Continuing with Gerald Nathan Hodgson’s Northwest family narrative, with thanks to Michael Howard Hodgson:
The economics of those days were considerably different than those of today. The only completely dependable money was either gold coin or yellow-backed gold certificates. Mortgages and leases were ironclad; that is, they tied up everything you had and to add injury to insult, they were made out payable in gold — a proviso that was not usually enforced because it was unenforceable. People who had gold and could, hung onto it and spent silver and silver certificates. I don’t know whether it was still legal for banks to issue money on their own authority in Dad’s day but in an earlier day it was common — if the bank failed so did the money. A form of greenback called the National Banknote was in circulation — a sort of carryover from the old banknote — guaranteed by the Federal Treasury and based on the National Debt. It was started during Lincoln’s time to finance the Civil War. A private bank could invest most of its deposits in government bonds, deposit the bonds with the National Bank and receive the National Banknotes in return for up to 90% of the face value of the bonds — changed to 100% during World War I.
The National Banknotes the banker received bore the name of the local bank and the engraved signature of its president — a sort of limited paper inflation and the Government paid the bank interest on its bonds for the use of its name. The National Banknotes were a political football up till the time they were all called in during the first years of FDR’s administration. The Federal Reserve Banks, started earlier, have pretty well replaced them with Federal Reserve Notes. We no longer have bimetallism, and the money is as good as the government behind it — and no better! In due course, along came the depression of 1893 and the Election year of 1896 when William J. Bryan ran for president on the platform of free coinage of silver on a basis of 16 to 1 with gold — taken by itself, it wouldn’t have been a patch on some of things that have happened since. Through fear, concerted action or both — banks refused to lend money and business shut down. It wouldn’t happen today, but Bryan was defeated and McKinley went to his inauguration and later, death. With restored confidence, business picked up, gold ‘from the Klondike and McKinley’s Federal Reserve Law plus the war boom of ’98.