State Bank Notes. 57 



or an elasticity that the National government cannot give 

 by similar action. 



A bank issues notes in order to increase its receipts of 

 interest. In a country where notes are familiar, it can 

 usually carry notes with a reserve smaller than that which 

 it needs to carry deposits*; and accordingly, unless taxes 

 or other expenses intervene, its loans that can be made 

 through notes are more profitable than its loans through 

 book-credits of deposit. But in the United States most 

 borrowers prefer book- credits, and the practicable note- 

 issue is restricted to so much as can be paid out, whether 

 in loans or in other money-payments (e.^.upon checks pre- 

 sented), without coming back for redemption faster than 

 it is reissued. Within that limit (beyond it, if bank notes 

 were not convertible) the bank has a motive for keeping 

 its circulation as large as possible, unless other expenses 

 or hindrances appear. In the United States the limit so 

 set would be narrow for the individual bank, on account 

 of the large proportion of credit-transactions, except for 

 the habitually long life of the circulating notes; in fact it 

 is so wide that a limit for the whole note-circulation, drawn 

 on the same scale, would be impossibly large. The real 

 limit for the whole note-circulation is of course much lower, 

 because as the whole amount approached a point consid- 

 ered to be dangerous, redemptions would become more fre- 

 quent, i. e. the limit for individual banks would shrink. 

 Banks do not grow weary of making a profit, nor stop issu- 

 ing notes without a reason for stopping. Where the note- 

 circulation falls short of the limit (usually wide, when 

 banks are well managed) set by the return of notes for re- 

 demption, it is certain that there are definite causes for it, 

 either prohibiting the increase of circulation or offsetting 

 the profit by some expense, inconvenience or dread of in- 

 jury. Including redemption, we may name the following 

 restraints upon the issue of notes, some of which are 



♦Strictly speaking, deposits which are caused directly or indirectly by the 

 bank's loans. Otlior deposits have no bearing on the question whether loans by 

 book-credit or by notes are more profitable. 



