FINANCIAL INSTITUTIONS SINCE 1860
Introduction. The continuation during this period of the rapid rate of economic development that marked the period before 1860 of course necessitated a corresponding expansion of this country's financial institutions. This need was made the greater because of the steadily growing importance of capital as a factor of production and the concomitant increase in the size of the typical business concern. Financial institutions that would facilitate the accumulation of capital funds on a large scale and would aid in directing the flow of those funds into the lines of economic activity where they would prove most productive thus became more important than ever. For the same reason it became all the more desirable that such institutions be made to function in the most efficient manner and that numerous defects which, in spite of the marked improvements made during the preceding period, still existed in 1860 should be minimized if not eliminated.
Particularly important was the problem created by the great expansion of the financial devices by which credit in its multifarious forms was being extended. Increasingly credit was displacing money in the settlement of financial transactions, a credit economy prevailed, and the dangers and abuses to which the use of credit is subject were seldom adequately controlled or even recognized. The relative scarcity of capital, which remained a fundamental factor in shaping our economic development until at least the close of the century, operated only to increase these undesirable tendencies. Finally, the Civil War with its financial strain wrought marked changes in both monetary and banking conditions and the manner in which this temporary emergency led to important and enduring alterations in these conditions is one of the interesting lessons revealed by the history of this period.
The Circulating Medium--The Greenbacks. At the close of the Civil War the circulating medium of the country presented a very different aspect from that which existed in 1800. (1) The amount of money in circulation had increased nearly two-thirds. (2) All specie had disappeared from general circulation and paper money alone was in common use. Of this paper money the greater portion, some $400 million, was made up of United States notes, commonly called "greenbacks," and the re-