150 BANKING THEORIES IN UNITED STATES
Insistence that those who control a bank bear a financial responsibility
proportioned to all or certain of the bank’s liabilities
to the public is, of course, perfectly proper. On the other hand,
it is to be admitted that some writers, in urging this policy, as
well as in urging stock security and a safety fund, were more or
less guilty of confusing ultimate security with redeemability on
demand. For the most part, however, in view of the repeated
criticism of contemporaries, it seems more logical to believe that
the emphasis placed upon ultimate security was due not so much
to this confusion as to inability to see how adequate provision
could be made for obtaining uninterrupted convertibility. It
should also be observed that both the plan of requiring a definite
ratio to capital and the plan of calling for stock security were
fostered in part by failure to recognize the desirability of an elastic
currency.
4. SAFETY-FUND SYSTEM
The system, adopted in New York in 1829, of requiring each
bank to contribute a given percentage of its capital to a common
fund for the guaranty of note circulation, calls for no extended
treatment. It was hoped that, in addition to giving note-holders
the added security of the fund, the plan would make it to the
interest of each bank to seek to prevent bad management of the
others in order that the common fund might not be depleted
through insolvencies.! Objection was made that the scheme
tended to confound prudent with careless banking, enabling unsound
bankers to enjoy a volume of circulation which they would
be denied on the sole basis of their own credit. The public would
be lulled into a false feeling of security and the standard of banking
actually lowered.> Also the unfairness of taxing the better
banks in order to bolster the credit of weaker ones and to redeem
the notes of the bankrupt was urged by critics of the system? To
1 Chaddock, Safety-Fund System, p. 260; Tucker, Theory of Money and Banks,
p. 223; etc. Joshua Forman, who suggested this system of note issue, gave credit
for the notion to a similar scheme whereby the Hong merchants of Canton who held
government grants for trading with foreign countries were required to assume joint
responsibility for each other’s debts. See Letter to Gov. Van Buren, Jan. 24, 1829.
2 W. B. Lawrence, North American Review (1831), xxxii, 556; Gallatin, Considerations
(1831), p. 70.
8 FE. g., Gallatin, Considerations (1831), p. 70.
