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their affairs, in view of which the semi-annual report would seem to be unnecessary.
I recommend also that sections 62, 63, and 64 be repealed.
The national currency system contemplates the organization of national banks, which, by becoming its financial agents, may aid the government in the safekeeping and transmission of its revenues, and the transaction of its business, and through the instrumentality of which a safe and uniform circulation may be furnished to the people.
The sixty-second section makes it the duty of the Comptroller to furnish the national currency to any banks or banking institutions authorized by a State law to engage in the business of banking, upon their delivering to the Treasurer the required securities. No matter what may be the restrictions of the State law upon the issues of State banks, or the character of the banks, if they claim to be the owners and are the holders of United States bonds to the amount of fifty per cent. of their capitals, they can deposit any part of these bonds, and obtain circulation therefor. It is difficult to conceive of a measure better calculated to bring the national currency system into conflict with the States, and into disrepute with the people, than this. Under it we should have banks receiving government notes without being in any measure subject to the supervision of the government-deriving all their corporate powers from the States, and yet issuing notes not authorized by State laws. We should have banks that may have borrowed the government securities attempting to bolster up a doubtful reputation by the credit which an issue of national circulation would give them, and casting reproach upon the system by their inability to redeem it.
If States have the right to create banks of issue, they must have the sole right to control them. Congress can neither increase nor diminish the powers of institutions brought into existence by State laws if their powers do not encroach upon the authority of the general government.
But if enabling acts should be passed by State legislatures, authorizing State banks to avail themselves of the privileges of the 62d section, the objection to the delivery of notes to State banks would be only partially removed. The government should have no connexion with institutions not created by its own laws. If the two systen of national and State banking are to co-exist, let it be as separate and independent systems. Let there be no non-descripts which are part State and part national, issuing two kinds of circulation, created by different authorities and based upon different securities.
In every aspect in which I have been able to view this part of the act, I have found it to be objectionable. It is an encroachment upon State authority. It contemplates the mixing of two systems that ought to be independent. It would destroy the symmetry of the national currency and afford no advantages to solvent State banks, which they could not obtain, to a greater extent, by a transfer of their capitals into national organizations.
I suggest also that it be made the duty of the national banks, if required by the Secretary of the Treasury, to act as financial agents of the government, and to receive on deposit moneys for account of the United States, or any disbursing agent thereof, and to give satisfactory security for the faithful performance of the duties required of them.
I futher suggest that the national banks shall be required to prevent their notes from being depreciated in the commercial cities of the country, and that the national banks in those cities be required to keep their reserve of lawful money in their own vaults. The national currency-secured as it is to be by the entire resources of the government, receivable for all public dues except duties upon imports, and for all obligations of the government, except the interest on the public debt, and in case of the failure of the banks to be promptly redeemed at the treasury of the United States, can never be much depreciated, no matter what may be the location of the banks by which it is issued. If, in addition to all this, the national currency is, in the commercial cities of the Union, kept absolutely and always at par, it will attain a perfection never yet reached by a bank note circulation. That this may be done without prejudice to the banks, but rather to their advantage, I have not a particle of doubt.
The redemption of their notes at the commercial cities by the interior banks would tend to increase largely the deposits of the banks in these cities; hence the necessity that the latter should keep constantly on hand a large reserve—a reserve which might and perhaps ought to be increased beyond the present requirements of the act.
The rapidity with which national banks are being organized in the western States, and the high character of most of the stockholders thereof, indicate the popularity of the system in that part of the Union. In the eastern States it will be observed that comparatively few banks have been organized; but even in these States the opinion is rapidly gaining ground that the national system will there, at no remote period, supersede the State system of banking. It is desirable that this should be done by a transfer of capital from the latter to the former without any serious interruption of business. Some of the older States have capital enough already invested in banking, and the bank note circulation of these States should be curtailed rather than increased. I know that bank notes, notwithstanding the preference that is given to legal tenders by the people, are in great demand, and that currency is reported to be scarce throughout the country; but no one can be ignorant of the fact that this scarcity is in a measure attributable to the high prices which bank issues have contributed to bring about. It is frequently the case that money is apparently the most plenty when there is the least of it in circulation, and the scarcest when it has attained the highest point, before a financial crisis. An increase of the circulating medium inflates prices. High prices require an increased circulation, and so they act and react upon each other, and there appears to be no redundancy of currency, no matter how vast the volume may be, until a collapse takes a place, and what was supposed to be real prosperity is shown to be without a substantial foundation.
The national currency system was not designed to add to the evils of excessive paper issues, but rather to check them by the substitution of a circulation protected by adequate securities, and restricted in amount by being based upon actual values, for the too frequently unsecured and unrestricted issues of the States. It was certainly not created to increase the banking capital of the seaboard States in which there is enough of such capital already, but to supersede the systems of banking in those States by attracting to it the capital of existing banks. It promises to do this by a transfer of capital from one to the other, and without any collision between them. Where there are no enabling acts of State legislatures, the conversion takes place by the organization of national banks by the stockholders of State banks, and the transfer to the former of the assets and capital of the latter. This has already been done in several instances without even an interruption of business, and certainly without injury to the stockholders. The idea that the national banks cannot supersede the State banks wthout breaking them down and ruining their stockholders is an erroneous one, and can only be honestly entertained by those who have not carefully considered the subject or noticed the process of conversion, which has changed some banks in the west, and is changing others in the east, from one system to the other. No war is being waged, or is intended to be waged, by the national system upon State institutions. So far from it, it opens the way by which the interests of stockholders can be protected, at the same time that the character of their organizations is changed.
The war in which the country is engaged, although a great calamity in itself, will not be an unmixed evil financially even, if one result of it is the establishment of a system of banking by which, without an interference with the rights of the States, and without detriment to their solvent institutions, a bank note circulation shall be furnished to the people, as solvent as the nation itself, and uniform in value, as a substitute for that now supplied by the States, which is neither uniform in value nor, as a general thing, properly secured. The amount of losses which the people have sustained by insolvent State banks, and by the high rate of exchanges—the result of a depreciated currency-can hardly be estimated That some of the new States
— have prospered, notwithstanding the vicious and ruinous banking systems with which they have been scourged, is evidence of the greatness of their resources and the energy of their people. The idea has at last become quite general among the people that the whole system of State banking, as far as circulation is regarded, is unfitted for a commercial country like ours. The United States is a nation as well as a union of States. Its vast railroad system extends from Maine to Kansas, and will soon be extended to the Pacific ocean. Its immense trade is not circumscribed by State lines, nor subject to State laws. Its internal commerce is national, and so should be its currency. At present some fifteen hundred State banks furnish the people with a bank-note circulation. This circulation is not confined to the States by which it is authorized, but is carried by trade or is forced by the banks all over the Union. People receive it and pay it out, scarcely knowing from whence it comes or in what manner it is secured. Banks have been organized in some States with a view to lending their circulation to the people of others. Probably not one quarter of the circulation of the New England banks is needed or used in New England--the balance being practically loaned to other States. The national currency system is intended to change this state of things, not by a war upon the State banks, but by providing a means by which the circulation which is intended for national use shall be based upon national securities through associations organized under a national law. The United States notes, the issue of which was rendered necessary by the exigencies of the government, and which it is presumed will be withdrawn whenever this exigency ceases, have taught the people the superiority of a national circulation over that to which they have been accustomed. In many sections the produce of the country cannot be purchased with bank notes, and people find it difficult travelling from State to State without legal tenders. Everywhere the opinion is prevailing that the circulation of local banks has about had its day, and must yield to the demands of the people for a circulation of which the government is the guarantor.
By the national currency act the principle is for the first time recognized and established, that the redemption of bank notes should be guaranteed by the government authorizing their issue. The national currency will be as solvent as the nation of which it represents the unity. The country has at last secured to it a permanent paper circulating medium of a uniform value, without the aid of a national bank. This national system confers no monopoly of banking, but opens its advantages equally to all. It interferes with no State rights. It meets both the necessities of the government and the wants of the people. It needs modifications, and may require others than those which are suggested in this report; but it is right in principle, and of its success there can, I think, be no reasonable doubt.
The work of preparing the national circulation has been attended with unlooked for delays, but it is confidently expected, after the banks already organized are supplied, which will probably be accomplished within the next two months, that all associations will be furnished with notes within thirty days from the time bonds are deposited with the Treasurer. Contracts have been made with the Continental and American Bank Note Companies for engraving the plates for the five, ten, twenty, fifty, and one hundred dollar notes, and the printing of the fives and tens has been commenced. The delivery will soon follow, and the banks, and through the banks the people, will soon be put in possession of the much-desired currency.
With the suggested amendments of the act, it is not supposed that the national banking system will be an absolutely perfect one, but it is supposed that it will afford to the people a better bank note circulation than any heretofore devised. There may be under this law imprudent banking, and perhaps banking on fictitious capital, which no law can absolutely prevent. It should, however, be the aim of those who have the supervision of the system to guard it by every means in their power against such perversions. Men without capital, and adventurous speculators, should have no connexion with banking institutions. If such men do obtain control of national banks, the restrictions of the law should be so enforced as to render that control a temporary one. Encouragement should be given to honorable, straightforward, legitimate banking, and to no other.
But whatever mismanagement of the affairs of any particplar national bank may exist, the holders of its notes will not be prei diced by it. If the banks fail, and the bonds of the government are depressed in the market, the notes of the national banks must still be redeemed in full at the treasury of the United States. The holder has not only the public securities, but the faith of the nation pledged for their redemption.
If, in addition to this, the national currency, when distributed among the people, shall tend to give steadiness to trade by preventing bank note panics, and to facilitate a return to specie payments, and shall aid in regulating the exchanges of the country, at the same time that it meets the necessities of the government in the collection of its internal revenues, and binds the people by the strong ties of pecuniary interest to the government, it will prove that the war, calamitous as it may be, is not without its compensations, and a national debt is not without its advantages.
Hugh McCULLOCH, Comptroller. Hon. S. P. CHASE,
Secretary of the Treasury.
Third Annual Message—Abraham Lincoln
Thirty-Eighth Congress, 1st Session
DECEMBER 8, 1863 [Source: Senate Journal, 38th Cong., 1st Sess., p. 11, communicated December 8.]
The operations of the treasury during the last year have been successfully conducted. The enactment by Congress of a national banking law has proved a valuable support of the public credit; and the general legislation in relation to loans has fully answered the expectations of its favorers. Some amendments may be required to perfect existing laws, but no change in their principles or general scope is believed to be needed.
Annual Report, Secretary of Treasury (Salmon P. Chase)
[Thirty-Eighth Congress, 1st Session, December 10, 1863, Pages 19–21]
The Secretary has heretofore expressed the opinion that whatever may be the true degree in which the currency of the country is affected by a bank-note circulation, issued without national sanction and by corporations independent of national authority, and not receivable for