it to see whether his face is honest, than at the bill to detect whether it is counterfeit or not. It is impossible to avoid counterfeiting, or to provide guards against it. Bank experts may save the banks, but the loss still falls upon the people. You cannot prevent the people from suffering largely from counterfeiting when you have sixteen hundred different banks, issuing each of them several different kinds of bills, under the laws of twenty-eight different States. On the other hand, by the substitution of the national currency we substantially lose nothing by counterfeiting. When the notes are few in kind, only three or four of them, all issued by the United States, all of uniform character, they cannot be counterfeited, because their face will become so familiar that every man will know a genuine note; he will detect it in a moment as the countenance of a familiar friend. But when he has to decide on the issues of sixteen hundred banks, how is it possible for an ordinary citizen to detect the counterfeit?

The loss to the people of the United States by broken bank bills is computed to be equivalent to five per cent. of the entire issue. Every twenty years it is supposed that the entire bank circulation ceases to exist or deteriorates. Some banks pass through the storm and their notes are good, but probably two or three are successively scattered as wrecks along the wayside, until it is now computed by intelligent bankers that the loss to the people of the United States, over and above the loss of interest, by the simple process of broken bank bills, is five per cent. per annum. This cannot be guarded against by all your laws. Why, sir, when the system of free banking was established in the western country, all those who were friendly to banks, and I was among them, said, "now we have a stable issue; we have bank bills based upon the bonds of the States, and it is not possible that these bonds will ever deteriorate in value and the people lose money." And yet, sir, within two years from the establishment of this system, by the depreciation of the bonds of the States, or by fraud, these notes became depreciated, and in some cases were of no value whatever. In some cases the bonds were abstracted; in some cases frauds were committeed by bank officers. From some cause or other these notes that we all supposed to be upon a stable basis disappeared like snow before the summer's sun. The people are constantly losing by them, and you cannot by the wisdom of man guard against the frauds and peculations, the genius of rascality to which men sometimes engaged in this business resort. I wish to cast no reflection whatever on persons engaged in banking, but naturally rogues will resort to this business because it is one in which they may

sometimes by deception issue worthless promises to pay without punishment or exposure.

The loss of exchange by local currency is very great. Ordinarily, the exchange from the West to the East is one per cent. This loss is usually made a gain to themselves by the bankers and shavers. The suction of this class of people is equivalent to one per cent. of the circulation. In the western country you cannot buy a draft without paying this exchange; and I have known it as high as ten per cent. This difference of exchange is a common cover for usurious interest. Plain farmers wishing to borrow money are required to draw drafts on New York, by which contrivance they pay usurious interest. All this exchange is a loss to the people. Even in the most favorable time, in a favorable state of trade between the East and the West, an exchange of one per cent. is demanded for drafts and bills of exchange, simply because the notes of the East are worth more than those of the West. But if you had a national currency, uniform and equal throughout the country, the cost of exchange to the people would only be the cost of transfer from one portion of the country to the other. From Cincinnati to New York it would be only one tenth of one per cent., and it could not be higher if the only basis of exchange was gold and silver, or the paper money of the United States, which can be transferred from one section to the other for from one tenth to one eighth of one per cent.

There is a still more serious objection to this paper money. With a system of local banks there is no power to control over-issues and consequent depreciation of currency. By enlarging the volume of currency, it depreciates the value of United States notes; and even now, when the United States have issued $250,000,000 of notes, the banks have increased their circulation. Why? Because they can make money by its increase, and that consideration will always control private individuals. We cannot say that it would not control us; if we had the legal authority to issue money, and found that we could make money by the issue, we should find reason enough for issuing it. Men will always be governed by their interests.

I have before me a table which has been carefully prepared, showing that on the 1st of January, 1862, in the loyal States, there was a circulation of $129,000,000. Now it is $167,000,000. What power have you over this? How can you prevent this increase? You cannot do it except by taxation. The banks are governed by the local laws of the States in which they are situated. Those local laws are beyond your power; you have no way to reach them except by

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a system of taxation. They may go on making this increase from $167,000,000 to $500,000,000, until all the values in this country are destroyed, depending upon a baseless issue, the redemption of which you cannot guaranty. I have here, from the Bankers' Magazine, a statement showing where this large increase has occurred. In the city of New York there has been an increase, since the 1st of January, of 19 per cent.; in the State of Massachusetts there has been an increase of 41 per cent.; in the State of New Hampshire there has been an increase of 27100 per cent.; in the city of Philadelphia there has been an increase of 138 per cent.; until the sagacity of the bankers began to notice the increase and suspected the money of the banks issuing the large increase. In the western country, for local reasons that I need not mention, on account of the existence of the limitations in the charters of the banks of Ohio and Indiana, this increase has not gone on so rapidly; but even in Ohio there has been an increase, and a considerable increase, of the paper money.

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B. Superiority of the National Banking System, 1868 1

The first year of the war made it evident that the prevailing state banking system was inadequate. Consequently an agitation arose to place banking under the control of the federal government, with the result that Congress in 1863 provided for the national banking system. To bring the banking operations of the country still further within the control of the federal government, an act of 1865 imposed a ten per cent tax on state bank notes. Both acts were justified on the ground that business demanded a more uniform and stable currency than was in circulation at the time. At first the number of national banks increased more slowly than the friends of the system had anticipated. It soon became evident, however, to those who were in the best position to judge that the system possessed real merit. The Banker's Magazine expressed such an opinion in 1868, as follows:

The revolution which has taken place in the United States, within the last five years, in the systems of Banking and Currency, is without a parallel in history, in respect both to its extent and its completeness. On the first day of January, 1862, there were, in the several States (including those in rebellion, according to their latest returns to the Secretary of the Treasury), 1,496 banks, with a capital of $420,000,000. They existed under the laws of twenty-nine States, and they had different privileges, and were subject to different obligations. All of them were banks of issue, and they had in circulation notes to the amount of $184,000,000. These notes had only a local currency,

1 Bankers' Magazine (New York, 1867-8), XXII, 681-2, 690, 695.

more or less restricted, and were not of equal value. Many of them continued to be at par with gold until the suspension of specie payments in December, 1861, and had for a long time enjoyed the confidence of the public, although the safeguards by which their credit was maintained differed essentially in different States. Thus, in New England, the safety of the bill-holder was secured by the daily redemption of all New England bank-notes in Boston; in New York, by the pledge of stocks of adequate value with the Banking Department; in New Orleans, Kentucky, and Indiana (so far as the issues of the State Bank were concerned), by the magnitude of their coin reserves. But in many of the Western States the banks were insolvent, and their currency greatly depreciated. Thus, in Illinois, eightynine banks had failed, and their bills were redeemed by the State auditor, at rates varying from fifty per cent. to par. In Wisconsin, the notes of thirty-nine banks were discredited; and in Minnesota nearly all of them were in liquidation.

The "Act to provide a National Currency, secured by a pledge of United States bonds, and to provide for the circulation and redemption thereof," was passed on the 25th of February, 1863. It was reenacted in a new draft, not essentially differing from the original law, on the 3d of June, 1864. Under the provisions of these statutes, the banks of the several States have ceased to exist as banks of issue, and nearly all of them have become National associations.

On the first day of October, 1867, there were 1,637 National banks in operation, having a capital of $420,000,000 (the exact capital of the State banks in 1862), and circulating notes to the amount of $294,000,000; while only four millions of the State bank issues were still outstanding. The notes of the National banks are secured by a deposit of $338,000,000 in Federal bonds, by a first and paramount lien on all the assets of the banks, by a personal liability of the shareholders to an amount greater than the circulation, and by the absolute guaranty of the Government; while their convertibility is further protected by the obligation of the government to redeem them instantly at the Federal Treasury, if the bank by which they are issued shall fail to redeem them on presentation at its counter. Thus fortified, the National bank notes are of equal value throughout the Union, whatever may be the place of issue.

The question is now before the country, whether this system of banking shall be maintained or overthrown. The decision of it rests with Congress, and there is no one of the financial problems, which are waiting for the solution of that body, more important to the public

welfare. If, after a fair trial, the National banking system has proved a failure, let it be condemned; but it will be unbecoming the dignity of the National Legislature to pronounce such a condemnation without the fullest consideration of what it involves. . . .

1. In enumerating the advantages, which we claim for the National Banking system, we place first, therefore, the uniformity which it has introduced into both the currency and the banking of the country. It is an important point gained, when any of the great departments, into which the business of a country is divided, can be carried on, in all parts of a wide territory, on the same principles, and under the same regulations. The tendency of the time is toward the organization, and even the consolidation, of great business enterprises. Witness the important operations which have been recently effected in the consolidation of railway, telegraph, and express property, and the arrangement of far-reaching lines for merchandise transportation. But it is more important, that this principle of co-operation, and uniform organization, should prevail in banking, than in any other business, because its special office is to regulate the machinery of the exchanges, of credit, and of the circulation. The banks have been constantly striving to attain this end without legislation. The Clearing House system is the crowning triumph of this principle of voluntary organization. . . .

2. The second important advantage which we claim for the National Bank system, is the safety of the currency. We have seen that the plan of securing the circulation by a pledge of public stocks, was not original with MR. CHASE. It had been tried, with varied results, in several of the States. In New York it had operated well, because the bonds of that State were secured; but it had failed in Indiana, Wisconsin, and Illinois, because the securities received as a basis for the circulation were not sound. It is obvious, therefore, that the principle of securing the bank-note by a pledge of State stocks, was not of itself a sufficient safeguard, while there is so great a difference in the value of State obligations; nor would it have been possible for the Federal Government, in fixing a basis for the circulation which it desired to issue, to admit the bonds of any State, without receiving those of all, since any discrimination in favor of the richer States, would naturally have given offense to the poorer. The Federal bonds, being the common debt of the nation, were the only securities, adequate in amount to furnish a basis for the circulation, or which were of equal value and obligation in all the States. In adopting them as a basis of banking, we followed not only the earliest