48 
POSTAL SAVINGS 
bonds of 1908-18 then payable at the pleasure 
of the Government. 
The investment features of the Postal Savings 
Bank act can not be fully understood except in 
connection with the general subject of banking 
reform, which was before the public when the 
Postal Savings Bank act was passed. At that 
time the National Monetary Commission was at 
work on the subject of banking reform. One of 
the greatest defects of our national banking sys 
tem was generally admitted to be the bond se 
cured circulation. By reason of the privilege of 
being used as security for bank note circulation, 
the $731,000,000 2 per cent bonds then outstand 
ing commanded a price much higher than they 
otherwise would have commanded in the market. 
The banks had purchased them in good faith, and 
if the circulation privilege were to be taken away, 
the Government would be under obligation to 
protect the banks from loss. The investment of 
postal savings bank funds, it was argued, would 
provide a method for the purchase of these bonds 
at par when the circulation privilege should be 
taken away from them, 35 and they might then be 
converted by the Government into bonds bearing 
a proper rate of interest from the fiscal point of 
view. 
35 Cf. speech of President Taft on the subject of the 
Postal Savings Bank, Milwaukee, September 17, 1909. 
Cong. Rec., Feb. 17. 1910, pp. 2048-2050.