58 , UNITED STATES - CREDIT 



carrying a circulation of $184,000,000. " They were established under 

 the laws of twenty-nine different States ; they were granted different pri- 

 vileges, subjected to different restrictions, and their circulation was based 

 on a great variety of securities, of different qualities and quantities. In 

 some States the bill-holder was secured by the daily redemption of notes 

 in the principal city ; in others b}' the pledge of State stocks ; and in others 

 by coin reserves. There were State banks with branches, independent 

 banks, free banks, banks organized under a general law, and banks with 

 special charters. " " In New York ", adds Professor Dewey in his Finan- 

 cial History of the United States, " there were banks incorporated by spe- 

 cial act, individual banks, and banks organized under the free banking 

 law (i) ; in Louisiana there were chartered banks and free banks ; in Ohio 

 independent banks, free banks and a State bank with niunerous branches ; 

 in Indiana a State bank with branches, and free banks ; in Massachusetts 

 banks under special charters and banks organized under a general law. In 

 some States there were boards of bank commissioners who made frequent 

 and thorough examinations, while in others no such boards existed or exis- 

 ted only in name ; in a few States the public was informed as to the condi- 

 tion of the banks by the publication of periodical statements, but as a 

 rule publicity was not insisted on ". 



In only nine of the States did the law require the circulation to be se- 

 cured by State bonds, and the State securities pledged for the notes were 

 only $40,000,000, leaving over $120,000,000 provided for by other assets. 

 sometimes by none. All told, about 7,000 different kinds of notes circula- 

 ted, to say nothing of about 5,500 varieties of fraudulent notes. 



Further the Treasury^ issued legal tender notes (greenbacks) to the 

 value of several hundred million dollars, guaranteed by the public credit 

 and constituting a forced currenc}^ which greatly lowered the rate of ex- 

 change ; and several loans were only partial^ subscribed. Such was the 

 situation with which Salmon Chase found himself faced in 1863. He had 

 to solve two problems — to create an organization which could absorb 

 the loans the government had been forced to issue during the War of Seces- 

 sion and to purif}^ the credit circulation by forming national agencies for 

 the issue of notes. The desired agencies were the National Banks, which 

 were differentiated from the State banks because a federal law allowed 

 their foundation in any territory of the Union, and because they could issue 

 notes, secured by a pledge of United States stock, which were legal tender (2). 



(i) The Free Banking Act of 1838 guaranteed the trust circulation and the inspection of 

 banks, and supeiseded the .Safetj' Banking Act, the drawbacks to which had been revealed 

 in 1837. 



(2) " The origin of the national banking system is probably to be found in the germ from 

 which sprang the establishment in 1838 in the State of New York of a set of local banks, having 

 the power to emit a currency secured by the deposit of State bonds. The success of this plan 

 suggested that a uniform national currency might in the same way be provided through the 

 emissions of special associations, which should secure their notes by the pledge of government 

 securities ". The Origin of the National Banking System, p. 7. 



