The Suffolk Difference
That the Suffolk system was able to provide note redemption much more cheaply than the U.S. government was stated by a U.S. comptroller of the currency.
John J. Knox compared the two systems from a vantage point of half a century.
In 1857, the redemption of notes by the Suffolk Bank was almost $400 million, as against $137,697,696 in 1875, the highest amount ever reported under the national banking system.
The redemptions in 1898 were only $66,683,476 at a cost of $1.29 per thousand.
The cost of redemption under the Suffolk system was 10 cents per $1,000, which does not appear to include transportation.
If this item is deducted from the cost of redeeming national banknotes, it would reduce it to about 94 cents.
This difference is accounted for by the relatively small amount of redemptions by the Treasury
and the increased expense incident to the necessity of official checks by the government and by the higher salaries paid.
But allowing for these differences, the fact is established that private enterprise could be entrusted with the work of redeeming the circulating notes of the banks, and it could thus be done as safely and much more economically than the same service can be performed by the government.
The New England system, from its start in 1863 to about 1898, is put by Mr. Knox at only $54 million. Further, at its peak in 1858, $400 million was redeemed, but the New England money supply was only $40 million. This meant that, astoundingly, the average note was redeemed 10 times per year, or once every 5 weeks.
Bank capital, note circulation and deposits, considered together as quote banking power, grew in New England on a per capita basis much faster than in any other region of the country from 1803 to 1850.
And there is some evidence that New England banks were not as susceptible to disaster during the several banking panics during that time.
In the panic of 1837, not one Connecticut bank failed, nor did any suspend species payments.
Payments.
All remained in the Suffolk system, and when in 1857 species payment was suspended in Maine,
all but three banks remained in business.
As the Bank Commission of Maine stated,
The Suffolk system, though not recognized in banking law, has proved to be a great safeguard
to the public.
Whatever objections may exist to the system in theory, its practical operation is to keep
Keep the circulation of our banks within the bounds of safety.