WE are told by an old chronicler of the quaint and curious that in ancient times a number of Hebrews scattered in the cities along the shores of the Mediterranean conducted a most profitable banking business without the use of capital, by drawing one upon the other, in a perfect circle, the draft upon one being taken up by the next banker in the series, and so on ad infinitum.

Perhaps it will not do to scrutinize this story too closely, but there are many instances of almost as odd and ingenious devices in the history of banking. It was not until within a comparatively recent period that banks began to issue circulating notes. The early bankers were for the most part merely lenders of money, and this species of banker was called into existence very early in the world’s history. In fact, he was the natural result of the invention of money.

“A simple invention,” says Carlyle, “it was in the Old World grazier, sick of lugging his ox about the country until he could get it bartered for corn or oil, to take a piece of leather and{456} thereon scratch or stamp the mere figure of an ox (pecus), put it in his pocket and call it pecunia, money. Yet hereby did barter grow sale; the leather money is now golden and paper, and all miracles have been out-miracled; for there are Rothschilds and English national debts; and whoso has sixpence is sovereign to the length of sixpence over all men; commands cooks to feed him, philosophers to teach him, kings to mount guard over him—to the length of sixpence.”

It has been claimed on behalf of the bankers’ craft that they date back to Abraham, because it is recorded that he weighed out four hundred shekels of silver as the purchase-money for the cave and field of Macpelah wherein to bury Sarah. But this is rather far-fetched. Livy, however, writes of the tables of the money-changers in the Roman forum existing 300 years before Christ, and later Latin writers refer to deposits, checks and drafts, with all the familiarity of a financier of the present day, as if they were in general use. In these days, when the capitalists of the world are puzzled to invest their money safely to yield them three per cent., it is refreshing to remember that the old Greek bankers or money-lenders exacted as much as thirty-six per cent. a year from the spendthrift youths or embarrassed merchants of that day. Aristophanes, in one of his comedies, makes a money-lender bitterly bewail the fact that he has only been{457} able to get four per cent. on his loan. The Greek bankers used the temples as safe-deposit vaults for the storage of their treasures, and seem to have taken the priests into a sort of partnership. Something of the same sort probably prevailed among the Jews, and it is not difficult to believe that they were usurious, for the Saviour, when He overturned their tables in the temple, called them thieves—“My house shall be called the house of prayer, but ye have made it a den of thieves.”

During succeeding ages, however, the methods of banking seem to have been lost until re-discovered and re-established by the Jews. A bank was established at Venice in the latter part of the twelfth century, another at Genoa in 1345, and they came into existence in several of the Dutch cities early in the seventeenth century. All of these were, in a sense, state banks, lending money to the state, and exercising their functions under its authority and protection. The Jews, and the Lombards, who had been taught in their schools, were almost the only money-lenders of Europe from the twelfth to the fifteenth century.

The first money-lender in England who at all approaches our modern idea of a banker was William de la Pole, a shipping-merchant of Hull, who loaned Edward the Third large sums to carry on his French wars, and in return the king{458} made over to him the collection of customs and internal revenues. He collected the royal rents and acted as paymaster of the army, and in a general way became the royal banker. Naturally a title was conferred upon him.

The prefix of “Sir” was subsequently given to Dick Whittington, of cat celebrity, for similar services to Henry the Fourth and Henry the Fifth. The goldsmiths in those times acted as money-lenders and pawnbrokers. After Charles the First grabbed about a million dollars, which they had deposited in the mint for safe-keeping, the nobles began to deposit their money with the goldsmiths, who allowed them interest thereon, and from having the custody of their rents and their income it was a natural step for them to request the goldsmiths to collect the money. The goldsmiths gave written evidences of indebtedness for the sums intrusted to them, and these were often transmitted by the holders in settlement of debt. When one of these goldsmiths speculated unfortunately or his business went wrong, his depositors naturally had to suffer.

Losses of this kind paved the way for the establishment of the Bank of England in 1694. It was planned by a Scotchman named William Patterson, who, however, derived many of his ideas from the Bank of Amsterdam, which was then in successful operation. In return for a loan of twelve hundred thousand pounds sterling{459} to the government the lenders, who organized the bank, were granted certain exclusive privileges, and their concern became the depository of the government money and has remained such ever since. It has now the accounts of many thousand private depositors, pays the interest on the government debt, issues circulating notes, and to a certain extent controls the rate of interest on money in England.

As to the establishment of banking, Congressman Ben Butterworth, of Ohio, says:

“In the forces of civilization we find the banker in the forefront. It was a banker that first taught the world the maxim of an honest commerce. It was the Bank of Venice that was the first to arbitrate commerce and control the seas; it was a banker that first taught a nation that the public fidelity was the right basis of all successful effort in the business world. For six hundred years Venice maintained unstained her honor, elevating the civilization of the world. In course of time she was succeeded by Amsterdam and Antwerp, their bankers honoring every check and paying every piece of paper, teaching the world that there was a giant in trade and commerce capable of strangling a nation. The bankers thus brought the world together, made the nations of the earth one man, one commonwealth.”

Savings banks originated in Switzerland, and{460} were instituted mainly for the benefit of the poor. They were organized by benevolent persons, who received no salaries for their services, and no capital was required. The purpose was rather to induce working-people to save from their earnings something for a rainy day or to provide for their old age, and consequently but little effort at first was made to secure large earnings on the deposits. The first we can learn of in Switzerland was established in 1805. A dozen years later they were organized in Scotland and England, and shortly after in France. In this country the first was organized in Boston in 1816, and within a few years they were to be found in New York, Baltimore, and Philadelphia, and their success in these centres soon led to their establishment in all the large towns throughout the country. They were chartered by the States, and were held by the State authorities to account for their honest and prudent management. Naturally the ideas of legislators in the various States differed somewhat as to the nature and functions of the banks, and hence there was a difference in their organization at the beginning, which subsequent legislation has made still more marked. There are now in existence three different classes of savings banks: the first is of the primitive type, instituted without capital; the second are joint-stock concerns, and the third are of the trust-company type, and{461} transact a banking business aside from the mere receipt and investment of deposits.

As population increased and the banks multiplied in number, and the desirability of establishing these banks became more general, they were no longer required to have a special charter in each instance, but were permitted to organize under general laws. The deposits in these now amount to a thousand million dollars, and the number of depositors in the Northern and Middle States is about three millions. Objection has been raised in some quarters to the joint-stock type of savings bank, on the ground that its deposits must be loaned profitably for the payment of dividends, and that consequently greater risks are incurred. This risk is still greater where savings banks are permitted to do a commercial business, as the paper which they discount may prove inconvertible in a time of commercial depression or in a panic. In some of the States the depositors are given the preference in such circumstances.

Mr. T. H. Hinchman, a prominent banker of Detroit, says: “The change from the purpose and policy of original savings institutions has been progressive, but of questionable character. It was not the acquirement of experience or the result of greater wisdom, but of enterprise by those in pursuit of greater profit. Different aims and objects should be under distinct, separate,{462} and appropriate laws. Benevolent institutions require different men and other management than those conducted on a commercial basis for profit.” He argues that there should be separate enactments for savings institutions and for trust companies, and indeed a wise distinction is made by the laws of most of the older States. These undoubtedly prove advantageous to all banks and bankers, as they simplify and increase their business. Officers of banks doing a mixed business are thereby relieved from error, responsibilities, risks, and cares, and savings depositors escape commercial hazard, and are free from risks caused by mismanagement of persons who advertise as savings banks.

Those who remember the frightful confusion that prevailed before the establishment of the National Banking system, when the notes of the old State banks constituted a considerable portion of the circulating medium, are among the most ardent admirers of the present system, at least so far as its method for the issue and guarantee of notes is concerned. In those days the laborer often went to his home on Saturday night carrying the wages of his week’s labor in the shape of notes issued by banks in half a dozen different States, and when his thrifty wife went out to expend them in purchase of the necessaries of life for her family she would be distressed to find that for some she could get but ninety cents on{463} the dollar, for others eighty cents, and that still others were of too questionable a character to be accepted by the shopkeepers at all. The farmer often received for the fruits of his toil notes of which he could know nothing, and which would be subsequently declared by experts to be worthless because the bank which had issued them was in liquidation, and it was not at all uncommon to find a forged note or two among them, for in the myriad issues of bills of every conceivable design and character of engraving the forger had an easy task.

The present National Banking system probably never could have been called into existence except for the difficulties in which the government was involved by the war with the South, for a scheme overthrowing, as it did, so many other systems organized by the authority of States would have met with an irresistible storm of opposition. As it was, the act authorizing it was fought not only by the opponents of the administration then in power, but by men like Roscoe Conkling, of New York, and Senator Collamer, of Vermont.

Mr. Logan C. Murray, President of the United States National Bank of New York city, thus speaks of the National Banking system:

“In 1863 the government of the United States, irrespective of State lines, took hold of the bank question and made it a national one, inaugurating{464} a state of perfection which I believe is unparalleled in the history of finance among the nations of the world.

“This child of the war between the States, born in the very travail of the soul of the nation, is to-day full-grown, of five and twenty years, comely, substantial, and has not been disappointing. Hard money was scarce in 1861. There had been built upon this limited supply, through the channels of credit, a massive structure; suddenly, as the storm arose, the sky became dark and the curtains of night were let down around State boundaries; with these parcels of credit, known as State currency, far from home, with no foster parent hand near by to protect it, intercourse cut off, we found ourselves depending upon a broken staff which was as chaff in the mighty storm, commercial ruin on every hand, and our shores strewn with the wrecks of a dismembered, useless and faithless medium.

“We found the Secretary of the Treasury knocking at the doors of our strongest moneyed institutions, asking from them aid in his great distress, appealing to the wisdom, courage, patriotism and resources of an almost forlorn hope. How nobly he was met is a matter of history.

“Not, however, until 1863, or two years afterwards, did the National Bank system have its birth—born of despair, of want, blood-bought, yea, in the very darkness of that midnight storm.

Yet it is but the survival of the fittest. And now let us see after the uses which have been made of the system, and after the unparalleled prosperity which has come to us as a nation under its influence, if the parent of all this prosperity, to a greater or less degree, is to breathe its last—if its strong arm is to be stilled, and if we are to look for something better. Shall we wonder that men are bewildered when we look into the future and ask what is to supply the vacuum caused by the decay of the National Banking system? I for one answer:

“Do not fear, the National Banking system is not going to be destroyed. In the fulness of time it will be yet better established.

“Let us divide the system into two parts, as it were, and treat them as they may be. First, there is the Treasury of the United States, the Secretary charged with certain duties, the Comptroller of the Currency, the executive officer with each of the four thousand National Banks in every section of the land reporting to him, responsible to him, and he to the country at large—and by far his greatest responsibility is the care, faithful preservation and safe return to the depositors of the great mass of the deposits of the people made with these institutions. This is one part, and the great part of the system—the care of the deposits of the people and the careful and safe loaning of these deposits to the commercial{466} and manufacturing community by each institution, all under its general supervision.

“Now we come to the next part of the business of the system, and that is issuing note circulation. Does it occur to you how small a proportion of the circulation of the United States to-day the National Bank circulation is? Let us say it is about one-fifth part. Now let us assume that this shall gradually be cut off, as undesirable as that is; it is gradually declining, while other mediums of circulation are advancing in volume. We must remember that money, actual money, is about four per cent. only of all commercial transaction; credit, and credit alone, supplies the other ninety-six per cent.

“I do not think any National Bank or any other bank should emit any note or bill, for circulation without it is secured. Is it not true that there are very many National Banks in the United States to-day which do not issue circulation, even though banks of a capital of $150,000 and above are required to lodge but $50,000 of bonds with the Treasury, and some of these do not take out circulation on those bonds—whereas a small bank in Dakota is required to lodge one-fourth part of its capital, say if it is $50,000, it is required to lodge $12,500 of bonds with the Treasury, whether it takes out circulation or not? Why is it so? If they issue no circulation, then no bonds should be required. If large banks to-day{467} are not issuing circulation on the small amount of bonds required, say $50,000, even though its capital be $5,000,000 (as is the case), then why require one-fourth part of the capital of a small bank to be invested in high-priced bonds before beginning business?

“Therefore, repeal that part of the National Bank act which requires a deposit of United States bonds from a bank which is to receive no circulation. If a bank choose to lodge bonds, then give it the privilege of issuing circulation on them, as of old.”

The reduction, and now the current purchase, of government bonds, which serve as a basis of circulation for National Bank notes, have driven the bonds to such a high premium that the banks some years ago began to surrender their circulation at such a rate as to seriously contract the currency and excite apprehension as to the result. But for the issue of silver certificates, which have largely taken their place, a crisis would, in the opinion of many financiers, have been reached long ago. The profit on circulation was so seriously reduced by the high price of the bonds, on which it is based, that a number of banks in New York city and elsewhere surrendered their charters as National Banks and organized under the law as State institutions. They were largely impelled to do this by a desire to escape the restrictions imposed by the National Banking laws and{468} the scrutiny of the Comptroller of the Currency and the officials of his department. The passage of the law forbidding over-certification compelled a number of them to tak............