CHAPTER XIV

PRINCIPLES OF NOTE ISSUE (Continued)

Legal reserve requirements. — Suffolk Bank System. — Taxing banks for regulative
 purposes. — Banking structure.

1. LEGAL RESERVE REQUIREMENTS

To a certain extent the old fallacy, so much in evidence during
the colonial period, of confusing ultimate security with immediate
redeemability, or, at least, of tending to give little attention to
the latter, persisted well into the nineteenth century. Bondsecured
 issue, safety fund, limitation of circulation to a certain
proportion to capital, received far more emphasis than specie
reserve; and in some measure, at least, the cause seems to have
been failure adequately to perceive the significance of reserves.
As late as 1858 we find a committee of ‘friends of a sound currency’’
 sponsoring a plan permitting each bank “to extend its
loans and other investments to a point equal to once and a half its
capital and its specie reserve,” grouping the latter two as though
similar in nature.! Against deposits a reserve of twenty per cent
was at all times to be held, but no similar provision was deemed
necessary for notes, since they were to be secured by a pledge of
bonds.2

Laws requiring that a definite percentage of specie be held
against note circulation were found in but few of the states before
 1840, nor was such legislation commonly advocated before
that date A one-third ratio was often suggested, but smaller
ratios were sometimes favored and even established by law.

1 Opdyke [chairman], Report on the Currency (1858), p- 13.
2 Opdyke, 0p. cit., pp. 13, 15. Cp. Sullivan, Path to Riches (1792), p- 49; Raymond,
 Elements of Political Economy (1823), ii, 145.
3 See Dewey, State Banking Before the Civil War, p. 57, for exceptions.
4 See Report on the Currency, American Quarlerly Review (1832), xi, 247; Barnard,
 Speeches (1838), p. 21; Webster, Speech on the Sub-Treasury Bill (March 12,
1838), p. 21. Also, James Buchanan, Annual Message (Dec. 1857), in Richardson’s
Messages of the Presidents, v, 438.