Under the bank act of 1863,139 banking associations were formed, with a capital of about $15,000,000. Under the act of 1864, this number increased within a year to 638 banks, with an aggregate capital of $135,000,000. The national bank-notes outstanding were about $67,000,000. It appeared, however, that an equal amount of the State bank circulation had not been retired. That circulation, in the Northern States, was $173,000,000 in 1863, $170,000,000 in 1864, and $137,000,000 in 1805.1 The whole reduction had been only $36,000,000. In many the State banks had reorganized under the national law. but continued to issue currency under their State charters. To this extent the act was a failure, for its purpose had been, in part, to relit the country of the uncertainties and embarrassments arising from a currency over which the national government had no control.

1 Report from the Treasury Department to the Finance Committee of the Senate. Cong. Globe, Feb. 28, 1865, p. 1195.

Before the meeting of Congress in December, 1864, Secretary Chase had retired from the treasury department, and the chairman of the Senate committee on finance had been appointed his successor. In his report to Congress, Secretary Fessenden said that he was not among the first to approve the bank law adopted by Congress. Time and observation of its effects, however, had convinced him that the system, if not without defects, was based on sound principles and entitled to a fair trial, which it could not have so long as a conflicting system should be allowed to continue unchecked and uncontrolled. He was, therefore, of the opinion that such discriminating legislation should be had as would induce the withdrawal of all other circulation than that issued under national authority, at the earliest practicable moment.

Congress acted upon this recommendation by providing in the internal revenue bill for a tax of 10 per cent. upon State bank-notes paid out by any bank, State or national, after July 1,1866. The bill was passed on the last day of the session, March 3, 1865. The section levying this 10 per cent. tax passed the House 68 to 67, and Mr. Brooks, of New York, who had voted with the majority in order to move a reconsideration, made that motion. The yeas and nays on the motion to reconsider stood 71 to 71, and the motion was lost by the Speaker's casting vote.1 In the Senate the opposition to the tax was equally strong, and was only overcome by the energetic remonstrance of Mr. Sherman, who had charge of the bill. "It is far better," he said, "to abandon the national banking system than to leave it as a cloak for outstanding State issues. If the State banks have power enough in this Congress to prolong their existence beyond the present year, we had better suspend the organization of national banks. As the first friend of this measure in the Senate, I would vote to-day for its repeal, rather than allow it to be the agency under which State banks can innate our currency."1 Upon these representations the section was adopted by the Senate, 22 to 20. The development of the system, after the ground was cleared for it by the legislation of 1865, appears in the following table, which gives the number of banks and their aggregate capital, as shown in the first report for each year:

1 Mr. Colfax was then Speaker.

The slight decrease in the number of banks and amount of capital in 1868,1869, and 1870 was an unexpected result of the universal acceptance of the notes. It was found that nobody cared to have them redeemed, and so quite a number of the banks went into voluntary liquidation, giving proper notice to the bill-holders (who paid no attention to it), and then enjoying the income from their bonds, and diverting the funds received for their notes to whatever purpose best suited the managers. At the suggestion of the comptroller of the currency, Congress thereupon passed the act approved July 14, 1870, requiring national banks going into liquidation to take up their bonds and deposit with the treasurer of the United States legal tender notes for the redemption of their outstanding bills. After the passage of this act, a steady increase of numbers and capital began and continued until 187G.

1 Congressional Globe, Feb. 27,1865, p. 1139.

To the original capital given above should be added the accumulated surplus, in order to exhibit the complete solvency of the system. This surplus has been made a matter of reproach to the banks, as if it were an extra profit which they had surreptitiously concealed under this title. It is, in fact, a reserve, which they have been commanded to put aside for the better security of their creditors. It was $43,000,000 in 1866, $133,000,000 in 1876, and $121,000,000 in 1878. The heavy losses of 1876,1877, and 1878 were charged to this surplus account, leaving the capital unimpaired, and thus illustrating the wisdom of the provision forbidding the banks to divide their whole earnings.

Taking the capital of the national banks in 1870, $426,000,000, with the surplus fund of $90,000,000, and the capital of the State banks then in operation, about $120,000,000, we have for the entire banking capital of the country in that year $636,000,000; which brings us to this rather surprising result, taking the valuation of the United States from the census reports, and expressing both valuation and bank capital in millions.

While the wealth of the country has nearly doubled in each decade, the amount of capital invested in banking has not kept up to the proportion of 1850, but has declined from 3.2 per cent. of the valuation in that year to 2.1 per cent. of the valuation in 1870.

This fact indicates that the profits of the banks have not been so large as has been supposed. An extravagantly profitable business would have attracted a larger proportion of capital; or, at least, would have kept its original proportion. The matter of profits, however, is not a subject for inference, for the exact statistics are at hand. In 1869 Congress directed the national banks to make returns of their dividends and net earnings, and the ratios are here given to capital and surplus, year by year for nine years: