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Mr. CALDERHEAD. Those were notes of the State bank? Mr. ROYALL. State banks-of all the banks in the State. Mr. CALDERHEAD. Did it apply to all classes of banks in Virginia? Mr. ROYALL. Yes, sir; that was the Virginia bank note. Nobody knew any difference in New York between one kind of a Virginia bank note and another kind of a Virginia bank note. All of our banks paid their notes in specie, and the only discount on any of their notes was the cost of sending them to Virginia and carrying the specie back. That was all.

[Reading:] In giving the review I have made of Virginia's present condition it is, of course, only fair to say that she now has State banks, and their resources are not included in the figures I have quoted for 1895. But, upon the other hand, I have only quoted the figures for 1860 as shown by her banks of circulation. She had many banks then that had no circulation, and we know nothing of their resources, as they made no reports. A list of them can be seen in the Virginia Code of 1860, pages 338, 339, and 340.

You will find there three pages in fine type of banks we had—a bank at almost every crossroads; and they were good banks, that served the people. There were also many private banks and bankers who added to the general bank resources. No injustice is done, therefore, by comparing the national banks with the State banks of circulation. The injustice, if it exists, is the other way.

NOTE ISSUES BY PRIVATE BANKS.

Mr. BROSIUS. Those private banks did not issue notes, then? Mr. ROYALL. Yes, sir; they issued notes; but in almost every case where they issued notes their charter required them to deposit State bonds as collateral against their issue.

Mr. Cox. Wherever there was a bank that issued notes the notes were guaranteed by the State or sustained by the bond of the Statethat is, the bank of issue.

Mr. ROYALL. Let me draw this distinction. Our greatest banks, the Farmers' Bank, the Bank of Virginia, and the Exchange Bank, put up no bonds. Their credit secured their circulation.

Mr. HILL. The State guaranteed it, didn't it?

Mr. ROYALL. No, sir; no, sir. They were guaranteed by nothing but the credit and assets of those banks, and their notes stood in New York at a discount of only one-quarter of 1 per cent in 1860. In many cases special banks were chartered, such as the bank at Scottsville, the bank at Howardsville, and other cases, and it was said to those banks: "If you put out notes you must secure them by a deposit of State bonds." That was the case in almost all of the small banks. Some of them didn't do it.

Mr. BROSIUS. Were those chartered by the legislature?
Mr. ROYALL. There were some special charters.

Mr. BROSIUS. Then this system was not uniform?

Mr. ROYALL. No; you see, the thing grew up with the necessities of the State. We started way back yonder-I think in 1800-with the Farmers' Bank. We chartered that first. Then the Bank of Virginia, which had branches all over the State, and then the Exchange Bank, with branches all over the State. Then we would charter a bank, for instance, for Buchanan, a bank for Fincastle, and so on; and when a bank was chartered they would likely put in a provision that if they should issue circulation they must put up State securities.

Mr. FOWLER. Could these smaller banks have branches?

BRANCH BANKS.

Mr. ROYALL. Some of them did. The Southwestern Bank, for instance, had branches. I would like you gentlemen to glance at this list of the banks in Virginia that I have here in this book. We had a bank at almost every crossroads. Virginia now has only thirty-seven national banks. In 1860 the six or seven hundred thousand white people who lived in what is now Virginia had nearer 300 banks. It must never be forgotten that the $10,000,000 of bank notes that our banks put out in 1860

The CHAIRMAN. Dou you mean to say that there was $10,000,000 that Virginia put in circulation altogether, or does the $10,000,000 cover the highest number of bills out in circulation at any one time?

Mr. ROYALL. If the gentleman will take this Senate document that he has referred to himself-and it is correct; in a number of instances I have compared it with the original records in Virginia and have found it correct he will find the circulation, the deposits, specie, and capital of the banks for every year for some thirty years prior to 1861. You will find that for twenty years before the war Virginia's banks had had all the time-pretty much all the time, at any rate-as much as $10,000,000, and sometimes more than that.

The CHAIRMAN. That is, average circulation?

Mr. ROYALL. Yes, sir; that would be the average for ten years before the war.

The CHAIRMAN. That much out?

Mr. ROYALL. Yes, sir; that much out in circulation.

AN ABUNDANT CURRENCY.

[Reading:] It must never be forgotten that the 10,000,000 of dollars of bank notes that our banks put out in 1860, being at a slight discount outside of Virginia (they were at a discount of only one-quarter of 1 per cent in New York), all stayed in the State. They circulated at par all over the State; the farmers refusing to make bank deposits carried them out into the country in their pockets; they furnished an abundant currency for all the people, and there was universal prosperity and contentment, although there were no very rich men. I can not consume the time of the committee in analyzing the condition of the other Southern States as I have analyzed that of Virginia. But if their condition is examined it will be found that a state of affairs similar to Virginia's existed with them. Unless the committee shall show an indisposition to hear it, I propose now to make a review of the history and philosophy of this case, and in doing that it will be my endeavor to prove, first, that the people of the United States are entitled to perfectly free banking by every principle of true finance, and, second, that they are entitled to it, except as modifications may be put upon it by their States, by the principles of the Constitution of the United States.

HERBERT SPENCER ON BANKING.

I have been something of a student of the writings of Charles Darwin and Herbert Spencer, and I have long ago come to the conclusion that man creates nothing valuable. Whatever we have in our institutions that is worth anything has grown up under the exigencies. of necessity through the principles of evolution. Herbert Spencer has reasoned out the case of banking as one that must grow up under

these principles in that masterly essay upon "State tamperings with money and banks," and he declares that "from the first banking legislation has been an organized injustice." Mr. Buckle also well remarks in his work on civilization that the most important work ever yet accomplished by the legislator has been in repealing and undoing what some previous legislator had done. The perfect system of banking has yet to appear. When it comes, it will be by natural growth, and it will not be the creation of the lawmaker.

NEIGHBORHOOD BANKS OF GREAT BRITAIN.

The truth is, the world's entire experience with banking has been very limited. The experience of most of the world is of little value. That of England and the United States furnishes most of what is worth studying. Banking in England has grown up to its present state under the principles of evolution, cramped and distorted by statute law. To a certain extent evolution has produced admirable results there. They have country banks all over Scotland, England, and Ireland that issue their own notes, which are at a discount a little way from where they are issued, but which serve the people of the neighborhoods that issue them most acceptably.

Mr. BROSIUS. Do you say, do I understand you to mean, that the notes issued by the joint stock banks of England are usually at a discount a short distance from the bank that issues them?

Mr. ROYALL. I am told so by Englishmen.

Mr. BROSIUS. Those notes are all redeemed in the notes of the Bank of England?

The CHAIRMAN. It costs something to get them?

Mr. ROYALL. Yes, sir; and I am told by Englishmen that they are at a small discount a little distance from the banks issuing them.

Mr. BROSIUS. I never heard of that before this, and that is why I asked you particularly about it.

Mr. ROYALL. I will give you the name of the Englishman who has given me this information-Mr. J. F. Jackson, of Richmond City. He was born and raised in England and lived there until recently, when he came to Virginia.

[NOTE.-The day after this discussion Mr. Royall applied to Mr. Jackson for a statement upon this subject, and he gave him the following, which is inserted here by permission of the committee.]

LETTER OF J. F. JACKSON, ESQ., OF RICHMOND, VA.

RICHMOND, VA., December 23, 1896. DEAR SIR: I have read with great pleasure your most able argument before the House Committee on Banking and Currency. Permit me to offer one or two observations upon the subject for your consideration, with the view, if possible, of strengthening your argument in favor of further and better banking facilities for our people. This is the true remedy for our woes, as I think you have shown, and as I will endeavor to support, from the example of England and Scotland, and especially of Scotland.

You remark in the course of your argument that "banking in England has grown up to its present state under the principles of evolution, cramped and distorted by statute law. To a certain extent evolution has produced admirable results there." This is true. Evolution in England and Scotland has produced a banking system which is based

now only on the same principles which control all other commercial enterprises conducted by corporations there, except only that no banks established since the bank-charter act was passed (in 1845, I think) have power to issue notes.

The banks established previous to that date had power to issue notes. In England the smallest of these notes is of the value of £5 ($25) and in Scotland of the value of £1 ($5). This right was reserved to these banks to the extent of the amount of the notes then in circulation, provided that they did not open banking offices in London. If they did so, they then forfeited this right. Several have so forfeited the right. This limited circulation of notes still exists, and these notes exactly perform the function which you contend State bank notes would perform here. They "stay at home" and simply accommodate a local demand. Away from home they are at a discount, if accepted at all. I have myself paid 1 shilling (24 cents) to have a five-pound note cashed only 26 miles away from the place where it was issued, and this in a large city having close business relations with the town in which the note was issued and where the bank issuing it is one of the strongest financial institutions of the place.

A LOCAL CURRENCY.

This being at a discount away from home is a condition inherent in such notes by the very terms of their issue. They are and can only be redeemable over the counters of the institution issuing them, and are thus an inconvenient form of currency for any bank or individual to hold, except close to the place of issue. They are not easily convertible into cash to meet an emergency, except at home, and therefore are not acceptable. They are simply a local currency. The principle of evolution has led up in England and Scotland to the establishment of the principle that the Government has nothing to do with the banking system of its people, and no more right to interfere with it than with other trades or businesses.

Acting on this principle, the notes of such banks as still retain the right to issue them are not secured by any deposit of securities with the Government, nor does the Government exercise or claim any right or power to examine into the affairs of any bank. The stockholders in the banks themselves control the business, and the ability to pay the notes issued is simply secured by the capital of the banks, and their value depends entirely upon the confidence of the people among whom they circulate in the stability and credit of the bank issuing them. This is a sound principle. If the people who find the capital to establish a bank will not look after its proper management, all the supervision of Government officials possible can not prevent its mismanagement. No more potent illustration of this principle can be needed than the fact that national bands here are constantly failing while subject to Government supervision. A notable instance of this is the recent failure of the large bank in Chicago.

BRANCH BANKS IN ENGLAND.

Based on this principle, the English banks have constantly increased in numbers and in the amount of their capital, until now they have banking houses or offices open in over 2,500 different places in that country and a banking capital of hundreds of millions sterling. The

very large majority of these banks are merely branches of the parent institutions. They are controlled by the directors of the parent bank, and many of them are merely offices open on one or two days in the week. This is the case in small country places where the business is not sufficient to warrant the establishment of a local bank. The parent institution sends down one of its officers once or twice in the week with the necessary facilities for conducting business, and so accommodates the local community. After a time the business grows and a permanent office is opened, and thus the daily needs of the people are met. I know banks that now have a dozen branch offices which, when I was a boy, had not one. The consent of no authority is needed to open these branches, and no special capital is required. The directors of the parent bank decide when and where it is desirable to open a branch, and act upon their own judgment and decision.

SCOTCH BANKING SYSTEM.

The Scotch banking system, which has been said by eminent authorities to be the nearest perfect of any system in the world, differs somewhat from the English one in that it is based on a very limited number of large and wealthy banks, having their head offices in Edinboro, with branches all over the country. These large banks are nearly all very old institutions. The oldest of them dates back to 1695, and the most recent of them was founded in 1838. They are only ten in number, but they have a subscribed capital of £29,135,000 ($145,675,000) and a paid-up capital of £9,302,000 ($46,510,000). They were all established prior to the passing of the bank-charter act, and have, therefore, the right to issue notes. The exercise of this power is only limited by the discretion of the directors, and is subject to no supervision by Government, nor is any deposit of securities required. These 10 banks have over 1,000 branches open in the towns and villages of Scotland. You can not go into any little community in any part of Scotland without finding one or more banks open on one or more days in the week. Under this system Scotland, with an area of only 30,000 square miles, or 15,000 square miles less than Virginia, and with a population of about 4,000,000, has the best banking facili ties of any nation in the world. The result is seen in the thrift and prosperity of the Scotch people. The Scotch farmer can go to one of these branches nearest his farm and get the accommodation he needs. He is not called upon to make a note and have it discounted, and thus pay interest upon the whole loan whether he uses the money at once or not. He asks for an overdraft of such a sum as he will need or as he thinks the bank will give him.

The local agent knows him, and acting on this knowledge decides as to making the overdraft. Usually these overdrafts are secured by one or two of the borrower's friends becoming security for him on the books of the bank. He then, when the overdraft is granted, draws upon the bank just for the amount he needs and pays interest only on what he draws and for only the time he needs it. Interest is charged on the daily balances. If the overdraft is discharged by deposits, interest ceases until the account is again overdrawn, and so the accommodation is always available until withdrawn at the least cost within the limit of the overdraft originally granted. Such a system is needed here, and would do more to build up this State and every other State than any plan of Government aid or silver coinage that could be devised.

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