r-c*^^ « Digitized by the Internet Archive in 2008 with funding from IVIicrosoft Corporation http://www.archive.org/details/bankingshorthistOOchasrich ,^^m^>^ GORRESPONOEtlTS IN ALL THE MERCANTILE CENTRES OF THE UNITED STATES. CANADA. SOUTH AMERICA EUROPE. ASIA. AFRICA, AND POLYNESIA. "fegjRN f^flNCISCO Of^G^ED]zQirU (alifornia. Oldest IncorporajedCowjmercwl Bani^on the Pacific (oast Capital paid up in j*^ t ^SANFRANCISCOGAL.U.S.A.^ GoIdI'ooooooo Eicliango and GolMons ^^ ON MOST FAVORABLE ^ TERMS. IHTERS OF CREDIT -ISSUED- AVAILABLE IN ALL PARTS OF THE WORLD. pplusFund $650,000.00. JIvERAGE [Resource: $4,356,175.94. Volume of Busiqes i°n887. $225,000,000 K-H. Mc. BONALD. Presidenf. : R. j[l . Me t) N A L D. J r. Vice Pres'k . F(?ANK V. Mc. OONALD. Cashier. DEPOSITORS Guaranteed against every possible loss by a pro rata unlimited liability of shareholders. 1^^^ I^VYAf^ ^ ^ • • • « . • ' « • •■ PREFACE, In this work we have endeavored to give a pop- ular history of banking as a commercial institution, and have paid no attention to its theory or practice. We have endeavored to give references to original authorities to assist those who desire to go deeper into the subject. [ Franklin L. Chase. Jno. K. Allen. Chicago, May 7, 1888. CON TENTS. Chaptku I. 1 I'AOE. ' Ancient Hanking, ------ 5 C^HAI'TKR II. I'^arly lianking, ------ 19 Chaptkk III. B^arly English Banking, and the Bank of England, - - 32 Chapter IV. Modern European Banking, . - . - 47 Chapter V. Early American Banking, ----- 64 Chapter VI. The Revolutionary Period, - - . . go Chapter VII. The First and Second Banks of the United States, - - 109 Chapter VIII. State Banks Until 1816, - . . - . 125 Chapter IX. The State Banks from 1816 to 1863, - . - . i^S Chapter X. The Suspension of Specie Payments in 1861, - - 151 Chapter XI. The Issue of Legal Tender Notes, - . . . jce Chapter XII. The National Bank Act, ----- jgj Chapter XIII. The National Bank Act, Continued, - - - . 167 Chapter XIV. The Resumption of Specie Payments, - - - 174 Chapter XV. Banking Since 1882, ---.,. j-g er tHe "-'si ^ \ee8 ^T X / \ A BANKING A SHORT HISTORY BY FRANKLIN L. CHASE JNO. K. ALLEN • :• CHICAGO I-ANWARD PUBLISHING COMPANY 1888. ^\f^ W. J. SPICER, Gen. Manager. GEO. B. REEVE, Traffic Mgr. W. E. DAVIS. Gen. Pas*. Agt. CHICAGO It GRAND TRUNK RY. iOSEPHHICKSON.Gen.Mgr. L. J. SEAR6EANT, Traffic Mgr WM. EDGAR, Gen. Pass. Agt GRAND TRUNK RAILWAY. ^,MB. SUJVIMZP JOUpiSJ JIGKEJS Via Niagara Falls or Rapids of the St. Lawrence, to the prinoipa Mountain, Seaside and Pleasure Resorts in the Kast are on sale during the Summer months. For description and particulars, address E. H. HUGHES. Gen-l We8T'n Pass. Agent. I03 South Clark Street, CHICAGO. his exchange bank was one hundred minas annually, equivalent to $1,710. When Pasion died the bank was assumed by Phormio, who paid an annual rental of $2,736 for the office and business. ATHENIAN DRACHM OF THE EARLIEST DATE. Of forms of business more nearly approaching the state banks of later times we are not without examples in Greece. At New Ilion a bank seems to have transacted EARLY CORINTHIAN DRACHM. the financial business of the state in the third or second century before Christ, paying ten per cent interest on money for public use. TETRADRACHM OF MITHRIDATES, KING OF PONTUS, 337 B. C. There are also evidences that the authorities in charge of the temple of Delos, and that at Delphi, loaned money belonging to them, but there is no evidence that lO this money was that deposited for safe-keeping. In By- zantium a precedent for giving one organization the entire TETRADRACHM OF ALEXANDER THE GREAT, 336 B. C. control of the banking business may be found, where, in a time of financial embarrassment, the money-changing TETRADRACHM OF PRUSIAS, KING OF BITHVNIA, iSo B.C. business was farmed out to a single bank, and a penalty was inflicted for buying or selling money elsewhere, the TETRADRACHM OF PERSEUS, THE LAST OF THE KINGS OF MACEDON, 168 B. C. penalty being no less severe than the forfeiture of the sums bought or sold. II In Rome the Decemvirate made stringent laws against usury in the year 449 B. C, and fixed the maxi- mum rate of interest at ten per cent. It is evident that SHEKEL OF SIMON MACCABEUS, 140 B.C. such a law was called forth by the existence of the occu- pation of money-lending. In 346 B. C, the rate of in- terest was lowered to five per cent, and in 341 B. C, the GOLD COIN OF 1311UTUS, 509 B. C. taking of interest was altogether forbidden, but the law being inoperative, interest was about this period estab- lished at one per cent per month. FIRST BRONZE OF AUGUSTUS, 17 B. C. The commerce which Rome had with the eastern and other countries, naturally created an influx of foreign coin, necessitating as in Greece, the class known as money- changers, whose stone stalls were located along both sides 12 of the Forum — the Exchano-e of Rome.* While the Ro- mans seem to have adopted the simple methods of mon- eyed speculation from the Greeks, it is quite generally- conceded that they enlarged and perfected the system un- til it became something more similar to modern banking TETRADRACHM OF M. ANTHONY AND CLEOPATRA, 33 B. C. than any system the Greeks had known. Indeed, Macleodf goes so far as to state that banking, as a techni- cal business, was invented by the Romans. In our judg- ment this is a wrong use of the term, as such businesses as banking are but simple developments made necessary by FIRST BRONZE OF TIBERIUS CLAUDIUS DRUSUS, 14 A. D. the increasing volume of financial transactions, and while the Romans may have produced some business forms which were novel, it is not correct to say that they "in- vented" banking. No branch of Roman commerce was more vigorously * Mommscn's '' History of Rome." t Macleod's "Theory and Practice of Banking.'' / mTioi\[% .^^ OAPrmL « ^ 500. 000.^2 Yy,Yy,KEfADALL. Vice.Presi. O.F. PUTMA/^. eeoLnaoaqer. F7C,YyORr\ALU. ^ecretarY. FTn. CHICK Tfea3urer. Kansas 0> 13 prosecuted, according to Mommsen, than that of the money-lender and money-dealer or banker, the practice of placing large sums of money with a banking agent, who FIKST HRJNZii OF TIBERIUS CLAUDIUS NEIIO DRUSUS, 54 A. D. received and made payments, invested and borrowed, and conducted financial business at home and abroad, being MICHAEL AND HIS MOTHER THEODORA, 57 A. D. WITH BUST OF CHRIST. fully developed in the time of Cato — 209-149 B. C. With the activity of commerce which Rome enjoyed, bankers FIRST BRONZE OF TITUS FLAVIUS DOMITIANUS, C9 A. D. spread rapidly throughout the provinces and dependent states. 14 To the literature of Rome we are indebted for con- temporaneous references which inform us of the uses of banking terms still in use, such as "checque," "drafts," etc. In Italy the money-changers were established at a very early period of the middle ages, and the city of Flor- FIRST BRONZE OF NERVA,9r> A. D. ence became a recognized monetary center. As early as the first quarter of the eleventh century, Florentine citizens loaned money to sovereign princes. In 1265 the money- changers of that city formed themselves into a guild.* It is probable that the business of the money-changers even at that early day was approaching the characteristic fea- ROMAN UNCIA, OR ONE-TWELFTH OF THE AS. ture of banking — the dealing in credit, as in 1300 the Mozzi and the Spini families are mentioned as being the bankers of Popes, and the last named as having a branch at Rome under the management of Nero Cambi. By 1378 banking operations in Italy had attained great importance, * Trolloppe's " History of the Commonwealth of Florence," vol. i, p. 176. 15 due to the necessary transmission of money from distant parts of Europe to the Pope's court at Rome and Avignon, and most of the bankingf business was in the hands of DENARIUS OF GORDIANUS III, 23« A. p. Florentine citizens. The Strozzi were in later years, 1513 to 1534, bankers to Leo X. and Clement VII., accumula- ting wealth by their sagacity which is still enjoyed by rONSKCRATIO DENARIUS, OF MARINIANA, WIFE OF VALERIANUS AND MOTHER OF GALLIKXUS, iSi A. D. their descendants. About the middle of the fourteenth century the famous banking house of the Alberti had counters in Avignon, Bruges, Brussells, Paris, Siena BRONZE OF CONSTANTINE I., 3^3 A. D. Perugia, Rome, Naples, Barletta and Venice. Still greater than the Alberti were the Peruzzi and their associ- ates, the Bardi. In 1346 the failure of Edward III., of England, to pay 1,365^000 golden florins, borrowed of the i6 ^ Florentine bankers, caused a bankruptcy which seriously disturbed the entire commercial system of Europ e. Later the Strozzi suffered seriouslossesby the king of France and the popes, but, in spite of these losses, the Florentine bank- ers regained their wealth through their lucrative business. DOMINUS NOSTER AN ASTASIUS, |ix> A. D, From 1414 to 1423 times were prosperous in Florence, and at that period seventy-two banks could be counted in the streets surrounding the Mercato Nuovo. From 1430 to 1433, seventy-six bankers lent the State 4,865,000 gold florins, but, although there were said to be eighty bankers in Florence at one time, there was no public bank. ALEXIUS COMNENUS, 1081, A. D., WITH FIGURE OF CHRIST. Mr. Henry Mann attributes the invention of bank- notes to the republic of Carthage,* but his testimony is not conclusive enough, being based on this statement of .^schines, the Socratic philosopher : " In a small piece of leather is wrapped a substance of the size of a piece of * Henry Mann's "Ancient and Mediseval Republic;," p. 19. 17 four drachms, but what this substance is no one knows except the maker. After this it is sealed and issued for circulation ; and he who possesses the most of this is re- garded as having the most money and as being the wealthiest man." Jevons* shows that leather was one of the earliest of circulating mediums, and was used without regard to any system of banking. As early as 807, A. D., the Chinese are credited with the invention of the bank-note.f In that year the emperor exchanged all the money deposited in the public treasury by merchants and rich persons for notes, termed "flying money." It remained in circulation but three years in the capital, and became current only in the provinces. CHINESE COPPER COIN. In 960, A. D., an emperor revived the practice of giv- ing notes for money deposited by merchants, and so great was the convenience of the notes that their circulation in- creased rapidly. In 997, A. D., there had been 1,700,000 ounces of silver exchanged for paper, while in 102 i the paper in circulation had increased to the value of 2,830,000 ounces. A company of sixteen rich merchants was then formed which was allowed to issue notes, payable in three years. The company was bankrupt upon the expiration of that time, and much suffering was caused by its failure to pay. The emperor then abolished the notes of this « * \V. Stanley Jevons* '* Money and the Mechanism of Exchanjfe," p. 197, t Macleod on ''Tlieory and Practice of Banking,*' vol. i, p. 288. i8 company and prevented the formation of other joint-stock companies. After that the government only possessed the power to issue notes, which were made of the value of one ounce of silver. In 1032 these notes were circulating to the value of 5,256,340 ounces. Banks of this nature were subsequently established in every province, but the notes did not have inter-provincial circulation. To these notes, exchangeable for, and convertible into, money, is given the credit for being the first on record. SILVER ITZfiBU OF JAPAN Chapter II. EARLY BANKING. In 1401 the " Tabla de Cambi" (Table of Exchange), was established at Barcelona, Spain.* The city funds were its guarantee, and it was established by the city au- thorities as an aid to commerce. Foreign bills of exchange were negotiated in it, and a loan business was carried on. It seems to have been the result of the assumption by the city of banking privileges which had been granted the cloth merchants in 1350. CROWN OF FERDINAND v., M95 A. D. In 1781 the bank of San Carlos was established at Madrid, as a national bank on a plan advanced by the minister of finance. Its capital consisted of 300,000000 reals, divided into 150,000 shares Profitable contracts with the government were secured and enjoyed until 1785, when they were taken away. Bills of exchange followed what were termed "as- signments." Authorities differ as to the date of their s * Capmany's *' Historical Memoirs of Barcelona." «9 20 first use. By some they are ascribed to Lyons, France. Weber states that they were in use in 1 171. Among the earHest ones preserved to the present time, are those is- sued from Milan on Lucca in 1325, from Bruges on Bar- celona in 1404, and from Bologna on Venice in 1381. To the Italians we are indebted for many of the technical JOHANNA QUEEN OF JERUSALEM AND SICILY, i;8j A. D. terms used in banking, such as drafts, remittances, cur- rency, sight, usance and discount.* The first public bank in Italy was that established at Naples in I565.t There had been sixty great bankers in Naples, but, notwithstanding they were obliged to deposit 40,000 ducats with the government as security, they fre- TKSTON OF CHARLES I., DUKE OF SAVOY, 1470 A. D. quehtly failed and caused great distress. On this account the government decided to establish a public bank to be known as the Banco di A. G. P. et di Pieta. Following this, several joint-banks were established — as the Banco del Popolo, in 1589; the Ba7ico dcllo Santo Spirito, in 1591 ; * Ycrits* " Growth nnd Vicissitudes of Commerce." t Maclcod's "1 heory and Practice ol Banking," vol. i, p. 290. / ^■^It ■'?t*i' Co 21 ihe Banco di S. Eli^io, in 1596; the Banco di S. Gia- como, in 1597; the Banco delle Povere, in 1600, and the Banco de SS. Salvatore, in 1604. The private bankers" were not able to withstand competition with the joint- stock companies and none survived after the last-named date. Following closely after the establishment and growth of banking in Florence, the Bank of Venice was estab- lished. Nearly all writers place the date of the organiza- tion of this famous institution at 11 71, but Macleod has pointed out that it ^as not organized until 1587. The confusion has arisen because of the fact that in 1 171, the Venetian republic, to meet financial necessities, levied a PEXNY OF DOGE ANDREAS UA.NDuLO, 1343 A. D. forced loan, bearing four per cent interest, with transfer- able stock, and managed by commissioners appointed in 1 1 73. The loan was called the monte vecckio, z.\\ENNY OF \V1LLIA^5. counting for students, forty-five per cent being a common \ discount. On the expulsion of the Jews from England the business of private banking fell into the hands of the Lom- bards, sent to England by Pope Gregory IX. some fifty years previously. Their business was undoubtedly much the same as is at present carried on under the sign whicii ♦ Hilton Price's *' Hand-book of London IJiinkcrs," 33 mw i ij I) LTrONl ESTaBLlSHEDi i I N ieS9 WS.LADD-W.MViASbDVV^ P^: ChPITAL§TOCK $ 250.0CI0??;v^ ^urplus $ 550.000^^? DO A GENERAL BANKING iTfi^tLdlR^N -^-.^ ^ mMf ' PARTNERS ^ MmA.N.5CHU5TER.L0U15 HAX. JOHI* COLHOUN, JAMES N, BURNES, S.A.WALKER, oM^^^^\>\e^°' S^ FELIX JT§ 50 PAID IN CASH '^/OO.OOO. OFFICEiRStf^r /v.d.b.motter,prI^t LOUIS HAX, VICEPRES't. W.W. MITCHEL s.a.w/\lKe Incohporated fob the purpose of neootiating loans on Real Estate Issuing Debenture Bonos «§ Acting TRUSTEE FOR ESTATES 6^ /nO/U/OUALS. W:W^ /MITCHELL --- -^.^EWERAL MANA6ER W.D.B.M OTTER, A.N.Schuster, ^ „ , , WiNSLOW JUDSON, S.A.Walker, Louis Hax. EngagAd exclusively In the business of furnishing investors with REAL ESTATE MORTGAGES and MUNICIPAL BONDS. Has on hand, at all times, for delivery to investors, choice guaran- teed Mortgage Loans, made upon well-Improved, eligibly located, and Income-producing Real Estate In Missouri, Kansas and Nebraska, and never exceeding 40 per cent of the value thereof. T^EFEfiENCES Maverick I^/at/onal Bank Boston Msss. Bank of /\/0FfTH America /^"^i^ell St.MY CoirriNENTAL /National ^ank Chicago III Sank of Commerce St. Louis Mo. Armour BFtos Banking Oo. Kansas City Mo. they carried from Lombardy, the three g-olden balls. They gave way to the goldsmiths, who afterwards be- came the bankers proper. ■ Collins* states that our " lum- ber" and " lumber-room " are from their name and method of storing pledges in what were called " Lombard Rooms." ELIZABETH'S EAST INDIA HALF-CROWN, 1558. It is well known that Lombard Street, the banking center of London, took its name from the custom of Lombards and foreign merchants assembling there twice each day. The custom of depositing money with goldsmiths, says a contemporaneous writer, grew out of the fact that SHILLING OF JAMES L, 1603, FIRST COINAGE. servants could not be trusted as cashiers. In the hands of goldsmiths, persons accustomed to handling valuables, it was safe. The business of receiving and making pay- ments, of collecting rents, and of loaning money at inter- est, was a natural one, and soon followed the first practice of acting simply as treasurers of deposits. Goldsmiths • Collins' " Law iintl Practice of Banking," (3) 34 were well-respected members of the community, and record of their holding- high ofifices in London are found in the reigns of Henry I., Richard I., and Edward I. In 1598 the houses in Goldsmith's Row were spoken of as being very beautiful. These were destroyed by the great fire of London, after which the goldsmiths setded in Lom- bard Street. Their surplus money was placed for safety in the Royal Mint in the Tower of London, from which Charles L took ^200,000, ruining many bankers and forcing them all to consider it a loan. It was repaid in a few months, but the mint never recovered its credit. HALF-CROWN SIEGE PIECE OF CHARLES L During the civil war which marked the reign of Charles I., nearly all the surplus money* of the country found its way into the hands of goldsmiths, many of whom, encooiraged by their success in loaning money, subse- quently confined themselves exclusively to banking oper- ations. The first " run" on a bank is recorded! as occur- ing in 1667, the "run" being on a banker named Back- well, and becoming general. The bankers adopted the expedient of requiring twenty days' notice, but suffered a shock to their credit, which was entirely destroyed in 1672. ♦Lawson's " History of Banking," p. io6, fSamuel Pcpy's ** Diary," Vol. II, p. 67. 35 The custom of depositing surplus money in the mint had given way after its robbery by Charles I., to that of its deposit in the Exchequer. Once a week they with- drew this money, with which to meet the demands of their customers. On Jan. 2, 1672, Charles II., needing THALER OF WILLIAM, PRINCE OF ORANGE, 1649 money very badly, on the advice of Sir Thomas Clifford, stopped the payment of the money in the Exchequer belonging to the bankers. The suspension of this weekly payment (there being /i, 328, 526 on deposit) involved the bankers and customers in common ruin. In an attempt to satisfy this debt Charles gave letters patent to the various robbed bankers, agreeing to pay the principal with interest at 6 per cent. I A list of these cred- itors of the King shows that Sir Robert Vyner, Edward Backwell, Gilbert Whitehall, Joseph Horneby, Jerefhiah Snow, Bernard Turner, and ^febrge Snell were the prin- cipal London bankers of the time.] The interest was piid a few years and then suspended. The creditors were obliged to prosecute their claim to the court of last re- sort, and a judgment against the Crown was secured. In 1699 an act was passed which provided that 3 per cent per annum should be paid on the principal sum, but that the in- debtedness might be cancelled by the payment of a moiety ■J 36 thereof, j(^664,26^. This indebtedness is the first item of the present national debt of England, and interest is still paid at 3 per cent on the whole amount. Of the old London bankers whose business is still carried on may be mentioned Edward Backwell, wlio was succeeded by Sir Josiah Child, founder of the present house of Child & Co. In 1692 the business of Middleton & Campbell, goldsmiths, came into the hands of James Coutts, and the business still carried on by Coutts' bank was thus established. We are told that the use of pass- books by banks originated with Mr. Coggs, a goldsmith, in the Strand. Previous to their use it was customary for depositors to call regularly and check up their accounts.\ Although no public bank was established in England until 1699, there had been proposals, petitions, and dis- cussions looking to the establishment of a public bank, so that the organization of the Bank of England was but the result of a growth of public sentiment, and the increas- ing need that the public service should effect a large loan. Two schemes devised by William Paterson for the estab- lishment of a national bank failed. In the third scheme, in which he was aided by Michael Godfrey, he was suc- cessful, and an act incorporating the Bank of England received the royal assent from William III., o n Aprij_25, 1694. The act provided that ^100,000 should be annu- 'aTTy~~appropriated to persons making a voluntary loan of ;i^ 1, 200,000 for the purpose of carrying on the war with France. Commissioners were appointed to receive the subscriptions before Aug. i, 1694. The stock was trans- ferable, and the stockholders were called collectively the Governor and Company of the Bank of England. The Government retained the power to pay the sum at twelve months' notice after Aug. i, 1705, upon which payment the 37 corporation should cease. The corporation was allowed to deal in bills of exchange, to buy and sell bullion, gold and sil- ver, to lend money on security, and its bills of credit were made transferable. The corporation was forbidden to ad- vance money to the Crown without permission of Parlia- ment. In ten days the whole sum of ^1,200,000 was sub- scribed, and on July 10 and 11, officers of the company were elected. On Jan. i, 1695, the bank began active operations at Grocers' Hall, Poultry. Notes of ^20 were issued, and the bank commenced discounting mercantile -bills of exchange. The bank was authorized to advance money on pledges, but no very considerable business of this kind seems to have been done. At first the bank stood in high credit with all but usurers, with whose busi- ness it seriously interfered. Its first trouble came May 5, 1696. Coin had been clipped, filed, and counteifeited to an enormous extent, so much so that gold guineas of full weight passed cur- rent at thirty shillings. It had been the bank's practice to receive degraded coin at its nominal value, and when the great issue of new coin began the bank was obliged to pay its notes in fullvveighted coin, so that for every seven ounces it had received in was obliged to pay twelve ounces. Of course, this caused a "run" on the bJnk. Its enemies, the private bankers, improved this oppor- tunity to the full extent, and on the day mentioned they suddenly presented ^^30,000 in notes and demanded pay- ment. The bank suspended cash payments, but it got through the trouble by good management and Govern- ment assistance, but as a precautionary measure its capi- tal stock was increased by vote of Parliament on Feb. 3, 1697, new subscriptions to be paid in exchequer tallies 38 and bank-notes. The life of the bank was prolonged until twelve months after notice given after Aug. i, 1710, and the bank was given a monopoly of the public banking business. It should be noted that a bank was chartered by the Government just before this, its advance to the Govern- ment to be ^2,564,000, but it had been impossible to se- cure subscriptions. The Bank of England was authorized to issue bank- notes to the extent of its new capital, payable on de- mand and secured by the Government. The new sub- scriptions amounted to ^^1,001,171, los. In 1707 the threat of invasion by Louis XIV. threw the country into a panic, and the enemies of the bank again attempted to cause its downfall, but it was rein- forced by the Queen and several nobles and came through the trouble safely. In 1709, the Government being greatly embarrassed, the bank was appealed to again, and an arrangement was made with it by which the interest which the Government was paying on its original stock of ^1,200,000, was re- duced from 8 to 6 per cent, with an annual allowance of ;^4,ooo for managing the debt ; the bank was to advance ^400,000 more at 6 per cent interest ; the capital stock of ;,^2,20i,i7i, IDS, was allowed to be doubled at a price of 1 1 5 for the new stock, upon which the bank agreed to cir- culate ^2,500,000 in Exchequer-bills, and to receive an allowance of 6 per cent, one-half for interest and one-half for repayment of the principal, and that no more Ex- chequer-bills should be issued without the bank's consent. The life of the bank was further extended to August i, 1732. H. R CHURCHILL PRESY W. P. N\OORES V. PRE^'t E.G. SATTLEY CASHIER i .-•^"^x-s^^ McCagne Bros., Bankers, OLDEST PRIVATE BANKING FIRM IN THE CITY. THB U*Ra«»T CAPITAL AND HIAVUST BU»IN»88 OF ANY PBIVATB BAHKIH« HOUSB IN NaBRASKA. MAUI mT«IIMT-»«AmH« lNy«»T««MT« POIl IIOX-KMIMMT*. WIUTB IM. ^J^» ,j4*' S^' ^V=e- .f eS»" Ae«*- .>J^^f \tv' A^'' ,xA^' .«>» .^ 39 The subscriptions to this new stock were paid in four hours after the lists were opened. Although the act of 1697 prevented the creation of another bank by Parliament, private joint-stock banks were formed, and any corporation and company could perform a banking business. To cut off these adventurers an act was passed that during the life of the Bank of England no more than six persons could be united to do a banking business. The result was the prevention of the formation of any other joint-stock bank than the Bank of England. In 1713, upon loan to the Government of ;^ioo,cx)o, secured by Exchequer-bills, the life of the bank was pro- longed to twelve months' notice to be given after August I, 1742, and the payment of ;^ 1,600,000. In 17 16 the life HALK-CROVVN OF GEORGE I, 1720. of the bank was prolonged indefinitely until three annui- ties of /"88,75i, ;^ioo,ooo, and ;^76,83o, and other debts, upon which an annual interest of 5 per cent was paid, were extinguished. In 1717 the temporary victory and final collapse of the great South Sea company occurred, resulting in a "run" on the Bank of England which was artfully met and overcome. In 1722 the reserve fund known as the "rest" was created. As 1742, the time when the life of the bank was to expirej drew nigh, the bank advanced ^1,600,000 to the / 40 Government, and its capital (enlarged in 1720 to ^8,959,- 995 14s. 8d. by the purchase of ^4,000,000 in South Sea company's annuities) was increased to ;^9, 800,000; its life was also prolonged until twelve months' notice to be given after August i, 1764. An attempt was made to close up the loose ends of the act of 1709 by an amend- ment intended to make the bank's monopoly more ex- clusive. In 1745 the rebellion in Scotland was the cause of a "run "on the bank, and its notes fell to a discount often per cent, but one thousand six hundred merchants pledged themselves to support the credit of the bank-notes, and the "run" was stopped. In 1746 the bank's capital was advanced by further loans to the Government to ;i^io,- 780,000. In 1759 notes for ;^ 15 and for ^^ 10 were first issued. The charter of the bank expired in 1 764, and it was renewed upon the absolute gift of £\ 10,000 to the nation, and a loan of _;^ 1,000,000 on Exchequer-bills for two years at 3 per cent, the renewal of the charter being un- til twelve months' notice after August i, 1786, In 1781 the charter was again renewed upon the advance of ;^2, 000,000 at 3 per cent for three years, until twelve months after August i, 181 2, and the payment of the pub- lic debt. In 1782 the capital was increased to ;^i 1,642, - 400. The London Clearing House was established in 1773, and occupied its building in Lombard street in 1775, but it was many years before the Bank of England joined it. f Up to this time the monopoly of the bank was nearly complete. Private bankers now began to give customers blank check-books, and the use of them in London be- came universal, entirely superseding the use of bank- 41 notes and circumventing the monopoly of the Bank of England. During the period of unusual industrial activity which followed the termination of the war of 1713, England felt for the first time the great need of reliable banks of issue other than the Bank of England. Its monopoly was com- plete, and to provide a currency small shop-keepers and irresponsible persons turned bankers and inundated the country with a miserable currency. In 1775 an act pro- hibited bankers issuing notes of less than 20 shillings. In 1777 the minimum value was made ;^5. In 1782 the extension of foreign commerce conse- quent on the conclusion of the war with the American colonies, led to overtrading. The Bank of England made unwise issues. Banks which had sprung up like mush- rooms all over the country, in almost every hamlet, issued currency freely, and, strange as it may appear, all was re- ceived without hesitation. The actual money at the command of the bankers became ridiculously small for the magnitude of operations carried on. In the fall of 1792 the revulsion occurred, and bankruptcies were unusually frequent. The declaration of war "with the Government of France under the Convention was the last blow to staggering credit, and the financial storm which swept over England carried down three hundred of the three hundred and fifty bankers doing business. The Bank of England refused to support credit by meeting the demand for discounts. The Government came to the rescue, issued Exchequer-bills to the amount of ;^5,ooo,ooo, and freely loaned them to struggling insti- tutions. Credit was immediately restored. In 1797 a combination of untoward events had the effect of withdrawing large sums of specie from the bank. 42 The danger of invasion by the French became the cause of numerous "runs" on country banks, which rapidly spread to London, and on February 26, 1797, the Bank of England was directed to suspend cash payments until the opinion of Parliament could be taken. The bank gave notice that its affairs were most prosperous and its notes perfectly secure. Parliament continued the suspension of cash payments until six months after a definitive treaty of peace should have been concluded. The result of this action practically made the bank-notes legal tender, and BANK OF ENGLAND DOLLAR, 1S04. for the first three years after the passage of the restriction act they were on a par with gold or possessed a small premium. From 1800 to 18 10 the history of the bank- notes was one of gradual depreciation, until in 18 10 the attention of Parliament was called to the subject and a committee of inquiry was appointed which reported that the depreciation was due to over-issue, and recommended that the Bank of England resume specie payments within two years. The recommendation was not adopted, and the over-issue continued until m 18 14 the maximum de- preciation was 25 per cent. In 1813 the number of country banks had increased to 900, but in the three years following 240 of them stopped ^uiF@e yeaips in BusiNESsj $83,ooo,ooo.J^ss§i"§/ fiimafed^ewe of ^1|e trjoj Vafuable Features oF Modern ' iCSt T^suUs on JontinePolicies. Write for prospectus of \NiTH Guaranteed Interest" Hls? '-Policies with ' Guaranteed . "V»r--ii "jggfi*. .t. P.G.fiQti. Pf^ESIDEHT WM. WtLLHOUSE V.PREST I D.A./AOUUTON CA5HIEJ^ PI^AN K 6.WI U. AF^D A55T. C A5H''? \ovnarotr l.z.leite^ /\.a.r0bln50)^ vym.5im5 b.laNtf^y g^of^ge Kack>(e:v vym.wellHou^e: r. e:.boWmah p.g.Koel W.H.R0551NGT0H w V T onwv &j^, * it 300 .000, ^J^ *\v» C. AV\UL V.PRtjT. *piS ■^J-^ 2 5,0 0. 43 payment, and, of course, their paper was withdrawn from circulation, causing the Bank of England's notes to rise nearly to par.. The bank was directed to resume specie payments in 1823, but in fact it did resume on May I, 182 1. No legislation was had to prevent the unwise issue of notes by country banks, however, and in 1823 such issues were greatly enlarged, and in 1825 the amount in circulation was estimated to have been 60 per cent greater than in 1823. Speculation became hazardous in the ex- treme, and when exchange began to fall in 1824 trouble began. London currency was contracted in September, GOLD FIVE-POUND PIECE OF VICTORIA. 1825, and country banks began to fail the moment they could not secure accommodations in London, In less than six weeks more than seventy banks were carried down, and the demand for gold at the Bank of England was so great as to have drained it of about seven millions of bullion before the outflow could be stopped. The crisis in London lasted one week, when the tide receded, and the safety of the bank was assured. The exchange turned to the favor of England, and gold began to flow toward the country. The Bank of England then issued notes with prodigal abundance, ;^5, 000,000 being issued in three days. The next week uneasiness in the 44 country was again apparent, but it was stayed by the bank's issue of ;^500,ooo in ;,^i -notes, and by the first of 1826 credit was entirely restored. In 1826 the issue of less than ;^5-notes was prohib- ited in England. In 1833 the charter of the bank was ex- tended for ten years, and joint-stock banks of issue de- fined and permitted. In 1839 the issue of the Bank of England again became redundant, and but for assistance from the Bank of France, the bank would have stopped payment. COPPER FIVE CENTS OF CEYLON. In 1844 and 1845 Sir Robert Peel introduced meas- ures into Parliament, the passage of which greatly im- proved England's banking system. The power to issue notes payable on demand was limited by making the amount of such notes in circulation vary with the amount of bullion possessed by the issuer. The issuing and banking departments of the Bank of England were en- tirely separated, and over the first department the Bank was given no control. The issue of the Bank was made ;^ 1 4,000,000 on securities, and it was allowed to issue two- thirds of the amount of notes which any country bank was authorized, but failed, to issue. Under this provision the issue had increased to ^15,000,000 in 1875. Above this 45 sum its notes can only be issued upon the receipt of an equal amount of coin or bullion. By this legislation its notes are made equal with gold. The act of 1844 also provided that no new bank of issue should be established in the United Kingdom, and that the maximum issue of notes by the existing country English banks should be limited to the average amount which they had in circulation during the twelve weeks preceding April 27, 1844. No other bank than the Bank of England was allowed to issue notes in or within sixty- THREE-SHILLXNG, OR GUILDER OF DEMERARA. five miles of London. The charter of the bank was ex- tended until twelve months' notice after August i, 1855. On three occasions, in 1847, 1857 and in 1866, it has been found necessary to authorize the Bank to issue notes beyond the limits of the act of 1844, in order to restore credit to the mercantile community. Such, in brief, is the history of the Bank of England. With it is closely connected the history of banking in England. Branches of the Bank have been established at Manchester, Liverpool, Birmingham, Bristol, Leeds, Plymouth, Newcastle-on-Tyne, Hull, and Portsmouth. The capital stock of the Bank is /i4,553,ooo. The 46 "Rest" on October 26, 1887, was ^3, 100,053, The dividends for the year ending October 5, 1887, were at the rate of £g^/( per cent. The price of bank stock on October 26, 1887, was ^304. On that day there were ^24,210,255 in circulation, and of its unemployed notes there were ^^10,824, 670. Of gold and silver coin and bullion there -were ^20,092,263. h ^ Chapter IV. MODERN EUROPEAN BANKING. The history of banks in England other than the Bank of England can be sketched in a few words. The end of the war between France and England in 1815, was soon reflected in the brightening of commerce, but it was a long time before the people paid attention to banking laws or facilities. The Bank of England, to- gether with private bankers, had been able to meet all demands. The crisis of 1825 showed the weakness of private banks, and the necessity of public banks. The legislation restricting the formation of joint-stock banks in order to protect the monopoly of the Bank of England, has already been mentioned. In 1826 six joint- stock banks were registered, and seven in 1828-9 and seven more in 1829-30. In 1833 legislation was had per- mitting joint-stock banks of deposit in London. In 1834 the prospectus of the London and Westminster Bank was promulgated by James William Gilbart. In 1836 the London Joint-Stock Bank was organized, and in 1839 the Union Bank of London was established. The act of 1833 did not permit the banks to sue or be sued in the name of their officers, but a later Act of Parliament cor- rected that defect. At present there are 173 joint-stock banks in the United Kingdom, the banker's license be- ing ;^30 annually. The restrictive legislation of 1 708 against joint-stock banks in England did not extend to Scotland. The Bank of Scotland was organized in 1695, the year following the 47 48 establishment of the Bank of England. Its original cap- ital was ^100,000, and it had a monopoly for twenty-five years. In 1774 its capital was increased to ^200,000, and at several other times, until it now stand:j at ^1,500,000, of which ^1,000,000 is paid-up. It is the only Scotch bank established by Parliament. In i6g6 it began to es- tablish branches, and began to issue notes as early as 1704. It was a bank of deposit at an early period — cer- tainly before 1729 — and interest on deposits was allowed. The Bank has branches in all important Scotch towns. Of other prominent joint-stock banks in Scotland may be mentioned : The Royal Bank of Scotland, established in 1727, and now having a capital of ^2,000,000, and num- erous branches ; the British Linen Company Bank, established in 1746, with a capital of ^1,000,000; The Commercial Bank of Scotland, limited ; the National Bank of Scotland, limited ; the Union Bank of Scotland, limited ; and the Caledonian Banking Company, limited. In Scotland the system of giving cash-credits in limited sums upon personal and other se- curity, prevails. Failures in Scotch banks have been infrequent, those of the Western Bank and the City of Glasgow Bank, being notable instances. The Bank of Ireland dates from 1783. Previous to this a primitive system of private banking prevailed, gold- EARLY IRISH COIN OF DONALD, KING OF MONAGHAN, 850 A. D. smiths, tradesmen, and general dealers being the bankers. The earliest reference to the subject of Irish banking is iffliraiiL "V.. t- :-r1iS tCLi tit mm ^»jt^ ■,*.5 M ^.M\ 3 3^ ^y pommenced -r , gusmess *^ a (J, JohnD€ Lailtre.Prcst: rGWin^ton.YicePrest. J.F!R.Fo55Ca5bier. C£.BrQdcn^S5t.CQ5t7ier. (gflPlTAL % 500.000. S\/P^L\/Z $25,000. 49 an act of the Irish Parliament in 1709. The business at that time was entirely uncontrolled, and any person could issue bank notes, silver or copper coin. Upon the estab- lishment of the Bank of Ireland, banking privileges vi^ere much curtailed. In 1797 the suspension of cash payment by the Bank of England was extended to Ireland, and the Bank of Ireland greatly increased its issue of bank- notes. Private banks sprung up all over the country, and they also swelled the currency until it became greatly de- preciated. In 1804 there were fifty-seven banks in Ireland. In 18 19 but nineteen remained, and in 1827 there were but ten banks in all Ireland. In 1821 a law was passed permitting joint-stock banks to be organized, but none were founded until additional legislation in 1824 made the restrictions less objectionable. Then the Northern Bank of Belfast was organized. In 1825 the Provincial Bank of Ireland was started with a capital of ^2,000,000. In 1834 the Agricultural and Commercial Bank of Ireland was organized, but it went under in the crisis of 1836. In 1864 the Munster Bank at Cork was established. It has over forty branches, and pays 12 per cent dividends. On May 2 and 20, 17 16 the French Government granted a concession to John Law, a Scotchman, fur the establishment of a bank, of which he was to be director and the Regent its protector. In June, 17 16, it began business with a capital of 6,000,000 francs, and was au- thorized to issue notes payable at sight and to bearer, to discount paper, to receive deposits, to make collections and payments, and do a general banking business. The success of the bank was assured until Law and his Com- pagnie d' Occident ruined it in one year. It was fifty years later before the country was ready for another credit '^' Hi. ^ ^-'^mh. :rZ7' ^^ V 50 establishment. In 1776 M. Besnard was authorized to establish in Paris a discount bank, and, although of value to the business world, the Convention suppressed it in ijU HMIl y]iA ^-^^4-M PENNY OF CHARLEMAGNE, ISSUED AT BITURIGAS, OR BOURGES. 1793. So soon as the public quiet was restored, organiza- tions were founded which in 1800 resulted in the Bank of France, with a capital of 45,000,000 francs, which was increased to 90,000,000 francs in 1806. It is a bank of deposit, discount, and circulation, and has the sole power to issue notes. Its government consists of a governor and two deputies, and a council-general of twenty mem- bers. Bills are discounted within three months of ma- turity, guaranteed by two, or generally three, approved CROWNS OF LOUIS XIV., 1643-1715 A. D., KING OF FRANCE AND NAVARRE, KING AND DUKE OF BEARN. {The cow in the centre is the standard of Beam.) signatures. The annual dividends are limited to 5 per cent. All other profits are invested in consolidated stock to be returned to the stockholders upon the expiration of 51 the charter, in 1897. In 1848 the joint-stock banks which had been started in several large cities were consolidated with the Bank of France as branches, and their issues of THALER OR FIVE SOL PIECE OF ANNA MARIA LOUISA (MADEMOISELLE), PRINCESS OF DOMBES, 1O73. notes suspended. Since then branches have been estab- lished in each department. In 1848 the bank suspended cash payments, but resumed them in 1851. The Govern- ment is largely interested in the Bank of France and they are mutually helpful. In 1870 specie payment was FIVEFRANC PIECE OF NAPOLEON m. stopped, but through all the troublesome times which fol- lowed, the management of the bank has been prudent, and its credit is restored. A few other joint-stock banks exist in France, but do not possess the power to issue notes. 52 The Royal Bank of Prussia was established June i 7, 1765, as an exchange and loan bank, with a capital of 400,000 thalers. THALER OF DUKE JOHN ADDLPHUS, HEIR OF NORWAY, DUKE OF SCHLESWIG HOLSTKIN, 161 1. In several of the German States banks were founded under laws peculiar to each one, and with local circulations, but the union of these states into the Empire called for FRANKFORT THALER OF 1638. ^a national currency. On January 30, 1875, an act was / passed which met this demand. The Royal Bank became I an Imperial Bank, which was established with an " un- 1 covered " or unsecured issue of 250,000,000 of marks, with (^IHHtSOU ^ «ORTH m^' ^Ojf, -X" "vt^^v:-^ ) -^ \\\\ Q,e3t Summer Resorts ■"^f-f^S Jfj y- ^—.-^■"^ ^ ^c^^*^ ^^ Nb^ X ^r ^^^^ i%^t w. A ..-^ -* (apit/vlIioo.ooo. 00,000. ^ ,, MhKES AjPBC\AiTr or p f^RM MOKTCAGE LPA,NS pOR, NEW^NGLANO V / .O'^^"^^^ B^'^KS TrUSJ and lNSURANeE(pMP/\NIES ^ND JNDlVIDUAl nyELyroRj. B^'^S and^Sell^ ^ity and (ounty Rondq. R^EfER^ENGE Of fS\NrN6 Iht^^LLTHE EASTEF^^J StATES ^ C^^ 53 a rig-lit to increase this issue if one-third the increase is represented by cash in hand and two-thirds by bills not Thirty-two other having- more than three months to run TlIALEll OF MARIA THERESA, A. D. 171--. banks were permitted to have an "uncovered" issue to the extent of 1 35,000,000 of marks, and to exceed their author- ized issues, subj'ict to the payment of 5 per cent interest on the excess above the authorized Hmit, plus the cash in THALER OF FREDBRICK WILLIAM III., OF PRUSSIA. hand. No note is issued less than 100 marks, and no new right of issue can be conceded except by a law of the Empire. The State itself has power to issue 1 20,000,000 of marks in state-notes of small denominations. There are but nineteen note-issuing- banks in the Empire. The Empire shares in the profits and superintends the conduct of the 54 Imperial Bank (Reichs Bank), and it is entitled to erect branch offices in any part of the Empire. Its capital is •ibout $30,000,000. GOLD TWENTY MARK PIECE OF PllUSSIA, 1S72. / The Bank of the Netherlands, at Amsterdam, was I first chartered in 1814, with the Bank of England as a \ model, with a capital of 5,000,000 florins, which was in- creased to 10,000,000 in 18 1 9, and to 15,000,000 in 1838. In 1863 it was re-chartered. It is a bank of deposit and issue. In 1 81 4 the National Bank of Copenhagen took the place, and all the debts, claims, rights and privileges of the Rigs Bank, in Denmark, upon the cession of Norway to Sweden.* The bank was obhged to maintain the notes of the Rigs Bank at their par value, and to do this it was re- quired to collect and preserve silver coins, bars and banco money sufficient to redeem the notes when presented. The proportion of cash to outstanding notes has usually been from one-half to two-thirds. The bank also receives deposits and makes loans and discounts. It was required to hold silver for one-half its notes in circulation, one- half of which silver must be of the coinage of Denmark, the other half to be in silver bars or Hamburg banco. In 1848 the bank was permitted to substitute sterling money for one-quarter of the banco. In 1854 the bank in- creased its paper money from /'a, 222,000 to ^'2, 660,000, the increase being secured by an equal amount of sterling • Palgrave's "Notes on Bunking," p. 112. 55 money (one-quarter), silver bars, (one-half), and banco, (one quarter). In 1859 it was allowed to increase its paper issue by the purchase of silver bars. From 1853 3 per cent interest was paid on money loaned to the bank, and from May i, i860, the State surplus has been left with the bank, which pays interest upon it. There are several private joint-stock banks in Copenhagen with no peculiar features. In 1830 the "Enskilda" banks were first organized in Sweden. They are private banks with large numbers of partners, and issue notes payable in silver or in notes of the Riks Bank. The notes issued are based on sound securities, the Government's banking law being a model of clearness and cautiousness. In 1884 the Post Office Savings Banks were established in Sweden, to receive money under guarantee of State, allow interest upon it, and by accumu- lating interest and capital, hold it at the disposal of depositors. The rate of interest is fixed by the King, and is added to the capital at the end of each year. The smallest amount received on deposit is one krona. All funds are invested in the Bank of Sweden. The National Bank of Austria was established iifs Vienna, in i860, with a view to restoring the credit of the j Government. It has the exclusive privilege of issue, ana in return loaned the State 80,000,000 florins without in- terest. It established numerous branches in different cities in the Empire. On December 24, 1867, the Gov- ernment established a forced currency, and consolidated its debts to the National Bank into one loan of $40,000, 000, and re-organized that institution into the Austro- Hungarian Bank, extending its charter to January i, / 58 The earliest Swiss bank of issue is that of St. Gail, which dates from 1836. At the end of 1869 there were nineteen issuing banks in the Swiss Confederation. There are now thirty-three legalized banks of issue. In CROWN OF ZURICH (CALLED TIGURUM BY THK ROMANS). 1885 their average circulation of notes was $23,822,183. There are 325 savings banks, the deposits in 1882 being $47,547,428.85. There are also 162 other banks of de- posit, mostly of a private nature. Although the oldest existing Italian bank dates from 1622 — the Monte de Paschi, in Siena — the National Bank of Italy has a history dating only from 1850, it hav- TWO LIRE OF THE KINGDOM OF ITALY. ing been organized by consolidating the Bank of Genoa, founded in 1844, and the Bank of Turin, founded in 1847. At its organization a sum was to be paid for Govern- ment superintendence, and it agreed to advance to the f ORGANIZED 1883. W!i?.H.ATWOOD GENL MANAGER /\.L. AtWOOD SEC.&TRES. FARM AND CITY INVESTMENTS ^GHOOL^R /MUNICIPAL INVESTORS PROTECTED _ BONOS Manley F^ogers Prej EH. Barnard v. Pf^est C. /\/\. Williams cashier. D.A. LUMBARD ASST CASH? JjT RTIOMflk (®Apilal *i50.ooo.°-° joi/rpll^S* 25.000.°-' 00 DIRECTORS. H€NRY J. Kit W. k. A\AY ^r^ HYC J.T.5>\ITH /AANUCY 1\Q6CH5 VM-J^OGEJ^? Burlington Route s:l.K8kw,r.r AT Q U I N C Y. 5^- Ip^J'S N|INiNE\POLl^AND StP\ul^horj1ine T-^T LoUi s /^lor\6 t^^ bar\ks of t1\e.l^is5isisiff l.tl=\^ou^^\t_^\e |aKe ^^\ of Iowa /yJb IV|ir\r\^8ota \o ft\e Summer F^^ontS of tNe-Hor(hY. SPIRIT l^AKE.I^KE MINNETONKA, DETROIT I^KE.ST PAUL. MINNEAPOLIS, l^AKE SUPEf\iOf\ POINTS,ano YELLOWSTONE PARK. The tired toiler in tl^c South car\ quickly Find Rest, Recpeation <^^ Sport by taking a trip over this Line /\PPLY FOf^ INFORMATION TO ^^oWARD Elliott g.ra. i^eok,ui<. iowa 59 State a sum not over 18,000,000 lire, secured by a de posit of public stocks or treasury bonds bearing 3 per cent interest, or less if the market rate was lower than TWO LIRE, PlUi IX. that. Three bank seats and four branch banks were es- tablished, and the capital, originally 40,000,000 lire, is now 200,000,000 lire. It has numerous branches, and its circulation is national. In April, 1874, the Government restricted the right of issuing bank-notes to six banks : The National Bank of Italy ; the National Tuscan Bank, organized in 1857; the Roman Bank, 1850; the Tuscan Bank of Credit, i860; the Bank of Naples, 18 16, and the Bank of Sicily, 1843. This law authorized the Bank of Naples to increase its capital, by 1885, to 48,750,000 SILVER FIVE LIRE OF VICTOR EMMANUEL II. lire, and the Bank of Sicily to 12,000,000. The National Tuscan Bank had a capital of 30,000,000 lire ; the Roman Bank, 15,000,000, and the Tuscan Bank of Credit, 10,- 000,000. By this law these six banks were organized 6o into a union, which, if required, should furnish the Gov- ernment 1,000,000,000 lire in bank-notes, but by a law, passed April 7, 1881, this union was terminated. GOLD PIECE OF DEMETRIUS, 1580 A. D. There are also numbers of " People's Banks," credit societies, "Agrarian Banks," friendly societies, etc., the People's Banks increasing very rapidly. The Imperial Bank of Russia was founded in i860, to regulate the issues of currency and aid commerce. Its capital is subscribed by the Government, and it is managed DOLLAR OF NEW GRENADA. by a committee of the treasury. Its charter was to run for twenty-eight years. When founded, its capital was 6i $11,875,000, and one of its principal aims was to restore specie payments. In 1864 the circulation had a nominal value of $630,000,000, based on a specie reserve of but DOLLAR OF BOLIVIA. $43,330,000. In 1877-78 the currency was greatly ex- panded because of the Turkish war. The bank enjoys the sole privilege of issuing notes, and it has numerous ARGENTINE CONFEDERACY. branches. There are more than two hundred communal Russian banks. Greece has two modern banks, the National of ^ Athens, with a capital of $540,000, and the Ionian Banky/ at Corfu. Savings banks were known in Europe as early as 1765, at which date there was one at Brunswick. In 1778 62 one was established at Hamburg which still exists. In 1786 one was founded at Oldenburg, in 1790 one at Loire, in 1792 one at Basel, in 1794 one at Geneva, and in 1796 one at Kiel, in Holstein. In England they had a rapid growth. In 1799 Rev. Joseph Smith put into execution DOLLAR OF CUNDINAMARCA. Jeremy Bentham's suggestion by the establishment at Wendover of a "frugality bank." In 1801 Mrs. Priscilla Wakefield established a savings bank in connection with a friendly society, and others followed rapidly. In 18 17 so numerous had they become. Parliament passed a law for MEXICAN GLOBE DOLLAR OF CHARLES III. their control. Penny banks have lately been established in various cities of Great Britain Savings Banks for the army were established in 1842, and for the navy in 1854. WM. M. RICHARDS, President. TO» GEO. F. SEWARD, Vice-President. JOHN M. CRANE. SECRETARY. ROBT. J. HILLAS, Ass'T Sec'y GEO S COE - - . - Pres. American Exchange National Bank I. s.'t. strAnahan. - . . - - - ^''"•.6''^1"^°°'1'S'' A E ORR Of Dav:d Dows & Co g! G.' WILLIAMS, Pres. Chemical National Bank I. ROGERS MA JEWELL, P" V. '^ • ^j ?i "^ ?' •' A B HULL Retired Merchant h' a' HURLBUT - ... - Pres. of Commissioners of Emigration r d'vERMILYE, Pres. Merchants' National Bank JOHN L. RIKKR, °J,i\^e*P- ^- ^' rJ A S BARNES Of A. S. Barnes & Co j.'g'. mccull'ough, P"'A4.\V P»"^■"» ^^"■S'r^y, ^' V S MOORE .... - - - . Of Moore, Low & Wallace WM.' M. RICHARDS, = ■•„"■ P'^.'^^n' GEO. F. SEWARD, • - • Vice-PrestdenI 214 A.NE) 216 BROADWAY. ffXl/W/RCtsTcCPRQlDfll O./^K.Tf//50K VPR(3 Tra/?5acl5a Directors R.feiJ\nKi:ftCt. CMAHTinSON. 40Ht{,Y1t\L ^ fl HATFIELD. M-STANTON. Rj^.TRIMBM CB.CAMPBELL. L.5IMPS0K. CF-COLEMMIB Wh.?.WooD/n/\iV CA5^{R "|t\tlAHV*A»^D I^ansasOV J Vpaki!-ik/->; 63 Several railway companies maintain savings banks for their employes. In Norway there were twenty-two sav- ings banks in 1840, and 311 in 1880, of which 249 were rural. In Sweden the first savings bank was founded in DOLLAR OF THE EMPEROR MAXIMILIAN. 1813, In 1840 there were fifty-eight, and in 1880 the number had increased to 340, of which 252 were rural. Chapter V. EARLY AMERICAN BANKING. The history of banking in the American colonies be- fore the revolution is very obscure, and nearly every early mention of "banks" is apt to be misleading. The word "bank," as used by the colonists, meant simply a batch, of papej; money, issued by one of the provinces, or in rare instances, by a company or association of individuals more or less directly authorized by law.* The modern commer- cial bank of deposit and discount, as we know it, did not exist, because there was no business to support it. There was no equivalent for the "moneyed-class" of to-day. The capitalist had not yet come. With few exceptions, men in easy circumstances were merchants or the large land owners then everywhere called "planters." Men of prop- erty derived their wealth from commerce or agriculture, and re-invested their gains in land or trade. The popu- lation was widely scattered, and the number of those within reach of any one business center, having cash to keep, was too few to make its custody and handling a profitable business for any one. Each merchant or planter kept his own cash in his own strong box at his own house. When a note or draft was presented he counted out the "broad Joes," or hard dollars, to pay it, if it were during one of the rare intervals at which specie payments were in vogue. Oftener the payment was made in de- preciated paper at the fluctuating rate of discount, at which it just then happened to be current. This discount varied, » Gouge II., 9; Bincroft, III., 3SS; llUdrcth, II., 285. 65 with time and place, from a minimum of 8 to lo per cent to a common rate of 2 to 10 for one. In extreme cases this depreciation reached 1,000 of the debased paper for one of specie.* This issue of a depreciated paper as an expedient for the reHef of every real or supposed pecuniary distress, was a prominent feature of colonial politics, especially in New England and South Carolina. The exigencies of Indian wars and numerous futile expeditions for the conquest of Canada led to repeated issues of bills of credit by the Governments of the several provinces. The prompt action necessary to be taken in getting up these expe- ditions, made it impracticable to wait for the levy and col- lection of a tax, and the scarcity of capital made it difficult or impossible to borrow money through channels com- monly resorted to in older and wealthier States. Bills of credit, made legal tender, operated as a forced loan with- out exciting the opposition and clamor which would have followed had the authorities adopted that plan without disguise, or had they openly "pressed" or "requisitioned" the needed stores and material in kind. Wasteful and extravagant, if not actually ruinous, as such measures always prove in the long run, the exigencies of the occa- sion seemed not only to justify, but imperatively to demand their adoption in these cases. We of this gen- eration have seen measures, which we now perceive to be of at least equal folly, promoted and sanctioned by the most trusted statesmen of the day as a "military neces- sity." Even depreciation enhanced, in some respects, the popularity of these forced issues, as it afforded debtors, always a large class, especially in a new country, the "cheap money," which enables them to discharge their * Gouge, II., 9; Hildreth, II., 385, 341, 404, 467, III., 353; Bancroa's History of the Consti- tution, I. 2iS-337. 66 debts at a discount ; and the rise in prices, in proportion to the depreciation of the currency, gave a fallacious ap- pearance of general prosperity. The "scarcity of money," or appreciation of currency, which followed a redemption and withdrawal of a portion of the outstanding paper, was represented as a public calamity. This apprehension of countless imaginary ills attendant upon any "contraction of the circulation," led to loan schemes devised and sus- tained by that restless, unsettled class, numerous in every age in a growing community, which arrogates to itself a special claim to be called and esteemed "active business men," whose members, under the guise of public spirit, strive to make the capital of the rich and the labor of the poor alike subservient to their own selfish schemes for personal profit.* The earliest issue of paper money in North America was made by the French Governor-General of Canada, in 1685. At that time the Indian tribes of Central New York — the redoubtable Iroquois, or Five Nations — were the most dangerous foes of New France. The English colonies were not yet strong enough to attack their French neighbors. The Iroquois, however, had made repeated incursions into Canada, capturing and destroying Montreal, and threaten- ing the French settlements with complete extinction. In 1685 the Marquis de Denonville, Governor-General of Canada, set on foot an expedition against the Senecas, the most westerly of the Five Nations, and to furnish funds for this enterprise issued "card money," which was made redeemable in bills upon France.f In 1690 Massa- chusetts issued the first paper money emitted within the present limits of the United States, of which we have • Hildrcth, II., 293-4. + Hililre;h, II., lao. 67 authentic record. In December of that year the expe- dition which Sir William Phipps had led against Quebec ■ — the first serious attempt by the English colonies at the conquest of Canada — returned to Boston, having made complete failure. There was no money in the treasury to pay the troops, as the authorities had relied upon the spoil which a successful expedition was expected to bring home, to meet all such charges. To provide for this emergency the General Court resolved : that, "Consider- ing the present poverty of the country, and, through the scarcity of money, the want of an adequate measure of MASSACHUSETTS CENT. commerce, " bills of credit in notes of 5 shillings to ^5 should be issued "to be in value equal to money, and ac- cepted in all public payments." The first issue was fixed at ^7,000, subsequently increased to ^40,000, equal, as Massachusetts money was then rated, to $133,333. Be- fore this limit was reached, however, the bills sank to a discount of one-half. To raise their credit they were made full legal tender. In 1691 ^10,000 of this paper then remaining in the treasury was ordered to be burned. In 1692 it was ordered that, in lieu of interest, the bills should be received by the treasury at a premium of 5 per cent over coin. These measures, coupled with a promise to redeem the entire issue in twelve months, sufficed to 68 bring this paper to par and to maintain it in circulation at that point for twenty years.* South Carolina was the first to follow the example of Massachusetts. In 1702, being then the most southerly CAROLINA CENT. of the English colonies, this province attempted to wrest Florida from the Spaniards. A disastrous siege of St. Augustine ended the invasion and left the province bur- dened with debt. Pleading the example "of great and rich countries," and confident that "funds of credit have fully answered the ends of money, and given the people a NEW JERSEY CENT. quick circulation of their trade and cash, " the colony issued bills of credit to the amount of ;^6,ooo. This was to be paid off within three years by a tax on liquors and peltries. f In 1707 Rhode Island and New Hampshire issued their first bills of credit to provide means for taking part with • Hildreth, 11., 136; Bancroft, III., 186; HutchintOD (Ed. 1795), I.. 356. t Bancroft, III., 209 ; Hildreth, II., 329. V ■!i^^ 9^ « ne -•sii ?fr I ass ^ Gei^Am.Nat 8anh 8^*s ^ c? 5r^ u» lu FINANCIAL AGEMT • ST.PAUL/\lNN. • ^INVE5tMENT5MAD[ FOR NON -^ RESIDENTS ^ vx GUSTAV WILLIUS PRESIDEN WILLIAM LINDEKE VICE PREJ JOSEPH LOCKEY CASHIER. THEO. Dt^AZ ASSTCASH '^o 69 Massachusetts in the attempted conquest of Acadia, or Nova Scotia from the French.* New York, Connecticut and New Jersey made issues of bills of credit for the first time in 1709 to equip their quotas of troops to assist in another futile attempt at the conquest of Canada,! and in VIRGINIA HALFPENNY, ipj. 1 7 13 North Carolina "paid," with bills of credit, the ex- penses of the war against the Tuscaroras, which ended in the expulsion of that tribe from its old home, to wander northward until it settled in western New York as the sixth nation of the Iroquois Confederacy. f Virginia issued no paper until 1755, when bills were emitted to equip the battalion of provincial militia, commanded by Washing- ton, which accompanied Braddock's disastrous expedition BALTIMORE SHILLING, 1659. against the French on the Ohio.§ As will be related hereafter, Pennsylvania and Maryland first authorized * Hildreth, II., 259. +Ibid, 260. } Ibid, 270, JIbidll., 4Sa. 70 banks — issued paper money, that is — to be loaned to their people as currency. There is no record of any con- siderable or authorized issue of paper in any form in Delaware or Georgia until a later date. Thus it will be seen that of the eleven colonies which resorted to the issue of paper money, before the revolution, in the case of nine of them it first appeared as an adjunct of military en- terprise and of military defeat and disaster. South Carolina had issued bills of credit in 1702 to meet urgent demands upon the treasury, in a desperate emergency. In 171 2 this colony invented a modification of the original plan, which was quickly imitated by most of the other provinces. "To defray the expense of an expedition against the Tuscaroras and to advance and accommo- date domestic trade," the Legislature established a "public bank," and issued ;^48,ooo in bills of credit, called bank- bills, to be loaned out at interest, to individuals upon real estate and personal security. The loans ran for twelve years, to be repaid one-twelfth each year. In this case the military necessity was used only as a decent pretext, and when the next bank was authorized the cloak was laid aside. Although made a legal tender, these bank-bills were early discredited, and before the end of the year were current only at a discount of one-third of their nom- inal value. In 1716 a second "bank" of ^30,000 was ordered to be loaned out on the same terms as the first. This was disallowed by the Lords' Proprietaries of the colony in England, in part because among the taxes pro- vided for its redemption, a duty of ^^lo per head was imposed on all negroes imported. This was the first and principal cause of discontent with the Proprietary govern- ment which led to tumults and, finally, in 17 19, to an open insurrection which ended in the complete subversion of 71 the Proprietary authorities. A revolutionary convention, chosen by the people, assumed the management of affairs, and appealed to the British home Government for relief. The English ministry instituted proceedings to revoke the Proprietary charter, proclaimed South Carolina a crown colony, and, in 1 7 2 1 , appointed a royal Governor. In 1722 a bill was introduced in the Assembly for adding ^120,- 000 to the paper money of the colony. Twenty-eight of the principal merchants of Charleston protested against it, and in their remonstrance alleged as the chief cause of the then excessive depreciation of paper money, "that every legislative engagement for recalling the various emissions of bills had been broken through by every As- sembly. " Provoked by this plain statement of unpalatable truth, the assembly pronounced the merchants' petition "a false and scandalous libel," and sent the petitioners to prison for a breach of privilege. The Governor not daring to interfere, they were released only on payment of a large sum by way of fees. The bill for the new bank, though passed by the Assembly, was disallowed by the English Government, and the Governor was." strictly en- joined to consent to no new law for creating a further paper currency, neither to any act for diverting the sink- ing fund already established." At least a part of these disallowed "banks" seems to have been issued, however, in spite of the prohibition, for, in 1725, the Assembly re- solved that, "Whereas, the circulating bank money is already reduced to ^87,000, and is likely soon to be en- tirely paid off," there was grave occasion to apprehend a scarcity of money. To escape this imminent disaster the Assembly tacked a rider on the annual revenue and ap- propriation bill, stopping the redemption and withdrawal of the bank paper. The Governor and Council proposed 72 to strike out this provision ; but the Assembly denied their right to amend money bills, and left them to choose between a breach of their instructions and a failure of supplies. Next year, 1726, this policy was followed up by a bill for the issue of another bank, which the Gov- ernor's Council again refused to pass. The planters then entered into a combination to pay no taxes, alleging their inability to do so unless aided by the issue of more bank bills. When, in 1727, a conspicuous member of this association was arrested and imprisoned, the Chief Justice denied him a writ of habeas corpus on the ground that his offense amounted to high treason, and was not bailable. After an acrimonious controversy in the Courts and in the Assembly, two hundred and fifty horsemen entered Charles- ton from the neighboring country and compelled his libera- tion. The Assembly impeached the Chief Justice, became involved in aviolentquarrel with the Governor and his coun- cil, adjourned themselves of their own motion, and when again summoned, refused to attend. This disorder lasted un- til I 730, when a new Royal Governor came out, and a new council was appointed, from which were omitted all those who had been most strenuous for obeying the royal in- structions forbidding further emissions of bills. The paper money party thus strengthened, the Assembly sus- pended the redemption of all outstanding bills, and voted another issue of ^104,000, both of which measures seem to have obtained the Governor's assent. In 1736 still another bank of ;^ 100,000 was authorized, to be loaned out at 8 per cent like the previous issues. Before this time the bank-bills had steadily depreciated until they reached a discount of seven of paper for one of specie, at which the currency of South Carolina remained, almost without variation, until the eve of the revolution.* The • Hildreth, II., 2Ssg2, 337S; Bancroft, IIL, 329; Gouge, II., 78; Holmes' Anirals, II., 5S, 82. 11 case of South Carolina is perhaps the only instance in, which the never-ending controversy between the advocates j of expansion and those who favor a contraction of the cur-/ rency led. to a complete and radical change in the form oK government. As South Carolina was the first to follow the exam-" pie of Massachusetts in issuing bills of credit to meet de- mands upon the public treasury, so Massachusetts was the first to adopt the plan devised in South Carolina of manu- facturing paper money to be loaned out for the promotion of trade. As we have seen, the earliest issue of bills of credit was made by Massachusetts in 1690 to meet the cost of Phipps' futile attempt on Quebec. The next resort to the same device in this province was in 1 711, when bills, amounting to ;^40,cx)o, were issued and paid out di- rectly by the Government to equip the New England troops attached to the even more disastrous expedition led by the English Admiral, Sir Hovenden Walker, against the same fortress. In 1714 a very general agree- ment had grown up in Massachusetts in favor of the loan system of issuing paper, but differences arose as to the precise method of carrying it out. The more adventurous and speculative element proposed a private bank, to be in- corporated by the General Court, to issue bills on its own credit and responsibility. Others preferred the indorse- ment of the colony and proposed to issue colony bills, as heretofore, to be loaned on landed security for a term of years, the interest and one-twentieth of the principal to be paid annually. If this scheme was adhered to, the whole debt would be paid off and the entire issue of paper re- deemed and retired in twenty years. In the meantime the interest would reduce, by so much, the amount neces- sary to be raised by taxation for the current expense of 74 the colony. An inconsiderable party opposed all bills of credit, and argued in favor of a specie currency and a real bank of deposit and discount; but these were stigmatized as "capitalists" and "money princes," and, fijiding the drift of public sentiment almost wholly in favor of an issue of paper money of some sort, were soon compelled to come to the support of the provincial issue, called the "public bank," as the least objectionable of the two plans most in favor. According to Hutchinson, the party favoring the "private bank" was composed generally of persons in difficult or involved circumstances, or such as were pos- sessed of land, but had no command of ready money, or men of no substance at all. They proposed to issue bills which all the members of the company promised to re- ceive as "money," but at no fixed value as compared with gold and silver. The Assembly rather favored this plan, owing to the support given it by the Boston members, but, after a long struggle, the party for the "public bank" pre- vailed in the General Court for a loan of _;^5o,ooo in bills of credit, which were put into the hands of five trustees, to be loaned for five years only, to the inhabitants of the several towns in the ratio of their taxes, in sums of ;^50 to ^500, on real estate mortgage, at 5 per cent interest, one-fifth of the principal to be repaid each year.* Certainly no scheme for the emission of bills of credit ever was more carefully devised or more scrupulously guarded. But having thus, once for all, demonstrated their prudence and caution, the people and authorities of Massachusetts proceeded to give full swing to their con- viction that it was impossible, in a state of colonial depend- ence, to maintain a metallic currency, and that it was the duty of Government to provide a currency made * Hatduoson, IL, 1S7 et seq.; Bancroft, III., 3S6, et seq.; Hildretb, II., z^t-J. Hf Jj^t* P-^ jmi.& ^nK Capital! ^200,00(1 ^Directors. G.T.Barker. , CN Horace Qark. JOHN Wilson. ^ ^Chas B- Allaire. alter^Barkef^ yi^ANK Meyer. LiOT Calendei^. G.X BARKER. President GhAS ^.AlLAI[^E. Vice Pres/^c/7 j| |fc ^JSsssfe.. 75 and kept equal to the requirements of trade and commerce. New issues of bills of credit were made for the payment of ordinary, current expenses, and to supply deficiencies of inadequate tax levies. Provisions made for the pay- ment of old issues were repealed or ignored and new is- sues made with no present purpose of redemption. The efforts of the Governor and Council to restrain these issues were unavailing, the Governor's consent, or con- nivance in disobedience of his instructions, being extorted by withholding his salary. In 1733 there was a general complaint throughout the four New England colonies of the unusual scarcity of money. There was as large a sum current in bills of credit as ever, but the bills having de- preciated, they answered the purposes of money so much the less in proportion. Massachusetts and New Hamp- shire, restrained by the instructions of their Royal Gov- ernors, had not issued bills to so great an amount as Rhode Island. Connecticut, being an agricultural colony, with fewer traders, did not so much feel the want of money. The people of Massachusetts complained bitterly that Rhode Island bills should circulate among them to take away their substance to be employed in the trade of the sister colony, and many wished to see the bills of each colony forbidden to circulate outside the limits of that by which they were is- sued. In the midst of this discontent an act was passed in Rhode Island for a new issue of ^100,000, to be loaned to its people for twenty years, who, it was argued, would thus have it in their power to add that sum to their wealth, by purchases of horses, sheep, lumber, fish, etc., from the people of Massachusetts. The merchants of Boston thereupon confederated and mutually promised and en- gaged not to receive any Rhode Island bills of this new emission. Then, to provide a currency to fill the void in 76 the circulation, which, it seemed to be universally agreed this action would occasion, a large number of Boston mer- chants formed themselves into a company, entered into covenants of co-partnership etc., chose directors, and issued ^110,000 in their own bills, redeemable in ten years in silver at nineteen shillings to the ounce, the then current rate, but being about three times the true or specie value, according to Massachusetts standard, or in gold in the same proportion, one- tenth part annually. About the same time the Massachusetts treasury, which had long been closed, was opened and the debts of sev- eral years were paid at one time in bills of credit. To this was added the ordinary emissions of bills from New Hampshire and Connecticut. Then some of the Boston merchants, tempted by the opportunity, broke their en- gagement and received the Rhode Island bills, an exam- ple which all the rest were speedily forced to follow. All these issues made a flood of paper money, before which silver — then standing nominally at nineteen shillings to the ounce — rose to twenty-seven shillings to the ounce, or, rather the paper which stood at about three to one for specie, sank to a discount of four and one-half of paper for one of specie. Every creditor was thus defrauded of nearly one-half of his just dues. As soon as silver rose to twenty-seven shillings the ounce, the notes issued by the Merchants' Association, payable at nineteen shillings to the ounce, were hoarded up as too valuable for every-day service, and no longer used for the purposes of money.* As early as 1732 the English Government began to. instruct the Royal Governor of Massachusetts to consent to no further issue of bills of credit to remain current longer than the time fixed for the redemption of that already in • Hutchinson, II., 340, et seq.; Hildreth, II., 354; Felt's Mass.acliusetls Currency. X*. n circulation, the last of which would mature in 174 1. It would have been easy to raise each year, by taxation, a sum sufficient to pay the current expenses, and to redeem all the paper maturing during that year. Instead of pur- suing this course, the wisdom of which so plainly appears, the revenue from taxation was allowed to fall below the necessary and inevitable expenditure, so that not only were the bills maturing allowed to go unredeemed, but new paper, to fall due in 1741, was each year emitted.* As the time for the payment of this great mass of paper drew near, and as hope grew fainter that the policy against new issues would be relaxed and the promised payment of the bills in some way evaded, a great clamor arose against the Governor, who, in spite of all attempts to starve him into compliance by withholding his salary, adhered resolutely to his instructions. In 1740 it became apparent that it was impossible to levy in one year a tax sufficient to discharge all these accumulations. A general dread of the further depreciation or entire withdrawal of the currency took possession of nearly the whole people. Hutchinson, the historian of Massachusetts, did, indeed, propose to the General Court to borrow in England a sum in silver equal to the bills then extant, and therewith to redeem those bills and thus furnish the colony with a sound currency ; the repayment of the loan to be spread over several years so as to escape burdensome taxation in any one. But this plan was rejected in favor of what was called the land bank, or manufactory scheme. It be- ing held that the royal instructions against bills of credit were no bar to private action, the projector and chief advo- cate of the "private bank" of 17 14, hereinbefore mentioned, "put himself at the head of some seven or eight hundred * Hutchinson, II., 339. 78 persons, some few of rank and good estate, but generally of low condition, of small estate, and many of them in- solvent. This notable company were to give credit to /■ 1 50,000 lawful money, to be issued in bills, each person to mortgage land in proportion to the sum he subscribed and took out, or to give bond with two sureties, but per- sonal security was not to be taken for more than ;^ioo from any one person."* Ten directors and a treasurer were to be chosen by the company. Every subscriber or partner was to pay 3 per cent interest on the sum taken out, and 5 per cent annually of the principal. He that did not pay his dues in provincial bills might pay in the prod- uce and manufacture of the province, at such rates as the directors should fix from time to time, and as they should commonly pass for lawful money. It was claimed by its friends, that by thus providing a medium and cur- rency for trade, not only would the people be better able to procure provincial bills to pay their taxes, but trade, both foreign and inland, would revive and flourish. The principal merchants refused to receive the bills, though they had a large currency among the smaller shop-keepers, mechanics and farmers. To lessen the temptation to re- ceive these bills of the land bank, a number of leading merchants agreed to issue their own notes, or bills, pay- able in silver at the end of fifteen years, much like the private bank of 1733, and dubbed their scheme the "sil- ver bank." The Governor issued a proclamation forbid- ding either of these companies to issue bills. But both did make large emissions in defiance of the prohibition. The Governor and Council then applied to the English Par- liament, which, early in 1741, declared that the law com- monly called the Bubble Act, passed twenty years before * Hutchinson, II., 353. 79 on the breaking' of the South Sea bubble, which pro- hibited the formation of unincorporated joint-stock com- panies with more than six members, applied to all the American Colonies. This declaratory legislation, giving retroactive effect to an old statute, was at the time cautiously cited as "an instance of the transcendent power of Parliament." It was, in substance if not in form, ex post facto legislation of a specially dangerous and pro- voking type, and became, in the end, one of the strongest inducements to the prohibition of such laws which, not many years later, was incorporated in express terms in every American Constitution. Both the banks, or com- panies, were dissolved. The members or partners were held individually liable for the entire mass of their notes, not at the depreciated rates at which they had been issued, but at par with accrued interest. The manufactory or land bank scheme especially, the affairs of which remained unsettled and in the utmost confusion for several years, proved extremely ruinous to all such persons concerned in it as had anything to lose. Earnest efforts on behalf of these unfortunate speculators, of whom his father was one, first introduced into politics Samuel Adams, after- ward so celebrated, then a very young man, a recent graduate of Harvard, designed for the ministry but com- pelled by his father's ruin and shortly ensuing death, to adopt a more active life. In 1741 a new royal Governor was appointed who construed his instructions as aimed only at preventing a further emission of depreciated cur- rency or a further depreciation of that already afloat. Holding that it did not matter how large a sum in bills was current if only their value was secured, and that neither the spirit of his instructions required, nor the cir- cumstances of the case permitted, the literal observance of 8o that portion of them which directed the redemption of all outstanding paper in that one year, a scheme was patched up which seemed to promise at least a brief postponement of the evil day. The General Court passed and the Gov- ernor, after obtaining at least the tacit approval of the English Ministry, assented to an act intended to establish an ideal measure of value in all trade and dealings, let the instrument of exchange be what it would. This declared that all contracts should be understood to be payable in silver at 6s. 8d. per ounce. The true value of silver at that time was about 5s. 2d. sterling per ounce, but the old Pine Tree coinage of Massachusetts had been riNE TREK SHILLING. light weight and 6s. 8d. of that currency had been coined from an ounce of silver, so the standard now fixed was that which had obtained before the first issue of paper and, to that extent, was an honest one. Bills of a new form were issued which bore on their face a promise to pay three ounces of silver for every twenty shillings of their nominal value. These were made a legal tender for all dues, public and private. It was also provided that in case they should depreciate in value an addition should be made to all debts equal to the depreciation of the currency from the time of contract to that of payment. How to ascertain the depreciation from time to time was the great difficulty in framing the act. To leave it to a common PH^t CA5«J^. APITAL $ 500,00000 Ifrplus $ 130, 000 op CHOICE SECURITIES FlR^T /v\0I^T6>^6ES ' AND DEBCKtJi^ES »* »■> C ' ''//^ f i' f] - ^ c ,->^ ^ •000 • jHe oldesj S^n}^ in jH'eWesj I /MD UP Capital ^%^®m^%.^^ liability 0/ Sidckholders & <^,(§>®(^(3>(m.^ ^JOHN |y\/\riGHELL ^RFST. ^ 20^10 pRGUSON ViCE PrEST JOHN OHNSTON- 8i jury never would do, nor could the impartial integrity of the House of Representatives be trusted. At length it was agreed that the eldest member from each county, of the Council, a body answering in some measure to our pres- ent State Senates, should meet together once a year and ascertain and declare the depreciation. But the measure afforded no real relief. The counselors appointed to estimate the depreciation seldom had the firmness to make the full allowance as there was a popular outcry against every addition made to the fixed discount. No effectual steps were taken for the redemption and with- drawal of either the new issue or any of its predecessors, save those made by the private companies. Things went from bad to worse. The confusion of the currency was such as seriously to cripple foreign and domestic trade. The depreciation increased and financial chaos seemed to be near at hand.* The authorities of Massachusetts seemed now to be possessed of a spirit near akin to desperation. For the operations which resulted in the capture of Louisberg and conquest of Cape Breton in 1745, and for the several attempts at the reduction of the other French Colonies made in 1746 and 1747, this province issued new bills of credit to the nominal value of more than /^2, 000,000. These were paid out by the treasury at an average dis- count of eleven or twelve of paper for one of specie. It becoming apparent that either redemption or repudiation must be faced in the near future, the General Court was, though with difficulty, persuaded to levy taxes sufficient to retire a considerable portion of the redundant paper. In 1747, on the application of the agent of the province, the English Government granted Massachusetts an allow- * HUdreth, U, 379 tt seq ; Hutchinson, IX, 153 et seq. 82 ance, of ^180,000 for the partial reimbursement of the expenses of the conquest of Cape Breton. This sum would become available, in specie, in 1749. Thomas Hutchinson, the historian, who was then speaker of the House of Representatives, who also was warmly sup- ported by Governor Shirley, perceived in this a favorable opportunity for abolishing the bills-of-credit system and substituting a stable currency of silver and gold for the future. About ;^2, 200,000 in bills would be outstanding in the year 1749. At eleven for one — although the cur- rent rate was twelve for one — ^180,000 sterling would redeem ^^ 1,980,000, which would leave but ^220,000 outstanding. It was therefore proposed that the sum thus granted by Parliament should be shipped to the province in Spanish milled dollars, and applied to the redemption of the bills, so far as it would serve, and that the remainder of the bills should be drawn in by a tax for the year 1749. This would dispose of the bills. For the future, silver of sterling fineness at 6s. 8d. the ounce if paid in bullion, or in milled dollars at 6s. each, should be the lawful money of the colony, and no person within the province should receive or pay bills of credit of any of the other English Colonies. When it became known that a bill for an act on these lines had been introduced in the Provincial House of Representatives, a great clamor was raised against it. It was said that the greater part of the people were no sufferers from a depreciating currency, as the number of debtors was always greater than that of creditors. Even those who were for a stable currency were divided. Some argued that the paper might be so reduced in volume as to be fixed and stable in value, and therefore were for redeeming only so many bills as should be agreed to be superfluous. Others, including many of 83 good standing and good sense, were for finishing the bills, but in a gradual way, otherwise, they said, a fatal shock would be given to business. The bills, it was said, had sunk gradually to one-twelfth their original value, and, as by this means creditors had been defrauded, it was but reasonable that they should rise gradually that justice might be done. To this it was answered that the credit- ors and the debtors would not be the same, so, that instead of righting one wrong, another injustice would be done; the injury being the same when one is obliged to pay more, as when he is forced to receive less, than is justly due. Others were for exchanging the bills for sil- ver at a higher rate, the Boston representatives favoring a ratio of about five to one, which would have given an exorbitant profit upon that redeemed, and would have left more than half the volume outstanding. These were the objections urged by the most reasonable and most intelligent. The strongest opposition came from the ignorant and the interested who strove to impress the people with the contradictory ideas, first, that no redemp- tion should be made because if there were no other money than silver it would be engrossed and hoarded by the rich, and that the poor would get no share of so pre- cious a commodity; and second, that if the bills were redeemed at all it should be at their nominal and not at their actual value. After debating the bill for many weeks the Assembly reached a vote upon the proposition as a whole, and, after once rejecting the bill, finally passed it. After this favorable action the measure speedily received the sanction of the other branches of the General Court and became a law early in 1750. The indemnity money having arrived in specie, the paper, amid much public gloom and doubt, was redeemed 84 at a rate about one-fifth less than the current value; and for the next quarter of a century Massachusetts enjoyed the blessing of a sound currency. Resolved to drive the other New England colonies into the same measure she, in the redemption legislation of 1750, prohibited the cir- culation of their paper within her limits. Connecticut called in and retired her bills- of credit, but Rhode Island, the most persistently given to inflation of any of the old CONNECTICUT CENT. <;olonies, refused to follow the lead of her more conservative neighbors. Forgetting former constitutional scruples as to the extent of parliamentary right to interfere with the domestic affairs of the colonies, Massachusetts, in 1751, applied for, and obtained an Act of Parliament prohibiting the New England Assemblies, except in case of war or invasion, to issue any bills of credit, for the redemption of which, within the year, provision was not made at the time of issue, and expressly forbidding that any such bills should, in any case, be made a legal tender.* The experience of the other colonies issuing paper money, was, on the whole, very like that of Massachusetts and South Carolina. In some of them matters came to a worse pass, in others the trouble never reached so grave a stage. The expansion and depreciation and attendant disorder were greatest in Rhode Island and least in Penn- * Hutchinson, II., 391-396; Hildrctli, II., 406. -^Tttfi^':^ 1 r' \ ¥ V ^^ (^ ® lfe ^ UMMINGS / h cl I Vice Pr^e^\oent. ;<^%^ .^r^V-" * * \ /' ^ 1 ^^^HiS\ 1 i^ .,-<^' ^.T^tfM'^tSJV vf \ ^W^^^^^'^^"^'' ^ r ^^p^^^ —lip^ II ^in nil ^ tiMgm \;'^ >l^^ '%..i^ 1 i. \ .<\wiif4 ^'v>V>. A0V,T6Kk& HVfeOA\^"\\'3 ••X <',;■■• •VV'li ^\ ■?s lO ra !^A ^ '^^ rmmsitf- / /. va '?;- / S, 4 ' ^ AU6.i8ra lNC0F^P0F^ATED/\UG.l6 I8B^ pf\|D tip ftprmL JfoiSoo^ 7 >!iooo J.E.8AMTK Pi?e>T. 8.C.S^MTH ViotPnesr. E.K./\/ABl.EH 8e" W.D.OOX Tue;*?. FARM M0FITGAGC5 /^^f DCB^;iTUl\CB0/fD5 BE«rRI6E.MB8. 91 $6,000,000. Great as was the nominal expense of that war it is altogether probable that this sum in specie, together with what would have come from abroad, or even with what actually did flow in from French and Dutch loans and from sums paid out in the country for the support of the British and French armies, would have been ample for every occasion. The people of the thir- teen colonies were then, in proportion to their numbers, more opulent than those of France, and, had they pos- sessed the inclination and the means of organizing their resources, easily could have paid the price of their inde- pendence without resorting to a disastrous and demoral- izing issue of paper. The most pressing necessity which confronted the second Continental Congress when it convened May lo, 1 775> was that of providing money to carry on the war which, with the battle of Lexington, fought the month before, was now flagrant. Having^ nq_a uthoritv to jfixy taxes directly, and unwilling to await^^he^ slow process-«f a-tall uporr~tlTe~stateF for money, on June 23, in con- formrty with'the suggestion of the New York Provincial Congress, ll Was voted to~Ts sue $2,000,000 in continental bills of credits The new paper did not get into circula- tion until the next August. Other issues followed rapidly. For about one year, and until the paper in circulation exceeded $9,000,000, the bills were freely received at their nominal value, no distinction being made in ordinary transactions between continental money and gold. The liability for the bills was distributed among the colonies, subject to future revision in the ratio of the supposed "number of their inhabitants, of all ages, including negroes and mulattoes; " and were to be redeemed in four annual installments, to commence at the end of four years. 92 With successive issues the time for the commencement of redemption was extended, first to eis^ht years and finally to eighteen years for the latest issues. In February, 1776, the first issue of continental notes of less denomina- tion than one dollar was authorized. In 1777, when con- tinental bills had sunk to one-half their nominal value, Congress denounced every person who would not receive them at par as a public enemy, liable to forfeit whatever he offered for sale; and requested the States to declare the notes a lawful tender. Massachusetts had already made them legal tender and this example was at once fol- lowed throughout the Union. The several States were at the same time invited to cancel their respective quotas of continental bills. They all had irredeemable currencies of their own, and, as they possessed nearly all the real powers of government, under the Confederation, their bills were less insecure than the continental currency. Congress, therefore, urgently needed the exclusive right to issue paper money, if by bills of credit the war was to be prosecuted, and to that end recommended the States to call in their bills and to issue no more. This request was often renewed but never heeded; so the notes of each one of the thirteen states continued to compete for circulation with those of the Continental Congress. The value of the continental currency was further impaired in 1776 by the ignoble stratagem of the British Government, under whose authority Lord Dunmore and others put into cir- culation in Virginia and other States a large number of "counterfeit bills manufactured for that purpose in England. In 1779 this counterfeit money had become so largely circulated by the agents making purchases for the British army, who were regularly supplied with it, that Congress was compelled to recall, for other paper, two entire emis- 93 sions of $5,000,000 each. The excessive issue was, however, the principal and all-sufficient occasion of its depreciation. As we have seen about $9,000,000 of it circulated at par with gold. No very marked signs of depreciation appeared until $20,000,000 had been issued, or until about January, 1777. The ratio of depreciation was then one and one-fourth of paper for one of specie. Before the end of that year it became four for one. At the end of 1778 it reached ten for one. When, in September, 1779, the ratio had fallen to twenty for one. Congress determined that the total issue should not exceed $200,000,000, renewed the declaration that this currency should be redeemed in full, and went into a lengthy argu- ment to prove that the States had the ability to do so, but did not stick to its resolution to restrict the issue. In March, 1780, these issues had so depreciated that their value as compared with specie was as forty to one. Con- gress now required the whole to be brought in for redemp- tion at its market value in coin, and authorized the emis- sion of new notes bearing interest at five per cent, and payable in six years from date in silver and gold. These were to be exchanged in proportion of one dollar of the new for twenty of the old. During 1780 the bills sank to one hundred for one. By May 31, 1781, they had fallen to five hundred for one, or two-tenths of a cent on the dollar, after which they ceased to circulate as money. They continued to be bought on speculation at ratios vary-^ ing from four hundred for one to one thousand for one oy specie. Massachusetts, Rhode Island and New Hamp- shire redeemed their quotas of continental currency by receiving it for taxes at the rate of forty for one. Con- necticut, Delaware, the CaroHnas and Georgia took up none. The other states redeemed parts of the quotas 94 assigned to them at the same rate as Massachusetts. The estimates of the total issues of continental currency vary astonishingly, as authorities of seemingly equal credit reach amounts as widely apart as $200,000,000 and $350,- 000,000. The last figure seems to be nearest the truth, although it is probable that no more than $200,000,000 of it was in circulation at any one time.* Beside the continental paper issued by Congress, all of the States put out bills of their own. In some States, as Massachusetts and Pennsylvania, these bills were ulti- mately called in and funded at their nominal value. In others, especially at the South, they were partially redeemed by the issue of land warrants. The remainder shared the fate of the continental currency, being either repudiated outright or funded at an immense depreciation. No State made such profuse issues as Virginia, and such of her bills as were not paid in for land warrants ^ — -and enough of these bills could be bought for five dollars in specie to purchase a warrant for seven hundred acres of land — were finally funded at the rate of one thousand for one. The total issue of these State bills of credit from 1774 to 1783 was upward of $210,000,000. The benefits which the Conti- nental and State governments derived from all these issues were in no way commensurate with the burdens which they entailed upon the people. According to the estimate of Mr. Woodbury, secretary of the treasury from 1834 to 1 84 1, the depreciation and subsequent repudiation of the continental currency entailed upon the country an aggre- gate loss of $196,000,000, most of which fell upon the friends of the revolutionary cause, as the Tories either declined to receive that paper or parted with it as soon as possible. Pelatiah Webster, writing in 1780, declared that » HUdreth, III.; Bancroft, X.; Gouge, II.; Essays of Pelatiah Webster. 95 the country suffered more from this depreciated currency than from every other cause of calamity; that it killed more men, did more to corrupt our choicest interests, and worked greater injustice than all the armies and artifices of our enemies.* "Shay's Rebellion" which broke out in New England in 1785 and 1786 was an insurrection of debtors who were suffering from the collapse of the currency and the return to specie values. They were clamorous for paper money. Although no concessions were made to the rioters in that particular, Massachusetts did pass a law delaying the collection of debts. In Rhode Island this movement was not riotous, but took the form of a new political party. The paper-money party carried the elec- tions in 1786, and then began a new period of this mania. Bills amounting to ^100,000 (there was yet no federal monetary system or coinage) were issued, by the vote of the rural towns against the cities, and loaned on mortgage of land for fourteen years. They were made a legal- tender and depreciated at once. Merchants refused to receive them and closed their shops. The farmers retali- ated by refusing to bring food into the cities, and a ridiculous struggle followed which brought business to a stand-still. The paper-money party met and petitioned the authorities to enforce the penal laws against those refusing to receive the bills. By these laws cases involv- ing a legal tender took precedence of all others and must be tried within three days after complaint made, without a jury, and without right of appeal. The fine for a first offence was from £6 to ^30, and greater for a second. In a case brought against a butcher for refusing bank paper, five judges agreed the act was unconstitutional. A * Hildreth, III. ; Bancroft X,; Gouge, II.; Webster's Essays. Bolles, I. 96 special session of the Assembly was called and the judges were summoned to assign the reasons and grounds of their decision, and subsequently, four of them were removed. A law was proposed which disfranchised any one who refused to receive the paper on an equality with specie, but this failed to receive the sanction of the towns. Land rents were paid in produce. The State debt, incurred during the revolution, was paid off in the depre- ciated currency. The question of the ratification of the new federal constitution coming up at this time, the paper- money party was strong enough to procure its rejection and keep Rhode Island out of the Union for three years. When, in 1787, numerous suits were brought in the courts for the redemption of estates from mortgages, "the suitors came prepared with paper money in handkerchiefs and pillow cases to redeem their lands." The money con- tinued to depreciate until 1789, wlien the legal-tender laws were suspended and the depreciation fixed by law at eighteen for one. The people of Rhode Island were, at that time, thoroughly imbued with the belief that money is something which derives its value from the authority of government. They gave to fiat paper money all the countenance and support which public opinion, public favor and the most stringent laws in its aid could afford. The result was wide-spread pecuniary disaster and finan- cial and moral disgrace to the people, while the State came dangerously near to extinction through partition and annexation to Massachusetts and Connecticut.* In May, 1780, Robert Morris, George Clymer and other leading citizens of Philadelphia associated them- selves under the name of the Bank of Pennsylvania, and having subscribed a small capital in hard money, com- • BoUes, L; Hildreth, IV., 209, >^^f\APiTAL * 1 0O.O O O PLUS $50,000. as )jOOO edarK/vpids rEyER.9F 'REST. ■'#»•» ^^t^* 'c ■6. ei "^s. X J.L^WEI^eASH.E^ b0ES/\ GEflEF^PyL B/\NI^ING BUSINESS ,cm^^ ^^m ^o- CW-hCRMlLTON MT- BARLOW CasViicr. c!WlU XAMiaOhl A$yV. ne*-. •X -^'- •b ,\ .Jv' •S'^ \finED) mmm 2 SO. 000/00: f Z 6.000. 00. ^ 97 menced the issue, as a joint-stock bank, of promissory notes, which were employed without profit to themselves in the purchase of supplies for the army. Congress deposited with the bank a considerable sum in bills of exchange drawn upon John Jay, then negotiating a loan in Spain, as a support to their credit and indemnity in case of loss. This bank was of very considerable service in procuring and forwarding supplies. It continued in exis- tence until after the end of the war, finally closing its affairs toward the end of the year 1 784.* ^^^^-^On May 17, 1781, a plan for a national bank was sub- mitted to Congress by Robert Morris, the principal provisions of which were as follows : The capital was to be $400,cxD0 in shares of $400 each; each share to have one vote for directors; the directors to be twelve in num- ber, chosen from the stockholders, who at their first meeting were to choose a president from themselves; the directors to meet quarterly; the board to be empowered from time to time to open new subscriptions for the increase of the capital stock; regular statements of its con- dition to be made to the continental superintendent of finance, and it to be at all times subject to his examination; the notes of the bank to be payable on demand over its counter and to be made by law receivable for taxes and duties in every State, and from the several States by the treasury of the United States. On Maj^ 26 Congress adopted a resolutiQlL_apjDroving"~~thTs plan, promising^o promote and support the same by such ways and means, from time to time, as should appear necessary foijhe ins^- tution and consistent with the public good ; and providing "that the subscribers to said liank shall be incorporated agreeably to the principles and terms of the plan, under * Hildrcth, III. 310; Doniet, 3. (T) lOO chusetts on February 7, 1784. Its original capital was $300,000, and the charter "allowed three dollars of cur- rency for one dollar of metallic deposit. " The restrictions placed upon its officers did not permit the lending of more than "$3,000 to any individual at one time, and but $5,000 in the aggregate to any one borrower. " Loans could be granted for no more than sixty days upon the pledge of merchandise, bullion, or other securities as collateral, and for thirty days only on personal obligations with two sufficient sureties, "without the privilege of renewal on any terms." It continued as a State bank until 1864, when it reorganized under the national banking law, and is now doing business as the Massachusetts National Bank of Boston, with a capital of $800,000. The merchants of New York were but a few days behind those of Boston in following the lead of their com- petitors in Philadelphia. The success of the Bank of North America stirred up the speculative element in New York, and, on February 12, 1784, a proposal was adver- tised in the Packet newspaper for the establishment of an institution to be called the Bank of the State of New York, with a capital of $750,000, in shares of $1,000 each. The management was to be in the hands of a governor and six directors, who were to serve without pay until the first dividend was declared. Two of the directors and the governor were to attend constantly at the bank, and no money was to be paid out without their consent. The subscribers were to pay one-third their subscriptions in "cash," and for the other two-thirds "landed security" was to be given by mortgage or deed of trust. No lands outside New York and New Jersey were to be accepted, and all lands were to be appraised at not more than two- thirds their value. The directors could borrow "to the i COR. LA SALLE S\ ASHINGTON STS. f'P.VllLSON.(ASHIEf^. 8.V)^.^T0N E.A5S-r.(?/\SH i^ 700,000 f^ W(j).Gi^ANrJis. Finest. '^ C.R.FAJ\V\/ELLV^icfpREST. ^ usi/\ess1raAsagted j^ "Prompt Attention Given to (^ORI^ESPOr-^DENCE. SoLlGlTED llections. TXTESTEI^iLT X-i-^l^TlDS- W. J. BARNEY & CO. l^anward Pub. Co. ESTABLISHED 1851. Give Special Attention to Buying and Selling Western Lands, Paying Taxes and Perfecting Titles. REFERENCES. ri<«t National Bank, Chicago; all Bank* I'edar Rapids., Inna; Ja) Toiike. 122 South Fourth Str<>et, PhlladelphiH, and S7 jrearf eontlniiaiicd iiu>iiir'<7AsK/\ and f/of^THCf^r{}(A>/5/\S rrincipalan^ Interest Fully^uaran^eea ana pal3 at any local banKm IheE/^STER^ St/\TCS 0./(\.CAIfrrC!l. D.DXOOUY^ r- C.S.;^ONT60M£l^y. JppOTTEf^. JJ.BftOwW. J.FF^ED F^OGE^S, BOSTON. lOI extent of one-third of the value of the lands" in case they found it necessary to increase the cash resources of the bank, but no further. The folly and danger of this scheme, which was nothing but the old land bank with little more than a semblance of disguise, was quickly per- ceived; but it served to hasten the action of those who desired a really sound banking institution in that city. After several meetings had been held, a number of leading business men, on February 26, 1784, agreed upon a plan for creating a bank, to be called the Bank of New York, under which an organization was speedily effected. This provided for a capital stock of $500,000 in silver or gold, to be divided into one thousand shares of $500 each; that as soon as five hundred shares should be sub- scribed a meeting of the subscribers should be held to elect a president and twelve directors; that at all meetings of subscribers or share-holders every subscriber or stock- holder should have one vote for each share of stock held by him to the number of four; the holder of six shares to have five votes, for eight shares six votes, and for ten shares seven votes; but no stockholder should have more than seven votes, be the number of his shares ever so great. This last provision was afterward amended to allow one vote for every five shares in excess of ten. A dividend was to be made at the end of the first year, and semi-annually thereafter. To encourage trade, the proprie- tors of the bank fixed the rate of discount at six per cent. Sufficient stock having been subscribed, officers were elected March 15, 1784. Alexander Hamilton was among those chosen on the first board of directors ; and the "constitution" under which it commenced operations was written by him. As none of the newly-selected officers, nor any other trustworthy person in New York, was I02 familiar with the methods of banking business, the cashier, Mr. Seaton, was dispatched to Philadelphia with a letter of introduction from Hamilton, to procure the desired information from the Bank of North America and to pur- chase such material as could not be had in New York. On May 22 "the president and directors qualified before His Worship the Mayor as required by the constitution" of the bank. On June 7, the subscriptions having been paid in, and some deposits having been made, notice was given that the bank would formally commence business on Wed- nesday, June 9, 1784; and that applications for discount would be received on the succeeding Wednesday. The following rules, to be observed in transacting business with the bank, were also published: "The bank will be open every day in the year except Sundays, Christmas-day, New-year's-day, Good Friday, the Fourth of July, and general holidays appointed by legal authority. "The hours of business will be from ten to one o'clock in the forenoon, and from three to five o'clock in the afternoon. " Discounts will be done on Thursday in every week, and bills and notes brought for discount must be left at the bank on Wednesday morning, under a sealed cover, directed to William Seaton, Cashier. The rate of dis- count is at present fixed at six per cent per annum; but no discount will be made for longer than thirty days, nor will any note or bill be discounted to pay a former one. Payment must be made in bank notes or specie. Three days of grace being allowed upon all bills, the discount will be taken for the same. " Money lodged at the bank may be redrawn at pleas- I03 ure, free of expense, but no draft will be paid beyond the balance of the account. "Bills or notes left with the bank will be presented for acceptance, and the money collected free of expense; in case of non-payment and protest, the charge of protest must be borne by the party lodging the bill. " Payments made at the bank must be examined at the time, as no deficiency suggested afterward will be admitted. "Gold coin is received and paid at the Bank of New York at the following rates : A Johannes - Weigh'g i8 dwt. |>i6.oo A half Johannes - - - (t 9 8.00 A Spanish doubloon - ^ ce 17 15.00 A double Spanish Pistole - ft 8 12 gr- 7.48 A Spanish Pistole _ (t 4 6 3-72 A British Guinea . - . H ThflSBJKNK IN IS 87 riHIiiiii :^a' : i iilf iiiKi.^1 ^^ I07 the Legislature asking for a charter for a company with a capital of $2,000,000 for the purpose of introducing a supply of pure water into the City of New York. The prevalence of yellow fever during the summer before had been largely ascribed to the use of contaminated water, and had created an alarm which made the passage of any bill to improve the sanitary condition of that city an easy mat- ter. Toward the end of the session the bill incorporating the Manhattan Company was accordingly passed by the Legislature, without a suspicion on the part of the great majority of those who voted for it that it contained a grant of banking privileges or indeed anything else but a fran- chise for the distribution of pure water. But the real purpose of the scheme was soon made manifest. While the bill had been on passage through the committee stage it had been suggested that the whole of the new corpor- ation's $2,000,000 capital might not be needed at once in constructing water-works, and a clause was added pro- viding that the surplus capital might be "employed in the purchase of public or other stocks, or in any other moneyed transactions or operations not inconsistent with '. the laws and constitution of the State of New York. " No sooner had the bill become a law and the stock fully subscribed, than the persons interested proceeded to carry i out their plans by giving notice that the new corporation would begin banking operations in September with a ; capital of $500,000. The discovery that so broad a fran- i chise had been so incautiously granted occasioned no little \ excitement and indignation. It was charged that the 'i Legislature had been cheated and tricked in order to i: allow Burr and his friends to obtain control of a majority : of stock of the company and power to use its capital for their own purposes. But it was too late. The Man- r io8 hattan Company continues to this day to be the leading state bank of New York, as distinguished from the national banks, and, under the same broad clause of its charter has organized life and fire insurance companies and conducted a great variety of other enterprises. On July, 6, 1865, the Bank of New York re-or- ganized under the national banking act, taking the title of "The- Bank of New York National Banking Asso- ciation," which it still retains, with a capital of $2,000,000. During the first hundred years of its existence it paid to its stockholders dividends amounting, in the aggregate, to 910^ per cent, and never passed a dividend except in 1837 when it was compelled by law to do so.* * Domett's History of the Bank New York. Chapter VII. THE FIRST AND SECOND BANKS OF THE UNITED STATES. On the organization of the government of the United States under the present Constitution, Alexander Hamil- ton, Secretary of the Treasury, in his masterly report on the finances of the country, made to Congress December 13, 1790, recommended the establishment of a bank of the United States and opposed the issue of paper money by the Government. At that time there were in existence in the country only the three banks — the Bank of North America, the Bank of Massachusetts and the Bank of New York, with an aggregate capital of about $2,000,000 — of whose organization sketches have been given. There was no provision for the reception and paying out of the bills of these banks by the Government and the supply of gold and silver was meagre. The Government daily suffered for the want of small sums in ready money. So long as specie only could be used, and there was no national bank, the delay and expense incurred in trans- ferring money from place to place were burdensome and vexatious. Therefore, it was argued, a national ban k was imperatively required, which would not only serve these purposes but many others as well, by making temporary loans to the Government. The bill for the bank was debated chiefly on two grounds — its constitutionality and its expediency. It passed the Senate with little opposi- tion but was vigorously resisted in the House of Repre- 109 no sentatives. On February 8, 1791, the House passed it by a vote of thirty-nine to twenty. Before signing- it, President Washington required each of his cabinet officers to submit a written opinion on its constitutionality. The Cabinet was equally divided. Hamilton, Secretary of the Treasury, and Gen. Knox, Secretary of War, affirming its constitutionality, and Jefferson, Secretary of State, and Edmund Randolph, Attorney General, denied it. But the bill became a law by the President's approval, on Feb- SILVKR HALF-DOLLAR OF 17^. ruary 25j i2Q-L> and the bank at once went into operation. The capital was fixed at $10,000,000, divided into 25,000 shares of $400 each; one-fifth of which might be sub- scribed by the United States, but no other subscriber might take more than 1,000 shares. The subscriptions, except that of the United States, were to be payable one- fourth in specie and three-fourths in certain six per cent stocks of the United States or in other three per cent stocks at half their nominal value. The institution was incorporated under the style of "The President, Directors and Company of the Bank of the United States," to con- tinue twenty years, expiring March 4, 181 r. The bank was authorized to hold property of all kinds, not exceed- ing, exclusive of its capital, $15,000,000. Twenty-five directors were to be elected, by a plurality of votes, on Ill r the first Monday of January in every year, for one year only, who were to choose a president from their own number. It also provided "That no other bank shall be established by any future law of the United States during- the continuance of the corporation hereby created, for which the faith of the United States is hereby pledged." The bank was authorized to establish offices of discount SILVER DOLLAR OF 1794. and deposit in the several States, and to issue notes which were to be received in payment of all dues to the Government. It was authorized to sell the Government stocks received for subscriptions, but was forbidden to become the purchaser at such sales. Of the capital, $5,700,000 was reserved for the chief bank, which was SILVER HALF-DIME, 17^-5. established at Philadelphia, and the residue of $4,300,000 was to be divided among the eight branches to be estab- lished in the principal cities of the Union. The entire capital was subscribed and applications made for 4,000 I 112 shares in excess of the whole stock, within two hours from the time the books for subscriptions were opened. The enterprise was immediately successful. The divi- dends averaged eight to ten per cent per annum, being much below those of the Bank of North America in previous years; which, in the words of a distinguished writer, "now gradually declined as other banks sprang into existence. " The payment of the Government shares HALF EAGLE OF 1795. was to be in ten annual installments, but the treasury department found it very difficult to comply with this requirement as to the entire payments, the urgent demand for money to meet other pressing occasions being con- tinuous for several years. Neither bank nor Government had been long in operation when the need arose for a temporary loan from the bank. Congress authorized the treasury to procure loans to pay the appropriations of the SILVER DIME OF 1796. year, and to pledge the duties on imports and the tortnage tax for their repayment. The revenue came in so slowly that its anticipation in this manner could not be avoided if Government expenditures were to be paid as they 5^«»gf^#9s?*'*^J, I M I «-4 -^ s o u(Ki\ THE WABASH RAILWAY 'h ..:-:..... y..-...::;A^-.-... ^ IS THE ONLY LINE RUNNING SOLID & COMPLETE BETWEEN ons\s» smoking coaches ^- ELEGAHT FREE RECLINIHG CHAIR CARS fklC/^GO V — AND_ PAIACE SlIEPIHG CARS "~-^luioRM(VTl«H BUFFET COMPARTMENT CARS Co^^«H,THtn\>»'°yj>^ \H0 extra (HAI{GES, »KHutT/"'KMv3 ^ ON THESE i'^,,;^";; ,,, «, I t^ ■^■^ iviBEFt OF=^ ©etrolei/nxs Exch^i\^ ^y\fE"w)^B^ ^TOCK5 ^oHD5 GF^iNg|)ETf\pLEUM. Bought g SPLD FOI^CaCH 0I\^I^IED ONyV^AF^GINS •Accounts 9!oLiciTEr) 113 became due. This policy was condemned by Albert Gal latm, but was generaHy defended on the ground that it was a well-known practice with older governments, and hat there was no other way of getting the money impera- lively required. ^ ^J. \^-''7 ^""T' °^''''""'' ^""^"^ ^'"^^ ^« t''"^. vvere of three kmds: First, those made in anticipation of taxes to meet current expenditures; the last of which was made in I795. Second, the sinking fund commissioners were authomed to borrow money, not exceeding $1,000,000 annually, i„ anticipation of the revenues, to pay interest. Each loan of this kind was to be reimbursed within one year after it was made. Third, loans were also founded on a pledge of the revenue to meet the exigencies of a spe- cific case rather than for a general purpose. The first loan ot this kind was to cover the expense of an Indian war Of SILVER QUARTER.DOLLAR OF ,796. Other subsequent loans, one was to provide money to ransom American sailors held in slavery by the Algerines. One still later was to equip and maintain the ships which earned on the war which the United States, first of all civilized powers, waged against the Barbary States for the protection of its commerce and citizens, rather than to pay tribute. Between the years 1796 and 1802 the United States disposed of Its stock in the bank at a net profit of $1,137,- (8) \ 114 152.29, equal to fifty-seven per cent on the original invest- I ment. In August, 1791, we are told, United States Bank scrip sold for 195, in consequence of the mania for specula- tion. In September of the same year, it fell to no, but ral- lied, almost at once, to 145. The last sales of its stock on Government account, in 1802, were made at 145. It was a successful and prosperous enterprise from first to last. But, unfortunately for the bank, during the entire | term of its existence it was looked upon and dealt with by a large majority of business men, and by rnen in public life with scarcely an exception, as a political rather than a business undertaking. Its projector, Hamilton, in 1791 urged its creation "as a powerful political engine." Polit- I ical opposition continued from the beginning to the end of its career. When Jefferson became President he desired Albert Gallatin, then Secretary of the Treasury, to make ajudicious distribution of his favors among all the banks, since the stock of the United States Bank was held largely by foreigners, and, "were the Bank of the United States to swallow up the others, and monopolize the whole banking business of the United States — which the demands we furnish them with tend shortly to favor — we might, on a misunderstanding with a foreign power, be immensely embarrassed by any disaffection in that bank." When the territory of Louisiana was purchased in 1805, Gallatin was desirous of establishing a branch bank at New Orleans. He considered the step of the highest importance. But the President vehemently opposed every extension of the bank. He wrote to Gal- latin: "This institution is one of the most deadly hostility existing against the principles and form of our Constitu- tion. What an obstruction could not this Bank of the United States, with all its branch banks, be in time of (^'''- W^;iJ'-r^ H/ / "5 war!" But Gallatin, being brought into more intimate relations with the bank, did not share the fears which Mr. Jefferson expressed, and the branch was established at New Orleans. While the bank existed the funds of the Government were deposited with it to the credit of the United States Treasurer. They were considered in the Treasury from the time of depositing them, and were subject to the Treasurer's control. The Government ceased to be a stockholder in 1802, and only once applied for a loan after 1805. The revenues of the Government had grown more ample, its wants were not so pressing, and loans were unnecessary. With the great majority in Congress the bank was endured only as a convenience for obtaining such loans. Yet the other advantages derived by the Government from the bank were neither few nor unimportant. As stated by Gallatin in a com- munication to Congress recommending a renewal of the charter, these advantages were, first, with respect to keeping the public money ; another concerned its transmission from point to point, both at home and abroad; a third, and the greatest, related to the collection of the revenue. The punctuality of payments introduced by the banking system, and the facilities which it afforded importers indebted for revenue bonds, had enabled the Government to collect with greater facility and fewer losses the revenues derived from the imports than it could, have done had no such bank existed. One chief com- plaint was that the bank and its branches, and particularly the branch in New York, were more inclined to grant loans to the members of one political party than to others. Whether this charge contained any truth or not, the com- plaint ceased to be heard after the creation of the Man- hattan Company in 1799. 1 1x6 / The bank was required to make weekly reports to the Secretary of the Treasury, but the following, for Jan- uary 24, 181 1, is one of the only two balanced statements found of record: RESOURCES. Loans and discounts, - _ _ United States six per cent stock, Other United States indebtedness, - Due from other banks, Real estate, . - - . Notes of other banks on hand, - Specie, - . . . . Total, - . . , LIABILITIES. Capital stock, ... Undivided surplus, ... Circulating notes outstanding. Individual deposits, - - . United States deposits. Due to other banks, - - - Unpaid drafts outstanding, - Total, - - - - - i?i4,578,294 2,750,000 57,046 894,145 500,653 393,341 5,009,567 - ^24,183,046 ^10,000,000 509,678 5,037,125 5,904,423 1,929,999 634,348 171,743 ^24,183, 046 In 1808 the bank petitioned for a renewal of its charter which would expire three years later. This application was favored by Gallatin, Secretary of the Treasury, and by Crawford and Pickering in the Senate, and opposed by Mr. Clay. The trouble with France and England then impending made war probable in the early future with one or both of these powers. The State banks expected to profit from the disturbances which would accompany open war and contributed largely to prevent any consideration of the bank's application until 1810, when a decision could no longer be delayed. The necessity of the bank was warmly urged by the Treasury department. The debate HorrL omcANS. The Favor iTe and OnlY Di recT RoutE To SPIRIT LAKE ANDThE fishing 8; HUNTING Grounds of Northwestern iowa C. J. Ives pres't 8^ gen'l supt J. E. Hannegan gen'l ticket 8t Passenger agent. CEDAR RAPIDS koWA. IQWAROUTE \ CEDAR RAPIBS ' ■'—--_ ■*^ "COTUGISAHD BCACH.NIM "^■* _- HOm.SPIBIT LAKl. ~J8 >--5ii=ir"* »,i .-. ■'•>^: Iai^v/ar^. Co. view or Sfldll lAKt.fAST 0K030H HMO MOTH 0»ir»WI, MOA» TMt TOW* Of SUKir lAKI. I I < ~^': Officers. H. E. Ball, Proident. Oeo. C. Moxrbll, Vice President. B. R. WunLTR, SecreUry. P. T. Bastlbtt, Am"! SecreUry. S. L. LEAvrrr, Manager City Dep't. G. J. WiLMOT, Gen'l Examiner. Jones & Maion, Counsel. Byron Robsrts, i RANKra Mason, f Auditors. O. S. Bowman, Cashier. J. P. Goccw,. Ass't Casliier. Boston Safr Deposit and Trust Co., Trustee. B'jston Office removed to loi Devonshire Street, corner Water St. 1 500.000.00 Geo.L.Joy. EJ^.Smilh- Secretary. Fresicier\t . Directors. Benjavin M. Davies, Topeka, Kansas, Vice President, Bank of Topeka. Hon. Albert H. Horton, Topeka, Kansas, Chief Justice Supreme Court. Oliver H. Hav, Topeka, Kansas, Hay, Wiggin & Co., Dry Goods. SvLVANUS L. Leavitt, Topeka, Kansas, Capitalist; Director Kansas Kat'l Bank. Byron Roberts, Topeka, Kansas, Treasurer Shawnee County Kansas; late Cashier Bank of Topeka. Rankin Mason, Topeka. Kansas, Jones & Mason, Attorneys at Law, Geo. C. Mokrell, Vice President, Boston, Mass. Bennett R. Wheeler, Secretary, Topeka, Kansas. Herbert E. Ball, President, Topeka, Kansas. Hon. Joshua G. Hall, Dover, N. H., Ex-Member Congress; Director Dover National Bank. Hon. Samoel T. Howe, Topeka, Kansas: President Kansas National Bank; Ex- Treasurer State of Kansas. Lewis W. Anthony, Providence, R. I., Green, Anthony & Co., Wholesale Dealers Boots and Shoes; Director Traders National Bank. Isaac J. Carr, Gardiner, Me., President Gardiner National Bank. Edwin A. Smith. Providence, R. I., Cashier City National Bank. 117 in both branches of Congress was long, able and bitter. The old question of its constitutionality was discussed at great length, and its opponents denied that the institution was at all necessary to aid the Government in discharging its functions, insisting that it was evident, from the rapid multiplying of State banks, that there was a redundancy of capital. It was asserted that in case the bank should not be rechartered that the quantity of specie in the country would be reduced by the exportation of the large amount of its capital which belonged to foreigners. The bill was defeated in the Senate by the -casting vote of the Vice-President, George Clinton, on February 20, 181 1, and subsequently failed in the House by a minority of one^ vote. The bank was now obliged to wind up its affairs, which was done with very little disturbance to the busi- ness interests of the country. Within eighteen months from March 4, 181 i, the stockholders had received 88 per cent upon their stock. On finally closing its business, the assets yielded to the stockholders an excess of 8^ per cent above the par value of the stock. Before going into liquidation, the bank made an unsuccessful application to the Legislature of Pennsylvania for a charter for a State bank with a capital of $5,000,000. During the war of 18 12- 15 the National Govern- ment, which was embarrassed by the want of means, had received very considerable loans and other timely service from the State banks. Owing largely to such advances, the State banks, with the exception of those of New Eng- land, were, in August and September, 18 14, driven to a suspension of specie payments. Toward the end of 18 14 the finances of the Government were again in seemingly inextricable confusion. Alexander J. Dallas became Sec- retary of the Treasury on October 6, 18 14, and, within a ii8 fortnight thereafter, made to Congress a report of extraor- dinary ability and lucidity upon the condition of affairs./ In this communication he strongly recommended the re-establishment of a national bank, as the remedy required to bring the finances once more into order. The State banks again were opposed to its creation. With them were the speculators in exchange, whose influ- ence was very considerable, and all whose interest were served by a continuation of the suspension of specie pay- ments. Various plans were brought forward in Congress which resulted in nothing, until, on January 20, 181 5, a bill was passed. This was vetoed by President Madison, not for lack of constitutionality, as he considered that point already settled by the courts, but on the ground that it would not accomplish the objects rendered neces- sary by the state of the revenue and the condition of the country. On April 3, 1816, however, a bill for a Bank of the United States, which had previously passed the House of Representatives, was adopted by the Senate, and, receiving the signature of the President, became a law on April 10, 18 16. The charter was limited to twenty years and the capital to $35,ooo,o<'the agreement. The payment of the balances which might accumulate against the banks, sub- sequently to the transfer of the balances previously men- tioned, from the payment to them of Government dues in return for money previously borrowed, was not to be demanded by the Bank of the United States until it and 121 its branches had discounted for individuals, other than those having duties to pay, certain specified sums in the several principal cities of the country, provided the money should be called for within sixty days, by borrowers offering good security. If the whole amount so to be loaned should not be taken by individual customers then the residue was to be lent to the banks signing the agreement. This plan for restoring specie payments was wholly successful. They were resumed and maintained while the charter of the bank continued in force. When the bank began business eighteen branches were established in different States. The notes of the bank, whether issued by the parent bank or by any of the branches, were everywhere received in payment of duties and taxes, and were redeemable in specie at any office of the bank. Another very important function which it performed was in equalizing the rates of domestic exchange. Through its agency funds could be trans- mitted from one part of the Union to another at an expense not exceeding one-half, and frequendy less than one-fourth, that commonly charged by private dealers, not exposed to the competition of the bank. From 1820 to 1835 the country was prosperous, the bank recovered from its embarrassments, and its stock rose steadily in value. Long before 1828 the bank had lived down all respectable opposition; and it was therefore a surprise to all parties when President Jackson, in his first \ message, in December, 1829, took ground against a renewal of its charter when it should expire in 1836. The agitation thus awakened grew in intensity, until it culmi- nated on July 16, 1832, in the veto by President Jackson J of a bill re-chartering the bank. The interval of about six years between the com- 122 mencement of Jackson's warfare upon the bank and the expiration of its charter is memorable for the violence and acrimony of the dispute between the administration and its supporters on one hand, and the bank and its friends on the other, both in and out of Congress. The famous order for the removal of the Government deposits was issued in 1833 by Mr. Taney, who was made Secre- tary of the Treasury for this purpose, his predecessor, Mr. Duane, having declined to issue such an order. -When Congress re-assembled in December, 1833, reso- lutions were adopted in both Houses ; those of the • Senate censuring the President and Secretary of the Treasury for usurpation of powers, while in the House it was declared that the bank ought not to be re-chartered, that the public deposits ought not to be restored to it, that the State banks should be continued as depositories, and that Congress should further regulate the subject by law. Among the early results which followed the removal of the deposits was the expansion of their issues by the State depositories, and the wild and general inflation of the / currency by a multitude of other banks, old and new. The aggregate of circulating notes, exclusive of those of the Bank of the United States, increased from $61,000,000, in 1830, to $149,000,000, in 1837. In 1830 the currency of the country had been characterized by the finance committee of the Senate as being more sound and uniform than that possessed by any other country; and yet within seven years after this all the banks then in operation, including the great Bank of the United States, which had been ■ re-chartered by the State of Pennsylvania, went into sus- / pension. The bank, when denied a renewal of its charter by Congress, did not close up its affairs, but applied for, and obtained, a charter from the State of Pennsylvania, 123 February i8, 1836, thirteen days before the expiration of its charter from the National Government. This was substantially a renewal for thirty years of the old charter and under the old corporate name, but with a change as to the amount and terms of the bonus to be paid the State for such charter. Colonel Benton, a sincere if not unpre- judiced opponent of the Bank of the United States, char- acterized the Pennsylvania charter as indicating, by every circumstance of its enactment, corruption and bribery in the members who passed it, and an attempt to bribe the whole people of that State through the bonus to be distributed among them. This bonus, had the bank remained solvent and in existence long enough, would not have fallen short of $5,000,000. The history of the bank subsequent to the crisis of 1837 was a disastrous one. It suspended payments as frequently as other State banks, and finally succumbed to difficulties which prudent management would have enabled it to overcome. It made three several assignments in 1841, to secure various liabilities, the last and final assign- ment being on September 4, 1841. The $7,000,000 of stock held by the United States previous to the time at which the institution became a State bank was paid back in full, and the Government realized a very handsome profit upon its investment, as will appear by the following statement, taken from the report of the Comptroller of the Currency for 1876 : 124 Bonus paid by the Bank of the United States, - - . . . ;? 1, 5 00,000.00 Dividends received from the bank, - V^i 18,416.29 Proceeds of stock sold and moneys - received from the bank, : - 9,424,750.78 ^°^^^' $18,043,167.07 Subscription of capital stock, paid in United States five per cent bonds, $7,000,000.00 Interest paid by the United States on same, 4,950,000.00 11,950,000.00 Profit on investment, - - - §6,093,167.07 Nicholas Biddle was president of the liank from Jan- uary, 1823, to March, 1839. At the time of his resigna- tion the shares were selling at 1 1 1, having in 1837 sold at 137; but in 1843, after the failure of the bank, the shares were quoted at one and seven-eighths per cent. The cir- culating notes of the bank, together with the deposits, were paid in full, principal and interest; but the whole capital of $28,000,000 was lost td the share-holders. kOAN, ,c^^^% ^" ToMPANY^ / / Xo- 535 Kansas flyt] PSIIliiiiili iiitiiiiiiitt^ rKoioi D€>A)n5hir€Stl •y-- . NO stronger Loan or Trust Company In the West Loans money on approved K Personal and Real Eswt^seounuea ^^ ^^^^^^^^ ,.ou„t,«, , our own Detent^^ Bo^as. bearin. Six Per Cen^ J^^-^^ ^^"^ 5S,f mCths, m amonri?.°BSS^oT|lBTo."pa?er.rrn^^^^^^^^^ andln each oaes Makers are worth $500,000 or over. liUM •fiV />^d\/antag?es >F^0IV1ISE PROFITABLE INVESTMENTS MERIT INVESTI \^F. FITCH, J.R^BUCHANAN. GENERAL PASSENGER AQENT AS The FA M I LI A R l-Y \l V y ' BLACK i HILLS , mTE i*r=? i^S H'^^^ t . ^% M ,!'ii ^^ ..*.:* is- "i^. COAL fit OIL) FIELDS G E NTf^AL W YOM INk*^»\/Z^: ' "usoj IK^^. ^^t^' «€5!^ 3Bi»2J >*?!; ?^^^'^»--: .no**- fli ...■^u s o B3«|S»£ [To-r' .^-'^A ££<» EBF^ASKA. ■s'f ?i!r«V Chapter VIII. STATE BANKS UNTIL 1816. We have seen that at the time of the establishment of the first United States Bank three State banlcs existed: the Bank of North America, the Bank of Massachusetts, and the Bank of New York. The course of business to the beginning of the jjresent century is sufficiently indi- cated in the accounts given of these institutions. They served quite as much to steady the business of the country as to extend it. They inculcated a promptness of pay- ment and regularity in conducting all business affairs, to which merchants had generally theretofore been strangers. As business expanded merchants gradually adopted the habit of selling their goods on credit, and, requiring Span- ish milled dollars for shipment to India and China and doubloons for the purchase of West Indian produce for Europe, they became more dependent on the banks for accommodations and facilities, and the number of these institutions multiplied with the growth of trade. The banks obtained specie from various sources, but while war lasted between Spain and Great Britain our countrymen were the carriers and commercial agents of Spain, and as nearly all the silver product of Mexico and South America passed through this channel, the banks of this country early accumulated a substantial and abundant fund of specie. From the peace of Amiens in 1801 the influx of silver abated, although still considerable. Gouge says: "The specie constantly in transitu from South America las 126 through the United States to other parts of the world was so great in amount that a retention of the quarterly or semi-quarterly supply for only a month or two was suffi- cient to relieve the banks from the difficulties into which they were occasionally brought by extending their opera- tions too far. " Banking on the whole was a very profitable business in those days. From 1792 to 1808 the Bank of Pennsyl- vania never divided less than eight per cent, and some- times ten. In 1792 the Bank of North America divided fifteen per cent, the next year thirteen and one-half, and for the five succeeding years twelve per cent annually. Our commerce being exposed to frequent interruptions by belligerents, the necessity for borrowing was often so urgent as to make the banks masters of the situation, and money was not infrequently lent by them for two and three per cent a month. The business of banking was less openly conducted than at the present day. It was part of the policy of every bank to keep its transactions as care- fully hidden as possible. It was long before people generally became sufficiently accustomed to these insti- tutions either to appreciate or admit their utility. Except a branch of the United States Bank, which was set up in Norfolk in 1799, no bank existed in Virginia until 1804. Yet a subsequent writer in the Richmond Enquirer declared that until this branch appeared there no people enjoyed greater happiness. " The desk of every agricul- turist in Virginia had some gold or silver to spare if he were a prudent, industrious man, or he had something like money to spare in the hands of his merchant, who, in the days of which I am speaking, acted as a banker to his prospering customers. Nor was any interest paid upon such moneys as might be deposited in the hands of the 127 merchant, because both planter and merchant considered themselves accommodated by the arrangement- -the planter in having his money safely kept for him until he wanted to use it, and the merchant in having the use of the money until it was called for. " As for the need of banks to transmit funds from one place to another, he adds: "Nor was there the least inconvenience in transmitting money from one point to another through the merchants whose credit was then as good as the credit of the banks now, if not better. Banks have destroyed the credit and confidence which men had in one another." The banks in the greater cities having comparatively large capitals, were conducted on principles which afforded greater safety to the public than the smaller institutions situated elsewhere, whose capital often to a considerable extent was fictitious, consisting partly in notes secured by stock and managed by persons "with whose skill, caution or integrity the public was very little acquainted." Yet these latter were the banks which had the most extensive circulation. In 1809 the three banks in Boston made the following return: Massachusetts, Union, Boston, - Capital. Circulation. Specie. $ 800,000 $139,850 $105,670 1,200,000 279,431 132,242 1,800,000 226,940 161,270 $3,800,000 $646,221 $399,182 At the same time, five other banks in the State of Massachusetts made the following return: Capital. Circulation. Spepie. Lincoln and Kennebec, - - $200,000 $242,847 $20,920 Northampton, . . - '. 75,000 122,363 19,377 Hallowell and Augusta, - - 200,000 166,123 23,664 Penobscot, - . . : . 150,000 183,470 19,586 Berkshire, .... 75,000 83,060 7,682 $700,000 ^797.863 $91,229 128 These figures forcibly illustrate the difference between the safe and cautious method of conducting a banking business observed in the cities and the erratic and irre- sponsible method of operating outside them. After the Bank of Massachusetts the next bank chartered in that State was the Union Bank, organized in 1792. with a capital of $1,200,000, of which $400,000 was subscribed by the State. In , 795 the Nantucket and Mernmac Banks were established. Up to 1799 but one more bank was chartered in Massachusetts. In that year a law was enacted prohibiting the establishment of unincorporated associations. In 1803 an act requiring semi-annual returns to be made by the banks to the Governor and Council was passed, and in 1805 an amendment required these returns to be sworn to. In 1805 sixteen banks were in operation. From 1805 to 181 1 but one new bank was chartered. Two more were chartered in 18 r i. In all the charters granted by Massa- chusetts after 1793, provision was made for a State sub- scription, and in 181 2 the State held about $1,000,000 out of the $8,000,000 of stock of the banks of the State. Nearly all the banks were re-chartered in 1 8 1 1 . In 1 8 1 2 the State first imposed a tax on bank capital. In 18 13 the system of compelling the redemption at par in Boston of the notes of the eastern banks, by assorting and return- ing the notes to the place of issue, was inaugurated by the New England Bank organized that year. This was ^ the beginning of what was afterward known as the Suffolk Bank system. Up to June II, 1 81 2, the date of the declaration of war with Great Britain, nineteen banks were chartered by the Legislature of New York. Seven of these: the Bank of New York, Merchants', Mechanics', Union, and City 6RAMD I 0FFIGEK3 Inv/estrqeqt Departpient \\i ^ ,. eorjjieeliori witl^ this bar^H^Ufzder <<^ \\\e, nxai^agerr^erit of CL».DoDDCfl |^ AND DEBENTURE BONQ5 129 Bank of New York City, the New York State Bank of Albany, and the Bank of Utica, are now National banks, and the Manhattan Company and Bank of America are the leading State banks. During the period from 1791 to 181 2 political feeling^ was bitter, and obtaining the charters of the banks organ- ized during this time was, in many cases, the occasion of much strife and intrigue. Governor Tompkins, afterward Vice-President of the United States, in the year 18 13 pro- rogued the Legislature, assigning as one reason for his action the attempt to secure a bank charter through the use of corrupt means. These charters were in the nature of special privileges, granted to particular persons, and all others were specially restrained by law from participating in the business of banking. A restraining act was passe in 1804 to compel private banking institutions to wind up their business, leaving a clear field to chartered corpora- tions. This act prohibited any person, under a penalty of $1,000, from subscribing to, or becoming a member of, any association for the purpose of receiving deposits, or from doing any business which incorporated banks, by their charters, were permitted to do. The first institution in the State of Ohio in the nature of a bank was chartered under the name of the Miami Exporting Company, in 1803, immediately upon the admission of this State to the Union. It was chart- ered for forty years, with a nominal capital of $500,000, in shares of $100 each, payable five dollars in cash and the remainder in produce or merchandise. Although in form a trading company, it issued bills and redeemed them in notes of other banks. The first regular bank was chart- ered in 1808, and was located in Marietta, with a capital of $500,000. During the same year another bank was I30 established at Chillicothe, then capital of the State, with a capital of $100,000. From 1809 to 18 16 four banks only were chartered in Ohio. The first bank in the State of Illinois was established under its Territorial Government in 1813, at Shawnee- town, and three years after was incorporated for a term of twenty years with a capital of $300,000. In 1835 its charter was extended to 1857 and its capital increased to $1,400,- 000 the additional capital being subscribed by the State. The first serious explosion in the banking business in New England after the adoption of the Federal Con- stitution occurred in 1809. The notes of many banks outside Boston were at a varying discount, running as high as five per cent, and the merchants and retail dealers in that city on whom the burden of depreciation fell com- ^bined for their own protection. They appointed a com- mittee and raised a fund for the purpose of sending home the bills of banks outside that city received in the course of their business and procuring their redemption and of bringing suits against banks neglecting or refusing pay- ment. This step brought on a crisis. First, the Farmers' Exchange Bank — a large institution whose operations were among the most notable in the history of New Eng- land banking — suddenly failed, and "the shock upon the public was tremendous." The Berkshire Bank followed next. The discovery that banks could fail affected the credit of all, and in 1809 most of the country banks of New England having bills in circulation stopped payment. "It would probably be a moderate estimate to put the loss in New England by the bank failures of that period at $ 1 ,000,000. " When the charter of the first United States Bank expired its notes were withdrawn and the notes of State 131 banks were issued in reckless profusion to supply their place. During the year i8i i and the two succeeding years one hundred and twenty new banks commenced business in the United States. In Pennsylvania the Legislature passed an act authorizing the wholesale creation of new banks on the loosest principles, which, fortunately, was vetoed by the Governor. The new banks of these three years added nominally about $30,000,000 to the banking capital of the country. But the real capital of nearly all of these new concerns was almost purely nominal, as, when a new bank was organized, its stock sub- scribed, and the first installment paid, stock notes were taken for the residue, which notes were discounted to meet all subsequent calls. As soon as it became known that this practice was generally followed the credit of all banks of circulation, save those whose reputation had been firmly established, was quite swept away and the issues of all except a comparatively small number of well-known batiks began to depreciate. This in- crease of banking circulation came on the eve of the war with Great Britain during which period exports almost ceased, and the coasting and foreign trade of the whole country was practically annihilated. As but a small por- tion of this manufactured capital could be used in legiti- mate mercantile enterprise, considerable sums were invested in Government loans. The demand for money in this direction as the war progressed became so great that bank-notes rapidly multiplied. In New England, however, the banks did not subscribe so freely, because of the unpopularity of the war in that section. The banks of the interior, as well as those of New York, Philadel- phia and Baltimore, expanded their issues with inexcusa- ble indiscretion, to call it by no harsher name. The 132 drain upon the country for specie for shipment to Europe was great, increasing, and perfectly well known. As is always the case this drain was felt first and with greatest stringency in those cities where the paper in circulation was most abundant and most discredited. At this time the laws of the New England States imposed a penalty of V twenty-four per cent per annum on all banks suspending payment of their circulating notes. This regulation forced the weaker banks of that section to the wall, and assisted the stronger institutions in maintaining their notes in full credit after those of the banks of other sections had become greatly depreciated. The capture of Washington in 1814 was followed by » the failure of nearly all the banks of the middle and south- ern States. All had been drained of their specie. Those at Washington went first, ascribing their failure to the fact that they were plundered by the English invaders, though they had little for the enemy to take. Those at Baltimore gave way next. Then the six banks at Phila- delphia suspended specie payments, and the next day those of New York followed the example. The New England banks, however, easily stood the pressure. Their issues of circulating paper were less, their indi- vidual strength was greater, they were better used to united action, and the local supply of specie was more abundant than in any other section of the Union. In the South and West the Bank of Nashville alone maintained specie payment of its paper until August 18 15, "the sturdy honesty of whose directors," says Gouge, "amidst such general knavery, is no less praiseworthy than it is remark- able. " The broken banks, though refusing to redeem their notes, professed their desire and ability to do so at an early day. At first business was not seriously inter- HARVfj^ )^/=\H,o-i' F. AA,BI5H0P No^a^y Public KD.S.6l,MS5 Solicitor -«5?3Ai^^ :d> .j^- — ■''^~;-- Ht«» 9ffii PURCHASERS INVESTORS »r6C«RRLREALE5TMU AGENTS S/llJ LniiE CITY. UTAH. y/€f\a\{€ a ^pe(\a\ty of r)Oi)€ but Dejirabic properties. (orrespoodeoce 5oli(itc-^' Dummm. j > r T>*r;Tr 'I 141 except New York, and these were required to be kept equal in amount, at market value, to a five per cent stock ' at par. In 1848 an amendment was adopted requiring all stocks deposited to bear six per cent interest and all bonds seven per cent, the mortgages securing the latter to be for but two-fifths of the value of the lands covered. In 1849 still another amendatory act required one-half the securi- ties in all cases to consist of New York State stock, and provided that all other securities should be, or be made equal to, six per cent stock, to be received at not above par and at not more than their market value. The general policy of the New York free-banking system furnished the groundwork for the plan on which the ^present National banking law was built up. In 1840 the State of New York required its banks to redeem their notes at an agency to be established either in New SILVER THREE-CENT PIECE, 1853. York City, Albany, or Troy, as well as at the home office. The redemption at the agency was at a dis- count of one-half of one per cent, subsequently reduced to one-fourth of one per cent. This discount was, in practice, divided between the bank whose bills were redeemed and the redemption agency. Any bank neg- lecting to provide for such redemption of its notes was to be forced to wind up its business. The Constitution of this State, adopted in 1846, prohibited the Legislature from granting any further special charters to banking cor- porations; and provided for the formation of banking insti- / tutions under a general law. It also provided that after ^ 142 1850 the stockholders in all banks issuing circulating notes should be responsible for all the debts of the bank, of every kind, in an amount equal to their stock in such bank. In case of the bank's insolvency bill-holders were preferred to all other creditors. In Ohio but five banks were authorized before 18 16. In that year six new banks were chartered by an omnibus act which required each new bank, as well as such of the old ones as should apply for an extension of charter, to set apart annually for the use of the State, such a part of its earnings as would, at the expiration of the term for which its charter was granted, amount to one twenty-fifth of its capital. By a law passed in 1825 this provision was so modified as to require each bank to pay to the State two per cent on all dividends theretofore paid and four per cent upon all such as should be thereafter declared. From 1 8 16 to 1834 thirteen new banks were authorized. Branches of the Bank of the United States having been established at Chillicothe and Cincinnati, the Legislature, proceeding upon the theory which then obtained in Ohio and other States that the State should participate in the profits of the banking corporations which it created, levied a lump sum or tax of $50,000 on each of these branches provided they should remain in business later than September i, 18 19. The bank contested this tax, how- ever, and in the Supreme Court of the United States obtained a decision in its favor and denying the right of the States to tax its branches. In 1845 ^^^ safety-fund system was applied to a State bank then authorized. A sum equal to ten per cent of the circulating notes pf the bank was to be paid to a board of control, to be by it invested in Ohio State or United States stocks, or in bonds secured by first mortgages on real estate of double the value of the 143 security, to be deposited in the State Treasury. Sixty- three branches of this State bank were created, each of which was treated as an independent institution so far as depositing security and receiving the interest thereon was concerned. In case of the failure of any branch bank its own funds and securities, not deposited In the safety fund, were to be applied to the redemption of its circulation before the safety fund could be called on, thus giving bill- holders a first lien on all its assets. The safety-fund act was also applied to a portion of the banks previously existing, and the same statute authorized an independent banking system which provided for a deposit with the State Treasurer of United States or Ohio State stocks, to the full amount of the circulating notes to secure their payment. A free-banking law, modeled on that of New York, was passed in 1851, but the new Constitution, adopted later in the same year, materially restricted its operation. The revenue laws of Ohio, at this period, discriminated strongly against the banks, subjecting them to double and three-fold taxation, as compared with other forms of property and investment. In 1856 another State bank was created by law, largely on the lines of that of 1845, but with a clause attaching a personal liability to the ownership of the stock. Most of the banks organized under the law of 185 1 were taxed into liquidation, and in 1856 upward of sixty banks in this State were in bank- ruptcy, more or less complete. In 1863 there were in Ohio fifty-six banks doing business under its laws, viz.: Seven independent banks with an aggregate capital of $350,000; three free banks with $1,270,000; and the State Bank of Ohio with thirty-six branches and an aggre- gate capital of $4,054,000 and $7,246,000 circulation. The total capital of all the banks of the State, when the 144 National banking law of 1863 went into effect, was $5,674,- 000; circulation, $9,057,837; specie, $3,023,285. Early banks in Indiana were few. But two were chartered previous to 1820. In 1834 the State Bank of Indiana was chartered with ten branches, each liable for the debts of all the others. Each share was to pay the State an annual tax of twelve and one-half cents, and was liable to all taxes assessed upon other forms of capital, with the proviso that in no event should taxes on these shares exceed one per cent in the aggregate. The cash capital of this bank was largely borrowed at the East upon the credit of the State, which not only took $1,000,000 THREE -DOLLAR GOLD COIN, 1854, of its Stock directly, but also loaned its credit to individual stockholders to the extent of one-half their subscriptions, taking individual bonds secured upon real estate at one- half its value, for the re-payment of the sums so advanced. This bank paid dividends averaging twelve to fourteen per cent annually, and weathered the panic of 1837 with- out loss of capital or prestige. It went into liquidation in 1854, on the expiration of its charter, and returned to its stockholders nearly double the par value of their stock. The State of Indiana received about $3,000,000 from its investment of $1,000,000 in this institution, as well as payment in full of all sums for which it became surety. In 185 1 Indiana adopted a new Constitution which prohibited ^ the further creation of banking corporations except under IW -\ <, vf — ■-- vm ^45- V^' ijf yy^*^ ■-^•W) n %ecxTo\\ of Health wd R^creationNA/i^ll find \botkl if] fhe |-f[9filar^d R^orf; Grandeur oq /fje r. ^^ V. ^ctm^^ l^^'> (^ve> S >'!%' .^^v-^"- .H'o Rs.;?- ^^^^ flj^^ ^HEb. ^ALT [aK'E (JtY £}^ f\0UTE TO Thf E Pacific ^ajj. FOff iUUSTftMTED D£SC/f/PT/]/E BOOKS ffmn VaMS Mnt- .^O^j™^ '"' SVJMT^AtR RtSORTS y ■oi^^f^ .^:^^^ c,^^ <^'* 145 a general law. The general banking act. adopted in 1852 in pursuance of this constitutional provision, required the deposit of stocks of that State or of the United States as security for the circulation of all banks formed there- after. A new State bank chartered in Indiana in 1854 on the expiration of the charter of the first State bank' had a capital of $6,000,000, was excellently managed and passed through the panic of 1857 without suspending specie payments. In Illinois a State bank was chartered in 182 1 with a capital of $500,000. It was owned by the State. It had no real capital and was little, if any, better than the schemes for the emission of bills of credit to be lent to all comers, which flourished in the colonies during the last century. Of its notes $300,000 were issued and loaned to citizens of the State, not more than $1,000 to one person, upon real estate mortgage, for one year, at six per cent interest. These notes were made receivable for taxes and for all debts due the State and the bank. They rapidly depreciated and after passing for a time at twenty- five cents on the dollar, became wholly discredited and ceased to circulate. In 1835 a new State bank was incor- porated with a capital of $500,000. afterward increased to $2,000,000, which was also owned by the State and man- aged and controlled by the Legislature. It suspended specie payment during the panic of 1837-38 and never recovered sufficiently to resume. In 1843 this bank and the old Shawneetown bank in which the State had a con- trolling interest, were wound up under a law passed that year which practically confiscated the property of private stockholders, depositors and bill-holders. The State took possession of its bonds amounting upward of $3,000,000, which these banks held as security for their bill-holders and (10) 146 depositors, and caused the same to be burned in the old State House Square at Springfield, in the presence of the Legislature. In 1843 a free-banking law was adopted, modeled on the provisions of the earliest free-banking acts of New York and Indiana. The securities deposited by the free banks in Illinois were almost wholly those of extreme southern and south-western States, the values of which fluctuated so widely and continually as to deprive the bills secured thereby of any settled value. Under the Consti- tution of 1870 State banking ceased in Illinois so far as the creation of new banks was concerned. In nearly all of the southern and western States banks were incorporated, during the period under con- sideration, in which the State had an interest, partial or exclusive. Free-banking systems were also generally adopted, after 1850, with provisions for the security and redemption of circulating notes, purely formal and useless in some and effective and substantial in others. The result in all the other States was like that in one or another of those whose experience is hereinbefore epito- mized. Indiana and Louisiana managed their banks with increasing and conspicuous prudence and success. To award justly the palm for pre-eminent badness would be a task as difficult as unprofitable. We have noticed the case of those States which, by constitutional limitation, for- bade the granting of special banking charters. Where- ever obtainable these special charters were in great demand because of the laxness which universally charac- terized their provisions. The abuse of any. State system which did not provide for the redemption at the State capital or other business center, of the bills of every bank authorized to do business within its limits, was easy and inevitable. A common plan was to obtain in one 147 State a charter for a bank to be located at some obscure and inaccessible point where no occasion existed for any legitimate banking facilities, and to procure, on the '' deposit of doubtful and inadequate security, an issue of bank bills which were at once taken to a distant State to be put in circulation among a people having no means of procuring redemption. Charters issued in Georgia were sold to be used for putting a flood of worthless bank-notes m circulation in Illinois. Banks ostensibly located in New Jersey had all their business operations conducted in other States. The notes of all banks except those located in large commercial cities, were always at a dis-" count. At New York a discount of one-eighth of one per cent was charged on the bills of New England banks redeemable at the Suffolk bank. The common rate of discount on the bills of banks which redeemed their cur- rency only over their own counters was from one to five per cent, and often greatly exceeded that rate. Five per cent on the entire circulation of all the banks in the United States IS estimated to have been lost each year to the bill- holders by discount and brokerage. Losses by insolvency y were much greater. The losses and vexation occasioned ' by the circulation of counterfeits and notes of broken banks was something incredible to one accustomed only to the currency of to-day. In 1837 a general suspension of specie payments , took place, occasioned by the revulsion and panic of that year. A partial resumption in 1838 was followed by a second suspension in 1839, which was especially disas- y trous in the West and South. The reckless management "^ of the Bank of the United States, then operating under a charter from the State of Pennsylvania, was the principal occasion of this second crash. Whatever the previous 148 merit or demerit of that bank may have been, its course at this time was such as to justify the most severe con- demnation, as its policy -was directed to forcing a run on, and suspension of, the New York banks in order to bring on another complete suspension. A general and final resumption of specie payments was not effected until 1842. In 1857 another panic caused another general sus- pension of payment by the banks. This revulsion, like so many others in this country, was occasioned by expansion '- and overtrading. The first actual shock was the failure of the Ohio Life and Trust Company on August 24, 1857. This concern had borrowed largely, on call, in New York and had loaned its funds improvidently. Its liabilities were about $7,000,000, and its credit had been so high that its failure shook confidence in other institutions. A desire to test the foundations of credit was followed by a general collapse. It had been the rule among banks to keep on hand specie to the amount of one-third of out- standing bills. During the period of activity which pre- ceded 1857 this wholesome rule had been greatly relaxed and few banks in the interior possessed a specie reserve exceeding one-twelfth the total of their circulating notes. , The loss of the steamer Central America with a million in gold helped to create a momentary stringency in New York. Collections on interior points began to drag. Failures of banks, brokers and produce dealers became numerous, and on September 12 and 13 the banks at nearly all points south and west of New York suspended payment. On October 13, 1857, the New York banks suspended and the New England and Boston banks fol- lowed a few days later. The panic forced a speedy liquidation of all inflated /schemes and enterprises, and, as the country was at the !/ 149 bottom, in a genuinely prosperous condition, the recovery was prompt and easy. Imports stopped almost com- pletely. Gold flowed in from Europe. The New Orleans banks, nine in number, had suffered least of all. But four of these suspended, and they for a few days only. The New York banks resumed in a body on December 12, and all others followed gradually and informally. In the years preceding i860 the growth of bank ^ capital had been rapid. At the East it was for the most part actual capital to be loaned or advanced on bona fide business paper, or against commodities in transit. At the West, however, the increase represented credits, and took the form of circulation rather than loans. The basis of this circulation was Western and Southern stocks and it was kept afloat as long as exchanges favored those sec- tions. Political events affected the current of exchange in i860. In that year two hundred and twenty-two banks in Indiana, Illinois and Wisconsin had on deposit, to '' secure circulation, about $15,000,000 of the stocks of , States which passed ordinances of secession. This action of these States caused an average depreciation exceeding sixty per cent of the stock so deposited. The circulation of each bank depreciated in direct ratio to that of the bonds pledged for its security. Ruinous confusion accom- panied the depreciation of this "stump-tail money." Most of the Western State banks were driven into liqui- dation. In Illinois ninety-four failed, in Wisconsin more than one hundred, and proportionate numbers in other States. The circulation of three Illinois banks which failed, was redeemed at par; that of fifty- seven others at from fifty to eighty cents on the dollar; and that of those remaining at a much smaller rate. It is undoubt- edly true that a large portion of this decline in the value " ISO of stocks pledged to secure circulating notes wafe due to the forced sale of these securities. It was the duty of the State officers to sell the stocks at once, and to redeem the bills of the bank as far as the proceeds would extend when paid pro rata. It was the vice of the old free-banking system that it required that securities should be sold at the moment the market was least able to absorb them. Hence, unless the margin was very large, the circulation was never paid in full. r Chapter X. THE SUSPENSION OF SPECIE PAYMENTS IN 1861. The condition of the country at the opening- of the year 1861 was unusually prosperous from a material standpoint. The crops of i860 had been very large both in the North and the South. The cloud on the com- mercial horizon caused by the position taken by the Southern States was particularly threatening after the election of Lincoln, and a general contraction of business occurred. Mr. Lincoln selected Salmon P. Chase, of Ohio, for his Secretary of the Treasury, and, the Southern mem- bers of Congress having left Washington, measures were immediately taken to replenish the National treasury, — at that time actually bankrupt, — and to prepare for an impending storm which every one believed was sure to come but which was thought likely to be of short duration. Secretary Chase found authority vested in him by previous Congressional action to raise money by loans, and on March 22, 1861, he advertised proposals for a loan of $8,000,000. Most of the loan contracted by Gen- eral Dix, predecessor to Mr. Chase, had been absorbed by banks for currency and by savings banks and individ- uals for investment, and the question before Secretary Chase was as to the most advisable form in which the loan should be negotiated, whether by long-time bonds or six per cent treasury notes. Public opinion was divided as to the merits of the question, and the Secretary divided 152 the loan nearly equally, giving bonds for $3,099,000 and for the remainder he issued treasury-notes, payable to the order of the persons who received them, bearing six per cent interest payable semi-annually, convertible into bonds, and receivable for public dues. They were not legal tender between individuals, and did not form a forced currency. On May 11 Secretary Chase advertised proposals for the unnegotiated portion of the loan of $25,000,000 authorized February 8, 1861, amounting to $8,994,000. Fort Sumter had been attacked and credit was lower than before, but bonds were sold amounting to $7,310,000 at a rate ranging from eighty-five to ninety-three per cent. The remainder of the loan was taken in treasury-notes at par. A little later he issued $12,584,550 in treasury- notes to offerers and public creditors. The first report of Secretary Chase to Congress estimated the Government's financial requirements for the year to be $318,519,581.87, and, suggested that $240,- 000,000 should be borrowed, and $80,000,000 raised by taxation. He also suggested raising the duty on sugar and placing tea and coffee, theretofore free, upon the dutiable list. Of the last-mentioned sum he believed $20,000,000 could be raised by direct taxation. He recommended the opening of subscriptions for a National loan of $100,000,000 to be issued in treasury-notes bear- ing 'J. 2) interest and redeemable three years from date. Should sufficient money not be received by that mode he suggested the issue of $100,000,000 in bonds, bearing seven per cent interest, to run thirty years. He also asked for authority to issue treasury-notes amounting to $50,000,000 in $10, $20, and $25 denominations, bearing 3.65 per cent interest. The necessary bills were passed ^zshmS^MS? I 153 immediately and the Secretary was given the desired authority. On August 5 a bill was passed authorizing/ the issue of twenty-year bonds at six per cent, and the . issue of five-dollar treasury-notes. Revenue bills were also passed by which it was hoped sufficient money would be brought into the treasury, in addition to the receipts from loans, to carry the Government through the danger. In November, i860, the banks of Boston, New York and Philadelphia had recognized coming danger and had banded together to enable them better to sustain the Government should it become necessary. The coin pos- sessed by them was placed in a common fund. To this association of banks Secretary Chase applied for money. They agreed to take an immediate issue of treasury-notes amounting to $50,000,000, having three years to run at 7.30 per cent, with the privilege of taking fifty millions more October 15 and fifty millions more December 15, should the latter sum not be subscribed by the people. The Secretary was to negotiate no other evidences of debt except those payable on demand, and the three mil- lion Oregon war loan. Secretary Chase then issued for urgent exigencies $26,896,784 in six per cent treasury- notes. "To insure the success of the bank loan, the expe- ^ dient of issuing clearing house certificates, and of appro- priating and averaging all the coin in the various banks as a common fund, was adopted. " The capital of the asso- ciated banks was $120,000,000, and they possessed $63,- 165,039 in coin to meet $142,381,956 of liabilities. The banks earnestly urged Secretary Chase to suspend the operations of the sub-treasury Act and draw his checksX in disbursing money, thus making of his checks a \ circulating medium, and leaving the gold in possession y 154 of the banks, where it was important that it should remain. He steadily refused to do this, and the banks unfortunately failed to force him to adopt that course. Secretary Chase began early in August to circulate demand notes, redeemable in coin, of which he had none and for which he was dependent on the banks. Upon protestation by the banks against this currency inflation he assented to their wishes, and they began to pay the Government gold which, by reason of the rapid payments by the Government, reached them again in about one week. The subscriptions by the people to this National loan amounted to $24,678,866, whereupon banks agreed to take the whole issue of notes to be sold by them to the people. On November 16, the third installment of $50,- 000,000 in six per cent bonds was taken by the banks. In November the Secretary, disregarding the wishes of the banks, again issued demand-notes, and in order to sustain the value of specie, the banks were obliged to accept them only as special deposits. The holders demanded specie for them, with the result that the gold reserves fell to such an extent that on December 30, t86i, the banks suspended specie payment in order to save the gold which they still had. The Government could but simply follow the course of the associated banks, and all the banks in the country also suspended at the same time. This suspension seems to have been entirely unnecessary, as it could have been avoided had the Secretary not per- sisted in the circulation of demand-notes against the wishes and advice of the banks, and failing to adopt the forms of business which permitted the payment of indebt- edness by checks, drafts, etc., without disturbing the specie reserve. Chapter XI. THE ISSUE OF LEGAL TENDER NOTES. • In his report for December, 1861, Secretary Chase had recommended the estabHshment of a National banking system, saying that its advantages would be: "A cur- rency of uniform security and value, protection from losses in discount and exchanges, increased facilities to the Gov- ernment in obtaining loans, a diminution in the rate of interest, or a participation by the people in the profits of circulation, an avoidance of the perils of a great money monopoly, and a distribution of the bonds of the nation to the leading monetary associations of the country, thus identifying their interests with those of the Government. " In accordance with the recommendations of the Sec- retary a sub-committee of the Committee on Ways and Means had been engaged for some time in preparing a bill to create a National bank system, but on the ground that it could not be made available soon enough to meet the pressing needs of the Government, a bill was pre- pared by Elbridge Gerry Spaulding, of Buffalo, N. Y., a member of the committee, and introduced into the House of Representatives two days after the banks suspended specie payments, to relieve the necessities of the Treasury Department at once. This bill authorized the Secretary "to issue $50,000,000 of treasury-notes on the faith of the United States, payable on demand, without specifying any place of payment, and of such denominations as he may deem expedient, not less than five dollars each, which 156 shall be receivable for all debts and demands due to the United States, and for all salaries, dues, debts and demands owing by the United States to individuals, cor- porations and associations within the United States; and such notes shall also be a legal tender in payment of all debts, public or private, within the United States, and shall be exchanged at any time at their par value the same as coin, at the Treasury of the United States and the offices of Assistant Treasurers in New York, Boston, Philadelphia, St. Louis, and Cincinnati, for any of the coupon or registered bonds which the Secretary of the Treasury is now, or may hereafter be, authorized to issue; and such treasury-notes may be re-issued from time to time as the exigencies of the public service may require. " The fact that the bill was before the House called delegates from the associated banks to Washington. They submitted a plan for raising money to carry on the war which was not approved. They then approved the Sec- retary's scheme for raising money and creating the sys- tem of National banks, and submitted a plan* which pro- vided that the banks should receive and pay United States notes freely and sustain the public credit; the Secretary would pay daily sums of $1,500,000 in such notes, and within two weeks pay $20,000,000 in seven-thirty bonds; the issue of demand-notes not to be increased beyond the $50,000,000 authorized in July, 1861; Congress to extend the loan acts to enable the Secretary to issue notes pay- able in one year bearing 3.65 per cent interest and con- vertible into seven thirty-three-year bonds, in exchange for demand-notes; or enable the Secretary to borrow under existing provisions $300,000,000. The delegates recommended the passage of the National currency bank bill, and believed that this action and liquidation would * Bolle's "Financial Hiitory of the United States," vol. 3, p. 48. ^Jl^TWkJ (\}^ 157 make the demand-notes a legal tender. This plan was not approved by the Legislative committees. The legal tender bill passed the House providing for the issue of notes to $150,000,000, retiring the $50,000,- 000 authorized in July, 1861, and authorizing the issue of $500,000,000 in coupon or registered bonds to run for twenty years at six per cent. The bill was reported to the Senate February 10, 1862, but the treasury being nearly empty a temporary relief bill was passed by both Houses authorizing the issue of $10,000,000 in treasury- notes payable on demand. As the Senate made some amendments to the legal- tender bill, it went back to the House, which accepted the most important of them; these provided that the notes , should be legal tender for every demand against the United States except for interest on bonds and notes, which should be paid in coin; that the bonds should be redeem- able in five years and payable in twenty years; that the bonds might be sold by the Secretary at the market price for coin or treasury-notes; that deposits could be made with sub-treasurers, and that all duties and the proceeds from the sale of public lands should be set apart to pay coin interest on the national debt, and one per cent for a sink- ing fund. Thus the bill became a law on February 25, 1862, and the most important financial measure of modern times was created by the pressure of an irresistible necessity. In March Secretary Chase succeeded in getting Con- gress to make the demand-notes issued in accordance with the authorization of July, 1861, and the ten millions in the following February, legal tender, so that they might circulate in common with the others. On June 7, 1862, the Secretary requested the issue of $150,000,000 more 158 legal tenders, and Congress passed a bill on July ii, 1862, authorizing their issue, of which $50,000,000 should be in denominations less than $5. The premium on gold had advanced very rapidly after the issue of legal tender, and that metal was heavily exported. By August, 1863, all specie had disappeared from circulation, consequent upon the suspension of specie payments, and on July 1 7 a bill was passed making it legal to use postage stamps in payments to the Government not exceeding $10. The lack of small change was so great that corporations and business men had begun to issue "shin-plasters," as they were called, and municipali- ties issued small notes receivable for taxes or payable in lawful money. The law authorizing the use of postage stamps also forbade this mock currency. The needs of the country were so great that Congress had passed an act on March 3, 1862, permitting the Secretary to issue not to exceed $50,000,000 in currency in fractional parts of a dollar. This was kept in circulation until 1876, when it was replaced by silver. The next issue of paper money was to pay the sol- diers, and by an act of January 17, 1863, the issue of $100,000,000 was authorized for this purpose. The sources of income which the Government enjoyed had proved so insufficient that the issue of legal-tender notes had been very rapid after it had once begun. The banks refused further loans after the $150,000,000 had been advanced, and the sale of bonds was very slow. The law authorizing the payment of interest on deposits with the sub-treasurers up to $25,000,000 was taken advantage of by New York clearing house bankers so quickly that the amount was soon afterward raised* to ♦June, 1864, 159 $ 1 50,cxx),ooo. In effect these deposits formed a loan from the banks to the Government. Other temporary loans were effected in the form of certificates of indebtedness issued to creditors of the Gov- ernment, and for a time the demands on the treasury were thus met by the Secretary. The bonds not having sold rapidly the experiment was made of inflating the cur- rency to such an extent that money would be so plentiful that people would be glad to pay it back to the Govern- ment for its bonds, and a bill for a loan of $900,000,000 was prepared on that basis. Before the bill was passed, the requirements of the army and navy were such as to cause the passage* of the bill before mentioned, authoriz- ing the issue of $100,000,000 legal tender. In March, 1863, Congress passed a bill authorizing the Secretary to effect a loan of $300,000,000 in that year, and $600,000,000 the following year, the bonds to run not less than ten nor more than forty years. The Act also authorized the issue of $400,000,000 in treasury- notes payable in three years, which might be made legal tender if the Secretary thought best. The issue of $ 1 50,000,000 in legal tender notes was authorized if the exigencies of the service demanded it. Through the agency of Jay Cooke the sale of the five-twenty six per cent bonds was successfully carried out in 1863, but the effort to sell the five per cent bonds in the same manner was a failure. The demands for money were then met by the issue of certificates of indebtedness, and by a loan from the banks of $50,000,000, for which they took interest-bearing legal- tender notes. Later in 1863 $35,000,000 more in legal-tender notes were offered through Jay Cooke and Company. By the issues of •January 17, 1863, i6o $168,471,450 in interest bearing notes, and the money received from taxes, etc.. Secretary Chase was able to meet the demands of the Government. . On July I, 1864, Secretary Chase was succeeded by William Pitt Fessenden, United States Senator from Maine. As the organization of a National banking sys- tem had been recommended in the first report made by Secretary Chase, we will revert to the early part of his administration in order to trace, in another chapter, the history of the National Bank Act. Ill l[li -%m •i- < «•■ r-^ / r \kV: ^ V ^4v^^ <- t V <■ w i: Tv- ■%: ..:^-:t' \\v i i A^ * ■• } ♦ j^'. ' !^* :f OP^iTH IN/U^/lDlbj OF 30 J\[\X.S r.. -/ V ^.G.j^lXO;^ President ^JS.BLIRTO;^ Caj^ier G.P^.MO/lTikGUE: VicePres't. Geb,W:BlJF\TO|< A55lCa5 6.c.^l;^. The Abilene National 'B^hiK-^^j^iiv'' "''*_-' l\ GENEiyVL BANigNG BUSINESS TI^ANSACTED -Parti cul;\r ATTENTION p/^id to collections ejnd r^rqitt^cl for ci| |oW^s| P^ites n^; Investments made for eastern parties ^(9rr^6por\clg^r\(ig ii\\/il"^d. (cM^^RyROfiDEiiT^ ^ ^flF\STlsl/\TIONAL t^EWYoH}^ .^A^Ri^E^^-H?^ Fff\5T IsIaj'l. Chicago "f^L.pARKER L\TE pO^^W-^FV ^ -i^/\MEfMCAN rJAfL. (j^pit^ust f^EStOENT UrJiON |nVeSTMENT (6. ^ (^hl.^ Hila,nd8outhWorth ^J0t^T6/\SE LOANS lODGE |atf '^stm aster' p. RoBi^E Ex Go\/ Maine E.D.HUNiPHF\EY 0\SHIEf\ FOf^MERUY WITH THE >\B ELI NE BANK. National Bank of the Republic, 313 CHESTNUT STREET. PHILADELPHIA. CapiUI, $500,000. Surplua, $300,000.*.° WILLIAM H. RHAWN, Prest. JOSEPH P. MUMFORD, Cashier. 169 banks, and on December 24 $80,000,000 more were authorized. On April 12, 1862, treasury-notes, certifi- cates of stock, and bonds were authorized to be issued to the amount of $215,000,000. On April 17, $5,000,000 in treasury one and two dollar notes were authorized. On September 19, 1862, $3,500,000 in bonds was authorized to pay for six war vessels. On September 23, $5,000,- 000 in five-dollar treasury-notes and $50,000,000 in bonds were authorized. On March 23, 1863, an effort was made to take some of the issues of treasury-notes out of circulation by funding them, and the monthly issue of $50,000,000 in fundable treasury-notes without interest, and the issue of $5,000,000 in denominations of two dol- lars, one dollar and fifty cents, were authorized. The issue of $100,000,000 in six per cent coupon bonds was authorized on that day, the interest to be paid in currency or cotton certificates. On February 17,1864, an attempt to reduce the redundant currency to the needs of busi- ness was made, and a new issue of treasury-notes author- ized until April i. As in the North, the inflation of the currency had resulted in wild speculation, enormous prices and appreciated specie. An issue of $500,000,000 in six per cent bonds was also authorized, for the pay- ment of the interest on which the specie export taxes were pledged. To pay the interest on its bonds, an internal war tax had been levied in 1861 by the Provis- ional Government; but in 1862 opposition to internal tax- ation had caused it to be a partial failure. The operation of the funding law of February 17, 1864, was successful in reducing the treasury-notes in cir- culation. It was estimated that $300,000,000 had been funded; but $200,000,000 in new notes had been issued while this was going on, so the redundancy of the cur- 170 rency was but slightly affected, and this, as well as the decreasing chances of the ultimate redemption of the notes, caused them to be much depreciated. A foreign loan of ;^2, 200,000, in bonds convertible into cotton, had been realized in London and Paris in 1863. On October I, 1864, the home debt of the Confederacy was estimated at $1,126,381,095. At the close of the war the State banks in the South which had been enabled to preserve their specie capital unimpaired were in shape to redeem their issues of notes. Those which had invested in Confederate securities were forced to close up business. Thus we find that by reason of the insufficient banking privileges in the South, and the taxation of State bank notes in the North, the growth of National banks was necessarily large. On March 9, 1865, Mr. McCulloch was made Secre- tary of the Treasury, and Freeman Clarke became Comp- troller. In the latter's report for that year he states that nine hundred and twenty-two of the one thousand six hundred National banks then organized were converted State banks. One of the first effects of the rapid reor- ganization of State banks was a diminution of the currency in circulation, as all the State banks were obliged to reduce their circulation below the amount prescribed by law before any National circulation would be given them. The amount of National bank-notes in circulation October I, 1865, was $171,321,903; of State bank notes, $78,867,- 575, and of legal tender and fractional currency, $704,- 584,658. The operation of that portion of the National bank Act governing the distribution of circulation worked unjustly to the West and South, and the Comptroller desired that the deficiency of circulation in those sections 171 should be remedied, particularly with reference to the prostrate South. A plan was adopted* by which the sum of $54,000,- 000 was to be furnished the banking associations (existing and to be organized) in the States and Territories having less than their proportion under the apportionment con- templated in the Act of March 3, 1865. The applications were to be made within a year, and at the close of that time the amount unapplied for should be awarded to applicants from other localities where the deficiency was greatest. When the amount should have been distributed, $25,000,000 was to be withdrawn from the banks having an excess, and distributed to banks with deficient circula- tion. The issue of $54,000,000 in bank circulation was counterbalanced by the cancellation of a similar amount of three per cent certificates issued in 1867 and 1868. Upon the issue of the bank-note circulation as provided, the Comptroller found the provision for taking away $25,000,- 000 from banks having an excess of circulation impossible to execute; so he recommended that the law be repealed and $5,000,000 additional circulation be yearly issued for five years. The bill containing that provision was vetoed by President Grant. A bill was then passed by Congress on June 20, 1874, which provided that $55,000,000 should be withdrawn and redistributed. The same law also pro- vided for the voluntary surrender of circulating notes by any bank, by depositing not less than $9,000 with the Treasurer and withdrawing the bonds that secured them. This law caused a reduction of $30,869,655 before the close of 1877. t * Act of July 12, 1870, t Comptroller's Report for 1S78. 172 By an Act* of 1875 the restriction on the issue of bank-notes was removed, and the Secretary of the Treas- ury was directed to retire legal-tender notes to the amount of eighty per cent of the National bank notes issued there- after, until the amount of legal tender outstanding should be reduced to $300,000,000. Under the action of this law the Secretary had retired $35,318,984 in legal -tender notes when Congress passed a resolutionf directing him not to retire any more legal tenders, but to reissue them and keep them in circulation. At that time the legal- tender notes in circulation amounted to $346,681,016. On October i, 1881, two thousand one hundred and forty-eight National banks were in operation. The char- ters of many of them were to expire in 1882 and 1883. That of the first bank chartered expired January i, 1882, and from that day to February 25, 1883, the charters of three hundred and ninety-three would have expired had not Congress made a law under the provisions of which the charters could be renewed. There was a very long debate on the subject, as at that time there seemed to be a widespread hostility to the issue of notes by banks without the payment to the Government for the privilege, but the law passed as stated. It is true that banks desir- ing to continue business in that form could have organ- ized anew, but that would have required much trouble and annoyance, and the banks would have been much weakened. The law provided for a surplus formed by carrying ten per cent of the net profits of the bank for each preceding half-year to a surplus fund until it should equal twenty per cent of the capital stock. Thio surplus would necessarily have been distributed among the stock- holders on the reorganization of the bank, and to avoid * The Resumption Act. t May 31, 1878. ^73 this weakening action was one of the inducements which led Congress to provide for extending the life of National banks whose charters were about to expire. Chapter XIV. THE RESUMPTION OF SPECIE PAYMENTS. We have followed the history of the issue of legal- tender notes and bonds by the Government during the Civil War, of the organization of the National banking system during that period of financial disturbance, and its operation up to the time of the renewal of the charters of National banks in 1882. Let us now revert to the efforts to resume specie payments, — an epoch of much importance in our financial history. The banks and the Government suspended specie payments on Monday, December 30, 1861. The general impression was that resumption would be postponed but a short time after the close of the war; but no one had any conception of the enormous inflation which was to take place in the currency circulation of the country, or at what cost resumption would finally be secured. Had the financial advisers of the Government had any such con- ception it is doubtful if they would have issued so many millions of legal-tender notes as they did, even though constrained as they were by necessity of the sternest sort. Mr. McCulloch was Secretary of the Treasury when the war closed, and he was strongly in favor of resump- tion of specie payments, "a departure from which, although for a time being a necessity, is no less damaging and demoralizing to the people than expensive to the Government. " •74 175 The Secretary was endorsed by President Lincoln, by the press, and by various commercial organizations; but the measures to be taken were necessarily careful ones. In 1865 gold reached the price of 233^. The cur- rency had been inflated from $200,000,000 in i860 to $700,000,000, and the result was wild speculation, unwise J obligations, and high prices. Resumption could only be brought about by bringing notes and gold to an equal value, and this could be done only by reducing the amount of notes in circulation. This reduction meant a fall in prices, and a general derangement of values. Secretary McCulloch recommended Congress to enact that interest-bearing legal-tender notes should cease to be legal tender after their maturity, — believing that this would aid the Government's efforts to retire them. He also asked authority to sell six per cent bonds in order to retire the compound-interest and the United States notes. On February i, 1866, a bill authorizing him to receive treasury-notes or other obligations in exchange for bonds, was reported by the Ways and Means Com- mittee of the House, and occasioned a long debate, dur- ing which an amendment was made withdrawing authority to sell the bonds abroad payable in the currency of foreign countries. The bill was recommitted, and upon its being reported a second time contained a proviso that "of United States notes not more than ten millions may be retired and cancelled within six months from the passage of this act, and thereafter not more than four millions in any one month." As amended the bill passed the House and Senate.* The banks held large amounts of the interest-bearing notes as lawful reserve, and as bank circulation increased * April 12, 1S66. \ 176 legal-tender notes were also held as reserve, which effectually kept them out of circulation. The banks also held large numbers of compound-interest notes of early maturity, to meet the payment of which Congress on March 2, 1867, authorized the issue of $50,000,000 in three per cent certificates, payable on demand. The legal-tender notes were reduced somewhat irregularly until the meeting of Congress in December, 1868, at which time the money market was stringent and the oppo- sition to further contraction was very strong. In Feb- ruary, 1868, Congress suspended the Secretary's author- ity to retire legal-tender notes, the currency having been contracted $142,439,958. In October, 1870, Secretary Boutwell, who suc- ceeded Mr. McCulloch on March 11, 1869, issued $1,500,- 000, in legal-tender notes to relieve a Wall street specula- tive stringency, for which he was generally criticised, and qyARTER-EAGLK 1870. in the next year he issued $4,637,256 more; but, being unable to withstand the very pointed disapproval which was manifested, he speedily retired most of it, and his successor, William A. Richardson, retired the remainder. In 1873 a panic occurred which carried down large numbers of business houses, and Secretary Richardson issued legal-tender notes in payment of bonds purchased, and the House passed a bill on March 23, 1874, fixing the maximum amount of legal-tender notes which could be issued at $400,000,000. A similar bill was amended "TTf^e [i^ghtpJing ' y^NoyORNADO iNQUf^ANQE.. ^i^fo^y ^'^ipou/vRs lh|E ARGECT AND IV|OST PoPULAF^|N(ufevN^E foiVIPAN^OF ITS ACe IN THE Vybl\LD ESTEF\N DEPA^RTMENT S/ \ \Ji N.E.cof\ Lasalle sT^dams Streets. CHICAGO, ILLINOIS. "BUenaVista tVSiTE Sulphur or ^ Gurfv/ooD ^OLOI^ADO I ^PF^INCS \ ^ArflJOU. gASCADE ^ >^ /9 -»^ 177 in the Senate by authorizing an additional issue of $46,- 000,000 of bank notes for distribution to the South and West. The House passed this bill April 14, 1874, and President Grant vetoed it April 22, and thus the attempt to expand the currency again was defeated. In the House the free banking bill was then passed, and the Senate amended it by fixing the maximum amount of legal tender at $382,000,000, and withdrawing $55,- 000,000 in currency from the Eastern banks and assign- ing it to the banks of the South and West and Territories. GOLD DOLLAR. Then came "An Act to provide for the resumption of specie payments," which became a law January 14, 1875. This provided for the redemption of fractional currency by the coinage and issue of silver coins of ten, twenty- five and fifty cents denominations. The coinage of silver was provided for and seigniorage abolished. The restric- tion on the amount of bank notes was removed. The Secretary was authorized to retire $80 in legal-tender notes for each $100 issued by the banks until the legal tender in circulation should be reduced to $300,000,000. The first day of January, 1879, was fixed as the time when specie payments should be resumed. In December, 1876, Secretary Morrill reported that silver subsidiary coins had been issued to the amount of $22,000,000, and $(3,000,000 of the fractional currency had been redeemed. The work of retiring legal-tender notes had progressed in proportion to the issue of National bank notes, <12) 178 On March 9, 1877, Senator John Sherman became Secretary of the Treasury. He was the proposer of the plan of resumption, and it was quite fitting that he should have a share in its successful operation. On May 31, 1878, he was directed by Congress to retire no more legal-tender notes and to keep the amount then outstand- i"&. $346,681,016, in circulation, the reduction of the cur- rency since January 14, 1875, having been $35,318,984. By selling bonds and by hoarding the surplus revenue, Secretary Sherman had on hand $133,508,804.50 in coin when resumption day came around. By an arrangement made with the banks, and by making the assistant treasurer of the United States a member of the New York clearing house, resumption was made much easier than it would have been without the co-operation of the banks. They agreed on November 12, 1878, that checks presented to the assistant treasurer by any clearincr house bank should be payable in United States notes; that gold coin should not be received as special deposits, but as lawful money only; that special exchanges of gold checks at the clearing house should be abolished; clearing house balances to be paid either in gold or United States legal tender, and gold special accounts to be discontinued.* From the publication of a statement of this action resumption was sure and certain. On December 17 paper touched par for the first time in this country for sixteen years.f For a month previous to the day fixed by law for resumption to begin, it was practically accom- plished, and on January i, 1879, the ghost which had haunted the finance ministers of the country for seventeen years was laid, and resumption was an accomplished fact. » New York TribuHi, November 13 1S7S. t New York Timit, December iS. 1S78. Chapter XV. BANKING SINCE 1882. The Act* permitting the extension of the corporate existence of National banks for twenty years provided for an examination of the applying bank, and, if a satisfactory condition was found, the Comptroller could issue a certifi- cate for the proposed extension. It also provided for the withdrawal of share- holders who objected to the extension, and that stockholders in the expiring associa- tion should have the preference in the allotment of shares in the new association. The circulating notes of the association issued to it previous to the extension were to SIERRA LEONE SILVER DOLLAR, 1791. be retired by redemption at the Treasury, and new notes issued to the extending bank. Banks not extending were obliged to deposit lawful money for the retirement of their notes. The action of this law will be noted later. On January i, 1884, a receiver was appointed for the New York and New England railroad. This was fol- * Act of July 12, 1SS2. '79 i8o lowed by the troubles of the Oreg^on and Trans-conti- nental Company and the failure of the North River Con- struction Company. Other failures occurred in February, March and April, and the general financial uneasiness developed into a regular panic by the failure of the Marine National Bank of New York, the firm of Grant and Ward soon following, and the defalcation in the Second National Bank of New York of over three million dollars. The crisis culminated May 14 with the failure of the Metropoli- tan National Bank of New York, and others more or less important followed in May and June. On the afternoon of May 14 the New York Clearing House decided to set- tle balances by certificates of deposit based on bills SKILLING PIECES OF DANISH WEST INDIES. receivable and securities, approved by a committee. Loan certificates were issued to the Metropolitan Bank based on its securities, and it resumed business the next day. The panic was thus stayed and credit gradually revived. The original National Bank Act of February 25, 1863, contained a provision that every National bank should at all times have on hand in lawful money an amount equal to at least twenty-five per cent of the aggregate amount of its notes in circulation and deposits. The Act of June 3, 1864, which is usually called the National Bank Act, provided that every National bank in seventeen cities mentioned should have a reserve of twenty-five per cent of its circulation and deposits, and every bank in other i8i cities should have a reserve of fifteen per cent of its cir- culation and deposits. In the Act of June 20, 1874, this provision was changed and the banks were thereafter relieved from keeping on hand any amount of money whatever by reason of the amount of their respective circulations; but the moneys required by that section to be kept at all times on hand were to be determined by the amount of deposits. This Act also required every National bank to keep an amount of lawful money equal to five per cent of its circulation on deposit in the United States Treasury COIN OF HAYTI. as a fund for the redemption of its circulation, this fund to be a part of its lawful reserve. On March 3, 1887, an Act was passed which provided that whenever three-fourths of the National banks in any city of the United States with a population of fifty thou- sand people should make application to the Comptroller, asking that their city should be added to those in which banks are required to keep twenty-five per cent of their deposits on hand, the Comptroller should have power to grant such request; also that when three-fourths of the National banks in a city of two hundred thousand people make application to be a central reserve city, like the City of New York, in which one-half of the lawful money reserve of the National banks located in other reserve cities may be deposited, the Comptroller has the authority, subject to the approval of the Secretary of the Treasury, l82 to grant such request, and all National banks shall keep twenty-five per cent of their deposits on hand. "Originally," says the Comptroller,* "all associations, wherever located, were required to keep, either in cash or subject to sight draft, funds in hand equal to at least twenty-five per cent of all obligations payable on demand. Subsequently a distinction was made between associations in certain-named cities and those located elsewhere, and the latter were required to keep only fifteen per cent reserve upon the aggregate of deposits and circulation. The amount that might be kept with redemption agents was limited to three-fifths of fifteen per cent for associa- tions generally, and to one-half of twenty-five per cent for those in reserve cities, and in the latter case New York was the only place in which the banks in other redemption cities might have redemption agents. "At a later period the fund to be kept for the redemp- tion of circulation was separated from the remaining reserve to be held against deposits; it was fixed at five per cent of the outstanding circulation, and was required to be kept on deposit with the Treasurer of the United States. Besides being specifically devoted to the redemp- tion of circulation, this fund is also authorized to be counted as part of the reserve against deposits. "Simultaneously with this provision as to the amount and location of the redemption fund the banks were relieved of the obligation to keep a reserve on circulation, but were required to keep in reserve funds to the amounts represented by fifteen per cent and twenty-five per cent respectively upon their deposit. "The new regulation as to redemption of circulation dispensed with redemption agents, but the Act of June 20, 1874, re-enacted the provision as to the proportion of * Comptroller's report for 1887. i83 reserve that might consist of balances due from approved associations in the cities formerly named as cities of redemption. These cities thus came to be called 'reserve cities,' " and in 1887 the term was formally incorporated in the law. In the twenty-fifth annual report of the Comptroller of the Currency, December i, 1887, there is given the fol- lowing statistical information which shows the condition of the National bank system of the United States on October 31, 1887: i Number of National Banks Organized, in Liquidation, and in Operation, with their Capi- tal, Bonds on Deposit, and Circulation Issued, Redeemed, and Outstanding on October 3', 1887: Banks. Capital stock paid in. U. S. Bonds oa Deposit. Circulation. States and Ter- ritories. Organ- ized, In liquida- lion. In Opera- tion. Issued. Redeemed. Outstand- ing.* Maine New Hampshire Vermont Massachusetts.. Rhode Island. .. Connecticut 83 1 10 5 ■4 ■5 3 '3 73 49 49 1; 83 $10,335,000 6,205,000 7,566,000 95,940,500 20,340,050 24.644.370 »5.540,950 31668,400 34,557,800 4,596,800 ■0,245,750 62,717,000 $34,456,960 21,878,125 30,271,420 292,532,485 6', 579,095 81,079,940 $26,726,751 17,185,657 25,404,487 240,305,630 5','8',338 66,652,513 4,866,933 52,226,855 '0,397,757 15,427,427 Eastern States.. 626 60 5« 165,030,920 521,798,025 427,459,376 94.338.649 New York New Jersey. Pennsylvania... Delaware Maryland Dist. Columbia . 42s 92 354 ■7 5' >3 101 11 5' 3 5 324 Si 303 S6.339.7'» 13,025,120 66.607,990 2,083,985 14,509,960 1 ,827,000 30,387,200 7,013,100 19,098,500 1,682,700 2,662,450 1,010,000 264,3'-7,365 48,18^,500 184819,465 6,358.825 36,598,780 4,903,900 226,185,206 40059,603 148,236,096 4,884,648 29,974,776 4,102,800 38,172,159 8,122,897 36.583.369 '.474. '77 6,624,004 801,100 Middle States. . . 952 171 78, 'S4,393.8>5 61,853,950 545,220,835 453.443. '29 9'.777.7o6 Virginia West Virginia.. North Carolina- South Carolina.. Georgia Florida Alabama Mississippi I^uisiana Texas 39 27 21 ■7 37 12 23 "4 "7 97 10 81 56 14 7 3 2 6 2 3 2 t 3 ■3 16 25 20 iS >s 21 10 20 12 13 9" 40 3,796,300 2,061,000 2,426,000 1,749,200 3,070.5'0 550,000 3,484,000 1,055,000 3,425,000 10,044,000 950,000 13,200,400 7.485,000 ■.55' .350 628,900 863,500 692,250 858,500 2,7,500 851,000 320,000 1,418,800 2,417,800 422,500 3,925,000 ■.594,250 11,605,630 7,140480 6,2 18,760 5,330,255 7,763,670 319,450 4,8o3,oSo 443,730 '0.303,9'0 5,603,980 1,199,120 33, '32,245 10,618,300 9,602,886 5,922,688 S.'6i,S9o 4,5 '5 772 6.324.053 '60,387 3.654 647 ^ 183.899 8,171,649 3.255.9S6 S29.437 25,9 1. -,,940 8,567,007 2,002,744 ■ ,217,792 ■.057. '70 814,483 ■.439.6 '7 ■59.063 '.'48,4.33 259.831 2,132,261 ',347,994 Arkansas Kentucky Tennessee 36^.^ 7.213.305 2.051,293 Southern States. 441 Si 360 53,296,420 '5.79^,350 104,482,610 82,268,941 22,313,669 Missouri i5» 243 149 176 ,t no 11 59 65 4' 32 % 21 6 52 216 93 ■78 IDS 57 129 5!> 141 104 11,826.000 41,058,120 ■',704.500 29,286,500 14,546,050 5,210,000 ■0,132,300 ■3.75?.7oo 10,932,520 8,4^5.550 1,412,050 '5, 2 '9.950 5,016,800 5,848,500 3, "4.750 1, 680,500 2,856,000 2,11 2,950 2,848,000 1,945,000 ■6,395.665 96,277,840 49,870,755 49,059, 165 26,919,810 12,164,100 20,965,710 ",372,770 6,799,070 5,360,730 295,185,615 13,803,212 75.4^^."2 42,109,198 41,344.028 22,276,128 9,875,260 16,993,900 9, '57,334 4,085,567 3 330,7 '6 2o,'866,'728 Indiana Illinois Michigan Wisconsin 7,76',S57 7.7'5,'37 4,643,682 2,288,840 3,971,810 Minnesota Kansas. Nebraska 2,215,436 2,7^3,503 2,030,014 Western States. ■.532 3^ I. "34 156,835240 42,054,500 238,386,455 56799,160 Nevada Oregon Colorado Utah Idaho 3 »3 40 10 6 22 8 10 69 23 3^6 ...I 5 7 3 3 3 2 23 I 'I 6t 20 1 33 150,000 1,800,000 2,755.400 850,000 350,000 2,000,000 1,075,000 850,000 3,775.000 1,475,000 100,000 6,875,000 36,500 644,800 926,500 390,000 92,800 500,600 273,750 270,000 992,500 317,500 25,000 1,911,250 200,720 1,426,12c 4,114260 1,465,910 394.670 ■,583.790 454,38-1 ■ ,384,530 1,914.190 ■,013.340 88,790 3.^5*J.690 ■83.693 755.630 3,045.846 1,064,885 1,112,186 283,755 1,023,607 948,411 447,622 5 ■.2,^0 1,460,965 17,027 670,490 1,068.414 401,025 88,255 Montana Wyoming ... . New Mexico,... Dakota Washington Arizona California 471,604 170,625 360,923 965.779 S6S,7'8 37.560 1,728,725 Pacific States & Territories 254 35 219 22,055,400 6,411,200 ■7.230,390 10,684,245 6,546, ^45 Add for muti- ■25.945 Total Currency >,4S3.9'7,475 3.465,240 1,212,242,146 3,225,3" Add gold banks United States... 3.S0S +745 t3,orJo 581,611,795 i88,S2S,ooo ',487.382,715 1.215,467,457 272,041,203 ♦ Including $102,826,136 for which lawful inotiey h:is been deposited with the Treasurer of the United States to retire an equal amount of circulation which has not been presented for redemption, t One bank restored to solvency and resumi:d business, making total going banks 3,061. 1S4 i85 As the laws now stand* a National banking associa- tion may be formed by any number (not less than five) of natural persons, and any banking corporation having a State or Territorial charter may be converted into a National banking association. Every person applying for information as to the formation of a National bank, or the conversion of a State bank, is supplied with a copy of the National bank laws and a book of instructions as to the practical steps to be taken in effecting either of these purposes. He is also requested to cause a formal notice to be filed, setting forth the name of the place at which the bank is to be located, the title selected, and the names of at least five among those who intend to subscribe for the capital stock. After notice has been filed the person or persons acting in the matter are furnished with blank TWELVE-SOU PIECE OF THE WINDWARD ISLES. forms to be used in effecting an organization, and the title which they have selected, if it is approved, is reserved for them for a reasonable period. The forms sent include articles of association, organization certificate, certificate upon which officers and directors are to set forth the facts which it is necessary for the Comptroller to know before authorizing the bank to begin business, oaths of directors, and a bank order for circulating notes. As soon as these papers are returned, duly executed, and all the requirements of the law have been complied with by the corporators, the Comptroller's certificate to that effect is issued. The requirements of law for the formation of » Comptroller's report for 1887, P* 55* i86 uew banks are simple and reasonable, the only one appearing onerous being that which requires the bank to deposit in the Treasury certain amounts of United States registered bonds bearing interest. Under the Act of February 25, 1863, National bank- ing associations were required to deposit with the Treas- urer United States bonds to the amount of one-third their paid-in capital. In 1864 this provision was amended by fixing $30,000 as the minimum amount of bonds for any bank. The Act of June 20, 1874, permitted associations to withdraw any bonds they might have on deposit in excess of $50,000. Obviously this affected only banks of which the capital exceeded $150,000. The Act of July 12, 1882, specified that banks of which the capital does not exceed $150,000 should be RKAI. OF CUKACAO. required to keep on deposit bonds to the amount of one- fourth of their capital. By a special provision of law banks and banking cor- porations having State charters may be converted into National banks upon satisfying the Comptroller of the Currency that they are in sound financial condition, and upon complying with such of the general requirements of the law as are applicable to them.* The following table, taken from "The Banker's Alma- nac and Register" for January, 1888, furnishes a summary of the banks and bankers in the United States: ♦ The number of state banks which have been converted into National banks under the jjro- visions mentioned is 586. Of these sixty-nine have gone into vohint;irv liquidation, and nineteen have gone into insolvency, the year tS6^ carrying fourteen such banks under. BANKS AND BANKERS OF THE UNITED STATES. National. state. Sav'gs* Private.t Totals. Alabama, 20 9 49 78 Arizona, I 5 4 TO Arkansas, 7 13 20 40 California, .... 37 lOI 27 52 217 Colorado, 31 20 69 120 Connecticut, - - . . 83 20 86 19 208 Dakota, - - . . . 62 74 196 332 Delaware, 17 7 3 27 District of Columbia, 8 2 1 1 21 Florida, II 4 27 42 Georgia, 21 31 71 123 Idaho, 6 3 16 25 Illinois, ------ ,78 31 441 650 Indiana, 93 28 156 277 Iowa, ------ 129 126 423 678 Kansas, 149 248 36s 762 Kentucky, - . - - - 68 84 36 188 Louisiana, 13 8 14 35 Maine, ------ 75 6 54 12 147 Maryland, 48 28 19 95 Massachusetts, - - - - 252 21 169 74 S16 Michigan, - - - - - 109 71 220 400 Minnesota, 57 74 152 283 Mississippi, . . - - 12 13 15 40 Missouri, 48 231 122 401 Montana, - - - - 17 5 1 1 33 Nebraska, 104 158 306 568 Nevada, - - - - - 2 3 10 15 New Hampshire, - - - - 49 4 68 3 124 New Jersey, 81 16 26 6 129 New Mexico, - . - - 9 4 10 23 New York State (city excepted), - 278 83 95 179 635 New York City, - - - - 46 61 23 77 207 North Carolina, - - - - 19 10 23 52 Ohio, 220 60 250 530 Oregon, ------ 23 9 21 53 Pennsylvania, . - - - 306 116 243 665 Rhode Island, - - - - 61 12 32 7 112 South Carolina, - - - - 16 19 22 57 Tennessee, - - - - - 40 43 20 103 Texas, 93 13 130 236 Utah, 7 2 8 17 Vermont, - - - - - 49 3 27 2 81 Virginia, 25 57 30 112 Washington Territory, 21 4 14 39 West Virginia, - . - - 20 26 3 49 Wisconsin, . - - " " 57 57 102 216 Wyoming, .... - 8 I 12 21 Totals, - - - - ■ - 3,086 2,024 607 4.075 9>792 * These are savings banks proper, organized for the benefit of depositors. In other States it is impossible to separate them from Inose benefiting stockholders, t Brokers are not included in this list. , ■S7 ^ i88 It is quite unnecessary to point out that some radical chang^es must soon be made in the National Bank Act if National banks are to be allowed to continue in business. The rapid payment on maturity of the Government bonds, .which the present law requires National banks to deposit with the Government as security for their circulation, and the carrying out of the policy of President Cleveland's administration in reducing the surplus in the Treasury by purchasing bonds before they mature, will soon diminish the Government bonds outstanding to such an extent that banks will be unable to secure their circulation with them. The early approach of this condition of affairs has caused the preparation by the Comptroller of the Cur- rency, W. L. Trenholm, of a bill for "An Act Relating to National Banking Associations." This proposed bill is printed in the Report of the Comptroller for 1887, and is a very voluminous document. If it becomes a law it will form a complete National banking code. A careful examination of the plans submitted to the Comptroller of the Currency as solutions of the future of National banks has suggested to Comptroller Trenholm these three propositions as the only measures within the probability of adoption: First: To increase the inducements for the banks to deposit United States bonds as a basis of National bank circulation. Second: To provide by a new issue of bonds for a continuance of the present or some modified system of National bank circulation based on United States bonds. Third: To allow the banks to issue circulation upon their general credit without requiring specific security to be deposited. >v \<^'^ i J.HJBINGHAM «J.B.600DFELL0W J.R.ATKINS ^r^5id^ot. Tr^asUrgr. ^iCr^iary. •^c- * ^^^ ^1^^ WE R^EFEI^ TO THE IANWARD PUBLISHING CO. PUBliISHEF^S OF THIS Woi^Ft, HAVING DONE THBII\ WOI\I^ 5li^CE THEIF^ ORGA/^IZATIOf4. ^ il GEORGE STORCH S.B.GL/\ZIER Fiv/.HUNTON SaGLAZIER GEORGESTORCH ^y^'^'^^tLrTKX^"'"'^^''^^ CA.SH.ER,. PRrST^ ^ V.OEPREST. v/MuNTON SECY f TRIAS. iQjV^ CAPITAL $ 250,000. ATGHISON>KANS. mw(.^UTHRIE Ny^ W.CAMPBELL IRECTORS. < GEORGE STORCH. JOHN.IVI.CI^oWeLL F.WHUNTON 1 O.F.PACE. S.B.CL/\ZIE»^. THE L/\R6EST B>^NK IN l FEB SE 14 DAY USE RETURN TO DESK FROM WHICH BORROWED LOAN DEPT. This book is due on the last date stamped below, or on the date to which renewed. Renewed books are subjea to immediate recall. W^ mES6 LP DEC 9 1351 REC'P L, D ^^ 2^ "ma 19May'61EIVIi 2 9 Notf'>>^AH REC'D LD NOV 16 1958 L MAYS 1961 U — 8Ap('G3AEg - 24Mar'5gAv m-groro APR 3 1963 -59lTTfe3^^ LD 21A-507»-8,'S7 ^C8481b10)476B =£B LD ...General Library ^ X \ YE 03967 3 ? I 6 5" • --.^ cT'