Financial Legislation in Principle and in History 19 



in deposits also, the banking business will be destroyed? How- 

 ever, everything points to the view that the deposit system must 

 ultimately almost entirely supersede the circulation. So long as 

 circulation is wanted, however, it should be properly regulated, 

 if regulated at all, and should not be regulated in such a manner 

 as to derange the level of prices and the rate of interest, or to 

 stimulate stock speculation. 



The law of June 3, 1864, under which the national banks of 

 the United States were organized, constituting really the third 

 national bank of this country, abolished the limit of bank indebt- 

 edness that had been set for the first and second United States 

 banks. This change may be looked upon as a distinct advance 

 in the line of elasticity of bank obligations, and, in view of the 

 restrictions imposed on the circulation, as a decided favoring (or 

 neglect) of deposit business. On the other hand, it followed the 

 prevailing fashion in concentrating the regulating and paternal 

 care of government upon circulation, following in this respect the 

 so-called "free banking system" of New York, as well as Peel's 

 act. The inconveniences connected with this sort of regulation 

 were keenly felt by the business world at the time of the rapid 

 payment of the United States national debt under secretaries 

 Manning and Windom in the ninth decade of the last century. 

 As the debt was paid off. the bonds deposited for secured circu- 

 lation were rapidly retired, and the circulation with them. 



Consequently, in 1894, the convention of financiers in Balti- 

 more formulated a new plan, henceforth known as the Baltimore 

 Plan, which proposed to follow the so-called "safety fund sys- 

 tem," also of New York, the. central idea of which was simply 

 the formation of a fund to secure the circulation through a tax 

 upon the banks. This proposition, of course, marked a step to- 

 wards more ideal conditions, for it removed the government guar- 

 anty, and to that extent placed the circulation more on an equality 

 with the deposits, and gave it freedom of expansion. But it was 

 merely a project, and, as such, was the starting point of a long 

 agitation, the end of which has not yet been reached. This move- 

 ment was followed by the Indianapolis Convention of January, 

 1897, which discussed thoroughly the principles of monetary 



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