5-AND-5ANKING PRIOR- TO -THE HG 2611 V8R69 1907 c.l ROBARTS WILLIAM L. A HISTORY OF VIRGINIA BANKS AND BANKING PRIOR TO THE CIVIL WAR c.r A History of Virginia Banks and Banking Prior to the Civil War WITH AN ESSAY ON THE BANKING SYSTEM NEEDED BY WILLIAM L. ROYALL NEW YORK AND WASHINGTON THE NEALE PUBLISHING COMPANY 1907 COPYRIGHT, 1907, BY THE NEALE PUBLISHING COMPANY I dedicate this Book to the Banks and Bankers of the United States, who, if left alone, would supply the country with an abundance of Sound Currency. PREFACE The Constitution of the United States, which provided for this country the true system of finance, contemplated that the Government of the United States should coin the precious metals into money and regulate the value thereof, and this was to be the only money the country was to have, except foreign coins, the value of which Congress would fix. The United States Gov- ernment was to make such issues of paper cur- rency as it chose to issue (not legal tender, how- ever), and agencies of the States were to issue such paper currency as the States would allow (not legal tender). We operated under this sys- tem until the civil war came on, and when that event occurred we were fast working down to a bearing; and though somewhat retarded by the "wild and woolly West" with its endless succes- sion of "wild-cat" bank issues, we would long before this have finally and firmly established the true financial system if there had been no civil war. But that cataclysm upset everything and finally terminated with the Supreme Court of the United States declaring that Congress could PREFACE make a piece of green paper bearing an indefinite promise to pay a dollar, that dollar itself ; a thing that the Almighty alone could do, and even He would have to change the laws of the universe before He could accomplish it. This doctrine has resulted in the people of the United States becoming so wedded to the idea of a paper dollar good all over the country that it would be idle for a writer to attempt to stem that current. The wise man, instead of attempting the impossible, deals with conditions as he finds them, and though our financial system is all wrong theoretically, yet it is possible to make it subserve our purposes in practice. The follow- ing pages are devoted to an effort to so modify our present financial system as to make it sub- serve the necessities of the people. WILLIAM L. ROYALL. CHAPTER I Banking, according to modern methods, did not exist in Virginia prior to the year 1804. During all the Colonial period and, even more so, after the Revolution, voluntary associations, called unchartered banks, did a banking business, including the issue of currency notes. In the early part of the nineteenth century this busi- ness had become a very extensive one,* and the unchartered banks operated all over the State; but they rested entirely on individual effort, and the State had no part or lot in them. It would be as unprofitable now to follow them in the details of their operations as it would be to record the battles of the Kites and the Crows, from which John Milton turned with such disgust. In 1804 the legislature began passing a series of acts intended to force those unchartered banks to cease doing business,1" and by 1820 they had generally wound up and ended their operations. In 1804 the legislature chartered the Bank of Virginia and its branches,* and this was the beginning of the Virginia banking system that by 1860 had grown and developed into the most perfect banking system that the world has ever seen. *Wilson vs. Spencer, I Rand. Rep. 84-85. tRev. Code, 1819, Ch. 2, p. in; where a reference to all of the acts can be seen. iRev. Code, 1819, Ch. 2, p. 67. 10 VIRGINIA BANKS AND BANKING The scheme of the Bank of Virginia's charter did not contemplate the establishment of one bank with authority to it to establish branches at particular places. The idea was that there should be a bank with a capital of $1,500,000, divided into shares of $100 each, and that an office should be opened at Richmond for the sub- scription by citizens of Richmond to 3,750 shares, and that one should be opened at Norfolk for the subscription by citizens of Norfolk to 3,000, that an office should be opened at Petersburg for the subscription by citizens of Petersburg to 2,250 shares, and that the same should be done at Fred- ericksburg for 1,500 shares, at Winchester for 525 shares, at Staunton for 450 shares, at Lynchburg for 525 shares ; and that there should be a presi- dent and board of directors for the management of the Central Bank at Richmond, and a presi- dent and board of directors at each of the branches for the management of the affairs of each branch. It will thus be seen that it was one great bank, having offices at a number of places, the office at each place getting its resources from the people of that place and being managed by them; and that a stockholder at Lynchburg, for instance, was not a stockholder of the Lynchburg branch, but a stockholder in the great Bank of Virginia that spread its tentacles all over the State. PRIOR TO THE CIVIL WAR 11 It was provided in the charter that as soon as enough stock was subscribed for by individuals to make it certain that the bank would be organ- ized, the State was to subscribe for 3,000 shares. The bank was given authority to issue notes, but they were not to exceed $4,500,000 above the amount of its deposits, and its notes were to be received in payment of all taxes due the State. This bank immediately went into operation, and had a career of unbroken success until destroyed by the civil war. Tempted by the success of the Bank of Virginia and its branches, in 1812 other parties got a charter for the Farmers Bank of Virginia, with its branches.* This was to have a capital of $2,000,000, divided into shares of $100 each, and the State was to subscribe for $334,000 of the stock. The charter of this bank was almost identical with that of the Bank of Virginia. The Central Branch at Richmond had $416,600 of the capital, Norfolk had the same. Lynchburg had $166,600, Winchester the same; Petersburg had $208,300, Fredericksburg $166,600, Staunton $125,300. The bank was authorized to issue notes, but these were never to exceed $6,000,000 over and above its deposits, and they were to be received in pay- ment of all dues to the State. This bank immediately commenced business, and had a most successful career until it was destroyed by the civil war. The success of these *Rev. Code, 1819, Ch. 2, p. 82. 12 VIRGINIA BANKS AND BANKING two banks and their branches caused the business to grow in favor, and several more banks with branches were chartered from time to time; notable amongst which was the Exchange Bank of Virginia, with a capital of $3,000,000 and branches in many parts of the State. An account of the chartering of all the banks that existed in the State in 1860 may be seen in the Code of 1860, page 338, note to chapter 58, section i. I do not propose to follow the operations of Virginia's banks in detail from 1804 to 1860. The United States was a new country, growing in that time to adolescence. There was at the beginning but little accumulated capital; each section had to devise its own banking system, with but little in history to guide it, and the long period of ups and downs and financial panics and disasters that the country had to go through as a whole, and each section separately, is not at all to be wondered at. Virginia's experience in the period between 1804 and 1860 was the experience of all the other States. There were suspensions of specie payment and then resumptions, panics succeeded by calms, and days of prosperity after days of disaster; and generally Virginia had the same sort and kind of experience that her sister States had. But her people were waxing wise through it all, and in the end they worked out a most admirable system. There would be but small profit in following the operations of Virginia's banks through this PRIOR TO THE CIVIL WAR 13 long1 period of change and vacillation when her system, as it ultimately developed, was being worked out. What we want is to see the system in its flower and to see how it then suited the needs and purposes of those for whose use it was intended. I have selected the beginning of 1860 as the period best calculated to show just how Vir- ginia's banking system suited her people, and I shall point out the important lessons that that system teaches. But before doing so I shall state from the records the banks that she had, their location and their general condition. The State required the banks to make quarterly reports to the Governor of their condition, and the Governor sent these reports to the legislature with his annual message. All the tables that follow are taken from the reports sent in by the Governor for the year 1859, and are bound up as Document No. 14 with the message, commencing at page 1293, to be found in the State Library. It is labeled "Bank Statements, 1859." They make a complete photograph of Virginia's finan- cial condition at the beginning of 1860. One other circumstance should also be stated. For some time the policy of setting up banks with large capital and a number of branches was adhered to, but after a while the people com- menced establishing banks with small capital and no branches, called independent banks. The tables following will show which were banks with branches and which were independent banks : 14 VIRGINIA BANKS AND BANKING General State of the Bank of Virginia AS Outstanding Debt. Virginia State Bonds. c 3 • • "3 11 M Stocks. 1 I Richmond . ... >I,446,40I 70 aSS.O8! 34 472,361 07 455,749 05 577,759 H 225,135 19 252,193 87 239,615 81 376,068 12 239,425 16 45,000 oo 38,500 oo 35,630 oo 27,424 93 10,360 71 8,383 56 15,299 67 10,000 00 8,380 33 25,152 54 85,600 oo 3,080 oo 2,191 30 62,641 67 26,553 57 30,638 17 15,685 oo 67,396 93 27,715 99 151,690 65 28,941 40 9,6i7 73 53,261 86 Norfolk Petersburg Fredericksburg Lynchburg Danville Charleston .... Buchanan 25,000 oo 10.000 oo 10,000 oo Portsmouth . . . Union 12,000 OO $4,639,79° 45 92,000 oo 179,131 74 100,871 30 474,142 97 LIAB ~&M »• o 5.2 «24. c>6 196,968 02 15,132 95 I33,9i8 39 189,617 35 44,300 oo 7,142,697 85 ILITIES. Due to other Banks. New Surplus and Contingent Fund. Profits. In transitu Between Bank and Branches. Aggregate of Liabilities. 4.3,604. 80 I";8,233 8q 23,2t\'i 60 IQ.247 2Q l6,7OQ QQ 1. 171 14 6,35'; 08 21,3^7 7=; 6,015 7Q 14,800 76 4, IC2 77 5,236 O5 24, =;8q 25 3.2Q1; 08 6 286 50 I7.C2I «57 6 IOA 3O 3 8ol 34 4 O48 44 4, ^48 7Q 6 3OI 22 m,726 80 2.QOO 5O 3,133 *,*. 4. 3O3 44 2O,I44 2S I4,2e;6 ^6 18. QOQ 54 2, m6 6q 100,000 oo 4.O5O 48 I.4OQ 36 50,000 oo I Q75 62 190,053 99 331,109 44 85,742 65 19,247 29 7,142,697 85 18 VIRGINIA BANKS AND BANKING Statement of the Condition of the Exchange Bank of Vir AS ,. J2"S JJ S«* •g" I BANK AND • H (-£ •O <•* Ii BRANCHES. 2 & "O . e -> a 2 >.« ®JJ •« a = "B "a&w atj t| Q •— &* o i- 3 *o M — • 3 rt 3SO ** « fi > • 00 10 Jw •B • o 8 S" t°' V a o8s oo Discounts and exchange received 1,22972 Dividends unpaid 29750 Surplus 8,035 70 Due to other banks 3,088 50 Deposits 44,45? 18 $212,188 60 PRIOR TO THE CIVIL WAR 21 QUARTERLY STATEMENT OF THE BANK OF CHARLES- TON, VA., TO OCTOBER i, 1859. ASSETS. Bills of exchange 1859- $128 632 90 1858. $91 096 48 Bills receivable 64 277 77 41 892 16 Bills in judgment 5,000 oo Bonds and stocks 4"? 488 5^ JtA -368 5^ Real estate 14,000 oo Personal property and ex- pense account 22 O03 5Q •3 420 41 Suspense account 20,878 01 Stock held by bank 24 ooo oo IOO OOO OO Due from banks and bankers. Cash, in transitu 70,574 88 8 043 oo 61,936 32 I OOO OO Gold and silver 2O O4^ 72 T-l T7C 47 Currency and cash items Currency and cash items.... 2,972 04 8 65 1,289 26 $425,923 09 $358,187 63 LIABILI] Capital stock riEs. 1859- $300 ooo oo 1858. $300 ooo oo Kanawha outstanding 5,145 oo 10,12'? OO Bank of Charleston outstand- ing1 . 03,0^0 OO •3O.I45 OO Deposits 21.635 83 6 545 80 Exchange account and dis- counts and interest 6,085 10 2,^60 40 Due to banks and bankers .... 7 16 4 43 $425,923 09 $358,187 63 22 VIRGINIA BANKS AND BANKING COMPARATIVE STATEMENT OF THE CONDITION OF THE BANK OF COMMERCE AT FREDERICKSBURG, VA., ON THE IST OP OCTOBER, 1858, AND THE IST OF OCTOBER, 1859. ASSETS. 1858. Virginia State stocks and guar- anteed bonds $146,80000 $120,80000 Premiums on same 9,ooo 24 9,900 24 Bills and notes discounted.. 120.773 85 115,432 14 Bills and notes protested.... 6,201 52 22,939 97 Banking house, furniture, etc. 2,000 oo 2,000 oo Interest on Chesapeake and Ohio Canal bonds, unpaid. 240 oo 240 oo Interest on James River and Kanawha bonds, unpaid 352 50 Current expenses, including salaries 954 62 804 54 Due by banks and bankers . . 2,424 46 3,360 67 Cash: Notes of banks incorporated by State 1,07000 435 oo Other banks 200 oo Specie — gold, silver and cop- per 17,504 14 18,891 76 $317,068 83 $295,156 82 LIABILITIES. Capital stock subscribed and l858. 1859. paid in $106,800 oo $169,500 oo Circulation 84,53000 90,75000 Discount and interest 1,311 31 1,60337 Due to banks and bankers.. 4.918 05 5,268 30 Due to individual depositors. 13,593 io 20,574 IX Exchange premiums received. 3,016 37 1,461 04 Contingent fund 90000 6,00000 Bills payable 12,00000 $317,068 83 $295,156 82 PRIOR TO THE CIVIL WAR 23 STATEMENT SHOWING THE CONDITION OF THE FAIRMONT BANK, OCTOBER i, 1859. ASSETS. Bonds guaranteed by the State $60,000 oo Banking-house and lot 2,94804 Stock of this bank i,75O oo Personal property 1,079 80 Interest due from the State 1,80000 Bills receivable 33,269 36 Domestic bills 10,253 32 Due from banks 908 23 General expense account 49948 Specie — gold 7,995 80 silver 1,070 41 Notes of Virginia banks 4,348 oo Notes of other States 200 oo $126,122 44 LIABILITIES. Capital stock $57,95o oo Circulation 43,060 oo Surplus 3,88228 Dividends unclaimed : 469 50 Exchange account 307 75 Discounts and interest 679 31 Due to banks 7,887 07 Due to depositors 11,886 53 $126,122 44 24 VIRGINIA BANKS AND BANKING STATEMENT OF THE CONDITION OF THE BANK OF HOWARDSVILLE, VA., ON 1ST DAY OF OCTOBER, 1859, COMPARED WITH IST DAY OF OCTOBER, 1858. ASSETS. 1859. 1858. State of Virginia and guar- anteed bonds deposited with the Commonwealth $180,308 35 $202,608 35 Property of the bank and per- manent expenses 1,515 oo 1,71696 Bills receivable — loans to Di- rectors 24,627 48 14,259 47 Bills receivable — loans to others (all inland) 101,292 21 143,218 79 Bills protested 1,884 65 Interest due on guaranteed bonds 537 oo Due from banks and bankers. 4,666 82 3,811 40 Exchange 414 Incidental expenses 43 16 Salaries 625 oo 625 oo Cash on hand, viz: In specie 30,096 42 34,284 82 In notes of this bank 31,221 oo 8,216 oo In notes of other banks and checks 7,275 08 12,049 61 $384,049 01 $420,837 70 LIABILITIES. 1859. 1858. Capital stock $165,00000 $181,00000 Notes of this bank in cir- culation 133,779 oo 172,784 oo Notes of this bank on hand. 31,221 oo 8,216 oo Deposits (including certifi- cates) 24,30402 31,96793 Contingent fund 10,920 96 13,226 70 Discount and interest 3,975 66 5,433 67 Exchange account 177 96 Due to banks and bankers... 14,58041 8,20940 $384,049 01 $420,837 70 PRIOR TO THE CIVIL WAR 25 QUARTERLY STATEMENT OF THE BANK OF THE OLD DOMINION AND BRANCH AT PEARISBURG, SEPTEMBER 30, 1859. ASSETS. Bills and notes discounted $396,783 70 Virginia State stock and guaranteed bonds. 340,000 oo Banking-house 11,501 47 Property account 265 81 Current expenses 2,871 10 Interest due by the State of Virginia 1,030 46 Due by banks and bankers 16,194 03 Notes of and checks on banks in the State. . 17,446 16 Notes of banks out of the State 130 oo Coin 40,390 42 Stocks 7,121 86 $833,735 01 LIABILITIES. Capital stock $403,900 oo Due to banks and bankers 59,249 39 Individual deposits 122,069 79 Discount and interest account 3,995 76 Contingent iund 20,20000 Circulation 221,700 oo Unpaid dividends 2,16800 Exchange account 144 21 Surplus fund 18786 $833,735 01 26 VIRGINIA BANKS AND BANKING STATEMENT OF THE CONDITION OF THE BANK OF PHILIPPI, ON THE EVENING OF THE SOTH OF SEPTEMBER, 1859. ASSETS. Bills of exchange bought... $1,50000 Bills and notes receivable... 66,604 °° Gold and silver coin on hand. $5,931 20 Sight exchange on Baltimore. 5.642 40 Funds at agency in Richmond. *6,O54 26 . 17,627 86 Notes on hand of this bank. 3,915 oo Notes on hand of other sol- vent banks 1,13000 Cash items 184 47 Due from banks and bankers. 162 52 Exchange account 1 16 80 Interest due from James River and Kanawha Com- pany 219 oo State stocks deposited with treasurer 74,400 oo Permanent expense account.. 1,140 oo Salary account 31250 $167,312 15 •Exchange deposited for redemption of notes. LIABILITIES. Bills of circulation $74,40000 $74,40000 Less notes on hand 3,9*5 oo Actual circulation $7048500 Capital stock 74,40000 Contingent fund 4,11000 Deposits, including certifi- cates 10,35016 Due to banks and bankers... 1,098 14 Discount and interest account 2,053 85 $167.312 15 PRIOR TO THE CIVIL WAR 27 A COMPARATIVE STATEMENT OF THE CONDITION OF THE BANK OF ROCKBRIDGE, OCTOBER I, 1858, AND OCTOBER J, 1859. ASSETS. 1858. 1859. State bonds deposited with treasurer $125,000 oo $150,000 oo Coin in bank 21,825 28 17,502 42 Coin in Bank of Commonwealth, for pur- pose of redemption 6,042 36 Office notes in bank 24,52500 33,330 oo Office notes in Bank of Commonwealth 6,000 oo Notes of other banks 1,208 oo 288 oo Checks 36 oo Bills and notes discounted 83,227 83 117,995 25 Expense account 138 95 106 16 Salary account 55O oo 575 oo Property account 2,12289 2,14039 James River and Kanawha Company 343 5° Due from banks in the State 8,033 49 925 23 Due from banks out of the State 236 12 $266,631 44 $335,520 43 LIABILITIES. 1858. 1859. Capital stock $101,100 oo $125,000 oo Notes issued of the following denomi- nations: I8sg I8S9 Fives $15,95000 $27,32000 Tens 42,000 oo 56,530 oo Twenties . . . 40,000 oo 40,000 oo Fifties 26,15000 26,15000 $125,000 oo $150,000 oo 125.000 oo 150,000 oo Less notes on hand 24,52500 39,33O oo Actual cir- culation. $100,475 oo $110,670 oo Deposits 28,670 96 42,335 04 Discount and interest 2,113 74 3,031 88 Dividends unpaid 5 oo Exchange 96 01 76 7o Contingent fund 4,815 oo 6,250 oo Profit and loss 1,057 90 612 01 Due to banks in the State 3,104 21 7,387 04 Due to banks out of the State 068 62 827 76 $266.631 44 $335,520 43 28 VIRGINIA BANKS AND BANKING CONDITION OF THE BANK OF ROCKINGHAM ON THE IST DAY OF OCTOBER. ASSETS. Virginia stocks and guaran- teed bonds $260,38000 Premium account 11,47680 Current expenses 132 23 Permanent expenses 2,392 71 Real estate 3,266 67 Outstanding debt 147,788 34 Amount due from other banks and bankers 67,350 06 Notes of other Virginia banks 5,999 oo Foreign bank notes 466 oo Wheeling City coupons un- paid, due January i, 1859.. 1,800 oo James River and Kanawha Company interest unpaid... 243 oo Checks, etc 243 26 Coin in vault $40,452 83 In transitu 2,500 oo 42,952 83 $544,400 90 LIABILITIES. Capital stock $21 1,200 oo Notes in circulation — 55, los, 205 and 505 181,605 oo Bills payable 15,00000 Contingent fund 16,000 oo Dividends unpaid 524 oo Discount and interest 3,136 63 Exchange 409 08 Deposits 105,026 72 Amount due to other banks and bankers 11,589 47 $544,490 oo PRIOR TO THE CIVIL WAR 29 STATEMENT OF THE CONDITION OF THE BANK OF SCOTTSVILLE ON THE 1ST DAY OF OCTOBER, 1859, COMPARED WITH THE IST DAY OF OCTOBER, 1858. ASSETS. 1859. 1858. Virginia State and guaranteed bonds $90,12800 $100,12800 Permanent expenses 1,854 59 I,854 59 Incidental expenses 58 85 32 29 Discount on State bonds sold. 587 50 Interest due ist July, 1859, by the James River and Kana- wha Company, on their bonds guaranteed by the State 453 oo Bills and notes discounted. . 70,689 88 68,507 54 Due from other banks 1,437 93 3,i68 08 Cash on hand : Notes of this bank. $10,442 oo 10,05500 Notes of other banks in the State and checks 1,694 TI J»796 58 Notes of banks out of the State 12500 12700 Specie 16,61045 28,871 56 18,855 67 Exchange ^ 87 $194,081 31 $204,525 62 LIABILITIES. 1859. 1858. Capital stock $77,ooo oo $77,ooo oo Profit and loss 35073 66741 Contingent fund 3,85000 3,85000 Discount and interest 732 69 663 48 Exchange 46 04 Dividends unpaid 120 oo 135 OO Due to other banks 10,701 92 6,674 4O Deposits 11,17093 15,42633 Whole amount of notes issued $90,10900 90,10900 100,10900 Deduct notes on hand 10,442 oo Actual circula- tion $79,667 oo $194,081 31 $204,525 62 30 VIRGINIA BANKS AND BANKING CONDITION OF THE CENTRAL BANK OF VIRGINIA, OCTOBER i, 1858, AND OCTOBER i, 1859. ASSETS. 1858. Virginia securities $143,905 oo $181,905 oo Premium account 9,005 90 9,024 83 Outfit 3,684 51 3,684 51 Real estate 11,850 46 11,633 74 Outstanding debts 163,382 31 159,306 74 Exchange 346 9° 14 41 Profit and loss 1,785 57 1,677 1 4 Due from banks 9.402 13 25,304 64 Coin in vault and at agency. 35,809 03 27,111 48 Bank notes and checks 21,982 93 17.007 07 Coupons 640 oo $401,244 74 $438,209 56 LIABILITIES. 1859. 1858. Capital stock $201,400 oo $237,200 oo Notes in circulation 128,81500 127,62000 Deposits, including certifi- cates 50,363 61 55-3" 41 Contingent fund 12,000 oo 12,000 oo Bills payable 700 oo 700 oo Discount and interest 2,068 14 1,423 10 Unpaid dividends 1,13900 96550 Due to banks 4,75899 2,98955 $401,244 74 $438.209 PRIOR TO THE CIVIL WAR 31 QUARTERLY STATEMENT OF THE CONDITION OF THE DANVILLE BANK, OCTOBER i, 1859. ASSETS. Notes discounted $204,921 88 Inland bills discounted 35,375 86 Foreign bills discounted 299,251 25 $539,548 99 Due from other banks 15,687 70 Specie 93,696 92 Notes of banks in this State other than ours 4,835 oo Notes of foreign banks 230 oo $653,998 61 The whole of the outstanding debt is considered good. LIABILITIES. Capital stock subscribed $300,000 oo Capital stock unpaid 10,156 93 Capital stock paid $289,843 07 Due to other banks 30,193 02 Circulation 280,415 oo Deposits 36,943 76 Surplus fund 7,43171 Net profits for the last quarter 9,172 05 $653,998 61 32 VIRGINIA BANKS AND BANKING STATEMENT OF THE FARMERS' BANK OF FINCASTLE, OCTOBER i, 1859, COMPARED WITH THE IST DAY OF OCTOBER, 1858. ASSETS. State securities deposited with treasurer of Virginia Stocks Exchange on New York Specie Notes of other banks in the State Notes of other banks out of the State Bills and notes discounted... Suspended debt Salaries account Current expenses Property account Permanent expenses Due from banks and bankers in the State LIABILITIES. Capital stock Circulation — 53 and IDS Discount and interest Contingent fund Premium account Exchange account Special deposits Individual deposits Due to banks in the State. . . 1859. 1858. $150,000 oo $171,000 oo 10,000 oo 1,000 81 9,204 80 30,950 21 33,724 56 1,128 oo 3,515 00 160 oo 102,480 41 114,853 05 8,239 21 5,799 77 395 oo 326 40 ii 56 5698 724 66 720 66 325 44 280 68 6,125 73 9,515 80 $3H,53i 03 $348,997 70 1859- 1858. $150,000 oo $150,000 oo 121, IIO OO 162,815 oo 1,935 64 2,060 31 8,075 29 7,580 96 1,221 75 1,874 25 57 5i 68 76 3,950 00 3,950 00 24,172 72 19,900 79 1,008 12 747 63 $311,531 03 $348,997 70 PRIOR TO THE CIVIL WAR 33 STATEMENT OF THE MERCHANTS' BANK OF VIR- GINIA, SEPTEMBER 30, 1859. ASSETS. Bills and notes discounted $413,084 27 Cash — gold and silver coin 46,412 86 Bonds of the State deposited in the treasury. 403,402 86 Premium on same 33,552 41 Bonds of the City of Lynchburg 3,ooo oo Suspended debt and costs of suits 4,018 85 Real estate, banking-house 5,424 70 Property of the bank 2,677 63 Due from other banks 3,953 02 Exchange account 398 37 Expense account 238 74 Salaries and dividend account 1,310 50 $917,474 21 Exchange bought during the quarter at par to one-half per cent, premium $188,124 49 Exchange sold during the quarter at par to one-half per cent, premium $202,918 8t) LIABILITIES. Capital stock $500,000 oo Circulation — for notes of the following denominations : 5s $6i,545 oo 6s 570 oo 73 693 oo 8s 664 oo 95 648 oo IOS 137,100 00 2OS 134,400 OO 5os 15,950 oo loos 31.800 oo $383,370 oo Less notes on hand 145,368 oo 238,002 oo Due to banks in the State. $6,676 52 Due to banks out of the State 51,308 77 57,985 29 Due to depositors 85,396 74 Contingent fund 28,341 80 Bonus to State 1,250 oo Tax on dividend 1,16667 Interest account 5,33* 7i $917,474 21 34 VIRGINIA BANKS AND BANKING STATEMENT OF THE CONDITION OF THE SOUTH- WESTERN BANK OF VIRGINIA ON THE OF SEPTEMBER, 1859, COMPARED WITH ITS CONDITION ON THE 30TH OF SEPTEMBER, 1858. ASSETS. i8s8. with State bonds deposited treasurer of Virginia Bills and notes discounted — good Notes of other Virginia banks Specie, viz: gold and silver. Due from other banks Bank furniture and fixtures. Salaries and expenses Foreign draft Due from Commonwealth of Virginia LIABILITIES. 1858. Capital stock $109,900 oo Circulation Individual deposits Due to other banks Surplus fund Discount, interest, premiums and profit and loss 95,775 oo 55,856 85 7,278 47 4,925 Si 1,689 J6 1859- $109,900 oo $130,000 oo 104,298 20 5,446 oo 41,449 94 8,521 10 1,670 oo 568 75 1,180 oo 2,391 oo 50 470 oo 40,885 22 11,681 28 1,670 oo 78o 93 $275,424 99 $280,502 93 1859- $109,900 oo 95,240 oo 55,605 32 12,406 88 5,563 01 1,787 72 $275,424 99 $280,502 93 PRIOR TO THE CIVIL WAR 35 STATEMENT OF THE CONDITION OF THE NORTH- WESTERN BANK OF VIRGINIA, INCLUDING ITS BRANCHES AT WELLSBURG, PARKERSBURG AND JEFFERSONVILLE, ON THE IST DAY OF OCTOBER, 1859, WITH A COMPARA- TIVE STATEMENT OF THE SAME FOR THE CORRESPONDING PERIOD OF THE PRECED- ING YEAR. ASSETS. Domestic debt Bills of exchange Stock of this bank Other stocks Banking-houses and other real estate Due by other banks and bankers Notes of Virginia banks Notes of other banks, checks, etc Coin Expense account In transitu . . 1859- $875,940 78 550,248 20 27,500 oo 28,994 58 1858. $929,386 97 482,129 10 25,000 oo 29,512 53 128,865 42 121,765 10 101,282 62 133,368 81 29,397 oo 25,943 00 41,084 85 118,919 33 8,240 78 10.841 80 42,238 40 175,429 16 5,120 26 $1,930,315 45 $1,969,893 33 LIABILITIES. 1859. 1858. Capital stock $868,100 oo $867,100 oo Circulation 623,419 oo 667,720 oo Deposits 282,05921 284,17515 Due to other banks and bankers 57,7*4 61 34,788 06 Contingent fund 81,830 80 94,842 98 Discount account 15,534 36 17,380 79 Collection and premium ac- count 1,657 47 1,564 37 In transitu 2,321 98 $1,930,315 45 $1,969,893 33 36 VIRGINIA BANKS AND BANKING COMPARATIVE STATEMENT OF THE CONDITION OF THE MONTICELLO BANK, OCTOBER I, 1859. ASSETS. 1858. 1859. Virginia 6 per cent. State securities $237,374 oo $190,374 oo Premium on State securities. 3,918 74 5,500 48 Interest due on State securi- ties 1,813 50 Stocks and bonds purchased. 16,555 oo 3,000 oo Real estate, banking-house.. 11,32522 11,88761 Rent account 81 25 Salary account 1,09888 1,07501 Incidental expenses 280 15 463 54 Exchange 271 61 Due from banks 51,606 73 35,249 16 Bills and notes discounted.. 247,821 36 205,18488 Protested notes 250 oo 150 oo Cash: Gold 39,565 oo 29,524 oo Silver 686 52 1,388 15 Copper i 14 03 Notes of this bank 36,712 oo 32,830 oo Notes of other banks 1,501 oo 8,456 oo Checks of other banks 12,667 84 10,261 59 $661,363 58 $537.510 81 Amount in the hands of redemption agency, Richmond $i 1,021 38 30,912 18 Total coin $41,933 56 LIABILITIES. 1858. 1859. Capital stock $321,00000 $247,50000 Virginia State securities 19,60000 14,60000 Contingent fund 21,00000 20,70898 Circulation 191,80200 147,78800 Circulation on hand 36,702 oo 32,830 oo Discount and interest 1,792 10 3,464 82 Exchange 145 67 Due to banks 36,026 15 21,40666 Certificates of deposit 152 50 11,635 50 Deposits 33,133 16 37,576 85 $661,363 58 $537,5io 81 PRIOR TO THE CIVIL WAR 37 STATEMENT OF THE CONDITION OF THE MERCHANTS AND MECHANICS' BANK OF WHEELING AND BRANCHES, OCTOBER i, 1859. ASSETS. Domestic bills $604,21068 Inland bills of exchange.... 887,860 13 Loaned to Directors Stocks owned by the bank. . . . Real estate Bonds and mortgages Banking-houses Protests Salaries and expenses Notes of other banks and checks $63,754 49 Virginia bonds 45,ooo oo Com 284,733 31 Due by banks 251,839 65 $1,552,070 81 15,610 oo 141,634 25 159,400 57 50,025 92 41,565 46 692 31 4,684 58 645,327 45 $2,611,611 35 LIABILITIES. Capital stock $786,200 oo Circulation 1,229,540 oo Dividends 1,656 oo Discounts and exchange and rents 24,300 32 Contingent iund 61,214 55 Deposits and certificates of deposit 413,973 09 Due to banks 94,727 39 $2,611,611 35 38 VIRGINIA BANKS AND BANKING CONDITION OF THE BANK OF THE VALLEY OF VIRGINIA, INCLUDING ITS BRANCHES, OCTOBER i, 1858. ASSETS. Specie $341,73284 Notes of banks incorporated by the State.. . 141,436 57 Notes of banks incorporated elsewhere 3*,(>3S °o Due from other banks 33i>2i6 47 Notes discounted 1,901,044 40 Inland bills discounted 292,963 60 Virginia treasury notes 25,400 oo Bond account 29,51206 Stock purchased to secure a debt 8,00000 Real estate 74,oi8 74 $3,176,959 68 LIABILITIES. Capital stock $1,215,000 oo Notes in circulation 1,106,619 50 Due to other banks 181,746 94 Surplus fund 134,083 18 Discount 40,499 03 Deposits 409,011 03 $3,176,959 68 PRIOR TO THE CIVIL WAR 39 These reports contain the history of Virginia's banks and banking. They show that she had worked her system down to a bearing, and that her system furnished her people an abundance of capital and circulation; that it was a system that answered every demand of her people. She would be blest if she had the same system now. It is dangerous to assert a negative and I shall not do it, but I have been unable to discover that any Virginia bank ever failed prior to the civil war; or that any man ever lost a dollar by a Virginia bank-note prior to that event. It is also to be noted that in 1860 the general idea of Virginia's sound banking system had become so prevalent that the Virginia bank-notes were at a very trifling discount in New York. The dis- count was no more than what was necessary to send the note to Virginia and bring back the coin, say one-fourth of one per cent. All of Virginia's banks got their assets into the form of Confederate securities during the civil war, and all of them went out of existence at its close, as the result of that fact. CHAPTER II The census of 1860 shows that Virginia, then consisting of the present States of Virginia and West Virginia, had a population of 1,047.411 whites and 490,865 negroes; but the negroes were all, except a small fraction, slaves, incapable of making contracts, and they were not, there- fore, to be considered in the case. The foregoing tables show that the white population of 1,047,41 1 had $15,884,543 of banking capital, and that they had $9,612,560 of circulating notes for currency. The banks were scattered throughout the entire community, which was mainly agricultural, so that there was an abundance of currency and of loanable capital for the use of the people. There were no very wealthy men, but the entire popula- tion was well off. This is the result of a system that makes banking perfectly free amongst the people. The National-banking system is central- izing in its tendencies, and produces very wealthy men at the commercial centers, while the great body of the people are to a large extent denied banking facilities. These tables, when carefully studied, present some most interesting suggestions. Before deal- PRIOR TO THE CIVIL WAR 41 ing with these, however, it is well that we should inquire what were the provisions of law govern- ing the banking business while the state of affairs existed that made those tables possible. Prior to 1837 the restrictions upon the banks amounted practically to nothing. In 1837 the legislature enacted a comprehensive statute for regulating the banks, the provisions of which may be seen in the Code of 1860, chapter 58, page 338, along with some provisions adopted between 1837 and 1860. But all of these together amounted to very little in the way of regulations. The banks, after all the regulations, were really left prac- tically free to do about what they pleased, and when this fact is considered along with the con- dition of the banks in 1860, it is perhaps the most notable lesson to be drawn from the case, except one, to be hereafter commented on. The banks were forbidden to do quite a number of trifling things, but practically no penalties were imposed for infractions of these rules. For instance, they were forbidden by section 24 to issue notes in excess of five times the amount of coin owned by them ; but no penalty was provided for violation of this prohibition and an examina- tion of the foregoing tables will show that the banks paid no sort of attention to it. By an act passed in 1857-8, Sec. 28, etc., they were required to pay all demands upon them in 42 VIRGINIA BANKS AND BANKING coin, and heavy penalties were imposed for failure to do this. But this act was passed after the necessity for it had gone. The banks had lived through the period when they would have had difficulty in paying coin. Notwithstanding the regulations provided by law, therefore, I repeat that banking was practically free in Virginia prior to the civil war, and that the results shown by the above tables were achieved under a system that left the management of the banks to those whose money was at stake and who, the world over, will always be found the most capable of taking care of that money. I come now to deal with the lessons which the preceding tables teach, and the first remark I shall make is that these tables prove that success- ful banking does not necessarily depend upon legislation. Here is the most successful banking system that I know anything about, and it grew up, practically, without a single legislative aid. I do not mean to say that legislative prohibitions and penalties are' useless, but I do mean to say that the great assurance of successful banking is the character of the bankers. I very greatly question if the interference of the lawmaker with the transactions of banking business does not produce more harm than good. It was a wise remark of Mr. Buckle, in his work on civilization, that the most important PRIOR TO THE CIVIL WAR 43 work of the legislator has been in undoing what some previous legislator had done. In direct support of the proposition that suc- cessful banking does not depend upon legislation, I would call attention to the note issues of the different banks, as shown by the preceding tables. The law allowed each bank to issue five dollars of notes for each dollar of specie that it had ; but see how the banks entirely ignored this authority and, in their issues, were governed by the con- siderations that control prudent business men. When it was safe to do so they did not hesitate to issue more than five to one; but when their experience taught them it was unsafe, they issued no more than they thought prudent. The branch of the Exchange Bank at Richmond, for instance, had out only about one dollar of notes for each dollar of coin that it owned ; while the branch of the Farmers Bank at Blacksburg had out about five dollars of notes for each dollar of coin that it owned. The experience of the directors of the Exchange Bank had taught them that in a commercial city like Richmond demand was likely to be made on the bank at any moment for the redemption of every dollar of its notes; but the experience of the directors of the Farm- ers Bank at Blacksburg had taught them that they were perfectly safe in putting out five dollars in notes for one of specie, because Blacks- 44 VIRGINIA BANKS AND BANKING burg- was a trifling village of two or three hundred inhabitants, and the notes of the bank circulated principally in the country around, and country people are not apt to demand the redemp- tion of bank-notes. Reference to the Blacksburg Bank suggests another important thought that its figures show. In the 3d chapter of this essay I shall point out that currency notes are, to a large extent, a thing1 of the past in localities where the agencies of commerce make checks available for business. But they remain and must remain agencies of vital importance in the agricultural districts, because checks are not adapted to the necessities of the people there. The resources of this Blacksburg Bank were: Capital, $60,000; surplus, $50,000; profits, $1,975.62, or $i 1 1,975.62. But $7,524.56 of this was invested in real estate, so that it really had only $104,451.06. It created and issued $146,274 of its notes, which, added to its resources, gave it $250,725.06 for business purposes. It loaned out $227,129.06, which was within $23,596 of its entire resources for loaning, but it had $29,555.86 of coin in its vaults, so that it had loaned out $5,959.86 of its depositors' money. That was the condition of this bank. Its entire resources were gone except its coin and banking-house, and it had only one dollar of coin to meet every five PRIOR TO THE CIVIL WAR 45 dollars of notes, which were liable to come down upon it at any time. This would be considered "wild-cat" banking in these days; but the men who did this were wise men, who knew exactly what they were about, and they were doing a most prosperous and a perfectly safe business. Observe the deposit account of this bank. It was only $7,042.64. There is a deep meaning in this. As I have stated, Blacksburg was a trifling little village, but it is situated in Montgomery County — a blue grass region, and one of the most fertile in the United States. The business of the bank was all done with farmers and stock-grazers. The bank was managed by the leading citizens of the community, in whom every one had confi- dence. When a farmer borrowed money he did not take it in the form of a deposit on which he could check, but he took it in the form of the bank's notes, which he put into his pockets and carried home. He paid these out in the neighbor- hood where every one had implicit confidence in them, and they were circulated amongst the people as money ; no one ever thinking of demand- ing coin for them. Now this is a most significant illustration of the importance of the lawmakers leaving the banker to bank according to the conditions in which he finds himself situated. He is banking with his own money, and he is going to take 46 VIRGINIA BANKS AND BANKING greater precautions for the safety of that money than any one else will. At the same time, if he is left unhampered he is going to give the com- munity far greater resources and conveniences than it can ever get if his course is confined to the movements he can make inside of a legislative strait-jacket. The managers of this bank knew just what they were about. They knew the way the people around them looked at the subject, and they knew they were perfectly safe in doing business upon this extended scale. If the reports of the banks in all the other agricultural sections are examined they will all tell the same story, in a greater or less degree. Examine, for instance, the report of the Bank of Buchanan, a branch of the Bank of Virginia ; of the Bank of Fairmount ; of the Bank of Howardsville ; of the Bank of Scottsville, and of any of the others situated in an agricultural country. There is another interesting fact connected with Virginia banks which should be stated. When the system of independent banks came into vogue, each bank that got a charter had a provision inserted in it authorizing the bank to buy Virginia State bonds and deposit them with the treasurer of the State, who was to hold them as security for the notes that bank might issue. A specimen of this provision may be seen in the charter of the Bank of Fairmount, Acts 1850-51, PRIOR TO THE CIVIL WAR 47 page 50. This was no doubt the inspiration of the independent banks. Accordingly the bank invested pretty nearly its whole capital in State bonds, bearing six per cent, interest, which could be bought at about par, and were tax free. This was making six per cent, net on its capital. It then issued notes to the amount of the bonds bought, and in this way doubled its capital. An examination of the reports of the independent banks will show the powerful influence of this provision on their business. CHAPTER III But the most important lesson that Virginia's banking system suggests is the true system of banking for the United States, and I shall now proceed to discuss that subject. No man will ever have an accurate and correct understanding of this subject unless he has first gotten a perfectly accurate idea of the true function of the dollar in business. The free coiners of silver were deluded by two fundamental and basic errors. One was that the Government possessed some sort of magic power to give a value to metal and paper that neither one possessed — to create fiat money, in other words. The other was what is suggested by the phrase "quantative theory of money," or the idea that great quantities of tangible money — of coins and notes — are necessary to business. I shall pass by the subject of fiat money, but I wish to submit a few remarks upon the "quantative theory," which is a delusion as dangerous as the fiat-money idea. The free coiner thinks that business is done by exchanging coin or notes for commodities, and as there are myriads of transactions in which PRIOR TO THE CIVIL WAR 49 commodities are bought and sold, so he thinks there must be tons upon tons of coin and notes to serve the purposes of these transactions. Accord- ingly he thinks the population must be badly off if it is lacking in this endless quantity of coin and notes. He is absolutely wrong about this, and his delusion is a dangerous one, freighted with infinite harm. Before entering upon a thorough analysis of this dangerous delusion, let us first ascertain just what is the dollar's true and accurate relation to business in its large sense. Although all the transactions of commerce are nominally purchase and sale of commodities, yet at bottom they are nothing but exchange of commodities. Although we hear unending noise about the sale of millions of bushels of wheat and tons upon tons of bacon, yet at bottom all that is going on is an exchange by one locality of its surplus wheat for the surplus bacon of another locality. I speak, of course, of business in its large sense, and not of retail transactions. Let me illustrate. Jones, in the city of Rich- mond, Virginia, buys 10,000 pounds of cotton at 10 cents a pound — $1,000 — from Thompson, of Wilmington, North Carolina. Jones sends Thompson his check on the First National Bank of Richmond for $1,000. Smith, of Wilmington, North Carolina, buys 10,000 pounds of bacon 50 VIRGINIA BANKS AND BANKING from Dixon, of Richmond, at 10 cents a pound — $1,000 — and sends him his check on the First National Bank of Wilmington in payment. Thompson deposits Jones's check in the First National Bank of Wilmington, and it sends the check on to the First National Bank of Richmond for collection; which is merely an order for the latter bank to send $1,000 in money to the Wilmington bank. On the day that check gets to the Richmond bank, Dixon deposits Smith's check in it, which was an order for the Richmond bank to send it to the Wilmington bank with direction that the Wilmington bank should send to Richmond $1,000 in money. But the Rich- mond bank on looking into the case asks, why go through all this torn- foolery of sending $1,000 to Wilmington and bringing $1,000 from Wilming- ton here ? We will settle the matter thus, it says — we will take the credit on our books for $1,000 which Jones has and transfer it to the credit of Dixon and thus he will get paid for his bacon; and we will send Smith's check back to the Wilmington bank and tell it to transfer the $ 1,000 credit on its books that Smith has to the account of Thompson, and thus Thompson will be paid for his cotton. This is done, the trans- action is closed up to the satisfaction of every one, and not a dollar of money has been used in it. PRIOR TO THE CIVIL WAR 51 The thing at bottom was nothing but a swap of commodities (some cotton that Wilmington had no use for, for some bacon that Richmond had no use for), effected through the forms of pur- chase and sale, by transferring credits on the books of two banks from one man to another man. And this is commerce. If ninety-nine transactions out of every hundred in commerce are analyzed and run down to the bottom, they will be found to be the Wilmington and Richmond transaction in effect. They will be found to be exchanges of commodities effected by the banks through the forms of purchase and sale. It may be that some communities sell more than they buy, as the South with its cotton crop, and we would naturally expect that surplus to be paid in money; but in point of fact it is not so paid. When all the transactions are rounded up it turns out that comparatively little of actual cash comes into the South beyond what is neces- sary to pay labor. A cotton transaction starts at Houston, Texas, and ends in an exchange of credits at Chicago, Illinois. The all-seeing eye of commerce ranges over the whole field and makes the most surprising swaps and exchanges in all directions, and when all the transactions of the season are closed up it is found that those who have got something out of the myriads of deals have it in the form of credit 52 VIRGINIA BANKS AND BANKING in bank on which they can draw checks, and not in the form of coin or bank-notes sent to them. The idea is well illustrated by the balance of trade between this country and the rest of the world when it is in favor of this country. That balance is sometimes hundreds of millions of dollars in our favor, yet but little of this is settled by an actual transmission of gold. A New York merchant owes $500,000 in Shanghai for tea that he has imported, and he buys $500,000 of exchange on London to pay it with. That wipes out $500,000 of the balance in favor of this country. Thousands of travelers start to Europe just as that balance is declared, and all buy exchange on London, and spend millions on millions in Europe; which wipes out that much more of the balance. Hundreds of millions of dollars of the securities of this country are held in Europe. Great sums of exchange on London are bought to pay interest and dividends on these securities, and so, when there is a final winding up, but little if any coin is sent here to pay that great balance of trade. It is all paid by the exchanges of credits by the banks on their books. We are now in position to go on with the in- quiry. What is the dollar's real relation to busi- ness ? It is a very simple thing to make a swap of cotton for bacon when we get conditions similar to those in the Wilmington and Richmond trans- PRIOR TO THE CIVIL WAR 53 action narrated above. But suppose it had not been determined that cotton was worth ten cents a pound, and that bacon was also worth ten cents a pound, how would we have got any basis on which to exchange cotton for bacon? We could not have come forward with a proposition to give 10,000 pounds of cotton for 10,000 pounds of bacon, because there would have been no adjudi- cation that the one was of a value equivalent to that of the other. In order to make these exchanges of commerce it is necessary that there should be a third agency through which we can value each product to be swapped, and thus determine how much of the one is to be given for a certain quantity of the other. Whatever may have been once thought, mankind is now practically agreed that this agency (or solvent, may I call it?) shall be gold. The United States takes 25 8-10 grains of gold nine-tenths fine and coins it into a disc which it calls a dollar. It could have called it a sequin, an eagle, or anything else, but it chose to call it a dollar, and it made that dollar the standard of values. All persons interested in cotton set themselves to work to ascertain how many pounds of cotton, under the conditions of demand for and supply of cotton, were worth 258-10 grains of gold, under the conditions of demand for and supply of gold ; 54 VIRGINIA BANKS AND BANKING and they determined that ten pounds of cotton, under the then conditions of demand and supply, were worth 25 8-10 grains of gold, under the then conditions of demand for and supply of gold. This is the same thing as saying that one pound of cotton is worth one-tenth of 258-10 grains of gold ; or, in other words, ten cents, since ten cents is one-tenth of a dollar; and that became fixed as the price of cotton. Those interested in bacon did the same thing in respect to it, and ten cents a pound became fixed as the price of bacon. Of course to say that all persons interested in cotton and bacon got together and inquired into conditions and delivered judgment on them is an exaggeration. The idea intended to be presented is that the price at which the article comes to be sold is the aver- age and summary of opinions upon the subject silently codified by the law of supply and demand. After that it was an easy thing for commerce to take on itself the exchanging of cotton for bacon, through its indirect agencies. It knew that the law of supply and demand had fixed the price of cotton at ten cents a pound and of bacon at the same. It knew that 10,000 pounds of cotton were exchangeable for 10,000 of bacon, and it went on with its business with precision and certainty. PRIOR TO THE CIVIL WAR 55 But suppose there had been any uncertainty about the valuation of either commodity. What would commerce have done then? The Asso- ciated Press states that at a dinner in London on July 4, 1906, Mr. W. J. Bryan said, "If the United States have prospered so greatly walking on one leg, how much more greatly would they have prospered if walking on two?" He meant by this that we should have had the gold dollar as the standard of value, and the silver dollar as the standard of value also, worth only half as much as the gold dollar. But if the cotton in the case stated had been valued by the gold standard, and the bacon had been valued by the silver standard, how could they have ever been ex- changed ? The cotton, valued by the gold stand- ard, would have called itself worth $1,000, and the bacon, valued by the silver standard, would have called itself worth $2,000, and how could the banks have ever exchanged them by transferring credits on their books? In such cases, with a double standard, it would be necessary in every case to state in which of the two standards the valuation of the article was expressed. It seems apparent that Mr. Bryan's idea would put the banks out of business entirely and that some new agency and scheme for conducting the operations of commerce would become necessary under it. But when what Mr. Bryan said in London is 56 VIRGINIA BANKS AND BANKING taken in connection with all the rest that he has said upon the subject, is it not apparent that he is absolutely ignorant of the nature and function of the dollar? Lamentably, however, there are millions of voters in the United States whose ideas upon the subject correspond with Mr. Bryan's, and who are just as ignorant of the nature and function of the dollar as Mr. Bryan is; and until we can inform them of the true nature and function of the dollar the currency and credit of the country must continue subject to recurring and disastrous attacks upon them. A hasty examination of the ideas that I have been presenting might suggest that as the great function of the dollar is to put a value upon each commodity, so that a basis at which they may be exchanged may be established, there might really be no need for anything but an ideal dollar, to be a standard of value, and therefore that the world is all wrong in its demand for a great quantity of money; but this would be a very superficial view of the case. The man who has cotton to trade for bacon does not know where the man is who has bacon to trade for cotton. It is the business of commerce to find these men and bring them together. The man with the cotton says he must have something that he can make use of after he parts with his cotton, while commerce is hunting up the man with the bacon. So commerce says PRIOR TO THE CIVIL WAR 57 to him, "I will take your cotton and give you the money equivalent of it, and I will hold the cotton while I am hunting up the man with the bacon." It therefore gives him a credit with a bank for the value of his cotton and goes on with the hunt. The same thing happens with the man with the bacon. Vast quantities of money are necessary therefore to hold these transactions of commerce in solution while these hunts for the necessary parties to an exchange are in progress, and if coin and currency notes were necessary to the transaction the mints and the printing presses would be unable to furnish what was called for. But, luckily, coin and notes are not to any great extent necessary to these transactions; all that is necessary is bank credit which can be transferred from account to account. Commerce requires, therefore, for its trans- actions vast quantities of that sort of money which bank credits furnish, but it has little need for coin or currency notes. The free coiner is, therefore, right in claiming that business requires great quantities of money. But he is totally wrong in thinking it is coin or bank-notes or government notes that business wants. Business turns from all these. It is the sort of money that bank credits are that business wants. The one is the life of business ; the other totally fails to meet the necessities of the case. 58 VIRGINIA BANKS AND BANKING If, then, this course of reasoning is sound, the first and great use of the dollar is to measure the value of commodities so as to furnish a basis upon which they may be exchanged; after that the dollar has little more to do. The banks then take up the matter and make the exchange by transferring on their books from person to person the credit values of the commodities. It is as a medium for valuing commodities that the dollar is indispensable, and it must always therefore be one and a fixed thing, as immutable as the yard stick, or commerce must get into inextricable confusion. As soon as the fifty-cent silver dollars got so numerous that the Govern- ment could not always give a gold dollar for a silver dollar, business must have got into the most irremediable confusion. But when valuation has been established commerce will get along very well without the dollar, by treating commodities on its books just as though they were the number of dollars that the dollar measurement shows they can be turned into. The ideal dollar then, as a measurer of values, and the banks as the agents of commerce for making exchanges through transferring the credit values of commodities, are the great hands of commerce, through which the business of the world is done ; and coin and bank-notes are mere PRIOR TO THE CIVIL WAR 59 counters in these huge transactions which the transactions do not give even passing attention to. But an examination into the actual condition of a bank will give us a much clearer idea of the situation. I will select for this examination the Bank of the Commonwealth at Richmond, a State bank, and an entirely imaginary one. This bank has a capital of $250,000, and $1,000,000 of deposits. It lends out every dollar of its capital and deposits except some $10,000, which it keeps on hand in coin and currency notes to meet the demands of depositors who call for actual cash. When a customer comes to this bank for a loan it never thinks of asking what cash it actually has in its vaults, or whether all its capital and deposits are already loaned out. It is going to create whatever money the customer needs, if his col- lateral justifies it. The man may want $500,000, and the bank may not have $5,000 of coin and notes in its vaults, and all its capital and deposits may be loaned out, but it does not hesitate to lend him the $500,000 if his collateral is satisfactory. Its loan of the $500,000 is made to him by the bank taking possession of his collateral and opening a credit for his account on its books for $500,000. That is the whole of the transaction. This bank always keeps about $300,000 of its loans in the form of call loans, on the very best 60 VIRGINIA BANKS AND BANKING of collateral. This is for the purpose of provid- ing itself with an immediate fund, in case there is a run on it for actual money. If such a thing- occurs it immediately calls this $300,000, and if there is any delay about paying the call loans it calls up its correspondent in New York by tele- phone and arranges for it to send currency by the next morning, and, if necessary, the bank uses the collaterals at the back of its call loans for this purpose. It feels, therefore, that these call loans of $300,000 and its other resources guard it per- fectly against any run on it. Its other resources consist in the fact that it is a perfectly sound bank. All that it needs at any time to deal with any situation that may confront it is a little time. It knows under modern conditions it can always get this. In the first place there are twenty other banks in Richmond, and banks are clannish — feeling that an attack on one is an attack on all. It knows therefore that if an emergency arises every other bank in Richmond will aid it as far as it can, and it has only to be tided over the first day, because it can telephone to New York for cash, and all the cash it wants will be with it next morning. Modern conditions of telephoning, telegraphy, rapid mails, and quick transportation have solved all of the banker's troubles. Now there are two items in this bank's deposit account that I want to call attention to. One is PRIOR TO THE CIVIL WAR 61 a loan to a citizen of Richmond of $10,000, which is secured by a mortgage on the citizen's dwelling-house, worth $15,000. The other is a loan to a tobacco merchant of $10,000 upon 100 hogsheads of tobacco which the merchant has shipped to Liverpool. When the citizen got the loan on his house all that was done was that he handed the bank the mortgage and the bank opened a credit on its books to his account of $10,000, on which he proceeded to draw checks. Here was a case of converting a brick house and lot into money without getting one cent of money, and using what he got as money without any one ever handling a dollar of money. The other case mentioned was this : the tobacco merchant who had not credit for five dollars shipped 100 hogsheads of tobacco to his corre- spondent in Liverpool. He brought the bill of lading to the bank and drew on his correspondent with the bill of lading attached to the draft for $10,000. The bill of lading passed the title to the 100 hogsheads to the bank, so that it had them as security, and it accordingly placed $10,000 to the credit of the merchant, who pro- ceeded to dispose of it by checks. Here was a case of the merchant converting 100 hogsheads of tobacco into money; but no money was used, although the merchant got every advantage that could have accrued to him had he been handed 62 VIRGINIA BANKS AND BANKING ten thousand coined gold dollars. If the reader will consult the article in the proceedings of the Virginia Bar Association for 1905, p. 191, entitled "Lord Mansfield and His Relation to Our Laws," he will see how it became possible for this bill of lading that was outlawed to be utilized as a commercial security. It was the most far-reaching, beneficent, and important re- form in our laws ever introduced into them by Lord Mansfield, one of the greatest benefactors of the human race. What is the lesson to be drawn from these facts ? It is that a bank is a veritable alchemist. It stands ready to turn all kinds of property that has value into money. It prefers personal property as the basis of its operations, because real estate transactions are slow of realization; but it will sometimes turn brick and mortar into cash. But the banks of the country stand ready to turn all the crops of the country into cash on presentation of bills of lading for them ; they turn much real estate into money, and they turn the bonds and stocks and all other available property into cash; and all of this mammoth business is done by them by simply opening credits on their books, with the property pledged as collateral for the credits. They need give little thought what- ever to the quantity of coin and notes they may have on hand, knowing full well that with the PRIOR TO THE CIVIL WAR 63 telegraph, etc., they can command all the cash needed whenever they want it. They look only to the character of the security offered for the loan, and if that is satisfactory the customer gets money in the form of a credit, which answers every purpose that actual money could fulfil. The banks then are the true mints of the country, and they are always making inconceiv- able amounts of perfect money by the credits they create; and stand ready at all times, if let alone, to create every dollar of money that the country needs. And they do all this without using more than a mere trifle of coin and notes. They do it by opening credits on their books and holding the property of the country as collateral for these credits. There must, of course, be a certain amount of redemption money, but the amount of this that is necessary is so small that there is no occasion for concern about it. The property that the banks hold as collateral for their loans can be always turned into actual coined dollars, if there is any necessity for coined dollars, and that is all that their business requires. This explanation of the subject would not be complete for those who do not understand the operations of the clearing house without an illus- tration of such operations, of which I will give one ; and all the others are the same in substance and effect. 64 VIRGINIA BANKS AND BANKING Ladenburg, Thalman & Co. sell J. P. Morgan & Co. $1,000,000 of Union Pacific bonds for $1,000,000, and receive their check on the City National Bank for $1,000,000, which they deposit to their credit in their bank, the Chemical National. Prince & Whitely on the same day sell H. B. Hollins & Co. $1,000,000 New York Central bonds for $1,000,000, and receive their check for $1,000,000 on the Chemical National Bank, which they deposit in their bank, the City National. Next morning the representatives of all the banks meet at the Clearing House to straighten up accounts. The Chemical National says to the City Bank, "I have J. P. Morgan & Co.'s check on you to Ladenburg, Thalman & Co.'s order. Please pay it." The City Bank answers, "But I have H. B. Hollins & Co.'s check on you to the order of Prince & Whitely for $1,000,000. Now," continues the City Bank, "you take that million in your bank now standing to the credit of H. B. Hollins & Co. and place it to the credit of Ladenburg, Thalman & Co. and they will be paid, and I will take the million in my bank now standing to the credit of J. P. Morgan & Co. and place it to the credit of Prince & Whitely, and they will be paid." So this matter is closed up and the only thing that has happened is that one million of dollars of Union Pacific bonds have been swapped for one million PRIOR TO THE CIVIL WAR 65 of dollars of New York Central bonds, and although there has been a great deal of nominal paying of debt, not a dollar of money has been used and nothing has been done but the effecting of the exchange of bonds by the transfer of their credit value upon the books of the banks. And this is the case with all the vast business trans- acted through the Clearing House. Nothing is done but to exchange securities and commodities through the transfer of credits on the books of the banks. It may be that when a day's clearings have been completed the City Bank will be found indebted to another bank ten millions of dollars ; but if it is, it does not pay this balance with money. It pays it in a check on some other bank, and this check is not paid with money but by a settlement of balance of credits at next morning's Clearing House, when possibly the check will be handed back to the City Bank in payment of balances due to it by other banks. The whole of the transactions are exchanges of credits, and nothing else, and no actual money of any amount is used in them. We have now arrived at a point in this dis- cussion when actual conditions should be con- sidered, and such suggestions as may be thought necessary for their improvement should be made. We hear constantly of more currency being needed, and all sorts of schemes for adding to the 66 VIRGINIA BANKS AND BANKING currency are constantly being brought forward. This claim for more currency rests upon the fre- quent panics with which Wall street is threatened. Men whose affairs connect them in any way with Wall street — and all the business of the country touches it in a more or less degree — watch the weekly bank statement as the weather men watch the barometer. There is undoubtedly something wrong about our currency system, and how to get it right is the practical question to be considered. The clamor for more currency misses the mark. The commercial centers need no more currency. They use little or no currency. They do their business with checks, and use currency only to pay the bootblacks, the street-car conductors, and the petty vendors of retail articles. They have all the currency they need, and their business would be in no way increased by any addition to the currency. Currency is needed, though, in the country. A cow-boy on the plains can make no use of a check. He wants actual cash. It may be that the country districts require that the volume of the currency should be increased, but I very much doubt it. If, however, the banks were perfectly untrammelled, they would soon find out whether the country districts need more, and, if they do, PRIOR TO THE CIVIL WAR 67 the banks would soon supply all that was called for. What the country needs is the removal of all restrictions upon the banks and freedom to them to deal with all cases as the emergency of each case requires that it shall be dealt with. The National-Banking Act is full of restric- tions upon the banks which produce no valuable results, but embarrass the banks in all times of trouble. If I might specify what I consider the most injurious of these restrictions, I would name the provision which requires a National bank to keep always on hand a certain proportion of its deposits as a reserve, and the provision which forbids it to lend more than ten per cent, of its capital to any one person, or firm. The first of these provisions compels the banks of New York City to stand idly by with plenty of funds on hand and see a panic grow up, which they could nip in the bud if they were free to deal with their assets as business men ought to be free to deal with such. One of the soundest State banks in Virginia, with a capital of $500,000 and $100,000 surplus, and deposits of $2,000,000, lends out every dollar of both but about $15,000 of coin and notes that it keeps to meet current demands. It has always from $500,000 to $600,000 on call, on the best collateral, and it never troubles its head about 68 VIRGINIA BANKS AND BANKING coin and notes; knowing well it can meet what- ever emergency may arise. All the other State banks, if looked into, would probably be found to be doing business in the same way. The second restriction equally disqualifies the banks to handle incipient panics as they could handle them if they were free. The single firm of J. P. Morgan & Co. could probably end an incipient panic if the National banks were free to lend it as much money as that firm asked for; and why should they not be free to do it? If that firm goes to the City Bank of New York with $110,000,000 of government bonds and asks for a loan of $100,000,000, why should the bank not be free to lend that amount to it? All that it does is to take the bonds and open a credit on its books for that amount. With this credit that firm could probably stop the panic, and the bank would be perfectly safe in making the loan, and no one else would be denied a dollar because that enormous loan was made to that house. The banks would still create credits for each succeed- ing applicant that came forward with good collateral. It may be argued that if the bank had lent out all of what it is now required to keep as a reserve that it would hesitate about lending Morgan & Co. $100,000,000, because it would have no cash reserve against it; but that could be met PRIOR TO THE CIVIL WAR 69 by making the bank perfectly free and easy in issuing its own notes. I do not mean that it should be allowed to issue them without putting up government bonds; but a scheme could easily be contrived by which the City Bank could issue $100,000,000 of notes any evening, with govern- ment bonds at their back also. Panics all start in Wall street, New York, and if they are crushed out as soon as they appear there the country is never hurt by them. I ven- ture to make the following suggestions for a quick issue of emergency currency to meet an incipient panic in New York, by being a reserve for credits granted. The Government will keep on deposit at the subtreasury in New York $500,000,000 of its bonds, payable without interest. A bank which wants to keep itself pre- pared to issue emergency currency will keep on deposit with the subtreasury as many of its notes fully executed and ready for issue as it may think it will want to issue ; the Government guar- anteeing the bank against loss by any of its notes being improperly issued. The Secretary of the Treasury is given power to send any order from Washington to the subtreasury at New York by telephone or telegraph that he could give by writ- ing. The City Bank wants to issue $5,000,000 of its notes to-morrow morning. It goes to the subtreasury and asks for this amount, and asks 70 VIRGINIA BANKS AND BANKING that $5,000,000 of the Government's bonds be placed to its credit as security for the notes. The subtreasury telephones the Secretary of the Treasury and asks him what he must require the City Bank to put up as security to the Govern- ment for this loan of $5,000,000 of its bonds. The Secretary asks him what securities the City Bank can put up. He replies that it can put up $5,000,000 of Government bonds, and the Secretary answers to accept them and close the transaction. Or he telephones the Secretary that the City Bank can put up $2,000,000 of bonds of the City of New York, $1,500,000 first mortgage bonds of the Pennsylvania Railroad Company, and $1,500,000 first mortgage bonds of the New York Central Railroad Company. The Secretary telephones him to accept them and close the trans- action, and the City Bank has $5,000,000 of currency for next morning's operations. It will also be provided that if the Government has to sell its bonds to make the currency good, they shall be converted into two per cent, coupon bonds. It may be said that the banks wishing to take out this emergency currency may not always have on hand such securities as would be satisfactory to the Government. But the bank can always arrange with the party wishing to borrow, for the use of a part of the collaterals he PRIOR TO THE CIVIL WAR 71 is going to put up as security for the loan he wishes to get. It is of no consequence to that borrower where the bank keeps his securities. It is the same thing to him whether it keeps them in its vaults or in the vaults of the subtreasury. He is perfectly safe. He has the bank's money and he will not return it until the bank returns him his securities; and the bank could have an agreement with him that it might return any other securities of the same kind. But the currency put out in these emergencies may make more than the normal amount of cur- rency, so measures should be taken to secure its cancellation when the emergency is over. It should therefore be provided that unless this currency is returned within six weeks a small tax will be imposed upon the bank issuing it. But the bank need not return the identical notes issued in the emergency. It may return any of its notes and get its bonds down. In these days of telephones and telegraphs a bank can soon hunt up as many of its notes as were issued in the emergency. Of course the bank may convert this emergency currency into permanent currency if it prefers to do so by complying with the law as it now stands. These notes would serve as a reserve, and even in a panic nine men in ten would take the City 72 VIRGINIA BANKS AND BANKING Bank's notes when calling for cash because they are secured by government bonds. But to the few that demanded legal tender the bank could offer silver dollars. The counting and removal of these would soon end a senseless panic, and in this way the silver dollar could actually be made useful. The Government should keep $100,000,000 of silver in the subtreasury at New York which the banks could always exchange greenbacks or bank-notes for, returning the silver and getting the notes back. It may be said that the banks do not in practice pay any attention to either of the two prohibitions that I am discussing, but in the nature of the case they can not help paying attention to them. Undoubtedly they do lend below the legal reserve, and undoubtedly they do lend more than ten per cent, of their capital to one man; but they know that they are violating the law whenever they do either, and that a bank examiner may come down upon them at any moment and catch them in flagrante delicto. In covertly violating the law in this way they are acting very differently from the way they would act if left with a perfectly free hand. If perfectly free they would, in every case, through credits raised on their books, create all the money that was wanted. PRIOR TO THE CIVIL WAR 73 All that is needed, therefore, to make our banking system meet every demand is to maintain, the single standard and to repeal the pernicious restrictive provisions of the National-Banking Act, and leave the banking business as free as the hotel business is, or as the dry goods business is, and panics will be ended and the country will have all the money it can possibly use.