Page:A History of Banking in the United States.djvu/445

 : "In the one case the notes are redeemed for the benefit of the holder without profit to the bank; in the other, at the cost of the holder for the benefit of the bank." The money of account of New York was one-quarter of one per cent. below that of New England.

The New York clearing house began operations October 11, 1853, in the basement of 14 Wall street. Its first effect was to force some contraction of bank loans. The same effect was produced by the requirement by law of weekly bank statements, which went into effect August 1st. Both had the obvious effect of forcing the banks to higher and more uninterrupted degrees of banking soundness and security.

Individual bankers doing business under the general banking law were forbidden, by a law of 1854, to sell the business. They were required, upon discontinuing, to pay back the notes and take up the securities.

The Superintendent, in that year, said that it was not believed that the mortgages in the guarantee fund of the free banks had brought more than seventy-five per cent. of their face value, when it had been necessary to sell them. He inferred that, for this reason, and also because they were not capable of prompt realization, mortgages were not properly available as security for currency. A year later he said that there had been only a single instance in which the circulation of a failing bank had been redeemed in full at par, when the circulation was secured by bonds and mortgages, and not any, when it was secured by the stocks of other States than New York. The use of mortgages as a basis of circulation was abolished April 29, 1863.

Any bank was required, by a law of April 30, 1857, if it held more than $10,000 in the notes of another bank, to present them as often as once a week, in the exercise of its right to demand redemption. Each bank must also elect, and make known its choice, whether it would take the redemption of its neighbor's notes at the counter or at the redemption agent's. This law was complained of as giving banks days of grace. Its constitutionality was disputed, as it was signed more than ten days after the Legislature adjourned.

From 1844, the railroads were constantly in the market, borrowing. Money could hardly ever be had outside the banks for six per cent.

The discovery of gold in California and Australia at the middle of the century produced the same effect on the whole civilized world which is produced locally by an issue of irredeemable paper money, with the difference that it was limited in its amount, and in the rate of its introduction into the circulatory system, by the difficulty of production, and also that, having once been introduced, it was not again withdrawn. The trade to California was exceedingly speculative. A cargo might arrive when the market was bare, or it might arrive with a number of others. The increase of price fell first upon the things which the miners wanted. The new gold passed, in the first place, into the hands of the merchants dealing in these goods. From them it passed to the producers of the same. From them to those