In the United States we then experienced a market based on credit, which, through discounts or loans by the banks, had reached the amount of the accounts current, and was about to call the clearing house into action to settle debts everywhere.
The office of the circulation of bank notes, subsequent to the severe regulations enacted in 1863 for the organization of National Banks, had varied in the last two periods that we are studying. From 1863 to 1873, after the war troubles, in proportion as greenbacks were withdrawn, the bank notes issued by the National Banks not only took their place, but replaced those of the State Banks, whose position the National Banks had taken.
We observe them rise firstly from $66,000,000 to $341,000,000 (1865-1873) at the sharpest period of the panic. We might even charge them with causing it, if the disproportion alone of the two sums, $341,000,000 bank notes compared with $944,000,000 of bills discounted, did not at once repel this theory. It is only necessary to glance at this idea to see its falsity.
The maximum circulation of bank notes has here coincided with the panic, a thing which had not happened either in France or in England for a long time, and instead of presenting its highest figure during the liquidation of the panic of 1873, it shows us its lowest figure, $290,000,000 in 1877. Far indeed from increasing at this time as happened in Europe, the amount of bank notes in circulation decreased by means of the ebbs of metallic cash into the coffers of the banks: in reality the cause was lacking here; the ebb of specie was hardly felt at all.
With $4,000,000 in 1865, the reserve was poorly provided, increasing to $48,000,000 in 1870. At the end of the bursting forth of the panic of 1873 it became reduced to $10,000,000, at the worst of the panic to $16,000,000; then, under the influence of a slight whirl, it rose to $33,000,000 in 1874, without reaching the highest figure of the preceding period, but soon the flow reappeared and reduced this metallic reserve to $8,000,000 in 1875. It was not until after this depression that the true ebb reappeared, when the circulation of bank notes was at its lowest figure ($290,000,000).
Whilst the $8,000,000 specie reserve grew successively to $54,000,000, $79,000,000; $109,000,000, and finally to $128,000,000 in 1878, 1879, 1880, and 1881; that is to say, upon the approach of the panic, the circulation also expanded from $290,000,000 to its highest figure $323,000,000 in 1882, the year of the European crash and of the stoppage of the rise of prices in the United States. As to the minimum amount of the specie reserve, it is to be noted in 1883, between the critical years 1882 and 1884.
Metallic reserves are too small in the United States for their fluctuations to exhibit the same regular course they offer us in Europe; the least need exhausts them, and the smallest payments fill them to overflowing. The panic soon brought about a default in payment and a need of metallic money to re-establish equilibrium, but this remedy, if it does precede panics, sometimes precedes them by a year, as we have observed in 1883, and the same irregularity is apparent whether we observe the banks of the whole United States, or the Associated Banks of the City of New York.
After the panic of 1882-1884, the ebb of specie into the coffers of the National Banks of the United States and of the Associated Banks of New York resumed its usual course, and raised its level in the case of the National Banks from $97,000,000 to $177,000,000 between 1883 and 1885, and even to $181,000,000 in 1888. This ebb occurred both in England and France at the same time, proving that cash reserves do not increase to the detriment of each other; it is a flood of specie or of bar-gold rendered easily available, through the conclusion of the decline of prices and the slackening of business, extending to the whole world, and in which each one partakes in proportion to its wealth, and above all in proportion to its credit circulation, and of the perfection of the settlements by means of clearing houses.
This regular course in the metallic reserves is no longer to be noted in the circulation of bank notes; instead of increasing and of entering its exchanges during the return of specie into the coffers of the banks, they again took part in the paper-money reserves. From $323,000,000 in 1882 we see the circulation of bank notes decrease each year little by little until it is reduced to $151,000,000 in 1888; and this remarkable fact confronts us in the face of an unheard of expansion of business, almost 50 per cent. greater than in 1873; and of a twofold simultaneous reappearance of $84,000,000 specie and of $172,000,000 bank notes. What then is the role of specie and of bank notes in the course of business in the United States? Much inferior to that which it plays in Europe in the absence of the machinery of a clearing house embracing the whole country, instead of being limited to some large cities.
The multiplicity of banks has strikingly helped the economic progress of the United States. From 1,500 National Banks in 1865 with a capital of $393,000,000, the number rapidly rose to 2,089 in 1876.