THE AMENDED BANK BILL OF 1864.
In his report Mr. McCulloch pointed out defects of the law which had become apparent by the test of experience, and made many suggestions for its improvement. The whole subject was taken into consideration by the Ways and Means Committee of the House at the first session of the Thirty-eighth Congress. An amended bill, which repealed the Act of February 25, 1863, and supplied its place, was reported from the committee March 14, 1864. It was carefully considered in the committee of the whole, section by section, and against the protest of its advocates an amendment was ingrafted upon it giving to the States the right to impose taxes on the bank shares for State and municipal purposes to the same degree that taxes were imposed upon the property of other moneyed corporations. This bill was reported to the House from the committee of the whole on the 16th of April, when Mr. Stevens moved a substitute in which the tax amendment was left out. The substitute was defeated, and thereupon the immediate friends of the bill united with the opposition and laid the whole subject on the table. Mr. Stevens was totally opposed to the exercise of any power whatever by the States over banks established by National authority.
In the height of the war excitement, when men's minds were inflamed by a just resentment toward the Southern theory of States' rights, there was a tendency to go to extremes in the other direction. Some of the Republican leaders, notably Mr. Stevens, were very radical in their views in this respect, and would scarcely have hesitated at the abolition of all the checks upon Federal power which the Constitution wisely gives to the States. But apart from considerations of this character it was believed by many of the friends of the national banking system that the imposition of State taxes, in addition to those to be imposed by the General Government, would defeat the object of the bill. Others in their anxiety to strengthen the National Government were anxious to reserve to it exclusively the largest possible scope of taxation. It soon became apparent however that some concession must be made to those of both political parties who believed that the States could not constitutionally be deprived of the right to levy uniform taxes on property within their jurisdiction. To meet the views of these gentlemen the Ways and Means Committee reported a bill with a provision intended to reconcile all differences of opinion. This gave to the State the power to tax the capital stock, circulation, dividends, or business of national banks at no higher rate than was imposed upon the same amount of moneyed capital in the hands of individual citizens of the State, provided no tax was imposed upon that part of the capital invested in United-States bonds. This was adopted by a vote of 70 to 60 on the 18th of April, 1864.
The opposition to the bill in all other respects save this question of taxation was confined mainly to the Democratic members of the House. The measure was by this time regarded favorably by all Republicans. It was considered to be a part of the Administration policy, and one that would contribute largely to strengthen the government in its struggle. Its success thus far had demonstrated that under a perfected law it would soon become the general and popular banking system of the country. It was daily growing in favor with business men, and there was no longer doubt that a large proportion of the surplus capital of the nation would be invested in United-States bonds and in the stock of National banks. In the debate in the House which was prolonged, two speeches of particular interest were elicited. Mr. James Brooks of New York, as the leader of the Democratic minority on the question, ably summarized the objections of his party. He was a man of education and great intelligence. He had traveled extensively and was a close observer. He had been a writer for the metropolitan press for many years, and was familiar with the political and financial history of the country from an early period. He was an effective speaker. On the occasion he was in large part supplied with facts by Mr. James Gallatin, who as president of one of the principal banks of New- York City had unsuccessfully attempted to dictate the financial policy of the government in 1861. Mr. Gallatin had conceived an intense hostility to Mr. Chase, and inspired Mr. Brooks to make in the course of the debate on the bank bill some unfounded charges against the Secretary. The speech of Mr. Brooks was a general attack upon the financial policy of the administration directed principally against the Legal-tender Act, and at the same time a qualified defense of the State bank system. He asserted that the government could have successfully carried on the war upon a specie basis, but his authority for this claim was Mr. Gallatin. Mr. Samuel Hooper at the close of the debate defended the financial policy of the Administration and disposed of the argument of Mr. Brooks. He asserted that Mr. Gallatin had induced the banks of New-York City on December 30, 1861, to suspend specie payments, and briefly related his presumptuous attempt to dictate to the Secretary of the Treasury the financial policy of the Nation. He declared that the issue of legal-tender notes was the only resource left to the government, and "was wise as well as necessary." In his review of the financial history of the country he dealt unsparingly with the old State-bank system, and exposed in a masterly manner its inherent defects even in those States where the greatest care had been exercised by the Legislative power to hedge it about with limitations.
THE AMENDED BANK BILL OF 1864.
In the Senate the debate on the House bill was chiefly confined to amendments proposed by the Finance Committee. The provision incorporated by the House in regard to taxation was amplified so as to make it more specific and definite. Considerable opposition was shown to this action, but Mr. Fessenden, chairman of Finance, defended the recommendation of his committee and successfully replied to the arguments against it. An efforts was made by Senators Doolittle, Henderson, and Trumbull on the Republican side to prevent the establishment of any more banks under this law than were in existence in May, 1864, unless they redeemed their notes in coin. The banks then organized, possessed an aggregate capital of about $36,000,000, with bonds deposited to secure circulation to the extent of a little more than $33,000,000. The argument was that this addition to the legal-tender notes already in circulation supplied an ample currency for the business of the country. The issue of the whole $300,000,000 of National bank notes authorized by the bill, these senators claimed, would be such an expansion of the currency as would sink its value to almost nothing. They proposed also to compel the State banks to retire their circulation, but permitted them to organize on the specie basis as National banks. Mr. John P. Hale of New Hampshire thought that "it would be much simpler to incorporate in the bill a provision abolishing all such instruments as had previously been known as State constitutions." Senator Collamer proposed to require the banks to retain in their vaults one-fourth of all the gold they received as interest on their bonds deposited to secure circulation until the resumption of specie payments.
These amendments were voted down, and the bill finally passed the Senate on the 10th of May by a vote of 30 to 9, ten senators being absent or not voting. A conference committee of the two Houses agreed upon the points of difference. The report was adopted and the bill was approved by the President on the 3d of June, 1864. By the end of November 584 National banks had been organized, with an aggregate capital of $108,964,597.28, holding $81,961,450 of the bonds of the United States to secure a circulation of $65,864,650. These banks at once became agencies for the sale of the government's securities, and their officers being usually the men of most experience in financial affairs in their respective communities, gave encouragement and confidence to their neighbors who had money to invest. The sale of government bonds was in this way largely increased. The National banks thus became at once an effective aid to the government. By the close of the fiscal year 1864 $367,602,529 of bonds were disposed of by the banks. During the fiscal year 1865 bonds to the amount of $335,266,617 were sold over their counters. On the 1st of October, 1865, there were in existence 1,513 National banks, with an aggregate capital of $395,729,597.83, with $276,219,950 of bonds deposited with the Treasurer of the United States to secure circulation.
Experience has justified the authors and promoters of the national banking system. Originally the circulation was limited to a total volume of $300,000,000, apportioned, one-half according to representative population, and the remainder by the Secretary of the Treasury among associations with "due regard to the existing banking capital, resources, and business of the respective States, Districts, and Territories." Complaint arose that by such limitation and apportionment injustice was done and monopolies created. After the war this restriction was removed and banking under the national system became entirely free. The advantages of uniform circulation on a basis of undoubted strength and availability have won almost universal favor among business men and prudent thinkers. The restoration of the multiform State system, with notes of varying value and banks of doubtful solvency, would receive no support among the people.
The National bank system with all its merits has not escaped serious opposition. The Bank of the United States, as twice established, incurred the hostility of the Democratic party,—their two greatest leaders, Jefferson and Jackson, regarding the creation of such an institution as not warranted by the Constitution. A persistent attempt has been made by certain partisans to persuade the people that the national banks of to-day are as objectionable as those which encountered serious hostility at earlier periods in our history. An examination into the constitution of the banks formerly organized by direct authority of the General Government will show how wide is the difference between them and the present system of national banks. It will show that the feature of the earlier banks which evoked such serious opposition and ultimately destroyed them is not to be found in the present system and could not be incorporated in it. It was from the first inapplicable and practically impossible.