§ 40. National banks may loan not more than 30 per cent. of their time deposits, as herein defined, upon improved and unencumbered real estate, such loans not to exceed 50 per cent. of the actual value of the property, which property shall be situated in the vicinity or in the territory directly tributary to the bank: Provided, That this privilege shall not be extended to banks acting as reserve agents for banks or trust companies.

§ 41. All demand liabilities, including deposits and circulating notes, of the National Reserve Association shall be covered to the extent of 50 per cent. by a reserve of gold (including foreign gold coin and gold bullion) or other money of the United States which the national banks are now authorized to hold as a part of their legal reserve: Provided, That whenever and so long as such reserve shall fall and remain below 50 per cent. the National Reserve Association shall pay a special tax upon the deficiency of reserve at a rate increasing in proportion to such deficiency as follows: For each 212 per cent. or fraction thereof that the reserve falls below 50 per cent. a tax shall be levied at the rate of 11⁄2 per cent. per annum; Provided further, That no additional circulating notes shall be issued whenever and so long as the amount of such reserve falls below 33% per cent. of its outstanding notes.

§ 42. In computing the demand liabilities of the National Reserve Association, a sum equal to one-half of the amount of the United States bonds held by the association which have been purchased from national banks, and which had previously been deposited by such banks to secure their circulating notes, shall be deducted from the amount of such liabilities.

§§ 43-46. [Details as to reports of the National Reserve Association and of the subscribing banks.]

§ 47. Bank-note issues. All provisions of law requiring national banks to hold or to transfer and deliver to the Treasurer of the United States bonds of the United States other

than those required to secure outstanding circulating notes and Government deposits as hereby repealed.

§ 48. There shall be no further issue of circulating notes by any national bank beyond the amount now outstanding. National banks may maintain their present note issue, but whenever a bank retires the whole or any part of its existing issue its right to reissue the notes so retired shall thereupon

cease.

§ 49. The National Reserve Association shall, for a period of one year from the date of its organization, offer to purchase at a price not less than par and accrued interest the 2 per cent. bonds held by subscribing national banks and deposited to secure their circulating notes. It shall take over the bonds so purchased and assume responsibility for the redemption upon presentation of outstanding notes secured thereby. It shall issue, on terms herein provided, its own notes as the outstanding notes secured by such bonds so held shall be presented for redemption and may issue further notes from time to time to meet business requirements, it being the policy of the United States to retire as rapidly as possible, consistent with the public interests, bond-secured circulation and to substitute therefor notes . . . of a character and secured and redeemed in the manner provided for in this act.

§ 50. All note issues of the National Reserve Association shall at all times be covered by legal reserves to the extent required by section 41 of this act and by notes or bills of exchange arising out of commercial transactions as herein before defined or obligations of the United States.

§ 51. Any notes of the National Reserve Association in circulation at any time in excess of $900,000,000 which are not covered by an equal amount of lawful money, gold bullion, or foreign gold coin held by said association, shall pay a special tax at the rate of 12 per cent. per annum, and any notes in excess of $1,200,000,000 not so covered shall pay a special tax at the rate of 5 per cent. per annum: Provided, That

in computing said amounts. . . the aggregate amount of any national-bank notes then outstanding shall be included.

§ 52. The circulating notes of the National Reserve Association shall constitute a first lien upon all its assets and shall be redeemable in lawful money on presentation at the head office of said association or any of its branches. It shall be its duty to maintain a parity of value of its circulating notes with the standard established by the first section of the act of March 14, 1900, entitled "An act to define and fix the standard of value, to maintain the parity of all forms of money issued or coined by the United States, to refund the public debt, and for other purposes.

§ 53. The circulating notes of the National Reserve Association shall be received at par in payment of all taxes, excises, and other dues to the United States, and for all salaries and other debts and demands owing by the United States to individuals, firms, corporations, or associations, except obligations of the Government which are by their terms specifically payable in gold, and for all debts due from or by one bank or trust company to another, and for all obligations due to any bank or trust company.

§ 54. The National Reserve Association and its branches shall at once, upon application and without charge for transportation, forward its circulating notes to any depositing bank against its credit balance.

§ 55. United States bonds. Upon application of the National Reserve Association the Secretary of the Treasury shall exchange the 2 per cent. bonds of the United States bearing the circulation privilege purchased from subscribing banks for 3 per cent. bonds of the United States without the circulation privilege, payable after fifty years from the date of issue. The National Reserve Association shall hold the 3 per cent. bonds so issued during the period of its corporate existence: Provided, That after five years from the date of its organization the Secretary of the Treasury may at his option

permit it to sell not more than $50,000,000 of such bonds annually: And provided further, That the United States reserves the right at any time to pay any of such bonds before maturity, or to purchase any of them at par for the trustees of the postal savings, or otherwise.

§ 56. The National Reserve Association shall pay to the Government a special franchise tax of 12 per cent. annually during the period of its charter upon an amount equal to the par value of such United States bonds transferred to it by the subscribing banks.

§ 57. Banking in foreign countries. Banking corporations for carrying on the business of banking in foreign countries and in aid of the commerce of the United States with foreign countries and to act when required as fiscal agents of the United States in such countries may be formed. . . under prescribed regulations, but shall not be authorized to receive deposits in the United States nor transact any domestic business not necessarily related to the business being done in foreign countries or in the dependencies of the United States. [Authority and power conferred; conduct regulated.]

§ 58. [Congress reserves right to alter or amend at the end of any decennial period.]

§ 59. [Acts inconsistent repealed.]

THE TRADE BALANCE OF THE UNITED STATES

[AMONG the valuable papers published by the National Monetary Commission is one of the foregoing title by George Paish, editor of The Statist (part of Senate Document 579, 61st Congress, 2d session, 1910, pp. 151-213). The following extracts serve to epitomize the argument which is developed in much greater detail and which, in a very convincing way, exposes the error of the popular view that balances of accounts for merchandise exports and imports are settled by corresponding gold imports and exports. The figures given are mostly for the years 1908-09.]

On trade balances [page 153]. The term "trade balance" is generally used for the purpose of indicating the excess value of a country's exports of merchandise over the value of its imports of merchandise or the excess value of a country's imports of merchandise over the value of its exports of merchandise. In monetary circles the term is employed to denote the ability of a country to import supplies of the precious metals. If the rate of exchange of one country upon other countries is at the level which permits of gold imports, it is said that the balance of trade is in favor of the country importing the gold. On the other hand, if the rate of exchange of any country is at a level which admits of gold exports, the balance of trade is said to be against the country exporting the gold. In the sixteenth, seventeenth, and eighteenth centuries a favorable trade balance was a matter of great concern to statesmen and to financiers. At that time it was supposed that any country which imported goods of greater value than the goods it exported would be seriously, injured by having to make payment in the precious metals for the difference between the value of the goods imported and the value of the goods exported, and that any country