State Bank Notes. 61 



we observe at once that the checks numbered 2, 3, 5 and 9 

 have no effect upon it. There is no fear by any bank that 

 its credit would suffer by issuing notes up to the amount 

 permitted by law in view of its capital, no fear of general 

 injury to business by the issue of another hundred nullions 

 or two*, no legal maximum of circulation, no agreement 

 among the banks. Under No. 8 the omission to make the 

 notes a general legal tender does not in practice restrict 

 their circulation, nor would the banks issue any more notes 

 if they were still permitted to use denominations less than 

 five dollars; the exclusion of bank notes from the legal 

 reserve of national banks acts towards encouraging the 

 return of the notes for redemption, thus setting at work 

 check No. 1. Contrariwise, the law has by its assimilation 

 of bank notes to government notes, in size and general 

 aspect, done a little towards promoting their ready circula- 

 tion. No. 4, legal limitation of the number of note-issuing 

 banks, appears in the form of "onerous conditions," such 

 as a minimum of capital, government inspection, prohibi- 

 tion of real-estate loans and of all loans beyond a certain 

 multiple of the reserve held; but this is more than off- 

 set, on the whole, by the advantage which national banks 

 receive in public opinion of their probable soundness, 

 and it would not prevent an increase of note-circulation 

 if such circulation offered a profit. We have left, therefore, 

 the checks numbered 1, 6 and 7; deducting No. 1, which is 

 not a limit but a drag upon increase (making it slower 

 without stopping it), the true causes of the smallness of 

 the circulation are in Nos. 6 and 7, i. e., (a) the require- 

 ment of deposit of bonds whose market value is much 

 higher than the amount of notes issued against them, 

 bonds which bear a lower interest than the bank's ordi- 

 nary business yields and most of which depreciate (through 

 the effect of the approach of maturity upon their premium) 



* Provided it were gradual, and the annual purchases of silver by the Treasury 

 were small. If brought face to face with the possibility of a large increase of 

 bank notes not so guarded, banks would doubtless recognize the danger; but, 

 as suggested under No. 3 above, only a part of the banks would probably hold 

 back from issue. 



