CHAPTER XXXI. CONDITION OF THE STATE BANKS IN 1861-CHARACTER OF THE THE STATE BANKS (NOTE)-MR. CHASE RECOMMENDS THE NA- THE HE principal currency of the country in 1861, at the beginning of the war, was a paper one supplied by sixteen hundred banks organized and doing business under as many different laws as there were States, and in some particulars at least differing widely. Their aggregated capitals amounted to four hundred and thirty millions of dollars; their circulation was two hundred and ten millions; their deposits two hundred and fiftyeight millions, and their other liabilities about one hundred and twenty-five millions. Total, one thousand and fifteen millions of dollars. Their resources were: Loans and discounts, six hundred and ninety-six millions; cash, eighty-seven millions ($87,674,507); stocks, seventy-four millions; and other property sufficient to make up the required aggregate of one thousand and fifteen millions of dollars. Their instant liabilities circulation, deposits, and dues to other banks were five hundred and twenty millions of dollars. Their means, immediately available, were one hundred and ninety-seven millions comprised in cash, cash items, circulating notes, and debts due from other banks. Of the whole banking capital about one hundred and ten millions were in the seceding States, and fifty millions of the CHARACTER OF STATE-BANK CIRCULATION. 283 circulation. Of the deposits about forty millions were held by the same banks. Of the loans and discounts five hundred and fifty millions were those of the banks in the adhering States, and they held more than seventy millions of the whole supply of cash. The cash held by the national Government in the Treasury and depositories was $3,600,000; this, with that held by the banks, made a total of ninety-one millions, and formed the basis of the currency. 1 What the whole sum of the coin in the country was at that time is of course conjectural; it was variously stated, the estimates ranging from $100,000,000 to $700,000,000. The extreme probability is that it did not exceed two hundred millions; a safer estimate would no doubt be $150,000,000. Deducting the sum held by the Government and the banks, and adding the remainder (estimating the whole sum at $200,000,000) to the paper circulation, and the total currency of the country was three hundred and eleven millions of dollars. It was early realized that the expenditures of the war were certain to be very large; Congress, at its extra session in July, 1861, manifested a partial sense of their magnitude by voting for the support of the Government four hundred millions of dollars—a sum almost equivalent to the whole banking capital of the country, and many millions more than that of the banks in the Federal States. The private discounts of these banks, too, long before the rebellion began, were largely in excess of their capital. It is not impossible that these State institutions might have been useful as auxiliaries to the financial measures of the Government, but, as a chief reliance in the varying fortunes of a great war, they were clearly inadequate. They were located at widely-separated places; they were managed by men of every shade of political opinions; their capitals varied largely; they were bound by no common public purpose and were subject to no common direction-indeed, they responded very doubtfully 1 This is the estimate of Mr. George Walker. Mr. Chase estimated it at $210,000,000. Secretary McCulloch estimated it at $100,000,000, and there were "financiers" who fixed the sum at $500,000,000 to $700,000,000. If any thing, $150,000,000 was excessive. even to the current business, as was testified by the frequent convulsions which disturbed the commerce and industry of the country in its length and breadth. The circulation they furnished was unreliable; while the credit of some of the banks was good, that of others was doubtful, and in some cases bad. It was at all times inconvenient, because so various in feature as to require constant reference to "The Detector" to guard against loss by counterfeits; and most of it was subject to greater or less discounts as it was near or far from the place of issue. According to a statement made by Mr. Benton in the United States Senate in 1836, the number of banks then doing business in the several States of the Union and the District of Columbia, was about 750; and there were in circulation in June of that year 818 counterfeits, of which 756 were of $10 and under, and 62 of $20 and upward. There were in circulation at the same time 181 counterfeits of the notes of the United States Bank and its branches-total counterfeits, 991; and these were exclusive of broken-bank notes, of imitations and alterations. Time worked no improvement; but rather, the evil increased with the growth of the country. Official reports in eighteen different States in 1860 showed 140 banks broken, 234 closed, and 131 worthless. Such was the condition of 505 banks; the whole number in the eighteen States being 1,231. Between 1856 and 1862 the notes of over 1,200 banks were counterfeited or altered. There were in existence in the latter year over 3,000 kinds of altered notes; 1,700 varieties of spurious notes; 460 varieties of imitations; over 700 of other kinds—there being more than seven thousand various kinds of genuine bills in circulation, some executed by good artists and others indifferently. The following table is from reliable data as to the two years 1856 and 1862: Whole number of banks..... Number whose notes were not counterfeited..... Number of kinds of imitations...... Number of kinds of alterations.... Number of kinds of spurious.... It is almost impossible to realize, after our experience with the "war currency," how the American people-impatient and critical-bore so long with a circulation requiring such constant THE STATE-BANK SYSTEM. 285 watchfulness, and subjecting them to so much loss both of time and money, as did that of the State banks.' In December, 1861, in his first annual report to Congress, Mr. Chase called attention to the character of these institutions A writer in the National Quarterly Review for June, 1865, gives the following succinct sketch of the State-bank system. It seems to me to be of sufficient interest and importance to be printed at this place in this book: "In 1790 there were but four banks in the Union, having an aggregate capital of $1,950,000; in 1804 there were fifty-nine banks in operation, with an aggregate capital of $39,500,000. "It is believed that but a small part of the capital of the State banks was paid up. The United States Bank was established in 1791, with a capital of $10,000,000, and its paid-up capital probably exceeded that of all the State banks together. It is known, also, that so lately as the year 1800 coin constituted the bulk of the currency, bank-notes being rarely seen south of the Potomac or north of the Allegha nies. "In the year 1808 the estimated specie in the country exceeded the amount of bank-notes in circulation. The return made to the Treasury by the United States Bank in that year gave its specie at $15,300,000, its circulating notes at $4,787,000; and another return made in 1810 did not materially vary in these respects. But the policy of the New England banks for some time previous to 1808 was widely dif ferent. They commenced the expansion of their issues probably in 1803, and pushed it to the extreme limit of their credit, so that in 1808 and 1809 a grand explosion occurred, by which most of them were damaged and some of them totally destroyed. "The abundance of specie existing before the year 1808 is accounted for by the long continuance of the wars in Europe between the maritime nations, which threw the carrying trade of the South American mines into our hands. In that year Napoleon invaded Spain; England became her ally and protector, and the long-interrupted direct trade between England and the Spanish colonies in America was resumed. At the same time our embargo law, followed by the act of non-intercourse, and finally by war with England, from June, 1812, till December, 1814, prevented the export of United States produce to foreign countries, and drained away the precious metals after the accidental supply had been cut off. The resulting scarcity of coin, and the increased demand for currency required by the exigencies of the war, were, as is well known, supplied by an excessive issue of bank-notes, which was followed by a suspension of specie payments by all the banks south of New England in September, 1814. The check of redemption removed, the expansion went on, and seems only to have been accelerated by the proclamation of peace in February, 1815. The bank issues, estimated at thirty millions in 1811, before the war, and at forty-seven millions about the time of the general suspension of specie payments, are put by Mr. Gallatin at seventy millions in 1816, and by Mr. Crawford, with probably a close approximation to the truth, at ninety-nine millions. "An inflation so prodigious occurring in time of peace and the consequently diminished rapidity of business circulation were necessarily followed by a correspondingly heavy relapse. A population of not above nine millions, with a paper currency of eleven dollars per capita in their hands, or fully double the amount required by the condition of industry and trade, the whole mass resting upon a specie basis of and the doubtfulness of their right-under the Constitution—to issue circulating notes. The whole of that circulation was a loan without interest from the people to the banks, costing the latter nothing but the expense of issue and redemption, and the interest about twenty millions, or one dollar for the redemption of five, could not escape a revulsion alike extensive and disastrous. The consequence was the most appalling distress which the country had ever seen, and which even to this day is without a parallel. The root of the evil was in the attempt of the Government to carry on an expensive war by loans of bank-credits and bank-notes, thereby making irredeemable paper a national currency, assisting in its circulation and encouraging its expansion. A national currency, such as our greenbacks or the notes of the national banks, based upon United States bonds, rests upon the faith and resources of the nation; and, however much it may be temporarily depreciated, is yet redeemable. But a corporation currency, resting only upon the debts of bankrupt borrowers, is utterly baseless, and its total excess is simply worthless. "The fluctuations in the amount of paper currency which led to and resulted from the great revulsion of this period, according to the estimates of Mr. Crawford, Secretary of the Treasury, in 1820, stood thus: "Taking the lowest figures in these estimates they would give a per capita circulation in 1811-before the war-of $3.87; in 1818, before the suspension of specie payments, $7.72; in 1815, at the close of the war, $10.58; in 1819, immediately after the general bank crash, $4.81. But it is well known that during the year 1816 the banks continued to issue abundantly, and that floods of unchartered currency besides were poured out in notes of all denominations, from six cents up to five and ten dollars. The bank-note reporters of the time give lists of notes in circulation by chartered and unchartered companies and individuals about equally numerous. After the 20th of February, 1817, Congress prohibited the receipt of inconvertible paper in payment of public dues. About the middle of 1818 the contraction began, and at the end of 1819 the banks had settled into what Niles's Register calls 'a state of regularity;' meaning that the survivors had reduced their circulation to such an extent that, for the purpose of remittance, their notes or drafts on the metropolitan banks were worth a fraction more than silver coin, which was itself very scarce, owing to the preparation then making by the Bank of England, and the imports of specie by Austria and Prussia, for the replacement of their paper currencies with specie. At this time lands in the interior and agricultural products were for sale at one-third the price they commanded when the unusual indebtedness of the people was made, and at half the prices readily obtained in 1808-'10. "In the period 1820 to 1830 the increase of banks and of paper money was not in the aggregate considerable, but the conduct of many of these ungovernable institutions was such that in the decade several ruinous fluctuations occurred in different districts of the country. We have no statement of the condition of the banks and the amount of currency afloat during this term, but we know that the years 1826-'28 |