In the wild, reckless period, when almost anything in the shape and appearance of an engraved bill, with the name of a bank on it, was good enough to buy public land with, and good enough, therefore, for all other purposes—and in the latter period when other western states authorized banks to issue notes based on various kinds of bonds with the place of redemption out of the way and difficult of access—sometimes in a forest or in a swamp—the legislature of Missouri refused to charter institutions to multiply such currency within the limits of the state.
The notes of the Bank of the State of Missouri were preferred to specie in New Mexico, Utah and on the Pacific coast, and the same high character marked the issues of the system of banks authorized by the general law of 1857.
The capital in 1863 was $11,247,000; specie, $3,666,000; circulation, $4,037,000; deposits, $3,434,000.
Everything I have just said I have taken from John Jay Knox's "History of Banking."
During all this varied experience in the west and south, there was a most conspicuous illustration of a complete banking system demonstrating and proving every economic principle that is involved in constructing a financial and banking system for the United States. It was the Suffolk System of New England. Here were six states, the laws varying in each. Portions of these states were far more remote from Boston in those days than any part of the United States is from any other part today, so far as business relations and convenience are concerned.
There were no railroads, nor telegraph lines, nor long distance telephones. Indeed, almost every essential to anything like a sound banking system as conceived and observed from the standpoint of today was wanting. There was no law requiring a uniform reserve. There was no law requiring coin redemption. There was no law requiring bona fide capital. There was no check upon the amount of notes that might be issued if a bank was dishonestly inclined.
There were, in 1848, three hundred and six banks, deriving their authority from six states, and one hundred and fifty-nine of them did not possess an average capital of $100,000; nor was the average capital outside of Boston more than $160,000, and including that city, it was not more than $206,000.
By 1860 there were five hundred and four banks. There are only seven hundred and forty banks today in the same states. Can any fair-minded, impartial man deny that the conditions today are vastly in favor of better results than they were then? One law for all; a bona fide capital; a required reserve; a system of redemption established by law; notes furnished by the United States Government; a common national supervision. These all unite to compel the admission that any system that could prove its adequacy under such adverse conditions as existed from 1840 to 1860 would certainly approximate perfection today.
Nowhere in the whole range of banking experience have so many things, which the student of this subject wants to know, been demonstrated beyond cavil.
To all intents and purposes the possible issues were without limit. The actual circulation in 1840 was only 23 per cent of that permitted. The circulation of 1850 was only 40 per cent of that permitted; and the circulation in 1860 was only 36 per cent of that permitted.