Chapter LXXXIV: Part 84

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.
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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.
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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._

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"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.