Suspension.

In the last days of December, 1861, all the banks suspended. This they did without any earnest attempts to avoid it, and certainly without any necessity. Instead of regarding a suspension as a calamity to be submitted to only after years of war, when the national resources should be actually exhausted (as the suspension of the Bank of England proved that it is), many looked upon it as the natural preparation for war.

This suspension greatly complicated the situation. Gold rose to a premium of one or two per cent., at which it remained until April. The 202,000,000 of bank paper, or rather the 150,000,000 in the Northern States, proved the stumbling block in the way of all sound financial measures. The influx of the precious metals in the previous year together with the supply from California, and the amount previously existing, gave 200 or 250 millions of gold in the Northern States on the 1st of December, 1861, together with 150,000,000 of bank paper, an amount amply sufficient to float government loans, or to allow 200,000,000 of government notes to be issued, if the bank-notes had been withdrawn. This specie, however, could not stay in the country, if the bank-notes remained, filling the channels of circulation, and not subject to redemption, so soon as the government made any additions.

The specie borrowed by the government from the banks, and expended, would have found its way back to the banks if unimpeded in its circulation, that is, if it had been the only currency; but, with irredeemable notes afloat and gold at a premium, this gold was withdrawn and hoarded, and only appeared again to be sold at the high premium two or three years after.

The government could not borrow more gold of the banks, having exhausted their stock, and, if it borrowed further, must take irredeemable notes which might be multiplied to any amount. This was made the great argument for the Legal Tender Act, and was another way in which the bank-notes clogged the movements of the government.

The economy of convertible paper issues is assumed and repeated by many persons who have never taken the pains to analyze that economy to see wherein it consists, and how great it is. I am not prepared to take “ total abstinence “ ground against paper issues, because I believe that they may be made useful and economical, though we have not yet learned how to do it, but whenever the account is made up of the advantage and cost to the American public of their bank issues, there will be a heavy charge on account of the loss and mischief they caused at the outbreak of the war, to say nothing of the previous losses from panics and commercial crises which they helped to bring about.

It would be tedious and unnecessary to follow here the various financial manoeuvres of the winter of 1861 and 1862. It is a simple record of temporary makeshifts alternating with one another, frittering away the credit of the government, disregarding its true resource in the patriotism of the people, and offering large profits to those who handled the government loans. Of the banks, those which clung to the old-fashioned principles of finance, disapproved of the course things were taking, and refused to participate, found themselves losing. Those which fell in with the new order of things made enormous profits.