Fluctuations in the Secured Circulation of the National Banks and Their Relations to the Prices and Investment Values of Bonds

Abstract

Against national banking system there has always been complaint of opponents of system that banks were able to draw double interest, because they re? ceived interest on their bonds while making a profit by loan of currency based upon bonds. The criticism was strongest, perhaps, at very moment when banks began to find circulation unprofitable. The familiar rule of all financial speculations, that valuable secu? rities become less profitable than more hazardous ones because of high premium at which they sell, operated in case of United States bonds. The resumption of specie pay? ments, adherence to policy of paying interest in gold, and undoubted credit of government, made the bond-holder an envied individual, but it also made holding of bonds as a permanent investment less profitable than sale of them while price was high. Every year that brought bond nearer to maturity less? ened selling price, and made it more desirable, up to a certain time, for alert financier to dispose of his property at a premium rather than hold it drawing a moderate rate of interest until he should be obliged to accept its bare face value on date of its maturity. It became a simple math? ematical proposition for national banks whether it were more profitable to market bonds and lose small profit on circulation or to retain them and lose benefit of their