there were outstanding several hundred thousand dollars in worthless currency.

"The first railroad corporation authorized in Texas was the Texas Railroad, Navigation and Banking Company,' which was chartered by the first congress of the republic to connect by railroad and canal the waters of the Sabine and the Rio Grande, but the charter was forfeited. Both Louisiana and Mississippi were liberal in their grants of the banking power, not only to railroads, but to industrial corporations as well. Louisiana in 1834 conferred banking powers upon the Clinton and Port Hudson Railroad, and provided for a note issue which might reach double the amount of its banking capital. The following year this State authorized the New Orleans and Carrollton Railroad to establish 'five offices of discount and deposit' in different towns, and chartered a new corporation, the ‘Atchafalaya Railroad and Banking Company,' with power to open a bank in the parish of West Feliciana. In 1836 the Pontchartrain Railroad received a grant of the banking power. In Mississippi we have this picture of the results of using banks as agencies of railroad financing: 'From December 20, 1831, when banking privileges were conferred on the West Feliciana and Woodville Railroad, until the crash came in 1837, Mississippi was gridironed with imaginary railroads and beridden with railroad banks. In these enterprises there was more watered stock sold than there were cross-ties laid; reckless speculation brooked nothing as prosaic as the actual construction of railroads, on the successful

operations of which it was supposed fabulous dividends would be declared.'

"When the lines from Savannah to Macon and from Augusta to Athens were first projected, capital requirements were so great that appeals for state aid were made by both the Central and the Georgia railroads. Failing to receive the desired aid, they applied for banking privileges, which were granted. The names were therefore changed to the 'Central Railroad and Banking Company,' and the 'Georgia Railroad and Banking Company.' Onehalf of the capital of these companies could now be devoted to banking, and notes could be issued to three times the banking capital.

"As an adjunct to the Louisville, Cincinnati and Charleston Railroad by which it was planned to connect Charleston with the Ohio, the 'South Western Railroad Bank' was chartered in South Carolina, North Carolina, and Tennessee in 1836 and 1837. Kentucky granted a charter to the railroad, but in express terms prohibited banking, and the bill to incorporate the South Western Railroad Bank in that State failed by six votes. This bank was capitalized at $6,000,000. A unique feature of the enterprise was the issue of the shares in the bank inseparably connected with the shares of the railroad, so that everyone who held $100 of stock in the railroad was required to subscribe $50 toward the capital of the bank. Forfeiture of either share therefore worked forfeiture of both. The bank went into operation in 1839, and to its stock South Carolina subscribed $500,000."

VII. VOLUME OF NOTES.

The restrictions laid down by early charters in regard to the amount of notes which could be issued were exceedingly vague and lax, and little protection was given to the currency. Many of the acts of incorporation did not make specific requirements, but covered the point indirectly through limitations in the amount of indebtedness, including deposits. The charter of the First United States Bank provided that "the total amount of the debts which the said corporation shall at any time owe, whether by bond, bill, note, or other contract, shall not exceed the sum of $10,000,000 (i. e., the capital) over and above the moneys actually deposited in the bank for safe-keeping." In the charter of the Bank of England, which served in many respects as a model for the First Bank, indebtedness could not exceed the capital, irrespective of deposits. In the English joint-stock banks there was no limitation during the earlier part of the nineteenth century."

The States were generous in their grants of indebtedness. At the outset this limitation was generally set at two or three times the capital. This amounted to practically no limitation at all, at least upon banks with a large capital, and admitted an issue of notes out of all proportion to the specie fund. Naturally, it afforded an opportunity for a wide range and violent fluctuations in the amount of outstanding currency, depending upon applications for discount. Twice the capital actually paid in, exclusive of deposits, was the rule followed by a Gilbart, History of Banking in America, p. 73.

Massachusetts banks down to 1811, when for many institutions the note issue was reduced to 50 per cent in excess of the capital, exclusive of deposits." Between 1825 and 1828 nearly 30 banks were limited to 100 per cent, and in the latter year the general rule was made 125 per cent. This continued until 1858, when circulation was restricted to the amount of capital. Connecticut, in the charter of the Hartford Bank, 1792, adopted a more conservative ratio of 50 per cent of the capital and deposits combined, and this proportion was continued in subsequent charters." Circulation based on deposits obviously opened the way for abuses. In 1837 the bank commissioners reported that the Stamford Bank had created fictitious deposits in order to increase its note issues, and later, in 1853, they recommended that this rule of measuring circulation be abandoned; only three banks in the State at that time resorted to this method, but the opportunity should be denied. One bank was cited where the circulation had been carried to $300,000; recourse was had to sight checks drawn on individuals in New York by the president of the bank and deposited in the hands of the cashier, payable to his order; none of these, however, had ever been out of the bank or presented for acceptance; deposit was indebtedness and circulation was indebtedness; to maintain a circulation on deposits was to build up one species of indebtedness on the basis of another. In 1855 circulation was restricted to 125 per cent of the capital and in 1858 to 75 per cent.

a For statistics see Root in Sound Currency, 2:4.

b Woodward, The Hartford Bank, p. 19.

In Rhode Island the charter of the Providence Bank, 1791, placed no limitation of any sort upon circulation, and in harmony with the principles of freedom which governed legislation in that State for many years, several subsequent charters were silent on this point. In 1805 indebtedness was limited to capital plus the deposits." In 1820 issues were limited to the paid-in capital, and in 1837 a more elaborate set of percentages on capital was adopted as follows:

In 1859 the limit was made 65 per cent for all banks. In New Hampshire circulation was based on capital, and in 1825 in the charter of the Commercial Bank of Portsmouth the issue could not exceed the capital under penalty of $10,000. In 1838 a law was passed providing that loans made on a pledge of bank stock should be construed as a diminution of capital in determining the volume of notes. In Vermont, after 1840, circulation was limited to double the capital.

Maine, in 1831, made 150 per cent of the capital the rule of maximum issue, but in 1838 classified the banks according to capital and reduced circulation to ratios ranging from 66% to 100 per cent. In 1846 the circulation in excess of 50 per cent of the capital was limited to three times the specie held, and the total circulation to capital

a Stokes, Chartered Banking in Rhode Island, p. 21.