Financial Legislation in Principle and in History 17 



The first two United States Bank acts, those of 1781 and 1816, 

 recognized the resemblance of notes to deposits to this extent, 

 that they did not mention the distinction between the two in lim- 

 iting the amount of obligations into which the bank might enter 

 to twice the capital together with the reserves; but, as already 

 mentioned, deposits were in those days insignificant in this coun- 

 try as well as in Europe, and probably were not thought of espe- 

 cially in the framing of that provision. The present National 

 Bank Act made formally a backward step by restricting its guar- 

 anty fund to the notes loaned. Of course, it could not have guar- 

 anteed deposits by a dollar-to-dollar guaranty. The mention of 

 notes at all is a symptom that deposits were, by that time, 1864, 

 becoming more important. But the act made a step forward in 

 limiting the amount of notes loaned to the capital, and thus al- 

 lowing obligations in the form of deposits to be increased indefi- 

 nitely. Finally, in 1894, under the stimulus of the general 

 financial discussion that was going on in the country, a plan was 

 presented at the annual meeting of the American Bankers' Asso- 

 ciation, held in Baltimore, which proposed to do away with the 

 deposit of government bonds as security for the notes, but to 

 secure the notes by a guaranty fund to be raised by a tax upon 

 the bankers as a guild. 



This idea is bearing fruit and has thoroughly permeated recent, 

 general, intelligent discussion of the banking question. Men are 

 beginning to ask. Why should bank notes be absolutely secured, 

 especially when bank deposits are not thus secured and can not 

 be? It is true that reformers of the more popular order, taking 

 the other horn of the dilemma, are asking why should not bank 

 deposits be made just as safe as bank notes? In general appre- 

 ciation of intelligent people, the "banking principle" in spirit is 

 now getting the upper hand above the "currency principle." The 

 movement is not confined to this country. "The proposition to 

 make a rigid requirement to invest deposits and reserves in abso- 

 lutely good securities is not a new one ; but it is impracticable. 

 Among other bad effects, it would completely paralyze a bank 

 which desired to make a judicious investment of the resources 

 that it had acquired from third parties ; good bills of exchange, 



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