Financial History 100th Edition Double Issue (Spring/Summer 2011) | Page 73
© Bettmann/CORBIS
banks to purchase US government bonds,
and deposit a specified percentage of them
with the new Comptroller of the Currency;
the banks would then receive national
bank notes they could lend to borrowers.
The debate over this idea was long and
vigorous. In December 1962, President
Lincoln broke the legislative logjam by signaling his support for a national currency
and a system of national banks. In January
1863, Senator John Sherman, sponsor of
the National Bank Act in that chamber,
confirmed the administration’s desire to
centralize and control the issuance of currency and public credit; more broadly, he
signaled the federal government’s intention of becoming more influential in
numerous aspects of the nation’s business.
In the final days of discussions, Senator
Sherman, Secretary Chase and President
Lincoln each placed more emphasis on the
bill as an expression of federal sovereignty
than a tool for monetary control.
In February, Congress passed and President Lincoln signed the National Bank
Act. The new national banking system had
plenty of flaws. There were several provisions in the law that seemed to have little
to do with the overall need for a national
banking system. They appeared instead to
reflect the federal government’s desire to
control that system. For example, the law
placed a limit of $300 million on the total
amount of notes permitted to be issued
by the new national banking system; it
apportioned that amount to banks in
accordance with population, bank capital
and the business of each state. That provision made it hard for banks in sparsely
populated areas in the South and West to
satisfy their local demands for credit.
State banks did not respond favorably
to the opportunity to affiliate themselves
with the new national banking system. By
November 1863, 133 new banks had applied
for a national charter; only one state bank
had applied for conversion. In addition to
having concerns about certain financial and
non-financial issues, state banks must have
been apprehensive about the uncertain fate
of the Union. Realizing those banks considered many provisions of the law quite
onerous, Secretary Chase and Comptroller
of the Currency Hugh McCulloch worked
hard to shepherd a bill with many changes
through the Congress; the President signed
the new National Bank Act in June 1864.
By November 1864 there were
584 national banks; 168 represented
On May 20, 1862, President Abraham Lincoln signed the Homestead Act, giving 160 acre
freehold farms from the public domain to citizens who would live on them for five years. Settlers,
like the family shown here in Custer County, Nebraska, left the East to pioneer in frontier country.
Between 1862 and 1900, approximately 400,000 families received cheap land from the government.
conversions from state charters. Nevertheless, more than 1,100 state banks still
refused to switch to national status. Some
banks were dissuaded by the more stringent reserve requirements mandated for
national banks; others saw no need to
be part of the national system. At the
end of that year, in order to assert the
prominence of the federal government in
controlling the system, the new Secretary
of the Treasury, William P. Fessenden,
suggested that Congress should enact legislation to “…induce the withdrawal of all
other circulation than that issued under
national authority.”
After a lively debate, Congress included
a provision in the Revenue Act of March
1865 raising the tax on state bank notes to
10%, effective in July 1866. Whether justified or not, that provision had its intended
effect. During 1865, another 731 state banks
decided they would be unable to remain
competitive and switched their charters to
the national status. By the end of 1866, the
national banking system had replaced the
antebellum assortment of state banks as
the prominent lender to American businesses. More than 1,630 national banks
had notes worth $276 million in circulation; the remaining 66 state banks had
circulating notes worth $20 million.
The Republicans who controlled Congress and the Presidency during the Civil
War took many actions to confront the
greatest national crisis since the country’s
founding. In describing the Republican
economic policies of that era, historian
Heather Cox Richardson noted their
desire to ܙX]H8