PRINCIPLES OF NOTE ISSUE

I51

this objection it was replied that the New York banks had no
cause to complain, since bank capital was customarily taxed at a
much higher rate in many states.! But this contention in turn
was rejected on the score that contributing to the safety fund was
quite different from sharing in the burden of the general expenditures
 of the state; in the former case it was the weaker banks
that received practically all of the benefit. Certainly, since the
fund was to guarantee note circulation, assessments upon the
banks should be proportioned to the amount of notes outstanding,
and not to capital stock. Ohio, in adopting a safety-fund system
in 1845, incorporated this suggestion. Finally, it was pointed out
that the plan provided safety to note-holders in the case of isolated
 insolvencies, but that it could hardly meet the burden of
wide-spread disaster. Nor was any remedy contained against
that more troublesome evil, alternate inflation and deflation.?
These criticisms appeared while the New York bill was still
under consideration, and soon became commonplace. It is to be
noticed that the discussion ran almost completely in terms of
bank notes. The New York law originally was worded to cover
deposits as well, but this seems to have been almost inadvertent,
and the statute was changed in 1842 to include only notes.* Little
precedent for the more recent doctrine that bank deposits should
be guaranteed is to be found in the discussion of the first half of
the century. The principle that depositors are able to exercise
their own judgment in selecting the bank in whose liabilities they
place confidence, and so need no further protection by the state,
seems scarcely to have been questioned.

* Paige Committee’s Report (New York, 1829), Chaddock, op. cit., p. 264.
! The city banks, with their circulation bearing a much smaller proportion to
capital, insisted upon this. See Chaddock, op. cit., p. 267; W. B. Lawrence, North
American Review (1831), xxxii, 556.
* Isaac Bronson, Letter to a Member of Congress (1832), Financial Register, ii,
(1; C. F. Adams, “Theory of Money and Banks,” Hunt's Merchants’ Magazine
(Aug., 1830), i, 115.
* New York Assembly Document 64 (1841), iii, 16; Chaddock, 0p. cit., p. 331.