National Republican., 1873-11-25
WHAT is FREE BANKING?
ABSTRACT OF CoMPrROLLER's RErORr.

Opintons OF Comptroller huoS system OF
the Nstie"sl Basks Coutrasted with
Tha, Of the Old state Banks In New
Kssissd and New Ysrh.
AThe report Of the Comptroller OF the Cur
rency contains tho following on the subject Of
banking: The restraining law OF the State Of
New York, tsct Of April 81, 1881 provided that
at shan not he lawful for any person, associa-
ton Of persons or body corporate, from and
after the ist day Of August next, to keep any
once Of deposit for the purpose Of dscounting
promissory notes, or for carrying on any kind OF
banking business, or operations, which ipcor-
porated banks sre authorized by law TO carry 90,
or issue any bills or promissory notes a. private
bankers, unless thereupto especially authorized
by law"
tho country In tho hands Of few chartered In
monopoiy. Most Of the states I i' Of The Union or,
ganised BY special acts OF leEisla,lon trust COM
Eaniss, savings banks and other corporations;
The Bank Of England and the private banks and |
Joint stock banks OF England, organized prior to |
islt, posseas tho right to issue circulation, and
no such right has been granted to other organl-
All such favored institutions are monopoiics,
hut n cannot be said that tho national banks OF |
sense w" Of the WORT. The orsaniratIon Of ma.
tional banks have, from the beginning, been |
open TO all, and until the amount OF circulation |
cations with proper Endorsements certifying To |
the means and character OF the applicants for |
tho organization OF such Institutions, with cir
culation, were considered aud granted, and the
aggregate OF circulation for which applications
are now on file In this ONCE, the consideration
OF which have been postponed, docs not exceed
ten millions OF dollars. That the banks which
were nrst organized were profitable to their
/ shareholders Ia conceded, and u Ia cause OF
| congratulation that tho surplus earnings OF
those years are husbanded In q surplus fund OF
more than one hundred and twenty millions Of
dollars, as protection To depositors and credit
ors, In anticipation Of times OF panic and dis
The statistics We present snow that the earn
inEs OF the banks OF late years have not been
| excessive, and In many cases mach less than the
/ earnings and dividends which the shareholders
| Of manufacturing, railroad and other corpora
| tions realize from capital invested. II the ne.
tional banking system, under which two or more
national banks have been organized In almost
| every city and thriving village In the Uaon, and
| where tho earnings OF business mon and the
q ss ea es snep ws
system, Is, In any sense monopoly, y is not the
fault OF the system, but an evil which arises
Is believed that The national banking system is,
In every sense, less a monopoly than any ma
tionai system OF banking ever before authorized.
snpposea a thSt large pro,s are derived irom
the privilege Of issuing circulating notes which
are limited In amount. The act Of March IL,
1870, authorizes an additional issue Of soI 200, 900
has not yet been issued, chieny for the reason
that In the States to which the amount was as
such notes, as viii bc seen hereafter. Dut be.
cause It Is enormously believed that large
profit accrucs from circulation TO organizations
Of this kind, the demand Tor what Is termed free
The restraining act Of the State Of New York, rs
has been seen, prohibited individuals and asso-
Citations from carrying on the business OF hank
Ing without nrst obtaining special charters from
the Legislature.
Its passage-uot without encountering bitter
opposiiIon. Ia the year following the rep, al the
; general banking system OF the State OF New
York was authorized-a system based upon the
rate Of discount, and It Is probable that The "free
banking" originated to q large extent from the
fact that Il superseded the monopoly which pre-
as now used, is not clearly dcnned; for there i.
nothing In this country to-day more free than
banking. Every individual, or association oi
individuals throughout the country has the right
TO negotiate promissory notes, drafts aud bills o
exchange, to receive deposits, TO loan money
upon personal or real estate security, and u
transact almost every Kind OF business pertain
!. there Il iit;le doubt that the term "fee bank
J, Ing" by many persons Is understood TO mean Thu
unrestricted issue Of bank notes To any associa
!. don OF persons organizing national bank ant
J. depositlng the required amount OF United state
bonds as security; but there are but few person
SUBJECT %e ss@ Who % would Ss Wiling % TO aavoca 4
}. the unrestricted Issue Of national bank notes
!. the amount Of the public debt,
SsneSs KIN woUs Uii be an ssSo q % pape
co%Ssrciai % centre Of Of he p Country. such cai
3 aIssA sS .ssss sss:fs & IL XII;
The bank os its agent At some designated ciiy
second, secured circulation rcdeemabls at Il
70 Il . nIed rate Of discount; and third, q eli
culation exchanseable at par for lawful none
i!s own counter and BY its ssanu appointc
ID TTse currency Of the New England States pr,
= vious 10 the war Ia . fair example OF the iits
slass, That system was generally known as III
/ Ton, compelled the redemption OF the notes Q
. ne New England ba X At its own counter q
par. The system, however, was not free, but
t. Ger special charters ohtainei from tho Leglsls
lures OF the six New England States. THIS oil
eulation was not required 10 bo secured by an
D q banks in some Of the New England State,
D | which not unfrequently happens almost alway
3. eaulted IN great lo.s not only to the creditor
l. Tne suffolk Bank. at B,ston, forced the Z,
u }emption OF the notes at par At Its own oounte
~ ystem Of asserting and returning the note
Invariably at . discount Of one eighth Of on
per cont In New York. 9he notes OF thes
banks were therefore neither safe nor exchange
bble At par IN coin at The chief commerci'
!. Tne New York State system Of free bankin
~ y On example OF the second class OF currency
N md it 10 probable that the more thoughtful %
10 toeates OF what is termed free banking propos
4 that circulation shall be issued aud fedeeme
= Ander the national currency act upon a simiia
y Taking 1t for granted that the advocates q
= Tree banking base their arguments upon tpe sue
y cess OF the system authorized in that State b
u the act OF April ~, 1888, II may be well 20 con
ID erast the condition OF the currency and OF IN
= public debt at the timo OF the Inauguration o
Y nat system at the commencement Of the wa
.e The currency OF the State Of New York nrs
q 1ued was secured by stocks OF the difieren
sates and BY honda and mortgages deposited
70 I1osporntlOns with the comptroller OF the stat,
?, I9absequsnty. By various amendments, the la'
g IEaiatlon bssed entirely upon the bonds Of tn
II That was the basis at she time Of the brcakin
. loes OF the war. At the time OF the nauguratio
9 lof the system tho debt Of the United State
. yas sio.ts. asl' and all these were above par
i In 1880 tho funded debt Of the United stat.
E vas stA,sI ,os2 The laws authorizing the issu
J" ohe States and Territories Of the Union, and ID
70 Ssates OF discount In the New York market up0
= she bank notes ssued and n general clrcalafio
lone and one half per cent. discount, while man
bank notes that had local circulation WEI
~ Ss ys Y e9 pSr osn
al land banks only circulated throughout the who
at tUnlon ike the nationabank currency OF to-dal
IL The funded debt OF the United States to-da
Is forty times the debt Of the United States
Y 1850. Then the United States issued coin onl
u. ss currency. Now the national bank notes an
81 legal-tender notes are about twenty times III
!. amount OF the circulation Of the States OF Ne
~ York At that time, aud moro than three and
w. half times the amount Of the circulation al
L teorized at that time by all the States Of d
Union. The amount OF the funded debt, and
the currency, Ia therefore entirely changed, an
10 Is by no means evident that what WAS u goo
pu thing for the State OF New York In 1860 Is in Is
~ good thing fer the whole United States.
The New York State law authorized tho Issi
a.. Of bank.notes TO all associations organized und
o is provisions ct the face value OF United Stat
~ ~ and New York State six per cent. bonds depo
"a tied, and 70 this feature OF the law the Bank
England and the national currency act are 4
70 debted for those excellent provlsions which 1
~ sure absolute security for the bill-hoider.
~ But the law did not authorize an unrcstricte
nr Issue Of bank notes. It required that the bal
i- notes issued should be redeemed at Its own cou
ter, and BY It's agent In New York, Albany
Of Troy, at discount. Practically the notes we
or redeemed At the agency, and not at the count
nR Of the bank. Redemption was the cardinal pri
ils cple OF the law, aud IL was expected that N
ed principle OF redemption would prevent an iss,
Of circulation which should exceed the reluir
H. mens OF business. Redemption In the Ne
"A York law meant discount.
DO II was 70 be redemption In specie, and WI