annum. The banks obtained from the provision for circulation
the benefit of what was described by critics as "double interest," being
credited with the interest on bonds in the custody of the treasury
department, and being also able to lend their notes to the public. But
several deductions had to be made: notes could not be issued to the full
par-value of the bonds; the tax of 1% upon circulation reduced by that
amount the profit which would otherwise be earned; and the banks had to set
aside in gold or other lawful money what was needed for redemption purposes
and for reserves. As the banks suspended specie payments at the close of
1861 and great masses of government paper-money were issued, gold ceased to
be a medium of exchange except in California, and the new banks redeemed
their notes in government paper. The gold-value of the bank-notes,
therefore, rose and fell with that of government notes until the resumption
of payments in specie by the national treasury on the 1st of January 1879.

The amount of bank-notes in circulation proved in practice to be influenced
largely by the price of bonds. The maximum originally set for bank
circulation was $300,000,000. This was increased in 1870 by $54,000,000,
and in 1875 the limit was removed. The circulation reached $362,651,169 on
the 1st of January 1883, but afterwards declined materially as bonds became
scarce and the price rose. The fact that circulation could be issued to
only 90% of the par-value of the bonds greatly reduced the net profits on
circulation when the price of 4% bonds rose in 1889 above 129 and other
classes of bonds rose in like ratio. The circulation of bank-notes fell as
low as $167,927,574 on the 1st of July 1891, but afterwards increased
somewhat as the supply of bonds was increased to meet the treasury
deficiencies of 1894-1896 and the expenses of the war with Spain.

The national banks supported the government cordially in the measures taken
to bring about resumption of gold payments on the 1st of January 1879 under
the law of 1875. The banks held more than $125,000,000 in legal tender
notes, of which sum nearly one-third was held in New York City. A run upon
the treasury for the redemption of these notes would have exhausted the
gold funds laboriously accumulated by secretary Sherman and compelled a new
suspension. But the banks appointed a committee to co-operate with the
treasury, declined to receive gold longer as a special deposit, and
resolv