its for collateral loans and discounts be stopped; that such trust companies as the panic had proved to be in a more precarious state than other types of banking institutions be so regulated as to be obliged to conduct their banking business entirely apart from their other interests. William Jennings Bryan's plan was that bank deposits should be guaranteed by the Government. The demand for a postal savings bank system was also widespread and insistent.

The upshot of all the various suggestions was the Aldrich-Vreeland Act, which became law on May 30, 1908. This act provides that, subject to the discretion of the Comptroller of the Currency, the Treasurer of the United States, and the Secretary of the Treasury, National banks of stipulated standing may, in case of emergency, secure additional circulation which shall be similar in character to the present National bank notes and shall be guaranteed by the Government. It is stipulated, however, that these emergency notes shall bear a graduated tax, not to exceed 10 per cent., to insure their quick retirement after the imperative need for them was passed, and that an amount equal to at least 10 per cent. of the emergency notes issued shall be deposited in lawful money with the United States Treasury, to serve as a redemption fund for the notes of any bank which may fail. Such emergency circulation may be secured either diVOL. X-26

rectly or through a National currency association, both methods being provided for in elaborate detail. The formation of such a National currency association is also provided for by the Aldrich-Vreeland Act, as is a National monetary commission. This measure, however, is only a temporary one, expiring by limitation June 30, 1914. In the meantime it is the business of the National Monetary Commission to meet the general demand for banking reform.

The National banking system under which, with various minor changes, the country has been operating ever since the close of the Civil War, served

its purpose wonderfully; but the panic of 1907 brought to light its possible weaknesses in time of quick financial crisis. The people can afford to take no chances and, just as the State banks gave way to the National banks, the time now seems ripe for the latter institutions, in turn, to be supplanted by some more up-to-date and comprehensive system. The National Monetary Commission, composed of nine Senators and nine Representatives, headed by Senator Nelson W. Aldrich, has looked into conditions abroad, besides going deeply and scientifically into the monetary system and the banking and currency laws of this country. The comparison in many ways does not appear to reflect great credit upon the United States.

Present conditions seem to foreshadow a great reorganization of

the fiscal system of this country before long, the most probable solution being conceded to be the establishment of a central bank. Just what the operative methods of this institution shall be, however, has not as yet been definitely worked out, although a wealth of very comprehensive suggestions has been brought forward by close students of financial conditions. The general trend of public opinion seems to favor a central bank.

It therefore seems safe to assume that the country is drawing near to the end of a financial era. On the whole, with reorganization so close at hand, there seems to be little ground for complaint. The United States has now a postal savings bank, established by an act of Congress approved by the President in June of 1910. Private banking institutions, which have come to play a part of constantly increasing importance in the banking of America, are at present in a flourishing condition generally. By the end of February of 1908 all the clearing house certificates issued during the panic had been retired, and the rest of that year,

together with all of 1909 and 1910, saw periods of quick recovery and general prosperity of the most genuine kind. 1907, the growth of State and National banks, as well as of trust companies, has been logical and altogether healthy, and, although 1911 developed some banking setbacks, conditions. were usually healthy and the solvency of banking institutions in general was unquestioned.

Following the stringency of

Altogether, then, the United States, in view of the way it has weathered the severe financial storms in the past, has every reason to be well satisfied with itself and to look with the brightest hopes toward the future.*

* Carl C. Pleiu, The History of Banking in America (1903); Proceedings of the Annual Conventions of the American Bankers Association 1875-1906 (1906); John J. Knox, et al., A History of Banking in the United States, revised by Rhodes and Youngman (1900); W. G. Sumner, A History of Banking in the United States (1896); Albert Sidney Bolles, Law Relating to Banks and Their Depositors and to Bank Collections (1887) and The National Bank Act and Its Judicial Meaning (1888); Edward Atkinson, The Banking Principle (1895); Charles A. Conant, The Aldrich Banking Plan (1911); Horace White, Money and Banking Illustrated by American History (1908).

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At the end of the Civil War the United States was confronted with the mammoth problem of reorganizing its finances. The three prime essentials in this were the funding of the debt, the revision of the system of taxation in accordance with the debt policy, and the restoration of the standard of value through the resumption of specie payments. On September 1, 1865, the public debt reached its highwater mark, being registered at $2,846,000,000, against which there was a sinking fund of $88,000,000, leaving a balance of $2,758,000,000. Of this enormous amount legal tender notes represented $433,160,000; $26,344,000 was in fractional currency, while much of the residue was made up of short-time paper or temporary securities, some of which were already maturing. Political conditions were not such as to facilitate a speedy set

tlement of fiscal questions. President Johnson was at odds with the party leaders in Congress, and affairs generally were in a disordered state. Fortunately Hugh McCulloch, who had been appointed to succeed Fessenden as Secretary of the Treasury, was a resolute man and was little hampered by the Executive, who devoted his time to other matters. McCulloch believed that the volume of currency should be reduced with the utmost rapidity, declaring this to be the only way the resumption of specie payments could be effected within a reasonable time.

There was much heated discussion on this point, but the general opinion at first seemed to favor McCulloch's view, for on December 18, 1865, the House of Representatives passed a resolution in favor of as speedy a contraction of the currency as the interests and welfare of the Nation would permit. The first decisive step taken by Congress toward a general reorganization, however, occurred on

April 12, 1866, with the passage of an elaborate funding act. The important features of this act were the authorization to convert temporary and short-time interest-bearing securities into long-term bonds already authorized under previous bond acts, and the power to effect a slight contraction in the United States notes. The latter provision was made with extreme caution, authority being given to retire $10,000,000 of the notes within a term of six months, subsequent retirement to be kept under $4,000,000 for any single month.

In accordance with the first provision, McCulloch converted the temporary interest-bearing obligations into 6 per cent. bonds of the "fivetwenty" type. This method proved so popular that by 1868 $900,000,000 had been removed from this form of indebtedness, and in the meantime it was possible to cancel all temporary loans and certificates of indebtedness. With the authority granted him to bring about a contraction of currency McCulloch frankly announced himself dissatisfied. He declared that it was utterly inadequate to the occasion, but worked up to the limit of the powers granted him and confidently looked forward to a general resumption of specie payments by July 1, 1868.

However, adverse conditions intervened. Poor crops in 1866, frauds in the revenue, a panic in England, and unlooked for expenses at home all combined to thwart the Secretary's

plans. Meanwhile popular opposition to his policy was increasing and Congress naturally reflected this general feeling. Such sentiment was perhaps inevitable to the readjustment process inseparable from the return to peaceful conditions. Opposition was especially strong in agricultural sections, where deep indebtedness had been incurred by farmers on longterm loans. Hundreds of thousands of men who in the preceding four years had been fighting for their country were now obliged to return to peaceful pursuits for a livelihood. Is it surprising that many ill-advised ventures were launched and that failures were numerous? With the discontinuance of the excessive demands of war time, prices fell, and the Government was held at fault for the general chaos that followed. Above all else, the contraction in the currency was blamed. The policy of gradual contraction was finally condemned by the act of March 4, 1868, which put an end to any further reduction in the currency. At the time this measure became law $44,000,000 of the "greenbacks" had already been retired. The following year a decision was rendered by the Supreme Court declaring the legal tender notes unconstitutional. This decision was reached by a vote of four to three, the deciding vote being cast by Salmon P. Chase, who, when Secretary of the Treasury, had been opposed to the greenbacks when such an issue had first been broached. However,

the Supreme Court reversed this decision in 1871, when it declared that the Government, for its own preservation, had every right to pursue any means which was not specifically prohibited. This decision was sustained in 1884, when the Court held that in times of peace legal tender issues were entirely constitutional.

Another assault upon National credit in these post-bellum days came in the form of a widespread demand that the Government redeem its bonds in currency instead of in coin. It was urged that bondholders had taken advantage of the National distress, that the currency used by the common people should be equally acceptable to the bond-holding class, and that since the legal tenders represented "lawful money," there was no reason why the Government should not meet this form of its obligations with greenbacks. The matter was so constantly before the public in 1868 that it was finally made a party issue, although neither party was in agreement so far as this measure was concerned. Most Republicans were openly opposed to it, and, when Grant carried the election of 1868, one of his first official acts was the issue of a bold statement that the National honor must be protected by the payment of every dollar of government indebtedness in gold, unless other provision had been specifically made in individual contracts. Congress formally ordered that this be done through an act

passed on March 18, 1869. The minds of investors were thus set at rest and the process of refunding at lower rates of interest continued much more rapidly. Although in many quarters much dissatisfaction was expressed with this measure on the ground that it was designed solely for the benefit of the moneyed class, the fact remains. that it was the wisest possible course, since the Government could not have maintained its credit at that time on a paper basis and, had such a method been adopted, greater embarrassment would surely have ensued. The credit of the Government was further endangered at the same time by an effort to secure taxation of bonds locally. On this point, too, feeling mounted very high and the clash between capital and labor was probably more pronounced than at any previous time in the history of the country. However, the Supreme Court, in a series of memorable decisions, denied the power of a State to tax Government securities, either directly or indirectly.

In March of 1869 George S. Boutwell, of Massachusetts, succeeded McCulloch as Secretary of the Treasury, and he made the funding of the debt at a lower rate of interest his chief business. Boutwell held that so long as the volume of gold was insufficient, there could be no effective resumption of specie payment, and he voiced the popular sentiment when he declared that it was folly to continue a war rate of interest when