"In 1824 two clerks could do all the work. In 1855 seventy were required, and the redemptions reached $400,000,000 per year. As the circulation of the New England banks at that time was about $40,000,000, the whole amount was redeemed ten times each year, or about once in five weeks.
"Any person engaged in a legitimate trade in any part of New England could exchange his promissory note, running 60 or 90 days, for the notes of a bank with which he could pay the wages of his employees, or buy the materials for his industry in any part of the United States or Canada. The notes would remain in circulation about five weeks, and then find their way to the Suffolk Bank, where they were offset by the notes of other banks which took their rise in the same way. The man whose promissory note the bank had discounted, and by means of which it had put its own notes in circulation, had meanwhile sold his products. If he had sold them in Boston, his draft on the Boston merchant would pay his note at the local bank, and this would enable the latter to keep its balance good at the Suffolk. If he had sold them in New York or Chicago, he would get his pay in a draft on Boston, which would answer the same end. If he had sold them at home, and had received New England Bank Notes in exchange for them, the local bank could use these to keep its balance good at the Suffolk. New England trade was carried on by an endless chain of offsets and book balances at the Suffolk Bank. The security for the notes consisted of the bank's assets, and the banker's moral character and business sagacity. Both notes and deposits rested upon the same security that deposits rest upon now, and the volume of both was determined by the wants of trade."
The interplay of bank book credit and bank note credit under the Suffolk System in the panic of 1857 is nowhere equaled in the history of banking; and that demonstration of the perfect adaptability of bank credit to the most sensitive, and at the same time the most extreme situation that can possibly arise, leaves no question unanswered as to its fitness under all circumstances to meet the requirements of the people.
A year before the panic, the note issue stood at $50,000,000, and the deposits were $32,000,000. As a result of the panic, there was an exigent demand for currency, and the note issue rose from $50,000,000 to $56,000,000, and the deposits fell at the same time from $32,000,000 to $25,000,000, showing a conversion of about $6,000,000 of book credits into note credits, or of deposits into currency.
A year afterwards, when this exigent demand for currency had subsided, and the reaction had set in, the notes fell from $56,000,000 to $35,000,000, and the deposits increased from $35,000,000 to $46,000,000. In other words, $21,000,000 of notes were deposited and took the form of deposits, subject to check.
I do not need to state the fact, except for the purpose of calling your attention to it, that this currency did not cost the people of New England any more than deposits; for the two were constantly changing places with each other, strictly in accordance with the needs of trade.
Mr. Merchant: Mr. Banker, I think we are all under the very greatest obligation to you for this elaborate explanation. This splendid illustration, yes, absolute demonstration of the perfect adaptation of bank credit to our currency needs. I want to compliment you upon another thing, and that is, your position that it is the bank's business to make provision for coin redemption. What do we have our banks for except to furnish us credit in just the form we need it to carry on our business, and to keep that credit, in whatever form it takes, just as good as gold. That is the natural business of a bank. I never caught on to that fact before, and therefore could not appreciate it.
Mr. Manufacturer: Mr. Banker, I have been greatly interested. Now, if that plan worked so perfectly in New England, I cannot see for the life of me, why every other section of the country cannot work out the same system. If the New Englander could coin currency out of bank credit, based on codfish and cloth, why cannot the western man coin currency out of bank credit, based on cattle, cotton and corn?
The crux of the whole matter, the very heart of the thing, the vital part is, that the bank be ready to redeem its notes in gold. Why shouldn't it, that's the question?
Mr. Banker: Well, it should, that is the answer to your question, and the bankers around every natural financial center in the United States should get together, and form just what those 500 bankers had in New England before the war, a perfect banking system of their own.