involved a number of incidental expenses, including a semiannual tax of one-fourth of one per cent upon the amount of notes issued, the double profit was usually not a very substantial one. Inasmuch as not more than $100 in notes could be issued against $100 par value of bonds regardless of how high a premium the bonds bore in the market, and inasmuch as the bonds had been in recent years practically always at a substantial premium, the banks usually realized considerably less than 1 per cent net interest on the bonds. Obviously the higher the premium paid on the bonds, other things equal, the lower the net interest yield; and the lower the premium, the higher the yield. The result was a tendency for the banks to increase their bank-note circulation when the price of bonds declined and to decrease it when the price rose. In other words, the expansion and contraction of the bank-note circulation was not, as it should have been, in response to variations in trade demands, but in response to variations in the price of the government debt. This often gave an inverse elasticity, since the price of government bonds often declined at times when business was slack and the currency was already redundant, and often rose at times when business was active and an increase in the bank-note circulation was desirable. In other

words, the bank-note circulation frequently declined at just the time when business needs demanded an increase, and increased when the business situation called for a decline. The character of these fluctuations will be seen from the following chart.2

From season to season the bank-note circulation was very irresponsive to varying trade demands. There was considerable delay and redtape involved in obtaining the necessary bonds, depositing them at Washington and obtaining bank notes for circulation; and these obstacles, together with the expenses involved and the restrictions upon the subsequent retirement of notes once issued, made it impracticable for banks to meet temporary needs for additional currency, like those of the crop-moving period, by issuing additional notes. About all that can be said favorable to the seasonal elasticity of the national bank notes is that banks intending to increase permanently their bank-note circulation tended to make the increase in the fall when the demands for currency were normally largest. In the matter of seasonal elasticity our national bank-note

2 Figures plotted on the chart do not include the issues of Aldrich-Vreeland emergency notes. See note 4, page 15.

8 Down to May 30, 1908, the law limited the amount of national bank notes that could be withdrawn in any one calendar month to $3,000,000. On that date the law raised the limit to $9,000,000.

circulation showed up very unfavorably in comparison with the bank-note circulation of Canada, which, under the system of branch banks and an asset bank-note currency, was highly responsive to seasonal variations in currency needs. The contrast will be made clear by the following chart (Chart II) showing the variations in the monthly bank-note circulation of the two countries prior to November, 1914, the date when the federal reserve banks were opened.*

In times of crisis national bank notes could not be depended upon to provide additional currency. Government bonds were usually difficult to secure on favorable terms at such times, and the machinery for taking out new circulation worked too slowly. Some progress was made in the direction of improving the old system in this regard during the latter years of the old régime; and, under the spur of strong appeals to the banks and active assistance from the Treasury Department, there was some helpful increase in the national bank-note circulation at the times of the panic of 1907 and the crisis of 1914. At best, however,

4 The figures plotted on the chart do not include the circulation of the so-called Aldrich-Vreeland emergency notes, which were first issued in August, 1914, reached their maximum in October, and were all retired by the following July. Legal authority to issue such emergency notes expired by limitation June 30, 1915. Federal Reserve Act, section 27.