Twenty Years of Congress, Vol. 1 / From Lincoln to Garfield, with a Review of the Events Which Led to the Political Revolution of 1860

by James Gillespie Blaine

The most important financial institution established in the United States before the adoption of the Constitution was the Bank of North America, still doing business in Philadelphia, with unbroken career through all the mutations of the eventful century which has passed since it was called into existence. It had its origin in 1780, when certain patriotic citizens of Philadelphia resolved to "open a security subscription of three hundred thousand pounds in real money," the object being to procure supplies for the army, "then on the point of mutiny for lack of the common necessaries of life." The enterprising men who had the matter in hand addressed themselves to the task of providing three million rations and three hundred hogsheads of rum for the famished troops. The Continental Congress recognized their patriotic conduct and pledged "the faith of the government for the effectual reimbursement of the amount advanced." It fell to Robert Morris, Superintendent of Finance for the government, to organize the bank which owed its origin to these circumstances. While engaged in this arduous task he received two letters of advice from an anonymous source, ably written, and displaying considerable knowledge of the science of banking, then almost unknown in America. Indeed the methods of banking—it might be proper to say its secrets—were jealously guarded by the capitalists who monopolized it in the financial centres of Europe. Mr. Morris was struck by the ability and originality of his unknown correspondent, and was amazed to find that Alexander Hamilton, then but twenty-three years of age, was the author of the letters. It was the first exhibition of that mastery of finance which gave Mr. Hamilton his enduring fame.

When Mr. Hamilton assumed control of the Treasury Department under the Presidency of Washington he found that the Bank of North America had accepted a State charter from Pennsylvania and was not therefore in a position to fulfil the functions of a National bank which he desired to establish as an aid to the financial operations of the government. After his funding of the Revolutionary debt he applied to Congress for the charter of a National bank, with a capital of $10,000,000, twenty-five per cent. of which must be paid in coin and the remainder in the bonds of the United States. The government was to own $2,000,000 of the stock of the bank and was obviously to become its largest borrower. The measure encountered the determined opposition of the Secretary of State, Jefferson, and the Attorney-General, Edmund Randolph, and it finally became an almost distinctly sectional issue—the Northern members of Congress with few exceptions sustaining it; the Southern members under the lead of Mr. Madison almost wholly opposing it. It became a law on the 25th of February, 1791.

When the charter of the bank—which was granted for twenty years— expired in 1811 the administration of Mr. Madison favored its renewal. The eminent financier, Albert Gallatin, then Secretary of the Treasury, informed Congress that the bank had been "wisely and skillfully managed." The hostility to it originated in political considerations. It was regarded as an aristocratic institution, was violently opposed by the State banks which by this time had become numerous, and notwithstanding the change of Mr. Madison in its favor, the bill to re-charter was defeated. The contest however was severe. In the House the opponents of the bill had but one majority, and there being a tie in the Senate the re-charter was defeated by the casting vote of George Clinton the Vice-President. By this course Congress gave to the State banks a monopoly of the circulating medium. The war of 1812 followed, and in the sweep of its disastrous influence a large majority of these banks were destroyed, their notes never redeemed, and great distress consequently inflicted upon the people.

It was this result which disposed Congress, as soon as the war was over, to establish for the second time a Bank of the United States. The charter was drawn by Alexander J. Dallas who had succeeded Mr. Gallatin at the Treasury. In the main it followed the provisions of the first bank, but owing to the growth of the country the capital stock was enlarged to twenty-five millions, of which the government subscribed for one-fifth, payable wholly in its own bonds. Individual subscribers were required to pay one-fourth in coin and three-fourths in government bonds. The charter was again limited to twenty years. It was this bank which encountered the bitter opposition of President Jackson, and which was seriously injured by his order to the Secretary of the Treasury, Roger B. Taney, in 1834, to withhold the deposit of government funds from its vaults. The act of President Jackson is usually referred to as "a removal of the deposits." This is incorrect. The government deposits were not removed from the United-States Bank, except in the ordinary course of business for the needs of the Treasury. But the order of the President prevented further deposits of government money being made, and thus destroyed one of the principal resources upon which the bank had been organized. A short time before the charter of the United-States Bank expired, a State charter was obtained from the Legislature of Pennsylvania, under which the bank continued business until 1841, when its affairs were wound up with heavy loss to the stockholders.

THE UNITED-STATES BANKS,—1791-1816.

These brief outlines of the charters of the United-States banks of 1791 and 1816 show how entirely dissimilar they were in many essentials from the system of national banks established under the Acts of 1863 and 1864. In the first the government was a large stockholder and the officers of the Treasury practically directed all the operations and all the details of the bank. In the system now prevailing the government cannot be a stockholder, and takes no part in the management of banks except to see that the laws are complied with and that the safeguards for the public are rigidly maintained. An especially odious feature in the United-States Bank was the favoritism shown in its loans, by which it constantly tended to debauch the public service. Political friends of the institution were too often accommodated on easy terms, and legitimate banking was thus rendered impossible. No such abuse is practicable under the present system. Indeed there is such an entire absence of it that the opponents of the National banks have not even brought the accusation.

There was special care taken to place the Currency Bureau entirely beyond partisan influence. The misfortunes which had come upon the United-States Bank from its connection with party interests were fully appreciated by the wise legislators who drafted the National Bank Act. They determined to guard against the recurrence of the calamities which destroyed the former system. The original Act of 1863, organizing the National system, provided that the Comptroller of the Currency should be appointed by the President upon the nomination of the Secretary of the Treasury, and, unlike any other Federal officer at that time, his term was fixed at five years. This period of service was established in order that it should not come to an end with the Presidential term. It was also specifically provided, long in advance of the tenure-of-office Act, that the President could not remove the Comptroller unless with the advice and consent of the Senate. The Comptroller was thus excepted by statute from that long list of officers who were for many years subjected to change upon the incoming of each Administration. From the organization of the National Banking system to this time (1884) there have been four Comptrollers,—three of whom voluntarily resigned. The present incumbent of the office, Mr. John Jay Knox, has discharged his important duties with great satisfaction for twelve years, and with his predecessors has conclusively established in practice the non-partisan character which is indispensable to the successful administration of the Bureau.

The division and distribution of bank capital under the National system do not merely carry its advantages to every community, but they afford the most complete guaranty against every abuse which may spring from a large aggregation of capital. The Bank of the United States in 1816 had a capital of thirty-five millions of dollars. If a similar institution were established to-day, bearing a like proportion to the wealth of the country, it would require a capital of at least six hundred millions of dollars—many fold larger than the combined wealth of the Bank of England and the Bank of France. It is hardly conceivable that such a power as this could ever be intrusted to the management of a Secretary of the Treasury or to a single board of directors, with the temptations which would beset them. It is the contemplation of such an enormous power placed in the hands of any body of men that gives a more correct appreciation of the conduct and motives of General Jackson in his determined contest with the United-States Bank. His instincts were correct. He saw that such an institution increasing with the growth of the country would surely lead to corruption, and by its unlimited power would interfere with the independence of Congress and with the just liberty of the people.

MERITS OF NATIONAL BANK SYSTEM.

The single feature of resemblance between the Bank of the United States and the system of National banks is found in the fact that Government bonds constitute the foundation of each. But the use to which the bonds are devoted in the new system in entirely different from that of the old. The United-States Bank retained its bonds in its own vaults, liable to all the defalcation and mismanagement which might affect the other assets. In the present system the National Bank deposits its bonds with the Treasury Department, where they are held as special security for the redemption of the bills which the bank puts in circulation. The United-States Bank circulated its bills according to its own discretion, and there was no assurance to the holder against an over-issue and no certainty of ultimate redemption. The National Bank can issue no bills except those furnished by the Treasury Department in exchange for the bonds deposited to secure prompt redemption. In the former case there was no protection to the people who trusted the bank by taking its bills. In the case of the National Bank, the government holds the security in its own hands and protects the public from the possibility of loss.