their "promises to pay" 
 might be repaid to them in lawful silver money ! 
 
 What caused this sudden fear on the part of the banks? 
 Had the people generally lost confidence in silver money ? 
 On the contrary, in spite of the warfare waged against it by 
 the bankers, the people never for one moment hesitated to 
 accept it. 
 
 Does the reader recall a single instance in which any in- 
 dividual — not a banker — objected to the taking of silver coin 
 on the ground that it was not good money? 
 
 Does he remember an instance in which any man has 
 been obliged to part with an unmutilated silver coin at less 
 than par? 
 
 Is it not sufficiently apparent that this scarecrow was 
 constructed by the bankers to serve a purpose of their 
 own ? 
 
 As further evidence of the fact that this panic was pre- 
 cipitated by the banks of New York and Chicago, and that 
 it was done for the purpose above stated, the following 
 quotation is made from an article in the New York Sun of 
 April 27, 1893: 
 
 "President Cleveland's advisers have told him that the 
 only way to induce the Western and Southwestern Con- 
 gressmen and Senators to consent to a repeal of the Sher- 
 man law is to demonstrate to their constituents that they 
 are losing every day this law remains in effect. This work 
 in that direction has been started by a number of bankers in 
 the solid commtmities of the East. They are daily refusing 
 credits to the South, Southwest and West. The Chicago banks 
 it is said are cat'rying out the same line of policy."
 
 NATIONAL BANKING SYSTEM, 67 
 
 The influence brought to bear upon Congress through all 
 these agencies proved irresistable. By a decided majority 
 of both the Democratic and the Republican members, all 
 free coinage amendments to the bill were voted down, and 
 Congress, after a bitter struggle in which the true represen- 
 tatives of the people contested every inch of ground, sur- 
 rendered to the money power and repealed the law. It is 
 now nearly a year since this was done, but the good times 
 promised as the immediate result of such action have not 
 yet made their appearance. On the contrary, the then un- 
 happy condition of affairs has grown steadily worse. 
 
 As soon as they had thus succeeded in securing the repeal 
 of the Sherman law, the bankers and capitalists began to 
 demand that the Government should issue and sell bonds 
 for gold with which to replenish the gold reserve which they 
 had purposely depleted. 
 
 The President said this ought to be done. Secretary Car- 
 lisle said the same. John Sherman said bonds must be sold. 
 And so Congress was again besieged and ordered to enact a 
 law giving to the Secretary of the Treasury authority to 
 issue bonds. 
 
 The protests of an outraged people, however, were begin- 
 ning to make themselves heard even in the deafened ears of 
 Congress, and the money power, fearing that it might not 
 thus succeed in obtaining the coveted bonds, demanded of 
 the Secretary of the Treasury that he should at once pro- 
 ceed to issue them without waiting for authority from Con- 
 gress. This mandate the Secretary hastened to obey. In 
 the face even of resolutions offered in both houses of Con- 
 gress declaring such issue of bonds unauthorized, the Sec- 
 retary proceeded to execute the order of the banks. 
 
 Fifty million dollars of interest-bearing bonds were sold 
 for gold with which to build up the $100,000,000 gold re- 
 serve, which was itself established not by authority of law,
 
 68 A RESUME OF THE 
 
 but solely by the fiat of John Sherman, as Secretary of the 
 Treasury. 
 
 The following- statement in regard to this bond issue, 
 which appeared in the associated press reports on Feb. 9, 
 1894, shows how completely the Treasury department is un- 
 der the control of Wall Street : 
 
 "Responding- to the resolution which passed the Senate 
 on the 2d inst. the Secretary of the Treasury to-day sent to 
 the Senate a statement showing the names of bond sub- 
 scribers offering- 117.223, whose subscriptions were accepted, 
 tog-ether with the amount subscribed for, and the amount 
 allotted at the price. The statement also gives a list of 
 those offering- to purchase at a higher price, and a list of 
 those not considered for various reasons. Among the allot- 
 ments on the 117.223 bids are the following : Hanover Na- 
 tional Bank of New York, $1,420,000 ; Kuhn, I^oeb & Co., of 
 New York, $1,420,050; United States Trust Co., of New 
 York, $2,336,700; Farmers-' Iyoan & Trust Co., of New York, 
 $1,893,400; Union Trust Co., of New York, $2,366,700; New 
 York Life Insurance Co., of New York, $2,840,050. The 
 amount in the aggreg-ate of this class is $40,704,700. All the 
 bids at figures over uj.223 amount in the aggregate to $69,- 
 295,300." 
 
 The above statement of the Secretary reveals the aston- 
 ishing- fact that these $50,000,000 of bonds were sold to fa- 
 vored banks and trust companies in the East at a premium 
 of 17.223 per cent., although offers for more than the entire 
 issue were made at higher figures! 
 
 The banks have again succeeded in reducing the g-old re- 
 serve to a point even below r that reached when the above 
 bonds were issued. 
 
 Will another issue of bonds be effected in violation of the 
 law and in defiance of the people ?
 
 NATIONAL BANKING SYSTEM. 69 
 
 i 
 
 CONCLUSION. 
 
 Thus silver has been cast aside to make way for bank 
 paper. But the banking- corporations will not fest content 
 with this victory. Ever since the war they have been try- 
 ing- to secure the withdrawal from circulation of the green- 
 back currency. The $346,000,000 of greenbacks (less such 
 amounts as have been accidentally destroyed) constitute a 
 thorn in the side of the banking interests which the bank- 
 ers have sworn to remove at the earliest possible moment. 
 The successive heads of the Treasury department have, al- 
 most without exception, felt it incumbent upon them to 
 voice this desire of the bankers and to recommend the re- 
 tirement of the greenback. 
 
 As an example of the logic used by these officials in thus 
 championing the bankers' cause, the following- is taken 
 from the Report of Comptroller Trenholm for the year 1888, 
 page 11 : 
 
 "The $346,000,000 of greenbacks are the weak point in our 
 currency system. The gold coin and certificates stand first, 
 the national bank notes stand next, the silver coin and cer- 
 tificates third, and the greenbacks last in the order of assured 
 value, and it would be a great benefit to the whole mass of 
 the currency if this, its frailest element, could be eliminated 
 from it. The present state of things seems favorable to 
 the substitution of national bank notes for greenbacks, and 
 to that end I venture to submit for the consideration of Con- 
 gress, the following- measures : 
 
 1. Funding- in bonds the greenback debt of $346,000,000, or 
 so much of it as may be presented within a limited period 
 of time, say three years. 
 
 2. The bonds to be issued only to national banks presenting 
 greenbacks for that purpose, to bear a low rate of interest, 
 and to mature only upon the failure of the bank, or its disso- 
 lution. 
 
 3. The bonds so issued to be available only as a deposit to 
 secure national bank circulation, and to entitle the banks de-
 
 70 A RESUME OF THE 
 
 positing them to receive circulating notes to the amount of 
 their face value. 
 
 In support of these measures, it may be said : * * * 
 
 4. As the greenbacks will not be extinguished, but held 
 in a state of suspended monetary vitality, until the fail- 
 ure or liquidation of a bank requires their use in the redemp- 
 tion of its notes, they will constitute a reserve fund lying 
 in the Treasury ready for use at any moment of emergency 
 in the redemption of any portion of the ?iational batik curren- 
 cy that may become discredited.'' 1 
 
 What unanswerable arguments are here presented by Mr. 
 Trenholm in favor of the retirement of the greenbacks ! 
 They are, he says, the frailest element in our monetary 
 system, whereas the bank note stands next to gold in the 
 order of assured value. Still, he would not destroy them 
 altogether. He would simply retire them from circulation 
 by funding them in interest-bearing, never-maturing bonds 
 (upon which he would permit banks to issue an equal 
 amount of bank notes), and keep them in the Treasury until 
 they were needed to redeem bank fiotes which had become dis- 
 credited. 
 
 Let no one presume to question the logic of this brilliant 
 advocate of the banks ! 
 
 If the reader finds it difficult to understand how it is that 
 the only use to which a frail currency can profitably be put, 
 is to redeem a currency which stands higher in the order of 
 assured value, let him ascribe the fault to his own want of 
 understanding, rather than to any weakness in the argu- 
 ment of the Comptroller ! 
 
 The bankers are forever harping on the need of an elas- 
 tic currency, and referring to such need as a reason for the 
 substitution of bank notes for greenbacks. In his Report 
 for 1887 the Comptroller says : 
 
 "From the standpoint of the commercial and other indus- 
 tries, elasticity is more important than quantity in the cur-
 
 NATIONAL BANKING SYSTEM. 71 
 
 rency. Their interests are better subserved by a currency 
 so elastic in volume as to respond immediately to varia- 
 tions in the demand for it than by a great volume of money 
 rigid in amount." 
 
 The following authorities are added to those already 
 quoted in favor of the people's side of this question. 
 
 In the course of a speech delivered in the Senate, Feb. 3, 
 1873, Oliver P. Morton said : 
 
 "The Senator from Connecticut (Mr. Buckingham) said, 
 and I think I have heard the Senator from Ohio (Mr. Sher- 
 man) talk about an elastic currency, ^flexible currency. I 
 have never believed much in such a currency. I have al- 
 ways regarded it as a financial fallacy. I think it is one of 
 the worst things that can happen. I believe the strongest 
 element in the financial stability of this country for the 
 last few years has been the fact that our country has had a 
 fixed amount of currency, an amount that everybody 
 knows. * * * It does not depend now upon the will of 
 private persons. But (under the proposed law) speculators 
 in New York, bankers and brokers might for the very pur- 
 pose of making a financial panic, run in $50,000,000 of 
 greenbacks and get five per cent, bonds, and be prepared to 
 take advantage of the contraction and of the necessary de- 
 pression following it." 
 
 An address prepared by Congressman Arnassa Walker, of 
 Massachusetts, at the time the national bank bill was under 
 discussion, but not delivered, contains the following state- 
 ments :* 
 
 "Could I have my own wishes, I should, as I have before 
 insisted, instead of creating a rival system, lay a tax of 
 three per cent, semi-annually on all present bank circula- 
 tion, drive it entirely out of existence, and fill its place with 
 legal tender notes of the Government. * * * I would 
 thus establish one kind of currency instead of three, and 
 that the cheapest and best we could possibly have. This 
 arrangement, together with the legal provision that banks 
 might issue specie certificates for specie actually in their 
 possession, would furnish them and the public with all the 
 
 *See Bolle's "FinanciallHistory," p. 216.
 
 72 A RESUME OF THE NATIONAL BANKING SYSTEM. 
 
 currency they could possibly need, and one that would never 
 be exposed to any fluctuation except that which naturally 
 arises from the operation of the laws of trade, and which 
 could never be violefit or really injurious to any community 
 or State." 
 
 Having once obtained a sufficient supply of money to fill 
 the channels of trade, there should be no chang-e in its vol- 
 ume except such increase as might be required by an in- 
 crease of population and business to keep those channels 
 full. 
 
 This resume has already been extended beyond the limits 
 which it was originally designed to occupy. Certain objec- 
 tions to this backing system have, nevertheless, been only 
 incidentally referred to, while other minor ones have re- 
 ceived no consideration. It is hoped, however, that what 
 has been recorded, may assist in some degree in calling at- 
 tention to the inherent evils of the system. 
 
 "Bank paper must be suppressed and the circulation re- 
 stored to the Nation, to which it belongs." 
 
 Otherwise, we shall never approach to that ideal of gov- 
 ernment which Jefferson described when he said : 
 
 ''Let us found a government where there shall be no ex- 
 tremely rich men and no abjectly poor ones. L,et us found 
 a government upon the intelligence of the people and the 
 equitable distribution of propert) r . L,et us make laws where 
 there shall be no governmental partnership with favored 
 classes. L^et us protect all in life, liberty and property, and 
 then say to every American citizen, with the gifts that God 
 has given you, your brain and brawn and energy, work out 
 your own fortune under a just government and an equal 
 jurisprudence." 
 
 OHN H- WILLS 
 
 OLD BOOKS. 
 i06 Uth St. N. W^ 
 
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