During every year from 1840 to 1860, except one, the note issues were greater (and usually nearly double) than the deposits, illustrating with what certainty and perfect nicety such a system adapted itself to the ever varying needs of the people who were fortunate enough to have it, and how it invariably, with peculiar fitness, met the needs of the rural districts where currency and not checks was especially required.
The States of New Hampshire and Vermont had bank capital amounting to $8,150,000 in 1850, and notes outstanding amounting to $7,300,000, while Boston with $33,200,000 of capital had only $7,500,000 of notes outstanding.
A marvelous exhibition of this interplay and interchange of bank book credits and bank note credits occurred in the six New England States as a result of the panic of 1857. The authorized note issue of the five hundred and ten banks constituting the Suffolk System with capital ranging all the way from $25,000 to $500,000 each was $131,000,000. In 1856, the year before the panic, the note issue amounted to $50,000,000, and the deposits amounted to $32,000,000. In 1857, as the result of the panic, the note issue rose to $55,000,000 and the deposits dropped to $25,000,000; in 1858, one year after the panic, the note issue had fallen to $36,000,000, and the deposits had risen to $47,000,000, or there had been a conversion of $20,000,000 of bank note debts into deposit debts. The exigency for cash had disappeared and the depression had come.
Do not fail to observe three important facts in this connection:
First: That although the banks were authorized to issue $131,000,000, they never exceeded $57,000,000, which was the highest point of circulation, and that was reached as the result of the panic of 1857, and that they averaged $43,000,000 from 1840 to 1860.
Second: That there was a perfect adaptation of the deposits and note issues to the peculiar and ever changing demands of the people during the panic, and during the depression in trade that followed the panic.
Third: That the number of banks in New England in 1856, the year before the panic, was four hundred and ninety-five, and in the year 1858, the year after the panic, there were four hundred and ninety-nine banks, or four more banks the year after the panic than there were the year preceding the panic, an unquestionable tribute to the principle of current coin redemption.
Now, mark this, that the very heart and the very soul of the Suffolk System was in the fact that the notes were redeemed in Boston in coin. So good were these notes considered to be throughout the entire west, that at Buffalo, Chicago, Milwaukee and all commercial points in the then far west, they were always taken at a premium of from 1 to 5 per cent. It was not the size of the bank of issue that made them good and desirable, but the fact that they were redeemed in coin in Boston.
When the soundness of this system is tested by a comparison with that of the national banks, the result more than justifies the assertion that the Suffolk Bank System of New England was incomparably better than the National Bank System; for, when the conditions during the twenty years from 1840 to 1860 are compared with those of the past thirty years, all must admit that argument is futile and the conclusion is inevitable.
Mark this, that while a tax of one-eighth of 1 per cent of all the notes in circulation would have paid all the notes of the banks that failed under the Suffolk System from 1840 to 1860, it would have taken a tax of one-fifth of 1 per cent on all the notes outstanding issued by the national banks to pay the notes of the failed national banks.