140 THE FARMER AS A BUSINESS MAN. 



The breaking out of the Rebellion caused an immediate and 

 complete change in the character of our bank-notes, and in 

 place of the issues of uncertain and fluctuating value, circulat- 

 ing locally and constantly counterfeited, we obtained a uni- 

 form bank currency, circulating freely at par in all parts of 

 the United States, and by which no man, rich or poor, has 

 ever yet lost a dollar by failure. The change was marvelous, and 

 was completed in a few months. The operation was natural 

 and very simple. At that time the privilege of issuing notes 

 to serve as currency was considered of great value. By retain- 

 ing in its vaults $15,000 to $25,000 in coin for redemption, a 

 bank could issue notes to the amount of $100,000, which it 

 could loan. Its profit was the interest on the amount of dif- 

 ference between the face of the issue and the coin kept for 

 redemption. If the reserve was faithfully maintained, and the 

 loans made with common prudence, the currency was safe 

 under all ordinary conditions. At this time the national gov- 

 ernment was in great need of money, and its credit was very 

 low. If some means could be found to induce a strong demand 

 for United States bonds from the banks of the country, it would 

 be greatly to the advantage of the nation. The Secretary of the 

 Treasury therefore proposed to give such banks as would buy 

 United States bonds the exclusive privilege of issuing bank- 

 notes. Congress approved the suggestion, and the result 

 was the National Bank Act, which, with few modifications, 

 still stands. The principle of that act is this: In the first 

 place the bank lends the United States, let us say, $100,000. 

 It deposits the bonds thus received in the Treasury of the 

 United States as security for any notes which it may issue. 

 The Treasury then causes notes to be printed and delivered to 

 the bank to the amount of $90,000. These notes are not legal 

 tender, but they are payable on demand, either in coin or in 

 United States notes, which are legal tender. For the redemp- 

 tion of these notes on demand, the bank must, in most ])laces, 

 retain 15 per cent of the amount issued either in coin or legal 

 tender notes.* The bank's outlay is $100,000, lent to the govern- 



*National banks in the large cities must retain 25 per cent of deposits. 



