BANKING IN THE UNITED STATES MOLDED BY POPULAR SENTIMENT.

Banking in the United States has been conducted on all the different lines described in the foregoing sketch of foreign banking, and on some other lines, which have grown out of the foregoing through the ingenuity of legislators and through the real and supposed necessities of business. There have been private banks and chartered banks, and banks under general banking laws. The latter were the result of the general antipathy of the American people to anything like monopoly, or the granting of privileges of any kind to one class of citizens that could not be enjoyed by citizens of all other classes. Notwithstanding these general laws, however, enacted both by the State and the general Government, permitting all citizens with the necessary capital to start a bank to enter the banking business, and also notwithstanding the fact that any citizen can in most of the States enter upon the business of private banking, the banking business has been viewed with more or less suspicion by the masses of the people, and it has been found difficult to secure banking legislation the most necessary and liberal and beneficial to all, because of the supposition that all such legislation must confer undue favors on the possessors of banking capital. Owing to this fact, and as the successful result of the issue of paper money by the Treasury of the United States during the war, the whole tendency of political action for the last twenty years has been to deprive banks in the United States of that portion of their natural functions by which they use their credit in the issue of circulating notes, and to give this function entirely to the Treasury of the United States. This tendency may be safely ascribed to the abuse of the note-issuing function by the banks themselves, to the establishment of the National banking system, to the great credit of the Treasury, to the agitation of the silver question, and to the growth of socialistic ideas.

ABUSE OF NOTE-ISSUING PRIVILEGE.

The history of banking in the various States before the war will make plain to any one that the note-issuing privilege was much abused, to the great detriment of individuals and of the public. Banks were started for the sole purpose of foisting worthless notes upon a confiding public. A writer in 1841 says:

"The currency of the United States consists of a small amount of gold and silver coins and bullion; a larger amount of State-chartered bank notes, exchangeable for specie; a far larger amount of bank notes not convertible into specie, composed of the notes of non-specie paying banks, the notes of banks of States other than those in which the notes circulated, unauthorized paper of individuals, of companies and of associations, in the similitude of bank notes, issued and circulated as money, and post notes, deposit notes, checks, State scrip and bills of exchange. * * Bank notes compose so large a proportion of the circulating medium that those who will not take them in payment of their debts cannot collect their dues, nor carry on their

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business requiring the use of money. The efforts of State legislators to correct the defects of the currency must ever be as unavailing as their attempts to suppress small bills have hitherto proved. Their actions are desultory, unconnected and temporary ; liable to the influence of private interest, or political party feeling, that may vary in the several States and prevent their uniform action. All the States cannot be expected to pass similar laws upon this subject, simultaneously; consequently the currency might be changed by State legislation, but it could never be radically reformed. Some of the States have passed laws to suppress the circulation of small bills within their own territories; but their immediate inundation with those of other States, often much more uncurrent than their own, aided in obtaining a repeal of the laws for their suppression, just at the moment when the neighboring States, from seeing the advantage of the measure, were about to pass similar laws.”

HUGH MCCULLOCH ON STATE BANK CURRENCY.

Hon. Hugh McCulloch, in an address delivered in 1876 before the American Bankers' Association in Philadelphia, said:

"From the time of the expiration of the charter of the United States Bank (second) up to 1861, the State banks furnished the country with its paper circulation and to a great extent controlled its business. It is not necessary to dwell upon the defects of the State bank systems, or the character of a considerable part of the notes which the people were compelled to receive and treat as money. There were scarcely two States in the Union whose systems were alike. In some States banks were chartered with proper restrictions on their discounts and their circulation; in others without any such restrictions. In some there was individual liability, in others no liability whatever, not even in cases of gross mismanagement. In some States the circulation of the banks was secured, partially at least, by mortgages and bonds; in others there was no security except capital, which was frequently a myth. In some States banking was a monopoly, in others it enjoyed the largest liberty. The consequence was that we had a bank-note circulation frequently worthless; and when solvent, lacking that uniform value which was needed in business transactions between the citizens of different States. It is enough to say that the circulation of the State banks was entirely unfitted to a country like ours; that by it the people were subjected to enormous losses, not only in the way of exchanges, but in the inability of a great many banks to redeem their notes."

STATISTICS OF STATE BANKS.

It is very difficult to obtain statistics of the operations of the State banks prior to 1832. In July of that year a resolution of the House of Representatives directed the Secretary of the Treasury to lay before the House yearly thereafter such statements relating to banks organized under State laws as could be obtained from the several State officials. Previous to 1832, Mr. Gouge says, in his "Short History of Paper Money and Banking in the United States: "

"Efforts extending over seven years to collect the accounts of the banks of the country had proved so unsatisfactory in results, and so little success had crowned the labors of Mr. Crawford, Mr. Gallatin and Mr. Niles in the same directions, that it was not thought worth while to arrange for publication the materials so provided. To collect and arrange the accounts of five or six hundred banks which are or which have been scattered through twenty-four States and two or three Territories, would be no easy task."

LOSSES FROM BAD BANKING.

The losses from the failures of the banks under these ill-advised systems of banking have never and will probably never be calculated. On November 1, 1836, eighty-nine State banks held over forty-nine millions of public deposits and twenty-six millions of individual deposits. They had outstanding about forty-two millions of dollars in circulation. In less than a year all but six of these had suspended. Of these failures, speaking of the losses to the Government alone, Secretary Woodbury says in his report of September, 1837:

"The direct losses under it appear to be large. But in the end they are not considered likely to amount to anything, though the disappointments, delays and injuries. must, it is manifest, in several cases, be great. The indirect losses to the public creditors and contractors have been considerable and difficult to be computed."

Notwithstanding the Secretary's hope that there would be very little loss to the Government, the Treasury carries a large portion of the public deposits in these banks as unavailable funds to this day. Considering all the circumstances it is not surprising that a deep and lasting spirit of hostility to State banks and their circulation grew up in the minds of the people of the United States.

NATIONAL BANKING SYSTEM, 1863.

The National banking system, in the wisdom and uniformity of its laws and the security and homogenity of its circulating notes, was the very reverse of the old State banking systems. The people quickly recognized, however, that it was the Government guarantee and the Government securities that gave the value to the circulation. As the system was at first limited in the amount of circulation it could issue, and afterwards, when the limit was removed, was restricted by the high price of bonds, it fell into great disfavor with the class of demagogues and others who are constantly reiterating the demand for more money. First the greenback enthusiasts, and after them the advocates of the free coinage of silver, have made National bank circulation their target. It was easy to make it appear that by issuing circulating notes directly instead of through the banks, that the Government might pay its bonds and stop interest, without mentioning disastrous results in other directions. At any rate it seemed easier to obtain the issue of the money they wanted directly through a paternal government than through the banks, and the result has been that silver certificates and Treasury notes have since 1878 been slowly but surely driving out the National bank note. The National system has accustomed the people to a kind of banking so superior to any they had ever experienced before, in the discount and deposit line, that it is not likely, if the paper circulation of the country is again to be issued by banks, that it will ever be delegated to the State banks.

ISSUE OF PAPER MONEY BY GOVERNMENT.

The idea that the Government should issue the paper money as we as coin the gold and silver has taken a firm hold of the public min and as long as the Treasury retains its present credit is not likely to overturned, although its disadvantages are known to financiers, esp cially that lack of elasticity which is the cause of a real scarcity moncy in some places when there is a plethora in others.

II

BANKING IN THE COLONIES, CONTINENTAL MONEY AND STATE BANKS.

Issue of paper money in Colonies - Massachusetts land bank - Copy of English land bank Land bank started - Colonial loan banks Hutchinson's specie banksDepreciation of colonial paper in 1748- Parliament suppresses loan and other banks in Colonies - Forbids use of paper as legal tender - Powers of Continental Congress - Issue of Continental money - Jefferson's'account of - Other authorities Its depreciation and final disposition - Power of Congress and States to establish banks under Federal Constitution-Webster's opinion as to State bank notes - Chase's opinion - Discussion of right of State bank to issue notes.

ISSUES OF COLONIAL PAPER MONEY.

The first issue of paper money in the Colonies was by Massachusetts in 1690, in aid of the expedition against Canada. Sir William Phips, of the Province of Maine, who was knighted because he had raised a treasure from a Spanish wreck in the West Indies, was the leader of this expedition, and it failed ignominiously before Quebec. Previous to 1711 paper money had been issued by New Hampshire, Rhode Island, Connecticut, New York and New Jersey. South Carolina followed in 1712, Pennsylvania in 1723, Maryland in 1734, Delaware in 1739, Virginia in 1755, and Georgia in 1760. These issues were at first for the benefit of the Colonial Treasuries.

LAND BANK PROPOSED.

A land bank was proposed in Massachusetts as early as 1701 † and again in 1714, as a remedy for the embarrassment of trade, having the right to issue notes secured by land. John Colman, a merchant of Boston, was the author of the latter scheme, and advocated it with much force and energy. This was a copy of a celebrated proposition made in England some twenty years before, about the time of the establishment of the Bank of England. Hugh Chamberlayne and John Briscoe in 1693 affirmed to the English nation that a land bank would work miracles for England. These were to be effected by simply issuing notes on the security of land. The projectors claimed that every person who had real property ought to have besides that property paper *He recovered £300,000 of which he received £16,000 as his share.

✦ A private bank is said to have been authorized in Massachusetts in 1686.