called "sovereignty of states" unparalleled in our history. Among these may be mentioned labor legislation, mediation and arbitration, employers' liability, safety appliances, hours of service, compensation for injuries, child labor, children's bureau, and eight hour day; also acts intended to greatly extend the national sway over farming, cattle raising and agricultural classes, such as acts to suppress diseases of animals, to prevent cruelty to animals, fixing the standard for grain, the standard for fruits and even for barrels, warehouse acts and many acts affecting food, good roads and speculation in cotton. The police powers of the United States began to be felt in acts. affecting the use and sale of narcotics, the manufacture of opium, the inspection of meat, public health laws, the transportation of prize fight films, white slavery and liquor shipments, and finally by constitutional enactments prohibiting the manufacture, sale or transportation of intoxicating liquors. A sop was thrown to the states in the prohibition amendment by the provision designed to give concurrent power to them to enforce its terms by appropriate legislation, but if this amendment stands the test of time there is danger that this concurrent power will be more theoretical than actual. The national government invaded the very "holy of holies" of legislative action by the establishment of the Bureau of Corporations. The day is not far distant when federal incorporation, of domestic common carriers at least, will be required in order to permit them to continue in the performance of their business.

The income tax amendment to the Constitution marked a still further advance in strengthening national power and in further limiting the state's reserved powers. Governor Charles E. Hughes, a former Cornell Law School professor, when this amendment was up for ratification warned the legislature of New York that, in its present form, the amendment might be used to authorize a tax which might be laid in fact upon the instrumentalities of state government. He said:2 "In order that a market may be provided for State bonds and for municipal bonds, and that thus means may be afforded for State and local administration, such securities from time to time are excepted from taxation. In this way lower rates of interest are paid than otherwise would be possible. To permit such securities to be the subject of Federal taxation is to place such limitations upon the borrowing power of the State as to make the performance of the functions of local government a matter of Federal grace." This warning also fell on unheeding ears. The amendment was adopted.

"Message to the legislature, Jan. 5, 1910. 'Italics are writer's.

It was not long after that Congress was indeed asked to grant no income tax exemptions whatsoever on the income from state bonds. Only the most determined effort on the part of the financial powers of the country prevented, for a time at least, this claimed power from being enforced by statute.

It is a foregone conclusion that many powers, at first only claimed to be exercised as war powers, will soon be found permanently employed in further limiting the powers of the states.

It is an odd circumstance that under these conditions national banks, prior to 1913, did not come in for full participation in this extension of the powers of the central government. When they did, however, it was by the passage of an act which showed that Congress had profited by its exercise of powers in other directions. Congress now reached down into the most private and domestic affairs of individuals in order to curb the competition of state banking corporations with national banks.

The clauses of the Constitution designed to provide a uniform currency and to facilitate the operations of the United States Treasury were as inoffensive in appearance as was the commerce clause. The history, however, of the first and second banks of the United States amply illustrated what divergence of opinion could arise as to the constitutionality of the creation of those banks. When the federal constitution was drawn there were but three banks in the United States which long after existed, the Bank of North America at Philadelphia, the Bank of Massachusetts and the Bank of New York. These banks then issued bills to circulate as money and continued to do so thereafter without apparent question. It is stated that one of these banks existed several years before it received a charter from the legislature, and that it exercised without dispute or question the functions of both issue and deposit, and on this it has been claimed that the banking business was free in the United States until it was restrained by statute.

The propriety of the creation of a national bank under the Constitution was for many years as seriously debated as powers claimed under the commerce clause have since been. All doubts seem to have been set at rest when, after successive steps, the act of June 3, 1864, was passed by Congress, entitled: "An act to provide a national currency secured by a pledge of United States bonds and to provide for the redemption and circulation thereof." This created the national banks of the present time. The corporations or associations which were thus authorized were directly designed to provide a national currency, their general banking powers being subsidiary to

the main proposition. From 1864 down to the year 1913 national banks continued to exist and to increase under a banking law which had but few structural changes.

In 1865 in an attempt to drive state banks into the federal system, Congress passed an act imposing a federal tax on circulation issued by banks which practically destroyed the power of state banks to issue bills to circulate as money. While many state banks did go into the national system, state institutions continued to prosper in the most active competition with national banks.

The passage of the Federal Reserve Act of 1913, however, introduced two drastic changes in the banking theory. These changes were as marked as those which had been intended to drive the state banks into the national system. They marked the most advanced step which Congress has taken in participating in the domestic affairs of states. They are as follows:

First-A provision of the Federal Reserve Act, Section 9, permitting any bank incorporated under special or general law of any state (bank being defined to include trust company) to be authorized by the Federal Reserve Board to become a member bank in the regional Federal Reserve Bank.

This was an innovation, in that a state institution was permitted to come into the federal system without federal incorporation. The state institution, however, by so doing, subjected itself thereby to federal regulation, while still responsible to the state which incorporated it. This was said to be in the interest of strengthening the entire banking fabric and to create an elasticity which the panic of 1907 had shown not to exist in our banking facilities whether state or national. There were, and are still, critics who say that this was but another step in the limitation of state powers. These contend that this action was another case of "speak softly but carry a big stick"; that it was thereby intended to drive all state institutions into the federal system,-end separate state regulation and control all banking institutions.

Second-A grant of entirely new powers to national banks. This was accomplished by Section 11-k, which conferred power on the Federal Reserve Board "to grant by special permit to national banks applying therefor, when not in contravention of State or local law, the right to act as trustee, executor, administrator, or registrar of stocks and bonds under such rules and regulations as the said board may prescribe."

The far-reaching character of these new powers cannot be appreciated without a consideration of the history of fiduciaries in the State of New York, particularly from 1887.

That year saw the passage of a general statute which probably had much to do with the later entrance of national banks into fiduciary relations.

The purely domestic affairs of the people of the state involved the transfer of real and personal property, the devolution of estates and the ordinary transactions of commercial enterprises within the boundaries of the state. These had involved in their steady evolution the creation by the state, for itself, and for its subsidiary municipal corporations of fiscal or transfer agents; for its corporations, the appointment of transfer agents and registrars; for its citizens and ordinary corporations, the appointment of attorneys in fact or agents. Trustees were authorized to be appointed, by domestic law, of municipal, corporate or private trusts; guardians were appointed by courts of domestic jurisdiction, as were administrators, executors and trustees, committees of the estates of lunatics, idiots or persons of unsound mind, receivers or committees in insolvency proceedings, and many other fiduciary powers were created, purely domestic in their character and having no relation in themselves directly to the proposition for which the Constitution of the United States had been used to authorize the forming of national banks, to wit: the creation of of a currency.

It was found, however, that many of these fiduciary relations might be held to advantage by corporate entities, which prior to 1887 were specially chartered in the State of New York, and which by that time grew to large proportions and influence. One of these so-called trust companies had been designed especially to consider agricultural loans and trusts. Another was permitted to combine life insurance with its trust powers and grew to international importance. Another had been formed to include mortgage powers of an important character, and later others were specially chartered which combined title, guarantee and safe deposit facilities with their trust powers. To a greater or less extent these corporations had some banking powers, but none of them were authorized to issue bills to circulate as money. The great success of a score of these specially chartered companies. exemplified the need for a general statute under which like corporations might be freely formed throughout the state. The New York legislature, in terms permitted the formation of trust companies, so-called in the act, to which were given large fiduciary powers and general banking powers other than the direct power to discount and to issue bills to circulate as money.

Five years thereafter a Cornell professor, Charles A. Collin, then Statutory Revision Commissioner, codified all of the banking laws of 4Laws of 1887, chap. 546.

New York, and in the Banking Law, Chapter 689 of the Laws of 1892, trust companies of the state were included and were in terms given banking powers.

The standing of these trust companies already formed and those later formed under this act, and the ease with which they adapted their departments to economic changes, attracted widespread attention. Their business very soon passed beyond the confines of the State of New York. They were to be found enforcing their fiduciary powers and their banking powers throughout the states, and indeed in foreign countries.

By the year 1902 many trust companies had been incorporated under this general law in the State of New York. They embarked upon a distinct banking as well as trust business. The writer's observation of half a dozen of these indicated that they were organized primarily to do a banking business with the expectation that the fiduciary business would only be the result of years of seasoning and growth. They received deposits of other than trust funds and were in that year in most active competition with state and national banks. They were in terms prohibited from issuing bills to circulate as money, one of the perquisites of banking, which the state bank had but could not use, because of the federal tax which made such business unprofitable. They did not in name discount commercial paper, another incident of banking power, but they could buy commercial paper, which had substantially the same result.

The status of the early trust companies had been fixed from the standpoint of taxation by a decision of the Supreme Court of the United States," but the status of institutions in this country changes faster even than the constitution or judicial notice may follow.

The words "other moneyed capital" as used in section 5219, of the U. S. Revised Statutes, providing that state taxation of national bank shares "shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens" came up for construction in that case. A law of the state of New York had imposed a tax on the stockholders in every bank or banking association organized under the authority of the state, or of the United States, assessed and taxed upon the value of their shares of stock, while a different rule of taxation was applied to capital invested in trust companies. It was claimed among others that here was discrimination in favor of trust companies against national banks, and a consequent invalidity in the state taxing law. The court said:

"Mercantile Bank v. New York, 121 U. S. 138 (1886).

Sec. 312 of an act passed July 1, 1882, entitled: "An act to revise the statutes of this state relating to banks, banking and trust companies."