This fact is recognized by the people of the United States and by the whole world, and under the present method it is a fact not difficult to see. It is possibly not so easy to see that the notes would be just as safe as they are to-day were there admitted a system such as credit currency with its guarantee fund.

This may be so, because it is not so easy for the ordinary mind to conceive that a fact that has moral certitude is as certain as a fact that has physical certitude

And yet insurance companies are doing business of immense extent upon the theory of probability. The insurance policies outstanding against any of the great insurance companies could not be redeemed were they to be presented to-morrow for redemption. Still the safety of the policies is not questioned, and premiums are regularly paid and the insurance officers are extending their business, on the assumption that the lives of men will be, according to the law of probabilities, of a definite length on the average, and that accidents destructive of life will be, according to the same law, of only a definite frequency of occurrence.

That this idea of safety of the circulating notes holds paramount influence over our legislators to-day may be shown by the last legislative remedy, the Aldrich-Vreeland Act, proposed and made law on May 30, 1908.

3. Aldrich-Vreeland Law. The Aldrich-Vreeland law attempts to procure a greater elasticity of the notes in times of panic without intrenching on the security of the issue. The Act is as follows:

At least ten national banks, each having an unimpaired capital and a surplus of not less than 20 per cent, and all having an aggregate capital and surplus of at least $5,000,000, may unite to form a body corporate called a National Currency Association. One such association may be formed in each city.

All other national banks in surrounding and contiguous territory may enter the association, and each shall have one representative in the association. All the representatives shall constitute a Board for the management of affairs.

The officers elected from the bank representatives shall be a President, a Vice President, a Secretary, a Treasurer, and an Executive Committee of not less than five members.

The by-laws made by the Board shall be subject to the approval of the Secretary of the Treasury.

Any bank in a National Currency Association, having a United States bond-secured note circulation to the amount of 40 per cent of its capital stock, and having its capital unimpaired and a surplus of not less than 20 per cent, may place securities including commercial paper in the hands of the Association to which it belongs, to be by the Association transferred to the Secretary of the Treasury, and shall, thereupon, receive from the Secretary of the Treasury additional circulating notes to an amount not exceeding 75 per cent of the cash value of the securities deposited. No national bank, however, shall issue circulating notes based on commercial paper in excess of 30 per cent of its unimpaired capital and surplus. "The term 'commercial paper' shall be held to include only notes representing actual commercial transactions, which when accepted by the Association shall have the names of at least two responsible parties and have not exceeding four months to run."

The redemption of the additional notes is secured by a first lien on the securities and the assets of the bank.

The banks of each National Currency Association are jointly and severally responsible for the circulating notes issued under the application of that association.

It is further provided that any national bank may deposit bonds other than United States bonds, and issue circulating notes to 90 per cent of the market value of the bonds. The bonds shall be "bonds or other interest-bearing obligations of any state of the United States or any legally authorized bonds issued by any city, town, county, or other legally constituted municipality or district in the United States which has been in existence for a period of ten years, and which for a period of ten years previous to such deposit has not defaulted in the payment of any part of either principal or interest of any funded

debt authorized to be contracted by it, and whose net funded indebtedness does not exceed 10 per cent of the valuation of its taxable property to be ascertained by the last preceding valuation of property for the assessment of taxes."

The total amount of circulating notes of any national bank shall not at any time exceed the amount of its unimpaired capital and surplus, and not more than $500,000,000 of notes can be issued at any time by authority of this act.

A redemption fund of 5 per cent of the additional circulating notes must be kept by the banks in the hands of the United States Treasurer.

Notes based on 2 per cent United States bonds are taxed one half of one per cent yearly; notes based on United States bonds bearing a higher rate of interest are taxed one per cent yearly. Notes based on other than United States bonds are taxed at the rate of 5 per cent per annum for the first month, and one per cent additional each month until ten per cent is reached, which rate continues while the notes are out.

Notes may be retired by the banks upon the deposit of lawful money with the United States Treasurer, but not more than $9,000,000 a month may be retired.

United States depositaries are obliged to pay not less than one per cent per annum interest on the public moneys held by them.

How far the Emergency Currency Act will remedy the defects of the national bank system can only be conjectured. It will have to be put to the test before it can be passed on. It is admittedly only a temporary plan and expires on June 30, 1914.

In accordance with the law, National Currency Associations have been formed in various parts of the country, in the District of Columbia, New York, Boston, Philadelphia, etc.

By the same law a National Monetary Commission, composed of nine senators and nine representatives, was established to advise permanent amendment to the existing laws of banking and currency. Since its establishment, the National Monetary Commission has sent its representatives to all the principal

countries, and they have by personal investigation and interviews with bank officials sought to arrive at a knowledge of banking conditions obtaining in other nations.

The papers furnished by bankers, government officials, financial editors, and professors, now form a voluminous literature on the subject of banking, and there is every hope that from all this expert knowledge a means will be arrived at to do away with the inherent evils of our monetary system and to place it upon a secure and solid basis. (Cf. A. Piatt Andrew, in Practical Problems in Banking and Currency.)

QUESTIONS

1. What are the objections to a reëstablishment of the Bank of the United States?

2. What is meant by a Federated bank?

3. Describe the Aldrich plan.

4. What is branch banking? What objections are made to the plan? 5. What is meant by government guarantee of bank deposits? Outline the plan. What are the objections made to the plan?

6. Explain the postal savings bank system.

Detail the advantages of the system.

7. What is emergency currency?

How has it succeeded abroad?

What are the objections?

8. What is asset or credit currency? Would it be practicable? 9. Explain the Aldrich-Vreeland law.

CHAPTER XIII

INTERNATIONAL TRADE. BALANCE OF TRADE AND BALANCE OF ACCOUNTS. CUSTOMS DUTIES

Causes.

I. INTERNATIONAL TRADE

International trade is trade between nations. It is due to the need a country has for the products of other countries, and to the need a country feels for markets more numerous than can be found at home for its own products.

Every country requires the help of other countries for its supplies of necessaries, comforts, and luxuries, and the productive activity of every country results in an output greater than is necessary for home consumption. Hence the interchange of products between different countries.

A country will require some commodities that it cannot produce. Moreover, it will find it advantageous to buy from foreign countries some commodities that it could produce itself if necessary. Thus, while the United States produces a certain amount of sugar, and could possibly produce all that it needs, it is to our advantage to import the great bulk of our sugar. Other countries having greater facilities for the production of sugar can produce it at less cost, even calculating in that cost the rate of transportation; and the capital and labor which would be employed in the production of that commodity in the United States will be better employed in the production of some other commodity.

International trade is influenced by the difference between domestic and foreign prices. When prices are higher abroad, merchants will send their goods abroad; when they are higher at home, merchants will find markets at home.