Five per cent of the deposits in postal banks is retained in the national treasury as a reserve fund.

Thirty per cent of these deposits may be invested by the Board of Trustees in government bonds.

The whole amount of deposits may be invested in government bonds at the discretion of the President.

The most evident advantages of the postal savings bank system are as follows:

1. It furnishes a safe means for the small savings of the poorer classes. The smallness of the amounts which some persons can save deters them from opening accounts with the ordinary savings banks.

2. It encourages thrift and the spirit of saving by reducing to the minimum the obstacles and inconveniences that prevent saving. Better and more desirable citizens will be the result, as persons having funds in the safekeeping of the government will be more desirous of its continuance and stability.

3. It prevents hoarding and brings into circulation an immense amount of money needed for commercial transactions.

4. It tends to encourage persons to put money in savings banks, for when the habit of saving is formed and a rather large sum has been collected in the postal savings bank, the depositor may be induced by reason of the higher rate of interest paid by the savings bank to transfer his deposit to the latter institution.

5. If, in time of panic, money be withdrawn from other banks, some part of it will in all probability be placed in postal savings banks. This can be returned to the banks by the government, and money will flow back into circulation, thus possibly preventing a money stringency.

It was feared by those who were opposed to the postal savings banks that such banks would drain large sections of the country of their stock of money and would bring about a concentration of capital in large centers. This is a feature of the system found in England and in France. In these countries, the funds collected by means of the postal savings banks are forwarded to the government centers and expended in the pur

chase of government bonds. In this way the provinces are deprived of much of the money needful to carry on business. Business men must have recourse to London and to Paris for cash whenever money becomes insufficient in the provinces. This is an evil, indeed, and while it is relatively slight in countries such as England and France, the territorial extension of which is comparatively small, and where access to London and Paris, the money centers, is easy and rapid, it might prove a matter of very serious moment in a country of such broad extent as the United States.

It must be admitted that this evil is only partly obviated by the method operative under the existing law. The law directs that the government shall deposit the funds collected through the postal banks in the banks situated in those immediate sections of country where the collections have been made. The purpose evidently is to prevent concentration of capital in large money centers, and to keep it for use in the localities where it belongs. Through this means, these localities will be supplied with more money than they have at present, and a stop will be put to the hoarding of money by persons who have no faith in savings banks, are too distant from any bank, or whose savings are so small that they do not care to confide them to banks.

Yet the law leaves it to the discretion of the President to expend the money collected in government bonds, and this fact, in the opinion of many, admits an inherent defect in the law, and has given rise to much opposition.

The postal bank was naturally opposed by existing savings banks, in the fear that it would draw away from them a great proportion of their deposits, because of the absolute guarantee furnished by the postal bank system. Yet the facts that the amounts receivable by the postal banks are limited to small amounts ($500 in all from each person, and $100 per month), and that the rate of interest is so low (2 per cent), are thought to be preventive enough against any serious withdrawal of funds from savings banks.

A still further objection made to the introduction of the postal bank system was that it is a step towards Socialism. It takes business out of the hands of individual enterprise and intrusts it to the government. It is the old cry of the Liberal School, whose doctrines have ruled the world for so long, and which claims that there should be no interference by the state in the affairs of men: Laissez faire; laissez passer.

Throughout Europe, however, this doctrine is gradually meeting with opposition, and the opinion is gaining greater ground that the government is not a mere machine for the making of laws and the punishment of those who break them, but should be an active agent in promoting the betterment of the individuals who make up society, and should take hold of and introduce whatever plans tend to that effect.

The postal savings bank system has spread rapidly over the whole country. On November 1, 1912, there were 12,812 post offices authorized to receive deposits. The number of depositors reached about 300,000, and the amount of deposits, about $26,000,000.

A noticeable fact, since the introduction of the system, is that the amount of money sent abroad for deposit in foreign postal banks has considerably diminished.

III. REMEDIES AFFECTING NOTE ISSUE

The greatest number of remedial plans that have been suggested have reference to that most salient defect of the national bank system, viz., the inelastic nature of the currency. The plans proposed are of great variety, and the efficiency of each plan to correct the defect has been strongly and no doubt sincerely defended by each advocate. The more prominent plans will be mentioned and commented on as briefly as is consistent with a clear understanding of the subject.

1. Emergency Currency. - This means a currency that would increase in amount in time of need, to be withdrawn immediately after the crisis had passed. Several plans have

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been proposed. They all practically mean the issue of notes by the banks to a certain per cent of the outstanding circulation, based on the assets of the banks or on certain safe bonds and bills receivable of the banks, these notes to be taxed 5 or 6 per cent yearly, to insure their withdrawal when the crisis has subsided. (Cf. Practical Problems in Banking and Currency, p. 308, Pugsley's plan; North American Review, March, 1906, p. 380, Secretary Shaw's plan.)

The general feature

2. Asset Currency or Credit Currency. of the many forms of asset or credit currency proposed is that banks should have the power to issue notes based not on United States bonds, but on the assets of the banks. There are usually several safeguards attached, such as the establishment of a guarantee fund contributed by each bank proportionately to its capital or to its issue of notes, the obligatory redemption of notes by each bank when presented, a tax on the notes increasing with the increasing amounts of the notes issued, the making the notes a first lien on the assets of the bank and upon the stockholders' liability.

Credit currency, with various modifications and greater or less limitations, has been proposed by the Indianapolis Monetary Commission, convened previously to 1900, by the American Bankers' Association Commission, assembled in Washington, D.C., in 1906, by the Fowler bill and other bills in Congress, by Secretary Gage of the Treasury in 1897, and by a host of prominent bankers and financiers.

The United States is the only nation, with the exception of England, that does not use credit currency. The Bank of France, the Bank of Austria-Hungary, the Imperial Bank of Germany, the Bank of Belgium, the Bank of the Netherlands, the Bank of Scotland, the Canadian banks, and many others, all issue circulating notes on their business assets. (Practical Problems in Banking and Currency, p. 203.)

It has been calculated that an average tax of one fifth of one per cent on the total note circulation in all the years since the inception of the national bank system would have covered all

the notes of all the banks that have failed during that period. (Ib., p. 200.)

It must be borne in mind that much of the business of banks is already done through credit instruments, cashiers' certificates, certificates of deposit, drafts, and checks, and the idea of credit currency should not be the bugbear that it sometimes is to the popular mind. A currency founded on assets is founded on the natural resources of the country and is fitly called a natural currency. It is declared to be the only scientific method of banking, because "the circulating medium is the instrument of business transactions, and should be developed out of them and governed by them." (Ib., p. 201.)

Such a currency would be certain of payment, because safeguarded by a guarantee fund; it would sever the relation between the currency circulation and the government, because the note circulation would no longer be based on government bonds; it would set the circulating notes free from the influence of the political operations of the government and the market price of government bonds. (Cf. W. B. Dean, in Practical Problems in Banking and Currency, p. 201; cf. V. Morawetz, The Banking and Currency Problem in the United States; cf. North American Review, Feb., 1909, p. 242.)

From the preceding statement of the remedial plans suggested for the admitted defects of the present system, it may be judged how unsettled the question is, and how far removed the country is from any settlement.

One feature of a note issue most firmly fixed in the minds of our legislators is the necessity of the absolute safety and perfectly redeemable nature of the notes. A country, as it grows, learns by its own mistakes, and this country has suffered so much in the past from irresponsible note issuers and irredeemable notes, that it insists with extreme emphasis on a note circulation that shall be as secure as the government itself. Under the existing system that feature of note issue is undoubtedly obtained. The bank circulation is safe. The government itself must fail before the bank notes shall be repudiated.