48

POSTAL  SAVINGS

bonds  of  1908-18  then  payable  at  the  pleasure
of  the  Government.
The  investment  features  of  the  Postal  Savings
Bank  act  can  not  be  fully  understood  except  in
connection  with  the  general  subject  of  banking
reform,  which  was  before  the  public  when  the
Postal  Savings  Bank  act  was  passed.  At  that
time  the  National  Monetary  Commission  was  at
work  on  the  subject  of  banking  reform.  One  of
the  greatest  defects  of  our  national  banking  system ­
  was  generally  admitted  to  be  the  bond  secured ­
  circulation.  By  reason  of  the  privilege  of
being  used  as  security  for  bank  note  circulation,
the  $731,000,000  2  per  cent  bonds  then  outstanding ­
  commanded  a  price  much  higher  than  they
otherwise  would  have  commanded  in  the  market.
The  banks  had  purchased  them  in  good  faith,  and
if  the  circulation  privilege  were  to  be  taken  away,
the  Government  would  be  under  obligation  to
protect  the  banks  from  loss.  The  investment  of
postal  savings  bank  funds,  it  was  argued,  would
provide  a  method  for  the  purchase  of  these  bonds
at  par  when  the  circulation  privilege  should  be
taken  away  from  them, 35  and  they  might  then  be
converted  by  the  Government  into  bonds  bearing
a  proper  rate  of  interest  from  the  fiscal  point  of
view.
35  Cf.  speech  of  President  Taft  on  the  subject  of  the
Postal  Savings  Bank,  Milwaukee,  September  17,  1909.
Cong.  Rec.,  Feb.  17.  1910,  pp.  2048-2050.