PRINCIPLES OF NOTE ISSUE 
147 
securities.! We have now to deal with the discussion of govern- 
ment stocks as the security for a convertible note issue. 
The first proposal for such a plan seems to have been that which 
Professor John McVickar advanced in 1827. Banks should lend, 
not their capital, but their credit; the capital should properly 
serve simply to give creditors assurance. This purpose can best 
be accomplished by investing the capital in permanent securities 
of undoubted soundness. Moreover, bank notes circulate among 
those who are incapable of determining the financial circumstances 
of the issuer, and whose interest should justly be safeguarded by 
the pledge of acceptable stocks. Let banking, then, be made free 
to all, under a general statute, upon the condition that nine- 
tenths of the capital be invested in government stock, and that 
these securities be pledged for the redemption of the bank’s prom- 
issory notes, which shall not be issued in excess of the amount of 
stock held for this purpose.? 
Eleazar Lord, in his Principles of Currency and Banking, pub- 
lished two years later, adopted McVickar’s suggestion as alterna- 
tive to the issue of paper money in limited quantities by the gov- 
ernment itself. Note-holders would be secured by the fact that 
capital to the full amount of the outstanding circulation was being 
withheld from the hazards of commercial banking;?® and the 
banks, because of the interest borne by the securities, would be 
able to refrain from the mischief of returning more money into 
circulation than had been withdrawn from it in the payment of 
capital.* Also, the undesirable elasticity of bank notes would be 
eliminated.’ To prevent violation of the law, let the govern- 
ment, upon the deposit of the securities, turn over the proper 
! A. M. Davis, Origin of the National Banking System, p. 9, regards the propo- 
sition as the first one suggestive of the National Banking System. 
? McVickar, Hints on Banking (1827), reprinted in the Financial Register (1838), 
ii, 325-327. The first and second Bank of the United States, three-quarters of the 
capital of which was payable in government stock, and the Bank of England, whose 
entire capital was invested in government securities, were cited as precedents by 
McVickar and others. 
3 Principles of Currency and Banking (1829), p. 84. 
4 Ibid., pp. 65-67. Cp. pp. 55-65. In reality the original capital is also returned 
into circulation when government stocks are bought with it. 
5 Ibid.,p. 54.