CHAPTER X.

THE NATIONAL BANKS.

SECRETARY CHASE CONSIDERS THE PROBLEM OF PROVIDING A NATIONAL CURRENCY.-How E. G. SPAULDING TAKES A PROMINENT 'PART IN THE DISCUSSION ON THE BANK ACT. THE ACT FOUNDED ON THE BANK ACT OF THE STATE OF NEW YORK.-EFFECT OF THE ACT UPON THE CREDIT OF THE COUNTRY.-A NEW SYSTEM OF BANKING REQUIRED.

THE

HE history of the Bank Act of 1863, improved by the Act of 1864, would require much larger space than I can devote to it in this book. I can only glance at its salient points, and show its great influence, not only on the finances of the country, but upon the destiny of the nation itself.

The Hon. E. G. Spaulding, who was one of the most prominent men in dealing with the financial questions of that period, has written and preserved a very full history of the legislation on the subject, and of the interesting debates which preceded it.

After the temporary loans had been negotiated to release the pressure upon the Government, Secretary Chase set his mind to consider the problem of providing a currency without disturbing the business organization of the country.

At this period he was met by a fresh difficulty, in the suspension of specie payments, which had been hastened by the arrest of Mason and Slidell, which, but for the wise policy of Mr. Seward, would have precipitated a conflict with Great Britain.

Early in 1862 Congress authorized ten million more of demand notes. This was followed by further issues, making in all 300 million United States notes. Secretary Chase was at first opposed to making these notes a legal tender for private

debts, but in order to get the bill through, he agreed to the legal tender clause, as the Government was greatly in need of money.

The Secretary was also empowered by Congress to borrow 500 million dollars on 5-20 year 6 per cent. bonds, and also to obtain a temporary loan of 100 millions on condition. that the interest on the bonds should be paid in coin, and that the customs should be collected in coin for that purpose.

The first bill to provide a national currency secured by a pledge of United States bonds was introduced by Mr. Hooper, in July, 1862, but it was not reported from the Committee to which it had been sent. At the meeting of Congress in December the same year the financial problem had become still more complicated, and owing to the magnitude which the war had then assumed, the expenses amounted to two millions a day.

The total receipts for the fiscal year ending June 30, 1863, were 511 millions, and the expenditures were 788 millions, thus leaving a deficit of 277 millions.

All the financial wisdom of the Secretary was necessary in this dilemma. The question was whether to provide for these 277 millions by a fresh issue of United States notes, or by interest-bearing loans.

The Secretary was opposed to increase the volume of the currency, saying that the result would be the inflation of prices, increase of expenditures, augmentation of debt, and ultimately disastrous defeat of the very purposes sought to be attained by it.

He was in favor of an increase in the amount authorized to be borrowed on the 5-20 bonds. He advised the creation of banking associations which should secure their circulation by a deposit of Government bonds. One object of this was to create a market for the bonds.

Congress was not in favor of this proposition, and the bill of Mr. Hooper was again offered in the following Jan

SECURING THE NATIONAL BANKING CURRENCY. 83

uary, but was adversely reported from the Committee on Ways and Means.

Another new issue of 100 millions United States notes was ordered on motion of Mr. Stevens, of Pennsylvania, to meet the constantly increasing needs of the army and navy.

Mr. Lincoln signed the joint resolution ordering the new issue with some reluctance, and sent a special message to the House, in which he expressed his regret that it was necessary to add this last amount to the currency while the suspended banks were free to increase their circulation.

Soon after this Senator Sherman offered a bill to provide a national currency, somewhat after the model of Mr. Hooper's bill. The Sherman bill was passed before the end of February. This virtually secured the present national banking system.

In order to show more clearly the nature of the national bank legislation, and the prominent part taken by Mr. Spaulding and a few others therein, Mr. Chase having been the directing mind, it is necessary to make a brief resume of the action of Congress with the State banks in this connection.

In January, 1862, the banks applied to Secretary Chase to receive their notes in payment for the bonds which ho had for sale, but the Secretary, thinking that this would inflate the bank currency, refused the offer.

Yet the process of inflation went on until it increased from 130 to 167 millions.

When Mr. Spaulding advocated the National Bank Act on the ground that it would provide a permanently improved bank currency, the Hon. Roscoe Conkling, at that time in the lower House, opposed the policy of making war upon the twelve hundred banks in the free States, and made a very affecting appeal for the orphans and widows who had stock therein. He proposed to issue 250 millions of seven per cent. bonds, payable in thirty-one years, to be exchanged for the bills of the suspended banks of New York, Philadel

phia and Boston, and also to, issue 200 millions of United States notes, payable in coin in a year. Mr. Conkling's scheme was assailed by Mr. Bingham, of Ohio, on the ground that it would subject the national currency to the mercy of city bankers and brokers. Other eminent representatives stood up for the maintenance and integrity of the State banks, and notably Mr. Conkling opposed the measure vigorously, which was intended to tax the State banks out of existence.

Mr. Spaulding, who advocated the bill, was followed by Mr. Fenton in an able argument, showing the superiority of a currency secured by United States bonds, and Senator Sherman explained the great evil occasioned by the success attending the counterfeiting of the State bank notes.

These arguments seemed to be conclusive and overwhelming in the passage of the bill.

It must not be forgotten, to the honor of the State of New York, that the National Bank Act was founded on the Banking act of this State, whose chief features were a currency secured on public funds, and that directors and stockholders should be personally liable.

The authorship of this idea is attributed to Mr. Stillman, who is also the well-known author of the "Stillman Act" to abolish imprisonment for debt.

This bank act, which was especially engineered by the far-seeing Secretary of the Treasury, Salmon P. Chase, had almost a miraculous effect upon the credit of the country. It created a new and extensive market for United States bonds, which immediately advanced from 93 to par.

All the running expenses of the Government, accumulated with such rapidity, were paid from the sale of the 5-20's within the short period of two months or thereabouts.

It was stated in the Treasury report at the end of the year that "The Bank Act at once inspired faith in the securities of the Government, and, more than any other cause, enabled the Secretary to provide for the prompt payment of the soldiers and the public creditors."

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Mr. Hugh McCulloch, the Comptroller of the Currency, saw room for certain changes in the law, some of which were effected by Congress in the first session of 1864. These changes were embodied in the Act of June, 1864.

There was a long debate and strenuous opposition, in which Secretary Chase deeply sympathized, against State taxation of the national banks, but despite the opposition the taxation clause was carried.

At length the modified act was passed, limiting the total amount of United States notes to be issued to 400 millions, with such additional amount, not exceeding 50 millions, as might be transiently required for the redemption of the temporary loan, and thus the main features of the Bank Act, which has served its purpose very well, became a law.

I hope, however, ere long, as I have more fully intimated in another chapter, to see a superior system of banking, which I believe must succeed the present system, which is now doomed to "innocuous desuetude" through the imminent payment of the public debt.