RINCIPLES OF NOTE ISSUE 149
rofits of banking would be enhanced virtually to the extent of
he interest borne by the government stock.! Then it was obected
 that in times of financial stringency, just when the security
as wanted for redemption of the notes of insolvent banks, it
ould be likely to prove salable only at a heavy loss.2 To this
riticism the experience of New York soon gave point. Others
eared that borrowing by the federal government and by the
everal states whose securities were made eligible would be faciliated
 by the creation of an artificial market for their stocks.
ublic extravagance would thus be fostered? The New York
law, it was prophesied, would tend to ‘raise up a clamorous horde
of advocates for a perpetual State loan and national debt, to
supply the demand for public stocks.” *

principle having a certain resemblance to that of founding
ank notes upon the security of stocks and mortgages, since i
Iso looks primarily to the ultimate security of the note-holder,
s that of limiting the issue of notes to a given proportion of the
ank’s capital. This was popular alike in theory and in practice.’
hree times the capital was the favored limit during the earlier
ears, partly in the belief, it seems probable, that this was providing
 for the one-third specie reserve which English bankers
regarded as proper.® Aside from the frequent evasion of the requirement
 that the capital be paid in specie, such reasoning was
allacious in that there was no assurance that the specie would
remain in the vaults of the bank after it began to make loans.

! Lord, Principles of Currency and Banking (1829), pp. 65-67, 89; South Carolina,
Report of 1849, pp. 14, 15. See Sullivan, Path to Riches (1792), p- 36; and Enquiry
into the Tendency of Public Measures (1794), p. 17, for criticism of the first U. S.
Bank as deriving double profit. Cp. J. S. Ropes, “The Financial Crisis,” New
Englander (1857), xv, 709.
? Tucker, op. cit., p. 229; C. F. Adams, “Theory of Money and Banks,” Hunt's
Merchants’ Magazine (Aug., 1839), i, 116.
# C.F. Adams, loc. cit., p. 120; L. McKnight, “Free Banking,” De Bow’s Review
(Jan., 1853), xiii, 31, 32.
¢ “Free Banking,” Democratic Review (1839), v, 445.
5 See Dewey, State Banking Before the Civil War, pp. 53-63.
® This explanation is suggested by Tucker, Theory of Money and Banks (1839),
pp. 204, 205, and H. F. Baker, “History of Banking in United States,” Bankers’
Magazine (Oct., 1856), xi, 253.