Seventeen Talks on the Banking Question / Between Uncle Sam and Mr. Farmer, Mr. Banker, Mr. Lawyer, Mr. Laboringman, Mr. Merchant, Mr. Manufacturer

by Charles N. Fowler

Probably the most noted of them all was the State Bank of Indiana, organized in 1834, which continued its almost matchless career until 1866. It was a pure credit currency bank, marvelously suited to serve the people of Indiana, under the conditions in which they lived. Its capital was $3,300,000; its maximum of note issue was $5,700,000, always currently redeemed in coin. In 1857, during the crisis when every bank in the State of Indiana, and all the banks in New York, except the Chemical, closed their doors, the State Bank of Indiana kept on redeeming its notes in coin. This Indiana State Bank had thirteen branches. The central office was at Indianapolis. Hugh McCullough, afterwards one of the wisest secretaries of the Treasury we have ever had, was President of the Fort Wayne Branch. He wrote this interesting paragraph:

"Fort Wayne was three good days' ride from Indianapolis, mostly through the woods. For fifteen years I made this journey on horseback, and alone, with thousands of dollars in my saddle bag, without the slightest fear of being robbed. I was well known upon the road, and it was well known that I had money with me, and a good deal of it; and yet, I rode unharmed through the woods, and stopped for the night at the taverns and cabins on the way in perfect safety."

Another most signal success of the same credit currency principle was the Bank Act of Louisiana, which was passed in 1842. It was a model, not only for those times, but for these as well. All the banks had to settle their balances every Saturday night in coin. In 1860 Louisiana, as a result of this law, held more specie than any other state in the Union except one. The very day that Gen. Butler took possession of New Orleans, the banks were redeeming their notes in coin.

I might, if it were profitable, describe in detail the Bank of the State of Ohio; the Banks of the State of Kentucky; the Banks of Virginia; the Bank of the State of Missouri; the Bank of the State of Iowa. Everyone of them were signal successes, and everyone of them models worthy of imitation, and all of them were established and operated successfully as credit currency banks.

But I want particularly to rivet your attention upon the Suffolk Bank System of New England, which was purely the product of experience, and I may say a perfect development of the law of evolution in banking.

Mr. Merchant: My recollection is that the Suffolk System covered all the six New England States, and that there were then over 500 banks in the system, with capital varying all the way from $25,000 to $700,000 each. Two other facts must be kept constantly in mind in this connection; they are these: 1st, the combined authorized note issue of these 500 banks was $131,000,000, absolutely unlimited to all intents and purposes; 2d, there was then no means of communication or transportation except the stage lines and horseback mail carriers. There were no telephones in those days, nor telegraph lines, nor even railroads.

Mr. Banker: I am more than pleased, Mr. Merchant, that you have brought out these points, before I proceeded to explain what actually happened in the course of the development of what I regard as the most marvelous exhibition the world has yet furnished us with, what in principle was practically a perfect banking system, and what was in practice as nearly perfect as any human institution could be under the circumstances.

Mr. Manufacturer: Well, Mr. Banker, that is unqualified, literally unmeasured praise. If we ever had so good a banking system actually in operation in this country, I don't see why we did not have sense enough to keep it. I hope you will be good enough to tell us why we lost it.

Mr. Banker: That is a very important and most pertinent question, and certainly most natural that you should ask it. I should have covered that point before, but it will do just as well now.

Uncle Sam, you will remember that when you passed the National Bank Act in order to get the advantage of all the bank note circulation and so increase the sale of United States Bonds, you put a tax of 10 per cent on all bank notes for the purpose of preventing any bank from issuing them, except National Banks. The result was that you killed the State Bank of Indiana and all the other banks to which I have referred, which were then issuing notes in the United States, including the 500 banks in the Suffolk System.