Conditions in 1861. III. THE NATIONAL BANKING SYSTEM CHAPTER XIV 1861 TO 1875 BANK currency in the United States in 1861, as has been shown, was issued wholly under state authority and was far from creditable to a nation boasting advanced civilization. In the Eastern states and a few others salutary laws had led to systems which were sound, but in the greater part of the country, owing to lax legislation and want of supervision, bank-notes passed at varying rates of discount and were counterfeited to an extent that was appalling. The conditions precipitated by the Civil War were therefore favorable to the creation of a national currency, uniform in character and based upon lines of conservatism and safety. The basic principles underlying the National Bank Act and bank legislation in many of the states were evolved by Alexander Hamilton in preparing the charter for the first United States Bank. The laws of several states, especially those of New York, furnished the provisions of the National Bank Act. The federal government was in pressing need of money. Bonds could not be readily sold for coin, and Secretary Chase would not take bank-notes, even had the subtreasury law of 1846 not forbidden his doing So. A paper issue was indispensable, and Chase recommended a national currency system based upon govern rency bill. ment bonds. The bill for this purpose, drawn upon the National curlines suggested by the Secretary, was introduced in Congress by Representative Spaulding (N.Y.) in the winter of 1861-1862. It was necessarily a lengthy measure, and the exigencies of the war devolved great labors upon Congress. It was not believed that the good effects hoped for under this bill could be realized in time to meet the government's necessity, hence the measure went over until the succeeding session, and the result was, as we have seen, the legal tender government note-issue. Chase was persistent, however, urging upon Congress the double advantage of his plan, at once making a market for the bonds and furnishing the people with a safe and uniform currency, permanent in character. system contemplated. The legal tender issue, owing to its doubtful constitu- A permanent tionality and its dangerous facility of expansion, was regarded as temporary, and no one contemplated its retention as a permanent currency system. Lincoln, in his message, strongly urged the speedy enactment of the proposed law. The act passed both houses of Congress and was approved February 25, 1863, just one year after the approval of the legal tender act. A considerable number of Republicans and practically all the Democrats opposed the measure. The debate showed that the intention was to supplant state bank circulation, and this intensified the opposition. It is also clear that the authors of the measure contemplated that the currency created would ultimately supplant the United States. notes. Sherman, in debate, alluding to the latter form of notes, said that they could "be used only during the war. The very moment that peace comes, all this circulation . . . will at once be banished. . . . The issue of government notes can only be a temporary measure." 1 See page 191. Y National Revision of 1864. Circulation. Spaulding regarded it as "the commencement of a permanent system for providing a national currency." The act was known as the National Currency Act and provided for a bureau in the Treasury Department to be in charge of a Comptroller of the Currency under the general direction of the Secretary, to report directly. to Congress. This bureau was given supervision of the banks to be established under the act and the currency issued by them. Hugh McCulloch was appointed the first Comptroller. He did not favor the act but learned to appreciate its usefulness. In order to constrain state banks to nationalize, their notes were by the act of March 30, 1863, taxed two per cent, just double the tax imposed upon national currency. Four hundred banks were immediately organized, but defects in the law were at once discovered, and upon the recommendation of Treasury officials it was revised by the act of June 3, 1864. The act passed the House by a vote of 80 to 60, no Democrats favoring it and only two Republicans opposing it, in the Senate by 30 to 9, no Democrats favoring and three Republicans opposing. Under its provisions any number of persons not less than five might form a banking association. The minimum capital was fixed at $50,000 for places under 6000 population, $100,000 for places not exceeding 50,000, and $200,000 for larger cities. One-half of the capital was required to be paid in cash before beginning business, the balance in 10 per cent monthly instalments. Shareholders were liable for debts of the bank to an amount equal to the par of their stock. Each bank was required to deposit with the Treasury, United States bonds bearing not less than 5 per cent interest to the amount of one-third of the capital (but in no case less than $30,000), to be held to secure circulation, which might be issued to the extent of 90 per cent |