State Bank Notes. 69 



extra notes also; whether all banks in the system should 

 have the extra-note privilege, or banks in certain cities 

 only; what features of the law should be left subject to 

 variation by the Comptroller of the Currency or some other 

 executive officer. There ought to be an arbitrary maxi- 

 mum of increase, lest in an occasional time of speculative 

 temptation the note-issue should run wild; for serious 

 harm might be done by a rapid increase long before it 

 reached any automatic check by redemption. Both of the 

 plans need free criticism and working out in detail by prac- 

 tical bankers before either can be trusted; but the j)oiut I 

 wish to urge is, that some such special provision must be 

 made to insure a return of the note-circulation to its 

 former volume, or it will probably increase. 



In any bank note system, the whole volume of notes 

 below the lowest point reached in the duller times is dead 

 and useless for purposes of elasticity. It is only the flow 

 and ebb that give the elasticity; if the notes never fall be- 

 low 100 millions, that 100 millions might as well be coin.* 

 We may accordingly, if we please, rid ourselves of practi- 

 cally all the present ordinary note-circulation, substitute 

 coin for it, and still have the desired elasticity by using 

 the extra notes of one of the two plans described above. 

 Of course the reduction ought to be made gradually, and 

 by the weight of conditions that do not affect the extra 

 notes, e. g., by a higher tax. 



OBJECTIONS TO STATE BANK NOTES. 



It is hard to see why the national bank system, as such, 

 should be blamed for its failure to be elastic. Any state 

 bank system must be subject to the same natural laws. 

 The transfer of supervision to the State governments makes 

 no change whatever in the rule that the increase or de- 

 crease of note-circulation will be determined by the excess 

 of the profits over the checks or of the checks over the 

 profits; that rule is, from the nature of the case, unchange- 



* Except that the change miglit introduce some additional dilliculty into the 

 arrangements for putting good security behind the extra notes, and the notes 

 might become unfamiliar enough to bo a little less convenient as money. 



