9. THE NATIONAL BANKING SYS TEM. At the outbreak of the Civil War the statesmen of that epoch were confronted with financial problems of first magnitude. Should they meet them by the usual expedient of re sorting to large issues of paper money or adopt some safer method? In his annual re port for 1861 Secretary Chase declared against the issue of legal-tender paper and proposed a banlcing system whose principal features would be a circulation of notes bearing a com mon impression and authenticated by a com mon authority; second, the redemption of these notes by the associations and institutions to which they may be delivered for issue; and, third, the security of that redemption by the pledge of United States stocks and an ade quate provision of specie. The Secretary de clared that the proposed notes would, in his judgment, ((form the safest currency which this country has ever enjoyed; while their re ceivability for all government debts, except customs, would make them, wherever payable, of equal value as a currency in every part of the Union.0 The statesmen of the Civil War epoch in formulating the financial policy that was to assist the nation through this perilous period p.ve full weight to the inborn American pre dilection against concentrated banlcing power, and instead of establishing a powerful bank of issue, which might have been of inestimable service in steering the lumbering ship of state through the stormy waters, and whose cur rency based upon commercial transactions and gold might have stayed the ruinous rise in prices and vastly reduced the war outlay, de liberately committed the country to a system of small scattered banks and to the shifting sands of government paper currency. The pol icy then decided upon has continued to domi nate the banking situation for the past 50 years. All attempts to substitute a bank currency for government paper have proved futile.
No subject connected with the Civil War finances has been more fiercely debated than the departure from what many regarded as sound financial policy in refusing to depend upon the banks and in resorting to the issue of legal-tender Treasury notes. Yet the latter policy was not the one originally contemplated by Secretary Chase and others who had the shaping of the finances of the war. Mr. Chase in his report of 1861 had recommended a sys tem of national banks with note issues based upon the public stocks, and Mr. Spaulding had been asked to draw a bill to carry out this recommendation. He fulfilled this duty, but before the measure was introduced in the House it became evident that it could not be enacted in time to be of service to the gov ernment in the dire straits in which it was then placed. A section of Mr. Spaulding's
bank bill providing for the incidental issue of Treasury notes was substituted for the banking bill and, in a form slightly altered from the original draft, became a law.
In his introduction to the His tory of the War,' p. 1, Mr. Spaulding says: "The first material mistake in the manage ment of the finances occurred when Secretary Chase discarded the use of the bank check and the clearing-house in the fall of 1861. This mistake occurred under the following circum stances: "Two important loan acts were passed at the extra sessions of Congress in July and August 1861. The first act was approved 17 July and the second 5 August. By section six of the last-mentioned act, the Sub-Treasury Act, passed in 1846, was so far suspended as to allow the Secretary of the Treasury 'To deposit any of the moneys obtained on any of the loans now authorized by law, to the credit of the Treasurer of the United States, in such solvent specie-paying banks as he may select; and the said moneys, so deposited, may be withdrawn from such deposit, for deposit with the regular authorized depositories, or for the payment of public dues, or paid in the redemp tion of the notes authorized to be issued un der this act, or the act to which this is supple mentary, payable on demand, as may seem ex pedient to or be directed by the Secretary of the Treasury.) "The primary object, which Mr. Appleton and myself had in view, in preparing this sec tion, was to relax the rigid requirements of the Sub-Treasury Act in regard to the receipt and disbursement of coin and instead of pay ing solely from coin deposits in the Treasury, to allow all the money obtained on these loans to be deposited in solvent banks; the United States Treasurer to draw his checks directly on such deposit banks in payment of war ex penses, which checks would be paid in State bank notes then redeemable on demand in gold, or in the ordinary course of business, to a large extent, they would pass through the New York Clearing-House and the clearing houses of other cities and be settled and can celled by offset without drawing large amounts of specie. This mode of payment would have enabled the Secretary more easily to effect such loans and make his large disbursements without materially disturbing the coin re serves held by the banks, which were then well protected by these reserves in their vaults.