in financial journals. The opposition developed has come largely from the older and stronger banks. To them there is an advantage in the unsecured system Character of op- in that their solvency is not questioned; position to secur- and by virtue of their reputed ability ing "deposits" to meet current obligations they are able to make large sales of credit compared with capital employed. To establish a common fund for the security of all credit-accounts sold by all the banks in the system would give to the small bank the same reputation for soundness as is enjoyed by the largest institutions. This argument would be valid under our present system of banking, wherein there is no check on credit sales other than a "money-reserve.” If, however, an amendment were made which required a minimum cash-reserve to be provided out of capital, and the powers of the Comptroller were extended to prevent the extension of credit beyond a certain proportion of that capital available in the form of redemption equipment, neither the large nor the small bank could extend its credit beyond the prescribed limit. Each bank would be restricted in its maximum business to a safe proportion to capital invested. Under such a provision, the large bank could not be deprived of business by a small bank unless the small bank increased its capital, in which case the small bank would be entitled to do a larger business. It may be questioned whether any provision made for increased safety to business would

reflect on the worthy institution. On the other hand, much may be gained by all parties concerned through the enlarged opportunities offered to banks for doing business. And through a system of mutual responsibility pressure would be brought by the banks themselves for an enforcement of the Law.

Whatever may be conceived as a proper application, in concrete provisions of the Law, the principles governing increased availability of capital-assets of National banks and increased elasticity by simple changes in the existing system may be summarized as follows:

(1) An amendment of the "money-reserve" provisions of the Bank Act, requiring a minimum "cash"reserve to be provided out of capital, would operate to give increased financial strength to the banks; it would make possible increased elasticity of creditaccounts and credit-accommodations.

(2) A change in the Bank Act fixing a minimum of "redemption equipment" to be provided out of capital, making this proportionate to the maximum of credit-obligations outstanding, would operate to increase the capitalization of banks.

(3) An amendment requiring interest payments on "issues" (loaned by the Government to the banks) would operate to make the note-circulation an elastic currency.

(4) An amendment of the Bank Act permitting the hypothecation of "gilt-edge" securities for Gov

ernment "deposits" would encourage capital investment in more highly convertible assets.

(5) An amendment requiring the payment of interest on "deposit" loans would make the Treasury surplus an important support to the banks for the support of increased credit-accommodation.

(6) The proposed amendment to constitute the Government income from interest on loans, taxation, etc., a contingent sinking fund has in it possibilities for increasing the soundness of bank-credit and for increasing elasticity in so far as elasticity depends on public confidence in the banking system.

(7) A provision requiring that all capital used for the purchase of "banking house," "real estate," for underwriting, etc., be considered banking capital impairment, would have a wholesome effect and would serve as a protection to the public.

(8) A clause requiring that all special and preferential deposits be stated in all published reports, would do much to correct present evils in banking practice.

Every measure taken to enable banks to meet demands for accommodation by use of capital equipment would tend to minimize fluctuation in demand, and to decrease the amount of capital which must be held in reserve in low income-producing investments and thus be to the advantage of the banks as well as of the business community.

CHAPTER XVII

SUPERIOR POSSIBILITIES OF THE AMERICAN FINANCIAL SYSTEM FOR ADAPTING CURRENT FUNDS

TO CURRENT NEEDS

A CENTURY of adaptation to new and ever-changing conditions has given to America some remarkable institutions. In none is the strenuous character of the people more strongly marked than in our financial system. In none have we developed greater possibilities for solidity and working efficiency than in our concerns organized to supply the increasing demand for current funds. Living amid great natural reOptimism and sources, hampered for lack of capital conservatism as and industrial equipment, working in factors in business circumstances which require intensity of effort and strictest economy, the balance of National prosperity has been swung by two contending forces the one conservative, the other promotive. Our conservatism has consisted in measures to protect property already acquired. Our promotions have been efforts to apply all our own resources, as well as those which might be acquired from others through contracts of current credit and of capitalization. An inventive people, we have exercised our best talent in devising ways and means for doing

business, and to this end both capital and current funds have been obtained in exchange for contracts made for the future delivery of money. The result at times has been to carry investment judgment beyond all reasonable certainty of return.

Failure to meet contracts for future delivery

Nor has the situation been an unnatural one. With teeming riches on every hand, awaiting only the intelligent application of capital for their recovery, when markets have been high the inducement to promotion and credit investment has been great. When failure has come, it has more often been due to changes in general market conditions than to disappointment in productive results. Prospective money returns have not always been realized within the term of a loan. Failure in judgment as to the amount of money obtainable in the future has resulted in inability to make money delivery -in inability to meet creditobligations. Even when the rewards of nature have surpassed all calculation, money payments required by contracts of capitalization and current credit have not been met.

As before suggested, the money returns required by contracts of credit have depended quite as much on the market price obtainable of the thing produced as on the amount of the physical product. The market has been subject to world conditions and to fluctuations which the parties to the contract could not foresee; so violently have these fluctuations in world