In spite of the hesitation of a reluctant Congress, Secretary Chase had at last secured the organization of banking associations under a national law. The necessity was imperative. Under the act of 1840, creating the sub-treasury, it was required that all payments to or from the United States should be made in coin, and no money belonging to the government could be deposited in any bank. After the suspension of specie payments, in 18Gl,it had been necessary to provide some substitute for the coin, which had disappeared from circulation, and United States notes had been issued for that purpose. These notes were receivable for all taxes except customs, and for United States bonds, but they had speedily depreciated ; the premium on gold in February, 1863, was over 50 per cent.; it was perceived also that the suspended banks were increasing their issues. The banks had applied to Secretary Chase in January, 1862, to receive their notes in payment for the bonds which he was compelled to sell. To have accepted this proposition would have been to repeat the error of 1812, and invite an immense inflation of bank currency. The Secretary declined to recommend this course; nevertheless the circulation of the banks increased from $130,000,000 in November, 1861, to $167,000,000 a year later.1 It was plain that this dangerous tendency must be checked, and that the banks, instead of rivals, must be made coadjutors of the government.

The banks had generally aided the government as liberally as could have been expected. They had furnished means for the equipment of troops by the States, and had negotiated United States bonds to the amount of $150,000,000 in the outset. But in February, 1862, upon the failure of the negotiation with Secretary Chase, some of the New York banks had refused to receive the demand notes of the government at the clearing-house, and this unwise demonstration had been used as an argument in favor of the clause in the loan bill of 1862, making the treasury notes a legal tender.

A bill to provide for the organization of national banking associations had been printed in January, 1862, for the use of the committee on ways and means, but did not get beyond the committee at that session.

1 Finance Report, 1862, p. 14.

Mr. Spaulding, of New York, said that the committee had concluded that the measure, if adopted, could not be made available in season for the immediate necessities of the government. Mr. Roscoe Conkling, then in the House, asked whether it was expedient to make war upon the twelve hundred banks in the free States, and whether it was right, even if the stock and assets of those banks were not largely owned by orphans and widows. Mr. Conkling proposed to issue $250,000,000 of 7 per cent. bonds, payable in thirty-one years, to be exchanged for the bills of the suspended banks of New York, Boston and Philadelphia, and $200,000,000 of United States notes payable in coin in one year. How the coin was to be obtained he did not explain.

Mr. Bingham, of Ohio, made a vigorous rejoinder, protesting against Mr. Conkling's attempt to lay the power of the American people over their currency at the feet of brokers and city bankers; and Mr. Kellogg, of Illinois, expressed some contempt for talk about the sacredness of capital when 600,000 of the flower of American youth had been summoned to service in the army.

These, however, were merely passing allusions to the Secretary's recommendation. The serious debate began a year later, in February, 1863. Senator Sherman's bill was then maturely considered in both Houses.

Senator Harris, of New York, predicted that no New York bank would surrender its State charter in order to avail itself of the provisions of the national act. Senator Collamer, of Vermont, declared that the people would not break up their system of banking, interwoven with all their transactions, to establish national banks, nor would they buy United States bonds for that purpose. At that very moment the banks of New York held United States securities amounting to $148,000,000 -$40,000,000 more than their entire capital.1 Senator Powell said that the people of Kentucky preferred their State banks, and that intelligent merchants and bankers everywhere were opposed to the new scheme. He had met no business man, he said, who favored the bill, and he had talked with many. For his part, he preferred to allow the bills of solvent banks to be received and paid out at the treasury.

1 Mr. Fenton, of New York, made this statement in the House. Cong. Globe, Feb. 19,1863, p. 1118.

A substantial part of the measure was a section in the revenue bill, then pending, proposing to levy a tax of 2 per cent. on the circulation of the State banks. Mr. Conk-ling made a vehement argument against this section in the House, contending that Congress had no power, under color of taxation, to destroy franchises lawfully granted by the States. The New York.Superintend-ent of Banks, in his report then newly published, threatened to meet any attempt to override the State law by an injunction; but the State court, when the question came up, sustained the authority of Congress in the premises.1 The constitutional question was raised by a number of speakers in both houses, and Representative Noell, of Missouri, moved a reference of the bill to the committee on the judiciary, with instructions to investigate this point, but the majority thought the inquiry unnecessary, and the matter was left to the courts with the result just mentioned.

1 Superintendent Van Dyck's report is reprinted in the treasury report on the condition of the banks in 1863, where see p. 88.

The project was derided as impracticable for various reasons. Senator Henderson, of Missouri, thought the government bonds might depreciate, so as to afford insufficient security for the circulation. Senator Davis, of Kentucky, objected to the depreciated basis of the system, the United States notes in which the bank-bills were to be redeemed. Representative Harrison, of Ohio, feared that the supervision of the banks, at Washington, would be inefficient. Representative Baker, of New York, found no provision for redemption of the notes, except at the counters of the banks, and thought this circumstance would produce a crop of out-of-the-way banks, with a circulation not intended to be redeemed. On the other hand, he was sure that the banks could make no profits under the proposed law, and so the measure would fail. In this opinion he was sustained by several others, including Senator Collamer, who nevertheless pronounced the scheme a "pecuniary revolution."