[199]. Curiously enough there was another financial panic in 1893; but this had nothing whatever to do with the stoppage of silver coining.
[200]. The paper money is made at the Bureau of Engraving in Washington, not at the mints. Every working day in the year this Bureau turns out a million dollars or more in notes. A special kind of paper, made by a secret process, is used, and in the manufacture of this paper small strands of red silk are imbedded in the fabric. The notes are printed from mechanical copies of engraved plates, the originals of which are made by hand. It takes several expert engravers a whole year or more to make one of these originals, with its portrait, seal, symbols, and myriad of fine lines. All these precautions are taken to prevent counterfeiting. On its way through the presses the bills are counted and checked many times to make sure that none go astray or are pocketed by employees. So carefully is this done that only once in the last twenty years has a single bill been unaccounted for. When a paper note is permanently lost or destroyed after being issued Uncle Sam is very much the gainer, for it costs him, on the average, only about one cent to print a dollar bill. If the bill is only torn or partly destroyed, the government will redeem it. Full face value is given if at least three-fifths of the original bill is presented, or half the face value if two-fifths is handed in. If less than two-fifths of the bill is presented, it will not be redeemed except by proving the circumstances under which the rest of the bill was destroyed. When bills get dirty or worn the banks send them back to the Treasury. Some years ago the practice was to burn them in the furnace; but there was a rumor that charred pieces of the bills were in the habit of flying off through the chimney to be found by people who presented them for redemption. Now the worn money is put into a macerator or chewing machine, which masticates them to a pulp at the rate of about a million dollars a mouthful.
[201]. The German paper mark, for example, depreciated to less than one-fiftieth of its face value in gold; the Austrian crown depreciated even more. Even more striking has been the depreciation of the Russian paper rouble which has fallen more than a thousand-fold.
[202]. Money which, according to law, must be accepted in payment of debts, is called legal tender. Gold coin, silver dollars, and certain notes are legal tender up to any amount. Half dollars, quarters, and dimes must be accepted in payment up to the amount of ten dollars. Nickels and pennies are legal tender to the amount of twenty-five cents only.
[203]. The establishment of this second bank led to the raising of a very important constitutional question. The constitution, as has been said, contains not a word about banks. Hence the power to establish banks might be assumed to remain entirely with the states in view of the rule that powers not delegated to the nation by the constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people. Congress having gone ahead, however, and established a bank, the State of Maryland proceeded to levy a tax on the bank’s paper money. This tax the cashier of the Baltimore branch of the bank, McCulloch, refused to pay, whereupon he was held liable by the courts of Maryland and appealed to the Supreme Court. The latter tribunal went into the whole issue thoroughly and rendered one of the most important legal decisions ever given in this country.
The decision in McCulloch vs. Maryland was that Congress, having been given by the constitution the express power to collect taxes, to borrow money, and “to make all laws which shall be necessary and proper for carrying into execution the foregoing powers,” was thereby vested with implied authority to establish banks as a means of facilitating the collection of taxes or the borrowing of money. This being so, the Supreme Court decided, no state can be permitted to interfere with an instrumentality through which the national government is legally carrying on its work. They must not interfere by taxation or otherwise. “The power to tax involves the power to destroy,” declared Chief Justice Marshall in rendering this decision. If the states could tax one agency employed by the national government in the execution of its powers, the chief justice explained, they could tax every other one. They could tax the post office, the custom houses, the forts, the ships of war. By taxing these things heavily enough they could cripple the national government and eventually drive it out of existence altogether. The court was unanimous in affirming that Congress had the right to establish banks and that with such action no state could interfere.
[204]. Trust companies were established to act as trustees or guardians of funds belonging to widows, orphans, and others who could not look out for their own investments. Then they began the practice of accepting deposits from others and paying interest on these deposits, whereas national banks and most of the regular state banks usually paid no interest to their depositors. Gradually the trust companies became banks in every sense of the term, and they have gradually increased in number during recent years. As a rule they can do a wider range of business than is permitted to national or state banks.
[205]. The locations of these twelve federal reserve banks are as follows: Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.
[206]. A further addition to the banking facilities of the United States was made in 1916, when Congress inaugurated the federal farm loan bank system. This is under the control of a federal farm loan board composed of the Secretary of the Treasury and four other persons appointed by the President. Two systems of lending money on mortgages are provided under the supervision of this board, one working through twelve farm land banks situated in different parts of the country and the other through joint stock land banks. Provision is also made for the forming of farm loan associations composed of farmers who wish to borrow money on the security of their lands. See also p. 348.
[207]. Retail prices represent prices of the principal articles of Food; wholesale prices include articles of all kinds.