Future Paper Money of This Country [pp. 1-25]

FUTURE PAPER MONEY OF THIS COUN.TRY.
proved inadequate. Altogether the sstem was a failure, while
it taught one great lesson; viz., that nothing is a proper security
for bank circulation but that sort of public stocks which, in any
and all circumstances, have an immediate salable value above
the face of the notes protected by them. The New York freebanking system was at length reformed so as to rule out all but
the highest grade of securities, such as United States or New
York State stocks or their equivalents, as the basis of their bank
circulation. At the time of the adoption of the national-bank
system nearly all the New York State banks had got upon this
footing. The free-banking system which was copied from New
York in the adjacent States of New Jersey and Connecticut had
only a transient trial, and disappeared prior to the war.
In the country at large, for a quarter of a century before
the national-bank system was established, the circulating medium was issued by banks, either under general laws, or each
specially chartered by its own State, and with various privileges
and restrictions affecting the amount and safety of their issues.
But the exceptions were few in which banks were not practically allowed to issue all that they could keep afloat while redeeming it on presentation. As a whole, banks were soundest,
and the baseless inflation least, in the older sections of the country and in the strongest commercial centres. What in slang
phrase was known as "wild-cat banking" was, as it always will
be, most rampant in pioneer States. The results of the system were:
I. That failures of banks were much more frequent than
now, owing to the fact that the attempt was so largely mnade-to
create capital by issuing engraved notes representing no capital,
and having no substantial basis of issue or redemption.
2. Hence so many of these bank notes became of no, or of
uncertain value, that, except at their places of issue, all were at
greater or less discount proportioned, other things being equal,
to their distance from the place of issue and redemption. At
their best estate, they suffered a discount equal to the cost of
sending them to the counter of the bank issuing them.
3. The loss of merchants whose business required them to
receive remittances in bills of distant banks was very large.
Publishers of periodicals often lost from two to five per cent in
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