to be kept in cash in bank. Grant, after much urging, retiring notes. Congress thereupon passed the act of June 20, 1874, Act of 1874. providing that in lieu of the required reserve (25 and 15 per cent respectively) for redemption of circulation, lawful money to the extent of 5 per cent of the circulation should be deposited and maintained in the Treasury, and the current redemption of notes was thereafter to be made at the Treasury and by the Treasurer instead of by reserve agents. The 5 per cent fund was to be counted as part of the reserve on deposits. This obviously released from reserve requirements a considerable amount of lawful money, estimated by Comptroller Knox in 1874 at over $20,000,000. The act also provided that Provision for banks might deposit lawful money in the Treasury for the reduction or retirement of their circulation and receive back their bonds pro rata. The notes were then to be redeemed out of this fund by the Treasury. The bonds on deposit were not to be reduced below the minimum requirement. Under this provision currency reapportionment was facilitated as banks were by the act compelled to surrender excess circulation. The amount now to be redistributed was $80,000,000. The maximum circulation issuable remained at $354,000,000. A "free Volume of banking" provision was presented as an amendment to increased. the bill but defeated, as were also amendments to replace bank-notes with greenbacks, regulate discount rates, and require all reserves to be kept in cash in bank. The latter proviso at one stage had passed both houses of Congress but was finally lost. The measure passed by very large majorities. notes Interest on deposits. It appears that all the Comptrollers of the Currency down to and including Knox recommended the prohibition of interest upon deposits by reserve banks, and stringent measures against over-certification of checks, believing that the payment of interest abnormally increased the deposits of interior banks in New York City, while the certification of checks facilitated the use of the same by stock exchange brokers. This money being in use by the brokers when required for cropmoving purposes was what occasioned the annual stringency in money in the fall of the year. Secretary Bristow disapproved the prohibition of interest upon deposits, as a discrimination against national and in favor of state banks, but suggested a tax upon all interest-bearing deposits as a means of discouraging the practice. The strong position against the payment of interest on deposits by banks, taken by the various Comptrollers of the Currency and Secretaries of the Treasury down to 1874, possesses peculiar interest in view of the fact that Secretary Gage in 1901 and Secretary Shaw in 1902 recommended that surplus funds of the Treasury be deposited with banks and the government receive interest thereon. The political revolution in 1874, by which the Republicans for the first time since 1859 lost control of the House of Representatives, although primarily due to the conditions after the panic, was also largely caused by the want of public confidence in the dominant party. The halting, hesitating, shuffling, and changing positions which it occupied with reference to the retirement of the greenbacks, the resumption of specie payments, and the question of sound money generally, had, not to use a stronger term, sorely disappointed the public, and it was generally felt that a change might prove beneficial. This feeling was certainly justified by events. Stung by defeat and brought face to face with the political and resump tion law. consequences of their insincere and opportunist method. of meeting these questions, they strove to regain lost ground and win back the confidence and support of the business interests of the country. In the short session of the old Congress (1874-1875) the Republicans under the lead of Sherman vigorously pushed a specie resumption measure, coupled with free banking, which finally Free banking became law January 14, 1875. It repealed all limits on the volume of national bank-notes, thus doing away with the necessity for redistribution. It was passed by a strict party vote, with a small body of extreme sound money Republicans opposing the measure. The passage of the resumption act marks a period in Status of the life of national banks. At this time there were 2027 of these associations, with capital of $496,000,000, circulation $331,000,000, individual deposits $683,000000, loans $956,000,000, government bonds $413,000,000, specie $22,000,000, legal tenders $116,000,000, and 5 per cent fund with the Treasury $21,000,000. One hundred and seventy-eight banks had gone out of business in the eleven years. Thirty-seven of these failed, twelve of them ultimately paid their debts in full, and the balance generally a very large percentage of their indebtedness. All their notes were paid in full. The earnings of the national banks calculated upon capital and surplus had diminished from an average of 11.8 per cent in 1870, the first year this information was reported, to 10.3 per cent in 1874. Dividends averaged in 1870 10.05 per cent, and in 1874 9.9 per cent. A generally higher ratio of earnings prevailed in the West and South. The incomplete reports of state banks covered only 551, with capital of $69,000,000, deposits $166,000,000, loans $176,000,000, cash $28,000,000. Many of the states still neglected to require reports from banks. banks. CHAPTER XV 1876 TO 1882 opposition. The changes in the National Bank Act in 1875 Continued broadened the scope and increased the power of national banks with respect to currency by removing all limitation upon the volume, thereby making banking free. This made it possible to organize banks ad libitum in the South and West, and tended to relieve in a measure the disadvantages which caused so much just complaint from those sections owing to the inadequacy of currency and credit facilities. Rich in natural, undeveloped resources, these sections needed capital for their developWhat they thought they needed was currency, and believing United States notes most likely to meet their wants, the agitation against national banks and in favor of the substitution of greenbacks for bank-notes continued. Although bank organization and the issue of bank currency was now absolutely free, the cry of monopoly was still maintained. ment. Comptroller Knox in elaborate reports in 1875 and Knox's 1876, in which the history of banking and bank reports. currency in the United States from the beginning of the government was reviewed, demonstrated that the national system was so vastly superior to any that had preceded it that to abrogate it now and return to the former conditions would mean abandonment of a safe and sound currency, a superior banking system, and the substitution of the old state bank systems with all their evils. The cost of domestic exchange which in 1859 |