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National bank notes have been issued by National banks under the direction and control of the Comptroller of the Currency. They have been issued in amounts equal to the par value of United States bonds deposited with the Comptroller of the Currency as security. They are redeemed in lawful money of the United States whenever presented to the Treasurer of the United States, and for this purpose each bank is

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MONEY LAUNDERING MACHINES. These machines are in the Treasury at Washington.

required to keep on deposit with the Treasurer an amount of gold equal to five per cent of the amount of notes the bank has in circulation. The National bank notes now in circulation will doubtless be gradually retired through operation of the Federal Reserve Act.

Under the Federal Reserve Act, approved December 23, 1913, Federal reserve notes, which are prepared by the Comptroller of the Currency under the authority of the Federal Reserve Board, may be issued by the twelve Federal reserve banks. In addition, these banks may issue Federal reserve bank notes in much the same way as the National bank notes are issued. The purpose of these notes is to give elasticity to our currency, i.e. to allow the government to increase the volume of money when money becomes scarce, and thereby prevent a money panic. (See Sec. 118.)

These notes may be issued upon the security of short term commercial paper (e.g., private notes, drafts, etc.), and the only limit which the law places upon the amount of Federal reserve notes which may be issued is that arising from the requirement for collateral and reserve, and the provision that interest may be charged upon them in the discretion of the Federal Reserve Board. Federal reserve notes are receivable for taxes, customs and other public dues and are redeemable in gold on demand at the Treasury Department in Washington, or in gold or lawful money at any Federal reserve bank. The gold reserve required against Federal reserve notes is 40%.

Mutilated paper currency may be redeemed if its condition permits its identification by the Government experts.

81. The Gold Standard. The United States formally adopted the gold standard by the Act of March 4, 1900, but had actually been on a gold standing since 1879. The act provides, “That the dollar consisting of twenty-five and eight tenths grains of gold nine tenths fine . . . shall be the standard unit of value, and all forms of money issued or coined by the United States shall be maintained at a parity of value with this standard and it shall be the duty of the Secretary of the Treasury to maintain such parity.”

In the above sections the reader must have observed that one can exchange gold certificates, United States notes, Federal reserve notes, Federal reserve bank notes, and National bank notes for gold coins. This paper money which can be exchanged directly for gold, plus actual gold coins, forms four fifths of all our money. The other fifth, composed of silver coins, silver certificates, nickels, and pennies, can easily be exchanged for the above-mentioned forms of money, hence all of our money can be converted either directly or indirectly into gold coin. Any United States dollar is worth 23.22 grains of pure gold.

Costs of Living. - Prices are based upon supply and demand. During the World War gold flowed to the United States and increased demand while 5,000,000 young men in the army ceased producing supplies, therefore prices rose. The volume of gold in the United States and money accepted by the government for gold) is now greater than in 1913, therefore prices can not become as cheap as then until goods are produced more rapidly than gold creates a demand for them.

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THE VALUE OF THE GOLD DOLLAR IN GOODS AT WHOLESALE

COMPARATIVE WHOLESALE PRICES IN THE UNITED STATES (1913 = 100)

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BIBLIOGRAPHY

DEWEY, D. R. Financial History of the United States. 1907.
Fiske, H. E. Our Public Debt. 1919.
HEPBURN, A. B. History of Currency in the United States. 1916.
PLEHN, C. C. Introduction to Public Finance. 4th ed., 1920.
HASKIN, F. J. The American Government. 1912.
The Congressional Directory.
Annual Report of the Secretary of the Treasury.

QUESTIONS ON THE TEXT

1. What are the duties of the Secretary of the Treasury?

2. How much revenue does the United States government receive annually ? From what sources does this money come?

3. What is meant by internal revenue ?
4. What is meant by customs ?
5. Upon how many articles are tariff duties imposed ?

6. How does the United States prevent fraud by importers of articles upon which a tariff is imposed ?

7. Where does the United States government keep its money? 8. For what purposes does the United States expend its money?

9. What body must authorize the expenditure of all government money?

10. What officer sees that no money is expended except such as is authorized by Congress?

11. What is meant by currency?

12. What metallic currency does the United States now make ? Where is it made ?

13. On what kinds of metallic money is a profit made ?

14. What is meant by legal tender money? Subsidiary coins ? Minor coins ?

15. What kinds of coins are legal tender money?
16. Where is paper currency printed ?
17. What are gold certificates ? Silver certificates ?

18. How much gold does the Treasury keep in reserve and for what purpose ?

19. What are Federal reserve notes? How many may be issued ? How may the Reserve Board prevent the issuance of too many How are these notes secured ?

20. If you have mutilated paper money that can be recognized, how would you exchange it for good money?

21. In 1900 the United States adopted the gold standard. What is meant by the gold standard ?

22. How do you explain the recent changes in prices?

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QUESTIONS FOR DiscuSSION

1. During the past twenty years the average annual production of gold has been three times that of the previous twenty years, and there is now twice as much pure gold in the world as there was twenty years ago. Explain what effect this has had on prices of commodities.

2. If a man is saving money during a period when prices are rising, should he buy a farm which will yield him 6 per cent net interest upon the amount invested, or should he lend it on a good security at 6 per cent?

3. Buying stocks is buying shares in actual property. Buying bonds is lending money. Which would you buy when prices are rising?

4. In 1896 President Cleveland received a salary of $50,000. Now President Harding receives a salary of $75,000. Can Harding buy any more commodities with his salary than Cleveland could with his?

5. Previous to 1896, when prices were falling, a very large number of people were without work and marched with Coxey's Army to Washington to petition the government to provide work, but as soon as prices began to rise labor was in great demand. Explain the reason for these conditions.

6. Since 1913 the volume of money in the United States has increased by several billion dollars. What effect would you expect this increase to have upon prices ?

7. Why do banks encourage their depositors to use checks instead of money?

8. If some chemist should discover a cheap means of extracting gold from sea water and, as a result, gold should become extremely cheap, what effect would it have upon the wealth of a person who has all his money in United States notes? In State bonds? In land or houses ?

9. So long as the National government is financially sound why does it not make any material difference whether certain kinds of paper money are or are not legal tender?

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