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would naturally establish the custom of using coin and despising paper.
Banks of issue were prohibited by the State constitution in Oregon,' and both by the constitution and by statute in California. There had never been a bank currency in these States, and the pioneers had refused from the first to accept the notes of the Eastern banks to any extent. When the legal tender act made the greenbacks a lawful tender in payment of debts, some instances occurred of debts contracted on a gold basis and paid in legal tenders. The business men took prompt action towards preventing the introduction of legal tender notes as the circulating medium. They entered into agreements not to receive or pay out the greenbacks except at their market value, and established a sort of black-list system against those who took advantage of the legal tender power of the notes by offering them in payment of debts. It became common to have printed across bill-heads the words “Payable in coin only"; and a man who proffered greenbacks for a gold debt was a commercial outcast. This condition of affairs was legalized by the Specific Contract Acts in California in 1863, and in Oregon the following year. These laws provided that written contracts for payment in a specific kind of money might be enforced by the courts. They were upheld by the State and by the United States courts, and all subsequent attempts to repeal them and to introduce legal tenders as the medium of exchange proved unsuccessful. The result was the enforcement by law of specific contracts made payable in gold, tho such contracts had been enforced by business custom prior to the passage of the laws. Greenbacks were dealt in as a commodity rather than as a currency. It was the influence of the merchants and traders that forced the specific contract acts and enforced gold payments under them.
to currency, and that the custom of using coin should be established. Many of the leaders were of this same class, even after the stream of immigration from the North and the East had spread over the country.
The membership of the Constitutional Convention in 1849 will illustrate this point. Of the 37 delegates originally chosen, 16 were from slave States, 10 from free States, and 11 were natives of California. The total membership was increased to 48, of whom 22 were from the North, 15 from the South, 7 from California, and 4 from foreign countries. That these Southern members were of the democratic anti-slavery class is evident from the fact that there was no attempt to establish slavery in the State.
It was this convention that put into the Constitution the strict prohibition of banks of issue. And the membership was not made up of miners, but of lawyers, farmers, merchants, engineers, bankers, etc. Bancroft, History of California, vi. pp. 282–289.
1 Art. XI., Sec. 1. 2 Art. IV., Secs. 34 and 35; Statute, Act of April 19, 1855, Stat., 6 Ses., Chap. 105.
3 It is interesting to note that during the first few months of greenbacks united attempts were made, at least in Oregon, to keep them at par with gold. Patriotism and loyalty were appealed to, and public meetings were held in which the members pledged themselves unanimously to accept the notes at par, and to boycott any merchant who refused so to receive them. All such efforts failed, and very soon regular quotations for greenbacks were printed. Gilbert, Trade and Currency in Early Oregon; Columbia University Studies, vol. 26, pp. 98-104.
The commercial relations of the Pacific States made it comparatively easy for them to maintain the gold standard. They were isolated from the East, and their trade with the Eastern States was chiefly in the purchase of manufactured articles. The Pacific States were a buying section, so far as their relations with the rest of the United States were concerned. Their own surplus products went chiefly to the islands of the Pacific and to the other Pacific coast ports. Their favorable balance of trade was received in gold, and they could use the legal tenders for payments to the East. For these reasons the legal tenders did not move to the coast in any great quantities, and they never formed a part of the circulating medium there."
These States were perhaps the only ones in the country in which the banks did not depend for a large part of their profit upon the right of issue. But in California the bank of issue was unknown until 1870. Abundant opportunities had existed for banking profits, however, in purchase of gold dust at the mines, in the growing trade and the rapid development of the resources of the State, and the general spirit of speculation which prevailed. Interest rates were high, and private banks had sprung up in large number, beginning about 1849.
1 Hittell, History of California, iv. p. 347. ? Gilbert, pp. 112-114.
3 Ibid., pp. 95, 96, et seq.
This was the condition of affairs, then, in the three sections of the country in 1870. The East had a superfluity of bank capital and circulation, and stood for conservatism, or even for contraction of the currency; the Middle West and the South were suffering under the alleged evils of a deficiency of currency, and were clamoring
a for greenbacks and for the increase and redistribution of the national bank currency; while California and the Pacific States had repudiated greenbacks and the national currency, and were using gold coin as their standard and the medium of exchange. And this was the only part of the country where the national banking system had not been established.
In his report for 1869 the Comptroller of the Currency recommended a law authorizing the establishment of specie banks, with a right to issue notes payable in specie. “Some provision of this kind,” he said, “is probably necessary in order to supply the Pacific and gold-producing States with a paper currency. A circulating medium cheaper and more convenient than coin has long been necessary in those States, and would undoubtedly do much to promote activity, enterprise, and development. Experience has demonstrated to them that a currency composed exclusively of specie is not exempt from the Auctuations to which money and trade everywhere are subject, and has awakened an anxiety on the subject which may lead to the introduction of paper money, if the opportunity is afforded." The Comptroller thought, also, that such
1 an act would, in a way, anticipate specie payments, and that, along with the plan of free banking which he recommended, it might hasten the day of resumption.”
The Act of July 12, 1870, as passed, was a skilful combination of two bills, introduced separately at first, and combined by the Senate Finance Committee, one bill providing for an increase and redistribution of the national bank currency, the other authorizing gold banks. The West and the South, persistently demanding a greater share of the currency, were expected to support the first bill; while the Eastern Democrats and all those in favor of hard money and immediate return to specie payments were expected to support the second measure. The act authorizing gold banks was a sort of concession to the friends of resumption; and the enemies of resumption permitted it to pass, partly because they thought the plan was impracticable and partly because by passing it they could gain their demand for redistribution of the currency. It authorized the Comptroller to issue to banks, under the general provisions of the National Bank Act, notes payable by the banks on demand in gold to an amount not exceeding 80 per cent. of the par value of the bonds deposited."
The idea, however, in authorizing the gold banks was
1 Finance Report, 1869, p. 39.
2 The Merchants' Magazine also thought that the gold banks might render some service in the march along the perilous path towards specie payments." Vol. Ixiii. pp. 246, 247. California newspapers also thought the chief good of the new system was as a first step towards a return to a specie basis.
3 No gold bank to have a circulation in excess of $1,000,000: Banks must keep on hand a reserve of 25 per cent. of circulation in gold and silver coin, and must receive at par the notes of all other gold banks which were paying their notes in gold.
All gold banks were to be subject to the provisions of the National Bank Act, except (1) the limit of $300,000,000 on total circulation did not apply; (2) "lawful money" should in their case mean gold and silver coin of the United States; (3) San Francisco gold banks were not required to redeem their notes in New York; and (4) gold banks were not required to receive the notes of other national banks at par. Statutes at Large, 41 C., 2 S., Chap. 252, Secs. 3, 4, and 5.
twofold: (1) to provide gold banks and gold notes for foreign merchants in the commercial cities of the Atlantic seaboard; and (2) to extend the national banking system into the Pacific States. One or more gold banks would be organized, it was thought, in each of the large Atlantic cities. The volume of foreign trade transacted on a gold basis was large in all these cities. Foreign merchants kept gold accounts with their bankers, and it was said that half of the banks of New York City had opened gold accounts with their customers. Hence double accounts were necessary,-one on a gold basis and one on a currency basis. New York City alone was carrying on a trade of about 600 million dollars a year on a gold basis, and other cities also had large foreign dealings. And it was thought that in Charleston and New Orleans, where cotton was measured by the gold standard, there would be a demand for gold banks.
The need for a gold note circulation was seen in the demand for the United States gold certificates, which were issued on the deposit of gold with the United States Treasurer. The amount of these certificates outstanding in July, 1870, was about fifty million dollars and about twenty-seven million in October; while the average amount for the preceding five years had been about twenty-seven millions. But these certificates were issued in large denominations, and were not intended or used for general circulation. Nearly half of the amount issued up to 1870 had been of the denomination of five thousand dollars. It was now proposed to issue the national gold bank notes in small denominations for general circulation, leaving
1 Sherman in Senate, Congressional Globe, 41 C., 2 s., p. 700; Finance Report 1870, p. 25; Merchants' Magazine, 63, pp. 184 and 247; Bankers' Magazine, 25,
? Merchants' Magazine, 63, p. 184; Commercial and Financial Chronicle, xi.