"For a long time the Bank of England was_History for ready reference, Volume 3, Greece to Nibelungen

Liberalism, and in that capacity rendered to the State

inestimable services. In return for these substantial benefits

the Bank of England received from the Government, either at

first or afterwards, three most important privileges. First.

The Bank of England had the exclusive possession of the

Government balances. In its first period … the Bank gave

credit to the Government, but afterwards it derived credit

from the Government. There is a natural tendency in men to

follow the example of the Government under which they live.

The Government is the largest, most important, and most

conspicuous entity with which the mass of any people are

acquainted; its range of knowledge must always lie infinitely

greater than the average of their knowledge, and therefore,

unless there is a conspicuous warning to the contrary, most

men are inclined to think their Government right, and, when

they can, to do what it does. Especially in money matters a

man might fairly reason—'If the Government is right in

trusting the Bank of England with the great balance of the

nation, I cannot be wrong in trusting it with my little

balance.' Second, The Bank of England had, till lately, the

monopoly of limited liability in England. The common law of

England knows nothing of any such principle. It is only

possible by Royal Charter or Statute Law. And by neither of

these was any real bank … permitted with limited liability

in England till within these few years. … Thirdly. The Bank

of England had the privilege of being the sole joint stock

company permitted to issue bank notes in England. Private

London bankers did indeed issue notes down to the middle of

the last century, but no joint stock company could do so. The

explanatory clause of the Act of 1742 sounds most curiously to

our modern ears. … 'It is the true intent and meaning of the

said Act that no other bank shall be created, established, or

allowed by Parliament, and that it shall not be lawful for any

body politic or corporate whatsoever created or to be created,

or for any other persons whatsoever united or to be united in

covenants or partnership exceeding the number of six persons

in that part of Great Britain called England, to borrow, owe,

or take up any sum or sums of money on their bills or notes

payable on demand or at any less time than six months from the

borrowing thereof during the continuance of such said

privilege to the said governor and company, who are hereby

declared to be and remain a corporation with the privilege of

exclusive banking, as before recited.'

{2211}

To our modern ears these words seem to mean more than they

did. The term banking was then applied only to the issue of

notes and the taking up of money on bills on demand. Our

present system of deposit banking, in which no bills or

promissory notes are issued, was not then known on a great

scale, and was not called banking. But its effect was very

important. It in time gave the Bank of England the monopoly of

the note issue of the Metropolis. It had at that time no

branches, and so it did not compete for the country

circulation. But in the Metropolis, where it did compete, it

was completely victorious. No company but the Bank of England

could issue notes, and unincorporated individuals gradually

gave way, and ceased to do so. Up to 1844 London private

bankers might have issued notes if they pleased, but almost a

hundred years ago they were forced out of the field. The Bank

of England had so long had a practical monopoly of the

circulation, that it is commonly believed always to have had a

legal monopoly. And the practical effect of the clause went

further: it was believed to make the Bank of England the only

joint stock company that could receive deposits, as well as

the only company that could issue notes. The gift of

'exclusive banking' to the Bank of England was read in its

most natural modern sense: it was thought to prohibit any

other banking company from carrying on our present system of

banking. After joint stock banking was permitted in the

country, people began to inquire why it should not exist in

the Metropolis too? And then it was seen that the words I have

quoted only forbid the issue of negotiable instruments, and

not the receiving of money when no such instrument is given.

Upon this construction, the London and Westminster Bank and

all our older joint stock banks were founded. But till they

began, the Bank of England had among companies not only the

exclusive privilege of note issue, but that of deposit banking

too. It was in every sense the only banking company in London.

With so many advantages over all competitors, it is quite

natural that the Bank of England should have far outstripped

them all. … All the other bankers grouped themselves round

it, and lodged their reserve with it. Thus our one-reserve

system of banking was not deliberately founded upon definite

reasons; it was the gradual consequence of many singular

events, and of an accumulation of legal privileges on a single

bank which has now been altered, and which no one would now

defend. … For more than a century after its creation

(notwithstanding occasional errors) the Bank of England, in

the main, acted with judgment and with caution. Its business

was but small as we should now reckon, but for the most part

it conducted that business with prudence and discretion. In

1696, it had been involved in the most serious difficulties,

and had been obliged to refuse to pay some of its notes. For a

long period it was in wholesome dread of public opinion, and

the necessity of retaining public confidence made it cautious.

But the English Government removed that necessity. In 1797,

Mr. Pitt feared that he might not be able to obtain sufficient

specie for foreign payments, in consequence of the low state

of the Bank reserve, and he therefore required the Bank not to

pay in cash. He removed the preservative apprehension which is

the best security of all Banks. For this reason the period

under which the Bank of England did not pay gold for its

notes—the period from 1797 to 1819—is always called the

period of the Bank 'restriction.' As the Bank during that

period did not perform, and was not compelled by law to

perform, its contract of paying its notes in cash, it might

apparently have been well called the period of Bank license.

But the word 'restriction' was quite right, and was the only

proper word as a description of the policy of 1797. Mr. Pitt

did not say that the Bank of England need not pay its notes in

specie; he 'restricted' them from doing so; he said that they

must not. In consequence, from 1797 to 1844 (when a new era

begins), there never was a proper caution on the part of the

Bank directors. At heart they considered that the Bank of

England had a kind of charmed life, and that it was above the

ordinary banking anxiety to pay its way. And this feeling was

very natural."

_W. Bagehot,

Lombard Street,

chapters 3-4._

ALSO IN:

_J. W. Gilbart,

History and Principles of Banking._

_H. May,

The Bank of England

(Fortnightly Review, March, 1885)._

MONEY AND BANKING: 17-18th Centuries.

Early Paper issues and Banks in the American Colonies.

"Previous to the Revolutionary War paper money was issued to a

greater or less extent by each one of the thirteen colonies.

The first issue was by Massachusetts in 1690, to aid in

fitting out the expedition against Canada. Similar issues had

been made by New Hampshire, Rhode Island, Connecticut, New

York, and New Jersey, previous to the year 1711. South

Carolina began to emit bills in 1712, Pennsylvania in 1723,

Maryland in 1734, Delaware in 1739, Virginia in 1755, and

Georgia in 1760. Originally the issues were authorized to meet

the necessities of the colonial treasuries. In Massachusetts,

in 1715, as a remedy for the prevailing embarrassment of

trade, a land bank was proposed with the right to issue

circulating notes secured by land. … The plan for the land

bank was defeated, but the issue of paper money by the

treasury was authorized to the extent of £50,000, to be loaned

on good mortgages in sums of not more than £500, nor less than

£50, to one person. The rate of interest was five per cent.,

payable with one-fifth of the principal annually. … In 1733

an issue of bills to the amount of £110,000 was made by the

merchants of Boston, which were to be redeemed at the end of

ten years, in silver, at the rate of 19 shillings per ounce.

In 1739, the commercial and financial embarrassment still

continuing, another land bank was started in Massachusetts.

… A specie bank was also formed in 1739, by Edward

Hutchinson and others, which issued bills to the amount of

£120,000, redeemable in fifteen years in silver, at 20

shillings per ounce, or gold pro rata. The payment of these

notes was guaranteed by wealthy and responsible merchants.

These notes, and those of a similar issue in 1733, were

largely hoarded and did not pass generally into circulation.

In 1740 Parliament passed a bill to extend the act of 1720,

known as the bubble act, to the American colonies, with the

intention of breaking up all companies formed for the purpose

of issuing paper money.

{2212}

Under this act both the land bank and the specie bank were

forced to liquidate their affairs, though not without some

resistance on the part of the former. … The paper money of

the colonies, whether issued by them or by the loan banks,

depreciated almost without exception as the amounts in

circulation increased. … The emission of bills by the

colonies and the banks was not regarded with favor by the

mother country, and the provincial governors were as a general

thing opposed to these issues. They were consequently

frequently embroiled with their legislatures."

_J. J. Knox,

United States Notes,

pages 1-5._

MONEY AND BANKING: 17-19th Centuries.

Creation of the principal European Banks.

"The Bank of Vienna was founded as a bank of deposit in 1703,

and as a bank of issue in 1793; the Banks of Berlin and

Breslau in 1765 with state sanction; the Austrian National

Bank in 1816. In St. Petersburg three banks were set up; the

Loan Bank in 1772, advancing loans on deposits of bullion and

jewels; the Assignation Bank in 1768 (and in Moscow, 1770),

issuing government paper money; the Aid Bank in 1797, to

relieve estates from mortgage and advance money for

improvements. The Commercial Bank of Russia was founded in

1818. The Bank of Stockholm was founded in 1688. The Bank of

France was founded first in 1803 and reorganised in 1806, when

its capital was raised to 90,000,000 francs, held in 90,000

shares of 1,000 francs. It is the only authorised source of

paper money in France, and is intimately associated with the

government."

_H. de B. Gibbins,

History of Commerce in Europe,

book 3, chapter 4._

MONEY AND BANKING: A. D. 1775-1780.

The Continental Currency of the American Revolution.

"The colonies … went into the Revolutionary War, many of

them with paper already in circulation, all of them making

issues for the expenses of military preparations. The

Continental Congress, having no power to tax, and its members

being accustomed to paper issues as the ordinary form of

public finance, began to issue bills on the faith of the

'Continent,' Franklin earnestly approving. The first issue was

for 300,000 Spanish dollars, redeemable in gold or silver, in

three years, ordered in May and issued in August, 1775. Paper

for nine million dollars was issued before any depreciation

began. The issues of the separate colonies must have affected

it, but the popular enthusiasm went for something. Pelatiah

Webster, almost alone as it seems, insisted on taxation, but a

member of Congress indignantly asked if he was to help tax the

people when they could go to the printing-office and get a

cartload of money. In 1776, when the depreciation began,

Congress took harsh measures to try to sustain the bills.

Committees of safety also took measures to punish those who

'forestalled' or 'engrossed,' these being the terms for

speculators who bought up for a rise."

_W. G. Sumner,

History of American Currency,

pages 43-44._

"During the summer of 1780 this wretched 'Continental'

currency fell into contempt. As Washington said, it took a

wagon-load of money to buy a wagon-load of provisions. At the

end of the year 1778, the paper dollar was worth sixteen cents

in the northern states and twelve cents in the south. Early in

1780 its value had fallen to two cents, and before the end of

the year it took ten paper dollars to make a cent. In October,

Indian corn sold wholesale in Boston for $150 a bushel, butter

was $12 a pound, tea $90, sugar $10, beef $8, coffee $12, and

a barrel of flour cost $1,575. Samuel Adams paid $2,000 for a

hat and suit of clothes. The money soon ceased to circulate,

debts could not be collected, and there was a general

prostration of credit. To say that a thing was 'worth a

Continental' became the strongest possible expression of

contempt."

_J. Fiske,

The American Revolution,

chapter 13 (volume 2)._

Before the close of the year 1780, the Continental Currency

had ceased to circulate. Attempts were subsequently made to

have it funded or redeemed, but without success.

See UNITED STATES OF AMERICA:

A. D. 1780 (JANUARY-APRIL).

ALSO IN:

_H. Phillips, Jr.,

Historical Sketches of American Paper Currency,

2d Series._

MONEY AND BANKING: A. D. 1780-1784.

The Pennsylvania Bank and the Bank of North America.

"The Pennsylvania Bank, which was organized in Philadelphia

during the Revolutionary War, was founded for the purpose of

facilitating the operations of the Government in transporting

supplies for the army. It began its useful work in 1780, and

continued in existence until after the close of the war;

finally closing its affairs toward the end of the year 1784.

But the need was felt of a national bank which should not only

aid the Government on a large scale by its money and credit,

but should extend facilities to individuals, and thereby

benefit the community as well as the state. Through the

influence and exertion of Robert Morris, then Superintendent

of Finance for the United States, the Bank of North America,

at Philadelphia, was organized with a capital of $400,000. It

was incorporated by Congress in December, 1781, and by the

State of Pennsylvania a few months afterward. Its success was

immediate and complete. It not only rendered valuable and

timely aid to the United States Government and to the State of

Pennsylvania, but it greatly assisted in restoring confidence

and credit to the commercial community, and afforded

facilities to private enterprise that were especially welcome.

… The success of the Bank of North America, and the

advantages which the citizens of Philadelphia enjoyed from the

facilities it offered them, naturally suggested the founding

of a similar enterprise in the city of New York." The Bank of

New York was accordingly founded in 1784.

_H. W. Domett,

History of the Bank of New York,

chapter 1._

ALSO IN:

_W. G. Sumner,

The Financier and the Finances of

the American Revolution,

chapter 17 (volume 2)._

MONEY AND BANKING: A. D. 1789-1796.

The Assignats of the French Revolution.

"The financial embarrassments of the government in 1789 were

extreme. Many taxes had ceased to be productive; the

confiscated estates not only yielded no revenue but caused a

large expense, and, as a measure of resource, the finance

committee of the Assembly reported in favor of issues based

upon the confiscated lands. But the bitter experience of

France through the Mississippi schemes of John Law, 1719-21,

made the Assembly and the nation hesitate. … Necker, the

Minister, stood firm in his opposition to the issue of paper

money, even as a measure of resource; but the steady pressure

of fiscal exigencies, together with the influence of the

fervid orators of the Assembly, gained a continually

increasing support to the proposition of the committee. …

{2213}

The leaders of the Assembly were secretly actuated by a

political purpose, viz., by widely distributing the titles to

the confiscated lands (for such the paper money in effect was)

to commit the thrifty middle class of France to the principles

and measures of the revolution. … Oratory, the force of

fiscal necessities, the half-confessed political design,

prevailed at last over the warnings of experience; and a

decree passed the Assembly authorizing an issue of notes to

the value of four hundred million francs, on the security of

the public lands. To emphasize this security the title of

'assignats' was applied to the paper. … The issue was made;

the assignats went into circulation; and soon came the

inevitable demand for more. … The decree for a further issue

of eight hundred millions passed, September, 1790. Though the

opponents of the issue had lost heart and voice, they still

polled 423 votes against 508. To conciliate a minority still

so large, contraction was provided for by requiring that the

paper when paid into the Treasury should be burned, and the

decree contained a solemn declaration that in no case should

the amount exceed twelve hundred millions. June 19, 1791, the

Assembly, against feeble resistance, violated this pledge and

authorized a further issue of six hundred millions. Under the

operation of Gresham's Law, specie now began to disappear from

circulation. … And now came the collapse of French industry.

… 'Everything that tariffs and custom-houses could do was

done. Still the great manufactories of Normandy were closed;

those of the rest of the kingdom speedily followed, and vast

numbers of workmen, in all parts of the country, were thrown

out of employment. … In the spring of 1791 no one knew

whether a piece of paper money, representing 100 francs,

would, a month later, have a purchasing power of 100 francs,

or 90 francs, or 80, or 60. The result was that capitalists

declined to embark their means in business. Enterprise

received a mortal blow. Demand for labor was still further

diminished. The business of France dwindled into a mere living

from hand to mouth.' … Towards the end of 1794 there had

been issued 7,000 millions in assignats; by May, 1795, 10,000

millions; by the end of July, 16,000 millions; by the

beginning of 1796, 45,000 millions, of which 36,000 millions

were in actual circulation. M. Bresson gives the following

table of depreciation: 24 livres in coin were worth in

assignats

April 1, 1795, 238;

May 1, 299;

June 1, 439;

July 1, 808;

Aug. 1, 807;

Sept. 1, 1,101;

Oct. 1, 1,205;

Nov. 1, 2,588;

Dec. 1, 3,575;

Jan. 1, 1796, 4,658;

Feb. 1, 5,337.

At the last 'an assignat professing to be worth 100 francs was

commonly exchanged for 5 sous 6 deniers: in other words, a

paper note professing to be worth £4 sterling passed current

for less than 3d. in money.' The downward course of the

assignats had unquestionably been accelerated by the extensive

counterfeiting of the paper in Belgium, Switzerland, and

England. … Now appears that last resort of finance under a

depreciating paper: an issue under new names and new devices.

… Territorial Mandates were ordered to be issued for

assignats at 30:1, the mandates to be directly exchangeable

for land, at the will of the holder, on demand. … For a

brief time after the first limited emission, the mandates rose

as high as 80 per cent. of their nominal value; but soon

additional issues sent them down even more rapidly than the

assignats had fallen."

_F. A. Walker,

Money,

part 2, chapter 16._

ALSO IN:

_Andrew D. White,

Paper-money Inflation in France._

MONEY AND BANKING: A. D. 1791-1816.

The First Bank of the United States.

On the organization of the government of the United States,

under its federal constitution, in 1789 and 1790, the lead in

constructive statesmanship was taken, as is well known, by

Alexander Hamilton. His plan "included a financial institution

to develop the national resources, strengthen the public

credit, aid the Treasury Department in its administration, and

provide a secure and sound circulating medium for the people.

On December 13, 1790, he sent into Congress a report on the

subject of a national bank. The Republican party, then in the

minority, opposed the plan as unconstitutional, on the ground

that the power of creating banks or any corporate body had not

been expressly delegated to Congress, and was therefore not

possessed by it. Washington's cabinet was divided; Jefferson

opposing the measure as not within the implied powers, because

it was an expediency and not a paramount necessity. Later he

used stronger language, and denounced the institution as 'one

of the most deadly hostility existing against the principles

and form of our Constitution,' nor did he ever abandon these

views. There is the authority of Mr. Gallatin for saying that

Jefferson 'died a decided enemy to our banking system

generally, and specially to a bank of the United States.' But

Hamilton's views prevailed. Washington, who in the weary years

of war had seen the imperative necessity of some national

organization of the finances, after mature deliberation

approved the plan, and on February 25, 1791, the Bank of the

United States was incorporated. The capital stock was limited

to twenty-five thousand shares of four hundred dollars each,

or ten millions of dollars, payable one fourth in gold and

silver, and three fourths in public securities bearing an

interest of six and three per cent. The stock was immediately

subscribed for, the government taking five thousand shares,

two millions of dollars, under the right reserved in the

charter. The subscription of the United States was paid in ten

equal annual instalments. A large proportion of the stock was

held abroad, and the shares soon rose above par. … Authority

was given the bank to establish offices of discount and

deposit within the United States. The chief bank was placed in

Philadelphia and branches were established in eight cities,

with capitals in proportion to their commercial importance. In

1809 the stockholders of the Bank of the United States

memorialized the government for a renewal of their charter,

which would expire on March 4, 1811; and on March 9, 1809, Mr.

Gallatin sent in a report in which he reviewed the operations

of the bank from its organization. Of the government shares,

five million dollars at par, two thousand four hundred and

ninety-three shares were sold in 1796 and 1797 at an advance

of 25 per cent., two hundred and eighty-seven in 1797 at an

advance of twenty per cent., and the remaining 2,220 shares in

1802, at an advance of 45 per cent., making together,

exclusive of the dividends, a profit of $671,680 to the United

States. Eighteen thousand shares of the bank stock were held

abroad, and seven thousand shares, or a little more than one

fourth part of the capital, in the United States.

{2214}

A table of all the dividends made by the bank showed that they

had on the average been at the rate of 8 3/8 (precisely 8

13/34) per cent. a year, which proved that the bank had not in

any considerable degree used the public deposits for the

purpose of extending its discounts. From a general view of the

debits and credits, as presented, it appeared that the affairs

of the Bank of the United States, considered as a moneyed

institution, had been wisely and skilfully managed. The

advantages derived by the government Mr. Gallatin stated to

be,

1, safe-keeping of the public moneys;

2, transmission of the public moneys;

3, collection of the revenue;

4, loans.

The strongest objection to the renewal of the charter lay in

the great portion of the bank stock held by foreigners. Not on

account of any influence over the institution, since they had

no vote; but because of the high rate of interest payable by

America to foreign countries. … Congress refused to prolong

its existence and the institution was dissolved. Fortunately

for the country, it wound up its affairs with such

deliberation and prudence as to allow of the interposition of

other bank credits in lieu of those withdrawn, and thus

prevented a serious shock to the interests of the community.

In the twenty years of its existence from 1791 to 1811 its

management was irreproachable. The immediate effect of the

refusal of Congress to recharter the Bank of the United States

was to bring the Treasury to the verge of bankruptcy. The

interference of Parish, Girard, and Astor alone saved the

credit of the government. … Another immediate effect of the

dissolution of the bank was the withdrawal from the country of

the foreign capital invested in the bank, more than seven

millions of dollars. This amount was remitted, in the twelve

months preceding the war, in specie. Specie was at that time a

product foreign to the United States, and by no means easy to

obtain. … The notes of the Bank of the United States,

payable on demand in gold and silver at the counters of the

bank, or any of its branches, were, by its charter, receivable

in all payments to the United States; but this quality was

also stripped from them on March 19, 1812, by a repeal of the

act according it. To these disturbances of the financial

equilibrium of the country was added the necessary withdrawal

of fifteen millions of bank credit and its transfer to other

institutions. This gave an extraordinary impulse to the

establishment of local banks, each eager for a share of the

profits. The capital of the country, instead of being

concentrated, was dissipated. Between January 1, 1811, and

1815, one hundred and twenty new banks were chartered, and

forty millions of dollars were added to the banking capital.

To realize profits, the issues of paper were pushed to the

extreme of possible circulation. Meanwhile New England kept

aloof from the nation. The specie in the vaults of the banks

of Massachusetts rose from $1,706,000 on June 1, 1811, to

$7,326,000 on June 1, 1814. … The suspension of the banks

was precipitated by the capture of Washington. It began in

Baltimore, which was threatened by the British, and was at

once followed in Philadelphia and New York. Before the end of

September all the banks south and west of New England had

suspended specie payment. … The depression of the local

currencies ranged from seven to twenty-five per cent. … In

November the Treasury Department found itself involved in the

common disaster. The refusal of the banks, in which the public

moneys were deposited, to pay their notes or the drafts upon

them in specie deprived the government of its gold and silver;

and their refusal, likewise, of credit and circulation to the

issues of banks in other States deprived the government also

of the only means it possessed for transferring its funds to

pay the dividends on the debt and discharge the treasury

notes. … On October 14, 1814, Alexander J. Dallas, Mr.

Gallatin's old friend, who had been appointed Secretary of the

Treasury on the 6th of the same month, in a report of a plan

to support the public credit, proposed the incorporation of a

national bank. A bill was passed by Congress, but returned to

it by Madison with his veto on January 15, 1815. … Mr.

Dallas again, as a last resort, insisted on a bank as the only

means by which the currency of the country could be restored

to a sound condition. In December, 1815, Dallas reported to

the Committee of the House of Representatives on the national

currency, of which John C. Calhoun was chairman, a plan for a

national bank, and on March 3, 1816, the second Bank of the

United States was chartered by Congress. The capital was

thirty-five millions, of which the government held seven

millions in seventy thousand shares of one hundred dollars

each. Mr. Madison approved the bill. … The second national

bank of the United States was located at Philadelphia, and

chartered for twenty years."

_J. A. Stevens,

Albert Gallatin,

chapter 6._

MONEY AND BANKING: A. D. 1817-1833.

The Second Bank of the United States

and the war upon it.

"On the 1st of January, 1817, the bank opened for business,

with the country on the brink of a great monetary crisis, but

'too late to prevent the crash which followed.' The management

of the bank during the first two years of its existence was

far from satisfactory. It aggravated the troubles of the

financial situation instead of relieving them. Specie payments

were nominally resumed in 1817, but the insidious canker of

inflation had eaten its way into the arteries of business, and

in the crisis of 1819 came another suspension that lasted for

two years. … It was only by a desperate effort that the bank

finally weathered the storm brought on by its own

mismanagement and that of the State Banks. After the recovery,

a period of several years of prosperity followed, and the

management of the bank was thoroughly reorganized and sound.

From this time on until the great 'Bank War' its affairs seem

to have been conducted with a view to performing its duty to

the government as well as to its individual stockholders, and

it rendered such aid to the public, directly, and indirectly,

as entitled it to respect and fair treatment on the part of

the servants of the people. … But the bank controversy was

not yet over. It was about to be revived, and to become a

prominent issue in a period of our national politics more

distinguished for the bitterness of its personal animosities

than perhaps any other in our annals. … As already said, the

ten years following the revulsion of 1819-25 were years of

almost unbroken prosperity. … The question of the

continuance of the bank was not under discussion. In fact,

scarcely any mention of the subject was made until President

Jackson referred to it in his message of December, 1829.

{2215}

In this message he reopened the question of the

constitutionality of the bank, but the committee to which this

portion of the message was referred in the House of

Representatives made a report favorable to the institution.

There seems no reason to doubt the honesty of Jackson's

opinion that the bank was unconstitutional, and at first he

probably had no feeling in the matter except that which sprang

from his convictions on this point. Certain events, however,

increased his hostility to the bank, and strengthened his

resolution to destroy it. … When President Jackson first

attacked the bank, the weapon he chiefly relied on was the

alleged unconstitutionality of the charter."

_D. Kinley,

The Independent Treasury of the United States,

chapter 1._

The question of the rechartering of the Bank was made an issue

in the presidential campaign of 1832, by Henry Clay. "Its

disinterested friends in both parties strongly dissuaded

Biddle [president of the Bank] from allowing the question of

recharter to be brought into the campaign. Clay's advisers

tried to dissuade him. The bank, however, could not oppose the

public man on whom it depended most, and the party leaders

deferred at last to their chief. Jackson never was more

dictatorial and obstinate than Clay was at this juncture."

Pending the election, a bill to renew the charter of the Bank

was passed through both houses of Congress. The President

promptly vetoed it. "The national republican convention met at

Baltimore, December 12, 1831. It … issued an address, in

which the bank question was put forward. It was declared that

the President 'is fully and three times over pledged to the

people to negative any bill that may be passed for

rechartering the bank, and there is little doubt that the

additional influence which he would acquire by a reelection

would be employed to carry through Congress the extraordinary

substitute which he has repeatedly proposed.' The appeal,

therefore, was to defeat Jackson in order to save the bank.

… Such a challenge as that could have but one effect on

Jackson. It called every faculty he possessed into activity to

compass the destruction of the bank. Instead of retiring from

the position he had taken, the moment there was a fight to be

fought, he did what he did at New Orleans. He moved his lines

up to the last point he could command on the side towards the

enemy. … The proceedings seemed to prove just what the

anti-bank men had asserted: that the bank was a great monster,

which aimed to control elections, and to set up and put down

Presidents. The campaign of 1832 was a struggle between the

popularity of the bank and the popularity of Jackson."

_W. G. Sumner,

Andrew Jackson,

chapter 11._

Jackson was overwhelmingly elected, and feeling convinced that

his war upon the Bank had received the approval of the people,

he determined to remove the public deposits from its keeping

on his own responsibility. "With this view he removed (in the

spring of 1833) the Secretary of the Treasury, who would not

consent to remove the deposits, and appointed William J.

Duane, of Pennsylvania, in his place. He proved to be no more

compliant than his predecessor. After many attempts to

persuade him, the President announced to the Cabinet his final

decision that the deposits must be removed. The Reasons given

were that the law gave the Secretary, not Congress, control of

the deposits, that it was improper to leave them longer in a

bank whose charter would so soon expire, that the Bank's funds

had been largely used for political purposes, that its

inability to pay all its depositors had been shown by its

efforts to procure an extension of time from its creditors in

Europe, and that its four government directors had been

systematically kept from knowledge of its management.

Secretary Duane refused either to remove the deposits or to

resign his office, and pronounced the proposed removal

unnecessary, unwise, vindictive, arbitrary, and unjust. He was

at once removed from office, and Roger B. Taney, of Maryland,

appointed in his place. The necessary Orders for Removal were

given by Secretary Taney. It was not strictly a removal, for

all previous deposits were left in the Bank, to be drawn upon

until exhausted. It was rather a cessation. The deposits were

afterwards made in various State banks, and the Bank of the

United States was compelled to call in its loans. The

commercial distress which followed in consequence probably

strengthened the President in the end by giving a convincing

proof of the Bank's power as an antagonist to the Government."

_A. Johnston,

History of American Politics,

chapter 13._

MONEY AND BANKING: A. D. 1837-1841.

The Wild Cat Banks of Michigan.

"Michigan became a State in January, 1837. Almost the first

act of her State legislature was the passage of a general

banking law under which any ten or more freeholders of any

county might organize themselves into a corporation for the

transaction of banking business. Of the nominal capital of a

bank only ten per cent. in specie was required to be paid when

subscriptions to the stock were made, and twenty per cent.

additional in specie when the bank began business. For the

further security of the notes which were to be issued as

currency, the stockholders were to give first mortgages upon

real estate, to be estimated at its cash value by at least

three county officers, the mortgages to be filed with the

auditor-general of the State. A bank commissioner was

appointed to superintend the organization of the banks, and to

attest the legality of their proceedings to the

auditor-general, who, upon receiving such attestation, was to

deliver to the banks circulating notes amounting to two and a

half times the capital certified to as having been paid in.

This law was passed in obedience to a popular cry that the

banking business had become an 'odious monopoly' that ought to

be broken up. Its design was to 'introduce free competition

into what was considered a profitable branch of business

heretofore monopolized by a few favored corporations.' Anybody

was to be given fair opportunities for entering the business

on equal terms with everybody else. The act was passed in

March, 1837, and the legislature adjourned till November 9

following. Before the latter date arrived, in fact before any

banks had been organized under the law, a financial panic

seized the whole country. An era of wild speculation reached a

climax, the banks in all the principal cities of the country

suspended specie payments, and State legislatures were called

together to devise remedies to meet the situation. That of

Michigan was convened in special session in June, and its

remedy for the case of Michigan was to leave the general

banking law in force, and to add to it full authority for

banks organized under it to begin the business of issuing

bills in a state of suspension—that is, to flood the State

with an irredeemable currency, based upon thirty per cent. of

specie and seventy per cent. of land mortgage bonds."

_Cheap-Money Experiments

(from the Century Magazine),

pages 75-77._

{2216}

"Wild lands that had been recently bought of the government at

one dollar and twenty-five cents an acre were now valued at

ten or twenty times that amount, and lots in villages that

still existed only on paper had a worth for banking purposes

only limited by the conscience of the officer who was to take

the securities. Any ten freeholders of a county must be poor

indeed if they could not give sufficient security to answer

the purpose of the general banking law. The requirement of the

payment of thirty per cent. of the capital stock in specie was

more difficult to be complied with. But as the payment was to

be made to the bank itself, the difficulty was gotten over in

various ingenious ways, which the author of the general

banking law could hardly have anticipated. In some cases,

stock notes in terms payable in specie, or the certificates of

individuals which stated—untruly—that the maker held a

specified sum of specie for the bank, were counted as specie

itself; in others, a small sum of specie was paid in and taken

out, and the process repeated over and over until the

aggregate of payments equaled the sum required; in still

others, the specie with which one bank was organized was

passed from town to town and made to answer the purposes of

several. By the first day of January, 1838, articles of

association for twenty-one banks had been filed, making, with

the banks before in existence, an average of one to less than

five thousand people. Some of them were absolutely without

capital, and some were organized by scheming men in New York

and elsewhere, who took the bills away with them to circulate

abroad, putting out none at home. For some, locations as

inaccessible as possible were selected, that the bills might

not come back to plague the managers. The bank commissioners

say in their report for 1838, of their journey for inspection:

'The singular spectacle was presented of the officers of the

State seeking for banks in situations the most inaccessible

and remote from trade, and finding at every step an increase

of labor by the discovery of new and unknown organizations.

Before they could be arrested the mischief was done: large

issues were in circulation and no adequate remedy for the

evil.' One bank was found housed in a saw-mill, and it was

said with pardonable exaggeration in one of the public papers.

'Every village plat with a house, or even without a house, if

it had a hollow stump to serve as a vault, was the site of a

bank.' … The governor, when he delivered his annual message

in January, 1838, still had confidence in the general banking

law, which he said 'offered to all persons the privilege of

banking under certain guards and restrictions,' and he

declared that 'the principles upon which this law is based are

certainly correct, destroying as they do the odious feature of

a banking monopoly, and giving equal rights to all classes of

the community.' … The aggregate amount of private

indebtedness had by this time become enormous, and the

pressure for payment was serious and disquieting. … The

people must have relief; and what relief could be so certain

or so speedy as more banks and more money? More banks

therefore continued to be organized, and the paper current

flowed out among the people in increasing volume. … At the

beginning of 1839 the bank commissioners estimated that there

were a million dollars of bills of insolvent banks in the

hands of individuals and unavailable. Yet the governor, in his

annual message delivered in January, found it a 'source of

unfeigned gratification to be able to congratulate [the

legislature] on the prosperous condition to which our rising

commonwealth has attained.' … Then came stay laws, and laws

to compel creditors to take lands at a valuation. They were

doubtful in point of utility, and more than doubtful in point

of morality and constitutionality. The federal bankrupt act of

1841 first brought substantial relief: it brought almost no

dividends to creditors, but it relieved debtors from their

crushing burdens and permitted them, sobered and in their

right minds, to enter once more the fields of industry and

activity. The extraordinary history of the attempt to break up

an 'odious monopoly' in banking by making everybody a banker,

and to create prosperity by unlimited issues of paper

currency, was brought at length to a fit conclusion."

_T. M. Cooley,

Michigan,

chapter 13._

See WILD CAT BANKS.

MONEY AND BANKING: A. D. 1838.

Free Banking Law of New York.

"On April 18th, 1838, the monopoly of banking under special

charters, was brought to a close in the State of New York, by

the passage of the act 'to authorize the business of Banking.'

Under this law Associations for Banking purposes and

Individual Bankers, were authorized to carry on the business

of Banking, by establishing offices of deposit, discount and

circulation. Subsequently a separate Department was organized

at Albany, called 'The Bank Department,' with a

Superintendent, who was charged with the supervision of all

the banks in the State. Under this law institutions could be

organized simply as banks of 'discount and deposit,' and might

also add the issuing of a paper currency to circulate as

money. At first the law provided that State and United States

stocks for one-half, and bonds and mortgages for the other

half, might be deposited as security for the circulating notes

to be issued by Banks and individual Bankers. Upon a fair

trial, however, it was found that when a bank failed, and the

Bank Department was called upon to redeem the circulating

notes of such bank, the mortgages could not be made available

in time to meet the demand. … By an amendment of the law the

receiving of mortgages as security for circulating notes was

discontinued."

_E. G. Spaulding,

One Hundred Years of Progress

in the Business of Banking,

page 48._

MONEY AND BANKING: A. D. 1844.

The English Bank Charter Act.

"By an act of parliament passed in 1838, conferring certain

privileges on the Bank of England, it was provided that the

charter granted to that body should expire in 1855, but the

power was reserved to the legislature, on giving six months'

notice, to revise the charter ten years earlier. Availing

themselves of this option, the government proposed a measure

for regulating the entire monetary system of the country."

_W. C. Taylor,

Life and Times of Sir Robert Peel,

volume 3, chapter 7._

{2217}

"The growth of commerce, and in particular the establishment

of numerous joint-stock banks had given a dangerous impulse to

issues of paper money, which were not then restricted by law.

Even the Bank of England did not observe any fixed proportion

between the amount of notes which it issued and the amount of

bullion which it kept in reserve. When introducing this

subject to the House of Commons, Peel remarked that within the

last twenty years there had been four periods when a

contraction of issues had been necessary in order to maintain

the convertibility of paper, and that in none of these had the

Bank of England acted with vigour equal to the emergency. In

the latest of these periods, from June of 1838 to June of

1839, the amount of bullion in the Bank had fallen to little

more than £4,000,000, whilst the total of paper in circulation

had risen to little less than £30,000,000. … Peel was not

the first to devise the methods which he adopted. Mr. Jones

Loyd, afterwards Lord Overstone, who impressed the learned

with his tracts and the vulgar with his riches, had advised

the principal changes in the law relating to the issue of

paper money which Peel effected by the Bank Charter Act. These

changes were three in number. The first was to separate

totally the two departments of the Bank of England, the

banking department and the issue department. The banking

department was left to be managed as best the wisdom of the

directors could devise for the profit of the shareholders. The

issue department was placed under regulations which deprived

the Bank of any discretion in its management, and may almost

be said to have made it a department of the State. The second

innovation was to limit the issue of paper by the Bank of

England to an amount proportioned to the value of its assets.

The Bank was allowed to issue notes to the amount of

£14,000,000 against Government securities in its possession.

The Government owed the Bank a debt of £11,000,000, besides

which the Bank held Exchequer Bills. But the amount over

£14,000,000 which the Bank could issue was not, henceforwards,

to be more than the equivalent of the bullion in its

possession. By this means it was made certain that the Bank

would be able to give coin for any of its notes which might be

presented to it. The third innovation was to limit the issues

of the country banks. The power of issuing notes was denied to

any private or joint-stock banks founded after the date of the

Act. It was recognized in those banks which already possessed

it, but limited to a total sum of £8,500,000, the average

quantity of such notes which had been in circulation during

the years immediately preceding. It was provided that if any

of the banks which retained this privilege should cease to

exist or to issue notes, the Bank of England should be

entitled to increase its note circulation by a sum equal to

two-thirds of the amount of the former issues of the bank

which ceased to issue paper. The Bank of England was required

in this contingency to augment the reserve fund. By Acts

passed in the succeeding year, the principles of the English

Bank Charter Act were applied to Scotland and Ireland, with

such modifications as the peculiar circumstances of those

kingdoms required. The Bank Charter Act has ever since been

the subject of voluminous and contradictory criticism, both by

political economists and by men of business."

_F. C. Montague,

Life of Sir Robert Peel,

chapter 8._

ALSO IN:

_Bonamy Price,

The Bank Charter Act of 1844

(Fraser's Magazine, June, 1865)._

_W. C. Taylor,

Life and Times of Sir Robert Peel,

volume 3, chapter 7._

MONEY AND BANKING: A. D. 1848-1893.

Production of the Precious Metals

in the last half-century.

The Silver Question in the United States.

"The total (estimated) stock of gold in the world in 1848, was

£560,000,000. As for the annual production, it had varied

considerably since the beginning of the century [from

£3,000,000 to £8,000,000]. Such was the state of things

immediately preceding 1848. In that year the Californian

discoveries took place, and these were followed by the

discoveries in Australia in 1851.

See CALIFORNIA: A. D. 1848-1849;

and AUSTRALIA: A. D. 1839-1855.

For these three years the annual average production is set

down by the Economist at £9,000,000, but from this date the

production suddenly rose to, for 1852, £27,000.000, and

continued to rise till 1856, when it attained its maximum of

£32,250,000. At this stage a decline in the returns occurred,

the lowest point reached being in 1860, when they fell to

£18,683,000, but from this they rose again, and for the last

ten years [before 1873] have maintained an average of about

£20,500,000; the returns for the year 1871 being £20,811,000.

The total amount of gold added to the world's stock by this

twenty years' production has been about £500,000,000, an

amount nearly equal to that existing in the world at the date

of the discoveries: in other words, the stock of gold in the

world has been nearly doubled since that time."

_J. E. Cairnes,

Essays in Political Economy,

pages 160-161._

"The yearly average of gold production in the twenty-five

years from 1851-75 was $127,000,000. The yearly average

product of silver for the same period was $51,000,000. The

average annual product of gold for the fifteen years from

1876 to 1890 declined to $108,000,000; a minus of 15 per

cent. The average annual product of silver for the same

period increased to $116,000,000; a plus of 127 per cent.

There is the whole silver question."

_L. R. Ehrich,

The Question of Silver,

page 21._

"From 1793—the date of the first issue of silver coin by the

United States—to 1834 the silver and the gold dollar were

alike authorized to be received as legal tender in payment of

debt, but silver alone circulated. Subsequently, however,

silver was not used, except in fractional payments, or, since

1853, as a subsidiary coin. The silver coin, as a coin of

circulation, had become obsolete. The reason why, prior to

1834, payments were made exclusively in silver, and

subsequently to that date in gold, is found in the fact that

prior to the legislation of 1834 … the standard silver coins

were relatively the cheaper, and consequently circulated to

the exclusion of the gold; while during the later period the

standard gold coins were the cheaper, circulating to the

exclusion of the silver. The Coinage Act of 1873, by which the

coinage of the silver dollar was discontinued, became a law on

February 12th of that year. The act of February 28, 1878,

which passed Congress by a two-thirds vote over the veto of

President Hayes, again provided for the coinage of a silver

dollar of 412.5 grains, the silver bullion to be purchased at

the market price by the Government, and the amount so

purchased and coined not to be less than two millions of

dollars per month. During the debate on this bill the charge

was repeatedly made, in and out of Congress, that the previous

act of 1873, discontinuing the free coinage of the silver

dollar, was passed surreptitiously.

{2218}

This statement has no foundation in fact. The report of the

writer, who was then Deputy Comptroller of the Currency,

transmitted to Congress in 1870 by the Secretary, three times

distinctly stated that the bill accompanying it proposed to

discontinue the issue of the silver dollar-piece. Various

experts, to whom it had been submitted, approved this feature

of the bill, and their opinions were printed by order of

Congress."

_J. J. Knox,

United States Notes,

chapter 10._

"The bill of 1878, generally spoken of as the 'Bland' bill,

directed the secretary of the treasury to purchase not less

than two million nor more than four million dollars' worth of

silver bullion per month, to coin it into silver dollars, said

silver dollars to be full legal tender at 'their nominal

value.' Also, that the holder of ten or more of these silver

dollars could exchange them for silver certificates, said

certificates being 'receivable for customs, taxes, and all

public dues.' The bill was pushed and passed by the efforts,

principally, of the greenback inflationists and the

representatives of the silver States. … Since 1878 [to

1891], 405,000,000 silver dollars have been coined. Of these

348,000,000 are still lying in the treasury vaults. No comment

is needed. The Bland-Allison act did not hold up silver. In

1870 it was worth $1.12 an ounce, in 1880 $1.14, '81 $1.13,

'82 $1.13, '83 $1.11, '86 99 cents, until in '89 it reached

93½ cents an ounce. That is, in 1880 the commercial ratio was

22:1 and the coin value of the Bland-Allison silver dollar was

72 cents. In March, 1800, a bill was reported to the House by

the committee of 'coinage, weights and measures,' based on a

plan proposed by Secretary Windom. … The bill passed the

House. The Senate passed it with an amendment making provision

for free and unlimited coinage. It finally went to a

conference committee which reported the bill that became a

law, July 14, 1890. This bill directs the secretary of the

treasury to purchase four and one-half million ounces of

silver a month at the market price, to give legal tender

treasury notes therefor, said notes being redeemable in gold

or silver coin at the option of the government, 'it being the

established policy of the United States to maintain the two

metals on a parity with each other upon the present legal

ratio.' It was believed that this bill would raise the price

of silver. … To-day [December 8, 1891] the silver in our

dollar is actually worth 73 cents."

_L. R. Ehrich,

The Question of Silver,

pages 21-25._

See, also,

UNITED STATES OF AMERICA:

A. D. 1873, 1878, and 1890-1893.

In the summer of 1893, a financial crisis, produced in the

judgment of the best informed by the operation of the

silver-purchase law of 1890 (known commonly as the Sherman

Act) became so serious that President Cleveland called a

special session of Congress to deal with it. In his Message to

Congress, at the opening of its session, the President said:

"With plenteous crops, with abundant promise of remunerative

production and manufacture, with unusual invitation to safe

investment, and with satisfactory assurance to business

enterprise, suddenly financial fear and distrust have sprung

up on every side. Numerous moneyed institutions have suspended

because abundant assets were not immediately available to meet

the demands of the frightened depositors. Surviving

corporations and individuals are content to keep in hand the

money they are usually anxious to loan, and those engaged in

legitimate business are surprised to find that the securities

they offer for loans, though heretofore satisfactory, are no

longer accepted. Values supposed to be fixed are fast becoming

conjectural, and loss and failure have involved every branch

of business. I believe these things are principally chargeable

to congressional legislation touching the purchase and coinage

of silver by the General Government. This legislation is

embodied in a statute passed on the 14th day of July, 1890,

which was the culmination of much agitation on the subject

involved, and which may be considered a truce, after a long

struggle between the advocates of free silver coinage and

those intending to be more conservative." A bill to repeal the

act of July 14, 1890 (the Sherman law, so called), was passed

by both houses and received the President's signature, Nov. 1,

1893.

MONEY AND BANKING: A. D. 1853-1874.

The Latin Union and the Silver Question.

"The gold discoveries of California and Australia were

directly the cause of the Latin Union. … In 1853, when the

subsidiary silver of the United States had disappeared before

the cheapened gold, we reduced the quantity of silver in the

small coins sufficiently to keep them dollar for dollar below

the value of gold. Switzerland followed this example of the

United States in her law of January 31, 1860; but, instead of

distinctly reducing the weight of pure silver in her small

coins, she accomplished the same end by lowering the fineness

of standard for these coins to 800 thousandths fine. …

Meanwhile France and Italy had a higher standard for their

coins than Switzerland, and as the neighboring states, which

had the franc system of coinage in common, found each other's

coins in circulation within their own limits, it was clear

that the cheaper Swiss coins, according to Gresham's law, must

drive out the dearer French and Italian coins, which contained

more pure silver, but which passed current at the same nominal

value. The Swiss coins of 800 thousandths fine began to pass

the French frontier and to displace the French coins of a

similar denomination; and the French coins were exported,

melted, and recoined in Switzerland at a profit. This, of

course, brought forth a decree in France (April 14, 1864),

which prohibited the receipt of these Swiss coins at the

public offices of France, the customs-offices, etc., and they

were consequently refused in common trade among individuals.

Belgium also, as well as Switzerland, began to think it

necessary to deal with the questions affecting her silver

small coins, which were leaving that country for the same

reason that they were leaving Switzerland. Belgium then

undertook to make overtures to France, in order that some

concerted action might be undertaken by the four countries

using the franc system—Italy, Belgium, France, and

Switzerland—to remedy the evil to which all were exposed by

the disappearance of their silver coin needed in every-day

transactions. The discoveries of gold had forced a

reconsideration of their coinage systems. In consequence of

these overtures, a conference of delegates representing the

Latin states just mentioned assembled in Paris, November

20, 1865. … The Conference, fully realizing the effects of

the fall of gold in driving out their silver coins, agreed to

establish a uniform coinage in the four countries, on the

essential principles adopted by the United States in 1853.

{2219}

They lowered the silver pieces of two francs, one franc, fifty

centimes, and twenty centimes from a standard of 900

thousandths fine to a uniform fineness of 835 thousandths,

reducing these coins to the position of a subsidiary currency.

They retained for the countries of the Latin Union, however,

the system of bimetallism. Gold pieces of one hundred, fifty,

twenty, ten, and five francs were to be coined, together with

five-franc pieces of silver, and all at a standard of 900

thousandths fine. Free coinage at a ratio of 15½:1, was

thereby granted to any holder of either gold or silver bullion

who wanted silver coins of five francs, or gold coins from

five francs and upward. … The subsidiary silver coins (below

five francs) were made a legal tender between individuals of

the state which coined them to the amount of fifty francs. …

The treaty was ratified, and went into effect August 1, 1866,

to continue until January 1, 1880, or about fifteen years. …

The downward tendency of silver in 1873 led the Latin Union to

fear that the demonetized silver of Germany would flood their

own mints if they continued the free coinage of five-franc

silver pieces at a legal ratio of 15½:1. … This condition of

things led to the meeting of delegates from the countries of

the Latin Union at Paris, January 30, 1874, who there agreed

to a treaty supplementary to that originally formed in 1865,

and determined on withdrawing from individuals the full power

of free coinage by limiting to a moderate sum the amount of

silver five-franc pieces which should be coined by each state

of the Union during the year 1874. The date of this suspension

of coinage by the Latin Union is regarded by all authorities

as of great import in regard to the value of silver."

_J. L. Laughlin,

The History of Bimetallism in the United States,

pages 146-155._

MONEY AND BANKING: A. D. 1861-1878.

The Legal-tender notes, or Greenbacks, the

National Bank System, of the American Civil War.

"In January, 1861, the paper currency of the United States was

furnished by 1,600 private corporations, organized under

thirty-four different State laws. The circulation of the banks

amounted to $202,000,000, of which only about $50,000,000 were

issued in the States which in April, 1861, undertook to set up

an independent government. About $150,000,000 were in

circulation in the loyal States, including West Virginia. When

Congress met in extraordinary session on the 4th of July, the

three-months volunteers, who had hastened to the defence of

the capital, were confronting the rebel army on the line of

the Potomac, and the first great battle at Bull Run was

impending. President Lincoln called upon Congress to provide

for the enlistment of 400,000 men, and Secretary Chase

submitted estimates for probable expenditures amounting to

$318,000,000. The treasury was empty, and the expenses of the

government were rapidly approaching a million dollars a day.

The ordinary expenses of the government, during the year

ending on the 30th of June, 1861, had been $62,000,000, and

even this sum had not been supplied by the revenue, which

amounted to only $41,000,000. The rest had been borrowed. It

was now necessary to provide for an expenditure increased

fivefold, and amounting to eight times the income of the

country, Secretary Chase advised that $80,000,000 be provided

by taxation, and $240,000,000 by loans; and that, in

anticipation of revenue, provision be made for the issue of

$50,000,000 of treasury notes, redeemable on demand in coin.

'The greatest care will, however, be requisite,' he said, 'to

prevent the degradation of such issues into an irredeemable

paper currency, than which no more certainly fatal expedient

for impoverishing the masses and discrediting the government

of any country can well be devised.' The desired authority was

granted by Congress. The Secretary was authorized to borrow,

on the credit of the United States, not exceeding

$250,000,000, and, 'as a part of the above loan,' to issue an

exchange for coin, or pay for salaries or other dues from the

United States, not over $50,000,000 of treasury notes, bearing

no interest, but payable on demand at Philadelphia, New York,

or Boston. The act does not say, 'payable in coin,' for nobody

had then imagined that any other form of payment was possible.

Congress adjourned on the 6th of August, after passing an act

to provide an increased revenue from imports, and laying a

direct tax of $20,000,000 upon the States, and a tax of 3 per

cent. upon the excess of all private incomes above $800. The

Secretary immediately invited the banks of Philadelphia, New

York, and Boston to assist in the negotiation of the proposed

loans, and they loyally responded. On the 19th of August they

took $50,000,000 of three years 7-30 bonds at par; on the 1st

of October, $50,000,000 more of the same securities at par;

and on the 16th of November, $50,000,000 of twenty years 6 per

cents., at a rate making the interest equivalent to 7 per

cent. These advances relieved the temporary necessities of the

treasury, and, when Congress reassembled in December,

Secretary Chase was prepared to recommend a permanent

financial policy. The solid basis of this policy was to be

taxation. … It was estimated, a revenue of $90,000,000 would

be needed; and to secure that sum, the Secretary advised that

the duties on tea, coffee, and sugar be increased; that a

direct tax of $20,000,000 be assessed on the States; that the

income tax be modified so as to produce $10,000,000, and that

duties be laid on liquors, tobacco, carriages, legacies,

bank-notes, bills payable, and conveyances. For the

extraordinary expenses of the war it was necessary to depend

upon loans, and the authority to be granted for this purpose

the Secretary left 'to the better judgment of Congress,' only

suggesting that the rate of interest should be regulated by

law, and that the time had come when the government might

properly claim a part, at least, of the advantage of the paper

circulation, then constituting a loan without interest from

the people to the banks. There were two ways, Secretary Chase

said, in which this advantage might be secured: 1. By

increasing the issue of United States notes, and taxing the

bank-notes out of existence. 2. By providing a national

currency, to be issued by the banks but secured by the pledge

of United States bonds. The former plan the Secretary did not

recommend, regarding the hazard of a depreciating and finally

worthless currency as far outweighing the probable benefits of

the measure. … Congress had hardly begun to consider these

recommendations, when the situation was completely changed by

the suspension of specie payments, on the 28th of December, by

the banks of New York, followed by the suspension of the other

banks in the country, and compelling the treasury also to

suspend.

{2220}

This suspension was the result of a panic occasioned by the

shadow of war with England. … To provide for the pressing

wants of the treasury, Congress, on the 12th of February,

1862, authorized the issue of $10,000,000 more of demand

notes. Before the end of the session further issues were

provided for, making the aggregate of United States notes

$300,000,000, besides fractional currency. There was a long

debate upon the propriety of making these notes a legal tender

for private debts, and it seemed for a time that the measure

would be defeated by this dispute. [The bill authorizing the

issue of legal tender notes known afterwards as 'Greenbacks'

was prepared by the Hon. E. G. Spaulding, who subsequently

wrote the history of the measure.] Secretary Chase finally

advised the concession of this point; nevertheless, 55 votes

in the House of Representatives … were recorded against the

provision making the notes a tender for private debts.

Congress also empowered the Secretary to borrow $500,000,000

on 5-20 year 6 per cent. bonds, besides a temporary loan of

$100,000,000, and provided that the interest on the bonds

should be paid in coin, and that the customs should be

collected in coin for that purpose. Nothing was said about the

principal, for it was taken for granted that specie payments

would be resumed before the payment of the principal of the

debt would be undertaken. … Congress had thus adopted the

plan which the Secretary of the Treasury did not recommend,

and neglected the proposition which he preferred. … When

Congress met in December, 1862, the magnitude of the war had

become fully apparent. … The enormous demands upon the

treasury … had exhausted the resources provided by Congress.

The disbursements in November amounted to $59,847,077—two

millions a day. Unpaid requisitions had accumulated amounting

to $46,000,000. The total receipts for the year then current,

ending June 30, 1863, were estimated at $511,000,000; the

expenditures at $788,000,000; leaving $277,000,000 to be

provided for. There were only two ways to obtain this sum—by

a fresh issue of United States notes, or by new

interest-bearing loans. But the gold premium had advanced in

October to 34; the notes were already at a discount of 25 per

cent. The consequences of an addition of $277,000,000 to the

volume of currency, the Secretary said, would be 'inflation of

prices, increase of expenditures, augmentation of debt, and,

ultimately, disastrous defeat of the very purposes sought to

be obtained by it.' He therefore recommended an increase in

the amount authorized to be borrowed on the 5-20 bonds. … In

order to create a market for the bonds, he again recommended

the creation of banking associations under a national law

requiring them to secure their circulation by a deposit of

government bonds. The suggestion thus renewed was not received

with favor by Congress. … On the 7th of January Mr. Hooper

offered again his bill to provide a national currency, secured

by a pledge of United States bonds, but the next day Mr.

Stevens, of Pennsylvania, submitted the bill with an adverse

report from the committee on ways and means. On the 14th of

January Mr. Stevens reported a resolution authorizing the

Secretary of the Treasury to issue $100,000,000 more of United

States notes for the immediate payment of the army and navy.

The resolution passed the House at once, and the Senate the

next day. … On the 19th of January President Lincoln sent a

special message to the House, announcing that he had signed

the joint resolution authorizing a new issue of United States

notes, but adding that he considered it his duty to express

his sincere regret that it had been found necessary to add

such a sum to an already redundant currency, while the

suspended banks were still left free to increase their

circulation at will. He warned Congress that such a policy

must soon produce disastrous consequences, and the warning was

effective. On the 25th of January Senator Sherman offered a

bill to provide a national currency, differing in some

respects from Mr. Hooper's in the House. The bill passed the

Senate on the 12th of February, 23 to 21, and the House on the

20th, 78 to 64. … It was signed by the President on the 25th

of February, 1863."

_H. W. Richardson,

The National Banks,

chapter 2._

"One immediate effect of the Legal Tender Act was to destroy

our credit abroad. Stocks were sent home for sale, and, as

Bagebot shows, Lombard Street was closed to a nation which had

adopted legal tender paper money. … By August all specie had

disappeared from circulation, and postage-stamps and private

note-issues took its place. In July a bill was passed for

issuing stamps as fractional currency, but in March 1863,

another act was passed providing for an issue of 50,000,000 in

notes for fractional parts of a dollar—not legal tender. For

many years the actual issue was only 30,000,000, the amount of

silver fractional coins in circulation in the North, east of

the Rocky Mountains, when the war broke out. … Gold rose to

200-220 or above, making the paper worth 45 or 50 cts., at

which point the 5 per cent. ten-forties floated. The amount

sold up to October 31st, 1865, was $172,770,100. Mr. Spaulding

reckons up the paper issues which acted more or less as

currency, on January 30th, 1864, at $1,125,877,034;

812,000,000 bore no interest."

_W. G. Sumner,

History of American Currency,

pages 204-208._

The paper-money issues of the Civil War were not brought to

parity of value with gold until near the close of the year

1878. The 1st day of January, 1879, had been fixed for

resumption by an act passed in 1875; but that date was

generally anticipated in practical business by a few months.

_A. S. Bolles,

Financial History of the United States, 1861-1885,

book 1, chapters 4, 5, 8, and 11,

and book 2, chapter 2._

MONEY AND BANKING: A. D. 1871-1873.

Adoption of the Gold Standard by Germany.

"At the close of the Franco-Prussian war the new German Empire

found the opportunity … for the establishment of a uniform

coinage throughout its numerous small states, and was

essentially aided in its plan at this time by the receipt of

the enormous war-indemnity from France, of which $54,600,000

was paid to Germany in French gold coin. Besides this, Germany

received from France bills of exchange in payment of the

indemnity which gave Germany the title to gold in places, such

as London, on which the bills were drawn. Gold in this way

left London for Berlin. With a large stock of gold on hand,

Germany began a series of measures to change her circulation

from silver to gold.

{2221}

Her circulation in 1870, before the change was made, was

composed substantially of silver and paper money, with no more

than 4 per cent of the whole circulation in gold. … The

substitution of gold instead of silver in a country like

Germany which had a single silver medium was carried out by a

path which led first to temporary bimetallism and later to

gold monometallism. And for this purpose the preparatory

measures were passed December 4, 1871. … This law of 1871

created new gold coins, current equally with existing silver

coins, at rates of exchange which were based on a ratio

between the gold and silver coins of 1:15½. The silver coins

were not demonetized by this law; their coinage was for the

present only discontinued; but there was no doubt as to the

intention of the Government in the future. … The next and

decisive step toward a single gold standard was taken by the

act of July 9, 1873. … By this measure gold was established

as the monetary standard of the country, with the 'mark' as

the unit, and silver was used, as in the United States in

1853, in a subsidiary service. … Under the terms of this

legislation Germany began to withdraw her old silver coinage,

and to sell as bullion whatever silver was not recoined into

the new subsidiary currency."

_J. L. Laughlin,

History of Bimetallism in the United States,

pages 136-140._

MONEY AND BANKING: A. D. 1893.

Stoppage of the free Coinage of Silver in India.

The free coinage of silver in India was stopped by the

Government in June, 1893, thus taking the first step toward

the establishment of the gold standard in that country.

----------MONEY AND BANKING: End----------

----------MONGOLS: Start--------

MONGOLS:

Origin and earliest history.

"The name Mongol (according to Schmidt) is derived from the

word Mong, meaning brave, daring, bold, an etymology which is

acquiesced in by Dr. Schott. Ssanang Setzen says it was first

given to the race in the time of Jingis Khan, but it is of

much older date than his time, as we know from the Chinese

accounts. … They point further, as the statements of Raschid

do, to the Mongols having at first been merely one tribe of a

great confederacy, whose name was probably extended to the

whole when the prowess of the Imperial House which governed it

gained the supremacy. We learn lastly from them that the

generic name by which the race was known in early times to the

Chinese was Shi wei, the Mongols having, in fact, been a tribe

of the Shi wei. … The Shi wei were known to the Chinese from

the 7th century; they then consisted of various detached

hordes, subject to the Thu kiu, or Turks. … After the fall

of the Yuan-Yuan, the Turks, by whom they were overthrown,

acquired the supreme control of Eastern Asia. They had, under

the name of Hiong nu, been masters of the Mongolian desert and

its border land from a very early period, and under their new

name of Turks they merely reconquered a position from which

they had been driven some centuries before. Everywhere in

Mongol history we find evidence of their presence, the titles

Khakan, Khan, Bigui or Beg, Terkhan, &c., are common to both

races, while the same names occur among Mongol and Turkish

chiefs. … This fact of the former predominance of Turkish

influence in further Asia supports the traditions collected by

Raschid, Abulghazi, &c., … which trace the race of Mongol

Khans up to the old royal race of the Turks."

_H. H. Howorth,

History of the Mongols,

volume 1, pages 27-32._

"Here [in the eastern portion of Asia known as the desert of

Gobi], from time immemorial, the Mongols, a people nearly akin

to the Turks in language and physiognomy, had made their home,

leading a miserable nomadic life in the midst of a wild and

barren country, unrecognised by their neighbours, and their

very name unknown centuries after their kinsmen, the Turks,

had been exercising an all-powerful influence over the

destinies of Western Asia."

_A. Vámbéry,

History of Bokhara,

chapter 8._

_A. Vámbéry,

Travels in Central Asia

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