William Graham Sumner

“ A special stress was laid upon the provision that every bank must be one of discount and deposit, and not simply of circulation. This law, however, was so modified in 1855 as to be in effect repealed, by converting all the free banks into joint-stock banks under a general law. The notes were to be surrendered and the securities taken up. Circulation was limited under the new law to one hundred and fifty per cent. of the capital. In case of failure, the note-holders "shall have a lien on all the estate of said corporation of every description." ”

“ The Bank Commissioners are to appoint an agent annually to examine the banks. No bank may lend on its own stock. The independent banks are to last until 1866. They are to issue ones, twos, threes, fives, and the decimal denominations only, the percentage of each denomination being prescribed; and they are to issue no other kind of note. Each of them and the branches of the Bank of the State are to take each others' notes at par; each is to keep at least thirty per cent. of its circulation in specie; no bank is to hypothecate its circulation to get bonds to deposit for circulation. ”

“ To the banks of the three cities of New York, Boston and Philadelphia the people of the United States owe a debt of gratitude, especially to the banks of this city, who in August last took the lead in expressing their confidence in the stability of the government of this country, by placing at risk the capital of their stockholders for its maintenance. ”

“ The banks of North Carolina appear to have been prosperous about 1850. The Bank of the State paid eight and one-half per cent. dividend in 1849, and the Bank of Cape Fear six per cent.
By a law of 1850-1, each bank with its branches was regarded as a unit against every other bank with its branches. If one makes demands on another, it may be paid in its own obligations or those of any of its parts. Any person presenting a demand for redemption may be required to state whether he is acting on behalf of any bank. If he refuses to answer, he may be refused. ”

“ In exchange between the seaboard cities and the West, speculation had so controlled the rate of premium as to become a serious evil to the banks of Ohio, in common with those of Indiana and Kentucky. In order to exercise some control over those exchanges, a few gentlemen connected with the banks of Ohio, under the free banking law of 1851, organized this bank and made for it, so acquiring corporate form, a contract with the State Bank of Ohio, by which (in brief) the branches of said bank were to deposit with this bank an amount equal to four per cent. ”

“ There were those who argued that the people should be cajoled into the support of the war by an apparent prosperity, produced by paper money inflation;but it does not appear that the administration adopted this view, although it failed to rise to that pitch of courage and energy which the temper of the people would have warranted. ”

“ McCulloch's administration of this bank has become justly famous. In view of what we have seen about the Banks of the States, any man deserved high honor who could pilot such an institution successfully through. The plan of this bank and that of the Bank of the State of Ohio were evidently attempts to co-ordinate and organize the petty banks into a unity where they could be regulated and restrained. ”

“ No law might ever sanction the suspension of specie payments. The State should never be a stockholder in any bank after the expiration of the present State Bank, nor in any other corporation, nor lend its credit to anybody. ”

“ He is to have the custody of the plates and paper, and to replace worn out notes, the cost being assessed on the banks, and each bank is to have the interest on its bonds as long as it pays specie; but if, in New York for four weeks, the bonds fall below the value at which they were deposited, the interest is to be retained to make good the deficiency. Any insolvent bank is to be wound up by a receiver and the securities sold to pay the notes. All the stockholders of a bank may not be liable to it, in the aggregate, for more than three-fifths of its capital. ”

“ The abstraction of capital to a large extent for the construction of long lines of railroad in Ohio, Indiana, Illinois and other States has hampered this market for a year past. Such has been the pressing demand for capital for these new concerns that railroad paper has been amongst the heaviest in the market. Some companies have paid as high as one and a half or two per cent. ”

“ Kansas.—The Constitution of 1859 provided that no bank should be established except by a general law providing for a deposit of stocks as security. The State might not be a stockholder in any bank. All banks must have offices of issue and redemption at convenient places in the State, to be named on the notes. No note might be allowed for less than $5. Every banking law must be submitted to the people, and might be amended or repealed. ”

“ There is a holding of the currency, which is the solvent of debts, just at the time that there is a call for a greater supply than is required in ordinary times. In 1857 there was no stringency in the capital market antecedent to the crisis. The rate for capital was not high. The same was true of England. Confining our attention to New York, we note that there, as this crisis advanced, on account of the attitude adopted by the banks, the rate for current cash advanced until it could not be quoted. There was none to be had in the market. ”

“ New York.—Upon the recommendation of the Comptroller, in 1845, the State issued bonds to pay the creditors of the banks in the safety fund system which had become insolvent, in order to relieve "the safety fund system from the odium of bankruptcy under which it has been suffering since 1842. The sound banks have been great losers by the swindling operations of some of their associate banks, and already the sum of $1,502,170 of the common fund of all the banks has been paid on account of the redemption of circulating notes of nine banks which have failed." ”

“ A definite discrimination is intended here between the terms crisis and panic. When certain forces have been set in operation in the commercial organization by antecedent acts or occurrences, their consequences must follow. They may combine in such a way, or advance to such a pitch, that a "crisis" is produced. A "panic" is properly psychological. It is a wave of emotion, apprehension, alarm; it is more or less irrational; it is superinduced upon the crisis, which is real and inevitable, but it exaggerates, conjures up possibilities, takes away courage and energy. ”

“ If, therefore, a country has a metallic circulation, there is an immediate financial resource at the disposal of the government, in case of war or other calamity,—a resource which is strictly limited, however, in its amount to the amount of this metallic circulation. It is not necessary that the specie should be drawn into the public treasury. It suffices to suspend specie payment and issue treasury notes which will displace the specie without depreciation, until the limit of the specie circulation is reached. ”

“ The stockholders in every corporation or joint stock association for banking purposes issuing bank notes, or any kind of paper credit to circulate as money, shall be individually responsible to the amount of their respective share or shares of stock in any such corporation or association for all its debts and liabilities of every kind. ”

“ In August, 1858, a number of the private bankers of Chicago threw out the notes of twenty-seven Wisconsin banks because the currency had been greatly increased by banks, "located at inaccessible points, having no capital, doing no banking business, providing no means whatever for the redemption of their issues, and in many instances having not even an office or known place of redemption." ”

“ There might be no bank with less than $1 million capital, and no notes under $5; if any bank suspended for ten days, its charter was to expire; one-tenth of the capital must be paid in in specie before beginning; every bank, within one year of its beginning, must invest ten per cent. of its capital in bonds of the State, and also ten per cent. of any capital subsequently paid in; it must also save two per cent. of its net gains every year and invest them in State bonds, as a contingent fund. ”

“ In 1855, the bank circulation was made a preferred debt, for which, according to each charter, all the assets were pledged; also each stockholder was liable for double his stock, and the directors were individually liable without limit. It was reported, in 1857, that all the banks under the General Banking Law of February 27, 1850, were trying to get special charters. The free bank system had fallen into disfavor in New Jersey, and was being abandoned. ”

“ For popular use, in connection with a matter where the chief errors and difficulties arise from confusion of thought, the same precision of definition, upon lines which will throw out all the distinctions into the sharpest possible relief, is also of the first importance. ”

“ During the dull months of the year, when my funds could not be so employed, I would loan to New York bankers on call at seven per cent. and take good stocks for collateral. The shaved notes I would call domestic exchange; my call loans, reserved specie funds. * * * My great object would be to deal in domestic exchange." If a borrower could not draw on New York or Charleston, he would cause him to draw on himself, payable in Columbia, and discount the draft at six per cent., and a half per cent. exchange per month. ”

“ Any branch which does not redeem its notes is to be considered insolvent, and the Board of Control shall, upon examination, appoint a receiver and put the money in some solvent branch, with which to pay the notes, all the solvent branches contributing to this expense. ”

“ The statements of the Connecticut Commissioners also are always favorable. It is stated by them, in 1849, that the total bank note currency of that State was redeemed at the Suffolk every sixty days. There was a constant tendency, however, during the period now before us, for the Connecticut banks to turn to New York as their center, because the business of the State was being drawn thither. ”

“ Under the Independent Treasury System, the Regulation of Banking and Currency is left entirely to the States. The Federal Government Handles only Coin. Banks Organized under General Joint Stock Laws gradually, and to a great extent supersede Chartered Banks. In the Ohio Valley and the Northwest, Banks of the new kind run to great extravagance and abuse. By the development of new Institutions of Finance, Commerce, Transportation, and General Industry, Banks lose Comparative Importance.
CHAPTER XVI.
The Local Bank System. ”

“ The New York City banks generally had more specie than circulation, while there were on all sides the greatest evidences of prosperity. It is true that the number of banks in the city increased from twenty-five in 1849 to fifty-two in 1853, and that the number did not go above fifty-five before the war. The capital also increased from $25 millions in 1849 to $44 millions in 1853, and $59 millions in 1857; but it went on steadily increasing to $69 millions in 1860. The deposits also, which were $36.9 millions in 1851, steadily and rapidly increased to $70.6 millions in March, 1857 ”

“ In 1857, the banks of New Orleans were required by law to record daily statements of the "movement" and to return to the Board of Currency weekly averages ot the same. Each of the banks revived in 1842 was already required to keep constantly on hand one-third of its cash liabilities in specie. It was now enacted that each president and director should be liable to a fine of $100 for every day that this requirement was not complied with. ”

“ Ohio adopted an independent treasury system in 1858. Taxes were to be collected in coin or notes of those specie paying banks of Ohio which issued no notes under fives—"a virtual exclusion of Ohio bank paper as well as all other." After July 4, 1860, no notes under ten dollar, were to be received; after July 4, 1865, none under twenty dollars. The State Bank would cease in 1866. The free banks would cease in 1872. After that nothing but coin was to be used by the State. ”

“ The Suffolk system, however, always produced irritation in the country banks. In 1855 they obtained a charter for the Bank of Mutual Redemption, which was a co-operative association of themselves. It went into operation in 1858. The Suffolk published a notice that it would not continue the system of redemption after November 30th. After some friction with the new bank, however, the business of redemption was divided between them. ”

“ The Metropolitan Bank was started in 1851, in order to introduce the Suffolk system, the old troubles with the country notes being still experienced. The circular of the Metropolitan Bank set forth that it would receive all New York State country bank notes, crediting them on the following day at one-fourth of one per cent. discount, and all New England notes, good at the Suffolk, at one-fifteenth of one per cent. discount, provided that the par-redeeming banks should keep a deposit of not less than $5,000 each, paying seven per cent. ”

“ The banks were all required to resume on the 1st of May or pay one-half of one per cent. penalty on that day, and the same amount monthly, retrospectively from the 1st of January.
Governor Wise, in 1857, held that, by the experience of that State, it was demonstrated "that an issue of bank notes is a heavy burden to a State without a center of trade," because all currency tends towards such centers. "This makes the issue of bank paper immensely costly to a purely agricultural people." ”