IT never has been definitely determined who is entitled to the most credit for having originated the National Bank Act. Like all important instruments of this character, it is conceded to be the product of several minds. It was originally a war measure, and grew out of the urgent necessities of the Government to replenish the public treasury by creating a market for its bonds through the inducement offered banks to obtain circulation based upon the security of such bonds. The paramount purpose of the Act was to secure a uniform national banking system of currency, without the creation of a great central institution like the old United States Bank. Opposition to such an institution was widespread and deep-seated and the sponsors of the various plans which took final shape in the National Banking Act were careful to point out that the objections to the United States Bank had been duly considered and had been avoided by them.
In August, 1861, O. B. Potter of New York submitted to the Secretary of the Treasury a scheme to permit state banks and bankers to issue notes secured by United States bonds. He said that none of the objections urged against a United States bank could lie against the plan proposed. It would give to the Government no power to bestow favors and would not place a dollar in the Government's hands to lend. It was impossible, therefore, it was claimed, to see how such a system could be made use of for political ends.
Samuel Hooper, a member of the House of Representatives from Massachusetts, who was an active agent in the attainment of the end sought, said in support of one of the early measures proposed, which did not become a law, that it secured all the benefits of the old United States Bank without many of those objectionable features which aroused opposition. It was affirmed that, by its favors, the government enabled that bank to monopolize the business of the country. Here no such system of favoritism exists * * * It was affirmed that frequently great inconvenience and sometimes terrible disaster resulted to the trade and commerce of different localities by the mother bank of the United States arbitrarily interfering with the management of the branches by reducing suddenly their loans and sometimes withdrawing large amounts of their specie, for political effect. Here each bank transacts its own business upon its own capital, and is subject to no demands except those of its own customers and its own business. It will be as if the bank of the United States had been divided into many parts, and each part endowed with the life, motion, and similitude of the whole, revolving in its own orbit, managed by its own board of directors, attending to the business interests of its own locality; and yet to the bills of each will be given as wide a circulation and as fixed a value as were given to those of the Bank of the United States in its palmiest days.
In the National Banking Act as passed in 1863 it was believed that the desired result had been obtained.
As far back as the days of Alexander Hamilton and Albert Gallatin, the question of creating a uniform state bank currency was frequently discussed, but none of the plans of the distinguished financiers of those days seemed to contemplate governmental assumption of responsibility for the redemption of such note issues.
Secretary Dallas in 1813 advocated a uniform state bank circulation with governmental supervision of the banks, and many of the features of his plan were similar to those contained in the National Bank Acts of 1863 and 1864.
In 1837, the State of Michigan adopted a banking law which required the banks to deposit with the State Government bonds and mortgages as security for their circulating notes, but this law was subsequently declared by the State courts to be unconstitutional.
The Free Banking Law adopted by the State of New York in 1838 was also analogous to the national banking laws, and many of the provisions of the latter were taken therefrom. There was one radical difference, however, between the State and the National law in respect to circulation. While the State law required security for circulation to be deposited, the State government did not guarantee or assume responsibility for the redemption of the circulation beyond the amount realized for the securities held when sold.
In his annual report for 1861, Secretary Chase suggested two plans for providing the country with a circulating medium. The first contemplated the gradual retirement from circulation of the notes of private corporations and the issue in their stead of United States notes, payable in coin, on demand, in amounts sufficient to meet the business needs of the country.
The second plan contemplated the preparation by the Government and delivery to banking institutions for circulation, under governmental supervision, of notes to be secured by a pledge of United States bonds.
Secretary Chase urged the adoption of one or the other of these plans as a measure of currency reform and as a means of replenishing the public treasury. He stated the principal features of the second plan to be as follows:
First. A circulation of notes bearing a common impression and authenticated by a common authority.
Second. The redemption of these notes by the association and institution to which they may be delivered for issue.
Third. The security of redemption by the pledge of United States stocks and an adequate provision of specie.
Without undertaking to outline in detail either plan, Secretary Chase expressed the hope that Congress would give the latter suggestion careful consideration, as he believed it would not only furnish the country with a safe and uniform circulating medium, but would impart such value and stability to government securities as would make it possible to obtain the additional loans required by the Government at fair and reasonable rates, especially if the public credit were supported by sufficient and certain provision for the payment of interest thereon and the ultimate redemption of the principal.