Financial Legislation and its Limitations. 13 



their banks, or to provide, in l)anking legislation, that the national 

 bank shall itself put up a guaranty fund for the notes rather than 

 for the deposits. And from this precaution the step seems very 

 easy to the setting apart of a guaranty for all of the demand 

 obligations, that is to say, for the deposits also. It has not been 

 customary to compel banks to surrender to the state a guaranty 

 fund covering deposits. Some countries, like France, do not 

 guarantee even the note circulation. It is significant that the 

 Bank of France, which already has the largest note circulation 

 and whose business is practically entirely a note business, is sub- 

 ject to no legal regulation of its demand liabilities, except a 

 nominal upper limit of issue; and that this same bank carries the 

 largest reserve of any such institution in the world. In other 

 words, without legislative provision, it takes unsurpassed pre- 

 cautions to safeguard its demand obligations. It is only fair 

 to say that the Governor of the Bank is appointed by the govern- 

 ment and that there is moderate play here for administrative 

 interference. ° 



But the business of raising potatoes is a business of public 

 interest — everybody consumes potatoes. They are needed even 

 more than bank loans. Why should not government guarantee 

 the price of the potato crop? The proposition for the state to 

 guarantee bank deposits is repugnant to the principle of private 

 enterprise; but the modified proposition to encourage banks 

 voluntarily to organize themselves into a guild for the defense 

 or insurance of their notes and deposits may b^ a reasonable one 

 in the present state of public opinion on finance and in the present 

 tendency of businesses and classes toward separatist organiza- 

 tion." Such a scheme should not be one of " free banking." 

 The guild should pass on its own membership. 



So long, however, as the idea generally prevails that a deposit is 



® Dunbar, Chapters on Banking, p. 152. 



"For an account of the workings of the Oklahoma deposit guaranty, 

 zide Thornton Cooke, " Insurance of Bank Deposits in the West," Quar- 

 terly Journal of Economics, vol. XXIV, 85, 327; W. C. Webster, "The 

 Depositors' Guaranty Law of Oklahoma," Journal of Political Economy, 

 vol. 17, No. 2, Feb., 1909. 



127 



