FEDERAL BANKS AND FINANCIAL ORGANIZATION 59 



According to the law a banking association upon depositing bonds 

 with the treasurer of the United States could receive circulating notes to 

 the amount of 90 per cent, of the current market value of the bonds deposit- 

 ed — not exceeding however 90 per cent, of the par value. The amount of 

 notes to be issued was originally limited to .$300,000,000, to be apportion- 

 ed to banks in the different States according to population and existing 

 banking conditions and necessities. The system was to be supervised by a 

 bureau of currency in the Treasury department. 



§ 2. The causes of the reform of 191 5. 



Under the Act of 1900 a national bank could be organized with a ca- 

 pital of $ 25,000 (i) in a town with a population not exceeding 3,000. Cir- 

 culation was increased to the full face value of bonds deposited so long as 

 they stood at par or above par. The number of national banks increased 

 from 3,595, in 1899 to 7,301 in 1911. The extension of the national system 

 was especially rapid in the South and West on account of the reduction 

 in the stipulation as to minimum capitalization. State and private banks 

 were converted into national institutions and many new banks were organiz- 

 ed, nearly one half of the new organizations having a capital of only 

 §25,000. The circulation nearly trebled between 1900 and 1911, increas- 

 ing from §254,000,000 to §739,000,000, or by an annual average amount 

 of more than §40,000,000. The inflation was steady. A further conse- 

 quence of the extension of the national system was the absorption by na- 

 tional banks of federal bonds. In 1900 these banks owned § 245,000,000 

 of United States bonds ; in 1911 they owned § 714,000,000 or three fourths 

 of the total interest-bearing debt. Matters standing thus it was evident 

 that any reduction of the federal bonds in circulation would reduce the fa- 

 cilities for credit — a result which might be useful or even necessary but 

 only if commercial conditions were taken into account. The enquiry b}'' 

 the National Monetary Commission, with which we will deal presently, 

 m.ade clear the fact that the mechanism of the national banks does not 

 move simultaneously with the fluctuations of trade. " In a country now 

 agricultural like the United States ", says M. Auguste Moireau, "it is at 

 harvest-time, when corn begins to reach the market, that the need for 

 capital is most apparent. Specie and notes are drained from New York 

 to the interior, rates of interest and discount rise rapidly. In harvest 

 time — the height of the summer — a far larger circulation is needed than 

 in the beginning of spring, owing to the larger sum which must be paid in 

 wages in the foraier season A system of issue which does not easily meet 

 the seasonal demands of agriculture and trade renders the country liable 

 to grave economic disturbance. If the circulation be insufficient at the 

 time of harvest the metal reserves of the urban banks are emptied or at 

 least markedly reduced, and their credit capacity is proportionately dimi- 



(i) The minimum capital had hitherto been §50,000. 

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