5. The want of a bank note issue which can be expanded and contracted locally, with the seasonal needs for variation in the currency, makes necessary the transportation of coin, greenbacks, or certificates from one geographical area to another—an expen sive, cumbersome, speculative, and unsatisfactory operation. Accordingly the relief of currency deficiencies is always likely to be tardy; and as soon as the business activity that occasioned the shipment subsides, the currency flows back to money centers, causing low money rates and fostering speculation on the stock and produce exchanges.
After 19oo and up to 1913 the volume of bank notes expanded almost as fast as did business transactions and deposit currency, but, as shown above, this expansion was due to the extension of national banks in new areas which either had been without banks or had depended upon deposit currency. In the old business areas the supply of bank notes did not expand with business needs. The relative growth and elasticity of bank notes and in dividual deposits in recent years are indicated in the table on page 347 made from the Comptroller's calls: Other Disadvantages Besides the disadvantages mentioned above, the national bank note system has this objection—that it failed to provide for an emergency circulation. This defect was seriously realized in the panic of 1907, and in 1908 the Aldrich-Vreeland Act was passed in order to provide a temporary arrangement for needed emergency circulation until a new banking system could be devised. The nature of this act and the use made of it in 1914-1915 have been already described.
A final disadvantage of the national bank note system arose from the fact that difficulty was always experienced in getting a uniform development of the national banks as among the states and, therefore, in satisfying the needs of the various sections of the country for bank notes. The Act of 1865 apportioned the notes on
the basis of population, banking capital, and resources and business of the states. In 1870 the same provisions were made for the ap portionment of the increase of $54,000,000 circulation. This act went further, however, and provided for the reduction of bank notes of banks in those states which had a circulation in excess of their due proportion according to the new census, the reduction beginning with the larger banks in such states. The total reduc tion was limited to $25,000,000, and the circulation thus with drawn was to be apportioned among banks in those states which had less than their due proportion. Of this reapportioned circu lation the banks in the older sections of the country got more than those in the newer sections in the South and West, although the need in the newer sections was probably greater, since these sections were agricultural, more sparsely settled—and therefore less fitted for deposit currency—and had fewer banks. The newer sections, 'moreover, did not take full advantage of their oppor tunity to get additional circulation as provided by the Act of 187o.
This whole scheme of equalization was set aside by the Act of 1875, which allowed banks to issue notes to any amount, subject to the general provision governing the purchase and deposit of bonds. The result has been that national banks, because of limitations on capitalization, loans on real estate, etc., have been less able to extend into and adapt themselves to new and agricultural country than have state banks, and therefore these areas have been made dependent upon deposit currency. This disadvantage, however, was somewhat alleviated by the Act of 190o, and now a goodly fraction of the national bank notes are issued by country banks.