146 BANKING THEORIES IN UNITED STATES
crease the circulation of coins, and regarded the small-note question
 as unimportant.!
In more recent discussions no little stress has been laid on the
fact that the privilege of issuing small notes, by providing an inexpensive
 ill money, makes possible the extension of banking into
small villages that could not support it otherwise.? This argument
 played no part in the discussion that we have reviewed.
Nor is this surprising. A bank can use its own notes as till money,
affording a relief to its reserve to that extent, only in meeting an
internal drain on its deposits. It cannot, obviously, utilize notes
in meeting the demands of note-holders; nor in meeting the demand
 of depositors for means of foreign remittance. But deposits
 were far less important, relatively, in the earlier half of the
preceding century than they are to-day. The problem of an internal
 drain, moreover, was one to which little consideration was
given before 1857.3 Again, in order that notes may be acceptable
to depositors in times of pressure, it is necessary that the banks
issuing them enjoy a high degree of confidence, and this condition
was not frequently present.

3. NoTE ISSUE SECURED BY PUBLIC STOCKS

In the preceding chapter we had occasion to note a plan that
received considerable attention after 1815, proposing the issue
of bank notes redeemable in government stocks instead of in
specie. This had not a great deal in common with the bondsecured
 system of issue embodied in the free banking laws of New
York (1838) and other states and in the National Bank Act, although
 it did, like the latter, contemplate a paper currency to be
given national circulation by being based upon United States
1 Colwell, Ways and Means of Payment (1859), pp. 428, 508.
* E. g., Withers, English Banking System, pp. 43, 44.
3 Cp. Report of the Superintendent of the Banking Department, New York
(1857), Bankers’ Magazine, xii, 622. Money markets were quite largely localized
before the middle of the century and heavy demands for specie were generally induced
 either by adverse balances of trade, or by misgivings concerning the solvency
of particular banks. The rise of New York as a financial center introduced the
phenomenon, especially emphasized in 1857, of an internal drain of major magnitude.