United States was built up by protecting the rights and the opportunities of the small man and the small bank in business-built up from units, individuals, from the bottom up! The European system of centralized banks with branches was built from the top down. It has been of the greatest importance to this nation industrially that we have pursued the American idea in banking. It is the same idea that underlies the theory of protective tariff. Let the little man grow. Let him have a chance. Give the American a chance, and he soon grows in size and strength, so that in time commercially and financially he will come to dominate the world. And he has in one sense done it in this banking system of ours, which at times is held up for ridicule and criticised severely in comparison with the systems of Europe. This system of ours, this banking power of ours, in 1890 was a little more than the banking power of the United Kingdom, and a little less than the banking power of continental France. Within ten years this banking power of ours has grown so that it is now within 12 per cent., not only of the banking power of the United Kingdom, but of the banking power of the United Kingdom and of continental Europe put together. And we have built this system up by protecting the small banker.

Now, however we may differ as to this question of branch banking, let me say right here that, as practical men, we all know that at this particular time there is no chance of a branch-banking law going upon our statute-books. Right or wrong, debatable question as it may be, there is at this time in the United States a widespread apprehension lest this great process of centralization and consolidation of industry and of capital is not too greatly curtailing the opportunities and chances of the individual. Right or wrong, debatable as that question may be, we know that that apprehension exists. And we all know how futile it is to expect to have passed into law any change which removes existing restrictive provisions of law against branch-banking systems, and opens still further the way for the same process of consolidation and centralization to go on in the banking business as is now going on in general commercial and industrial business.

I do not want to be considered an obstructionist. I think it is time to take a step in advance, but take a step that is safe. We do not want to consider the question of branch banking as a matter

even for discussion among the bankers of the United States, as a thing at present practicable or possible. I do not think, as a matter of principle, we can afford in this country to depart from our present theory of banking. Under it has been developed the greatest banking system of the world. The time is not ripe for branch banking in this country, if such a time ever will come. We do not have to disagree entirely with the economists in holding this position. We know that the rates of interest on certain forms of collateral loans will be lower under a branch-banking system. We know that the farmer having grain, or any other commodity which has a cash value in the established markets, can through branch banking get a lower rate of interest. There will be fewer rooms to rent. There will be fewer clerks to employ. There will be certain economies in the management of the business, which might in the older and more fully developed communities in the East fully compensate the people for the loss of some of the advantages the small bank gives to the community and the public. But it is doubtful. Branch banking would certainly not aid in building up our undeveloped country, and the newer sections of the United States. He who would stand for the common good of all should argue the question from the standpoint of the people of the undeveloped country, and from the standpoint of the people building up a great and undeveloped country; for the United States as a whole is still undeveloped. If you discourage the small bank, you do not injure so much the depositors of a small community, but you curtail the opportunity for credit of the small borrower; and it is the small borrower of the United States who has built up the country. It is folly to maintain that an agent of a branch bank, acting at a distance under delegated authority, can exercise the same discretion and have the same latitude in the making of loans in which the personal equation is an element, as does the local bank acquainted with local conditions and authorized to cope with a local situation. It is the man who goes in to start a little business-a little wholesale business, a small manufacturing business, a small mining business, or some other business of small beginnings-who has developed and built up this country. He does not often have collateral. The money he borrows often forms a certain, and even large, proportion of the total investment made by him-money advanced him because he has character and stand

ing with the local bank. The local banker knows him, has followed him, trusted him, and gives him credit upon his representations that he will pay, not upon his collateral. Out of the little shops of the Deerings and the McCormicks and of the Studebakers of years ago, and the little businesses of such men, have grown these magnificent corporations which are commencing to dominate the world; and it is by the protection of the opportunity of the small man to credit that we are building up this great commonwealth of ours. The man who will bring out from this soil its riches, the man who will be a great manufacturer, the great farmers of the future, some of them are hard up now, some are having trouble right now to pay back the little money advanced them with which to start their struggling industries by the small banker who trusted them. Some of them will go under, but more of them will keep on, until this great state of yours, like this great nation of ours, shall dominate over its competitors through the rule of the "survival of the fittest," and the protection of the rights of the individual by law.

BANK NOTE EXPERIENCE OF TWENTY YEARS

1882-1902

AN ADDRESS DELIVERED BY HORACE WHITE, FORMERLY EDITOR OF THE NEW YORK EVENING POST, BEFORE THE BANKERS' CLUB OF CHICAGO, IN THE FALL OF 1903. THE national banking act passed in 1864 provided that the whole amount of national bank notes should not exceed $300,000,000 and that such notes should be secured by bonds of the United States at the rate of not less than $100 for each $90 of notes. The banks were required to hold the same percentage of cash reserve against notes as against deposits. The whole amount of $300,000,000 was taken out during the following six years. In 1870 new banks could not obtain circulation except by buying it from others. A premium as high as 6 per cent. was paid for it in some cases. No bonds could be received as security for circulation, bearing interest at a less rate than 5 per cent. Most of them bore interest at 6 per cent. A tax of 1 per cent. per annum was imposed on the average amount of notes in circulation.

In 1865 Congress passed a law making the note-issuing function of banks proportionate to their paid-up capital. Those whose capital did not exceed $500,000 might issue 90 per cent. of such capital. As the capital increased, the proportion of notes diminished. Banks having $3,000,000 or more of capital could issue notes to the amount of 60 per cent. only.

In 1870 Congress extended the aggregate limit of bank-note circulation to $354,000,000. In 1874 it repealed the requirement of a cash reserve to be held against outstanding circulation, and adopted in lieu thereof a 5 per cent. redemption fund to be kept in the treasury at Washington. In 1875 the sum of $342,000,000 of circulation had been taken out. This was the net amount; that is, the amount outstanding, less the part which was in course of retirement by banks in liquidation, etc. In the statistics which follow, where I speak of the volume of note circulation, I shall mean the net amount.

Congress then repealed the aggregate limit altogether, but did not change the proportions of circulation to capital allowed to individual banks. Although the limit of volume no longer existed, and although new banks were coming into existence all the time, the circulation now began to decline, falling to $302,000,000 in 1877. The reason for this decline is found in the refunding of the national debt. As the time was approaching when the 5-20 bonds would be redeemable at par, many banks embraced the opportunity to retire their circulation, sell their bonds, and save the premium which still remained. Probably all of them did so, but most of them bought bonds of the new issue, bearing lower rates of interest. A certain proportion of them, however, either discontinued circulation, or reduced their allotments, or postponed taking out the amounts to which they were entitled.

In 1878 the circulation began to rise again, reaching $332,000,000 in 1882. The population of the United States by the census of 1880 was slightly over 50,000,000.

A decline of the bank-note circulation now began and continued for nine years. It reached its minimum ($125,000,000) in 1891. During that interval there was a contraction of $207,000,000 of the bank-note circulation, or more than 62 per cent. The reasons for this decline were: (1) the rapid redemption of United States

bonds, more than one thousand millions of which were paid off during that period; and (2) the augmentation of the price of the remainder. The 4 per cents rose to nearly 129 in the year 1889. The population of the United States by the census of 1890 was 62,000,000—an increase of 12,000,000 in ten years.

The next five years embraced the panic of 1893. In this period the treasury was required to issue new bonds to the amount of $262,000,000. The price of 4 per cents running thirty years fell as low as 104.49, at which rate the bond syndicate of 1895 took $62,000,000, the rate of interest on the investment being 334 per cent. This rate of interest offered greater inducement to banks to take out circulation, which rose to $190,000,000 in 1898. In that year the Spanish war began and Congress issued $200,000,000 of bonds bearing interest at 3 per cent. These bonds afforded a more profitable basis for bank circulation than the previous issues. The circulation, however, did not increase much until Congress passed the law of 1900 authorizing the issue of notes to the par value of the bonds and to the full amount of the capital stock. The same act authorized the exchange of existing bonds maturing in 1904, 1907, and 1908 for 2 per cent. bonds to run thirty years. These bonds were made receivable at par as security for circulating notes. The tax on notes so secured was reduced to one-half of 1 per cent. per annum, the tax on other notes remaining at 1 per cent.

These provisions of the law gave a new impulse to the bank circulation, which rose to $328,000,000 in the year 1902. It was less by $4,000,000, however, than that of 1882, although population had increased from 50,000,000 to 76,000,000 during the interval, and wealth had increased in a still greater ratio. The percentage of circulation to national bank capital in 1882 was 81.60; in 1902 it was 53.32. The ratio of bank notes to population in 1882 was $6.50 per capita. In 1902 it was $4.25 per capita.

During the last twelve months the Secretary of the Treasury, by offering to the banks premiums in various forms, has managed to increase the note circulation $55,672,680, bringing the whole up to $379,515,824 on the 30th of September last. To secure this increase he has made use of $161,778,285 of the treasury surplus as bank deposits, the use of which has probably been worth to the depositories as much as 3 per cent. during the past year. In other