dependent systems, based on the old patents but with new additional features, sprang up. At first the independent systems were established where the Bell had not occupied the field. Later they made their way into some of the larger cities (Chicago, Cleveland, St. Louis, Philadelphia, Indianapolis and others) to operate in direct competition with the Bell companies. The first independent system was installed in 1883, during the existence of the Bell patents, but slow progress in competition with the old established companies was made. Between 1883 and 1894 only 74 such systems were started, most of them small affairs and some of them operating under the Gray and Edison patents. After 1894, with the expiration of the Bell patents, their installation was more rapid, so that by 1902 there were 3,039 such systems in operation, though most of them were small and of a local character. A notable development of the independent systems was in the rural or farmers' lines. This was particularly so in the Middle West, where the independents secured their strongest hold, 75 per cent. of the systems being established in Illinois, Indiana, Iowa, and Missouri. The rural telephone became an important factor in the vil lage and the farm life of that section of the country. It brought hitherto isolated small communities and the lonely farmhouses in touch with each other and the large business centres. The increase in the number of these independent systems furnishes abundant evidence of how they met and satisfied a great need. In 1880 there were in the entire country 148 telephone systems and 54,139 stations or telephones. In 1902 there were 4,151 systems and 2,315,297 stations or telephones. Including the rural lines, there were 9,136 systems. Of the 4,151 commercial and mutual systems, the independents had 4,107, but the Bell companies had more wire, more subscribers, and more telephones, and naturally handled more messages. In 1911 there were nearly 8,000,000 stations in the entire country, of which about 6,000,000 were in the Bell system and about 2,000,000 in the independent systems. After years of experimenting by Hertz, Lodge, Henry and others, the wireless telegraph came into use in 1901, and within the next ten years several systems - the Marconi, the De Forrest and others were in operation. Before 1911 the wireless was in common use on the Trans-Atlantic steamships, on battleships, and on steamships of domestic maritime lines. Wireless stations were numerous along the seaboard. Most of the communication by this method was over water space, but transmission of messages across land already points to future success in that direction. Although the wireless telegraph cannot be said to have attained great commercial importance, its utility on both land and sea has already been amply demonstrated. This latest mode of communication has long passed the experimental stage and promises to rival the ocean cable in importance. Combined with the wired telegraph, there are practically no limits to the uses of the wireless system. That it has already assumed world-wide importance is shown by the three international conferences held recently (in 1911 and 1912) to dis cuss its status. Its value as a means of oceanic communication has been strikingly demonstrated by the recent Titanic disaster, when over 700 lives were saved by wireless distress signals. signals. Laws have already been passed requiring all ocean-going passenger steamers to be equipped with wireless receiving stations available day and night.*. CHAPTER XI. 1865–1912. BANKING AND CURRENCY. † The Federal apportionment during the Civil War - The ten per cent. tax on State banks Reorganization of the National banking system - Advantages of the new system - Subsequent modifications of the banking law of 1866-The financial panic of 1873 - The following reaction - The crisis of 1893 A decade of remarkable prosperity - The panic of 1907 - The Aldrich-Vreeland Act - Shortcomings of the National banking law · Present financial conditions and tendencies. War is an everlasting source of confusion and distress to the financial systems of a nation, and the Civil War in the United States proved no exception to this rule. Banking institutions throughout the country were in a very precarious state. Had not the wise, far-sighted system of National banks been introduced at this crucial juncture, financial ruin to the country must have resulted. Before this system actually came into operation, however, the exigencies of the war had compelled Congress to flood the Nation with paper currency issued directly by the Government. The entire issue of currency-lim ited, as will be remembered, to $300,000,000 -was to be so apportioned * James D. Reid, The Telegraph in America: Its Founders, Promoters and Noted Men (New York, 1879 and 1886); Herbert N. Casson, The History of the Telephone (Chicago, 1910); Frederick A. Collins, Wireless Telegraphy: Its History, Theory and Practice (New York, 1909); William Mayer, Jr., Wireless Telegraphy, Theory and Practice (New York) and American Telegraphy and Encyclopedia of the Telegraph (New York, 1909); Telephones and Telegraphs, 1902 and 1907 (Report of the United States Census Bureau, Washington, 1906 and 1909); monthly summary of commerce and finance of the United States, January, 1899 and July, 1902 (Washington, 1899 and 1902); Thomas T. Eckert, The Telegraph, ch. xix. in Chauncey M. Depew (ed.) One Hundred Years of American Commerce (New York, 1895); A. E. Kennelley, Wireless Telegraphy and Wireless Telephony (New York, 1909). Prepared for this History by Henry Clews, Banker, New York City, author of Twenty-eight Years in Wall Street, etc. among the various States, one-half according to the representative population of each and the other according to the capital, resources, and business done by each State at the time. But the same cause that previously retarded the start of the National banking system now prevented its extension. In January of 1865 there were only 683 banks which had taken advantage of the new law in their organization, and the State banks were still continuing to conduct their business along the old lines as best they could. Accordingly the aid furnished the Government through this new market for its bonds was, despite the bright prospect it seemed to hold, decidedly meagre for a time. It was thus purely as a matter of self-protection and public expediency that the law of March 3, 1866, imposing a 10 per cent. tax upon all notes issued by State banks was passed. This law went into effect on August 1, 1866, and at once furnished the efficient check to the issues of State banks so long sought by the wisest financial heads in the country. Immediately the process of reorganization set in. As a matter of fact, it was not the Government alone that benefited by a change from the old, worn-out, heterogeneous banking system which had long been a nuisance to the country at large. Business itself demanded a change a change which should be truly National and at the same time quite safe, operating uni formly everywhere. When it was seen that this was precisely what the National banking system offered, the spread of the latter was speedy. By October of 1866 the total number of National banks in the country had reached 1,644-more than doubling themselves in less than two years. The increase has been steady ever since, save for a few normal drops, accounted for by transitory conditions from which the recovery has been comparatively rapid. The National banks, having formed the very bone and sinew of American banking for nearly fifty years, it is desirable that we here look more intently into the processes of their operation. At the outset it may be said that the new system preserved all the advantages of the old, gaining its strength by the many new advantages it offered. In the first place it provided a uniform bank-note issue, bearing a constant value which was the same in all localities, so that a note issued in Massachusetts, for instance, was accepted as unhesitatingly in Texas or California or Florida as it would have been in the State whence it came. Furthermore, the installation of a new method of engraving and issuance safe-guarded the public and banks alike against counterfeits in a way never before possible; while, by its system of redemption, exchange was made merely nominal. Three other provisions were immense factors in further protecting the pub lic and establishing confidence in the new system. The stockholders, in The stockholders, in proportion to their stock interests, were made liable for the ultimate payment of all deposits, no matter what emergency might arise; the executive officers of all National banks were compelled to publish reports at stated intervals setting forth the conditions of the institutions for which they were responsible over their own signatures (duly sworn to before a notary); while, in addition, in case fraudulence should creep into these reports, provision was made for a uniform system of bank examinations under the supervision of the Comptroller of the Currency. The revenue which all National banks were required to pay to the Government was provided for as follows: one-half per cent. on the circulation allowed by law; one-quarter per cent. on the average deposits for each six months; and one-quarter per cent. on capital not in government bonds. All of these levies must be met semi-annually, besides which the stockholders in National banks are subject to local taxation on the market value of their stock, under the head of personal property. All National banks are further required to deposit with the Treasurer of the United States legaltender notes representing five per cent. of the amount of their circulation, this deposit being utilized for the redemption of their various circulations as may be necessary. sions of this original act that its substance has remained almost unchanged to this day. Such changes as have been put into effect were mere matters of detail. In 1872, the $300,000,000 limit which had been placed upon the circulation of the National banks having been reached four years before, Congress authorized an extra issue of $54,000,000. This, too, was taken up so rapidly that in 1875 Congress deemed it advisable to remove all restrictions upon the aggregate amount of bank-note issues. The original National bank charters had been arranged to lapse in 20 years, but in 1882 Congress authorized the re-chartering of these banks for a similar period. The most far-reaching changes of all were effected by the currency law of 1900; but these, like their predecessors, were drafted chiefly with a view to the further extension of the system, although they did call at the same time for important changes in the conditions governing the issuance of National banknotes. According to this law, the issue of notes is permitted up to the par value of the bonds deposited by a bank, instead of up to only 90 per cent. of the par value, as was the case before. The sole restriction imposed in this is that, in the event of the market value of the bonds falling below the par value, additional deposits may be required in order to maintain the security of the notes issued, these deposits being So comprehensive were the provi- made either in the form of bonds or legal tender. The law of 1900 converted numerous series of outstanding bonds into 2 per cent. gold bonds, payable 30 years after date, and, by way of accelerating this change, reduced the tax levied upon the circula tion so far, at least, as the new bonds were concerned - from one to one-half per cent. This inducement succeeded in its intent to render the issuance of notes more attractive. Encouragement to the extension of the system was afforded through the following provisions, which for the first time adequately took into account the limitations of the smaller communities: (1) The establishment of National banks with a capital of $50,000 is permitted in places where the population does not exceed 6,000 inhabitants; and (2) the establishment of National banks with a capital of only $25,000 is permitted in places where the population does not exceed 3,000. The fact that the National banks have been fostered in such fashion by the Government and that they have been the only banks of issue in the country shows to what a tremendous extent the banking system of America has been dependent upon them. Since the Civil War the United States has had three panics. The first of these occurred in 1873. It was the inevitable accompaniment of the Nation's transition from the inflation caused by enormous war loans to the sound and normal basis of peaceful prosperity. Although commercial and financial interests in all quarters suf fered heavily for some time, this crisis was finally passed without wreck, and on January 1, 1879, specie payment (which had been suspended since the outbreak of the war in 1861) was resumed. The fact that this resumption was effected without the slightest disturbance of business reflects inestimable credit upon the Nation. Thenceforth the prosperity of the United States progressed by leaps and bounds. The next serious financial crisis with which the Nation was confronted, although popularly referred to as the 66 As panic of 1893," was not a panic at all in the strict sense of the word. a matter of fact, it arose almost entirely from the lack of confidence. Nevertheless, it was of no longer duration and came nearer to culminating in disaster than any previous emergency. The general business depression and financial stringency came on more gradually than such things usually do. They were first felt in 1892. Soon after, the money-broker, who had almost entirely disappeared after the Civil War, again bobbed up into prominence and experienced no difficulty in securing premium for currency of any sort. With the banks money of all sorts was extremely scarce, and for some time they made payments almost exclusively by means of certified checks. This, of itself, should have been sufficient to prove that the trouble was in no sense organic, while at the same time large sums of idle |
