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of the Treasury deemed it incompatible with his views of duty, and the traditions of the sub-Treasury law to use such banks as disbursing agents of the government, even under the extraordinary exigency under which the loans were made." From this it appears that when the banks "most patriotically came forward" to lend the government the sum of $150,000,000, they confidently expected that they would be permitted to exchange bank currency for the bonds of the government, and in effect to become factors between the government and the people, in exchanging the bonds of the government for the products of industry. Had this arrangement been carried out, it is not difficult, in the light of sixty years experience with the specie basis banking system, to conjecture what would have been the result. The banks would have taken the loans of the government as fast as they were offered, and inflated their circulation to a corresponding degree. Sooner or later the inflation would have ended in a commercial crash and money panic; the banks would have suspended specie payments as usual, and the people would have found themselves with some hundreds of millions of dollars of worthless or depreciated paper on their hands-in a state of bankruptcy. Secretary Chase undoubtedly became entangled in the toils of the money power, but his action in this particular, in refusing to take anything but specie from the banks on account of their loan of $150,000,000, was a fortunate circumstance, which led to important results. When urged to check upon the banks, instead of requiring them to pay specie, he said, "however harmless or beneficial it might be, if confined to the New York banks, it would inevitably result in a general payment and receipt for public dues of bank notes, which in turn would lead to expansion, which in turn would terminate in suspension and vast injuries to the sound banks."*

*Letter of J. E. Williams to Hon. S. P. Chase.

The banks accused the Secretary of the Treasury of acting in bad faith with them, not only in the matter of requiring them to pay specie, but in continuing to issue Treasury notes (demand notes under the act of July 17, 1861) after he had given assurances to the contrary, and a general suspension of specie payments took place on the 28th of December, 1861. A prominent banker* in speaking of this period says: "Even with all these unfavorable circumstances surrounding them (the banks), it was an encouraging fact observed by those who were anxiously watching the practical operation of this great and novel experiment, that while the circulating notes in the country were restricted, the disbursements of the government for the war were so rapid, and the consequent internal trade movement was so intense, that the coin paid out upon each installment of the loan came back to the banks, through the community, in about one week. The natural effect of this general commercial activity upon the circulating medium being to quicken its flow. After taking the third amount of fifty millions by the associated banks, those in New York who had at that time paid in of their proportion over eighty millions in all found themselves in this position:

Their aggregate coin, which on the 17th of August, before the first payment into the Treasury, was.....$49,733,990 Was on December 7th.....

A reduction of only..

and the other two cities in like proportion."

42,318,610

$7,415,380

In the latter part of 1861 gold began to flow towards Europe. This, together with the issue of demand notes, caused the specie reserve of the banks to diminish rapidly. The drain upon the New York banks in December went on at the following rate:

*Letter of Geo. S. Coe to E. G. Spaulding, Financial History of the War.

December 7, 1861, the banks had in specie.....$42,300,000

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After a final conference with Secretary Chase, in which he refused to abandon the course he had thus far pursued, the banks decided that it was expedient to suspend specie payments, and accordingly, as already mentioned, a general suspension took place on December 28, 1861. From this time on the specie in the New York banks began to increase again, and March 8, 1862, was $30,000,000.

The State banks continued to circulate their notes until after the National Banks were put in operation, when they were driven out of circulation by taxation. The National Banking bill became a law on the 25th of February, 1863, and on the 3d of March following an act of Congress was passed imposing a tax of one per cent. each half year, on a graduated scale, of State bank circulation, according to the capital stock of each bank. This was done for the purpose of getting the State banks of issue out of the way of the National Banks, and proved successful. Thus, after an eventful career of over half a century, during which they had inflicted incalculable injury and suffering upon the American people, the specie basis banks of issue, organized under State authority, passed away, not in a merited storm of public indignation, but quietly and stealthily at the command of the money power, to enable it to erect in their stead a more powerful and dangerous development of the same system of banking.

NATIONAL BANKS.

The National Banking system was planned shortly after Secretary Chase entered upon the duties of his office, and was recommended by him in his first annual report to Con

gress, December 10, 1861. It was found impossible to put the system into operation soon enough to meet the necessities of the government, and it became necessary to issue Treasury notes (greenbacks.) There is abundant reason to believe that the instigators of the National Banking system were in no particular hurry to have it put into operation. As the circulation of the National Banks was to be based on government bonds, it became an object to these conspirators, chief among whom was the Hon. John Sherman, United States Senator from Ohio, to so shape legislation as to depreciate the paper of the government and enable them to secure the bonds necessary to establish the National Banking system at the lowest possible figure. The National Banking bill, therefore, was not pressed until 1863. It was then foisted upon the country at a time when National Banks could render no possible service to either government or people-in fact, were a disadvantage, for their circulation differs in no material respect from the circulation of specie basis banks of issue, and is a breeder of inflation. The National Banking system was conceived in fraud, and its promoters, who found it to their advantage to first depreciate by legislation and then decry, as they are still doing, the paper of the government, were more dangerous, because more subtle enemies of the government, than Jefferson Davis and all his hosts. The last step in the scheme, ned by Secretary Chase and certain capitalists and politicians, is now in process of consummation. We refer to the retirement of the greenback and the resumption of specie payments, January 1, 1879. When this is accomplished the National Banks will hold the purse strings of society, and, by monopolizing the whole of the circulating medium of the country, by which all property in the country-homes, lands, debts and credits, personal and real estate of all descriptions-are

valued, will render the whole community dependent upon them. John Randolph predicted, and his prediction was verified, that if a National Bank was established with a capital of $35,000,000, it would "overawe Congress and laugh at its laws." Now we have 2,000 National Banks with a capital of nearly $400,000,000. Benton characterized the unity of interest of the old State banks of issue as "a consolidation of a kind which the genius of Patrick Henry had not even conceived." The National Banking system constitutes " a consolidation" besides which the one denounced by Benton is a mere pigmy. Hamilton when he sought to found a strong government, based on an aristocracy of wealth, and to that end urged the establishment of a United States Bank modeled on the British system, never dreamed of such a consolidated power as that now constituted by 2,000 National Banks, modeled on that (the British) system.

But, apart from the dangerous power over the property and political affairs of the country, which such a system confers upon a comparatively small class of people, why should all other classes be compelled to pay the banking class interest on $400,000,000, more or less, of paper money based on bonds of the government, for which the people are responsible, when they can have a better circulating medium, without interest, based on precisely the same security?

The history of the National Banking system can be more clearly set forth in connection with the history of the legal tender acts, passed during the war, and with that will form the subject of the next chapter. The details of the system will be duly explained in a subsequent chapter (Chapter VII.)

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