68 Colorado College Studies. 



year, and better two such spaces, when the extra circula- 

 tion is wholly absent, so that it may have no opportunity 

 to become permanent circulation and displace coin.* The 

 hard-and-fast limiting of the ordinary note-circulation 

 need not exclude new banks from the privilege of note- 

 issue, for if there are not enough old banks withdrawing 

 ordinary circulation to make room for them in the ordinary 

 circulation, the new banks may nevertheless, by coming 

 under the inspection-rules, be allowed to share in the extra 

 issues. 



The question how the extra notes should be secured is 

 of some importance. If deposit of securities is required, 

 it will be found to impair the readiness of the banks to 

 issue extra notes; the nearer the formality and expense of 

 making the issue approached that of the ordinary issue, 

 the less elasticity the system would give. On the other 

 hand, if the original security were no more than enough 

 for the ordinary issue, it would not be enough for a per- 

 fect safeguard to the increased amount.f A first claim 

 upon all the property of the bank, reinforced by a safety 

 fund and perhaps by a personal liability of the stock- 

 holders, would be very strong, but might imaginably fail 

 in some one or two instances at last; though the govern- 

 ment might protect the note-holder by assuming that risk 

 itself through guarantying the notes, or transfer it to the 

 other banks in the system through making them respon- 

 sible beyond their share of the safety fund. All these 

 comments upon the mode of securing the notes apply 

 equally to Mr. Knox's plan and to the second plan de- 

 scribed. So do all the following questions: What securi- 

 ties should take the place of United States bonds when 

 those are extinct; whether a maximum should be set to the 



*/. e. displace coin progressively. There would doubtless be a slight dis- 

 placement in the first year or two, and then the coin-supply w6uld go on a little 

 less than it would otherwise have been, but less by a nearly constant amount. 



fBut the deposit of securities for the ordinary circulation might be made to 

 exceed the face-value of the ordinary notes by a margin large enough to cover a 

 considerable extra circulation. Just now, national banks whose deposited bonds 

 are 4 per cents could issue 30 per cent, more circulation without exceeding the 

 market value of their bonds plus their redemption-deposit of cash. 



