In lieu of well-founded principles, the practice has developed in this country of making the minimum capitalization permitted depend upon the population of the town in which the bank is located. This seems to be a very crude and indirect method of proportioning capital to the volume of business transacted. The fixing of such a proportion, or of a proportion which no bank should be permitted to exceed, is probably the best method of solving this problem, but it should be done directly and not by the roundabout method which has been mentioned above. A proportion of ten to one between capital and aggregate demand obligations would probably be justified by American experience. The present practice of fixing the surplus fund at twenty per cent of the capital would be justifiable if the capital fund were properly regulated in amount. (_b_) _Inflation and Means of Protecting the Public against It._--The greatest abuse to which the business of commercial banking is subject, and against which the public most needs protection, is inflation. This is a condition difficult to diagnose, and not well understood by the general public and even by bankers. The most easily recognized symptom of its existence is the forced liquidation of credits; that is, forced sales of property in order to meet maturing obligations to banks. When, for example, the people whose notes or bills have been discounted by banks default in large numbers, and the collateral deposited as security has to be sold, or, in the absence of collateral, the courts must order the sale of their property, the presence of inflation may be suspected. The chief cause of inflation is the issue by commercial banks of demand obligations against investment securities. The means of liquidating such securities are the profits of the enterprises in which the investments were made and in the nature of the case several years are required for the accomplishment of this end. Meantime the demand obligations of the banks issued against them in the form of balances on checking accounts or notes must be met and, the funds regularly deposited with them as a result of the operation of such enterprises being inadequate, other means must be found. The only one available is the sacrifice, at forced sales, of the property in which the investment was made or of some other property in the possession of the persons responsible to the bank. The banks usually protect themselves against such forced liquidation by the requirement that the paper they discount shall mature at short intervals, usually not to exceed four to six months, and accept the long-time securities, such as bonds, stocks, and mortgages, only as collateral. By this means they are able to force the liquidation on their customers. Otherwise they would be obliged themselves to endure it, with the result that their capital and surplus funds would be impaired and perhaps exhausted; and, if they should prove inadequate, failure would be inevitable.