expenditure, and would probably lead to fraud and corruption. Besides, while supplanting and destroying existing systems of currency, it offered in itself no basis for a permanent system. The enormous issues that were being made were for the immediate and temporary necessities of the government, and were only borrowing under another name. These necessities were directly owing to the war, and its consequences in the shape of reduced revenues and greatly increased expenditure. As soon as the normal condition of the finances should again prevail, the supply of notes would cease, and when the government were in a position to repay their debts would gradually diminish. It thus came about that the Secretary's alternative proposition was taken up as a means of escape from the consequences of his first one, and received an additional support from the anticipation of these evils.

The National Banking Bill, which had been prepared in December, 1861, in accordance with the Secretary's recommendations, was again discussed in January, 1863. A banking bill was no novelty in the United States. The currency question had been with them a bone of contention quite as bitter as with ourselves, whilst the powers of the contending parties had been more various, and the results of their experiments much more disastrous than anything we have experienced. As many States as were prised in the Union; so many banking systems were in operation, so many species of currency in circulation. For more than a hundred years the diverse systems of banking and currency, the various issues, and their fluctuating value, had been the constant cause of loss and annoyance.

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Twice they had tried to establish a Bank of the United States. The first lasted from 1791 to 1811, but had given so little satisfaction that on the expiry of its charter its renewal was refused. The second Bank of the United States was constituted in 1816-1817, with a capital of seven millions sterling, of which one-fifth was subscribed by the government. For political reasons the government deposits were withdrawn in 1833, and eight years later the bank failed. Though the liabilities were ultimately met, and the government was repaid the amount it had subscribed, the shareholders lost the whole of their capital, amounting to nearly six millions sterling.

They had tried various other species of organisations. They had established banks under a so-called "safety fund" system, by which the banks were required to set aside annually a certain percentage to secure their liabilities; but when, by failure, a call was made upon the fund, it sufficed only to pay about three per cent. of the amount required. They had tried in various States a system of "free banking," but with little better success. Most of the States had chartered banks, many of which indeed were sound and reputable institutions, and have survived to the present time in their original

form, or under reorganisation as National banks; but there were many more that were frauds from their very commencement. In 1853 the Governor of Indiana said, in his message :-"The speculator comes to Indianapolis with a bundle of bank notes in one hand and the stock in the other; in twenty-four hours he is on his way to some distant point of the Union, to circulate what he denominates a legal currency, authorised by the legislature of Indiana. He has nominally located his bank in some remote part of the State, difficult of access, where he knows no banking facilities are required, and intends that his notes shall go into the hands of persons who will have no means of demanding their redemption."

The Governor of Michigan, in his message for the same year, said:" At present we are giving charters to the issues of banks about which we actually know nothing, in whose management we have no participation, and are thus literally paying a large tribute for what generally in the end proves to be a great curse.'

Governor Lord, of New Jersey, says: "In many cases our banks, although ostensibly located in New Jersey, have their whole business operations conducted by brokers in other States. The facility with which they may be organised and located, without reference to the wants of the community or the business of the place is destructive to all the legitimate ends of banking."

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The consequences of these ill-advised forms of legislation were to be seen in the continuous record of bank failures, in which the only points of relief are the startling events of 1814, of 1837, and of 1857. In these years the banks, now of two or three States, and now of the whole Union, suspended as if by common consent. Between these points there was a constant succession of failures. In 1841, fifty-five banks failed, having an aggregate capital of more than thirteen millions sterling; being one-fifth of the whole banking capital of the Union. In 1854, twenty-seven banks failed in Kentucky. In Ohio, in 1856, it was found that thirty-six of the banks which had been organised had failed, their notes being entirely worthless; while eighteen others were in process of liquidation, their notes being quoted at 50 to 75 cents on the dollar. Indiana, in 1856, of ninety-four "free banks," fifty-one had suspended, and their notes were selling at from 25 to 75 per cent. discount. "The experience of this country," said the Comptroller of the Currency, in his report of December, 1875, "previous to the organisation of the national banking system, has shown that in twenty years an amount equal to its whole banking circulation was lost in the hands of the people; the loss by notes of broken banks alone being computed to have been at the rate of five per cent. per annum. Nor was the circulation of these banks of small amount. According to the published returns, the State bank notes in circulation during ten years preceding 1861 ranged from 30 millions sterling to 43 millions, and averaged 37 millions.

But even when the notes were paid the various species of currency in circulation were productive of great inconvenience and loss. The legal tender of one State was comparatively useless for business remittances to other States. The loss by domestic exchange was consequently very great. It has been estimated that the amount annually drawn on New York and the Eastern States by Western and Southern States is nearly eight hundred millions sterling. In 1859, the average cost of Western and Southern exchange on New York was from 1 to 1 per cent. At these rates the yearly cost of domestic exchange for this route alone was not less than twelve millions sterling. The amount of internal transactions between other parts of the Union cannot even be estimated, nor the extent to which they were injured by the losses directly arising out of the variety of currencies existing, but it may safely be assumed that it was very considerable, and we shall readily appreciate the advantages to be derived from a single system of issue redeemable at a central point.

As a government measure, it was urged, the new system would be of the utmost importance in providing a steady market for the large issues of bonds that would be necessary to carry on the war. Το this end, it was probably the best means that could have been devised, as it enlisted the interests of commercial men in almost every town in spreading the circulation, and consequently, in extending investments in the government bonds.

Notwithstanding the great disadvantages of the existing state of things, and the obvious superiority of the proposed plan, the National Banking Bill excited considerable opposition, and was passed by the narrowest majorities, both in the Senate, and in the House of Representatives. It was approved by the President the 25th

February, 1863.

Although the system established by this Act was not put into full operation until the close of the war in 1865, it yet owed its origin directly to that war, and we may observe that history has so far repeated itself, that, in the latter half of the nineteenth century, and in the country of new ideas, the latest of banking systems owes its origin to the financial necessities of a government embarrassed by a state of war. It should add to our appreciation of the merits of the authors of the plan, that, in the midst of a struggle so exhausting, they should have looked beyond the necessities of the moment, and elaborated a system that has been approved by the experience of twenty years; that has contributed not a little to the political consolidation of the country as well as to its commercial expansion.

Before I proceed to the provisions of the law I shall give some particulars of the general progress of the system. The Act of 1863 was superseded by the National Currency Act of 1864, containing similar provisions. During this year some progress was made; on

January 4th there were 139 banks, and by the close of the year 638 banks, to which about eleven millions sterling of notes had been issued. In March 1865, an Act was passed by which a tax of ten per cent. was imposed on any person, or bank, using, or paying out any notes except National Bank notes, or United States notes. This, of course, was entirely prohibitive of all private circulations, and, in consequence, during 1865, a large number of State banks reorganised under the National Bank Acts. By the close of that year, there were 1,582 national banks, with a circulation of nearly forty-three millions sterling. The surplus funds also were very largely increased by the reserves of these banks, many of which were very old institutions. From this time the success of the

system was assured, and its progress steady.

The experience of the banks in various points will be dealt with under the several headings, but their general progress will be seen by the following table:

This table gives the position of the banks at the end of the September quarter in each year, and is compiled from the annual reports of the Comptroller of the Currency. The position now held by the national banks with reference to the whole banking interests of the United States may be roughly described as follows: Whilst being less than one-third of the whole number of banks, they own more than two-thirds of the banking capital and hold about two-fifths of the total deposits of the country; or, leaving out of account the savings bank deposits, those held by the national banks are nearly three-fourths of the remainder.

In the course of this paper such constant reference must be made to the Comptroller, that it will be desirable that I should say a word or two respecting that official. The title is not happily chosen, as his most important functions, and those most constantly exercised, have reference more to the general business and accounts of the National Banks than to their circulation; whilst that circulation is not the whole, nor even the greater part of the currency of the United States. By early sections of the Revised Statutes,* the Bureau of the Comptroller is constituted, and his position and duties defined. The appointment is in the hands of the President, on the recommendation of the Secretary of the Treasury, and the office is tenable for a term of five years, with a salary fixed at £1,000 per annum. The powers confided to the discretion of the Comptroller are so great that one cannot avoid remarking that the remuneration fixed by Congress appears hardly commensurate with the position, especially as so many of the presidents and managers of the institutions under his control must be in receipt of considerably larger salaries. The principle of temporary tenure too seems especially inappropriate to this office, for it would be difficult to name a position in which experience is of greater value and importance. The Comptroller of the Currency is expected not only to maintain a constant and vigilant supervision over the whole of this great system, but must be ever ready to take prompt action either to ensure compliance with the provisions of the law, or to enforce the penalties for their neglect. Moreover, it is for him to point out to Congress, in his annual report, such defects in the law as he may observe in its working, and to suggest such new or remedial legislation as may be desirable. In order to ensure compliance with the provisions of the law, a most complete system of control over the accounts of the banks has been established. Every bank is required to make not less than

In June, 1874, the consolidation and revision of all Acts passed up to and including the 1st December, 1873, were ordered by Congress, and the result is known as," The Revised Statutes of the United States." The figures in brackets occurring in the course of this paper, refer to the various sections of those "Revised Statutes."