Paper Money - Vol. XXVIII, No. 6 - Whole No. 144 - November - December 1989

VoL. XXVIII No. 6 WHOLE No. 144 MATT ROTHERT STANDARD CATALOG OF Upited States Paper Mopey By Chester L. Krause and Robert F. Lemke Robert E. Wilhite, Editor 19.95 (plus $2.50 shipping when ordering direct from the publisher) Twice the Information of Any Other U.S Paper Money Reference! ALL NEW INFORMATION • The latest pricing data in up to three grades to determine the actual value of your notes • Special 16-pg. 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LEN and JEAN GLAZER (718) 268.3221 POST OFFICE BOX 111 FOREST HILLS, N.Y. 11375 ,( 1 C I F. T I , \ ( ) • r 'Et Charter Member Paper Money Whole No. 144 Page 177 66 . . this was how the rich got that way—when you needed something, you just wrote a check!" How r■assie hadwick Droke the liank by BOB COCHRAN This story doesn't deal with someone winning big at the gambling table; rather, it's how one woman ruined the Citizens National Bank of Oberlin, Ohio, and how she destroyed the careers of sever- al respected bankers in the process. Until she was convicted she was one of the most successful "con artists" of her time. CASSIE CHADWICK Copied from an original photograph made about 1897. and secured through the courtesy of C.A. Farnesworth of the Union Trust Co.. Cleveland "MISS ELIZABETH BIGLEY, HEIRESS TO A FORTUNE" C ASSIE Chadwick's real name was Elizabeth Bigley. Shewas raised in Eastwood, near Woodstock, in Ontario,Canada. She was an excellent and imaginative student; her teacher was Cassie Cushing (the source of her alias). Dan Bigley, Elizabeth's father, was a dollar-a-day section boss on the Great Western Railway and farmed in his free time. Elizabeth often dreamed of being wealthy, and when she was still quite young she experienced her first taste of "the good life." She was an attractive young girl, and wise beyond her years. At the age of thirteen she sold her virtue for fifty dollars (she in- sisted on cash) to a local farmer who was attracted to her and authorized a fictitious letter to herself from a non-existent lawyer informing her that an uncle (also fictitious) had passed away. leaving her fifteen thousand dollars. She skipped school and took the train to the nearest town, Woodstock, and showed the letter to the clerk in the town's only bank. The clerk was some- what disappointed that Elizabeth only wanted to deposit thirty dollars cash, but he was fooled by the bogus letter. He gave her a book of blank checks, and explained to her how they were used. To Elizabeth, this was how the rich got that way—when you needed something, you just wrote a check! In short order, she wrote checks for a gold bracelet, two dresses for herself and a skirt for her sister, and a package of business cards (the cards stated in large letters "Miss Elizabeth Bigley," and underneath in smaller letters "Heiress to a Fortune"). She checked into a local hotel, and the next morning went out to eat and window-shop. When she returned to the hotel she was arrested for passing bad checks and taken to the local jail. When she appeared before the magistrate the next day, a constable told the court about her family and referred to Elizabeth as "the odd one." The magistrate decided that she was mentally disturbed and ordered her release. The goods she had purchased were returned to the merchants; the cost of the hotel room and the business cards was taken from the deposit she had made at the bank. "MADAME LYDIA DeVERE" The next year Elizabeth left Eastwood for good to hone her skills at deception. In Toronto she became a prostitute; later in Tole- do she billed herself as a clairvoyant, "Madam Lydia DeVere"; she and a man she had duped into believing that she loved him were arrested and charged with fraud and forging checks and promissory notes of prominent individuals. The case drew extra attention from the local press because the attorney for the dupe. one Joe Lamb, claimed that Lamb had been hypnotized by "Madame DeVere" and made to do her bidding. The tactic worked, and Lamb was acquitted. Elizabeth's lawyer rebutted the charges against her for forgery by claiming that there was no absolute proof that she had per- sonally forged the signatures on the worthless documents. On the fraud charge, her attorney attempted to confuse the jury by raising the question of what constituted fraud: Elizabeth had claimed to be one "Florida G. Blythe," a fictitious name that she had made up. Her attorney questioned whether it was illegal to pretend to be someone who did not exist; to impersonate a liv- ing person was one thing, but to claim to be someone who did not exist was not fraud, or so he claimed. The prosecution faced the prospect of losing its case. but on the last day of the trial they shocked Elizabeth and her attorney by producing a surprise wit- ness—a woman of means from Cleveland whose real name was "Florida G. Blythe"! The real Florida G. Blythe testified that she had never heard of "Madame Lydia DeVere" and had never had any dealings with her. Elizabeth was convicted of fraud and sentenced to a term of nine years and six months in the state penitentiary in Columbus. Ohio. She served three years and six months of her sentence Page 178 before being pardoned by Governor William McKinley. In 1894 Elizabeth turned up in Cleveland under the name of Mrs. C. (Cassie) L. Hoover. To finance her extravagant lifestyle she be- came a madame in a Cleveland brothel. Shortly after she began this work she was introduced to a shy doctor, Leroy S. Chad- wick. Amazingly she convinced him that she had no idea of the type of establishment she was living in—only that the girls came and went as they pleased and that some of them appeared to have questionable morals! Chadwick was a lonely man, and, falling for Elizabeth's apparent innocence and charm, invited her to move into his home. CASSIE CHADWICK, "FINANCIER" Leroy Chadwick was quite wealthy through an inheritance, and Elizabeth went to work on him. In February of 1896 they were married in Pittsburgh, ostensibly to keep her description and photograph out of the Cleveland papers. Cassie convinced her new husband that his financial affairs were in a shambles, and he was only too glad to let her (and a lawyer of her choosing) man- age his properties. She redecorated their home on Euclid Avenue and spent his money lavishly on gifts for her friends. After she had taken several of her young women friends on a trip to Europe, she found that she and her new husband were broke. Not only that; Cassie had purchased costly gifts for her- self and her retinue overseas, and the bills were coming in. As she had discovered when she was young, the best place to get money was a bank. She knew that it would be risky in Cleve- land, so she chose the Citizens National Bank of nearby Oberlin, Ohio. (The Citizens National Bank of Oberlin was originally chartered in August 1863, and assigned charter number 72 by the Comptroller of the Currency. When its twenty-year charter expired, the bank was liquidated on June 1, 1882 and reorgan- ized. The bank retained its original name but was assigned a new charter number, 2718.) Cassie told the president of the bank, Charles B. Beckwith, that she wanted to make an endowment to the local Oberlin College, but that her funds were not avail- able at the moment, and she asked if he would furnish her $13,000 on her personal note. Beckwith thought that this might be the start of a profitable arrangement; he knew that Euclid Avenue was an affluent section of Cleveland, and he may have been aware that Dr. Chadwick was (formerly) a wealthy man. The bank's capitalization at the time was only $60,000, and the legal limit of a loan was $6,000; so Beckwith loaned her the money out of his own pocket. He generously offered to deliver the check to the college personally, and Cassie agreed. During the conversation Cassie decided that Beckwith could be useful to her. She confided to him that she was unable to Paper Money Whole No. 144 manage her finances, and that her finances were substantial; she needed the advice and guidance of a knowledgeable banker such as he. She also confessed that the source of her wealth was due to the fact that she was the illegitimate daughter of none other than Andrew Carnegie! She told Beckwith that Carnegie had regretted his sin, and in order to make it up to her he had furnished her with her person- al notes for large sums (plus interest) that were due the following year. This would make it appear that she was "earning" the money, rather than Carnegie simply giving it to her. She asked Beckwith if it was possible to borrow money against the notes, and he eagerly agreed. Cassie produced a forged note for $250,000 bearing the signature of Andrew Carnegie and signed the note over to Beckwith and Albert B. Spear, cashier of the bank. Beckwith gave her a receipt stating that she had that amount of money on deposit at the bank. Cassie's next stop was the Wade Park Banking Company in Cleveland, where she showed her receipt to the firm's secretary, Iri Reynolds. Reynolds was familiar with the Chadwick family, although he had never before met Dr. Chadwick's new wife. She used the receipt to establish a credit of $125,000, and promptly wrote a check against it for $100,000. Then she took a train to New York, where she used the money to open an ac- count at the Lincoln National Bank. She then: 1. Wrote a check for $300,000 on her new account at the Lincoln National Bank in New York and mailed it to Charles Beckwith at the Citizens National Bank of Oberlin. She instruct- ed him to repay her loan of $13,000 and to deposit the rest in her account there. 2. Went back to the Wade Park Banking Company and gave Reynolds a check on the Citizens National Bank of Oberlin for $125,000, to cover her loan. Because she had repaid the loan so promptly, Reynolds advanced her a new loan of $350,000. 3. Wrote a check against her new loan at the Wade Park Banking Company for $300,000, and sent it to the Lincoln Na- tional Bank of New York to cover the first check drawn on her account and deposited with Beckwith. (The way I figure it, Cassie "cleared" $75,000 on this series of transactions; if I'm wrong, I'm sure one of our members more versed in math will correct me.] Cassie went back to Oberlin to confer with Beckwith; she told him that "her father" wanted her to purchase a building owned by the wealthy financier Charles Schwab, one of her neighbors in Cleveland; but Carnegie did not want it known that he per- sonally was interested in the building, so he had asked Cassie to handle the deal. She told Beckwith that Carnegie had offered her a 10% commission, which could be over $100,000 if she were able to acquire the property for him; if Beckwith would Third Charter Red Seal note issued by the Citizens National Bank of Oberlin, Ohio. Arthur Spear signed this note as cashier, and Charles B. Beckwith signed as president, although his signature has almost com- pletely faded. „46-",ae of zlf •4.n‘ cC ,/,441 4-t-,xe 'IL ,.-4 c. 1> ,,,,,*4" ,A1:71 .1, 4,,a,..-‘4 =c--,,z,,Z.,-4.-- tLaw,..._,,.,/ e(„4- yef,--- ei„,f/ Paper Money Whole No. 144 help her he could have half of the commission. Beckwith had some reservations about the deal, but agree to help. She called Beckwith a few days later and told him she had talked to Schwab. It seemed that Schwab had another offer on the property, but if Cassie could furnish him with earnest money of $150,000 he would consider her offer. Beckwith, perhaps seeing his half of the commission disappearing, told Cassie to write Schwab a check for $150,000 on her account at the Citi- zens National Bank; he would send her a note to sign, to meet the legal requirement for the transaction. Several weeks went by and Beckwith had not received the signed note. When he was finally able to reach Cassie by telephone she told him that the deal had fallen through and that she had torn up the note. Cassie continued to conjure up money based upon her "se- cret" relationship to Andrew Carnegie. She furnished Iri Rey- nolds with an envelope for his safekeeping that she said con- tained securities (consisting of, among other things, stock of the Caledonia Railway of Scotland, which was owned by Carnegie). Reynolds accepted the envelope without investigat- ing its contents and issued her a receipt for $5 million! To satisfy other loans, she produced a bogus trust agreement stating that Andrew Carnegie held in trust for her property amounting to over $10 million, which consisted of: 2,500 shares of stock of the Great Western Railway of Eng- land and Wales, valued at $2,100,000; 1.800 shares of stock of Caledonia Railway of Scotland, valued at $1,146,000; and Bonds of the United States Steel Corporation of New Jersey, bearing interest at 5%, valued at $7,000,000. After she had married Leroy Chadwick, Cassie had become a member of the Euclid Avenue Baptist Church, of which John D. Rockefeller was also a member. Although she apparently never attended a service, she did call on the pastor of the church and confided her "secret" to him. She told him delicately that she was in need of a short term loan. It's possible that she was at- tempting to get an introduction to Rockefeller; instead the pastor, Charles Eaton, wrote a letter to his brother John, who was a prominent lawyer in Boston. Included in the letter was a promissory note for $500,000 from Carnegie to Cassie, which Cassie had furnished him, along with a list of the securities sup- posedly on deposit at the Wade Park Bank, which she claimed were now worth over $7 million. Eaton helped Cassie to arrange a loan from one of his clients, Herbert D. Newton, a banker from Boston. She had wanted to obtain $200,000 from him, but he offered her a check and a personal note totaling $129,000 in exchange for her promissory note of $190,000; he explained that the first year's interest of 5% was deducted first, leaving $190,000, and that the differ- ence between the $129,000 and $190,000 was made up of the bank's commission and handling charge. She took Newton's check and note and deposited them at the Lincoln National Bank of New York, apologizing for the earlier confusion she had caused previously when she had overdrawn her account. When she returned to Ohio, she visited Charles Beckwith at the Citizens National Bank of Oberlin and wrote him a check on the Lincoln National Bank to cover his outstanding loan to her. Showing Beckwith her receipt for $5 million from the Wade Park Bank, she arranged another loan from his bank for $80,000. When she got back to Cleveland, she wrote a check on the Citizens National Bank of Oberlin (for $300,000) and sent it to the Lincoln National Bank of New York—after she had deposited Newton's note and check, she had promptly overdrawn that account — AGAIN. Page 179 This is Cassie's assignment of a forged $250,000 promissory note to Charles Beckwith and Arthur Spear, president and cashier respectively, of the Citizens National Bank of Oberlin, Ohio. It reads: "I hereby sell, assign and transfer unto C.B. Beckwith and A.B. Spear, for a valuable consideration and a full settlement of all their claims against me, a certain promissory note dated Jan 7th 1904, signed by Andrew Carnegie, for Two hundred and fifty thousand dollars ($250,000) due one year after date with in- terest at 5% per annum. And I hereby certify that I am the lawful owner of the said note, that it is free from all offsets, and I leave the right to bargain and sell the same, and this is my free will and act. Signed. C.L. Chadwick.” Cassie then went back to Beckwith and amazingly convinced him to advance her the $300,000 to cover the check she had written on his bank to the Lincoln National Bank. She furnished him with two of Andrew Carnegie's supposed promissory notes (totaling $300,000) to secure the loan. Shortly after this, Beck- with convinced Arthur Spear, the cashier of the bank, to join him in loaning Cassie $102,000; Beckwith had also helped her to borrow over $1 million from various banks and individuals. based upon the supposed securities on deposit at the Wade Park Bank. Thoughtfully, Cassie furnished Beckwith with a copy of her will; in it she listed and described all of her securities, gave him her power of attorney, and made him the executor of her estate. THE END OF CASSIE CHADWICK Back in Boston, Herbert D. Newton had not received any pay- ments from Cassie. He and his lawyers attempted to negotiate some payments from her on her note, but she kept putting them Page 180 off. Finally, on November 22, 1904, Newton brought suit against her in the Federal Court in Cleveland, for the outstand- ing amount of the loan, $190,800. He also requested that the court restrain the Wade Park Bank from disposing of the $7.5 million being held there in trust. When word of the suit reached Oberlin, Beckwith explained to his bank's questioning directors that the bank was in no danger, since the bank held a note of $500,000 from one of the wealthiest men in the world. But he refused to divulge Carnegie's name, to protect Cassie's "honor." Newton wasn't so discreet—he also held a $500,000 note signed by Carnegie, and he revealed this to the court and the press. Several financial institutions rushed to join the suit by Newton against Cassie, among them The American Exchange National Bank of Cleveland, the Savings Deposit Bank of Elyria, Ohio, and the Euclid Avenue Savings and Trust Company of Cleve- land. When Andrew Carnegie was asked by the press about his "illegitimate daughter" he replied that he had never heard of the woman in question. The judge hearing Newton's suit ordered Iri Reynolds at the Wade Park Bank to produce the securities he was holding for Cassie Chadwick, and when they were examined and deter- mined to be worthless, an arrest warrant was issued for Cassie. She was found in New York and brought back to Cleveland for trial The trial began on March 6, 1905 and lasted six days. During the trial Andrew Carnegie was an interested spectator. A report- er asked him if he had any plans to prosecute Cassie himself, but Carnegie demurred, saying that she had ironically proven that his credit on his name alone was A-1. Handwriting experts sup- ported Carnegie's earlier statement that the signatures on the docucments were not his. The jury found her guilty and she was sentenced to a term of ten years in the Ohio State Penitentiary. Cassie was a celebrity even in jail, and she granted many in- terviews to the curious press. At one point the warden was charging twenty-five cents to admit her visitors, until this fact ap- peared in print; the result was that all of her visitors except a son were barred. She became obsessed with her funeral, planning it in great detail. When she died in prison on October 10, 1907 all of the arrangements had been made; a tombstone was already waiting for her at the cemetery in Woodstock that she had se- lected for her burial. She had even written her own eulogy, which was read at the service held on October 14, 1907. Paper Money Whole No. 144 FATE OF THE CITIZENS NATIONAL BANK OF OBERLIN, OHIO Early in Beckwith's dealings with Cassie the Citizens National Bank of Oberlin had been examined. He had concealed her original loan of $13,000 from the examiner by negotiating a temporary loan to himself, which he repaid immediately after the examination. The next scheduled examination of the bank took place in April 1904. At that time the outstanding loan of Cassie Chad- wick was $220,000, over $200,000 beyond the legal limit of the bank. Beckwith apparently convinced the examiner that the loan was adequately secured, by showing him the forged Car- negie promissory note. The examiner reported the loan in his report, but indicated that he did not feel the bank was in danger of sustaining a loss; he reported that the loan had been made to a "C.A. Chadwick," but did not indicate that this was a woman. Further, he did not indicate that the security for the loan was a note from Andrew Carnegie. Kane states, "Had this examiner advised the Comptroller of the Currency that the recipient of this large loan was a woman and that the security consisted of a note of Andrew Carnegie, the Comptroller would have made an in- quiry in regard to this woman and why Andrew Carnegie had executed his note to her for such a large sum of money, as Mr. Carnegie was not in the habit of having his notes in national banks." On November 28, 1904, six days after Newton's suit against Cassie Chadwick was filed, the Citizens National Bank of Ober- lin suspended operations and was placed in the hands of a re- ceiver. So complete was the faith of President Beckwith in Cassie that for several days after the bank suspended operations he still believed that she would come forward and meet her obli- gations. When Beckwith was asked why he had never ques- tioned the forged documents, he stated that he thought the Car- negie signatures were genuine, because he had seen Carnegie's signature in the newspaper! Arthur B. Spear. the cashier of the bank, was indicted, tried and convicted of making false entries in the books of the bank, for the purpose of hiding the excessive loans from the bank examiners and the Comptroller; he had certified that Cassie had a certain deposit in the bank when she did not. In his trial, his defense was that he had made these en- tries at the direction of President Beckwith, and that he had not personally profited from any of the transactions (he had even (Continued on page 195) A satirical note produced by W.J. Wells in 1905. Cassie's trial in 1905 drew enormous attention from the press, and Mr. Wells apparently felt it was a timely item. The bank in the left oval is "Busted." Paper Money Whole No. 144 Page 181 Treasury Serial Numbers by Year for the Early Large-Size National Bank Notes THE PAPER COLUMN by Peter Huntoon The tables that accompany this article provide the first serial numbers delivered to the Comptroller of the Currency each year for the various sheet combinations then in use. These data were abstracted from Comptroller of the Currency (various dates). Huntoon (1985a,b) and Huntoon and Raymond (1985) pre- sented tables showing dates during which various treasury serial block letters were in use. These data were useful in pinning down delivery dates to the Comptroller of the Currency (and therefore printing dates) for the popular plate combinations. However, for the little used combinations, such as the 50-100, one treasury block letter spanned most if not all of the period of use within a particular series. Thus, the beginning and ending dates were of little value because they spanned many years. This article is designed to rectify that problem. For example, if your note from an Original Series 10-10-20-20 plate has treasury serial 3500, you can use Table 1 to determine that it was printed in 1866. A dash in the table indicates that no notes were printed from the combination during that year. There were occasional out-of-sequence deliveries from the Bureau of Engraving and Printing to the Comptroller of the Cur- rency during the late Series of 1882 brown back and Series of 1902 red seal printings. These odd deliveries involved a total of only a few thousand sheets. The cutoff serials used in Tables 5 and 6 are the first serials for the "regular" deliveries and are therefore somewhat arbitrary. A few cautions are in order. (1) All serial numbers listed in these tables are sheet numbers, therefore each note on the sheet had the same number. (2) All Original Series serial numbers list- ed in these tables were printed in red ink unless specifically la- beled "blue." (3) The second set of Original Series treasury serial numbers for the 1 1 1 2, 5 5 5 5 and 10-10-10-20 combina- tions were printed with blue ink and without treasury letters. They are appropriately labeled in the tables if they were in use at the beginning of a specific year. (4) Treasury serial letters were prefixed to all Original Series serial numbers in 1869 if such let- ters were not then in use except for the 50-100, 500-500-500- 500 and 1000-1000-10001000 combinations. Serial number- ing was consecutive in the changeovers between the unlettered and lettered varieties. (5) Some treasury block letters used to number notes in a few combinations did not progress in alpha- betical order. (6) The Original Series 20, 20-50, 50 and 50-50- 100 combinations listed on Table 2 were denominations printed from larger plates. These part-plate combinations were each given independent blue treasury serial number sets. For more details on each of these points, see Huntoon (1985a,b). Out-of-sequence treasury serial letters occurred as follows: 5-5-5-5 Series of 1875, Y followed Z beginning in 1893; 5-5- 5-5 Series of 1882 brown backs, T then M followed Z in 1898: and 10-10-10-10 Original Series, W followed Z in 1875. In addition to adding prefix letters, other measures were taken to secure the treasury serial numbers in May, 1896. Most im- Table 1. First treasury serial numbers delivered to the Comptroller of the Currency by year for the Original Series National Bank Notes, part 1. 10-10- 10-10- 10-10- 10-20- 10-50- 20-20- 20-20- 20-20- 20-20- Year 1-1-1-2 1 1 2 2 5-5-5-5 10-10 10-10-10-20 20-20 20-50 50-100 50-100 20-20 20-50 20-100 50-100 1863 - 9 9 - - - 4 8016 5023 22 29 7 99 blue 10 1 - 57 50 43 36 5 9 874133 blue 384580 500472 15 9835 10877 24524 2914 11641 6 490467 blue A141 blue D356514 564984 668142 blue 1022 13949 - 19098 61161 3789 22532 7 B167591 D942828 612107 959717 blue 17293 - 20562 23841 8 B304076 E66435 617200 A10124 17893 1371 - - 71096 24683 9 B498137 1177194 621557 A41856 18193 - 21187 71226 4094 25183 1870 B764893 A10512 blue 1338865 Z629824 A92820 T18693 R1521 X23694 V72626 W26880 1 C181394 A10862 blue E752620 Z660086 A241262 Y3529 T20710 R1621 X25869 V79366 U4194 W29590 2 C858660 6776887 Z747673 A664071 T25831 R1821 X30146 V89667 04469 W33120 3 D375793 A15332 blue K711947 Z818338 B47509 14629 T28916 - X36332 V96199 U4669 W36412 4 D737424 L523555 Z876553 B302473 14929 - X37664 V110510 U5589 W41592 5 1159954 A17598 blue P82494 2961039 B765498 T33130 R2220 A349 blue X54210 V141642 U6539 W49659 Table 2. First treasury serial numbers delivered to the Comptroller of the Currency by year for the Original Series National Bank Notes, part 2. 50-50- 500- 3x500+ Year 50-50 50-100 50-100 100-100 500 1000 1000 4x500 1000 4x1000 20 20-50 50 50-50-100 1864 64 78 85 92 113 106 - 5 120 blue 45132 3483 1395 1869 541 370 120 127 6 527 blue 193051 7578 4669 9710 2123 804 - 134 - 7 235214 9970 5933 10661 932 - 8 2212 blue 240045 10070 6008 10774 2236 - 9 243145 10342 6168 10904 - - 1870 B2275 blue 250366 P10872 N6523 M11101 K2258 - - 1 82889 blue 261708 P11548 N7634 M11324 K2308 L952 - 2 B6403 blue 303544 P15730 N9936 812411 K2480 L1052 - 3 B6903 blue 345025 P16502 N10649 814172 K2495 L1152 - X22 blue 4 B7203 blue 387838 P20290 N12423 M14662 K2712 L1252 - X2786 blue K85 blue A22 blue A71 blue 5 89510 blue 491674 P24058 N14458 M16602 K2722 - 645 652 X34004 blue A922 blue Page 182 Table 3. First treasury serial numbers delivered to Paper Money Whole No. 144 the Comptroller of the Currency by year for the Series of 1875 National Bank Notes, part 1. 1-1- 10-10- 10-10- 10-10- 10-10- 10-20- 10-50- 20-20- 20-20- 20-20 20-20- Year 1-1-1-2 2-2 5-5-5-5 10-10 10-20 20-20 20-50 50-100 50-100 20-20 20-50 20-100 50-100 50-50 1875 Al - Al Al Al Al Al - - Al Al - Al Al 6 A17357 - A543356 A45726 A277067 A201 A201 Al - A551 A5056 - A301 A201 7 A479085 Al B972146 A208276 B90069 - A4498 3101 Al Al2101 A28600 Al A7551 A4151 8 B233805 - E211376 A343391 B608127 - A11021 - - A20776 A45984 - 2 16651 9 - - 11213996 A425763 390973 A701 Al2661 - A24375 A53811 - ',11367495A7951 1880 - - K129791 1522641 D467719 4801 133550 169930 117800 1 K982706 A600191 D785503 - A17416 - A37300 A76643 A18200 A8201 2 - U327976 A751925 E440661 - A20716 A1051 - A50837 A92337 A23258 A11051 3 - V409360 A808345 1163529 Al201 A22356 - - 156612 1100525 - 128766 114451 4 - X167705 A857295 11521526 A1534 A22756 - A143 A61757 A111852 - A28866 A17702 5 - X852017 A893108 H963325 - A23156 - - A66152 A119367 A298I6 A19452 6 2108767 A904508 K85775 - A23711 A67147 Al22312 - 7 2267867 A909008 K143795 A67272 Al22994 - - A20402 8 2359409 A911397 K176098 A67482 Al23264 A29876 A20602 9 2477459 A913587 K225088 - A23761 A67208 Al23374 - - 1890 2583409 A917432 K265750 - A23811 A68621 Al23919 - 1 2697589 A922192 K316320 - A23866 A68861 Al25064 - A21002 2 - - 2811269 A927242 K340381 A69176 Al25364 - A29926 A21082 3 4 - 2929319 Y85169 A933042 A942967 1<460836 1<547479 A69651 471416 Al25514 Al26014 - - - A21202 A22572 5 1214704 A949667 K614436 A71441 - - - A22812 6 1289567 A954642 K656919 - 1126124 - 7 Y350819 A959822 K740209 - Al26540 - - 8 Y438344 A963897 K789990 - Al26990 423222 9 - Y524879 A972222 K851709 - - - 1900 1557679 A974747 K878799 - Al27170 - 1 - Y581039 A978902 K986099 - - - - - 2 - Y587039 A980927 N10189 A30066 Table 4. First treasury serial numbers delivered to the Comptroller of the Currency by year for the Series of 1875 National Bank Notes, part 2. 50-50- year 50-100 50-100 100-100 500 500-1000 4x500 4x1000 1875 Al Al Al Al - 6 A20497 A1001 A51 A151 Al 7 A71422 A6701 A841 A1051 A41 Al 8 A116486 A8417 A1941 A2511 - 9 A146062 A11277 A2041 A2971 A661 1880 A176398 Al2847 A2531 A3071 A771 1 A196971 A13447 A2631 A3141 A781 2 A279406 A19847 A6102 A3891 A1788 Al 3 A332807 A22803 A9227 A3931 A1818 4 A374589 A25683 A9977 A4041 A1843 5 A410453 - - - - 6 A417854 - A10652 - 7 A420146 - - - 8 A421695 - A10752 - 9 A424807 - A10787 - 1890 A427583 - A10812 - 1 A431891 - A10837 - 2 A435658 - - 3 A440504 4 A447186 5 A448659 6 A449975 7 A453795 8 A455878 9 A458909 1900 A459169 1 A462419 2 - Paper Money Whole No. 144 Page 183 Table 5. First treasury serial numbers delivered from the Bureau of Engraving and Printing to the Comptroller of the Currency by year for the Series of 1882 Brown Back National Bank Notes. Year 5-5-5-5 10,-10-10-10 10-10-10-20 50-100 1882 Al - Al Al 3 A233904 - A209919 A20359 4 A600492 - A588264 A55061 5 B123607 - B327 A105647 6 D443488 - B945744 A207441 7 E122475 - D140270 A235707 8 E627230 - D497712 A258455 9 H285155 - D856198 A301294 1890 H787443 - E99294 A319861 1 K319812 - E395461 A348532 2 N78448 - E825478 A393623 3 N851764 - H362435 A437569 4 U311904 - K327992 A513903 5 V546634 - K961860 A561500 6 W638839 - N489203 A613638 7 Y120744 - R323434 A679923 8 Z717136 - R988147 A733737 9 M429936 - U40946 A850973 1900 A839536A - U724416 A900821 1 D100111D - X913986 B94503 2 D873829D - Z642907 B186068 3 E987839E - B888597B B279487 4 K70781K - E899794E B373746 5 N453581N - N37345N B471274 6 R381314R Al R717547R B541467 7 T612929T A77401 T811863T B578393 8 U803309U A219201 U884838U B615041 9 A273226 - _ Table 6. First treasury serial numbers delivered from the Bureau of Engraving and Printing to the Comptroller of the Currency by year for the Series of 1902 Red Seal National Bank Notes. Year 5-5-5-5 10-10-10-10 10-10-10-20 50-100 1902 Al Al Al 3 A161017 - A428902 A14143 4 A592834 - B437670 A60722 5 B115136 - D761166 A105056 6 D923406 Al K921325 A226281 7 K501349 A242054 T270483 A310964 8 N474961 A758997 V689772 A389531 orirriC , fl yagadutto" st. /// Y6(1 . X/// Page 184 Paper Money Whole No. 144 A significant $50 Original Series note printed from the unusual 20-20-20-50 plate combination. Table 1 re- veals that its treasury serial number, V171566, was printed in 1875. The First National Bank of Geneva, Ohio, was a 19-year bank organized under the Act of February 25, 1863. It was forced to liquidate on June 1, 1882, so was reorganized on May 2. 1882, under the same title but new charter number 2719. The original charter number, 153, was reassigned to the bank on April 11, 1917. It turns out that this was both the highest charter number so reassigned, and the last to regain a lost charter number from the 1882 reorganizations. (Photo courtesy of Doug Walcutt) portant was that brackets were introduced as terminators at the ends of numbers with prefix letters and at both ends in the unlet- tered 50-100, 500-500-500-500 and 1000-1000-1000-1000 combinations. More subtle but equally important was that gaps between teasury letters and the serial numbers were closed. In the early issues using prefix letters, low numbers came with gaps be- tween the treasury letter and the beginning of the number. These spaces were closed by moving the letter against the number. Table 7 lists transcribing errors that appear in Huntoon (1985a,b). The most interesting correction shows that 10-10- 10-10 combination Series of 1882 brown backs were being printed as late as one year after the other brown backs combina- tions ceased. Regular production from the 10-10-10-10 plates stopped on September 4, 1908. However, one lone 1909 print- ing was made for The First National Bank of Flatonia. Texas, charter 4179, utilizing bank serial numbers 1376 through 1625, and treasury serial numbers A273226 through A273475. These sheets were delivered on March 22, 1909. The reason for the post-March, 1908, 10-10-10-10 brown back printings is un- known. However, Series of 1902 red seals were printed simul- taneously with Series of 1902 dates backs between June and December of 1908 as well. Table 7. Corrections to errors in "National Bank Notes with Treasury Serial 1 and 1000000, parts I & II." Part I, Paper Money, whole number 118: Table 4 5-5-5-5 Original Series Jul (page 170) Table 4 5-5-5-5 Original Series Jul (page 170) Table 4 5-5-5-5 Series of 1882 Brown Mar 23, 1908 (page 171) Table 4 10-10-10-10 Series of 1882 Brown Backs Mar 22, 1909 (page 173) Mar 22, 1908 should be 28, 1863 should be Jul 28, 1864 29, 1863 should be Jul 29, 1864 Backs Mar 22, 1908 should be Part II, Paper Money, whole number 119: Table 1 50-50 519 blue should be 120 blue (page 217) Table 2 5-5-5-5 Mar 22, 1908 should be Mar 23, 1908 (page 218) Table 2 10-10-10-10 Mar 22, 1908 should be Mar 22, 1909 (page 218) Table 5 50-50 Original Series Dec 28, 1865 519 blue should be 120 blue (page 223) (Continued on page 190) Stars and Stripes, on this First Charter "Lazy Two," was engraved by Louis Delnoce. by WILLIAM LITT Mechanics Nalional Ranh /4//, , /,„„, uz Paper Money Whole No. 144 Page 185 The NATIONAL BANKING SYSTEM Serving Commerce and Industry at the Expense of Agriculture HE National Banking System was originally con- ceived as a response to the financial burdens placed upon the United States by the Civil War. The pri- mary purposes of the System were to raise revenues for the Union by establishing an outlet for the sale of govern- ment bonds, and to create a uniform paper currency that appeared trustworthy enough to circulate at its face value. Although the National Banking System was fairly successful in achieving its initial goals, it grew to be some- thing far more significant than a temporary currency re- form occasioned by the war. Despite the many ramifications of the National Bank Acts passed in 1863 and 1864, there appears to have been little con- cern in Congress about the long-term impact of the National Banking System. Most legislators viewed it as a temporary measure necessitated by the war and as such, a necessary evil. Opponents of national banking mainly consisted of defenders of state bank circulation, and although many Congressmen ques- tioned the bill's prospective effectiveness in financing the war, they were willing to try almost anything to generate the enor- mous amount of money required to support the Union army. Margaret G. Myers, in one of the earliest non-contemporary ex- plorations of the interaction between national banks and the New York capital market, contends that: ...nearly all were blinded by the war to the importance of the act as a permanent peace institution. They voted for it, not because they felt any enthusiasm for it, but because the President and the Secretary of the Treasury had declared it to be necessary—the same reason which had influenced the vote for the bill making the greenbacks legal tender. It seems exceedingly doubtful if the act could have passed Con- gress without the war emergency to serve as an excuse, for that body was neither anxious to legislate on banking nor con- scious of the full significance of their action when they did legislate.' Later implications aside, the National Bank Acts of 1863 and 1864 established a system of nationally chartered banks that were required to purchase United States bonds as part of their incorporation agreements. These charters were to be obtained through the newly created office of the Comptroller of the Cur- rency, and included minimum capital requirements that ranged from $200,000 in cities with populations of 50,000 or more to $50,000 in towns of 6,000 or less. Each nationally chartered bank had to deposit with the Comptroller, United States bonds equal to one third of its capital, and not less than $30,000. In addition to receiving the interest from the bonds, each bank was entitled to issue national bank notes totaling up to 90 percent of the par or market value, whichever was lower, of the bonds on deposit. The Gold Standard Act of 1900 lowered capital re- quirements for small-town banks and permitted the issuance of bank notes up to 100 percent of the value of the deposited bonds. Initially, circulation of national bank notes was limited to a total value of $300,000,000 for the entire country, although this limit was raised by $54,000,000 in 1870 in response to complaints that banks outside of the Northeast had received a disproportionately small share of the total circulation.' The Re- sumption Act of 1875 eliminated all restrictions on the amount of national bank note circulation. Although the concept of a bond-backed, uniform currency was a vital innovation of the National Banking System, the most Page 186 significant aspects of the System in terms of economic develop- ment were its reserve requirements, its restrictions on real estate-backed loans, and its lack of provisions for branch bank- ing. Because of a limited understanding of economics and the primitive structure of the nation's capital markets at the inception of the National Banking System, it appears that these regula- tions were intended simply to ensure the soundness of national banks, rather than to actively promote economic growth. Never- theless, the structure of these regulations almost certainly aided the unprecedented growth which the United States enjoyed during the heyday of the National Banking System. Reserve requirements were at the core of the National Bank- ing System's contribution to the growth of the New York money market, which was the source of most of the capital employed in the development of "modern" industry and the railroads. The National Currency Act of 1864 formalized the rather haphazard antebellum system of banker's balances by creating three classes of national banks and ascribing certain reserve requirements to each type.' New York was designated as the nation's central re- serve city, joined in this category by St. Louis and Chicago in 1887. 4 Eighteen cities were designated as reserve cities, with this number increasing to 47 during the next fifty years. National banks in the three central reserve cities were required to main- tain cash reserves equal to 25 percent of their deposits. Reserve city national banks could hold the reserves of other national banks, as could central reserve city banks, and were also re- quired to maintain 25 percent reserves. However, only half of these reserves had to be held in lawful money: the other half could be in the form of deposits in New York, and later Chicago and St. Louis, national banks. Non-reserve and central reserve city national banks were required to sustain 15 percent reserves, of which three-fifths (i.e. 9 percent) was permitted to be held as deposits in reserve city and central reserve city banks. This re- serve system was responsible for the accumulation of funds in the nation's capital markets, most notably New York, and since it allowed several banks to view the same assets as their required reserves, it actually created a money pyramid which, as will be seen later, accentuated the panics that occurred during the exist- ence of the system. The provisions limiting the loan portfolios of national banks were almost certainly intended to promote the security of the in- dividual banks by ensuring the greatest possible liquidity of their assets. The national banks in New York, Chicago, and St. Louis, the central reserve cities, were forbidden from making loans on real estate. Other national banks were permitted to grant loans of less than five years' maturity as long as each loan amounted to less than half of the appraised value of the land be- ing used as collateral. In addition, banks were not permitted to have total real estate loans that exceeded 25 percent of their capital. As a result, real estate loans accounted for a very small portion of national bank assets, and national banks were effec- tively prevented from granting mortgages. This preemption of mortgage activity from national banks, in addition to raising the ire of farmers, was partially responsible for the resurgence of state-chartered banks after their rapid decline following the 1865, 10 percent tax on state bank notes.' Another very signifi- cant result of the preemption of granting mortgages from nation- al banks was that they were left with a larger amount of money to invest outside of the immediate communities which they served. Most of this money found its way to national banks in New York, where it was held as additional bankers' balances be- yond required reserves. Not only did reserves and other bank- ers' balances earn interest from the New York banks, but this money was normally invested in the call loan market by the big Paper Money Whole No. 144 Wall Street banks for their client national banks throughout the country'. Another important aspect of the system was that it made no official provision for branch banks. Although the original Acts of 1863 and 1864 did not directly address the question, subse- quent interpretations by Comptrollers and Treasury Secretaries during the first few years of the National Banking System made it quite clear that branches outside of a bank's home city would not be tolerated.' The restrictions on branch banking were grad- ually relaxed in the system's later years, but it was not until the late 1920s that national banks were permitted to branch exten- sively within their home states, and truly nationwide branching was unlawful until very recently. These restrictions on branch banking encouraged national banks to keep bankers' balances in excess of required reserves with their correspondent banks in the reserve and central reserve cities in order to benefit from services, such as check clearing, which these banks offered. There is little doubt that the National Banking System aided economic development during the entire period from its crea- tion until at least the establishment of the Federal Reserve Sys- tem and the outbreak of the First World War. The manner in which reserves were held tended to "pyramid" funds in New York City, where they were almost invariably invested in the call loan market and the stock market. Furthermore, the preemption of mortgages from national banks encouraged them to invest their assets in non-real estate loans, usually various commercial enterprises. For rural national banks which had few opportun- ities to make business loans locally, this meant depositing funds with other, mainly national, banks in larger cities. These funds, as as stated, drew interest and were loaned out by the big-city banks to various industries, large and small, as well as railroads and similar concerns. The provisions of the National Banking Acts, which were construed as barring banks from operating branches, also had a substantial impact on economic growth, tending to reinforce the pyramiding of reserves and the creation of bankers' balances in excess of required reserves. While the National Banking System was a boon to commer- cial and industrial growth. it was less kind to rural America. The system, although in many respects a distinct improvement over antebellum banking, had a number of flaws. These flaws tended to hit harder amongst the agrarian population than elsewhere, a fact that did not go unnoticed by farmers and other critics of na- tional banking. Problems and Deficiencies of National Banking If the Government had offered a reward for the most skill- fully constructed scheme by which productive industry could be placed permanently and securely under tribute to speculators and idlers, the authors of the National banking system would have been entitled, without question, to a re- ward and to a diploma for their ingenuity.' —James B. Weaver, Call to Action Weaver, the People's Party candidate for President in 1892, devoted a chapter to the weaknesses and abuses of the National Banking System in his widely read treatise A Call to Action. The famous subtreasury plan, which was a cornerstone of the Popu- list platform was, in part, designed to combat certain aspects of national banking, which were particularly odious to farmers. Despite the fact that it provided a uniform, trustworthy paper currency for the first time in the nation's history, the National Banking System was under fire from the moment of its creation. During Congressional debates, opposition came from states' Paper Money Whole No. 144 rights advocates who were opposed to the dual banking system that the National Bank Act would usher in. As previously men- tioned, it is unlikely that the act would have passed were it not viewed as a wartime necessity. If the vehemently anti-Federalist Southern legislators had taken part in the vote, it is virtually cer- tain that the System would never have been adopted. Despite improvements in the security of banknotes and in banking effi- ciency, the National Banking System legitimized certain com- ponents of antebellum banking that proved unsuitable to the sta- bility of the United States' economy, and introduced a few new wrinkles which worked to the detriment of the rural population. Several recent studies of national banking have recognized that the practice of small-town bankers maintaining substantial balances with big-city banks existed long before the Civil War. In the days before checking accounts, these balances were used by city banks to redeem the banknotes of hinterland banks. They also assisted in the seasonal exchange of cash for crops and of- fered an unofficial but relatively secure depository for the assets of rural banks. When checks became commonplace, bankers' balances greatly facilitated check-clearing. The National Bank Acts merely gave the federal government's imprimatur to a well- established system. There were, however, a number of new twists that accentuated the institution's flaws. The system of fractional reserves strongly encouraged non-re- serve city national banks to maintain substantial bankers' bal- ances with reserve city banks, since these reserves usually earned interest for the banks and were thus far more appealing than holding reserves in the form of vault cash. Since banks in New York and most other large cities paid interest on bankers' balances, many banks deposited funds far in excess of the re- quired reserves.' The fact that interest was paid on bankers' bal- ances, coupled with the interdiction on mortgages imposed on national banks, tended to syphon funds from agriculture and in- to the call loan market and the stock market of New York. Mod- ern debate has turned on the question of whether national banks operated as price discriminating monopolists in rural areas. Al- though that question will be examined later, it is more important to note that farmers were either able to obtain credit only at usurious rates of interest, or were unable to obtain it at all. While noting that data are not comprehensive, Helen Hill Up- dike states that farmers typically paid 10 to 18 percent for loans, and sometimes as high as 30 percent. These rates fly in the face of state usury laws that set legal limits on interest at 6, 8, or at most 12 percent, and the federal limitation of 7 percent on all loans. In contrast, Updike cites typical loan rates for businesses on the New York money market as being about 4 percent.'° John Skelton Williams, then Comptroller of the Currency, car- ried out a 1914 study of interest rates and concluded that: ...some national banks in every part of the country and nearly all national banks in certain sections, have been charging rates of interest on some of their loans which are not only illegal and usurious, but are intolerable." The self-reliant American farmers sensed that they had fallen victim to the "thralldom of the money power,' and were quick to place the blame at the feet of the National Banking System and a nebulous monopoly of Eastern bankers led by the House of Morgan. Updike cites Populist journals that attribute the credit situation to the "millionaire bankers" representing Eastern inter- ests who are "immense, secret, cunning, unscrupulous" and creators of a system of "financial tyranny."' She also quotes Populist agitator Mary Elizabeth Lease, who stated: "We wiped out slavery and by our tariff laws and national banks began a system of white wage slavery worse than the first."" Page 187 In addition to the usurious interest rates which national banks were able to exact from farmers, the National Banking System drew fire from agrarian activists for a number of other reasons. Foremost among these was the contention that national bank notes provided an inelastic currency that was unsuited to the seasonal demands of agriculture and compounded the defla- tionary tendencies of the gold standard. During the early years of the system, the problem was primarily one of physical availa- bility of banknotes. Since branch banking was not permitted, the original requirement of at least $50,000 capitalization served to deprive many small towns of a national bank. Initially, state- chartered banks often filled the gap. However, the increasingly heavy federal taxes placed on state bank notes eventually drove many state banks to convert to national charters. The National Bank Acts called for a maximum national bank note circulation of $300,000,000, to be apportioned according to population and existing banking facilities. Despite this provision, when the rush for national charters occurred in the aftermath of the final 10 percent tax on state bank notes, existing state banks that con- verted were assigned note circulation on a first-come, first- served basis. Richard Sylla has calculated that by October 1, 1866—when most state banks had converted to national status and $280 million of the authorized $300 million had been is- sued —notes issued to banks in the New England, Middle At- lantic, and "East North Central" regions of the United States ac- counted for $262 million of the total.' Sylla asserts that the South and "West North Central" regions, which at the time har- bored almost 40 percent of the country's population, were allot- ted only about $10 million of the national bank note cir- culation: 6 The state of Connecticut had more national bank note circulation than Michigan, Iowa, Minnesota, Kansas, Mis- souri, Kentucky, and Tennessee combined. The per capita cir- culation of Rhode Island was $77.16, while that of Arkansas was $.13. " Although an additional $54,000,000 was authorized in 1870, with preference given to banks in areas that had not re- ceived a fair portion of the original authorization, and all restric- tions on total circulation were removed in 1875, the shortage of national bank notes only grew worse. The reason for this de- crease in circulation was simple: in 1880, the United States be- gan to run a budget surplus due to unexpected increases in cus- toms revenue; in response, the Treasury started to reduce the national debt by retiring all callable bonds and purchasing others in the open market. This led to large premiums on bonds, which substantially reduced the profitability of issuing bond-backed notes. The total amount outstanding declined from about $300 million in 1880 to $126 million by the decade's end. Although circulation increased again in the 1890s, when bond prices fell, it did not regain its earlier peak." Although the decline in na- tional bank note circulation was offset, in part, by increases in the amount of other types of paper money — especially silver certificates—in circulation, rural activists viewed the process as a rather sinister phenomenon. It did not seem fair to them that the amount of currency in circulation should depend upon the pro- fitability of holding bonds to back the paper money issued. In es- sence, the amount of paper money issued depended upon how much profit could be made by private bankers by issuing it. In the words of James B. Weaver: The fundamental vice which underlies the National banking system is this: It is the surrender of one of the high- est duties and powers of the Government to the control of private speculators to be used for personal gain. It is an at- tempt to harmonize the interests of private adventure with the demands of the whole people at all times for a stable and adequate money supply.' Page 188 Another contemporary critic saw the laws establishing national banks as being " . . of the same character of vicious legislation that demonetized silver. - And that they were " . . . conceived in infamy and . . . for no other purpose but to rob the many for the benefit of the few."" High interest rates and depressed prices resulting from a limited amount of currency in circulation were aspects of the Na- tional Banking System which hit farmers especially hard. How- ever, the inelasticity of national bank notes, coupled with the "pyramiding" of reserves and bankers' balances in New York, had dramatic repercussions for the entire country. In addition to long-term inelasticity caused by its dependence on the bond market and government fiscal policy rather than the needs of the business community, national bank currency was equally unresponsive to short-term business requirements. Dur- ing periods of prosperity, when an increase in the money supply was desired, national banks had more attractive options than purchasing government bonds, so their note circulation de- clined. In times of recession, the process was reversed and cir- culation increased despite a decrease in the demand for money. Just as the needs of the business community had little effect on national bank note circulation, so too was the System inade- quate to provide the extra funds needed by farmers for planting in the spring and for harvesting and transporting crops in the fall. This inelasticity was compounded by the fractional reserve system. The system of "pyramided" reserves in New York tend- ed to immobilize a substantial portion of small-town national bank reserves, with the effect that the seasonal demands for funds by farm communities led to a massive withdrawal of funds from New York by rural banks twice per year. During these per- iods of reserve withdrawal, credit in the New York money mar- ket tightened and interest rates rose, leading to mild crises twice each year. Usually, the financial community was able to pull through until the heightened agricultural activity spent itself, but occasionally the demand for funds was larger than anticipated or the banks had difficulty with liquidating their loans. Under these circumstances, the typical response of New York banks was to suspend payment of their obligations to their correspond- ent banks in the countryside. Thus localized financial stringen- cies snowballed into nationwide panics in 1873, 1884, 1893 and 1907. Herman E. Krooss and Martin R. Blyn, in A History of Financial Intermediaries, offer a synopsis of the role of nation- al banks and bankers' balances in the Panic of 1873: Another similar seasonal difficulty developed in the spring of 1873, but this time liquidation of loans and securities was difficult because of weaknesses in railroad securities. Three brokerage houses suspended operation in May, but by June the situation was so much improved tha businessmen decided that a new spurt of prosperity was about to begin. Unfortunately, this optimistic view was ill-founded. Rail- roads could not continue to meet their fixed charges, capi- tal imports declined from their high level, and the stock market began to fall. Banks began to contract credit, coun- try banks clamored for funds, and hoarding by individuals increased. In September seven New York banks, holding 72 percent of total interbank deposits, could not liquidate their loans fast enough to meet the increasing demand for funds, and in a short time they were operating with a re- serve deficiency. Businessmen and banks had nowhere to turn, and with progressively accelerated speed, the New York money market headed for inevitable disaster.' A particularly ironic aspect of the system of fractional reserves Paper Money Whole No. 144 was that it frequently allowed the city banks to impose the in- elasticity of the money supply on their correspondent country banks. When the cyclical agricultural demand for cash coincided with urban financial stringencies, and city national banks sus- pended payment of bankers' balances to the hinterland, it forced the country banks to bear the brunt of financial crises; the irony was that the city banks remained relatively secure at these times because of the "cushion" of specie in their vaults, much of which actually consisted of deposits owed to country national banks. Helen Hill Updike cites this component of financial panics as a probable explanation for the difference in failure rates between country and city banks and the fact that city banks failed more or less randomly, while large numbers of country banks failed dur- ing panics." The crux of the problem was the fact that fractional reserves and bankers' balances created de facto central banking in New York City. Ordinarily, this might not have been detrimental to the economy as a whole. The difficulty arose, as demonstrated previously, in times of financial stringency coupled with a heav- ier-than-usual demand for money. When demand for funds in- creased, banks were unable to meet it because no provision had been made to hold emergency reserves. Since the 25 percent reserve requirement was a minimum, below which reserve city national banks were legally unable to go, it acted to preserve the soundness of the individual bank at the expense of the economy in general. Even if national banks were willing and able to issue more currency, the process normally took one to two months. The series of panics that occurred approximately once each decade during the period from 1863 to 1914 can be attributed to the lack of an official central bank and lender of last resort as much as they can be to inelastic currency supplies. New York, and to a lesser extent Chicago, national banks were forced to operate as lenders of last resort in times of financial difficulty, but they lacked the ability to control the money supply and stabilize the money market and, of course, were interested first and fore- most in making money themselves rather than operating simply for the good of the United States. Central reserve city national banks were aware of their posi- tion as de facto central bankers. Frequently they attempted to expand their loans in times of credit stringency," although at higher interest rates, but this was usually too little too late. Another method of mitigating financial crises was through clear- inghouse certificates. Clearinghouses had developed during the 1850s and 1860s in most large cities to facilitate check clearing and money transfers between banks in the same city. During the Panic of 1907, clearinghouse certificates were issued in small denominations for use by the general public, thus giving some flexibility to the currency. The Aldrich-Vreeland Act of 1908 was passed in response to the 1907 crisis, and one of its most important provisions was the establishment of a system for creat- ing clearinghouses known as National Currency Associations, which could issue additional amounts of national currency, identical to other national bank notes but backed by commercial paper, non-federal government bonds, and clearinghouse cer- tificates. A stiff tax was imposed on these bank notes in order to encourage their quick retirement after the crisis for which they were issued had passed. Although the Act expired in 1915 and was superseded in 1914 by the Federal Reserve System, it func- tioned quite well during the 1914 panic occasioned by the out- break of the First World War. Several analysts of national bank- ing have concluded that the system might have continued oper- ating successfully without the creation of the Federal Reserve if the Aldrich-Vreeland Act had been extended and some form of Paper Money Whole No. 144 Page 189 The portrait of Secretary of the Treasury John Sherman, on this Third Charter note, was engraved by G.F.C. Smillie. deposit insurance established." Although space does not permit an exploration of the Federal Reserve System, suffice it to say that the economic conservatism of the period during which it was created, in addition to a reluctance to establish a European- style central bank, made it a painfully imperfect solution to the problems of national banking until the sweeping reforms of the New Deal era. Conclusion One of the most frustrating aspects of researching the Nation- al Banking System is the fixation on economics bound up in vir- tually every work on the subject. While bringing modern tech- niques of economic analysis to historical questions is both valid and extremely useful, there is a tendency to ignore or downplay the human components of a given situation. The National Banking System itself was rather complex, and any exploration of the topic must necessarily delineate the provisions of the most significant laws pertaining to national banks. However, most of the scholars who have turned their attention to national banking have been economists or economic historians; conversely, most of the contemporary criticism of the National Banking System came from agrarian activists and other reformers, and was highly impressionistic in nature. Although several modern analyses of the system have attempted to reconcile the impas- sioned complaints of nineteenth century farmers with hard-core economic analysis, the typical result is an essay filled with tables, formulas, and equations, which happens to have a few quotes from Populist journals thrown in as an apparent afterthought. The most important recent essays on national banking have been primarily concerned with two questions: 1) did national banks operate as price discriminating monopolists in rural areas? and 2) did small-town national banks take funds that should have been invested locally, probably in agriculture, and send them instead to reserve and central reserve cities to be invested in the stock and call loan markets? Although farmers had long blamed the high interest rates and discriminatory lending policies of national banks on some shadowy "eastern monopoly," Richard Sylla was the first writer to systematically tackle the question of whether rural, southern, and western national banks operated as individual monopolists. Sylla concluded that barriers to entry, such as minimum capital requirements, prohibition of mortgage loans, and ceilings on note-issue, coupled with the 10 percent tax on state bank note issues in an era when checks were not commonly used outside of major cities, led to monopoly power for small-town national bankers. The fact that bankers' balances, including three-fifths of required reserves, could be held in distant cities and earn inter- est allowed country banks to keep the local supply of loanable funds artificially low. As proof of this he cites markedly higher interest rates in rural areas and the south and west in general, as well as higher profits for national banks in these regions than for those in eastern cities." Helen Hill Updike, in a book subtitled "The Farmers and the National Banks, 1870-1900," questions Sylla's conclusion. While allowing that his hypotheses are con- sistent with observed reality, she notes that bankers' balances were not a creature of the National Banking System, existing at least forty years before the system's creation. More importantly, she questions why city bankers did not place funds in rural areas where monopoly returns could supposedly be earned. Ignoring the fact that an influx of capital from cities would eliminate the "artificially low level of loanable funds" held by country national banks, she suggests that bankers maximized real rather than money rates of return, and that real rates of return for country bankers were lower than for city bankers because of a greater risk of failure." Both Sylla and Updike agree, however, hat the structure of the National Banking System did indeed serve to cull funds that might have been invested locally in agriculture and instead send them to serve commerce and industry in the nation's financial centers. Sylla and Updike, while noting that the effects of national banking on farmers were cruel and resulted in a great deal of hardship, both contend that the system resulted in a more effi- cient allocation of funds to the most rapidly expanding segments of the economy. It is doubtless true that the National Banking System pumped a great deal of necessary capital into industrial and commercial ventures and thus contributed to the unprece- dented economic growth of the United States between the Civil and First World Wars. However, to dismiss agriculture as a de- clining segment of the economy is to ignore the human suffering brought about by this "efficient" allocation of funds. Sylla at his most sentimental stated: The process of bank fund mobilization was a harsh one as far as the nation's farmers were concerned .... But the his- tory of modern economic growth is one of the declining rel- ative importance of agriculture and the rising importance of industry; in the United States, banking developments merely hastened these trends." Page 190 A century after the fact, it is easy to view the National Banking System dispassionately. Panics are a thing of the past, the dark days of '93 and '07 are relegated to passages in dusty books and the occasional clearinghouse certificate seen in a coin dealer's showcase. Although national banking as it existed before the Great Depression is long gone, the words of James Weaver con- jure up visions of the terrible poverty and long odds that faced late nineteenth century farmers, and the role which the National Banking System played in their economic oppression: .. the American people are within the hands and com- pletely at the mercy of a lot of grinding speculators . . . what shall we say of the social structure when built upon a feeble and vicious financial foundation-when it depends for its strength and efficiency upon the speculative interests of a lot of adventurers?" The National Banking System did indeed contribute substantial- ly to economic growth in the United States, but at what cost? Notes ' Myers, New York Money Market, p. 218. 2 Sylla, "The United States, 1863-1913," pp. 243-244. Ibid., p. 249. Treasury, National Bank Act, p. 62. White, The Regulation and Reform of the American Banking Sys- tem, 1990-1929, pp. 23-25. Myers, pp. 237-250. White, p. 14. a Weaver, A Call to Action, p. 400. 9 Myer, p. 236. '° Updike, The National Banks and American Economic Develop- ment, 1870-1900, p. 27. " Annual Report of the Comptroller of the Currency, 1915, Vol. I, Washington, D.C., 1916, p. 23. Cited in Updike, p. 28. 12 Broken Bow, NE, Beacon, 1895. Quoted in Updike, p. 26. 13 Updike, p. 26. " Ibid., p. 27. Sylla, pp. 243-244. 10 Ibid., p. 245. " Krooss and Blyn, A History of Financial Intermediaries, p. 100. is Carson, ed. Banking and Monetary Studies, pp. 22-23. 19 Weaver, p. 395. 2° Frank Drew, quoted in Hicks, The Populist Revolt, p. 92. Krooss and Blyn, p. 101. 22 Updike, p. 56. 23 White, p. 70. " Carson, ed., p. 38. Sylla, pp. 246-247. " Updike, p. 25. 20 Sylla, p. 258. 28 Weaver, pp. 400-401. Bibliography Campen, James T. and Mayhew, Anne. (Mar. 1988). "The National Banking System and Southern Economic Growth: Evidence from One Southern City, 1870-1900." The Journal of Economic History 48, no. 1: 127-137. Carson, Deane, ed. (1963) Banking and Monetary Studies. Home- wood, IL: Richard D. Irwin, Inc. Goodwyn, Lawrence. (1978). The Populist Moment. New York: Ox- ford University Press. Helderman, Leonard C. (1931). National and State Banks. Cam- bridge, MA: The Riverside Press. Hickman, John and Oakes, Dean. (1982). Standard Catalog of Nation. al Bank Notes. Iola, WI: Krause Publications. Hicks, John D. (1931). The Populist Revolt. Minneapolis: The Univer- sity of Minnesota Press. Krooss, Herman E. and Blyn, Martin R. (1971). A History of Financial Intermediaries. New York: Random House . Paper Money Whole No. 144 Myers, Margaret G. (1931). The New York Money Market. New York: Columbia University Press. Perlo, Victor. (1957). The Empire of High Finance. New York: Interna- tional Publishers. Sylla, Richard E. (1972). "The United States, 1863-1913," in Camer- on, Rondo ed. Banking and Economic Development: Some Les- sons of History. New York: Oxford University Press. Treasury Department. (1930). The National Bank Act as Amended De- cember 1, 1930. Washington: United States Government Printing Office. Updike, Helen Hill. (1985). The National Banks and American Eco- nomic Development, 1870-1900. New York: Garland Publishing, Inc. Weaver, James B. (1892). A Call to Action. Des Moines: Iowa Printing Co. White, Eugene Nelson. (1983). The Regulation and Reform of the American Banking System, 1900-1929. Princeton, NJ: Princeton University Press. Huntoon (Continued from page 184) REFERENCES CITED Comptroller of the Currency, various dates, Ledgers showing receipts of national bank notes from the engravers: U.S. National Archives, record group 101, Washington, DC. Huntoon, P., 1985a, National bank notes with treasury serial 1 and 1000000, part I: Paper Money, v. 24, pp. 167-174. Huntoon, P., 19856, National bank notes with treasury serial 1 and 1000000, part II, Paper Money, v. 24, pp. 214-225. Huntoon, P., and W.K. Raymond, 1985, National bank notes with treasury serial 1 and 1000000. part III: Paper Money, v. 24. pp. 266-268, 277. STATEMENT OF OWNERSHIP, MANAGEMENT AND CIRCULATION IA lo of PueficsBoo PAPER MONEY 10 PUBLICATION NO 2 Omo ol ;ono °I°1 3 ITIrkrill Sept. 13, 1989 J. itopooncy or Isouo Hi-monthly An.ZollY"" 6 1 20. 00 4 Pereelere 1.1•11, /Weir... ol [.own 011peo 01,91.11. 15.ceo. Coy. ...sy. sm. one VP. Led • I Mn annual 1211 N. Dupont Highway, Dover, Delaware 19901 1211 e N. Dupont Highway, Dover, Delaware 19901 Dover Litho Printing Co., 1211 N. Dupont Highway, Cover, Delaware 19901 Gene Hessler, P.O. Box 8147, St. Louis, Mo. 63156 Dover Litho Printing Co., 1211 N. Dupont Highway, Dover, DE 19901 rud /I- .afr o Fa Nom* Com... Melling sae... The Society of Paper Hones Collectors ee „ere ,.. ° ..... eed or., Boeur11,1oldors C.n.no o, 07.9 1 P. ,B•M B , ..,... T,c. ',BBL." , , BL.L..”LB LB .• .' ... Full Nome Complolo BlellIn. Addrm 9 C . IE. rt I El it:LP 'InVn:"' I: 't!,':::%°;'f ,°=. ZrZ ft,1':,".n".""‘"`"'°"""' m 0 of 1•Lon A Taal No Copies. P 2,000 1900 2 Alo revu e su d, 1,772 1763 C Tool Z"°'""'"" 1,772 1763 8 8 F oul Mu 0 on of C ..d. 1,780 177' fll'i 220 129 2,000 1900 cer/Hy that rheas "."5"^-•--""'""°' '';'" ma shove ere cos en made by rrect end complete I -gal-9..z 7., ...e.-,.(j i?.,./44 PS PoIrn 3626, ow. 1927 Paper Money Whole No. 144 The Dollar Tessie ames Never Got (Or did he?) by STEVE SCHROEDER This innocent looking dollar bill is a reminder of the most famous bank robbery in the history of Minnesota. O N September 7, 1876, eight men entered Northfield torob the First National Bank. They were Bob, Jim andCole Younger, Clel Miller,Charlie Pitts, Bill Stiles (also called Bill Chadwell) and two men thought to be Frank and Jesse James. Three of the men (Pitts, Bob Younger, Frank James) entered the bank. The assistant cashier, J.L. Heywood, and two tellers, A.E. Bunker and F.J. Wilcox, were working there that day. The robbers demanded that Heywood unlock the safe. He said he couldn't unlock the safe, which was true since it was already unlocked with the door shut. The tellers would not open the safe either, and the robbers were not smart enough to not try opening it themselves. After a few minutes of this cat and mouse business, one of the robbers shot and killed Heywood and the three grabbed a few dollars in the tellers' cages and fled. Page 191 While this was going on inside the bank the other five gang members were standing watch at various places outside. J.S. Allen and Henry Wheeler, a medical student home from studies at the University of Michigan, noticed the men entering the bank. Allen tried to enter the bank, but was stopped by Clel Mill- er. When this happened Allen ran around the corner shouting, "Get your guns boys, they're robbing the bank." By this time shots had been fired in the bank. Allen owned a hardward store where he passed out shotguns to several towns- people who used them against the robbers. Wheeler found an old army carbine and three shells at the hotel. Anselm Manning, a carpenter, found an old breech-loading rifle and some ammu- nition. Although the others were armed only with shotguns. Manning and Wheeler did real damage. Manning could not at first get a good shot at any robber, so he shot one of their horses, figuring this would effectively disable the gang. After re- loading he shot Cole Younger "in a vulnerable though not vital place" (as the historian Huntington wrote in 1895—which could have many meanings). Reloading again, Manning took careful aim and shot Stiles through the heart. Meanwhile Dr. Wheeler, firing from an upper window, killed Clel Miller with a single shot. Finally, Manning shot Bob Younger in the elbow, shattering the bone. At this point the robbers fled as best they could. Stiles, who was the guide for the group, was dead. The robbers fled to the southwest and split into two groups. The James brothers es- caped to Missouri. The Youngers and Charlie Pitts tried to flee, but got lost in the area. A posse, organized by Jesse Ames, lost their trail on the 14th. On the 21st a young boy, Asle Oscar Sorbel, whose identity was not generally made known until 1929, spotted the group. Over the objections of his doubting parents he went to Madelia and reported what he had seen. Sheriff James Glispin organized a group that captured the Youngers in Hanska Slough. Pitts was killed in this fight. There is an amusing footnote to this story. Cadavers were in short supply at medical schools in 1876. The Northfield towns- people quickly buried Stiles and Miller, but Wheeler and two Action in the street. Woodcut from John Jay Lemon, The Northfield Tragedy (1876). Gang spilt up here on way to robbery Frank and Jesse James rode stolen horses Into South Dakota on Sept. 17 • St James St. Paul • Bank held up Sept. 7, 1876 N Northheicl Millersburg Shieldsrdle Cordova Gorman Lake '9 • unO11 Cannon Cry •/ Cry The group split up here Sept. 14 Chortle PIRs three Younger brothers captured on foot hare Sept. 21 lako. Lake • Crystal Hansks