necessary increase, such as has been seen in the former history of free banking.
The question of the constitutional power of Congress to authorize such a system can only be alluded to. It would very likely be raised; but it may be assumed that it would not prove an insuperable objection. It might be made a condition of granting charters or licenses to banks that they should be required to lend a certain percentage of their capital to the Government whenever called upon, and also under proper restrictions be made depositories of public moneys; thus, as has been suggested, doing away with the expensive and primitive system of local sub-treasuries.
Bankers to make money on their issues must keep them in circulation, which could be done by the same means, and those only, that are employed to build up a line of deposits; that is to say, they must establish their credit by promptly performing their engagements. Governmental interference should be exercised solely with reference to insistence upon such performance.
That in some cases there would be mismanagement, dishonesty, and consequent loss, in the future as in the past, is certain; but the control and supervision of banking should not, any more than that of other branches of business, be regulated upon the hypothesis of fraud. The losses which might come would be comparatively small, would follow quickly upon their causes, would have the advantage of being directly traceable, and so permit the prompt application of remedial measures. With the existing means of swift communication, with the wide distribution of national banks, and the watchfulness which they employ toward each other, and, finally, with the smaller transactions carried on by means of specie, the losses upon bank-notes would not only be small, but would, for the most part, fall upon the banks themselves, they being the constant custodians of the greater part of the currency; and they could be trusted to see to it that only such circulated as was worthy to have circulation.
This brings us to a suggestion which is put forth with much hesitation, and only as a suggestion, notwithstanding it is believed that it is sound in principle, and might be made safe in practice. It is simply that the banks should assume the risk, and, as a whole, undertake to protect the rest of the community from loss upon note-issues. To effect this it would only be necessary, so far as legislation is concerned, to continue in force that provision of the existing law which makes national-bank notes a legal tender to national banks. It would seem to be well-nigh certain that the banks could assume this risk of loss, whatever it might prove to be, and still the business of issuing notes afford a larger margin of profit than it now does. For this would be but an application of the insurance principle to one class of the accidents to which the banking business is liable. The banking interest, as a whole, would undertake to indemnify the public against losses
